Covanta Energy Philippine Holdings, Inc. vs. Commissioner of Internal Revenue

DECISION

FASON-VICTORINO, J.:

In this Petition for Review filed on November 25, 2004, petitioner Covanta Energy Philippine Holdings, Inc. seeks the cancellation and withdrawal of the assessments issued against it by respondent Commissioner of Internal Revenue (CIR) for alleged deficiency value-added tax (VAT), expanded withholding tax (EWT), and documentary stamp tax (DST) for taxable year 2000, inclusive of increments and compromise penalty, in the aggregate amount of P2, 196,138.04.

1219

THE FACTS

Petitioner Covanta Energy Philippine Holdings, Inc. (CEPHI) alleges that it is duly organized and existing local corporation with principal office at the 17th Floor, Robinsons Equitable Tower, ADS Avenue corner Poveda Street, Ortigas Center, Pasig City. It is registered with the Bureau of Internal Revenue (SIR) Revenue District Office (RDO) No. 43. 1 Respondent CIR is the government official authorized under the National Internal Revenue Code (NIRC) of 1997 to assess and collect internal revenue taxes as well as to decide disputed assessments, subject to the exclusive appellate jurisdiction of this Court.

He may be served with summons and other notices at the BIR National Office Building, BIR Road, Diliman, Quezon City. On February 28, 2004, petitioner received Formal Letters of Demand and Assessment Notices, all dated January 23, 2004, issued by respondent assessing it for deficiency VAT, EWT, and DST in the aggregate amount of P2,196,138.04, broken down as follows: 2 1 Annexes " A" and " B", Petition for Review, docket, pp . 13 and 14; par. 2, Stipulation of Facts, Joint Stipulation of Facts and Issues, docket, pp. 86-87. 2 Exhibits " BBB", " CCC", " AAAA", "AAAA- 1", " BBBB", and " CCCC".

12ZO

Value-added Tax

DEFICIENCY TAX

Expanded Withholding Tax

Compromise Penalty on Withholding Tax on

Compensation

Documentary Stamp Tax

TOTAL

AMOUNT

P1 252 869.02 862 804.35 1,000.00 79 464.67 P2, 196,138.04 According to petitioner, the alleged deficiency VAT arose from respondent's conclusion that there was erroneous computation of output tax, not to mention the disallowed input taxes3 . Respondent deduced that petitioner did not compute the output tax based on gross receipt as required under Section 108 of the Tax Code. Moreover, some input taxes claimed were for the purchase of non- VAT goods such as gasoline, if not expenses for the account of petitioner's affiliates and subsidiaries, shown as follows:

AIR-January 1

None

Manaqement Fees Earned

P15 346,574.00

Less: A/R- December 31 2001

1 023 309.07

Gross Receipts

14 323,264.93

Output Tax

1 432,326.49

Less: Input Tax per Return

1/275 727.06

Disallowed Input Taxes

485 667.17 790,059.89

Value-added Tax Payable

642,266.60 Less: Paid per return

None

Add: carried over to. next quarter 132,703.93

Deficiency VAT

774 970.53 Interest up to 2.24.04 477 898.49

Total Deficiency VAT

P1, 2 5 2,869.02

Petitioner as well complains respondent's assessment on deficiency EWT for taxable year 2000 amounting to P862,804.35 on the ground that it failed to withhold on various income payments subject to EWT, in violation of Revenue Regulation 2-98,4 as indicated below:

2000

ACCOUNT

AMOUNT

WITHHOLDING

TAX DUE

Courier Freight

p 111,679.67 p 1,116.80

Repairs and Maintenance

359,163.94 3 591.64

Security/Janitorial

114,907.01 1,149.07

Advertisement

17 462.00 174.62

Janitorial - HKGA

23,749.00 237.49

Professional Fees

3 279 384.68 327,938.36

Rental Expenses

P12 665 421.52 633 271.08

Total EWT Due

967,479.06

Less: EWT Remitted

433,785.65

Deficiency EWT

533 693.41 Add: Interest up to 2.24.04 329 110.94

TOTAL DEFICIENCY EWT

p 862,804.35 Petitioner also rejects respondent's imposition of compromise penalty of Pl,OOO.OO for its failure to file an alphabetical list (Aiphalist) of employees subjected to withholding tax for the taxable year 2000, in violation of Section 2.83.2 of Revenue Regulations (R.R.) No. 2-98.

Petitioner also denies liability on deficiency DST relative to the several contracts of lease it executed with various lessors for its us/'

in business operation and as residence of its foreign executives, which required the payment of documentary stamp tax pursuant to Section 194 of the Tax Code. 5 The alleged deficiency DST is broken down as follows:

NAME OF

DATE OF

LESSOR

CONTRACT

BASIC DST

SURCHARGE

INTEREST

TOTAL

Cam ira 08.12.99- p 2,421.00 p 605.25 p 2,158.00 p 5,184.25

Holdings

11.02.01

Trixie

09.03.99- 1,092.00 273.00 973.37 2,338.37

Brothers

11.02.01

Ofelia Cheah

09.08.99- 3,052.00 763.00 2,720.44 6,535.44 11.02.01

Abaya

08.30.01- 4,483.00 1,120.75 3,995.99 9,599.74

Investment

12.31.04

Federico

06.13.00- 3,001.00 750.25 2,775.22 6,526.47

Galang

08.31.01

Jobeliz Realty

08.31.99- 17,509.00 4,377.25 15,606.92 37,493.17 08.31.01

Pan American

06.15.99- 5,420.00 1,355.00 5,012.23 11,787.23 07.24.02

Total

P36 978.00 P9_L244.50 P33..L242.17 P79 464.67 On

March

18, 2004, petitioner formally protested the foregoing assessments, citing the factual and legal bases against the subject assessments and prayed for their withdrawal and cancellation. The same letter protest made respondent aware that petitioner already submitted supporting documents to the BIR Task Force on Independent Power Producers. 6 J

On

November

19, 2004, petitioner paid respondent P34,409.83 in settlement of its alleged deficiency DST liability. 7 On November 25, 2004, petitioner filed the instant Petition for Review for failure of respondent to render a decision on the protest against the disputed assessments. On January 31, 2005, respondent filed his Answer with the following Special and Affirmative Defenses 8 : 4.)

Respondent has no personal knowledge on the date of receipt by petitioner of the Final Assessment Notice. Thus, no admission can be made regarding such fact. 5.)

Respondent takes exception from petitioner's assertion that it has submitted all relevant documents in support of its protest.

Many of the documents submitted by the petitioner fail to controvert items/issues in the assessment. Nonetheless, the petitioner submitted substantial documents in support of numerous issues in its protest.

6.)

The Income Tax Returns of the petitioner for taxable year 2000 showed sales/receipts of P15,346,574.00 . The General Ledger of taxpayer for the same year showed Accounts Receivable ending balance of P 1,023,309.07. Thus, petitioner's Gross Receipts for the year, subject to output VAT amounts to P14,323,264.93, or an output

VAT

of P1,432,326.49. The taxpayer did not pay anything of this output VAT.

On the other hand, petitioner claimed input VAT in the amount of P1,060, 789.49 (deductible from output VAT).

However, the examiners in this case, after thorough investigation, disallowed numerous input VAT entries amounting to / 7 Annexes " K" and " K-1", Petition for Review, docket, pp. 29-30; par. 18, Stipulation of Facts, Joint Stipulation of Facts and Issues, docket, p. 91. 8 Docket, pp. 44-45.

I

' P485,667.17, on the basis that these expenditures of the petitioner are either non-VAT items, or coming from purchases made by affiliates and subsidiaries. The BIR records containing the worksheet of the examiners will show supporting computations and particular disallowances made. Thus, Output VAT due

Less:

Input VAT allowed Carried-over input tax from last quarter of 1999 VAT payable for 2000 Add: Carried-over to next quarter Basic VAT deficiency P575,131.32 214,928.57 p 1,432,326.49 (790.059.89) p 642,266.60 132.703.53 p 774,970.53 The taxpayer did not pay any VAT for taxable year 2000.

7.)

Of the assessment on petitioner for deficiency expanded withholding tax, only the payments to ACCRA Law Offices and SGV are payments to General Professional Partnerships. The bulk of the assessment is withholding on rent and service providers of the company.

The examiners made a detailed investigation and verification of the documents submitted by petitioner, and found that there is a discrepancy in the amount collected and paid by petitioner for withholding taxes. The onus of proving that the needful withholding taxes were indeed paid rests on the petitioner.

8.)

While petitioner represents that it has already paid P34,309.83 of the documentary stamp taxes due for taxable year 2000, the assessment for petitioner amounts to P79,464.67 (interest only up to 23 January 2004): Thus, the payment made by petitioner is not the full payment for said tax liability. 9.)

It is presumed that tax assessments are correctly and legally made. The burden of assailing the same rests on the party alleging irregularity. In the instant case, petitioner fails to discharge this burden.

On March 14, 20059 and March 16, 2005 10, the parties filed their respective pre-trial briefs followed by their Joint Stipulation of Facts and Issues on May 13, 2005, which the Court approved on June 9, 2005 11 • Trial ensued during which the parties presented evidence in support of their respective positions. On September 24, 2008, while respondent's Formal Offer of Documentary Evidence was pending resolution, petitioner filed a Motion for Leave of Court to Serve Supplemental Petition Upon

Respondent

and to

Present Additional

Evidence12, with the

Supplemental

Petition 13

attached thereto, praying for the cancellation of the assessments for deficiency VAT and DST for the taxable year 2000 issued against it in the amount of P1,252,869.02 and P79,464.67, respectively, in view of its availment of tax amnesty under Republic Act (R.A.) No. 9480. On November 3, 2008, respondent filed a Supplemental In his Special and Affirmative Defenses, respondent focused on petitioner's alleged availment of tax amnesty under R.A. 9 Docket, pp. 50-61.

10 Docket, pp . 62-71.

11 Docket, p. 95.

12 Docket, pp. 683-687.

13 Docket, pp. 688-695.

14 Docket, pp. 757-765.

12 2G

9480.

Allegedly, petitioner's action was still under investigation/examination and the BIR had a year to verify petitioner's qualifications for the grant of amnesty. Besides, availment of amnesty must still be proved by petitioner.

More

importantly, there is nothing in R.A. 9480, which should be strictly construed, that proVides for cancellation of deficiency tax assessments.

On December 11, 2008, petitioner filed a Supplemental Formal Offer of Evidence15 to which respondent filed a Comment on December 19, 2008.

In its Resolution of February 5, 2009, 16 the Court admitted petitioner's Exhibits "SSS" to "DDDD-1" and deemed partially withdrawn its Petition for Review and the Supplemental Petition for Review insofar as the assessment for deficiency VAT and DST for the taxable year 2000 were concerned considering petitioner's compliance with the all the requisites for availment of tax amnesty under R.A. No. 9480.

On February 24, 2009, petitioner sought clarification and/or reconsideration 17 of the foregoing Resolution to which respondent filed a Comment on March 23, 2009 .18 On May 12, 2009, the Court ruled on the incident as follows:

WHEREFORE, the assessment for deficiency Value Added Tax and Documentary Stamp Tax for the year 2000 is hereby CANCELLED and SET ASIDE solely in view of petitioner's availment of the Tax Amnesty under RA 9480. The parties are GRANTED a non-extendible period of thirty (30) days from receipt hereof within which to file their simultaneous Memoranda on the remaining issues pertaining to Deficiency Expanded Withholding Tax Assessment.

Reconsideration 19

filed on May 29, 2009,2° to which petitioner interposed an objection on June 29, 200921 . On December 8, 2009, the case was submitted for decision 22, after petitioner and respondent filed their memoranda on June 15, 200923 and November 23, 2009, respectively. 24

THE ISSUES

Respondent assessed petitioner for alleged deficiency VAT, expanded withholding tax, and DST in the aggregate amount of P2,196,138.04, broken down as follows:

DEFICIENCY TAX

AMOUNT

Value-added Tax

p 1 252 869.02

Expanded Withholding Tax

862 804.35

Compromise Penalty on WithholdingTax on Compensation

1 000.00

Documentary Stamp Tax

79 464.67

TOTAL

p 2 196 138.04 But as stated earlier, petitioner availed of the benefits under R.A. 9480 resulting in the cancellation of the assessment for deficiency VAT and DST for ta xa ble year 2000 issued against it by respondent.

Hence, only the issues pertaining to the assessment for deficiency expanded withhold ing tax and the compromise penalty on withholding tax on compensation are left for resolution, to wit25 : I.

WHETHER OR NOT PETITIONER IS LIABLE FOR

DEFICIENCY

EXPANDED

WITHHOLDING

TAX

AND COMPROMISE PENALTIES IN CONNECTION

THEREWITH

24 Reso lution dated December 8, 2009, docket, pp . 999 . 25 Docket, p. 84 7.

122 8

I

' II.

WHETHER OR

NOT

PETITIONER

WITHHELD

EXPANDED WITHHOLDING TAX ON

INCOME

PAYMENTS

FOR OFFICE IMPROVEMENTS OR

OPERATIONAL

EXPENSES, PARTICULARLY,

COURIER

FREIGHT,

REPAIRS

AND

MAINTENANCE, SECRETARIAL AND JANITORIAL SERVICES,

ADVERTISEMENTS

AND

RENTAL

EXPENSES

III.

WHETHER OR NOT PETITIONER'S PAYMENT OF

PROFESSIONAL

FEES

TO

GENERAL

PROFESSIONAL PARTNERSHIPS IS SUBJECT TO

EXPANDED WITHHOLDING TAX.

THE RULING OF THE COURT

1. Compromise Penalty on

Withholding

Tax

on

Compensation

Respondent imposed a compromise penalty of Pl,OOO.OO for petitioner's alleged failure to file an alphalist of its employees subjected to withholding tax for taxable year 2000, in violation of Section 2.83.2 of Revenue Regulations No. 2-98. However, there is no indication that petitioner voluntarily entered into such a · compromise with respondent. It was imposed and included in the computation of the assailed assessments without any participation on the part of petitioner. A compromisy 1230 .

' agreement by its very nature is mutual, 26 meaning with the knowledge and consent of both parties. The compromise penalty, being an imposition cannot be compulsorily imposed on the one who did not agree to its imposition. 27 Thus, without the knowledge and conformity of petitioner the compromise penalty is illegal and unauthorized. 28 In fine, respondent's imposition of a compromise penalty cannot be sustained.

2. Deficiency Expanded Wit hholding Tax Respondent assessed petitioner for alleged deficiency EWT in the amount of P862,804.35 for taxable year 2000, inclusive of increments, for failure to withhold taxes on the following transactions:

ACCOUNT

AMOUNT

WITHHOLDI NG

TAX DUE

Courier Freight

p 111 679.67 p 1 116.80

Repairs and Maintenance

359,163.94 3 591.64

Securities & Janitorial

114,907.01 1 149.07

Advertisement

17,462.00 174.62

Janitorial - HKGA

23 749 .00 237.49

Professional Fees

3 279 384 .68 327 938.36

Rental Expense

P12 665 421.52 633 271.08

Total EWT Due

p 967 479.06 26 Vda . De San Agustin vs. CIR, G.R. No. 138485, September 10, 2001. 27 Atlas Consolidated Mining and Development Corporation (doing business under the name Atlas-Itochu Consortium) vs. Commissioner of Internal Revenue, CTA Case No. 5671, August 29, 2002.

28 Commissioner of Internal Revenue vs. Lianga Bay Logging Co., Inc., eta/., G.R. No. L- 35266, January 21, 1991.

1Z::} 1

Less:

EWT Remitted

Deficiency EWT

Add:

Interest up to 2.24.04

TOTAL DEFICIENCY EWT

433 785.65 p 533 693.41 329 110.94 p 862L8Q4.35 For better appreciation, the Court shall address separately each item in detail.

Professional Fees:

The Professional fees in the amount of P3,279,383.68 may be broken down as follows: 29

Payments Made to:

Corporation (5%)

p 475 000.00 Individual (10%j 679 922.71

General Professional Partnerships

537 200.00

Out-of-Pocket

Expenses/Reimbursements

21 545.52

Others

1,565 715.45

Total

P3L279J_383.68 The alleged deficiency EWT on professional fees amounting to P327,938.36 was arrived at by subjecting petitioner's total payments of professional fees for taxable year 2000 amounting to P3,279,383.68 to a tax rate of ten percent (10%). 29 Exhibit " P".

12J 2

Petitioner claims that of the total amount of P3,279,383.68, only P91,742.27 is due as EWT.

Witness Rowena V. Guinto in her Sworn Statement dated September 13, 200530, explained how petitioner arrived at the amount of P91,742.27 as EWT due from the total amount of professional fees that petitioner paid for the taxable year 2000, thus:

A:

The BIR's findings are not accurate. Out of the total amount of P3,279,383.68, the EWT due is only P91, 742.27.

Q:

What is your basis for saying this?

A:

I prepared a summary of the items listed under 'Professional Fees' based on the invoices and official receipts in Petitioner's name for the year 2000.

XXX

XXX

XXX

A:

Since the Details of Discrepancy given by the BIR was not clear as to how it arrived at the amount of P3,279,383.68, I presumed that it just applied the rate of ten percent ( 10%) to the total amount of professional fees of P3,279,384.68 listed in Petitioner's General Ledger. So I retrieved the invoices and official receipts related to the entries in the General Ledger. I then based the summary I prepared on these invoices and official receipts.

Q:

Why do you say that out of the total amount of P3,279,383.68, the EWT due is only P91,742.27.

A:

According to the summary, the taxable amount of P475,000.00 was paid to corporations, so the corresponding Expanded Withholding Tax ('EWT') due 30 Exhibit "Q".

is P23,750.00 (P475,000.00 x 5%). The taxable amount of P679,922. 71 was paid to individuals, so the

EWT

due is P67,922.27 (P679,922.71 x 10%).

Therefore, the total amount of EWT due is P91,742. y

12:>J

..

Q:

Since you stated that the total amount paid for professional fees was P3,279,383.68 but that only P1, 154,922.71 (P475,000.00 + P679,922. 71) was taxable, how do you account for the remainder amounting to P2,124,460.97?

A:

As shown in the summary under the heading 'Non- Taxable Amount', we paid the total amount of P537,200.00

to General

Professional

Partnerships

('GPP's'). Specifically, these GPP's were the ACCRA Law Office, Sycip Salazar Gatmaitan & Hernandez Law Office, and SGV & Co. We also paid a total of P21,545.52 as reimbursements for out-of-pocket expenses. Lastly, we paid a total of P1,565, 715.45 to a non-resident foreign corporation for services performed outside the Philippines. The Court cannot but agree with petitioner's contention that professional fees for services rendered by an individual are subject to 10% withholding tax, while professional fees for services rendered by a taxable corporation or juridical person are subject to only 5%, pursuant to Section 2.57 .2 of Revenue Regulations No. 2-

98. However, of the alleged combined taxable professional fees of P1,154,922.71, only the amount of P25,000.00 was duly substantiated31 by documents of payments to a corporation.

No

additional and relevant supporting documents were adduced to prove that the remaining professional fees of P1,129,922.71 (P1,154,922.71 less P25,000.00) were also paid to juridical person or entity.

Mere allegation to that effect sans supporting evidence is at most self-serving and does not deserve consideration.

Well-

settled is the rule that tax assessments are presumed to be correct 31 Exhibit " P-39".

/ 123 4 ..

unless the contrary is shown, and the burden of proof rests upon the taxpayer to overcome this presumption.

While

the determination of a deficiency tax by the Government is only prima facie correct, the duty to prove otherwise is on the taxpayer. 32 And petitioner utterly failed to discharge this burden. Thus, the imposition of 10% withholding tax rate on the remaining professional fees of P1,129,922.71 is sustainable. As to the payment of professional fees to general professional partnership (GPPs) and out-of-pocket expenses/reimbursements in the amount of P537,200.00 and P21,545.52, respectively, the Court finds for petitioner.

Section

22(8) of the

NIRC

of 1997 defines general professional partnerships as partnerships formed by persons for the sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business. Corollarily, Sections 26 of the NIRC of 1997 and Section 2.57.5(B) of Revenue Regulations No. 2-98 provide as follows:../ 32 H. Tambunting Pawnshop, Inc. v. Commissioner of Internal Revenue, C.T.A. EB No. 68 (C.T.A. Case No. 6238), April 24, 2006, citing Gutierrez v. Collector of Internal Revenue, L- 19537, May 20, 1967; Tan Guan v. Court of Tax Appeals, L-23676, April 27, 1967; Republic v. Philippine Rabbit Bus Lines, Inc. L-26862, March 30, 1970. 1., ,. r

~ JJ

SEC.

26.

Tax

Liability of Members of General

Professional

Partnerships.

A

general professional partnership as such shall not be subject to the income tax imposed under this Chapter. Persons engaging in business as partners in a general professional partnership shall be liable for income tax only in their separate and individual capacities. Xxx SECTION 2.57.5. Exemption from withholding. - The withholding of creditable withholding tax prescribed in these Regulations shall not apply to income payments made to the following:

XXX

XXX

XXX

(B) Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special, such as but not limited to the following: xxx Clear from the foregoing that income payments made to a general professional partnership, as a juridical person, are exempt from income tax, vis-a-vis the expanded withholding tax.

Its

partners are the ones liable in their individual capacities for the payment of income tax, pursuant to Section 26 of the NIRC of 1997. The Supreme Court had the occasion to dwell on the matter in Rufino R. Tan vs. Ramon R. del Rosario Jr., as Secretary of Finance and Jose U. Ong, as Commissioner of Internal Revenue33, thus: Partnerships are, under the Code, either 'taxable partnerships' or 'exempt partnerships.' xxx 'Exempt partnerships,' upon the other hand, are not similarly identified as corporations nor even considered as independent taxable entities for income tax purposes.

A

general professional partnership is such an example. Here, the partners themselves, not the partnership (although it is / 33 G.R. Nos. 109289 and 109446, October 3, 1994.

12JG

..

still obligated · to file an income tax return [mainly for administration and data]), are liable for the payment of income tax in their individual capacity computed on their respective and distributive shares of profits.

In the determination of the tax liability, a partner does so as an individual, and there is no choice on the matter. In fine, under the Tax Code on income taxation, the general professional partnership is deemed to be no more than a mere mechanism or a flow-through entity in the generation of income by, and the ultimate distribution of such income to, respectively, each of the individual partners.

After

careful examination of the pertinent supporting documents34 in relation to the above-quoted provisions of law and jurisprudence, this Court finds that the amount of P548,638.04 (P537,200.00 plus P11,438.04), representing professional fees paid to general professional partnerships and out-of-pocket expenses duly supported by pertinent documents, should not be subjected to withholding tax;

while the remaining out-of-pocket expenses/reimbursements of P10,107.48 (P21,545.52 less P11,438.04) should be subject to 10% withholding tax. The details of the amount of P548,638.04 are as follows:

Payee

Exhibit

ACCRA Law Office

P-2

p

ACCRA Law Office

P-4

ACCRA Law Office

P-7

ACCRA Law Office

P-9

ACCRA Law Office

P- 11

ACCRA Law Office

P-13

ACCRA Law Office

P-15

ACCRA Law Office

P-17

34 Exhibits " P-2" to " P-38".

GPPs

30 000.00 36 000.00 30 000.00 30 000 .00 30 000 .00 30 000.00 30 000.00

Amount

Out-of-Pocket

Exoenses I Reimbursements

p 5 936.54 v / 1.-, , . .., t..J.

' .

ACCRA Law Office

ACCRA Law Office

ACCRA Law Office

ACCRA Law Office

ACCRA Law Office

SGV & Co.

Sycip Salazar

TOTAL

P-19

P-25

P-28

P-31

P-37

P-38

36 000.00 5 501.50 36 000.00 36 000.00 78 000.00 (30 000.00) 140 000.00 25 200.00 p 537 200.00 p 11 4 3 8 .04 The same is true insofar as the amount of P1,565,715.45 allegedly paid to a non-resident foreign corporation for services performed outside the Philippines. Petitioner was unable to establish that the transaction involved a non-resident foreign corporation and the payments were for services rendered outside the Philippines. That being the case, it should be subject to a 10% withholding tax.

To recapitulate, petitioner shall be subject to deficiency expanded withholding tax on professional fees in the amount of P271,824.56, computed as follows: Payments mad e to:

Tax

EW T

rate

Corporation

25 000.00 5% 1 250.00

Individual

p 1 129,922.71 10% p 112 992.27

Out-of-Pocket

Expense/Reimbursement

10,107.48 10% 1 010.75

Others

1 565,715.45 10% 156 571.54

Total

P2,730,745.64 p 271,824.56 1.-,,. "

i.JU . '

Courier Freight:

For courier freight, respondent claims that petitioner paid a total amount of P111,679.67, hence, petitioner should have paid the corresponding one percent ( 1%) withholding tax as provided under R.R. No. 2-98 or in the amount of P1,116.80. But petitioner asserts that it is inaccurate.

Out of

P111,679.67, the taxable amount is only P48,843.55. Ms. Rosita Beleno in her Sworn Statement35 explained as follows:

Q:

As per the BIR, the taxable amount for courier freight is P111,679.67. According to your summary, it is P48,843.55. How do you account for the difference of P58,619 .32?

A:

Firstly, Exhibits 'U-1' and 'U-2' show that a payment of P213.00 was made for registered mail. Secondly, Exhibit 'U-13' and 'U-14' show a payment of P2,430.12 made t6 a general professional partnership, the ACCRA Law Office, for out-of-pocket expenses. Lastly, Exhibit 'U-29' shows a payment of P55,976.20 made to a foreign, non-resident entity."

With the supporting documents, the Court partially agrees with petitioner that the entire amount of P111,679.67 is not subject to expanded withholding tax. However, the amount of P55,976.20, is subject to tax for petitioner's failure to prove that it was made to a foreign non-resident entity.

/

The total accounted courier freight amounts only to P107,462.87 (P48,843.55 + P58,619 .32). It is therefore safe to conclude that the remaining unaccounted courier freight of P4,216.80 shall also be subject to expanded withholding tax. In sum, petitioner shall be liable for deficiency expanded withholding tax on courier freight in the amount of P1,090.37, computed as follows:

WT

EWT

Rate

Taxable as admitted by

Petitioner

p 48 843.55 1% p 488.44

Payment to Foreign

Supplier

55,976.20 1% 559.76 Unaccounted Ex pense 4,216.80 1% 42.17

Total

p 109,036.55 p 1,090.37

Repairs and Maintenance:

Petitioner is also assessed for alleged deficiency EWT on its payments for repairs and maintenance. The deficiency EWT was arrived at by subjecting petitioner's total payments for such repairs and maintenance for the year 2000 in the amount of P359,163 .94 to a tax rate of one percent (1 %) . Petitioner counters that respondent's findings are grossly inaccurate having failed to consider that the payments listed undy 1 ~ 4 0

"Repairs and Maintenance" include purchases of spare parts and other goods in the sum of P309,759.77. Petitioner explains that since it was not among the "Top 5,000 Corporations" at the time, it's purchases of spare parts and other goods shall not be subject to EWT, pursuant to Section 2.57.2(M)(3) of R.R. No. 2-98, which provides as follows:

SECTION

2.57.2.

Income

Payment

Subject

to Creditable Withholding Tax and Rates Prescribed thereon. -

XXX

XXX

XXX

XXX

(M) Income payments made by the top five thousand (5,000) corporations - xxx

XXX

XXX

XXX

(3) A corporation shall not be considered a withholding agent for purposes of this Section, unless such corporation has been determined and duly notified in writing by the Commissioner that it has been selected as one of the top five thousand (5,000) corporations.

But from the Schedule of Repairs and Maintenance prepared by petitioner it appears that not all of the non-taxable purchases were duly supported by documentary evidence. The amount of P78,240. 75, from the alleged non-taxable repairs and maintenance of P309,759.77, in addition to the taxable amount of P49,404.17 as acknowledged by petitioner, shall be subject to EWT. The details of the findings are as follows:

/

1.

FindinjJ_s

Amount

Supporting documents not in the name of petitioner

Exhibit "0-1"

180.00

Exhibit "0-2"

145.00

Exhibit "0 -3"

60.00

Exhibit "0 -12"

120.00

Exhibit "0-13"

60.00

Exhibit "0-20"

565.00

Exhibit "0-24"

170.00

Exhibit "0-25"

90.00

Exhibit "0-28"

60.00

Exhibit "0 -29"

1 000.00

Exhibit "0 -33"

800.00

Exhibit "0-34"

400.00

Exhibit "0-37"

1 139.75

Exhibit "0-38"

60.00

Exhibit "0-42"

49.00

Exhibit " 0 -45"

100.00

Exhibit "0-46"

122.00

Exhibit "0-47"

165.00

Exhibit " 0-48"

210.00

Exhibit "0-49"

50.00

Exhibit "0 -50"

140.00

Exhibit "0-53"

225.00

Exhibit "0-58"

200.00

Exhibit "0 -59"

150.00

Exhibit "0-60"

550.00

Exhibit "0 -61"

200.00

Exhibit "0-62"

100.00

Exhibit "0-64"

2 130.00

Exhibit "0-73"

900.00 124 2

2.

Exhibit " 0 -77"

Exhibit "0-78"

Exhibit "0-79"

Exhibit "0-81"

Exhibit "0-82"

Exhibit "0-83"

Exhibit "0-86"

Exhibit "0-91"

Exhibit " 0-92"

Exhibit " 0-93"

Exhibit "0-94"

Exhibit "0-97"

Exhibit "0-98"

Exhibit "0-111"

Exhibit "0-125"

Sub-total ·

Without supporting documents

JV#1447

JV#1447

JV#1444

JV#1444

JV#1461

JV#1735

JV#1928

JV#2003

Sub-total

TOTAL

1 000.00 1 198.00 260.00 250.00 1 362.00 1 700.00 2 000.00 2 500.00 350.00 146.00 3 516.00 7 416.10 275.00 12 366.80 23 446.10 67 926.75 250.00 1 362.00 1 333.00 915.00 1 119.00 1 940.00 1 595.00 1 800.00 10 314.00 78,240.75

124J

Securities and Janitorial:

Respondent also says that out of P114,907.01 paid for security and janitorial services, petitioner should have paid a withholding tax of P1,149.07, pursuant to R.R. No. 2-98. But petitioner rejects . it arguing that the taxable amount is only P111,839.09.

The discrepancy of P3,067. 92 was directly paid for the overtime work to Joey Siaron, an employee of the service agency employed by petitioner and not to the agency itself. In support thereof, petitioner presented the approved Request · for Payment form 36 for the overtime work of Joey Siaron. But this without more cannot sustain the claim that such payment was made directly to Joey Siaron. Moreover, there is nothing in the Request for Payment form that shows receipt of the said amount by Joey Siaron. In the absence of clear and convincing evidence, the finding of respondent on this item is in order.

Advertisement:

The assessed deficiency EWT on payments for advertisements amounting to P174.62 was arrived at by subjecting the said / 36 Exhibit " R-29".

124 4 payments for the taxable year 2000 in the amount of P17 ,462.00 to a tax rate of one percent ( 1%). However, petitioner claims that it has no deficiency EWT on payments for advertisements since the entire amount of P17 ,462.00 was paid to PLDT to include petitioner in its telephone directory. Since publication of telephone directory does not make PLDT an advertising agency, petitioner's payment does not fall within the coverage of Section 2.57 .2(E)( 4 )(h) of R.R. No. 2-98. This Court is not persuaded.

While it may be true that publication of telephone directory does not make PLDT an advertising agency, yet its income payment thereon is subject to EWT by virtue of Section 2.57 .2(E)( 4 )(f) of R.R. No. 2-98, which provides:

SECTION

2.57.2.

Income

Payment

Subject

to Creditable Withholding Tax and Rates Prescribed Thereon.

XXX

XXX

XXX

XXX

(E) Income payments to certain contractors. - xxx

XXX

XXX

XXX

( 4) Other contractors -

XXX

XXX

XXX /

1245

(f) Printers, bookbinders, lithographer and publishers except those principally engaged in the publication or printing of any newspaper, magazine, review or bulletin which appears at regular intervals, with fixed prices for subscription and sale.

Admittedly,

PLOT

advertised and published petitioner's telephone numbers in its directory and the payment made thereon was an income subject to EWT.

Therefore, respondent's assessment of deficiency EWT on advertisement amounting to P174.62 has to be upheld.

Janitorial Services-HKGA:

Anent the alleged deficiency EWT of P237 .49 on Janitorial Services-HKGA computed by subjecting the amount of P23,749.00 paid to Janitorial Services- HKGA for the year 2000 to a tax rate of one percent ( 1 %), petitioner claims that the entire amount was paid in cash from petitioner's petty cash fund to individuals for janitorial services they had rendered and not to any janitorial agency. As this is amply supported by documents 37, the assessment for EWT on / Janitorial Services-HKGA must necessarily be cancelled. / ~ 37 Exhibits " V- 1" to "V-48".

124G

Rental:

This

time, the claimed total rental payments of P12,665,421.52 was subjected to a tax rate of five percent (5%) giving rise to the deficiency EWT of P633,271.08 on the rental payments. Petitioner contends however that for the year 2000, its rental expense was only P7,383,571.11. Thus, the EWT due must only be P369,178.56, computed at the same rate of 5%. Using the same documents as basis, particularly the Lease Agreements38, this Court finds that petitioner's rental payments subject to EWT amounts to P7,579,439.49, with the corresponding EWT of P 378,971.97, computed as follows:

Monthly

Lessor

Period

Reference

Rental

Rental fo r

Total

(Net of

Year 2000

VAT)

8/15/99 - 10/14/00 Exhibit w- P85 000.00 P807,500.00 10/15/00 - 1 Cam ira 11/02/00 53 832 .73 53 832.73

Holdings

11/03/00 - 11/02/01 Exhibit w- 79 500.00 159 000.00 2

Advance Rental

238 500 .00 P1,258 832.73 9/03/99 - Exhibit w-

Trixie

11/02/00 3 40 860.63 408 606.30

Brothers

11/03/00 - Exhibit w- 11/02/01 4 34 901.78 69,803.56 478,409.86 9/03/99 - Exhibit w-

Ofelia Chean

11/02/00 17 114 366.32 1 143 663.20 11/03/00 - Exhibit w- 11/02/01 18 97 687 .89 195 375.78 1,339,038.98

Federico

6/13/00-

Exhibit W-

Galang

6/13/01 31 100 000.00 1 200 000.00 1 200,000.00

7/25/99 - 7/24/00

Pan American

Advance Rental

7/25/00 - 7/24/01 9/01/99 - 2/28/00 3/01/00 -

Jobeliz Realty

8/31/00 9/1/00 - 2/28/01 3/01/01 - 8/31/01 TOTAL Rental subject to EWT x EWT Rate

EWT Due on Rentals

210 526.32 Exhibit w- 33 2 640 000.00 231 578.95 2 640 000.00 Exhibit w- 36 52 631.58 315 789.48 Exhibit w- 57 894.74 347 368.44 37 663 157.92 p 7,579,439.49 5°/o p 378 971.97 Hinged on the foregoing discussion, petitioner has deficiency EWT liability amounting to P 220,701.39, computed as follows:

TAX BASE

EWT

Courier Freight

p 109 036.55 p 1 090.37

Repairs and Maintenance

127 644.92 1 276.45

Securities and Janitorial

114 907.01 1 149.07

Advertisement

17 462.00 174.62

Professional Fees

2,730 745.64 271,824.56

Rental Expense

7 579 439.49 378 971.97

Total EWT Due

p 654 487.04

Less: EWT Remitted

433 785.65

Deficiency EWT

p 220 701.39

WHEREFORE, the instant Petition for Review is PARTIALLY GRANTED. The compromise penalty imposed on petitioner in the amount of Pl,OOO.OO is hereby CANCELLED, while the assessment for deficiency expanded withholding tax (EWT) issued by respondent against petitioner for taxable year 2000 is MODIFIED. Petitioner is hereby ORDERED TO PAY deficiency expanded withholding tax/ 1248 the amount of P60 1,404.77, inclusive of interest and penalties, computed as follows:

BASIC DEFICIENCY EWT

p 220,70 1.39

Add :

25% Surcharge

p 55 175.35 20% Deficiency Interest (up to October 18, 2005) 208 850 .03 20% Delinquency Interest (P220,701.39 + P55,175.35 + P208,850 .03) x 20% - from

February 23 2004 to October 18 2005

160 159.04 424 184.42

TOTAL AMOUNT DUE

p 644,885.81 Voluntary payment of deficiency EWT per

Less :

Exhibit "GGG"39

Basic Tax

p 22 190.41 Interest up to October 18 2005 21 290 .63 43 481.04

AMOUNT STILL DUE

p 601,404.77 Additionally, petitioner is hereby

ORDERED

TO

PAY

respondent the following:

(a) deficiency interests at the rate of twenty percent (20%) per annum on basic expanded withholding tax of P198,510.98 (P220,701.39 less P22,190.41) computed from October 19, 2005 until full payment thereof, pursuant to Section 249(B) of the NIRC of1997; and

(b) delinquency interest at the rate of twenty percent (20%) per annum on the total deficiency tax of P601,404. 77 and on the 20% deficiency interest which have accrued as afore-stated in (a), ~ 39 The alleged "Voluntary Payment for 2000 Late Payment of Expanded Withholding Tax for Jorkims Corporation" (Exhibit "HHH") was not considered in the computation of EWT Still Due since this Court cannot ascertain if the said payment was indeed related to the EWT on the professional fees subject of the assessment.

computed from October 19, 2005 until full payment thereof, pursuant to Section 249(C) of the NIRC of 1997.

Presiding Justice

E~.UY

Associate Justice

CERTIFICATION

Pursuant to Article VIII,. Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. ~61 · c~ ERNESTO D. ACOSTA

Presiding Justice

12 50