ACCUSED ACQUITTED DUE TO DEFENSE OF INSANITY AFTER FAILURE TO FILE ITR BUT CTA HELD CIVILLY LIABLE FOR PHP 8.5 MILLION ASSESSMENT + BIR EXPECTS TAX AMNESTY TO BOOST 2019 COLLECTIONS
Other Relevant Tax Updates:
- COURT OF TAX APPEALS (CTA) DIGESTS
- TAX & BUSINESS-RELATED NEWS [APRIL 11-17]
I. COURT OF TAX APPEALS (CTA) DIGESTS
- Accused Acquitted Due To Defense Of Insanity After Failure To File Income Tax Return (Itr)
- Failure To Prove Prior Year Excess Credits Resulting To Denial Of Tax Refund
- Court Is Not Bound Solely By The Issues Specifically Raised By Parties; Without A Validly-Issued Letter Of Authority (Loa), The Assessment Conducted Is A Void Assessment
- Mere Filing Of False Returns Notwithstanding The Absence Of Intent To Defraud Is Sufficient To Warrant The Application Of 10-Year Prescription Period; Prima Facie Evidence Of False Return Exists When There Is Substantial Underdeclaration In The Amount Exceeding 30% Of What Is Declared
- Sending Of Formal Assessment Notice (Fan) Together With Formal Letter Of Demand (Fld) Is Part Of Taxpayer’s Right To Due Process; Presumptions On Letters Duly Directed & Mailed Are Deemed Received In The Regular Course Of Mail Is A Disputable Presumption; Petition Was Denied For Failure Of Commissioner To Prove That Fan & Fld Were Received By The Taxpayer
- Defense Of Good Faith Used In The Cancellation Of Penalties Due On Documentary Stamp Tax (Dst) Assessment
ACCUSED ACQUITTED DUE TO DEFENSE OF INSANITY AFTER FAILURE TO FILE ITR
Accused Teresa E. Sison is charged for violation of Section 255 of Tax Code of 1997 for non-filing of ITR covering 2009 and 2010. The crime of failure to pay tax under Section 255 is defined by the element of “willfulness” of not paying the tax, which in turn, requires the showing of “knowledge” and “voluntariness”. In the course of appreciation of evidences presented, the Court noted the fact that in 2009 typhoon Pepeng caused destruction and devastation of the accused business. Following the incident, the accused became mentally ill and she failed to file her ITR. The crux of the issue boils down as to whether the accused’s mental illness constitutes diminished willpower so as to exonerate her liability. For the defense of insanity to prosper, two (2) elements must concur: (1) that defendant’s insanity constitutes a complete deprivation of intelligence, reason, or discernment; and (2) that such insanity existed at the time of, or immediately preceding, the commission of the crime. A scrutiny of the evidence presented by the accused sufficiently established that she was completely bereft of reason or discernment and freedom of will when she neglected to file her ITR. The strength in the defense’s proof is shown by the testimony of Dr. Wilson S. Tibayan, a license physician, that accused was admitted to the hospital for her mental illness as well as his diagnosis and recommendation as to her mental condition, having schizophrenia. Thus, based on the evidences, the Court ruled the mental condition of the accused constituted absolute deprivation of reason, intelligence, and discernment. Thus, the willfulness as required by the law is lacking in this case. The accused is ACQUITTED for failure of the prosecution to prove her guilt beyond reasonable doubt. However, she was made liable to unpaid tax of Php 8,477,240.90 plus the accrued delinquency interest and penalties. [PEOPLE OF THE PHILIPPINES VS. TERESA SISON, CTA CRIMINAL CASE NOS. O-627 & O-628, APRIL 03, 2019]
[FAILURE TO PROVE PRIOR YEAR EXCESS CREDITS RESULTING TO DENIAL OF TAX REFUND]
Petitioner Aecom Philippines Inc. filed a Petition for Review seeking refund of its alleged excess and unutilized Creditable Withholding Tax (CWT). One of the requisites for refund is proof that income payment has been declared as part of the gross income and the fact of withholding is established by a copy of the withholding tax statement showing the amount paid and the amount of tax withheld therefrom. An independent CPA (ICPA) ascertained that the income payments from the CWT/BIR Form 2307 are properly supported with official receipts and are traceable to each corresponding project contract. In the appreciation of ICPA Report, the Court attempted to trace each CWT to the alleged recording in the Petitioner’s books. However, scanned copies of supporting ledgers were not provided. Likewise, there are also no means for the Court to verify whether the total income recorded per Petitioner’s books tallies with that reflected in the Income Tax Return. Since tax refunds are in the nature of tax exemptions, the same must be construed stictissimi juris against the taxpayer and in favor of the taxing authority. Hence, Petitioner failed to prove that the taxes withheld were included in the return. Consequently, the Petitioner failed to prove that it had prior year’s excess credits and therefore there are no excess tax credits which may be the subject of a claim for refund. The Petition for Review was DENIED. [AECOM PHILIPPINES, INC. VS COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9239, APRIL 2, 2019]
[COURT IS NOT BOUND SOLELY BY THE ISSUES SPECIFICALLY RAISED BY PARTIES] [WITHOUT A VALIDLY-ISSUED LOA, THE ASSESSMENT CONDUCTED IS A VOID ASSESSMENT]
Petitioner Linde Philippines, Inc. filed a Petition for Review seeking the cancellation of the assessment issued by the Respondent Commissioner of Internal Revenue substantially centered on final withholding tax and final withholding VAT on income payments made to its Australian and Singaporean counterpart. The Petitioner invoked the tax treaty provisions of Australia and Singapore as justifications for the application of lower preferential tax rate. However, the Court questioned the authority of the Revenue Officers to conduct the audit or investigation even though it was not raised as an issue by the parties. The record shows that the officers who conducted the audit and recommended for the issuance of assessment notice were not named in the LOA issued. For not having the authority to conduct audit of Petitioner through a valid LOA, the resulting assessment is considered void. Consequently, the Petition for Review is GRANTED. [LINDE PHILIPPINES, INC. VS COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8783, MARCH 28, 2019]
[MERE FILING OF FALSE RETURNS NOTWITHSTANDING THE ABSENCE OF INTENT TO DEFRAUD IS SUFFICIENT TO WARRANT THE APPLICATION OF 10-YEAR PRESCRIPTION PERIOD] [PRIMA FACIE EVIDENCE OF FALSE RETURN EXISTS WHEN THERE IS SUBSTANTIAL UNDERDECLARATION IN THE AMOUNT EXCEEDING 30% OF WHAT IS DECLARED]
Both the Commissioner of Internal Revenue (CIR) and Ithiel Corporation (Ithiel) filed before the Court En Banc their separate Petitions for Review seeking the reversal of the earlier decision of the Court 2nd Division partially cancelling the VAT assessment and retaining the Expanded Withholding Tax assessment applying the 10-year prescription period on ground of filing of false and fraudulent returns. Ithiel states that if the CIR is true on its claim that false and fraudulent return exist and there is a valid reason to apply the extraordinary prescriptive period, the CIR should have adequately informed Ithiel of such fact at the earliest possible opportunity, and for having failed to do so, Ithiel insist that the assessment is void for lack of due process. On the other hand, the CIR maintains that all tax assessment must have been subjected to 10-year prescriptive period due to substantial underdeclaration of the amount declared in the return. In ruling, the Court held that internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, or where the return is filed beyond the period, from the day the return was actually filed. The exception to this rule is when the taxpayer files false or fraudulent returns with intent to evade tax or when the taxpayer fails to file returns, in which the 10-year prescriptive period shall apply from the discovery of the falsity, fraud or omission. Citing the Supreme Court case in Asalus, the Court ruled that if the taxpayer has substantially underdeclared its sale, receipt or income in the amount exceeding the 30% of what is declared in the returns there is a presumption that it has filed a false return. As such, the CIR need not immediately present evidence to support the falsity of the returns, unless the taxpayer fails to overcome the presumption against it. Both Petitions for Review are DENIED and the earlier decision and resolution are AFFIRMED WITH MODIFICATIONS on the computation of deficiency interest and delinquent interest in line with the effectivity of TRAIN Law. [ITHIEL CORPORATION VS. COMMISSIONER OF INTERNAL OF REVENUE, CTA EN BANC CASE NO. 1672, COMMISSIONER OF INTERNAL REVENUE VS. ITHIEL CORPORATION, CTA EN BANC CASE NO. 1675, MARCH 13, 2019]
[SENDING OF FAN TOGETHER WITH FLD IS PART OF TAXPAYER’S RIGHT TO DUE PROCESS] [PRESUMPTIONS ON LETTERS DULY DIRECTED & MAILED ARE DEEMED RECEIVED IN THE REGULAR COURSE OF MAIL IS A DISPUTABLE PRESUMPTION] [PETITION WAS DENIED FOR FAILURE OF COMMISSIONER TO PROVE THAT FAN & FLD WERE RECEIVED BY THE TAXPAYER]
Petitioner Commissioner of Internal Revenue filed a Petition for Review seeking the reversal of the earlier decision cancelling the assessment issued against the Respondent Arturo E. Villanueva. Several issues were raised but the main issue is centered on whether the assessment notices were received by the Respondent. In the resolution, the Court laid down the due process requirement in the issuance of tax assessment which clearly requires the sending of FLD and FAN by the Petitioner and receipt thereof by the taxpayer as part of due process. After careful scrutiny of records, the Court finds that there was no valid service of the FLD to the Respondent. In defense, the Petitioner presented the Registry Receipt Card which presupposes that the notices were properly mailed. Rule 131 of the Rules of the Court provides that a letter duly directed and mailed is deemed received in the regular course of mail. However, facts to prove this presumption are (1) the letter was properly addressed with postage prepaid, and (2) that it was mailed. Nevertheless, it can be said that the Petitioner established the presumption that the letter was received; however the same is considered a disputable presumption. In several issuances of the Supreme Court, it held that direct denial of receipt of mail shifts the burden to other party favored by the presumption. Considering that the Petitioner failed to discharge the burden of proof that the FLD was actually received by the Respondent or his duly authorized agent, such is deemed not to have been issued by the Petitioner. Therefore, subject assessment is not yet final and executory. Furthermore, since no substantial under declaration and/or fraud was determined, the 3-year prescriptive period shall apply resulting to set-in of prescription. Consequently, the Petition for Review is DENIED. [COMMISSIONER OF INTERNAL REVENUE VS. ARTURO E. VILLANUEVA, CTA EN BANC CASE NO. 1171, MARCH 13, 2019]
[DEFENSE OF GOOD FAITH USED IN THE CANCELLATION OF PENALTIES DUE ON DST ASSESSMENT]
Petitioner Commissioner of Internal Revenue seeks to reverse and set aside the earlier decision and resolution of the Court in Division cancelling the interest and penalties on Documentary Stamp Tax (DST) assessment against the Respondent Trustmark Holdings Corporation, covering taxable year 2009. The Petitioner pointed out that the imposition of surcharge and interest was due to Respondent’s failure to file and pay the correct tax due on time. Likewise, such kind of imposition is not penal but compensatory in nature meant to discourage delay in the payment of taxes due the government. However, the Petitioner countered their good faith and honest belief that intercompany advances covered by board resolution, inter-office memo, instructional letter and/or cash and journal vouchers or similar documents during before the Filinvest Case were not subject to DST, resulting to non-payment In the resolution, the Court ruled that the Respondent clearly established its reliance in good faith citing the conflicting rulings issued by the Petitioner. The Court also noted that the Petitioner acted beyond the scope of his authority when he issued the subject assessment including taxable years 2000, 2006, 2007 and 2008 which are already beyond the scope of tax examination. Relying on the Respondent’s good faith, the Court resolved to CANCEL surcharges, interests, and penalty. [COMMISSIONER OF INTERNAL REVENUE VS. TRUSTMARK HOLDINGS CORPORATION, CTA EN BANC CASE NO. 1697, JANUARY 31, 2019]
If you wish to get a copy of complete text of CTA cases, please e-mail us at firstname.lastname@example.org.
II. TAX & BUSINESS-RELATED NEWS [APRIL 11-17]
- More taxpayers filing ITRs electronically – BIR
- SEC unveils sustainability reporting guidelines
- Income tax take to boost BIR revenues
- Interest rate rule schedule extended
- Banks must have roll-back program for upgrade glitches
- Remittances grow 3% to $4.78 B in 2 months
- PEZA pushes integrated ecozone concept
- BIR expects tax amnesty to boost 2019 collections
- SEC issuing guidelines on revival of companies
- Empire East and PAG-IBIG offer more affordable payment term to homebuyers
- Expanded maternity benefits have no impact on women employability
More taxpayers filing ITRs electronically – BIR [Manila Times, April 16, 2019]
More taxpayers have switched filing their income tax returns (ITRs) by electronic means, a senior Bureau of Internal Revenue (BIR) official said as the agency marked the annual April 15 deadline.
SEC unveils sustainability reporting guidelines [Manila Times, April 16, 2019]
The Securities and Exchange Commission (SEC) recently launched the Sustainability Reporting Guidelines for Publicly Listed Companies (PLCs) as part of initiatives to encourage improved business practices.
Income tax take to boost BIR revenues [Manila Times, April 15, 2019]
Income taxes due today are expected to provide a significant boost to the Bureau of Internal Revenue’s haul for the month, a senior official said.
Interest rate rule schedule extended [Manila Times, April 15, 2019]
Big banks have been given more time to comply with enhanced reporting of interest rates on loans and deposits to the central bank.
Banks must have roll-back program for upgrade glitches [Philippine Star, April 15, 2019]
The Bangko Sentral ng Pilipinas (BSP) has directed banks undertaking major system enhancements and upgrades to formulate and implement sound and effective change management processes to prevent disruption.
Remittances grow 3% to $4.78 B in 2 months [Manila Bulletin, April 15, 2019]
Cash remittances sent by overseas Filipinos amounted to $4.78 billion in the first two months of 2019, up by three percent year-on-year, the Bangko Sentral ng Pilipinas (BSP) said.
PEZA pushes integrated ecozone concept [Manila Bulletin, April 15, 2019]
The Philippine Economic Zone Authority (PEZA) is now requiring all economic zone developers to adopt an integrated development where economic zones must have designated areas not just for factories or production areas but also commercial and residential areas as the agency explores new frontiers in ecozone development.
BIR expects tax amnesty to boost 2019 collections [Philippine Daily Inquirer, April 15, 2019]
The upcoming amnesty programs on delinquencies and estate taxes will help the Bureau of Internal Revenue (BIR) achieve its reduced collection target of P2.27 trillion for 2019, Internal Revenue Commissioner Caesar R. Dulay said Monday.
SEC issuing guidelines on revival of companies [Manila Bulletin, April 13, 2019]
The Securities and Exchange Commission (SEC) is issuing guidelines on the revival of corporations whose terms have expired prior to the enactment of Republic Act No. 11232, or the Revised Corporation Code of the Philippines.
Empire East and PAG-IBIG offer more affordable payment term to homebuyers [Philippine Daily Inquirer, April 12, 2019]
Real estate developer Empire East and development fund company PAG-IBIG undergoes a ceremonial contract signing on April 8, 2019 at the Uptown Mall, Taguig City to officially celebrate a more feasible monthly payment option for aspiring homeowners.
Expanded maternity benefits have no impact on women employability [Manila Bulletin, April 12, 2019]
Although the new provisions of the expanded maternity benefits are expected to impact hiring preferences, majority of employers said the new law and its provisions will not affect their decisions in hiring women, according to a survey conducted by the Employers Confederation of the Philippines (ECOP).