OECD EXPECTS PH ECONOMY TO GROW JUST 5.9% THIS YEAR + ARTA FLAGS LGUS CORRUPTION-PRONE TAX ASSESSMENT + BIR WORKS WITH RUSSIAN COUNTERPART ON TAX ADMIN
Other Relevant Tax Updates:
- Court of Tax Appeals (CTA) Cases Digest
- Tax and Business-Related News [February 2-9]
I. CTA CASES DIGEST
- Court cannot grant a relief not prayed in the pleadingsor in excess of what is being sought by a party to a case
- In case basic tax exceeds PhP 1.0 Million, application for compromise settlementmust approved by National Evaluation Board (NEB); assessments issued in violation of due process rights of taxpayer are null and void; taxpayer has 15 days to reply before issuance of Formal Letter Of Demand/Formal Assessment Notice (FLD/FAN)
- Capital Gains Tax (CGT) paid for a particular sale of shares of stockis akin to the quarterly payments of corporate income tax and withholding tax
- There must be proof that corporation is being used as a cloak or cover for fraud or illegality, or to work injustice to justify piercing the veil of corporate fiction
- Fan is rendered void, as consequence of violation of taxpayer’s right to administrative due process for failure to consider explanations embodied in its reply to Preliminary Assessment Notice (PAN); when taxpayer expressed its amenability to the assessment, he is already estopped from questioning its validity
COURT CANNOT GRANT A RELIEF NOT PRAYED IN THE PLEADINGS OR IN EXCESS OF WHAT IS BEING SOUGHT BY A PARTY TO A CASE
Petitioner Ginebra San Miguel, Inc. filed a Motion for Reconsideration on denial of the Court of its claim for refund of erroneously assessed excise taxes on removals of its distilled spirits or finished products. Petitioner maintained that the court-commissioned Independent Certified Public Accountant (“ICPA”) had sufficiently proven the quantity of finished goods that were produced using tax-paid raw materials. It insisted that the use of the “First-In, First-Out” (“FIFO”) method of accounting, which summarizes the proof of liters of alcohol utilized or processed from the 2012 year-end inventory and January 08, 2013 to February 15, 2013 alcohol purchases, readily matched the proof of liters with the corresponding proof of liters of alcohol produced/ transferred for packing. As such, Petitioner asserted that it simply needs to show that the finished goods were “produced exclusively” from ethyl alcohol on which the excise taxes had already been paid and need not anymore show “how many units of raw alcohol is required to produce one unit of finished goods”. The Court agreed with the Petitioner. In ruling, the Court held that “Alcohol Received” plus beginning balances of both raw and alcohol is equal to the “Alcohol Utilized”; thus, when raw alcohol is utilized in production, the corresponding Finished Goods is subsequently segregated in the same volume of proof liters. On the additional assertion in the Petitioner’s prayer that the Court further considers the ICPA’s recommendation to include additional amount in its claim for refund, the Court ruled that it is well-settled that courts cannot grant a relief not prayed for in the pleadings or in excess of what is being sought by a party to a case. Thus, the Petition was PARTIALLY GRANTED. Petitioner is entitled to a refund of its erroneously and excessively paid excise taxes for its finished goods removals from January 1, 2013 to May 31, 2013 that were produced using tax-paid raw materials. [GINEBRA SAN MIGUEL, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NOS. 8953 AND 8954, FEBRUARY 1, 2021]
[IN CASE BASIC TAX EXCEEDS PHP 1M, APPLICATION FOR COMPROMISE SETTLEMENT MUST APPROVED BY NEB] [ASSESSMENTS ISSUED IN VIOLATION OF DUE PROCESS RIGHTS OF TAXPAYER ARE NULL AND VOID] [TAXPAYER HAS 15 DAYS TO REPLY BEFORE ISSUANCE OF FLD/FAN]
Petitioner New Farmers Plaza, Inc. filed a Petition for Review seeking reversal of the Notice of Denial of its Application for Compromise Settlement Based on Doubtful Validity issued by the Respondent Commissioner of Internal Revenue. Petitioner argued that the assessment was not just of doubtful validity, but was in fact void due to issues on validity of LOA, on prescription, and on violation of right to due process. On the other hand, the Respondent countered that compromise settlement is an agreement wherein both parties freely entered into stipulation, thus, unappealable. In ruling, the Court held that there was no indication that the application of the Petitioner for compromise settlement which exceeded Php 1M was approved by NEB, thus, exercise to compromise has not been followed. Consequently, the Notice of Denial is rendered void. Further, assessment is not only of doubtful validity, but void. Perusal of records showed that the tax assessment was issued in violation of the rights of due process of the taxpayer. In the instant case at bar, FLD was already issued by the Respondent even before the lapse of fifteen (15) days from the date of receipt of Preliminary Assessment Notice (PAN) to reply. Thus, failure to observe due process, renders the assessment void, and of no force and effect. The Petition was GRANTED, Notice of Denial was REVERSED, and the assessment was CANCELLED. [NEW FARMERS PLAZA, INC. VS COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9474, JANUARY 27, 2021]
CGT PAID FOR A PARTICULAR SALE OF SHARES OF STOCK IS AKIN TO THE QUARTERLY PAYMENTS OF CORPORATE INCOME TAX AND WITHHOLDING TAX
Petitioner AC Energy, Inc. filed a Petition for Review seeking refund or issuance of Tax Credit Certificate (TCC) representing the alleged erroneously paid CGT. The excess arose from the consolidation of two (2) separate sale of shares of stock during the taxable year wherein one of the said sales resulted in capital gain, and consequently to payment of CGT. On the other hand, the other sale resulted in a capital loss. When the two (2) transactions were consolidated for the annual return, it resulted in an overpayment given that the CGT paid in the first transaction is higher than the CGT due for the whole taxable year. In ruling, the Court cited Section 52(D) of the 1997 Tax Code which provide that there are two (2) dates involved in the filing of CGT Returns relative to the sale or exchange of shares of stock not traded thru a stock exchange, viz.: one for each transaction during the taxable year, within thirty (30) days thereafter; and another, relative to the final consolidation of all such transactions in the same taxable year, before the 15th day of the 4th month following the close thereof. Thus, the CGT paid for a particular transaction is akin to the quarterly payments of corporate income tax and withholding taxes. Given that there is overpayment in the annual consolidated return and since has Petitioner complied with the provisions of the Tax Code, the amount of CGT was considered erroneously paid. Thus, the Petition was GRANTED. [AC ENERGY, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 10009, JANUARY 25, 2021]
THERE MUST BE PROOF THAT CORPORATION IS BEING USED AS A CLOAK OR COVER FOR FRAUD OR ILLEGALITY, OR TO WORK INJUSTICE TO JUSTIFY PIERCING THE VEIL OF CORPORATE FICTION
Petitioner CIR filed a Petition for Review assailing the Special Third Division’s Decision and Resolution and alleged that Respondent First Balfour, Inc. discreetly changed its name and business address without informing the BIR with the intention to evade its obligation; thus, the Court should pierce Respondent’s corporate veil since it is a mere alter ego of another corporation, the First Philippine Balfour Beatty, Inc. where most of the stockholders or officers of those corporations are the same. In ruling, the Court held that the Petitioner did not formally offer the supposed General Information Sheet (GIS) of Respondent and that of the First Philippine Balfour Beatty, Inc. As the records also showed, these documents were only provisionally marked (being mere photocopies). In fact, the alleged GIS of First Philippine Balfour Beatty, Inc. did not even contain such corporate name as to enable this Court to verify if the persons named therein are truly the corporate officers and directors of said corporation. To justify the piercing of the veil of corporate fiction, there must be proof that the corporation is being used as a cloak or cover for fraud or illegality, or to work injustice. Petitioner merely relied on Respondent’s Amended Articles of Incorporation as well as on the supposed GIS of the two corporations involved, without presenting any further or additional evidence to establish that First Philippine Balfour Beatty, Inc. merely used Respondent to cover fraud or any illegality, or to work injustice. Thus, the Petition was DENIED for lack of merit. [COMMISSIONER OF INTERNAL REVENUE VS. FIRST BALFOUR, INC., CTA EN BANC CASE NO. 2116, JANUARY 14, 2021]
[FAN IS RENDERED VOID, AS CONSEQUENCE OF VIOLATION OF TAXPAYER’S RIGHT TO ADMINISTRATIVE DUE PROCESS FOR FAILURE TO CONSIDER EXPLANATIONS EMBODIED IN ITS REPLY TO PAN] [WHEN TAXPAYER EXPRESSED ITS AMENABILITY TO THE ASSESSMENT, HE IS ALREADY ESTOPPED FROM QUESTIONING ITS VALIDITY]
Petitioner Dizon Farms Produce, Inc. filed a Petition for Review seeking cancellation of the assessment issued by the Respondent CIR in the amount of Php 56,829,954.37 for the taxable year 2013. Petitioner argued that the assessment is null and void for violating its right to be heard with regard to its position against PAN. Likewise, some of the alleged tax deficiency taxes had already prescribed. In ruling, the Court held that the portion of the assessment had already prescribed citing the set-in of prescriptive period. Likewise, the subject assessments are void, as a consequence of the violation of Petitioner’s right to administrative due process due to failure of the Respondent to consider the explanations of Petitioner as embodied in its reply to the PAN. As noted, FAN dated January 5, 2017 did not include any comment on the matters raised by Petitioner in its Protest to the PAN dated January 3, 2017. The Court agreed with the Respondent that he is not obliged to accept the Petitioner’s explanations. However, when he rejects these explanations, he must give some reason for doing so. He must give the particular facts upon which his conclusions are based, and those facts must appear in the record. Thus, his inaction and omission to give due consideration to the arguments and evidence submitted are deplorable transgressions of right to due process. As a consequence of such violation, the assessments are rendered void and cannot be enforced except for DST, as the Petitioner expressed its amenability to the DST assessment. Thus, the Petition was PARTIALLY GRANTED ordering the Petitioner to pay DST amounting to Php 1,053,918.16. [DIZON FARMS PRODUCE, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9711, JANUARY 5, 2021]
II. TAX AND BUSINESS-RELATED NEWS [FEBRUARY 2-9]
- Gov’t pushes more tax reform measures
- CREATE seen to generate P200 B new investments, 2 million jobs
- House approves on final reading bill taxing persons engaged in POGOs
- SEC imposes new transparency rules
- OECD expects PH economy to grow just 5.9% this year
- House, Senate approve corporate tax breaks
- BIR works with Russian counterpart on tax admin
- House, Senate ratify CREATE bill lowering corporate income taxes
- April deadline of ITR filing stays despite extended quarantine, delayed CREATE passage
- Duterte EO transferring national gov’t functions to LGUs out this year
- ARTA flags LGUs corruption-prone tax assessment
Gov’t pushes more tax reform measures [Philippine Daily Inquirer, February 9, 2021]
The remaining tax reform packages and a couple of bills aimed at liberalizing foreign investments without touching the Constitution will be among the priority legislation that the Department of Finance (DOF) is pushing for in 2021.
CREATE seen to generate P200 B new investments, 2 million jobs [Manila Bulletin, February 9, 2021]
The Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act can bring in over P200 billion in new investments and generate as much as 2 million additional jobs, according to Trade and Industry Secretary Ramon M. Lopez.
House approves on final reading bill taxing persons engaged in POGOs [ABS-CBN News, February 8, 2021]
The House of Representatives on Monday approved on final reading a bill that will tax persons engaged in Philippine offshore gaming operations (POGOs).
SEC imposes new transparency rules [Manila Bulletin, February 8, 2021]
SEC Memorandum Circular No. 1, Series of 2021, provides the Guidelines in Preventing the Misuse of Corporations for Illicit Activities through Measures Designed to Promote Transparency of Beneficial Ownership (BO Transparency Guidelines).
OECD expects PH economy to grow just 5.9% this year [Philippine Daily Inquirer, February 5, 2021]
The Organization for Economic Cooperation and Development (OECD) expects the Philippines to post a slower-than-targeted economic growth of 5.9 percent in 2021 following a record recession last year.
House, Senate approve corporate tax breaks [Philippine Daily Inquirer, February 4, 2021]
The Senate and the House of Representatives on Wednesday ratified a key economic reform bill that would give companies a “much needed tax break” by lowering the corporate income tax after the two chambers agreed on a consensus version.
BIR works with Russian counterpart on tax admin [Manila Bulletin, February 4, 2021]
Officials of the Bureau of Internal Revenue (BIR) and the Federal Tax Service (FTS) of Russia have met recently to discuss the latter’s best practices that could be applied in the Philippines to further improve its tax administration and compliance.
House, Senate ratify CREATE bill lowering corporate income taxes [ABS-CBN News, February 3, 2021]
The House of Representatives and the Senate ratified Wednesday a bicameral committee report on a bill that will reduce the corporate income tax rate in a bid to attract more foreign investments and help the Philippine economy recover from the coronavirus pandemic.
April deadline of ITR filing stays despite extended quarantine, delayed CREATE passage [Philippine Daily Inquirer, February 3, 2021]
As quarantine restrictions gradually eased despite a prolonged pandemic, the deadline to file and pay 2020 taxes in April this year stays even as a legislator may seek a one-month extension in case tax managers cannot immediately adjust corporate income taxes to reflect possibly lower rates.
Duterte EO transferring national gov’t functions to LGUs out this year [Philippine Daily Inquirer, February 2, 2021]
President Rodrigo Duterte’s impending order to transfer some executive functions to local government units is expected to be issued this year ahead of an increase in LGUs’ internal revenue allotment (IRA) shares in 2022.
ARTA flags LGUs corruption-prone tax assessment [Manila Bulletin, February 2, 2021]
The Anti-Red Tape Authority (ARTA) has flagged local government units (LGUs) in their high assessment of business taxes and the imposition of Public Liability Insurance or its equivalent stressing such unnecessary requirements open opportunities for corruption.
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