Liquigas Philippines Corporation vs. Commissioner of Internal Revenue

DECISION

MINDARO-GRULLA, J.:

This is a case remanded to the Special Second Division of this Court by the Court of Tax Appeals (CTA) En Bane in CTA EB Nos. 989 and 990, pursuant to the Supreme Court's Decision dated April 18, 2016 in G.R. Nos. 215534 and 215557 entitled Commissioner of Internal Revenue vs. Liquigaz Philippines Corporation and Liquigaz Philippines Corporation vs. Commissioner of Internal Revenue, respectively, for the assessment of deficiency Expanded Withholding Tax (EWT) and Fringe Benefits Tax (FBT) of petitioner for taxable year 2005.

As culled from the Supreme Court's Decision2 in G.R. Nos. 215534 and 215557, the facts of this case are as follows: "Liquigaz Philippines Corporation (Liquigaz) is a corporation duly organized and existing under Philippine laws. On July 11, 2006, it received a copy of Letter of Authority (LOA) No. 00067824, dated July 4, 2006, issued 1 Docket, vol. 3, pp. 1619-1637.

2 Ibid.

{_ by the Commissioner of Internal

Revenue

(CIR}, authorizing the investigation of all internal revenue taxes for taxable year 2005.

On April 9, 2008, Liquigaz received an undated letter purporting to be a Notice of Informal Conference (NIC}, as well as the detailed computation of its supposed tax liability. On May 28, 2008, it received a copy of the Preliminary Assessment Notice {PAN), dated May 20, 2008, together with the attached details of discrepancies for the calendar year ending

December

31, 2005.

Upon

investigation,

Liquigaz

was initially assessed with deficiency withholding tax liabilities, inclusive of interest, in the aggregate amount of P23,931,708.72, broken down as follows:

Expanded Withholding Tax (EWT)

~ 5,456,141.82

Withholdinq Tax on Compensation (WTCJ

~ 4.435.463.97

Frinqe Benefits Tax (FBT)

~ 14,040,102.93

TOTAL

P23,931,708.72 Thereafter, on June 25, 2008, it received a Formal Letter of Demand {FLD}/Formal Assessment Notice (FAN), together with its attached details of discrepancies, for the calendar year ending December 31, 2005. The total deficiency withholding tax liabilities, inclusive of interest, under the FLD was P24,332,347.20, which may be broken down as follows:

EWT

p 5,535,890.38

WTC

p 4,500,169.94

FBT

p 14,296,286.88

TOTAL

P24,332,347.20 - - -~ On July 25, 2008, Liquigaz filed its protest against the FLD/FAN and subsequently submitted its supporting documents on September 23, 2008.

Then, on July 1, 2010, it received a copy of the FDDA covering the tax audit under LOA No. 00067824 for the calendar year ending December 31, 2005. As reflected in

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DEOSION

the FDDA, the CIR still found Liquigaz liable for deficiency withholding tax liabilities, inclusive of interest, in the aggregate amount of P22,380,025.19, which may be broken down as follows:

EWT

p 3 479.426.75

WTC

p 4,508,025. 93

FBT

p 14,392,572.51

TOTAL

P22,380,025.19 Consequently, on July 29, 2010, Liquigaz filed its Petition for Review before the CTA Division assailing the validity of the FDDA issued by the CIR.

The CTA Division Ruling

In its November 22, 2012 Decision, the CTA Division partially granted Liquigaz's petition cancelling the EWT and FBT assessments but affirmed with modification the WTC assessment. It ruled that the portion of the FDDA relating to the EWT and the FBT assessment was void pursuant to Section 228 of the National Internal Revenue Code (NIRC) of 1997, as implemented by Revenue Regulations (RR) No. 12-99.

The CTA Division noted that unlike the PAN and the FLD/FAN, the FDDA issued did not provide the details thereof, hence, Liquigaz had no way of knowing what items were considered by the CIR in arriving at the deficiency assessments. This was especially true because the FDDA reflected a different amount from what was stated in the FLD/FAN. The CTA Division explained that though the legal bases for the EWT and FBT assessment were stated in the FDDA, the taxpayer was not notified of the factual bases thereof, as required in Section 228 of the NIRC. On the other hand, it upheld the WTC assessment against Liquigaz. It noted that the factual bases used in the FLD and the FDDA with regard thereto were the same as the difference in the amount merely resulted from the use of a different tax rate.

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DEGSION

erA CASE NO. 8141

Page 4 of 47

The CTA Division agreed with Liquigaz that the tax rate of 25.40% was more appropriate because it represents the effective tax compensation paid, computed based on the total withholding tax on compensation paid and the total taxable compensation income for the taxable year 2005. It did not give credence to Liquigaz's explanation that the salaries account included accrued bonus, 13th month pay, de minimis benefits and other benefits and contributions which were not subject to withholding tax on compensation. The CTA Division relied on the report prepared by Antonio 0. Maceda, Jr., the court-commissioned independent accountant, which found that Liquigaz was unable to substantiate the discrepancy found by the CIR on its withholding tax liability on compensation. The dispositive portion of the CTA Division decision reads:

WHEREFORE, the Petition for Review is hereby PARTIALLY GRANTED. Accordingly, the assessments for deficiency expanded withholding tax in the amount of P3,479,426.75 and fringe benefits tax in the amount of P14,392,572.51 issued by respondent against petitioner for taxable year 2005, both inclusive of interest and compromise penalty is hereby CANCELLED and WITHDRAWN for being void.

However, the assessment for deficiency withholding tax on compensation for taxable year 2005 is hereby AFFIRMED with MODIFICATIONS. Accordingly, petitioner is hereby ORDERED to PAY respondent the amount of P2,958,546.23, inclusive of the 25% surcharge imposed under Section 248(A)(3) of the NIRC of 1997, as amended, computed as follows:

Salaries per ITR

P52,239,313.00

Less: Salaries per Alphalist

P42,921 057.16

Discrepancy

p 9 318 255.84 Tax rate 25.40%

Basic Withholding Tax on Compensation

p 2,366,836.98

Add: 25% Surcharqe

p 591,709.25 {

CfA CASE NO. 8141

[ Total Amount Due

p 2,958,546.23 In addition, petitioner is liable to pay: (a) deficiency interest at the rate of twenty percent (20%) per annum of the basic deficiency withholding tax on compensation of P2,958,546.23 computed from January 20, 2006 until full payment thereof pursuant to Section 249(B) of the NIRC of 1997, as amended; and (b) delinquency interest at the rate of twenty percent (20%) per annum on the total amount due of P2,958,546.23 and on the deficiency interest which have accrued as aforestated in (a) computed from July 1, 2010 until full payment thereof, pursuant to Section 249(C)(3) of the NIRC of 1997, as amended.

The compromise penalty of P25,000.00, originally imposed by respondent is hereby excluded there being no compromise agreement between the parties.

The CTA En Bane Ruling

In its May 22, 2014 Decision, the CTA En Bane affirmed the assailed decision of the CTA Division. It reiterated its pronouncement that the requirement that the taxpayer should be informed in writing of the law and the facts on which the assessment was made applies to the FDDA- otherwise the assessment would be void. The CTA En Bane explained that the FDDA determined the final tax liability of the taxpayer, which may be the subject of an appeal before the CTA.

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CfA CASE NO. 8141

The CfA En Bane echoed the findings of the CfA Division that while the FDDA indicated the legal provisions relied upon for the assessment, the source of the amounts from which the assessments arose were not shown. It emphasized the need for stating the factual bases as the FDDA reflected different amounts than that contained in the FLD/FAN.

On the other hand, the CfA En Bane sustained Liquigaz's WTC assessment. It observed that the basis for the assessment was the same for the FLD and the FDDA, which was a comparison of the salaries declared in the Income Tax Return (ITR) and the Alpha list that resulted in a discrepancy of P9,318,255.84. The erA En Bane highlighted that the change in the amount of assessed WTC deficiency simply arose from the revision of the tax rate used-from 32% to the effective tax rate of 25.40% suggested by Liquigaz.

Further, it disregarded the explanation of Liquigaz on the ground of its failure to specify how much of the salaries account pertained to de minimis benefits, accrued bonuses, salaries and wages, and contributions to the Social Security System, Medicare and Pag-Ibig Fund. The CfA En Bane reiterated that even the court-commissioned independent accountant reported that Liquigaz was unable to substantiate the discrepancy found by the CIR. Both parties moved for a partial reconsideration of the CfA En Bane Decision, but the latter denied the motions in its November 26, 2014 Resolution." On December 16,2014, respondent filed through registered mail a Motion for Extension of Time to File Petition for Review3 with the Supreme Court.

3 Docket, vol. 3, pp. 1080-1082.

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DEOSION

Page 7 of 4?

Likewise, petitioner filed a Motion for Extension of Time to File Petition for Review4 with the Supreme Court through registered mail on December 19, 2014.

On January 7, 2015, respondent filed another Motion for Extension of Time to File Petition for Review.5 On January 14, 2015, petitioner filed through registered mail its Petition for Review on Certiorari6 with the Supreme Court entitled

Liquigaz Philippines Corporation

vs.

Commissioner of Internal

Revenue, with Docket No. G.R. No. 215557. Meanwhile, on January 20, 2015, respondent filed through registered mail his Petition for Review on Certiorari7 with the Supreme Court entitled Commissioner of Internal Revenue vs. Liquigaz Philippines Corporation, with Docket No. G.R. No. 215534. In a Resolution dated January 21, 2015, the Supreme Court consolidated G.R. No. 215534 with G.R. No. 215557 and granted the parties' separate motions for extension of thirty (30) days within which to file their respective Petitions for Review on Certiorari in G.R. Nos. 215534 and 215557.8 Both petitioner and respondent filed their Comment on the Petition for Review9 and Comment (Re: Petitioner Liquigaz' Petition for Review on Certiorari dated 14 January 2015)10, through registered mail on May 25, 2015 and June 24, 2015, respectively with the Supreme Court.

Both respondent and petitioner filed their Reply (Re: Comment on the Petition for Review dated 25 May 2015)11 and Reply (To the Respondent's Comment dated 23 June 2015)12, through registered mail on September 10, 2015 and October 30, 2015, respectively, with the Supreme Court.

4 Docket, vol. 3, pp. 1083-1088.

5 Docket, vol. 3, pp. 1093-1095.

6 Docket, vol. 3, pp. 1096-1115.

7 Docket, vol. 3, pp. 1237-1258.

8 Docket, vol. 3, pp. 1492-1493.

9 Docket, vol. 3, pp. 1523-1546.

10 Docket, vol. 3, pp. 1548-1561.

11 Docket, vol. 3, pp. 1576-1583.

12 Docket, vol. 3, pp. 1591-1601.

t..

On April 18, 2016, the Supreme Court rendered a Decision13 partially affirming the CTA En Bane Decision dated May 22, 2014 and Resolution dated November 26, 2014 insofar as upholding the assessment on deficiency Withholding Tax in Compensation (WTC) and remanding the case back to the CTA for the assessment on deficiency EWT and FBT. The dispositive portion of the Supreme Court Decision reads as follows:

"WHEREFORE, the May 22, 2014 Decision and the November 26, 2014 Resolution of the Court of Tax Appeals En Bane are PARTIALLY AFFIRMED in that the assessment on deficiency

Withholding

Tax

in Compensation is upheld.

The case is REMANDED to the Court of Tax Appeals for the assessment on deficiency Expanded Withholding Tax and Fringe Benefits Tax.

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CfA CASE NO. 8141

The CTA Special Second Division issued Resolution17 dated March 12, 2018, setting the case for the presentation of petitioner's evidence on April 11, 2018.

On April 11, 2018, counsel for petitioner failed to appear and the presentation of the evidence for the petitioner was reset for the last time to April 30, 2018. 18 However, petitioner's counsel was still absent despite due notice and warning during the hearing on April 30, 2018. Thus, petitioner's right to present further evidence was deemed waived.

During the

hearing, respondent manifested that he will adopt the evidence previously presented .19 On May 31, 2018, respondent filed a Manifestation20 that he is adopting the arguments he raised in his Memorandum filed on May 15, 2012 as his Memorandum. On the other hand, petitioner failed to file a memorandum.21 Accordingly, the case was submitted for decision on July 10, 2018.22 The parties submitted the following issue23 for this Court's resolution:

"Whether the FDDA issued by the respondent against the petitioner is valid.'' It must be noted that per the Supreme Court's Decision, it was ruled that while the FDDA is void for lack of factual basis, the revised assessment on the deficiency WTC per the FDDA actually has factual basis and should withstand the nullity of the FDDA, to wit: "As established, an FDDA that does not inform the taxpayer in writing of the facts and law on which it is based renders the decision void. Therefore, it is as if there was 17 Docket, vol. 3, pp. 1669-1672.

18 Minutes of the Hearing and Order dated April 11, 2018, docket, vol. 3, pp. 1673-1674. 19 Minutes of the Hearing and Order dated April 30, 2018, docket, vol. 3, pp. 1675-1676. 2o Docket, vol. 3, pp. 1684-1685.

21 Records Verification dated June 5, 2018, docket, vol. 3, p. 1683. 22 Resolution dated July 10, 2018, docket, vol. 3, p. 1694. 23 Stipulation of Issue, Joint Stipulation of Facts and Issue (JSFI), docket, vol. 1, p. 172. t

DEOSION

no decision rendered by the CIR. It is tantamount to a denial by inaction by the CIR, which may still be appealed before the CTA and the assessment evaluated on the basis of the available evidence and documents. The merits of the Ewr and FBT assessment should have been discussed and not merely brushed aside on account of the void FDDA. On the other hand, the Court agrees that the FDDA substantially informed Liquigaz of its tax liabilities with regard to its WTC assessment. As highlighted by the CTA, the basis for the assessment was the same for the FLO and FDDA, where the salaries reflected in the ITR and the alphalist were compared resulting in a discrepancy of P9,318,255.84. The change in the amount of assessed deficiency withholding taxes on compensation merely arose from the modification of the tax rates used- 32% in the FLD and the effective tax rate of 25.40% in the FDDA. The Court notes it was Liquigaz itself which proposed the rate of 25.40% as a more appropriate tax rate as it represented the effective tax on compensation paid for taxable year 2005. As such, Liquigaz was effectively informed in writing of the factual bases of its assessment for wrc because the basis for the FDDA, with regards to the wrc, was identical with the FAN-which had a detail of discrepancy attached to it.

Further, the Court sees no reason to reverse the decision of the CTA as to the amount of WTC liability of Liquigaz. It is a time-honored doctrine that the findings and conclusions of the CTA are accorded the highest respect and will not be lightly set aside because by the very nature of the CTA, it is dedicated exclusively to the resolution of tax problems and has accordingly developed an expertise on the subject. The issue of Liquigaz' wrc has been thoroughly discussed in the courts a quo and even the court-appointed independent accountant had found that Liquigaz was unable to substantiate its claim concerning the discrepancies in its wrc." (Emphasis supplied) Considering the foregoing, this Court shall simply adopt its original findings as far as the computation of the deficiency wrc is t.

DEOSION

erA CASE NO. 8141

Page 11 of 47

concerned.

In the dispositive portion of our November 22, 2012 Decision, We ruled as follows:

"However, the assessment for deficiency withholding tax on compensation for taxable year 2005 is hereby

AFFIRMED

with MODIFICATIONS.

Accordingly, petitioner is hereby ORDERED to PAY respondent the amount of P2,958,546.23, inclusive of the 25% surcharge imposed under Section 248 (A) (3) of the NIRC of 1997, as amended, computed as follows:

Salaries per ITR

p 52,239,313.00 Less: Salaries Per Aloha list 42 921 057.16

Discrepancy

p 9,318,255.84 Tax rate 25.40%

Basic WithholdinQ Tax on Compensation

p 2,366,836.98

Add: 25% Surcharoe

591 709.25

Total Amount Due

P2,958,546.23 In addition, petitioner is liable to pay: (a) deficiency interest at the rate of twenty percent (20%) per annum on the basic deficiency withholding tax on compensation of P2,958,546.23 computed from January 20, 2006 until full payment thereof pursuant to Section 249 (B) of the NIRC of 1997, as amended; and (b) delinquency interest at the rate of twenty percent (20%) per annum on the total amount due of P2,958,546.23 and on the deficiency interest which have accrued as aforestated in (a) computed from July 1, 2010 until full payment thereof, pursuant to Section 249 (C) (3) of the NIRC of 1997, as amended. The compromise penalty of P25,000.00, originally imposed by respondent is hereby excluded there being no compromise agreement between the parties." On December 14, 2012, petitioner paid through the SIR's EFPS its deficiency WTC liability for 1Y 2005 in the amount of P8,492,671.3224, broken down as follows: Basic deficiency WTC P2,366,836. 98

Surcharge

591,709.25 24 BIR Form No. 0605 and Confirmation Receipt, docket, vol. 2, pp. 545 and 546.

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Interest

Total Amount Paid

5,531._125.09 P8,492,671.32 The aforesaid payment shall be deducted in the determination of petitioner's final deficiency tax liabilities forTY 2005. Thus, the sole issue for determination of this Court pertains to the assessment of deficiency EWT and FBT of petitioner for taxable year 2005, viz.

"Whether or not petitioner is liable for deficiency EWT and FBT in the amount of P19,832,177.23 for taxable year 2005, inclusive of interest and compromise penalty."

DISCUSSION/FINDINGS

The tax assessments per Formal Letter of Demand (FLD) are reproduced hereunder:

Tax Type

Basic

Interest

Compromise

Total

EWT

p 3,675, 048.75 p 1,815,841.60 p 45,000.00 p 5,535,890.35

FBT

9,501,564.07 4,744,722.81 50,000.00 14,296,286.88

Total

J'13,1!6,612Jl2 P6,5601 564.41 P95,000.00 P19,8~2,177 ._23 -~ I. DEFICIENCY EWT- P5,535,890.35 Based on the FLD25, respondent assessed petitioner of deficiency EWT forTY 2005 in the amount of P5,535,890.35, broken down as follows:

Basic Deficiencv EWT

p 3,675,048.78 Add: Interest up to June 30, 2008 1,815,841.60

Compromise

P25 000.00 Co1'1'1Qromise non filing of alpha list P20,000.00 45,000.00

Total Deficiency EWT

P5,535,890.38 The assessment resulted from respondent's findings that there were income payments made by petitioner in the year 2005 that were >s Exhibit "E".

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not subjected to EWT pursuant to Sections 57(B) and 58 of the National Internal Revenue Code (NIRC) of 1997, as amended and implemented by Revenue Regulations (RR) Nos. 02-98 and 03-04. The details are as follows:?6 Per P _170,178,521.07 | P _ 169,903,059.53| P 275,461.54 | 2%

EWT Due

| 2ii6203.35] | 2,116,203,35 | 10% | 211,620.34 | 7,856,987.02| ss - | ——_—7, 856,987.02 157,139.74 Professional Fees 8,718,992.06 2,377,600.31 6,341,391.75 | 10% 634,139.18 [Rentals si 9,415,302.65 4,026,294.54 | 5% loans 18,909,525.88 18,909,525.88 | 2% 378,190.52 ImportationCharges| |i (isCSdT CT 6,118836.47/ = -- | ——s«6 118,836.47 | 2% 122,376.73 2% | ___ 179,226.45 [Total _—_—[P7,305,713,755.19 |P7,126,875,264.06 |p178,838,401.53 |__| P3,675,048.78 | 1,649,254.23 1,649,254.23 164,925.42 The Court shall discuss each of the above category of income payments hereafter.

1. Contractors/Services — P275,461.54 As for this item of assessment, petitioner failed to provide contradictory arguments as well as supporting documents to discharge its burden of proof.

It bears stressing that tax assessments by tax examiners are presumed correct and made in good faith, with the taxpayer having the burden of proving otherwise. Failure to present proof of error in the assessment will justify the judicial affirmance of said assessment.?” As such, the Court is constrained to uphold the deficiency EWT assessment on contractors/services.

2. Commissions- 1'2,116,203.35 Petitioner argues that respondent erroneously computed petitioner's alleged liability for EWT on commissions by subjecting it to ten percent (10%) EWT rate, although the petitioner properly withheld EWT at the rate of two percent (2%), the reason being that subject payments are for services rendered by various sub-contractors and as such, the same should only be subject to two percent (2%) EWT. Moreover, there are also other expenses which were included/lumped in the account commissions, which were subjected by petitioner to withholding taxes, albeit, using the correct rate. There were also accruals made in the account commissions wherein EWT was paid at the time of actual payment thereof. Thus, to collect EWT on the very same expense or income payment would amount to double taxation.28 The

Court-commissioned

Independent

Certified

Public

Accountant (ICPA) examined the supporting purchase invoices, official receipts, GL vouchers and other supporting documents amounting to P1,620,410.41 (Exhibits "AAAAA-1" to "AAAAA-38''), which disclosed the following: 29

Subjected to 2% EWT

p 456,950.84 1.3.1 Subjected to 2% EWT but not in the Alphalist 135,756.49 1.3.2

Accruals

798,139.52 1.3.3 Payroll related GL entry 179,285.37 1.3.4 50J278.19 1.3.5 P1,620,410.41 It must be noted that the original assessed amount per FLD is P2,116,203.35. Therefore, there is clearly the amount of P495,792.94 (P2,116,203.35 - P1,620,410.41), that remained unsupported and unverified. Accordingly, the Court upholds the deficiency EWT assessment on the amount of P495,792.94. With regard to the amount of P456,950.84 under 1.3.1 above, the ICPA reported that this pertains to purchases of services, which were traced to petitioner's Alphalist of Payees in 2005.30

Based on the

documents presented, the income payments of P456,950.84 subjected to 2% EWT can be broken down as follows: 28 Par. 44, Petitioner's Memorandum, pp. 16 and 17, docket, vel. 1, pp. 431 and 432. 29 Exhibit "III!", p. 6.

30 Exhibit "III!", p. 6.

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DEOSION

CfA CASE NO. 8141

Page 15 of 47

Supplier

rb- Glen Solis ~ ~ r-t- 5

Sub-total

~

Sojits Philippines

~ 4--- 9 1o

Sub-total

--M- Aristeo Castillo

4 13

Sub-total

~

Mega Metro Manila Gas

Corp.

Sub-total

TOTAL

Amount

subject to EWT 12 895.00 4,034.50 4 052.50 3,994.50 12 545.00 37.S22.00 77 543.70 49,479.60 36 145.20 45,337.20 63 488.70 271,994.40 54 101.92 26 371.58 27 631.19 108,104.69 18 354.09 20 975.66 39329.7S P456,950.84

EWT

Exhibit

Withheld

Reference

(2%) 257.90

AAAAA-1

80.69

AAAAA-10

81.05

AAAAA-11

79.89

AAAAA-14

250.91

AAAAA-20

7S0.44 1 550.87

AAAAA-3

989.59

AAAAA-7

722.90

AAAAA-13

906.74

AAAAA-19

1 269.77

AAAAA-24

5.439.87 1 082.04

AAAAA-4

527.43

AAAAA-17

552.62

AAAAA-22

2,162.09 367.08

AAAAA-6

419.51

AAAAA-23

786.S9 P9,138.99 The Court finds that these income payments are actually commissions paid to brokers that are taxable at 10% EWT, pursuant to Section 2.57.2 (G) of RR No. 02-98, as amended, which states: "(G) Income payments to certain brokers and agents.- On gross commissions or service fees of customs, insurance, stock, real estate, immigration and commercial brokers and fees of agents of professional entertainers - Ten percent (10%);"

The supporting documents clearly state that payments made to the above individuals are for commissions at a rate based on their contract with petitioner, hence, falls under the purview of commercial brokers.

Therefore, since petitioner has already remitted 2% EWTon the income payments of P456,950.84, it shall only be liable for the remaining 8% EWT, or the amount ofP36,556.07 (P456,950.84 x 8%). t..

As to the income payments amounting to P135,756.49 classified under 1.3.2 and described by the ICPA as pertaining to purchases of services, with withholding taxes per General Ledger (GL) but not reflected in the Alphalist of Payees in 200531, the same is broken down as follows:

Supplier

Amount

Exhibit

subject to EWT

Reference

'

1 Maria Cindy Lim

10,335.00

AAAAA-2

..1__ Marissa Villanueva 40,161.49

AMAA-S

Manalo

38.790.00

AAAAA-8

,----- 10,970.00

AAAAA-12

- 5,542.50

AAAAA-15

- 14 037.50

AAAAA-16

,----- 7,970.00

AAAAA-18

r-- 7 950.00

AAAAA-21

TOTAL

- - P135,756.49 -- -- - - A perusal of the supporting documents reveals that these represent payments to sales agents, which are subject to 10% EWT under Section 2.57.2(G) of RR No. 02-98, as amended. Therefore, the deficiency EWT assessment on the amount of P135,756.49 is sustained.

With reference to the amount of P798,139.52 classified under 1.3.3, the ICPA found that this pertains to commission accruals which were traced to GL vouchers but not subjected to withholding taxes in 200532• Section 2.57.4 of RR No. 02-98, as amended by RR No. 12-01, provides when the obligation to withhold arises, to wit: "Sec. 2.57.4. Time of withholding. -The obligation of the payor to deduct and withhold the tax under Section 2.57 of these Regulations arises at the time an income payment is paid or payable, or the income payment is accrued or recorded as an expense or asset, whichever is applicable, in the payor's books, whichever comes first. The term 'payable' refers to the date the obligation becomes due, demandable or legally enforceable. 31 Exhibit "IIII", p. 6.

32 Exhibit "IIII", p. 6.

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Provided, however, that where income is not yet paid or payable but the same has been recorded as an expense or asset, whichever is applicable, in the payor's books, the obligation to withhold shall arise in the last month of the return period in which the same is claimed as an expense or amortized for tax purposes."

Applying the foregoing provision to this case, the duty of petitioner to withhold arises when commissions were paid, becomes payable, or were accrued/recorded as expense in petitioner's books, whichever comes first. The second paragraph, however, provides that if petitioner recorded the commissions as expense, although they were not yet paid or payable, the obligation to withhold shall be within the last month of the return period in which commissions were claimed as expenses for tax purposes.

Since it had already accrued and claimed the commissions of P798,139.52 as expense deduction in its ITR33, petitioner was already obligated to withhold and remit the 10% EWT at the time of accrual thereof. Hence, for failure to do so, petitioner is liable to pay deficiency 10% EWTon P798,139.52.

With regard to the payroll related item in the amount of P179,285.37 (under 1.3.4), the ICPA stated that the same was traced to petitioner's accounting system and GL voucher and pertains to commission payment that became part of salaries in February 200534• As per ICPA's summary schedule, the supporting document for this particular item is Exhibit "AAAAA-27", which, however, cannot be found in the records submitted before the Court. On the other hand, petitioner's Chief Finance Officer, Ms. Julieta S. Albano, testified that the amount of P179,285.37 is merely a mistake in the booking of the said expense as it is really a payroll related entry.35 However, We find the GL entry36 submitted by petitioner insufficient to ascertain the truthfulness of such claim. Thus, the 33 Exhibit "I", line 87 (part of the Commissions of P2,116,203.00). 34 Exhibit "!III", p. 7.

35 Exhibit "BBBB", p. 6.

36 Exhibit "QQQQ".

~ deficiency 10% EWT assessment on the commissions of P179,285.37 shall remain.

Likewise, the Court upholds the deficiency 10% EWT assessment on the amount ofP50,278.19 as the supporting documents37 show that the same actually pertains to commissions paid. Considering the foregoing, the deficiency 10% EWT assessment on commissions is upheld but in the reduced amount of P202,481.32, computed as follows:

Deficiency 10% EWT per FLD

p 211620.34 Less: 2% EWT remitted on commissions of P456 950.84 9 139.02 Deficiencv 10% EWT still due P202,481.32

3. Brokers- P1,392,997.76 Petitioner asserts that it is not liable for deficiency EWT in relation to its income payments to brokers for the following reasons: 38

1. Non-resident suppliers:

a. COS-Brok. & Handling-(2)

Premiership/Wheterby

Pl12 419.36

b. COS-Brok. & Handling-Haydock/Ciipper

Posh

180 382.17 p 292,801.53

2. Paid in subsequent year

1100 196.53

Total

P1,392,997.76 Moreover, in its Petition, petitioner asserts that a distinction should be made with respect to foreign and local brokers. Under Section 2.57.2 of RR No. 02-98, it is explicitly provided that there shall be withh~ld a creditable income tax at the rates therein specified for each class of payee from the enumerated items of income payments to persons residing in the Philippines, which includes income payments for rentals and to brokers. Therefore, petitioner contends that no such withholding should be applied on income payments to petitioner's brokers who are not residing in the Philippines and rendered the brokerage services outside of the Philippines. 37 Exhibits "AAAAA-9", "AAAAA-25" and "AAAAA-26", inclusive of sub-markings. 38 Exhibit "F", p. 3.

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Petitioner submitted Exhibits "ZZZ" and "AAAA" which are Certificates of Non-registration issued by the Securities and Exchange Commission (SEC) to Clipper Posh and Wheterby, respectively, to prove that petitioner's payments to these foreign brokers are not subject to EWT.

The ICPA then presented Exhibits "BBBBB" to "BBBBB-88" which are the documents that he was able to examine to ascertain whether said brokerage fees were indeed paid to non-resident foreign entities, as petitioner claims.

Per our investigation, we find that all of the supporting documents pertain to one local supplier only, Manik's Inc. There were no documents (i.e., sales invoices, official receipts, or bank certifications) to corroborate the alleged payments to non-resident foreign brokers, Wheterby and Clipper Posh. Meanwhile, per ICPA Report, there appeared a verified amount of P214,526.70 which was subjected to 2% EWT39, pertaining to insurance costs40• Since it was subjected to 2% EWT, albeit under the category of "income payments to contractors" rather than "income payments made by top 10,000 corporations to local supplier of services" pursuant to Section 2.57.2(M) of RR No. 02-98, as amended, the same shall be deducted from the total assessed amount on broker's fees.

With regard to the alleged P1,100,196.53 broker's fees paid in the subsequent year, petitioner maintains that it was only upon payment in the subsequent year that it was able to withhold the corresponding tax and remit the same to the BIR. However, it was noted that petitioner did not present a breakdown of the amount of P1,100,196.53, which the Court can trace to the 2006 Alphalist of Payees (BIR Form No. 1604-E) marked as Exhibits "AA" to "AA-2". Thus, the Court cannot ascertain the truthfulness of such claim due to lack of evidence. 39 Exhibit "!III", p. 7.

<10 Exhibit "BBBBB-49.4" t.

In fine, petitioner remains liable for deficiency 10% EWT in the amount of P117,847.11 on broker's fees of P1,178,471.06, computed as follows:

Broker's fees subject to 10% EWT per FLD PL392 997.76 Less: Amount pertainino to insurance cost which was subiected 2% EWT 214 526.70 Broker's fees subject to 10% EWT, as adjusted P1,178,471.06 Deficiency 100/o EWT on broker's fees, as adjusted P117,847.11

4. Purchase of Goods- P71,004,300.24 For purchase of goods, respondent's verification resulted to a deficiency EWT assessment on the following income payments:41

Purchases

P6,350,321,051.29

I

Less: Importation

5 732,026,825.85 Local purchases p 618,294 225.44 Other overhead 5,009,873.00

Personnel Party

258,138.41

Traininq

270,895.07

Canteen

61,456.07 Working clothes 1,790.00

ElectricitY

1 630,208.92

Water

8~347.90

Gas

6,200.00

Cars-Fuel

1 250,584.66

Small Equipment and Materials

119,963.63

Articles of Publicity

461,532.18 Sales campaiqns 231._327.29

Gifts

553,837.44

Promotions

40,951.00 S_j)_onsoring 168,752.53

Games

370,808.24

Telephone

1 371 702.84 Portable telephone 1,228,060.57

Small Office Equipment

553,272.52 Printed Papers, Docs, Books, 486,460.73 etc.

Additions to Fixed Assets

56,092,567.00

Total

p 688,546,955.44

Less: Alpha List

617 542,655.20

Difference

P71,004,300.24 •t Exhibit "F", pp. 3 and 4.

(_

Out of the above-listed items in the assessment, petitioner protested some items and offered the following computation:42

Purchases

P6,32~075,405.84

Less: Importation

5,732,026,825.85 Local purchases P595,048 579.99 Other overhead 5,009,873.00

Personnel Party

258,138.41

Traininq

81 293.33

Canteen

61,456.07 Working clothes 1,790.00

Electricity

1,215,246.08

Water

84 347.90

Gas

6,200.00

Cars-Fuel

1,250,584.66

Small Equipment and Materials

17,668.18

Articles of Publicity

255,409.09

Sales Campaiqns

32 600.00

Gifts

496,037.44

Promotions

40,951.00 S_ll_onsoring_ 168,752.53

Games

370,808.24

Telephone

1,371,702.84 Portable telephone 1,228 060.57

Small Office Equipment

441,288.68 Printed Papers, Docs, Books, etc.

188,720.25

Additions to Fixed Assets

34,806 090.35

Total

p 642,435,598.61

Less: Alpha List

617,542,655.20

Difference

- - _P24,892,943.41 - - --~ - -~ - It should be noted that the difference in Local Purchases per respondent's assessment (P618,294,225.44) and Local Purchases per petitioner's recomputation (P595,048,579.99) is P23,245,465.20, which is the assessed amount of LPG Purchases per FLD. We find for petitioner on this matter since the amount of P23,245,465.20 LPG Purchases was separately assessed, and shall be discussed hereafter. Moreover, based on the above table, we find that petitioner has conceded to the EWT assessment on the following income payments, as these remained uncontested, and therefore the total amount of P9,852,665.22 shall be subject to deficiency 1% EWT: I Other overhead P 5,oo9,873.oo I 42 Exhibit "F", p. 10.

I

L..

DEOSION

Personnel Partv

Canteen

Working clothes

Water

Gas

Cars-Fuel

Promotions

Sponsorinq

Games

Telephone

Portable telephone

TOTAL

258.138.41 61456.07 1,790.00 84,347.90 6,200.00 1.250.584.66 40,951.00 168.752.53 370.808.24 1,371,702.84 1.228.060.57 P9,852,665.22 On the other hand, the following items are being contested by petitioner:

a.

Training

p 270,895.07 b.

Electricity

1 630,208.92 c.

Small Equipment and Materials

119,963.63 d.

Articles of Publicity

461,532.18 e.

Sales Campaigns

231,327.29 f.

Gifts

553,837.44 Q.

Small Office Equipment

553,272.52 h.

Printed Papers, Docs, Books, etc.

486,460.73 i.

Additions to Fixed Assets

56,092,567.00

TOTAL

P60,400,064.78 Based on the examination and validation of the documents supporting the above accounts, the Court-commissioned ICPA recommended that the assessed amount of P71,004,300.24 be reduced to P69,082,566.65, computed as follows: 43

Per FSLI'[R/TB

,. 688-'-546 955.44

Less:

Subjected to 1% per Alpha list of Payees and BIR's FAN 617,542 655.20

Contested Amount

,. 71,004,300.24

Less:

Traininq

Payments to General Professional Partnership

,.

5,500.00 One time purchase below PlO 000 14 743.50

Advances to Employees

83 577.50 ,. 103 821.00

Electricity

Payments to an exempt company P1 637 355.44 43 Exhibit "III!", p. 20.

t.

CfA CASE NO. 8141

Small Eauipment and Materials

Advances to Employees

Small Office Equipment

Advances to Employees

Printed Papers Docs Books etc.

Advances to Employees

Not examined/NoW/tax 77 259.75 45 579.95 57 717.45 1,921,733.59 p 69,082,566.65 We shall determine the propriety of each of the above adjustments made by the !CPA totaling P1,921,733.59.

a. Training- 1'103,821.00 Petitioner alleges that the Training account consists of income payments paid to several tax-exempt organizations for seminars/trainings.

The !CPA recommended that the assessed amount of P270,895.07 should be reduced by P103,821.00 which comprised of the following:44

Payments to General Professional Partnership

p 5 500.00 One time purchases below P10,000 14,743.50

Advances to Employees

83 577.50

Total

P103,821.00 Records show that the amount of P5,500.00 pertains to income payment made to Punongbayan & Araullo, a general professional partnership (''GPP") 45, which is exempt from income tax pursuant to Section 26 of the NIRC of 1997, as amended, and consequently from Ewr pursuant to Section 2.57.5 of RR No. 02-98, as amended by RR No. 14-02, which states:

"Sec. 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:

44 Exhibit "III!", p. 20.

45 Exhibit "L''.

XXX

XXX

XXX

t.

DEOSION

(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:

(4) General professional partnerships;" Hence, respondent's deficiency EWT assessment on the amount of PS,SOO.OO is cancelled.

As to the amount of P14,743.50 allegedly representing one time purchases below P10,000.00, the Court sustains the deficiency EWT assessment thereon. It cannot be ascertained from the records whether these alleged one-time purchases were made from non- regular suppliers. As provided for by RR No. 17-03, purchases for at least six (6) times, either in the previous year or current year, are considered purchases from regular supplier, subject to withholding tax, regardless of the amount. Therefore, without supporting document that shows petitioner's declarations of regular suppliers (i.e., Semestral List of Regular Suppliers), the Court cannot assume that the one-time purchases were actually made from non-regular suppliers. Under RR No. 17-2003, it was provided that: "The withholding agent shall submit on a semestral basis a list of regular suppliers of goods and/or services to the Large Taxpayers Assistance Division/Large Taxpayers District Office in the case of large taxpayers duly notified as such pursuant to RR 1-98, as amended, or Revenue District Office having jurisdiction over the withholding agent's principal place of business on or before July 31 or January 31 of each year." (Emphasis supplied) With reference to the alleged advances to employees amounting to P83,577.50, the supporting documents46 show that these pertain to payments for fire-fighting and defensive driving classes which are clearly purchases of services subject to 2% EWT under Section 2.57.2(M) of RR No. 02-98, as amended. 40 Exhibits "CCCCC-3", "CCCCC-4", and "CCCCC-10".

J

t.

DEOSION

CfA CASE NO. 8141

Page 25 of 47

b. Electricitv -1'1,637.355.44 Petitioner alleges that under the Electricity account are income payments to Peninsula Electric Cooperative (''Penelco'') that is a duly registered electric cooperative with the Cooperative Development Authority, hence, exempt from income tax. Petitioner presented BIR Ruling No. DA-371-200747 affirming the Tax Exemption of Penelco, which We find in order. Moreover, examination of the ICPA report"8 reveals that petitioner paid a total amount of P1,637,355.44 to Penelco during the taxable year 2005, which is duly supported by journal vouchers, sales invoices and copies of checks issued by petitioner to Penelco49 • According to the ICPA, the difference between the balance per GL amounting to P1,630,208.92 and the P1,637,355.44 total amount examined can be attributed to the audit adjustment noted in the petitioner's GL. Therefore, the Court cancels the deficiency EWT assessment on the electricity payments to Penelco. However, instead of the !CPA's recommended adjustment of P1,637,355.44, only the assessed amount of P1,630,208. 92 shall be removed in computing the deficiency EWT on purchases of goods.

c. Small Equipment and Materials -1'77.259.75

d. Small Office Equipment- 1'45.579.95

e. Printed Papers, Docs, Books, etc. - 1'57.717.45 The ICPA concluded in his report that liquidated advances to employees in the amounts of P77,259.75, P45,579.95 and P57,717.45 should be excluded from the assessed amounts for Small Equipment and Materials, Small Office Equipment and Printed Papers, Docs, Books, etc., respectively.

The Court disagrees with the !CPA's finding. 47 Exhibit "BBBB".

48 Exhibit "III!", p. 8.

49 Exhibits "DDDDD-1" to "DDDDD-10".

t

Records disclosed that the subject advances to employees represent reimbursements made by petitioner to its employees for purchases of goods or services made by the latter on behalf of petitioner in the ordinary course of business. Section 2.57.3 of RR No. 02-98, as amended by RR No. 30-03, provides as follows:

"Sec. 2.57.3. Persons required to deduct and withhold.-

XXX

XXX

XXX

Agents, employees or any person purchasing goods or services/paying for and in behalf of the aforesaid withholding agents shall likewise withhold in their behalf, provided that the official receipts of payment/sales invoice shall be issued in the name of the person whom the former represents and the corresponding certificate of taxes withheld (BIR Form No. 2307) shall immediately be issued upon withholding of the tax."

Clearly, from the foregoing, employees are required to withhold on income payments made by them on behalf of their employer. Since the subject reimbursements were made on purchases of goods and services and petitioner did not submit proof that such purchases were from non-regular suppliers, the Court sustains the deficiency EWT on the advances to employees in the amounts of P77,259.75, P45,579.95 and P57,717.45.

In sum, the deficiency 1% EWT assessment in the amount of P693,685.91 on purchases of goods amounting to P69,368,591.32 is sustained, computed as follows:

Purchases of Goods per FS/ITR(TB

P688,546,955.44

Less: ·

Subjected to 1% per Alpha list of Payees 617,542,655.20 Purchases of Goods subject to 1% EWT per FLD p 71 004 300.24

Less:

Training

Payments to General Professional Partnership

5 500.00

Electricity

Payments to Penelco, an exempt company 1,630,208.92 Purchases of Goods subject to 1% EWT, as adjusted p 69,368,591.32

L

DEOSION

CfA CASE NO. 8141

Page 27 of 47

X 1%

Deficiency 1% EWT, as adjusted P 693,685.91

5. Other Services- P 7,856,987.02 Based on the FLD, income payments recorded under the Other Services account per FS/ITR/Trial Balance amounting to P7,856,987.02 has no corresponding EWT remittance for the taxable year 2005. The ICPA obtained the schedule of the Other Services account and traced the total to petitioner's GL for the year ended December 31, 2005. He also examined supporting purchase invoices, official receipts, GL vouchers and other supporting documents amounting to P3,809,931.84, marked as Exhibits "PPPPP-1" to "PPPPP-253", and disclosed the following results:

Advances to employees p 220,973.72 Not subjected to withholdinq tax 129,359.31 Amortization of prepaid expenses 3,459,598. 91

Total

1'3,809,931.84 From foregoing, there appears an unsupported amount of P4,047,055.18 (i.e., P7,856,987.02- P3,809,931.84). Upon perusal, the Court noted that the amount considered as Advances to Employees consists mainly of various employee liquidations for travel and meals that are supported by expense reports, petty cash vouchers with attached invoices, tape and official receipts and parking tickets.

However, as discussed earlier, the Court upholds the deficiency EWT assessment on these expenses since there is no guarantee that they were not purchases from non-regular suppliers pursuant to Section 2.57.2(M) of RR No. 2-98, as amended. Moreover, within the Advances to Employees, the Court found payments to Accette Insurance Brokers for life group insurance and fire insurance in the sum of P197,789.44. These were likewise not subjected to EWT, as they are reimbursements of the insurance premiums advanced by the broker in behalf of petitioner. However, t..

DEGSION

since there was no proof that the proper EWT was withheld from the insurer company pursuant to Section 2.57.2{M) of RR No. 2-98, as amended, the Court sustains the deficiency EWT assessment on this item.

Also included in the supporting documents are payments of insurance premiums to The Insular Assurance Co. which were not found in the 2005 Alphalist of Payments50• Therefore, the deficiency EWT assessment on the advances to employees and purchases not subject to EWT in the total amount of P350,333.03 (P220,973.72 + P129,359.31) shall remain. With regard to the alleged amortization of prepaid expenses in the amount of P3,459,598.91, the supporting documents provided were merely journal vouchers, which are not sufficient. Petitioner should have provided the original sales invoices and official receipts showing the actual prepayment to the supplier in order for the Court to determine the actual nature of the expenses and their corresponding tax implications.

Considering the foregoing, the Court upholds the entire deficiency 2% EWT assessment of P157,139.74 on Other Services for the full originally assessed amount of P7,856,987.02.

6. Professional Fees- 1'6,341,391.75 With regard to professional fees, respondent found a discrepancy between petitioner's trial balance accounts and alphalist in the amount of P6,341,391.75.

Petitioner posits that professional fees should also be reduced by the amount of income payments made to GPPs, which, as previously mentioned, are exempt from income tax pursuant to Section 26 of the NIRC of 1997, as amended.

Furthermore, petitioner alleges that expenses under the sub- account Interim Employees were allegedly made to temporary drivers, messengers and administrative staff while expenses under sub- 50 Exhibit "Z-2".

L

CfA CASE NO. 8141 accounts Other contractors- utilities, Other Contractors- securities, and recruitment costs were payments made for utilities, security services and newspaper advertisement cost for job opening, respectively, which were all subjected to proper rates of EWT. Petitioner asserts that all of these expenses cannot by any stretch of imagination be considered as professional fees subject to 10% EWT. The ICPA examined supporting journal vouchers, sales invoices, official receipts and other documents (marked as Exhibits "LLLLL" to LLLLL-202''), and the results are as follows: 51

Per FS/ITWB

p 8 718 992.06 Less: Subjected to 10% EWT per Alpha list of Payees and BIR's FAN 2,377,600.31

Contested Amount

P6,341,391.75

Less:

Subjected to 1% per Alphalist of Payees and traced to third party p 9,121.50 supporting documents Subjected to 2% per Alphalist of Payees and traced to third party 3,093,084.53 supporting documents Payments to professional partnerships 158 100.00 Advances to employees 44,395.40

Total

P3,304,701.43 Not examined/No Withholding Tax P3,036,690.32 Upon review of these supporting documents, the Court notes the following:

a. Subjected to 1% per Alphalist of Pavees and traced to third party supporting documents - P9,121.SO The amount of P9,121.50 subjected to 1% EWT and traced to third party supporting documents, was for payment of drivers52, therefore a purchase of service. Perusal of the supporting documents showed that the EWT withheld was actually 2%, and not 1% which is correct, and therefore, merits removal from the assessed amount of professional fees.

b. Subjected to 2% per Alphalist of Pavees and traced to third partv supporting documents - P3,093,084.53 51 Exhibit "IIII", p. 21.

52 Exhibit "LLLLL -172".

t-

The expenses P3,093,084.53 which were subjected to 2% EWT and traced to third party supporting documents were income payments to service contractors such as maintenance and security agencies, as well as sample testing services. Upon perusal of the supporting documents, it was revealed that the following are properly supported and were properly subjected to 2% EWT:

Supplier Name

Per Supports

Berkman Systems Inc.

p 38 500.00

Gervasio Security

711809.42 Jefcor Laboratories_,_ Inc.

53,236.36

Link Edge

363,636.36

Metropolis Management

1,035 460.88

Nico Investigation

105 000.00

Nozomi Fortune Services

31,891.76

Phil Credit Consulting

28,807.13

Roca Security

624,136.90

TOTAL

P2,992,478.81 As can be gleaned from the above table, there is a discrepancy between expenses subjected to 2% EWT per ICPA and per this Court's finding in the amount of P100,605.72 {P3,093,084.53 less P2,992,478.81). These shall be considered unaccounted for, hence, still subject to deficiency 10% EWT. On the other hand, the amount of P2,992,479.81 shall be taken out from the assessed amount of professional fees.

c. Pavments to professional partnerships- P158,100.00 The amount of P158,100.00 represents payment to Manalo Puna Jocson & Guerzon Law Offices, a GPP as evidenced by its Amended Articles of Partnership53, hence said income payment is exempt from EWT and must be deducted from the assessed amount.

d. Advances to emplovees- P44,395.40 The advances to employees amounting to P44,395.40 are reimbursable expenses subject to 2% EWT, for failing to be supported by a Semestral List of Regular Suppliers, as previously discussed. 53 Exhibit "N".

t..

In sum, the Court upholds the deficiency 10% EWT assessment of P318,169.14 on professional fees amounting to P3,181,691.44, computed as follows:

Professional Fees subject to 10% EWf per FLD P6,341,391.75

Less: Adjustments

Subjected to 2% per Alpha list of Payees and traced to p 9,121.50 third party supporting documents Subjected to 2% per Alphalist of Payees and traced to third party supporting documents 2 992 478.81 Payments to professional partnerships 158,100.00

Total

P3,159,700.31 Professional Fees subject to 10% EWf, as adjusted P3,181,691.44 Deficiency 10% EWT, as adjusted P318,169.14 Again, it is to be noted that the Court cancelled the assessment on the P2,992,478.81 purchase of services properly subjected to 2%, however, we shall deduct this amount from the per Alphalist column of the assessment since not doing so will give rise to the same expenses being doubly removed from the assessed amounts.

7. Rentals- /#4,026,294.54 Petitioner contradicts respondent's assessment on rentals due to respondent's disregard of the timing difference and exemption of non-resident foreign payees.

Rentals

allegedly includes reimbursements/payments to foreign affiliates for rentals of properties abroad. Moreover, it is alleged that the same account also includes amortization of prepaid rentals wherein withholding taxes were remitted at the time of payment.

Meanwhile, the !CPA's examination of the supporting documents (marked as Exhibits "MMMMM" to "MMMMM-35'') yielded the following results:

Subiected to 2% EWT

p 64.000.00 Subiected to 2% EWT but not in the Alphalist 276,315.79

L

Subjected to 5% EWT

Not subjected to EWT Amortization of prepaid expenses Net accruals of rent

Total

263,157.90 3,800.00 495,043.92 3,666,668.56 P4,768,986.17 Upon review of these supporting documents, the Court finds that out of the amount of P4,768,986.17, only the income payment to Oceanic Container amounting to P64,000.0054 is validly supported. For the amortization of prepaid expenses, petitioner presented journal vouchers only, which, as previously discussed, are not sufficient. Furthermore, documents supporting the payments of P276,315.79 and P263,157.90 to Micasa Realty Holdings were also inadequate, for not clearly showing the EWT withheld thereon. The Court agrees with the !CPA's finding that the P3,800.00 was actually not subjected to EWT.

However, as for the accruals and reversals where the consideration of timing difference is a must, the Court finds that journal vouchers/entries are still insufficient to prove the same. The reason is that even though there is an obvious timing difference when it comes to the accrual of the rent expense and the actual payment thereof, there is no reason for petitioner to not present the supporting documents showing the eventual payment of the accrued rent in the following periods.

It must be noted that per ICPA examination, the amount as stated in the supporting documents examined is greater than the discrepancy per FAN (i.e., P4,768,986.17 vs. P4,026,294.54). Nevertheless, the improperly supported amount of P4,704,986.17 (P4,768,986.17 less P64,000.00) is still greater than the said discrepancy. Therefore, the Court upholds the deficiency EWT assessment of P201,314.73 on rental expenses for the full amount of P4,026,294.54.

Again, it is to be noted that the Court cancelled the assessment on the P64,000.00 purchase of services properly subjected to 2% EWT, we shall deduct this amount from the per Alphalist column of the 54 Exhibit "MMMMM-2".

L

assessment since not doing so will give rise to the same expenses being doubly removed from the assessed amounts. B. Interest expense on loans- P18,909,525.88 Petitioner argues that the bank charges are automatically debited from its bank account, thereby depriving petitioner of control over such payments. Thus, petitioner submits that the subject interest expense is not subject to withholding tax pursuant to Section 5 of RR No. 30- 03 which states:

"All income payments which are required to be subjected to withholding tax shall be subject to the corresponding withholding tax rate to be withheld by the person having control over the payment and who, at the same time, claims the expenses." (Emphasis supplied) However, under Section 2.57.2(M) of RR No. 02-98, as amended, and as clarified by Revenue Memorandum Circular No. 72-0455, interest on loans, service fees, and other charges are considered as payments for services rendered, hence, subject to 2% EWT. Consequently, petitioner is liable to pay the deficiency 2% EWT imposed on interest payments of P18,909,525.88. It is petitioner's responsibility, as a withholding agent, to make arrangements with the creditor bank that the amount which the latter would automatically debit from petitioner's account should be net of the 2% EWT.

9. Importation Charges- P43,669,864.25 Based on the Details of Discrepancies56 attached to the FLD, the breakdown of Importation Charges is as follows:

Bank Charges

Broker's Fee

Wharfage

Arrastre

Total

55 See Q18, AlB, Q19 and A19 of RMC No. 72-04. 56 Exhibit "E-1".

p 6,118 836.47 a 1,649,254.23 b 8 961,322.61 c 26 940,450.94 d P43,669,864.25

L

CfA CASE NO. 8141

Petitioner claims that amounts recorded in the account "Importation Charges" actually represent wharfage, arrastre and bank charges paid to the Bureau of Customs (BOC), which is not subject to income tax pursuant to Section 2.57.5(A) of RR No. 02-98. Hence, the total amount of P43,669,864.25 should not be included as part of the deficiency EWT computation.

On the other hand, the ICPA appreciated the foregoing items as follows:

a.

According to the ICPA, there were no bank charges pertaining to importations per petitioner's GL.

b. Brokerage fees paid are being charged to the Brokers account that was previously discussed.

c. Wharfage and Arrastre are paid to government agencies and therefore should not subjected to withholding taxesY Included as an attachment to Exhibit "C", which pertains to the Notice of Informal Conference presented by petitioner is the working paper of respondent entitled Comparison of Importation per BOC and & taxpayer's (TP's) schedule. Based on this document, it appears that respondent was able to vouch the importation documents and found the bank charges, wharfage and arrastre, in the amounts as reported in the FLD. On the other hand, the broker's fee of Pl,649,254.23 is the discrepancy between the total per IEIRDs and per FS. The Court cancels the deficiency EWT assessment on the P8,961,322.61 wharfage fees and P8,961,322.61 arrastre charges as these were paid to the BOC, which is exempt from EWT pursuant to Section 2.57.5 of RR No. 02-98, as amended, which states: "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:

57 Exhibit 'III!", p. 15.

c.

(A)

National government and its instrumentalities, including provincial, city or municipal governments;" On the other hand, as to the bank charges and broker's fees in the respective amounts of P6,118,836.47 and P1,649,254.23, the Court sustains the deficiency EWT assessment thereon. Absent of documentary evidence, the Court cannot ascertain whether the said bank charges and broker's fees were already included in the assessed amounts for interest expense on loans and broker's fees in the respective amounts of P18,909,525.88 and P1,649,254.23.

10. Purchases of LPG- 1'23,245,465.20 The alleged discrepancy of P23,245,465.20 on which petitioner is being assessed of deficiency 1% EWT corresponds to an adjustment made by petitioner for an overstatement of its importation. As explained, it is petitioner's accounting practice "to record all gas importation and local purchases in the account Cost of Sales (COS). At each month-end, the inventory level is determined and any changes [are] charged to the account 'COS-Inventory Change' to properly set up the actual cost of sales for the period." However, based on the !CPA's Report, petitioner was not able to substantiate the discrepancy found by respondent. Therefore, the Court upholds the deficiency 1% EWT assessment of P232,454.65 on purchases of LPG amounting to P23,245,465.20. To recapitulate, petitioner is liable for basic deficiency EWT in the amount of P2,668,836.06, computed as follows: Per Difference,

Per FS{ITR/TB

1601E/ AIDhalist

Adjustments

As Adiusted

Rate

EWTDue

Contractor/Services

170,178,521.07 169,903,059.53 4,012,539.39 2% 80,250.79 Less: (456,950.84) (214,526.70) (9,121.50) (2,992,478.81) (64,000.00)

Commission

2,116,203.35 2,116,203.35 10% 211,620.34 456,950.84 (456,950.84) 2% (9,139.02) t

Brokers

5 980 352.18

Purchase - Goods

688 546 955.44 Other services 7 856 987.02

Professional Fees

8 718 992.06

Rentals

9 415 302.65 Interest expense on loans 18 909 525.88

Importation

Charges

Bank charges 6 118 836.47

Brokers Fee

1649 254.23

Wharfage

8 961322.61

Arrastre

26 940 450.94

LPG Purchases

6,350,321,051.29

Total

7 305 713 755.19 4 587 354.42 214 526.70 617 542 655.20 (5 500.00) (1,630,208.92) - 2 377 600.31 (158 100.00) 9,121.50 2,992,478.81 5 389 008.11 - .

.

- (8 961 322.61) - (26 940 450.94) 6 327 075 586.09 7 126 811 263.66 34 107 964.631 II. Deficiency FBT- P14,296,286.88

1178 471.06

10% 117,847.11 69 368 591.32 1% 693,685.91 7 856 987.02 2% 157 139.74 3 181691.44 10% 318 169.14 4 026 294.54 5% 201 314.73 18 909 525.88 2% 378 190.52 6 118 836.47 2% 122,376.73

1649 254.23

10% 164,925.42 0.00 2% 0.00 0.00 2% 0.00 23,245,465.20 1% 232,454.65 141,206,909.06 2,668,836.06 Respondent assessed petitioner for basic deficiency FBT on income payments not subjected to FBT and unpaid FBT amounting to P9,501,564.07, which is broken down in the FLD and Details of Discrepancies58, as follows:

Total Monetarv Value of Frinqe Benefit not subiected to FBT p 18,988,960.02 Grossed uo MV (68%) 27 924 941.21

Tax Rate

32% Basic Def. FBT Due 8,935,981.19 Add: Unoaid FBT (fTR vs. 1603) 565,582.88 Total Basic Def. FBT Due P9,501,564.07

1. Income payments not subjected to FBT- P18,988,960.02 The monetary value of fringe benefits not subjected to FBT was determined by respondent as follows:

I Income payments not subjected to FBT (P 8,395,981.19) 58 Exhibit "E-1".

c..

DEOSION

Rest-Hotel abroad

Travel Cost

Membershio & Duties

Total

Grossed uo (68°/a)

Deficiencv FBT (32%)

p 1,147 740.15 7 410 238.17 10 430 981.70 P18.988.960.02 27 924 941.21 p 8,935,981.19 Taxation of fringe benefits is covered by Section 33 of the NIRC of 1997, as amended, which states:

"SEC. 33. Special Treatment of Fringe Benefit -

(A)

Imposition of Tax. - A final tax of thirty-four percent (34%) effective January 1, 1998; thirty-three percent (33%) effective January 1, 1999; and thirty-two percent (32%) effective January 1, 2000 and thereafter, is hereby imposed on the grossed-up monetary value of fringe benefit furnished or granted to the employee (except rank and file employees as defined herein) by the employer, whether an individual or a corporation (unless the fringe benefit is required by the nature of, or necessary to the trade, business or profession of the employer, or when the fringe benefit is for the convenience or advantage of the employer). The tax herein imposed is payable by the employer which tax shall be paid in the same manner as provided for under Section 57( A) of this Code. The grossed-up monetary value of the fringe benefit shall be determined by dividing the actual monetary value of the fringe benefit by sixty-six percent (66%) effective January 1, 1998; sixty-seven percent (67%) effective January 1, 1999; and sixty-eight percent (68%) effective January 1, 2000 and thereafter: Provided, howaver, That fringe benefit furnished to employees and taxable under Subsections (B), (C), (D) and (E) of Section 25 shall be taxed at the applicable rates imposed thereat: Provided, further, That the grossed-up value of the fringe benefit shall be determined by dividing the actual monetary value of the fringe benefit by the difference between one hundred percent (100%) and the applicable rates of income tax under Subsections (B), (C), (D) and (E) of Section 25." (Emphasis supplied) ·'

L

CfA CASE NO. 8141

Relative thereto, Section 2.33 of RR No. 03-98, as amended, provides as follows:

"SEC. 2.33. Special Treatment of Fringe Benefits. - (A) Imposition of Fringe Benefits Tax. - A final withholding tax is hereby imposed on the grossed-up monetary value of fringe benefit furnished, granted, or paid by the employer to the employee, except rank and file employees as defined by the Regulations, whether such employer is an individual, professional partnership or a corporation, regardless of whether the corporation is taxable or not, or the government and its instrumentalities except when: (1) the fringe benefit is required by the nature of or necessary to the trade, business or profession of the employer; or (2) when the fringe benefit is for the convenience or advantage of the employer. The fringe benefit tax shall be imposed at the following rates: xxx" (Emphasis supplied) Petitioner explains that some of the expenses included in respondent's computation are not fringe benefits given to non-rank- and-file employees but instead are ordinary and necessary business expenses.

The accounts Rest Hotel- Abroad and Travel Cost are allegedly not subject to fringe benefits tax as these are legitimate business expenses incurred for the purposes of attending business meeting or conferences abroad, activities which are necessary in the conduct of petitioner's business.

On the other hand, the account Membership and Subscription allegedly shows that petitioner incurred fees in several organizations to which it is a member. However, petitioner avers that the membership dues to these organizations listed under the account were incorrectly considered as fringe benefits. Petitioner further states that memberships to the organizations under the said account are corporate memberships, made in the name of petitioner, and for the benefit of petitioner as a corporate entity, and certainly not for particular employees. Petitioner enumerates the following instances: t a. Membership with LPG Industry Association Inc.59, New Petroleum Association60, and Philippine Institute of Petroleum Companies61, all of which are organizations designed for the protection of and oil and gas-related member-companies and the oil and gas industry as a whole.

b. Petitioner's payment of membership dues to Commerce Condominium Corporation62 is a result of its Contract of Lease mandating the payment of membership dues to the condo corp, which owns the common areas of the building where petitioner rents its office space. Section 33(B) of the NIRC of 1997, as amended, defines Fringe Benefits as follows:

"(B) Fringe Benefit Defined. - For purposes of this Section, the term 'fringe benefit' means any good, service or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees as defined herein) such as, but not limited to, the following:

(1) Housing;

(2) Expense account; (3) Vehicle of any kind;

(4) Household personnel, such as maid, driver and others;

(5) Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted;

(6) Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations;

(7) Expenses for foreign travel;

(8) Holiday and vacation expenses; (9) Educational assistance to the employee or his dependents; and 59 Exhibit "S".

60 Exhibit "ZZZZ".

61 Exhibit "T".

62 Lease Contract, Exhibit "DODD".

i

(10) Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows." (Emphasis supplied) On the other hand, ordinary and necessary business expenses allowed as deductions under Section 34(A)(1) of the same Code are defined as follows:

"(A) Expenses.- ( 1) Ordinary and Necessary Trade, Business or Professional Expenses. -

(a) In General.- There shall be allowed as deduction from gross income all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on or which are directly attributable to, the development, management, operation and/or conduct of the trade, business or exercise of a profession, including:

(i) A reasonable allowance for salaries, wages, and other forms of compensation for personal services actually rendered, including the grossed-up monetary value of fringe benefit furnished or granted by the employer to the employee: Provided, That the final tax imposed under Section 33 hereof has been paid;

(ii) A reasonable allowance for travel expenses, here and abroad, while away from home in the pursuit of trade, business or profession;

(iii) A reasonable allowance for rentals and/or other payments which are required as a condition for the continued use or possession, for purposes of the trade, business or profession, of property to which the taxpayer has not taken or is not taking title or in which he has no equity other than that of a lessee, user or possessor; (iv) A reasonable allowance for entertainment, amusement and recreation expenses during the taxable year, that are directly connected to the development, management and operation of the trade, business or {._ profession of the taxpayer, or that are directly related to or in furtherance of the conduct of his or its trade, business or exercise of a profession not to exceed such ceilings as the Secretary of Finance may, by rules and regulations prescribe, upon recommendation of the Commissioner, taking into account the needs as well as the special circumstances, nature and character of the industry, trade, business, or profession of the taxpayer: Provided, That any expense incurred for entertainment, amusement or recreation that is contrary to law, morals public policy or public order shall in no case be allowed as a deduction.

(b) Substantiation Requirements. - No deduction from gross income shall be allowed under Subsection (A) hereof unless the taxpayer shall substantiate with sufficient evidence, such as official receipts or other adequate records: (i) the amount of the expense being deducted, and (ii) the direct connection or relation of the expense being deducted to the development, management, operation and/or conduct of the trade, business or profession of the taxpayer." (Emphasis supplied) Moreover, in the Supreme Court case of H. Tambunting Shop vs. Commissioner of Internal Revenuff'3, it was held that: "The requisites for the deductibility of ordinary and necessary trade or business expenses, like those paid for security and janitorial services, management and professional fees, and rental expenses, are that: (a) the expenses must be ordinary and necessary; (b) they must have been paid or incurred during the taxable year; (c) they must have been paid or incurred in carrying on the trade or business of the taxpayer; and (d) they must be supported by receipts, records or other pertinent papers.

XXX

XXX

XXX

Among the expenses allegedly incurred, courts may consider only those supported by credible evidence and 63 G.R. No. 173373, July 29, 2013.

L

erA CASE NO. 8141 which appear to have been genuinely incurred in connection with the trade or business of the taxpayer.'164 In light of the foregoing, in order for petitioner's expenses to be considered ordinary and necessary business expenses instead of fringe benefits provided to non-rank-and-file employees, petitioner must be able to prove, through clear evidence, that there is a direct connection between the incurred expenses and the trade or business of petitioner. The results of the ICPA's verification procedures, are shown as follows:65 Rest Hotel - abroad

Less:

Subjected to FBT per FAN

Verified as valid business travels Membership &. Subscription

Less:

Subjected to FBT per FAN

Travel Cost

Less:

Subjected to FBT per FAN

Verified as valid travel costs not subject to FBT

Total

Grossed up MV (Total divided by 68%) Tax rate Basic deficiency FBT due p 1,218,293.09 70,552.94 915,758.40 p 231,981.75 p 11,878,118.82 1,447,137.12 10,430,981.70 p 7,410,238.17 5,591,106.28 1,819,131.89 12,482,095.34 18,356,022.56 32% PS,873,927.22 Verified business travels in the amount of P915,758.40 lodged under the account Rest Hotel -Abroad are supported by expense reports and different proofs of payment such as invoices and official receipts. However, as earlier discussed, petitioner should establish the fact that these expenses were incurred in connection with petitioner's business, which it failed to do. The Court did not find any proof that the travels done abroad were business-related, such as certificates of attendance to a conference abroad, or copy of the minutes of a meeting abroad.

64 Citations removed.

Gs Exhibit "!III", p. 21.

{.,

Page 43 of 4 7

On the other hand, upon perusal of the supporting documents for the amount of P5,591,106.28 lodged under the Travel Cost account, the Court found that this is composed primarily of transportation expenses corroborated by expense reports. The following expense reports are accompanied by receipts, invoices, tickets, and a document wherein the kind of work completed by the employee was indicated (i.e., Sales Invoice Countering, Collection, Check Deposit, Pick-up Document/Invoice, Others), which is then signed off by the client. The Court finds that the same are sufficient to prove that the following expenses were incurred in connection to petitioner's business:

Document No.

Amount

Reference

PPPI-106662

p 849.00 00000-20

PPPI-106750

655.00 00000-21

PPPI-106827

803.50 00000-22

PPPI-106882

810.50 00000-23

PPPI-107053

841.50 00000-24

PPPI-107076

761.50 00000-25

PPPI-107177

888.75 00000-26

PPPI-107318

806.50 00000-27

PPPI-107534

695.25 00000-28

PPPI -107 560

583.25 00000-29

PPPI-107610

575.00 00000-30

PPPI-107676

527.75 00000-31

PPPI-107782

734.00 00000-32

PPPI-107880

473.75 00000-33

PPPI-107913

907.50 00000-34

PPPI-108033

606.25 00000-35

TOTAL

P11.519.00 However, other supporting documents do not have attachments wherein the kind of work rendered is indicated and confirmed by the client, hence, failed to prove that the expenses are related to petitioner's trade or business. The expense reports only show the kind of expense, where the same was incurred and with whom (such as meeting with clients), but not whether the purpose is actually business- related. Consequently, the assessment on these expenses is upheld. Meanwhile, as for the Membership and Duties account amounting to P10,430,981.70, while petitioner presented the Articles of Incorporation ("AOI'') of the above-cited associations, it did not present documents evidencing its payment of membership and condo dues. Therefore, there is no way for the Court to ascertain the t..

DEOSION

Page 44 of 4 7

correctness of the amount claimed as membership dues not subject to FBT. Moreover, even the ICPA was not able to examine any supporting document for the Membership and Duties account. In light of the foregoing, the Court upholds the deficiency FBT assessment of P8,930,560.48 on inadequately supported employee expenses, computed as follows:

Rest-Hotel abroad ,.

1147.740.15

Travel Cost

7 410.238.17 MembP.rship & Duties 10 430 981.70

Total

P18,988.960.02 Less: Expenses not subject to FBT per Court's verification 11,519.00 ,. 18,977.441.02 Grossed uo (68%) 27 908.001.50

Deficiencv FBT (32%)

p 8,930,560.48

2. Unpaid FBT- P565,582.88 Based on the FAN, respondent found a discrepancy between the FBT claimed per ITR for the taxable year 2005 and the Total FBT paid per BIR Forms 1603, hence:

Unpaid FBT (I' 565,582.88) Total FBT claimed oer TIR 1"2.596,284.34 Total FBT oer 1603 returns 2 030 701.46

Unpaid FBT

P565,582.88 Since petitioner did not contest this issue, the Court is constrained to uphold the assessment on unpaid FBT amounting to P565,582.88.

In sum, petitioner is liable for a total amount of P9,496,143.36 basic deficiency FBT for lY 2005, computed as follows: Total Moneta_ry_ Value of Fringe Benefit not subjected to FBT ,.

18,988,960.02 Less: Expenses not subject to FBT per Court's verification 11,519.00 Total Monetary Value of Frinqe Benefit not subjected to FBT as adjusted ,. 18 977 441.02 Grossed up MV (68%) p 27 908,001.50

Tax Rate

32%

Basic Deficiency FBT Due

,. 8,930,560.48 Add: Unpaid FBT (TIR vs. 1603) 565,582.88

L

DEOSION

Page o4S of o47

I Total Basic Deficiency FBT Due

III. COMPROMISE PENALTIES- P95,000.00 I '" 9,496,143.361 Respondent imposed compromise penalties on petitioner's deficiency EWT and FBT in the respective amounts of P45,000.00 and P50,000.00.66 Pursuant to RMO No. 01-90, compromise penalties are only amounts suggested in settlement of criminal liability, and may not be imposed or exacted on the taxpayer in the event that a taxpayer refuses to pay the same. It is well-settled that the Court has no jurisdiction to compel a taxpayer to pay the compromise penalty because by its very nature, it implies a mutual agreement between the parties in respect to the thing or subject matter that is so compromised, and the choice of paying or not paying it distinctly belongs to the taxpayer.67 Absent a showing that herein petitioner consented to the compromise penalty, its imposition should be deleted. The imposition of the same without the conformity of the taxpayer is illegal and unauthorized.68

WHEREFORE, premises considered, the instant Petition for Review is PARTIALLY GRANTED. The deficiency WTC, EWT and FBT assessments issued by respondent against petitioner covering the period January 1, 2005 to December 31, 2005 are UPHELD IN PART. Accordingly, petitioner is ORDERED TO PAY the aggregate amount

of EIGHTY-FOUR MILLION

SEVEN

HUNDRED

FIFTEEN

THOUSAND THIRTY PESOS AND TWENTY-SEVEN CENTAVOS

(P84,715,030.27) inclusive of the twenty-five percent (25%) surcharge, twenty percent (20%) deficiency interest and 20% delinquency interest imposed under Sections 248(A)(3), 249(B) and (C) of the NIRC of 1997, as amended, respectively, computed until December 31, 2017, as follows

WTC

EWT

FBT

TOTAL

Basic Tax Due

p 2 366 836.98 p 2 668 836.06 " 9 496143.36 p 14 531 816.40

25% Surcharge

591,709.25 667,209.02 2,374,035.84 3.632.954.10 66 Exhibit "E".

67 The Philippines International Fair, Inc. vs. The Collector of Internal Revenue, et at., G.R. Nos. L- 12928 and L-12932, March 31, 1962.

68 Commissioner of Internal Revenue vs. Lianga Bay Logging Co., Inc., et at., G.R. No. L-35266, January 21, 1991.

t_

| (02,668, 836.06 x 20% x 900/365 days) | | 1,316,138.33 | from oy2syastoogsyoa | pO 211523897; 2,115,238.97 PY 4,615,385.84 4,615,385.84 07/1/10 P5,073,785.19 | ® 4,652,183.41 | ?16,485,565.04

20% Deficiency Interest PF

P9,496, 143.36 x 20% x 887/365 da rr | | 172.366, 936.98 x 20% x 97/365 days) | isezneso| | 163,316.59 | | fromoyoyostorysyiy | ET | 72.668, 836.06 x 20% x 347/365 days) |__| sors s05e3| | 5,075,906.83 |

PO

pe pe ee ee es | fromayyrorormare | | —Pesunicormmsnzresers | _aampsonuy ___{___1__ gauge from 07/1/08 to 12/31/17 a ee ee ee | ssio7047| | 88,070.47 | au3sa100.79 Total Amount Due, 12/14/12 and 12/31/17 P_ 8,730,901.95 | P_18,576,160.70 | P_ 65,900,638.94 | P_ 93,207,701.59 Less; Payment made on 12/14/12 8,492,671,32 a ee 8,492,671.32 P18,576,160.70 Amount Still Due, 12/14/12 and P65,900,638.94 | ?84,715,030.27 12/31/17 In addition, petitioner is ORDERED TO PAY respondent delinquency interest at the rate of twelve percent (12%) on the total amount due of P17,718,862.32 as of June 30, 2008 and July 1, 2010, as determined above, computed from January 1, 2018 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended by Republic Act (RA) No. 10963, also known as Tax Reform for Acceleration and Inclusion (TRAIN), as implemented by RR No. 21- 2018.

[? 16,485, 565.04 x 20% x 3471/365 days} i i 31,354,189.73 31,354,189.73 238,230.63

Associate Justice

© Total Amount Due of P26,211,533.64 less Payment made of P8,492,671.32.

I CONCUR:

9u ',l;"C ~<>4 , 9..

JlfANITo c. CASTANEDA, )II( .

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.

<2~ c. ~ot.. <;J_ ifuANITO C. CASTANEoK,jR,

Acting Presiding Justice

Chairperson, Special Second Division