WEEKLY TAX UPDATES [JULY 2-6, 2018]

BIR MEDIA RELEASES

1.      BIR fires 2 Makati tax examiners who were caught in an entrapment operations conducted by the National Bureau of Investigation.

2.      Bukidnon adventure park businessman charged with seven (7) counts of unlawful pursuit of business for issuance of unregistered and unauthorized receipt as entrance fee for the adventure park.

 

BIR ISSUANCE ON PLACE OF CLAIM FOR REFUND OF ERRONEOUSLY PAID CAPITAL GAINS TAX

(CGT) OR CREDITABLE WITHHOLDING TAX (CWT) ON SALE OF REAL PROPERTY

The BIR has issued Revenue Memorandum Order (RMO) No. 30-2018 dated June 27, 2018 addressing the processing of claims for refund of erroneously paid CGT or CWT wherein the taxpayer's registration and the location of the property fall under the jurisdiction of different Revenue District Offices (RDOs). Accordingly, the CGT return for sale of real property shall be filed and paid by the seller with the RDO having jurisdiction over the place where the property being transferred is located within thirty (30) days from sale. In case of erroneous payment of CGT or CWT, the BIR now mandates that the processing of claims for refund and the issuance of corresponding Letter of Authority shall now be under the RDO having jurisdiction over the place where the subject property is located regardless whether or not the claimant is its registered taxpayer.

 

COURT OF TAX APPEALS (CTA) DIGEST FOR THIS WEEK

 

DUE PROCESS REQUIREMENTS ON THE ISSUANCE OF FORMAL ASSESSMENT NOTICE DOES NOT APPLY ON VIOLATIONS COMMITTED ON FAILURE TO KEEP BOOKS OF ACCOUNTS, OFFICIAL RECEIPTS & RELATED FINANCIAL RECORDS

The Petitioner Frankfort Inc. filed a Petition for Review seeking for a refund of alleged erroneously paid penalties in the amount of Php 5,600,000.00 representing various compromise penalties as imposed by the Respondent Commissioner of Internal Revenue as a result of alleged violations pursuant to the Mission Order such as absence of books of account, official receipts, back-end report and unaccounted Point-of-Sale (POS) Machine. In the course of the presentation of evidence, the Petitioner argued that the Respondent did not accord its right to due process under Section 228 of the 1997 Tax Code because it was not informed in writing of the law and the facts on which the assessment is made. Petitioner likewise argued that it properly maintains its book of accounts, official receipts and registered all its POS machines and nowhere in the Tax Code that a "back-end" report should be maintained. In resolving the Petition, the Court ruled that Section 228 of the 1997 Tax Code does not apply with regard to the violation on the statutory requirements of keeping of book of accounts, official receipts, and related financial records. On the imposition of compromise penalties, the Court ruled that in the absence of a written offer from taxpayer, imposition of penalties should be in accordance with Annex A of Revenue Memorandum Order No. 19-2007 or "The Consolidated Revised Schedule of Compromise Penalties for Violations of the National Internal Revenue Code." Consequently, the Petition for Review is PARTIALLY GRANTED ordering the Respondent to refund the Petitioner in the amount of Php 5,450,000.00, representing the excessive and illegally collected penalties. [FRANKFORT, INC., VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9363, JULY 10, 2018] 

 

UNDER-DECLARATION OF PURCHASES DOES NOT AUTOMATICALLY RESULT & TRANSLATE TO TAXABLE INCOME OR TAXABLE RECEIPTS

The Petitioner Philippine Power MC Distribution, Inc. filed a Petition for Review seeking for the cancellation of the assessment issued by the Respondent Commissioner of Internal Revenue covering the fiscal year ending June 30, 2008 as a result of the findings of under-declaration of purchases pursuant to the cost-ratio method employed by the Respondent. The Petitioner argued that the findings are presumptuous since mere findings of under-declared purchases should not automatically be translated into taxable income or receipts. Likewise, the Respondent is already barred in collecting the tax citing the prescription on collection enforcement. In resolving the Petition, the Court ruled that in the imposition or assessment of income tax, it must be clear that there was an income, and such income was received by the taxpayer, and not when there is an under-declaration of purchases.  In addition, even when there is under-declaration of purchases, the same is not prohibited by law since a taxpayer is free to deduct from its gross income a lesser amount, or not to claim any deduction at all. On the assessment on VAT, the court ruled that VAT can only be imposed when it is shown that the taxpayer received an amount of money or its equivalent from its sale, barter or exchange of goods or properties, or from sale or exchange of services, and not when there are under-declared purchases. Thus, VAT is imposed when one sells, not when one purchases making it based on mere presumptions. As to the issue on prescription, the period to assess and collect taxes is three (3) years from the date of the Formal Assessment Notice. Considering that the Petitioner requested for a reinvestigation on April 19, 2011, the running of the period of the Statute of Limitations has been tolled for a period of 60 days after the filing of the protest. Thus, the period to assess was suspended until June 18, 2011. Therefore, the Respondent has three (3) years from June 18, 2011 or until June 17, 2014, to assess and collect the alleged deficiency taxes. In the present case, collection efforts were made by the Respondent by issuing a Warrant of Distraint and/or Levy only on May 16, 2016, which was received by the Petitioner on June 21, 2016 or almost two (2) years lapsed. Therefore, the Respondent is already barred by prescription. Consequently, the Petition for Review is GRANTED resulting to the cancellation of the assessment. [PHILIPPINE POWER MC DISTRIBUTION INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9263, JULY 06, 2018]