G.R. No. 211289 January 14, 2019, CIR vs. La Flor Dela Isabela

FACTS:
Respondent La Flor dela Isabela, Inc. (La Flor) is a domestic corporation duly organized and existing under Philippine Law. It filed monthly returns for the Expanded Withholding Tax (EWT) and Withholding Tax on Compensation (WTC) for calendar year 2005.

On September 3, 2008, La Flor executed a Waiver of the Statute of Limitations (Waiver) in connection with its internal revenue liabilities for the calendar year ending December 31, 2005 and another Waiver on February 16, 2009, to extend the period of assessment until December 31, 2009. 

La Flor received a copy of the Preliminary Assessment Notice for deficiency taxes for the taxable year 2005 on November 20, 2009. Another waiver was executed on December 2, 2009.

On January 7, 2010, La Flor received Formal Letter of Demand and Final Assessment Notices (FANs) covering the deficiency taxes for the taxable year 2005. All assessment notices were all dated December 17, 2009. 

On January 15, 2010, La Flor filed its Letter of Protest contesting the assessment notices. On July 20, 2010, petitioner Commissioner of Internal Revenue (CIR) issued the Final Decision on Disputed Assessment (FDDA) involving the alleged deficiency withholding taxes in the aggregate amount of ₱6,835,994.76. Aggrieved, it filed a petition for review before the CTA Division.

CTA Division Decision

On August 3, 2012, the CTA Division ruled in favor of La Flor. Based on the dates La Flor had filed its returns for EWT and WTC, the CIR had until February 15, 2008 to March 1, 2009 to issue an assessment pursuant to the three-year prescriptive period under Sec. 203 of the NIRC. The assessment was issued on December 17, 2009 which was beyond the prescriptive period.

On the other hand, the Waivers entered into by both parties did not effectively extend the prescriptive period for the issuance of the tax assessments. Waivers dated September 3, 2008 and December 2, 2009 were never presented or offered in evidence. While, Waiver dated February 16, 2009 did not comply with the provisions of Revenue Memorandum Order (RMO) No. 20-90 because it failed to state the nature and amount of the tax to be assessed.

The CIR moved for reconsideration but it was denied. It filed a Petition for Review before the CTA En Banc.

CTA En Banc Decision

On September 30, 2013, the CTA En Banc affirmed the Decision of the CTA Division. The EWT and WTC assessments were barred by prescription. The prescriptive period for the assessment of EWT and WTC for 2005 was not extended in view of the inadmissibility and invalidity of the Waivers between the CIR and La Flor. 

The CIR moved for reconsideration, but it was denied. Hence, this present petition.

ISSUES:
1. WON the prescriptive period under Section 203 of the NIRC applies to EWT and WTC assessments.
2. WON La Flor's EWT and WTC assessments for 2005 were barred uy prescription.

HELD:

1. Yes. The prescriptive period under Section 203 of the NIRC applies to EWT and WTC assessments.

Withholding tax assessments such as EWT and WTC clearly contemplate deficiency internal revenue taxes. Their aim is to collect unpaid income taxes and not merely to impose a penalty on the withholding agent for its failure to comply with its statutory duty. Further, a holistic reading of the Tax Code reveals that the CIR's interpretation of Section 203 is erroneous. Based on NIRC Title X Chapter I, Section 247(b) and Section 251,  it is clear to see that the "penalties" are amounts collected on top of the deficiency tax assessments including deficiency withholding tax assessments. Thus, it was wrong for the CIR to restrict the EWT and WTC assessments against La Floras only for the purpose of imposing penalties and not for the collection of internal revenue taxes.

2. Yes. La Flor's EWT and WTC assessment for 2005 were barred by prescription.

The Court invalidated the waivers executed by the taxpayer in the case of Commissioner of Internal Revenue v. Standard Chartered Bank, because: (1) they were signed by Assistant Commissioner-Large Taxpayers Service and not by the CIR; (2) the date of acceptance was not shown; (3) they did not specify the kind and amount of the tax due; and (4) the waivers speak of a request for extension of time within which to present additional documents and not for reinvestigation and/or reconsideration of the pending internal revenue case as required under RMO No. 20-90. Tested against the requirements of RMO 20-90 and relevant jurisprudence, the Court cannot but agree with the CTA's finding that the waivers subject of this case suffer from the following defects: a) the waivers in this case did not specify the kind of tax and the amount of tax due; b) the September 3, 2008, February 16, 2009 and December 2, 2009 Waivers failed to indicate the specific tax involved and the exact amount of the tax to be assessed or collected. The Waivers did not effectively extend the prescriptive period under Section 203 on account of their invalidity. The issue on whether the CTA was correct in not admitting them as evidence becomes immaterial since even if they were properly offered or considered by the CTA, the same conclusion would be reached — the assessments had prescribed as there was no valid waiver.