[GOVERNMENT’S RIGHT TO PROSECUTE TAX CASES IS SUBJECT TO THE PRESCRIPTION PERIOD] [CRIMINAL LIABILITY FOR FAILURE TO PAY TAXES REQUIRES PROOF OF WILLFUL INTENT] [ALLEGATIONS OF TAX VIOLATIONS MUST BE SUBSTANTIATED BY SUBSTANTIAL EVIDENCE, ENSURING THAT TAXPAYERS ARE NOT WRONGFULLY PROSECUTED DUE TO PROCEDURAL DEFICIENCIES]

Plaintiff, the People of the Philippines, filed a case against the Accused Buensol Construction Company (Buensol), represented by its responsible officers, Rodrigo O. Solis and Ferdinand F. Buendia, for alleged violations of Section 255, in relation to Sections 253(d) and 256 of the National Internal Revenue Code (Tax Code) of 1997. The case stemmed from the Company’s alleged failure to pay deficiency income tax for the taxable year 2012, despite the issuance of multiple notices and demands by the Bureau of Internal Revenue (BIR). The criminal complaint was filed on July 25, 2019, after the BIR claimed an under-declaration of sales. On defense, the Accused countered that the assessment was invalid, arguing that no proper notices were received and disputing the alleged deficiency. During the proceedings, it was revealed that Buensol had ceased operations in 2013, and the notices were received by family members of Rodrigo Solis at their residence. The issues before the Court were whether the government’s right to prosecute the criminal case was barred by prescription, whether Rodrigo Solis willfully failed to pay the assessed deficiency taxes, whether the assessment notices were validly issued and received, and whether civil liability should be imposed on the Accused. Plaintiff argued that Buensol and its officers willfully failed to pay the deficiency taxes as evidenced by the issued Formal Letter of Demand (FLD) and Final Assessment Notice (FAN). They also claimed that the under-declaration of sales constituted prima facie evidence of fraud under Section 248(B) of the Tax Code, justifying an extended ten-year prescriptive period for assessment. On the other hand, the Accused countered that the government’s right to prosecute had already prescribed under the five-year limit set by Section 281 of the Tax Code. Likewise, the notices were invalid, as they were received by unauthorized individuals, and the FLD/FAN was void due to the absence of a due date for payment, rendering the assessments unenforceable. In ruling, the Court DISMISSED the case, finding that the government’s right to prosecute had prescribed. It held that the five-year prescriptive period commenced on March 8, 2017, when the assessment became final, and expired in March 2022. Since the Information was filed only in December 2022, it was time-barred. Additionally, the FLD/FAN was void due to procedural defects, including the lack of a specific due date for payment, which violated the taxpayer’s right to due process. The Prosecution failed to establish the Accused’s willful failure to pay, as there was no valid assessment to support the claim. Without a valid assessment, the Court concluded that no criminal or civil liability could be imposed on the Accused. Consequently, Accused Rodrigo Solis was ACQUITTED for the failure of the Prosecution to prove his guilt beyond a reasonable doubt, and the case against Ferdinand Buendia was DISMISSED due to the prescription of the government’s right to prosecute. Both criminal and civil liabilities were EXTINGUISHED. [PEOPLE OF THE PHILIPPINES VS. BUENSOL CONSTRUCTION COMPANY, CTA CRIMINAL CASE NO. 0-969, JANUARY 21, 2025]

IF THE TAXPAYER DENIES HAVING RECEIVED AN ASSESSMENT FROM THE BIR, IT THEN BECOMES INCUMBENT UPON THE LATTER TO PROVE BY COMPETENT EVIDENCE THAT SUCH NOTICE WAS INDEED RECEIVED BY THE ADDRESSEE

Petitioner Diamond Drilling Corporation of the Philippines filed a Petition for Review to challenge the assessment and collection enforcements taken by the Respondent Commissioner of Internal Revenue (CIR). The Petitioner argued that it was not liable for the alleged deficiency of Value-Added Tax (VAT) for the taxable period from January to June 2018. It asserted that the assessment was null and void because it did not receive the Formal Letter of Demand (FLD) or Final Assessment Notice (FAN), which are essential for the validity of the tax assessment. Furthermore, the issuance of the Warrant of Distraint and/or Levy was invalid, as it stemmed from an unlawful and void assessment. On the other hand, the Respondent countered that the FLD/FAN was validly served to the Petitioner’s registered address in Parañaque City via private courier during the COVID-19 pandemic. The Respondent claimed that the Petitioner failed to notify the BIR of its updated address and did not protest the assessment within the prescribed period, which rendered the assessment final, executory and demandable. Further, the WDL served as the final assessment notice in this case. In ruling, the Court held that the Respondent failed to provide sufficient proof of valid service of the FLD/FAN. The LBC receipt presented by the Respondent lacked sufficient details to prove that the specific assessment notice was mailed to the Petitioner. Also, the Respondent failed to present other mandatory evidence, such as a notarized written report or acknowledgment receipt, as required by Revenue Regulations. The Court emphasized that due process was violated because the Petitioner was not properly informed of the assessment, which rendered the assessment and the WDL null and void. Tax collection must be preceded by a valid assessment to allow the taxpayer the opportunity to protest the assessment, present their case, and adduce supporting evidence. Considering that the subject FLD/FAN was void, the WDL could not have been preceded by a valid assessment and thus could not be validly enforced against the Petitioner. The Court GRANTED the Petition resulting in the LIFTING and SETTING ASIDE of the WDL and CANCELLATION of the assessment. [DIAMOND DRILLING CORPORATION OF THE PHILIPPINES VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 10661, JANUARY 20, 2025]