Paguio, Dumayas & Associates, CPAs Certified Public ...paguiodumayasassoc.com/articles/QualityAssuranceBulletin-July2018.pdfIncome Tax in BIR Form Nos. 1701 (Annual Income Tax Return

Paguio, Dumayas & Associates, CPAs Certified Public Accountants and Management Consultants

QUALITY ASSURANCE BULLETIN I July 2018 Edition 1

www.paguiodumayasassoc.com



RECENT BUREAU OF INTERNAL REVENUE ISSUANCES

1. Clarifying the Requirements on the Withdrawal from the Bank Deposit Account/s of a Deceased

Depositor/Joint Depositor Without the Required Electronic Certificate Authorizing Registration

2. Circularizing the Full Text of Department Administrative Order No. 16-01 Series of 2016 of the

Department of Trade and Industries (DTI)

3. Creation and Modification of Alphanumeric Tax Code (ATC) for Individual Income Tax under Republic

Act (RA) No. 10963, otherwise known as Tax Reform for Acceleration and Inclusion (TRAIN) Act

4. Prescribing the Policy Regarding the Processing of Claims for Refund of Capital Gains Tax (CGT) or

Creditable Withholding Tax (CWT)

5. Prescribing the Audit/Investigation of Individual and Non- Individual Taxpayers by the Regional

Assessment Divisions

6. Consolidation, Clarification and Reiteration of the Existing Policies and Procedures in the Issuance of

Authority to Cancel Assessment (ATCA)

7. Amending the Provision of Revenue Memorandum Order (RMO) No. 32 – 2018 Regarding the

Thresholds and Prescribing Additional Policies for the Issuance of Electronic Letters of Authority

(eLAs) for Office Audit

8. Amending Revenue Regulations (RR) No.12-2018 Particularly Section 13 Thereof

RECENT COURT OF TAX APPEALS CASES

1. Frankfort, Inc. versus Commissioner of Internal Revenue

(claim for refund or issuance of tax credit certificate (tcc))

2. Philippine Power MC Distribution, Inc. versus Commissioner of Internal Revenue

(period to assess and collect prescribed)

TABLE OF CONTENTS



REVENUE MEMORANDUM CIRCULAR NO.

62-2018

Clarifying the Requirements on the Withdrawal

from the Bank Deposit Account/s of a Deceased

Depositor/Joint Depositor Without the Required

Electronic Certificate Authorizing Registration

This Circular is hereby issued to clarify the

requirements on the withdrawal from the bank

deposit account/s of a deceased depositor/joint

depositor without the required electronic

Certificate Authorizing Registration (eCAR).

The executor, administrator, or any of the

legal heir/s of a decedent who, prior to death,

maintained bank deposit/s may be allowed

withdrawal from the said bank deposit account/s

within one (1) year from the date of death of the

depositor/joint depositor but the amount

withdrawn shall be subject to six percent (6%)

Final Withholding Tax (FWT). For joint account,

the FWT shall be based on the share of the

decedent in the joint bank deposit/s.

The bank shall issue the corresponding

BIR Form No. 2306 certifying the withholding of

6% final tax, file the prescribed quarterly return on

the final tax withheld and remit the same on or

before the last day of the month following the

close of the quarter during which the withholding

was made. All withdrawal slips shall contain a

sworn statement by any one of the surviving joint

depositor/s to the effect that all the other joint

depositor/s is/are still living at the time of

withdrawal, and a statement that the withdrawal is

subject to 6% FWT.

Bank deposit/s already declared for Estate

Tax purposes and is/are indicated in the eCAR

issued by the concerned RDO to the executor,

administrator, or any of the legal heir/s of the

decedent, presented to the bank for withdrawal of

the said bank deposit/s, shall no longer be subject

to the 6% FWT.

REVENUE MEMORANDUM CIRCULAR NO.

63-2018

Circularizing the Full Text of Department

Administrative Order No. 16-01 Series of 2016 of

the Department of Trade and Industries (DTI)

Issued on July 20, 2018 circularizes

the full text of Department Administrative Order

(DAO) No. 16-01, Series of 2016 issued by the

Department of Trade and Industry (DTI), which

amends Article II, DAO No. 01 S. of 2003, on the

Implementing Rules and Regulations of Republic

Act (RA) No. 9178, otherwise known as the

“Barangay Micro Business Enterprises Act” of

2002, and Rule 4, Sections 1(b)ii and Section (3)

of the Implementing Rules and Regulations of

RA No. 10644, otherwise known as the “Go

Negosyo Act”.

Based on the amendment in Rule II of

DAO No. 01, S. of 2003, any person, natural or

juridical, such as partnership, corporation,

association and cooperative, who meets the

following qualifications shall be eligible to

register as Barangay Micro Business Enterprise

(BMBE):

a. With an asset of not more than Three Million

Pesos (P3,000,000.00) excluding land;

b. Engaged in the production, processing or

manufacturing of products or commodities,

including agro-processing, trading and

services;

c. Registered with the DTI, for sole proprietor-

ships; and for juridical persons- with the

Securities and Exchange Commission

(SEC), for corporations and associations;

and with the Cooperative Development

Authority (CDA), for cooperatives.



However, entities rendering services in

connection with the exercise of one’s profession

by a person duly licensed by the government after

having passed a government licensure

examination are disqualified from applying for

BMBE Certificate of Authority.

The applications for BMBE Certificate of

Authority shall be filed with the Negosyo Centers

established in each province, city, or municipality

or in the DTI offices where Negosyo Centers have

not been set up. The registration and issuance of

the Certificate of Authority shall be free of charge.

The DTI shall issue the BMBE Certificate

of Authority to eligible and qualified applicant

within fifteen (15) working days from receipt of

application with complete requirements;

otherwise, the BMBE Certificate of Authority shall

be deemed approved (where in such case, it

becomes ministerial on the part of DTI to issue

the BMBE Certificate of Authority).

The BMBE Certificate of Authority shall be

effective for a period of two (2) years commencing

from the date of issuance. It may be renewed for

the same period of two (2) years and every two

(2) years thereafter subject to the applicant’s

continued compliance with the eligibility

requirements.

The BMBE shall report to the DTI through

the Negosyo Center of any change in the status of

its ownership structure and shall surrender the

original copy of the BMBE Certificate of Authority

for notation.

REVENUE MEMORANDUM ORDER NO.

28-2018

Creation and Modification of Alphanumeric Tax

Code (ATC) for Individual Income Tax under

Republic Act (RA) No. 10963, otherwise known

as Tax Reform for Acceleration and Inclusion

(TRAIN) Act

To facilitate the proper identification and

monitoring of tax collection from Individual

Income Tax in BIR Form Nos. 1701 (Annual

Income Tax Return For Self-Employed

Individuals, Estates and Trusts) and 1701Q

(Quarterly Income Tax Return For Individuals,

Estates and Trusts) pursuant to RA No. 10963.

a) ATCs Created

b) ATCs Modified

***See next page***

ATC Description Tax

Rate Legal Basis

BIR Form

II015 Business Income - 8%

Income Tax Rate

8% RA No. 10963

1701/

1701Q

II016 Mixed Income - 8%

Income Tax Rate

II017 Income from Profession

- 8% Income Tax Rate




30-2018

Prescribing the Policy Regarding the Processing of

Claims for Refund of Capital Gains Tax (CGT) or

Creditable Withholding Tax (CWT)

This order is issued to address the

processing of claims for refund of erroneous

payment of CGT or CWT wherein the taxpayer /

claimant's registration and the location of the

property fall under the jurisdiction of different

Revenue District Offices (RDOs) .

In case of erroneous payment of CGT or

CWT, the processing of claims for refund and the

issuance of corresponding eLA 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.

All issuances or portions thereof not

consistent with the provisions of this Order are

hereby repealed and amended accordingly.

This Order shall take effect immediately.


32-2018

Prescribing the Audit/Investigation of Individual

and Non- Individual Taxpayers by the Regional

Assessment Divisions

This Order is issued to improve the

voluntary compliance of individual and non –

individual taxpayers belonging to the small

category and to generate additional revenues

from these taxpayers through an audit to be

conducted by Revenue Officers (ROs) of the

Office Audit Section (OAS) of the Assessment

Divisions in the Regional Offices.

Electronic Letters of Authority (eLAs)

shall be issued to cover the audit/investigation of

taxpayers for tax returns for taxable year 2017

under the jurisdiction of the Regional Office with

gross sales/receipts as follows:

One (1) eLA shall be issued for each

taxable year to include all internal revenue tax

liabilities of the taxpayer, except when a specific

tax type had been previously examined (e.g.,

audit of VAT under the VAT Audit Program and

claim for issuance of VAT refund/Tax Credit

Certificate).

EXISTING (per ATC Handbook) MODIFIED/NEW BIR

NO. ATC Description Tax Rate Description Tax Rate LegalBasis

II011 Pure Compensation 5% - 32% Compensation Income GraduatedIncome Tax

Rates

RA No.

10963

1701/ 1701Q II012 Business Income Business Income - Graduated

Income Tax Rates Mixed Income - GraduatedIncome Tax Rates

II013 Mixed Income

II014 Income fromProfession

Income from ProfessionGraduated Income Tax Rates

Revenue Region Nos.

Gross Sales/Receipts

5, 6, 7 and 8 ₱ 10,000,000.00 Million Pesos

and below

1, 4, 9A, 9B, 11, 12, 13,16 and 19 ₱ 5,000,000.00 Million Pesos

and below

2, 3, 10, 14, 15, 17 and 18 ₱ 2,000,000.00 Million Pesos

and below



Under such instance, the phrase “All internal

revenue tax liabilities, except VAT” shall be

indicated in the eLA. Claims for issuance of tax

refund/Tax Credit Certificate (TCC) of taxpayers

are not covered by the Order.

The workload of each RO shall not exceed

fifteen (15) cases at any one time, subject to

replenishment after the submission of the report

of investigation/closure of each case. The report

of investigation shall be submitted to the Review

and Evaluation Section in the Assessment

Division within ninety days (90) days from

issuance of the eLA.

The eLA, together with the Notice for the

Presentation/Submission of Documents/Records

with checklist of requirements, may be delivered

personally to the taxpayer by a BIR employee

duly authorized for the purpose, who may be the

RO assigned to the case or another employee

with a written authorization, or delivered through a

courier company.

The concerned taxpayer shall be given ten

(10) days from receipt of the Notice to Present/

Submit the required documents and records. In

case the taxpayer does not comply with the

Notice, a Reminder Letter shall be sent

immediately after the lapse of the 10-day period.

In case the requested documents/records are not

presented/submitted within five (5) days from

receipt of the Reminder Letter, a memorandum

report shall be prepared recommending the

issuance of Subpoena Duces Tecum. No further

extension for the presentation/submission of

documents and records shall be allowed.


33-2018

Consolidation, Clarification and Reiteration of the

Existing Policies and Procedures in the Issuance

of Authority to Cancel Assessment (ATCA)

The ATCA shall be issued as proof of

cancellation of assessments with issued Final

Assessment Notice (FAN)/Formal Letter of

Demand (FLD), which were recorded in Form

40.00 (Protested)/Accounts Receivables/

Delinquent Accounts (AR/DA) case/s of

concerned delinquent taxpayers due to any of

the following instances:

a. The difference between the amounts of the

original tax assessment and the reduced tax

assessment after the originally issued FAN/

FLD has been modified, amended or

declared “null and void” covered by a final

administrative decision by the Commissioner

or his duly authorized revenue official as

shown in the Final Decision on Disputed

Assessment (FDDA) duly numbered for

monitoring and tracking purposes, after the

conduct of review/evaluation/reconsideration

of the factual and/or legal bases raised in its

protest/appeal/motion for reconsideration,

therefor, as defined under Revenue

Regulations (RR) No. 12- 99, as amended by

RR Nos. 18-2013 and 7-2018;

b. Final approval of the corresponding

application for compromise settlement and

abatement or cancellation of penalties

pursuant to Section 204 (a) of the Tax Code

and its implementing regulations;

c. Decision by the competent court/s where the

assessment was either modified, amended

or declared “null and void” with finality as

shown in the entry of judgment;

d. Declaration that the AR/DA case is

uncollectible due to insolvency by a

competent court in a final and executory

judgment;

Continuation...



e. Taxpayer’s availment of tax amnesty which are

included in the List of the Tax Amnesty Availers

provided by the Office of the Commissioner or

Deputy Commissioner, Operations Group;

f. Condonation of the assessment by virtue of

law, provided the required documentations

thereon have been submitted, evaluated and

thereafter approved by the Commissioner or his

authorized Revenue Official;

g. When the right of the government to assess/

collect the corresponding deficiency/delinquent

taxes has prescribed in accordance with

Sections 203 and 222 of the Tax Code, as

amended, and the cancellation due to the

aforesaid reason has been approved by the

Commissioner based on the recommendation

of the National Committee on Prescribed Cases

that was created for this purpose;

h. AR/DA case/s that are recommended for

write-off and approved by the Commissioner of

Internal Revenue or his duly authorized

representative on the grounds such as, but not

limited to, the following:

Individual taxpayer is deceased and no

distrainable or leviable assets could be found;

Permanent cessation of business;

Dissolution;

Taxpayer is a general partnership and the

individual partners are already deceased;

AR/DA case/s with a total amount due of

Php20,000.00 and below, provided that all

collection enforcement summary remedies

have been fully exhausted.

i. Such other meritorious cases which the

Commissioner may deemed necessary to be

covered by ATCA.

The ATCA shall be prepared,

recommended and approved by the concerned

office/official strictly in accordance with the

prescribed Matrix on the Preparation of ATCA. The

reason for the full/partial cancellation of the tax

assessment shall be clearly indicated in the space

provided in the ATCA Form.

Likewise, the supporting documents identified in

the said matrix shall be attached to the tax

docket as basis for the preparation and approval

of ATCA.

Based on the prescribed matrix, the

ATCA shall be prepared in quadruplicates and

signed by the recommending revenue official

within fifteen (15) working days from the receipt

of the tax docket. Each tax case recommended

for partial/full cancellation shall be approved/

acted upon by the concerned approving revenue

official within seven (7) working days from

receipt of the docket of the case.

Each tax assessment with issued FAN/

FLD or AR/DA case referred to the Regional

Legal Division/Appellate Division/Law and

Legislative Division/Litigation Division for the

resolution of issues involving questions of law,

due process and/or alleged prescription of the

Bureau’s right to assess/collect the tax liabilities

shall be resolved within thirty (30) days from

receipt of the protested docket/AR/DA case/s.

After resolution, these tax dockets shall be

returned immediately to the originating office for

appropriate action.

AR/DA cases recommended for write-off

due to prescription shall be forwarded to the Re-

gional Committee on Prescribed Cases for its

initial evaluation/recommendation. The National

Committee on Prescribed Cases shall

subsequently review the initial evaluation/

recommendation, and file the appropriate

administrative sanctions against the concerned

revenue officers/officials who is/are responsible

for the prescription of AR/DA case/s.

The Accounts Receivable Monitoring

Division (ARMD), acting as the Secretariat of the

National Committee on Prescribed Cases, shall

only prepare the ATCA, after approval by the

Commissioner of Internal Revenue of the

recommendation for write-off and filing of the

administrative sanctions.

AR/DA case/s recommended and

approved for cancellation/write-off shall be

accompanied by an Evaluation Report on

Uncollected AR/DA Recommended for …

Continuation...



Write- Off, together with all the necessary

supporting documents as prescribed in Annex A

of this Order pursuant to Revenue Memorandum

Order (RMO) No. 11-2014. These documentary

requirements shall be attached to the tax docket

for purposes of reviewing and evaluating the

propriety of the recommendation and the

subsequent approval of the cancellation/write-off

by the Commissioner of Internal Revenue or his

duly authorized Revenue Official.

Assessment with issued FAN/FLD or AR/

DA case/s previously reported in the General

Control Ledger (GCL) report shall be closed upon

the approval of ATCA by filling- out the ATCA

column of the GCL report (BIR Form 0319).

Assessment with issued FAN/FLD or AR/DA

case/s previously included in AR/DA database

shall be removed by updating the “AR/DA

Inventory List” (Annex F of RMO No. 22-2015).

The ARMD shall monitor the reports on

AR/DA case/s approved for cancellation and

validate the authenticity of ATCA issued by

concerned offices identified in the matrix

prescribed under this Order, and submit the

results thereof to Collection Service within

twenty-five (25) working days from the set

deadline of submission of GCL reports and AR/

DA Inventory List.


34-2018

Amending the Provision of Revenue

Memorandum Order (RMO) No. 32 – 2018

Regarding the Thresholds and Prescribing

Additional Policies for the Issuance of Electronic

Letters of Authority (eLAs) for Office Audit

Amends the provision of RMO No. 32–

2018 regarding the thresholds and prescribes

additional policies and procedures for the

issuance of Electronic Letters of Authority (eLAs)

for office audit.

The coverage for the issuance of eLAs

prescribed under item No. II of RMO No. 32–

2018 is amended as follows:

“Electronic Letters of Authority (eLAs)

shall be issued to cover the audit/investigation of

taxpayers for tax returns for taxable year 2017

under the jurisdiction of the Regional Office with

gross sales/receipts as follows:

eLA shall be issued only to taxpayers

who have not been audited/investigated for the

last three (3) years. One (1) eLA shall be issued

for each taxable year to include all internal

revenue tax liabilities of the taxpayer, except …

Continuation...

Area Gross Sales/ Receipts

Revenue District Offices (RDOs)

under RR Nos. 5, 6 (except RDO

No. 36 – Puerto Princesa), 7 and 8

Ten Million Pesos (₱ 10,000,000.00)

and below

RDOs under RR Nos. 1, 4, 9A (except

RDO Nos. 35 – Romblon, 37 –

Occidental Mindoro and

63 – Oriental Mindoro), 9B

(except RDO No. 62 – Marinduque),

11, 12, 13,16 and 19

Five Million Pesos (₱ 5,000,000.00)

and below

RDO No. 36 Three Million Pesos (₱ 3,000,000.00)

and below

RDOs under RR Nos. 2, 3, 10, 14, 15,

17 and 18, including RDO Nos. 35, 37,

62 and 63

Two (2) Million Pesos (₱ 2,000,000.00)

and below



when a specific tax type had been previously

examined (e.g., audit of VAT under the VAT Audit

Program and claim for issuance of VAT refund/

Tax Credit Certificate). Under such instance, the

phrase “All internal revenue tax liabilities, except

VAT” shall be indicated in the eLA. Exclusion:

Claims for issuance of tax refund/ Tax

Credit Certificate (TCC) of taxpayers”.

Additional Policies and Procedures:

The Chief, Assessment Division shall -

Requisition BIR Form No. 1966, which shall

be used in printing the eLA, from the

Accountable Forms Division (AFD);

Communicate in writing the range of the Serial

Numbers (SNs) of the BIR Form No. 1966

received from the AFD to the Assistant

Commissioner - Information Systems Project

Management Service (ACIR – ISPMS),

Attention: Chief, Business Intelligence Division

(BID), for uploading to the Electronic Letter of

Authority Monitoring System (eLAMS);

Submit to the ACIR – ISPMS, copy furnished

the Chief, APMD, the names of the Revenue

Officers (ROs) and Group Supervisors (GSs)

assigned in the Office Audit and Revenue and

Evaluation Sections which shall also be

uploaded to the eLAMS by the BID;

Coordinate with the concerned office for the

issuance of the corresponding Revenue

Travel Assignment Order, in case there will be

movement of personnel assigned in the

Assessment Division, for purposes of giving

access for the use of the eLAMS;

Request for system access for eLAMS by

submitting a duly accomplished BIR Form No.

0044 (Request for System Access) for all the

ROs/GSs who are authorized to use the

eLAMS to the concerned Head, Revenue Data

Center, copy furnished the Chief, Security

Management Division;

Ensure that the ROs/GSs authorized to use

the eLAMS have attended the prerequisite

training course for granting system access;

and

7) In requesting the eLA for office audit cases

under the Data Entry Screen of the eLAMS,

select the category “Priority Taxpayers/

Industries (PTI)” and subsequently choose

from the drop-down list the appropriate

selection code, as follows:

REVENUE REGULATION NO.

17-2018

Amending Revenue Regulations (RR) No.

12-2018 Particularly Section 13 Thereof

Pursuant to the provisions of Sections

102 and 244 of the National Internal Revenue

Code of 1997 (Tax Code of 1997) as amended,

these Regulations are hereby promulgated for

the purpose of amending Section 13 of RR No.

12-2018, particularly on the valuation of gifts

made in property.

Section 13 of RR No. 12-2018, is hereby

amended to read as follows:

"SECTION 13. VALUATION OF GIFTS MADE

IN PROPERTY. - The valuation of gifts in the

form of property shall follow the rules set forth in

Section 5 of these regulations: Provided, That

the reckoning point for valuation shall be the

date when the donation is made."

Continuation...

Code Description

STPI Small Taxpayer – Individual

STPN Small Taxpayer – Non - Individual



A petition for review was filed by petitioner

Frankfort, Inc. on its claim for refund or issuance of

tax credit certificate (TCC) representing the

payment of penalties on several violations of the

1997 NIRC, as amended.

The Regional Director (RD) issued a

Mission Order directing the officers of Regional

District Office (RDO) to (1) verify the registration

status and bookkeeping compliance of petitioner

with the new invoicing requirements, and (2)

validate petitioner’s permit to use Cash Register

Machines (CRM) and/or Point of Sales (POS)

machines.

Also, a Letter of Authority (LOA) was issued

by the said RD for the examination of the

petitioner’s accounting records pertaining to its

Value-Added Tax (VAT) liabilities.

After the conduct of an investigation, two

audit reports was issued, one for VAT and another

for their other findings, such as petitioner having no

books, no official receipts, no back-end reports,

and unaccounted POS.

Consequently, BIR Form 0605 or the

Payment Form was prepared for the corresponding

assessment on their VAT findings and on those

miscellaneous penalties.

Petitioner argues that the respondent did

not accord it its right to due process under Section

228 of the NIRC, because it was not informed in

writing of the law and the facts on which the

assessment is made. Petitioner also argues that it

properly maintains its books of accounts, official

receipts and registered all its POS machines.

Also, it contend that a back-end report is

not a requirement provided in the Tax Code nor in

any rules and regulations of the respondent.

It also assert that the penalties imposed were

arbitrary and excessive as they are not in

accordance with Revenue Memorandum Order

(RMO) 19-2007.

Section 229 of the NIRC provided that no

suit or proceeding shall be filed after the

expiration of two years from the date of payment

of the tax penalty, on which the petitioner

administratively filed its claim.

Petitioner avers that respondent should

have observed the provisions of Section 228 of

the NIRC (Protesting of Assessment), yet, it must

be noted that the imposition of penalties was not

a result of a regular examination but as an

outcome of the inspection made (Tax Compliance

Verification Drive), hence, Section 228 does not

apply in the instant case.

An excerpt from RMO No. 19-2007 states

that: In the absence of a written offer from

taxpayer, imposition of penalties should be in

accordance with Annex A of this order. It was

proved later that there was no written offer made

by the petitioner which was supposed to be the

basis in the preparation and issuance of the

payment form.

Thus, the penalty for each of the findings

should be computed at the maximum amount of

compromise and based on petitioner’s BIR Form

No. 2550M or the monthly Value-Added Tax

(VAT) Declaration of its annual income for that

year.

Wherefore, premises considered, the

instant Petition for Review is PARTIALLY

GRANTED. Accordingly, respondent is

ORDERED TO REFUND OR ISSUE A TAX

CREDIT CERTIFICATE in favor of petitioner’s

excessively paid penalties.

FRANKFORT, INC.

versus

COMMISSIONER OF INTERNAL REVENUE



The Petition for Review was filed by

petitioner, Philippine Power MC Distribution, Inc.

praying that the final decision of the

Commissioner which upheld the Final Decision on

Disputed Assessment (FDDA) of the Regional

Director, assessing petitioner of deficiency income

tax and value-added tax (VAT) inclusive of

surcharge and interest, as well as compromise

penalty.

Petitioner filed the Petition for Review,

where petitioner claims, that respondent's

assessments were based on mere presumption

when it used the cost-ratio method to impute the

IT and VAT deficiencies of the petitioner.

Moreover, it controverts respondent's claim that

petitioner had under-declared purchases during

the taxable year as allegedly sourced from

third-party suppliers, thus resulting an unreported

and additional taxable sale. It further refutes the

imposition of the 50% surcharge imposed by

respondent in its assessment and, lastly,

petitioner argues that the period to collect the

alleged deficiency taxes pursuant to Section 222

(c) of the NIRC of 1997, as amended, had already

lapsed.

As regards the issue on petitioner's

deficiency income tax, it bears to note that the

three elements in the imposition of income tax

are: 1) there must be gain or profit; 2) that the

gain or profit is realized or received, actually or

constructively; and 3) It is not exempted by law or

treaty from income tax. Income tax is assessed on

income received from any property, activity or

service.

The sole basis for the income tax

assessment and the VAT assessment issued by

respondent is the finding that there was

under-declaration of purchase.

Simply put, respondent's theory is that

since there was an under-declaration of

purchases, the same should translate to taxable

income for income tax purposes, and taxable

gross receipts, for VAT purposes.

Such being the case, in the imposition or

assessment of income tax, there must be an

income, and such income was received by the

taxpayer, and not when there is an

under-declaration of purchases.

In the instant case, said elements are not

present. Respondent merely presumed that the

alleged discrepancy/under-declared purchases

constitute an undeclared income. Hence,

respondent's assessment was not based on

undeclared income actually received by

petitioner.

Now, as regards respondent's assessment

for deficiency VAT, it must be pointed out that

under Section 106(A) of the NIRC of 1997, as

amended, VAT is imposed on the "gross selling

price or gross value in money of the goods or

properties sold, bartered or exchanged, such tax

to be paid by the seller or transferor".

Clearly, VAT can be imposed only 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. In other words, the

VAT is imposed when one sells, not when one

purchases.

Accordingly, the surcharge imposed due

to the alleged under-declaration of sales of more

than 30%, which in turn resulted from the alleged

finding of undeclared purchases should likewise

be cancelled.

PHILIPPINE POWER MC DISTRIBUTION INC.

versus

COMMISSIONER OF INTERNAL REVENUE



On the issue of the period of collection had

already lapsed, the Court finds for the petitioner.

"SEC. 203. Period of Limitation Upon Assessment

and Collection. -Except as provided in Section 222,

internal revenue taxes shall be assessed within

three (3) years after the last day prescribed by law

for the filing of the return, and no proceeding in

court without assessment for the collection for the

collection of such taxes shall be begun after the

expiration of such period.”

"SEC. 222. Exceptions as to Period of Limitation of

Assessment and Collection of Taxes. –

(a) In the case of a false or fraudulent return with

intent to evade tax or of failure to file a return,

the tax may be assessed, or a proceeding in

court for the collection of such tax may be filed

without assessment at any time within the (10)

years after the discovery of the falsity, fraud or

omission…

(b) If before the expiration of the time prescribed in

Section 203 for the assessment of the tax, both

the Commissioner and the taxpayer have

agreed in writing to its assessment after such

time, the tax may be assessed within the period

agreed upon. The period so agreed upon may

be extended by subsequent written agreement

made before the expiration of the period

previously agreed upon.

(c) Any internal revenue tax which has been

assessed within the period of limitation as

prescribed in paragraph (a) hereof may be

collected by distraint or levy or by a proceeding

in court within five (5) years following the

assessment of the tax.

(d) Any internal revenue tax, which has been

assessed within the period agreed upon as

provided in paragraph (b) hereinabove, may be

collected by distraint or levy or by a proceeding

in court within the period agreed upon in writing

before the expiration of the five (5)-year period.

The period so agreed upon may be extended

by subsequent written agreements made

before the expiration of the period previously

agreed upon."

"SEC. 223. Suspension of Running of Statute of

Limitations. -

The running of the Statute of Limitations

provided in Sections 203 and 222 on the making

of assessment and the beginning of distraint or

levy or a proceeding in court for the collection, in

respect of any deficiency, shall be suspended for

the period during which the Commissioner is

prohibited from making the assessment or

beginning distraint or levy or a proceeding in

court and for sixty (60) days thereafter; when the

taxpayer requests for reinvestigation which is

granted by the Commissioner; when the

taxpayer cannot be located in the address given

by him in the return filed upon which a tax is

being assessed or collected…”

The issuance of the Warrant of Distraint

and/or Levy was already beyond the 3-year

prescriptive period under Section 203 of the

NIRC of 1997, as amended.

Consequently, the period to assess and

collect by the respondent on the alleged

deficiency taxes of petitioner for the fiscal year

ending June 30, 2008 has already prescribed.

WHEREFORE, premises considered, the

instant Petition for Review is hereby GRANTED.

Accordingly, the Final Decision of the

Commissioner of Internal Revenue holding

petitioner liable for deficiency VAT and income

tax is hereby CANCELLED and WITHDRAWN

for lack of merit.

Continuation...



Tax Supervisor Senior Tax Specialist Managing Partner Tax Specialist

FLOYD C. PAGUIO KEN JOHN B. ASADON AILEEN P. MELCHOR AIRA IZA G. GALLEGOS

EDITORIAL BOARD

Unit 3207 Cityland Pasong Tamo

Condominium, Pasong Tamo St.,

Barangay Pio del Pilar, Makati City

Telephone: (+632) 238-0505

Email:

Floyd C. Paguio:

[email protected]

Ken John B. Asadon:

[email protected]

Aileen P. Melchor

[email protected]

Aira Iza G. Gallegos:

[email protected]

We are a team of Certified Public Accountants,

who aim to be the accounting firm of choice for

business entities in terms of:

Audit and Assurance

Taxation

Business Process Outsourcing

Management Consultancy

This bulletin is a compilation of relevant

issuances, rulings and memoranda

from various government agencies to

enhance the technical skills of the

professional staff of Paguio, Dumayas

and Associates, CPAs and is not

intended to replace the original

issuances of the related government

agencies.