FAILURE TO ISSUE NEW LOA IN CASE OF CHANGE OF EXAMINER RENDERS THE ASSESSMENT VOID

Petitioner Commission of Internal Revenue (CIR) filed a Petition for Review seeking the reversal of the earlier decision of the Court in Division cancelling the assessment issued against the Respondent Sunnyphil Incorporated due to lack of authority of the Revenue Officers (ROs) to conduct the audit. Petitioner argued that ROs who conducted the audit were authorized and that the subject assessment which was issued pursuant to said audit through a Memorandum of Assignment (MOA) is valid in accordance with the guidelines and procedures of Revenue Memorandum Order (RMO) No. 8-2006 and RMO No. 69-2010. Likewise, MOA is sufficient to authorize ROs to continue the audit, thus, the issuance of a new LOA is not required. In ruling, the Court referred to Section 6 of the 1997 Tax Code which clearly states that, unless the CIR or his duly authorized representative so authorizes (through an LOA), an examination of the taxpayer cannot ordinarily be undertaken. The failure of the CIR or his duly authorized representative to issue a new LOA runs counter to RMO No. 43-90 which lays down the guidelines for the audit and issuance of LOA. In case of re-assignment or transfer of cases to another RO, it is mandatory that a new LOA be issued with the corresponding notation thereto. Considering that the RO who examined Respondent’s books of accounts and accounting records were not duly authorized through an LOA, the subject assessment notices, are VOID. [COMMISSIONER OF INTERNAL REVENUE VS. SUNNYPHIL INCORPORATED, CTA EN BANC CASE NO. 2278, NOVEMBER 3, 2021]

[A MERE ADMINISTRATIVE ISSUANCE, LIKE A BIR REGULATION IMPOSING ADDITIONAL REQUIREMENT ON APPROVAL OF PRIOR APPLICATION FOR EFFECTIVE ZERO-RATING, CANNOT PREVAIL OVER CLEAR PROVISIONS OF VAT LAW] [WHEN THE CLAIM FOR REFUND HAS CLEAR LEGAL BASIS AND IS SUFFICIENTLY SUPPORTED BY EVIDENCE, THEN THE COURT SHALL NOT HESITATE TO GRANT THE SAME]

Petitioner Philippine Mining Service Corporation filed a Petition for Review praying for the refund or issuance of a tax credit certificate (TCC) on the alleged unutilized excess input value-added tax (VAT) on its zero-rated sales. Respondent Commissioner of Internal Revenue (CIR) initially disallowed the input VAT due to the lack of approved application for VAT zero-rating. In ruling, the Court held that the disallowance is improper and not consistent with the law. Previously, Revenue Regulations (RR) No. 16-2005 required an approved application from the BIR before a particular transaction can qualify for effective 0% VAT rating. However, in the case of CIR v. Seagate Technology PH, the Supreme Court settled that the BIR regulations additionally requiring an approved prior application for effective zero-rating cannot prevail over the clear VAT nature of the Respondent’s transactions. A mere administrative issuance, like a BIR regulation, cannot amend the law which had no existing provision of an additional application for effective zero-rating. Furthermore, Petitioner’s VAT-registered status, as well as compliance with the invoicing requirements, is sufficient for the effective zero-rating of its transactions. As a result, RR No. 4-2007 was issued to remove pertinent provisions of RR No. 16-2005 related to this matter. In consideration of the foregoing, the Petition was GRANTED, and Respondent was ordered to REFUND or ISSUE TCC in favor of the Petitioner. [PHILIPPINE MINING SERVICE CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9763, OCTOBER 29, 2021]

THE BIR AND TAXPAYER ARE ESTOPPED FROM QUESTIONING THE VALIDITY OF THE WAIVERS IF BOTH PARTIES ARE EQUALLY AT FAULT

Petitioner Commissioner of Internal Revenue (CIR) filed a Petition for Review praying for the reversal of the Decision and Resolution of the Court of Tax Appeals (CTA) 3^rd Division cancelling the assessment against Respondent Ayala Land International Sales, Inc. Petitioner claimed that the assessment was validly issued against Respondent by virtue of the five (5) Waivers of Defense of Prescription executed by the parties. The issue centered on the validity of the first waiver following the fact that the notary public did not write in the acknowledgement the name of the affiant and the latter’s relevant details, which is in violation of the procedures and guidelines contained in Revenue Memorandum Order (RMO) No. 29-90 and Revenue Delegation Authority Order (RDAO) No. 5-01. In ruling, the Court declared that both parties are at fault and as such, the first waiver executed shall be deemed valid, citing the Supreme Court case decision in CIR v. Next Mobile, Inc. In the instant case, the Respondent is at fault because its representative who signed the Waiver failed to indicate her name and proof of identity and failed to show any Board Resolution evidencing her authority to sign the Waivers. On the other hand, the Petitioner’s concerned Revenue Officer failed to ensure strict compliance with the rules on the proper execution of Waivers. Therefore, both parties are estopped from questioning the validity of the subject Waivers because of their respective contributory acts in the validity thereof. In view of the foregoing, the first Waiver was deemed valid and therefore, the period to assess was effectively extended. The second to fifth Waivers are valid as well as these evidenced that Respondent allowed Petitioner to rely on them and did not raise any objection against their validity. Consequently, the Petition was GRANTED, and the previous Decision and Resolution were REVERSED and SET ASIDE. [COMMISSIONER OF INTERNAL REVENUE VS. AYALA LAND INTERNATIONAL SALES, INC., CTA EN BANC CASE NO. 2017, OCTOBER 19, 2021]

THE SERVICE OF AN AMENDED PAN IS NOT REQUIRED BEFORE THE ISSUANCE OF FAN

Petitioner United International Pictures Aktiebolag filed a Petition for Review seeking cancellation of the Final Decision on Disputed Assessment (FDDA) issued by Respondent Commissioner of Internal Revenue in the amount of Php 77,452,396.33. Several issues were raised but the main issue centered on the violation of due process. Petitioner posited that its right to due process was violated without an amended Preliminary Assessment Notice (PAN) preceding the issuance of a Final Assessment Notice (FAN) and FDDA. In ruling, the Court held that nowhere in Section 228 of the 1997 Tax Code, as amended, and in Revenue Regulations (RR) No. 12-99 do the relevant provisions require the service of an amended PAN. Rather, the regulation explicitly provides that a Formal Letter of Demand (FLD)/FAN shall be issued within fifteen (15) days from the receipt of the taxpayer’s reply to PAN. Since Petitioner was able to contest the initial findings in the PAN, there was no basis to hold that there was violation of its right to due process. Anent the factual issues on disallowance of expenses due to non-withholding, deficiency Expanded Withholding Tax on rental payments to cinematographic film distributor, Value Added Tax, and Final Withholding Tax assessments, the Court PARTIALLY CANCELLED the assessment resulting in a reduced assessment of Php 39,578,018.68. [UNITED INTERNATIONAL PICTURES AKTIEBOLAG VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9699, OCTOBER 14, 2021]