WEEKLY TAX UPDATES [SEPTEMBER 18-22]

COURT OF TAX APPEALS (CTA) CASE DIGESTS FOR THIS WEEK 

 

A CTA DECISION ON TAXABILITY OF EARNINGS DERIVED PURSUANT TO OFFSHORE SERVICE CONTRACTS

NES Global Talent Limited filed a Petition for Review seeking for Final Withholding Tax (FWT) refund amounting to Php 14,608,018.37 erroneously paid on the compensation of its employed foreign and Filipino nationals deployed to its local and offshore contracts. Petitioner is the Philippine Branch of NES Global Pte. Limited, a Singapore-based company, engaged in providing consulting services in the oil and gas industry. The Petitioner entered into two contracts: one with Inpex Australia to provide personnel’s for the construction and assembly of oil rigs; and another with Flour Daniel Inc. Philippines to provide special staff support solutions for its offshore high level key positions. In relation thereto, Petitioner employed Foreign and Filipino nationals to perform the said contractual obligations. Consequently, the Petitioner paid 15% FWT on the compensation of these employees; in addition, it also subjected the same compensation to Withholding Tax on Compensation (WTC) on the basis that it is given to its employees. Having settled the issue on prescription, the Court resolved that the contracts entered into are in the nature of a Contract Service whereby the foreign and Filipino nationals have agreed to work exclusively for the Petitioner and be assigned to the Philippines for Inpex and Flour Daniel projects. Likewise, the Court resolved that neither Inpex nor Flour Daniel qualifies as foreign- service contractors engaged in petroleum operations in the Philippines as defined under the law and existing rules and regulations. Consequently, Petitioner does not qualify as foreign petroleum service contractor, hence, not qualified for 15% preferential rate instead to 5%-32% WTC. Petition for Review was PARTIALLY GRANTED and the Respondent BIR is ORDERED TO REFUND the amount representing Petitioner’s erroneously paid FWT.  [NES GLOBAL TALENT LIMITED VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9065, SEPTEMBER 6, 2017]

A PETITION FOR REVIEW ON THE DENIAL OF ABATEMENT OF SURCHARGE FOR ONE-DAY LATE FILING OF TAX RETURN

Petitioner Qatar Airways Company with Limited Liability seeks to reverse and set aside the earlier decision of the Court in Division denying its Petition for Review holding it liable to BIR’s imposition of surcharge amounting to Php 7,385,209.00 for one-day late filing of return. Petitioner argued that the imposition of the surcharge is unjust and excessive as it had no intention to evade the filing and payment of its Quarterly Income Tax. Accordingly, the delay was unintentional and was due to difficulty encountered in interpreting the correct Gross Philippine Billings computation for income tax purposes under Revenue Regulations (RR) No. 11-2011. The confusion caused by the newly issued regulation and the faulty internet connection were circumstances beyond its control that contributed to the delay for which it should not be unjustly and excessively penalized. However, Respondent BIR’s evaluation of the request for abatement of surcharge pursuant to Section 2.6.1 of RR No. 13-2001 revealed that the taxpayer’s failure to file the return due to faulty internet connection does not fall under the meritorious circumstances wherein one day late filing may be used as a ground for abatement of penalties. Moreover, there was no advice on eFPS unavailability due to technical problems on November 29, 2011. As such, the reason provided by the Petitioner for one day late filing is not acceptable given the circumstances. WHEREFORE, the Petition for Review was DENIED, for lack of merit. [QATAR AIRWAYS COMPANY WITH LIMITED LIABILITY VS. COMMISSIONER OF INTERNAL REVENUE, CTA EB NO. 1468, SEPTEMBER 5, 2017]

 

A CTA DECISION ON THE DENIAL OF BOTH THE PETITIONS FILED BEAUTY GURU & BIR ON THE CONVICTION FOR CRIMINAL CASE FOR NON-FILING OF TAX RETURN

Commissioner of Internal Revenue (CIR), representing the People of the Philippines, and Respondent-Accused Joel C. Mendez, both filed a Petition for Review seeking reversal and reconsideration of the earlier decision of the Court in Division. The CIR seeks the reconsideration and setting aside of the February 10, 2016 and September 23, 2016 Decisions. On the other hand, Respondent-Accused seeks the reversal and the setting aside of said Decision and Resolution, and the issuance of a new one acquitting him of the offense charged for violation of Section 255 of the Tax Code. As discussed in the assailed decision, Respondent-Accused was charged for failure to file his Income Tax Return (ITR) for taxable year 2001, notwithstanding the following attendant circumstances:  accused is practicing his profession as a doctor and rendering medical services under the name and style of "Weigh Less Center/Mendez Medical Group” as early as 1996; accused even placed several advertisements of his businesses in the newspaper during the taxable year 2001; evidence presented that there was no indication that the said businesses were closed to prove non-operation and no record of such filing was found under the BIR Integrated Tax System; accused is a Medical Doctor by profession, hence, it is undeniable that he is highly literate and he must be fully aware that he has the obligation to pay his corresponding tax obligation and presumed cognizant of such obligation. Accused alleged that the computation or schedule by the BIR had no signature of the CIR, hence, such document is not valid evidence, competent and sufficient enough to be included the final judgment of the instant case as provided under Section 205 of the NIRC. Further, he argued that that the Court in Division had no jurisdiction to hear the case as there was no assessment issued by the BIR against him considering that said assessment is now mandatory under the expanded jurisdiction of the CTA. BIR, on the other hand, argued that it is well-settled by jurisprudence that the filing of the case under Section 255 of the Tax Code does not require an assessment considering that the case filed against the Respondent was for a criminal offense. WHEREFORE, premises considered, both Petitions for Review are hereby DENIED for lack of merit. [PEOPLE OF THE PHILIPPINES VS. JOEL C. MENDEZ, CTA EB CRIMINAL CASE NO. 038 & NO. 039, SEPTEMBER 8, 2017]

 

BIR ISSUANCE

 

Revenue Memorandum Order (RMO) No. 20-2017 dated August 11, 2017 [with released date on September 14, 2017] amends the criteria and procedures for attrition of BIR employees under Republic Act No. 9335 or the “Attrition Act of 2005” specifically on the considerations of other relevant factors and Key Performance Indicators in the evaluation of performance of BIR employees whose collection falls short of the target. The “Attrition Act of 2005” and implementing rules and regulations mandate the setting of criteria and procedures for the removal of BIR employees whose revenue collections falls short of the target by at least 7.5%.