WEEKLY TAX UPDATES [DECEMBER 4-8]

A CTA DECISION ON DETERMINATION OF PLACE OF CONSUMPTION, WITHIN OR OUTSIDE ECOZONE, MATERIAL IN THE CLAIM OF INPUT VAT REFUND

Petitioner, Coral Bay Nickel Corporation filed an application for input VAT refund, representing its unutilized input VAT attributable to its zero-rated sales. Respondent CIR denied the application claiming that no input VAT shall be paid by the Petitioner from its local purchases of goods and services since these are zero-rated sales and that the input VAT was passed on by the VAT-registered supplier of goods, properties or services. With this, Petitioner must first prove that the goods, properties or services are consumed, used or rendered within the ECOZONE and should be in connection with its registered activities. In the presentation of evidence, the court noted that there were purchases of goods and services consumed or rendered outside the ECOZONE. Consequently, the Court denied the full amount of input VAT refund application and instead granted only a PARTIAL REFUND in favor of the Petitioner representing its unutilized input VAT attributable to its zero-rated sales. [CORAL BAY NICKEL CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8804, NOVEMBER 23, 2017]

 

A CTA DECISION ON DOCUMENTARY STAMP TAX (DST) ON SUBSCRIPTION OF SHARES, CLARIFIED

The Petitioner, Netrepreneur Connections Enterprises, Inc. filed a Petition for Review seeking the refund of erroneously paid DST in the amount of Php 2,229,335.74. Several issues were raised but the main issue is centred on the overpayment of DST on the issuance of its common shares to Intervision. The Petitioner and Intervision executed a Subscription Agreement with an aggregate subscription price of Php 460,050,248.68 which involves 1,831 common shares of stock with a par value of Php 100.00 per share. Petitioner paid and remitted the amount of Php 2,300,251.24 as DST due on the issuance of the shares based on its subscription price. However, Section 174 of the 1997 Tax Code states that there shall be a collection of DST of One Peso on each Two Hundred Pesos of such shares (1/200) based on par.  Applying the said provision, the DST due thereon should be based on the par value of Php 915.50 and not on the consideration or subscription price. Consequently, the Court ordered to refund the Petitioner in the amount of Php 2,229,335.74.  [NETREPRENEUR CONNECTIONS ENTERPRISES INC VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9037, NOVEMBER 21, 2017]

 

A CTA DECISION ON PASSIVE INCOME NOT SUBJECT TO LOCAL BUSINESS TAX

Petitioner Metro Pacific Resources Inc. seeks to reverse and set aside the decision rendered by the Regional Trial Court (RTC) of Makati City which denied its claim for tax refund of erroneously paid Local Business Tax (LBT) to Makati City Hall. Several issues were raised including the proper determination of whether the Petitioner is an investment company or a non-bank financial institution and whether its corresponding passive income (i.e. dividend income) constitute taxable gross receipts which may be subject to LBT. The Court held that the Petitioner did not meet the definition of a non-bank financial institution in accordance of General Banking Act or Republic Act No. 337, Revenue Regulations No. 9-2004 & Manual Regulation issued by the Bangko Sentral ng Pilipinas. Likewise, the Court citing Michigan Holdings, Inc. vs. The City Treasurer of Makati ruled that dividend income is excluded from gross receipts for imposition of LBT. Consequently, the Petition for Review is GRANTED and ordered the Respondent to REFUND the erroneously collected LBT. [METRO PACIFIC RESOURCES INC. VS MAKATI CITY & THE CITY TREASURER OF MAKATI CITY, CTA AC NO. 174, NOVEMBER 21, 2017]

 

A CTA DECISION ON BIR & TAXPAYER IN PARI DELICTO; CLAIM OF FALSITY DOES NOT AUTOMATICALLY TRANSLATE TO APPLICATION OF 10-YEAR PRESCRIPTIVE PERIOD; ISSUE ON DEFECTIVE WAIVER

Hoya Glass Disk Philippines, Inc. (Hoya) and Commissioner of Internal Revenue (CIR) seek to reverse the decision and resolution of CTA 3rd Division cancelling the VAT assessment, upholding the Final Withholding Tax at a reduced amount, and declaring that partial prescription has already set-in. CIR claims that since Hoya filed a false return, the 10-year prescriptive period shall then apply. Hoya, on the other hand, argued that the waiver is defective and therefore the right of the BIR to assess has lapsed citing the set-in of prescription. The Court struck down the claims of both parties citing that mere falsity of the return does not automatically justify the application of 10-year prescriptive period emphasizing that the falsity of returns must be intentional and design to deceive the government. Likewise, the Court declared that Hoya is estopped from questioning the validity of the executed waivers citing the Supreme Courts decision on Next Mobile case. Consequently, both parties are declared in pari delicto. On FWT assessment, the Court affirmed the Court 3rd Divisions ruling ordering Hoya to pay FWT of 32% as a result of its failure to prove that services were rendered outside the Philippines and that the expense is not classified as royalties but as compensation for services rendered in the Philippines. Both Petitions were DENIED and the assailed decision and resolution of Courts 3rd Divisions was AFFIRMED. [COMMISIONER OF INTERNAL REVENUE VS. HOYA GLASS DISK PHILIPPINES INC., CTA CASE NO. 8115 & CTA EB NO. 1473 & 1474, NOVEMBER 17, 2017]

 

A CTA DECISION ON FAILURE TO ISSUE NEW LOA DUE TO RE-ASSIGNMENT TO NEW EXAMINER FATAL

Petitioner CIR is seeking the reversal of the decision and resolution of CTA 3rd Division declaring the assessment as void for failure of the BIR to issue new LOA as a result of re-assignment of the case to a new examiner. Petitioner argues that there is no need for the issuance of a new LOA if the examination is reassigned only to another revenue officer or group supervisor citing Revenue Memorandum Order (RMO) Nos. 8-2006 and 62-2010. The Court En Banc, however, is not convinced. Accordingly, the provisions of RMO No. 8-06 contemplates a situation where reassignment is a consequence of transfer, resignation or retirement of both the original Revenue Officer (RO) and Group Supervisor (GS); while RMO No. 62-10 provides the propriety of a reassignment for the continuation of an audit investigation to another RO due to resignation, retirement or transfer of the original RO. In the instant case, it was not shown that there was a transfer, resignation or retirement of both the original RO and GS assigned under the LOA. Considering that the reassignment of the audit investigation does not conform to the RMOs cited, it follows that the audit examination by the examiners were conducted without authority. Consequently, Court En Banc agrees with the conclusion reached by the CTA 3rd Division citing the Supreme Court decision in Commissioner of Internal Revenue v. Sony Philippines, Inc. declaring that any revenue officer must be armed with authority to conduct an examination or assessment. The Petition for Review is DENIED for lack of merit and the resolution of CTA 3rd Divisions Decision is AFFIRMED. [COMMISSIONER OF INTERNAL REVENUE VS. ITHIEL CORPORATION, CTA CASE No. 1551, NOVEMBER 17, 2017]

 

A CTA DECISION ON ASSESSMENT NOTICES SENT TO WRONG ADDRESS LEADING TO VOID ASSESSMENT

Petitioner Daewoo Engineering & Construction Company Ltd. filed a Petition for Review seeking the cancellation of VAT assessment on the ground that assessment notices were not received by the Petitioner. Respondent CIR counters that there is a disputable presumption that a letter duly directed and mailed was received in the regular course of mail pursuant to Section 3 (v) of Rule 131 of the Rules of Court. The Court noted however that while it is true that the revenue officers served the assessment notices, it appears from the records that the address indicated therein is the old address of the Petitioner in Makati in spite of the official notification on the change of address in Pasig. Consequently, the Petitioner was denied of its right to due process leading to the cancellation of the assessment. [DAEWOO ENGINEERING & CONSTRUCTION COMPANY LIMITED VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE No. 8829, NOVEMBER 17, 2017]