Weekly Tax Updates[September 3-7]

MOST RECENT UPDATE ON TRABAHO BILL: A SUBSTITUTE BILL ON TRAIN 2

Dear Clients & Friends,

We are sending the following relevant tax updates for this week, for your reference and information:

BIR MEDIA RELEASE ON PUBLICATION OF TOP WITHHOLDING AGENTS

The BIR has already published last October 8 the list of Top Withholding Agents (TWAs) pursuant to
Revenue Memorandum Order (RMO) No. 26-2018 which prescribes the guidelines in monitoring,
identification, inclusion, and deletion of TWAs pursuant to the pertinent provisions of Revenue
Regulations (RR) No. 11-2018. With the issuance of RR No. 11-2018 amending RR Nos. 2-1998, 17-
2003, and 6-2009, taxpayers mandated to withhold Expanded Withholding Tax (EWT) from their
income payments to regular suppliers at 1% on goods and 2% on services are now identified as
TWAs. Consequently, there is a need to update and revise the list of TWAs mandated by these recent
regulations.

Under RR 11-18, TWAs shall now include the following:

Existing top taxpayers who or that were classified and duly notified by the BIR Commissioner as any of the following, unless previously declassified or terminated business operations:

• A Large Taxpayer (LT) under RR No. 1-98, as amended;
• Top 20,000 Private Corporations under RR No. 6-2009; or iii. Top 5,000 Individual Taxpayers under RR No. 6-2009; and
• Top 5,000 Individual Taxpayers under RR No. 6-2009; and

Taxpayers newly identified and included as Medium Taxpayers, and those under the Taxpayer
Account Management Program (TAMP).

Revenue Regulations (RR) No. 18-2018 which further relaxes the rules and guidelines on issuance of
tax clearance for government bidding

RR No. 20-2018 or the Implementing Rules & Regulations on Excise Tax on Sweetened Beverage

BIR RELAXES THE RULES & GUIDELINES ON ISSUANCE OF TAX CLEARANCE FOR GOVERNMENT
BIDDING

RMO No. 26-2018 clarifies that existing LT, Top 20,000 Private Corporations, and Top 5,000 Individual
Taxpayers, although already withholding the required 1% on purchase of goods and 2% on purchase
of services, shall still be included in the initial publication of TWAs, in addition to the taxpayers
identified as Medium Taxpayers and those under TAMP, if they are not yet previously classified as
either Top 20,000 Private Corporations or Top 5,000 Individual Taxpayers.

For the request of complete list of TWAs, please e-mail us.

COURT OF TAX APPEALS (CTA) DIGESTS

• Memorandum of Assignment without new Letter of Authority results to a void assessment
• Execution of five (5) defective waivers resulted to prescription of the right of the BIR to assess and
  collect
• Shares of stock distributed as property dividend not subject to donor’s tax for failure to establish
  inadequacy of consideration
• Issuance of Formal Assessment Notice (FAN) before the expiration of 15-day period to protest
  Preliminary Assessment Notice (PAN) is a violation of taxpayer’s right to due process
• Ignorance of the law excuses no one even if the taxpayer is a high school graduate; service of BIR
  assessments notices to registered business address of taxpayer sufficient even if not actually or
  constructively received by the taxpayer
• Direct denial of taxpayer on receipt of assessment shifts the burden to BIR to prove receipt
• Lack of valid verification and certificate of non-forum shopping invalidates Petition
• Chief of the Collection Division authorized to sign Final Decision on Disputed Assessment (FDDA)

MEMORANDUM OF ASSIGNMENT WITHOUT NEW LOA RESULTS TO A VOID ASSESSMENT

The Petitioner Trinity Franchising & Management Corporation filed a Petition for Review seeking the
cancellation of the assessment issued by the Respondent Commissioner of Internal Revenue. The
main issue raised is whether the right of the Respondent has already prescribed. However, in the
course of the trial, it was noted that the person conducting the tax audit is not clothed with any
authority since only a Memorandum of Assignment was issued. Accordingly, the assessment is
intrinsically void due to absence of authority on part of the examiner to conduct examination of
petitioner’s records. Parenthetically, RMO No. 43-90 provides that any reassignment or transfer of
cases to another RO shall require the issuance of a new LOA. The Court added that the CTA is not
bound by issues specifically raised by the parties but may also rule upon related issued necessary to
achieve an orderly disposition of the case. The Petition for Review is GRANTED and accordingly the
FDDA is CANCELLED and SET-ASIDE. [TRINITY FRANCHISING & MANAGEMENT CORPORATION VS.
THE COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9190, OCTOBER 02, 2018]

EXECUTION OF 5 DEFECTIVE WAIVERS RESULTED TO PRESCRIPTION OF THE RIGHT OF THE BIR TO
ASSESS & COLLECT

The Petitioner Ayala Land International Sales, Inc. filed a Petition for Review seeking the cancellation
of the assessment issued by the Respondent Commissioner of Internal Revenue citing prescription as
a ground. However, the Respondent argued that right to assess and collect has not yet prescribed
since the Petitioner executed Waivers of Statute of Limitation. In ruling, the Court cited the requisites for a waiver to be valid. To be binding, waivers must (1) indicate the expiry date of period agreed upon; (2) signed by taxpayer of duly authorized agent; (3) notarized; (4) accepted or signed by the BIR; (5) indicate date of execution and acceptance by both parties; and (6) it must be executed in three copies, original copy to be attached in the tax docket and the remaining copies are for the taxpayer and BIR. Accordingly, the foregoing shall be strictly followed; otherwise, prescription of the right to assess and collect shall be administratively dealt with. Applying the foregoing, the Court finds the first waiver void as it was not notarized as expressly required by law. Since the first waiver is void, it did not extend the period to assess and collect tax resulting to the CANCELLATION of the assessment. [AYALA LAND INTERNATIONAL SALES, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO 9262, SEPTEMBER 28, 2018]

SHARES OF STOCK DISTRIBUTED AS PROPERTY DIVIDEND NOT SUBJECT TO DONOR’S TAX FOR
FAILURE TO ESTABLISH INADEQUACY OF CONSIDERATION

The Petitioner Trans-Asia Oil & Energy Development Corporation filed a Petition for Review seeking
the cancellation of the donor’s tax assessment issued by the Respondent Commissioner of Internal
Revenue arising from the distribution of property dividends to its stockholders in the form of common shares. The Respondent premised the assessment on the findings that the declaration and distribution is tantamount to disposal of shares of stocks not traded through local stock exchange and therefore considered under the definition of “other disposition” of shares of stock held as capital assets in accordance with Revenue Regulations No. 6-2008 and 6-2013. Consequently, the Petitioner purportedly became an intentional donor when it distributed shares of stocks as property dividend at a declared value which is lower than that of the fair market value. On the other hand, the Petitioner countered that it received no consideration or payment for the dividend distribution and the said transaction is a mere distribution of income to its shareholders. In ruling, the Court ruled that the Respondent failed to establish the fact of ‘inadequacy of consideration’ which may warrant the imposition of donor’s tax. Consequently, the Petition for Review is GRANTED resulting to the CANCELLATION of donor’s tax assessment. [TRANS-ASIA OIL & ENERGY DEVELOPMENT CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9078, SEPTEMBER 28, 2018]2018]

ISSUANCE OF FAN BEFORE THE EXPIRATION OF 15-DAY PERIOD TO PROTEST PAN IS A VIOLATION
OF TAXPAYER’S RIGHT TO DUE PROCESS

The Petitioner Max’s Sta. Mesa Inc. filed a Petition for Review seeking for the cancellation of the
assessment issued by the Respondent Commissioner of Internal Revenue. On the issue of finality of
the assessment, the Respondent argued that the assessment was rendered final due to the Petitioner’s failure to submit supporting documents for its protest on Formal Assessment Notice (FAN) within 60 days. However, the Court rejected the argument since the Petitioner has timely filed its protest. Accordingly, in the absence of additional supporting documents, the protest is deemed as a request for reconsideration rather than reinvestigation. On the issue of service of FAN, the Petitioner questioned the validity of the assessment on the basis that the FAN was received prior to the lapse of the 15-day period to respond to the Preliminary Assessment Notice (PAN). Based on the review of chronology of events, the Petitioner has until January 21, 2013 to reply to PAN. It was verified that the Petitioner filed its protest to the PAN on January 21, 2013. However, on the same day, even prior to the expiration of the 15-day period within which it could contest the PAN, Petitioner was served a post-dated FAN. It can be inferred that the Respondent did not consider the points and arguments raised in the protest prior to issuing of FAN. Hence, the Court ruled that noncompliance with statutory and procedural due process renders the FAN as null and void even if the taxpayer protested the FAN. Having violated the Petitioner’s right to due process, the Court GRANTED the Petition for Review. Consequently, the assessment is CANCELLED. [MAX’S STA. MESA, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8786, SEPTEMBER 28, 2018]

IGNORANCE OF THE LAW EXCUSES NO ONE EVEN IF THE TAXPAYER IS A HIGH SCHOOL GRADUATE;
SERVICE OF BIR ASSESSMENT NOTICES TO REGISTERED BUSINESS ADDRESS OF TAXPAYER
SUFFICIENT EVEN IF NOT ACTUALLY OR CONSTRUCTIVELY RECEIVED BY THE TAXPAYER

The Accused Benedicto P. Caguimbal was charged with the criminal case of tax evasion under Section
255 of the Tax Code of 1997, as amended for failure to pay his income tax and VAT. In the course of
trial, it was noted that the accused is a high school graduate. He is a sole proprietor and is engaged in
the business that contracts electrical works. He admitted that he earned income from his business
without declaring his earnings and paying the taxes thereon. He represented that he has registered
business address at 2240-B Severino Reyes Street, Sta. Cruz, Manila, in which he represented that he
only stayed there once for he rendered services to different places where he gets contracts.
Accordingly, he never received any assessment notices from the BIR. In ruling, the Court ruled that
even though the accused’s highest educational attainment is high school and without the knowledge
of the nitty-gritty aspects of the business and government compliance does not excuse him from
compliance therewith. Consequently, the Court found the Accused GUILTY BEYOND REASONABLE
DOUBT for violating Section 255 of the Tax Code of 1997, as amended, and is ordered to pay the
assessment inclusive of 50% surcharge and interest. [PEOPLE OF THE PHILIPPINES VS. BENEDICTO P.
CAGUIMBAL, CTA CRIMINAL CASE NOs. O-546 & O-547, SEPTEMBER 26, 2018]

IGNORANCE OF THE LAW EXCUSES NO ONE EVEN IF THE TAXPAYER IS A HIGH SCHOOL GRADUATE;
SERVICE OF BIR ASSESSMENT NOTICES TO REGISTERED BUSINESS ADDRESS OF TAXPAYER
SUFFICIENT EVEN IF NOT ACTUALLY OR CONSTRUCTIVELY RECEIVED BY THE TAXPAYER

The Accused Corazon C. Gernale was charged in her capacity as Treasurer and responsible officer of
Gernale Contractor Electric Corporation (GECC) for ignoring to pay the alleged deficiency tax
assessments way back 2003. The Prosecution argued that the Accused has knowledge of her tax liability as evidenced by the fact that she tried to avail the Tax Amnesty Program and intended to
evade such payment. However, the Accused argued that the BIR notices were not properly served to
the registered business address of the company. Likewise, she argued that she acted in good faith as
she has no knowledge of the nitty-gritty aspects of GECC’s financial matter in which she admitted to
be negligent of her duty without the intent to evade the tax. In the course of the trial, the prosecution presented its witnesses testifying that notices have been served and received by the Accused. Likewise, they testified that the address indicated in the notices is the home address of the Accused rather than the registered business address of GECC. In the resolution, the Court cited the Supreme Court case of Barcelon Roxas Securities, Inc. v. Commissioner of Internal Revenue in which the Court ruled that if the taxpayer denies ever having received an assessment from the BIR, the onus probandi is shifted to the BIR to prove by contrary evidence that the Accused received the notice. From the totality of the evidence presented, the Court rendered that the prosecution failed to satisfactorily prove that GECC or any of its authorized representatives actually received the assessment notice which leads to the conclusion that no assessment was validly issued. As to the criminal liability, the prosecution failed to establish the guilt beyond reasonable doubt resulting to the Accused ACQUITTAL. Likewise, it failed to prove that there is any tax due from Accused. [PEOPLE OF THE PHILIPPINES VS. CORAZON C. GERNALE, CTA CRIMINAL CASE NOS. O-336, SEPTEMBER 26, 2018]

LACK OF VALID VERIFICATION & CERTIFICATION OF NON-FORUM SHOPPING INVALIDATES
PETITION

The Petitioner Commissioner of Internal Revenue filed a Petition for Review seeking the reversal of
the earlier decision of the CTA 1st Division cancelling the assessment against the Respondent
Macario Lim Gaw, Jr. In the course of the trial, it revealed that the Verification and Certification of
Non-Forum Shopping attached to the Petition pertains to another case and not the instant case. Rule
43, Sections 5 and 6 of the Rules of Court requires the filing of a verified Petition for Review, which
should contain a Sworn Certification Against Forum Shopping. The Petitioner failed to comply with
the mandatory requirements in filing an appeal when he attached to the Petition a Verification and
Certification of Non-Forum Shopping referencing a different case. The present case is docketed as
CTA EB No. 1601 and entitled “Commissioner of Internal Revenue vs. Macario Lim Gaw, Jr.” The
Verification and Certification of Non-Forum Shopping attached to the Petition refers to an entirely
different case docketed as CTA EB No. 1572 (Case No. 8604) and entitled “Commissioner of Internal
Revenue vs. G&W Architects, Engineers, and Project Consultants.” The signatory thereof, Jesus Clint
O. Aranas, Deputy Commissioner of the Legal Group of the BIR, was attesting to facts relevant to CTA
EB No. 1572 and not the present Petition under consideration, CTA EB No. 1601. Accordingly, it is as
if no Verification and Certification Against Forum Shopping accompanied the Petition. While the
requirement regarding verification of a pleading is merely formal and not jurisdictional in nature; the
lack of Certification Against Forum Shopping is generally not curable by the submission thereof after
the filing of the Petition and shall be sufficient ground for the dismissal thereof. The Petition for
Review is DISMISSED for lack of jurisdiction. [COMMISSIONER OF INTERNAL REVENUE VS. MACARIO
LIM GAW, JR. CTA EN BANC CASE NO. 1601, SEPTEMBER 20, 2018]

CHIEF OF THE COLLECTION DIVISION AUTHORIZED TO SIGN FDDA

The Petitioner Commissioner of Internal Revenue (CIR) filed a Petition for Review seeking the
reversal of the earlier decision of the CTA 3rd Division cancelling the assessment against the
Respondent Bloat & Ogle, Inc. Several issues were raised such as the timeliness of filing of the
Petition by the Respondent, the subject matter being appealed to the CTA is the validity of the Final
Decision on Disputed Assessment (FDDA) given the allegations of non-receipt of the assessment
notice, and the authority of the Chief of the Collection Division to sign FDDA as a collateral issue. In
the course of the trial, it found out that the Respondent timely filed its protest. Likewise, the
undated PAN was still addressed to Respondent’s old registered address, thus unreceived. Having
established that Respondent never received the PAN, the events that came thereafter became irrelevant such as the issuance of the FAN, the filing of the protest, the submission of supporting documents and the issuance of the FDDA. As regards the authority of the Chief of the Collection Division to sign the FDDA, the Court laid down that the 1997 Tax Code authorizes the CIR to delegate the powers vested in him to subordinate officials with rank equivalent to a Division Chief or higher. The Petition for Review was DENIED. [COMMISSIONER OF INTERNAL REVENUE VS. BLOAT & OGLE, INC., CTA EB NO. 1578, SEPTEMBER 18, 2018]

If you wish to get the complete text of the above digests, please e-mail us.

TAX NEWS

• BIR vows to continue hunting business taxpayers who declared profits but did not remit any tax
• BIR loses P7 billion tax evasion case
• Tax relief on property taxes in Batangas OK’d
• Sen. Villanueva asks delay of TRABAHO bill pending review on employment effects
• TRABAHO Bill threatens over 700,000 ecozone workers
• Books stay tax-free, says DOF
• Senators nix publication, book taxes in TRAIN 2
• BIR burns untaxed cigarettes
• Sotto to remove taxes on books, other publications
• Petron gets tax perks for P80-B new plant
• RE, factory projects deferred due to TRABAHO Bill

Thanks and best regards.

WILLIE B. SANTIAGO
Lawyer and Certified Public Accountant
Tax & Corporate Services Division