HERBALIFE INTERNATIONAL PHILIPPINES, INC., v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES Court of Tax Appeals QUEZON CITY Third Division HERBALIFE INTERNATIONAL CTA CASE NO. 8478 PHILIPPINES, INC., Petitioner, Members: versus - Bautista, Chairperson Fa bon-Victorino, and Ringpis-Liban, Jl. COMMISSIONER OF Promulgated: INTERNAL REVENUE, Respondent. X--------------------------------------------------~ ------------;--t-~-r-&--e-;--..-..-..-.--------------X DECISION BAUTISTA, J: The Case Before the Court is a Petition for Reviewl filed by petitioner on April 26, 2012, pursuant to Section 7(a)(2)2 of Republic Act ("RA") No. 11253, as amended by RA No. 92824 and RA No. 95035, in relation to Rule 1 Records, CTA Case No. 8478, Vol. 1, Petition for Review, pp. 10-220, with annexes. 2 "Sec. 7. Jurisdiction.- The Court of Tax Appeals shall exercise: (a) Exclusive appellate jurisdiction to review by appeal, as herein provided: (1) xxx; (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code or other applicable law provides a specific period for action: Provided, that in case of disputed assessments, the inaction of the Commissioner of Internal Revenue within the one hundred eighty day-period under Section 228 of the National Internal Revenue Code shall be deemed a denial; xxx" 3 An Act Creating the Court of Tax Appeals, as amended. 4 An Act Expanding the Jurisdiction of the Court of Tax Appeals (CTA), Elevating its Rank to the Level of a Collegiate Court with Special Jurisdiction and Enlarging its Membership, Amending for the Purpose Certain Sections of Republic Act No. 1125, as amended, Otherwise Known as the Law Creating the Court of Tax Appeals, and for Other Purposes. 5 An Act Enlarging the Organizational Structure of the Court of Tax Appeals, Amending for the Purpose Certain Sections of the Law Creating the Court of Tax Appeals, and for Other Purposes.

DECISION CTA CASE NO. 8478 Page2 of 55 46 of the Revised Rules of the Court of Tax Appeals ('RRCTA")7, which seeks for the Court to render judgment cancelling and withdrawing the Formal Assessment Notice ("FAN") dated August 26, 2011 for being invalid and without legal basis,8 covering alleged deficiency Income Tax, Value-Added Tax ("VAT"), Expanded Withholding Tax ("EWT"), Withholding Tax on Compensation CWTC"), Final Withholding Tax CFWT") of VAT, and Documentary Stamp Tax ("DST") for the calendar year ("CY") 2007, including increments for late payment of WTC and Compromise Penalties.9 The Parties Petitioner Herbalife International Philippines, Inc. ("Herbalife") a wholly-owned subsidiary of Herbalife International, Inc., USA,10 is engaged in the business. of marketing and distributing nutrition, weight management, and personal care products, mainly through direct sellingn via its authorized Distributors.12 Its business address is at G/F Goodland Bldg., 377 Gil Puyat Extension, Makati City.13 Respondent is the Commissioner of Internal Revenue ("CIR"), with office address at the Bureau of Internal Revenue ("BIR") National Office, Agham Road, Diliman, Quezon City. The Facts On April 14, 200814, petitioner filed its Annual Income Tax 6 "Rule 4. Jurisdiction of the Court xxx Sec. 3. Cases within the jurisdiction of the Court in Division. - The Court in Division shall exercise: (a) Exclusive original over or appellate jurisdiction to review by appeal the following: (1) xxx; (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other applicable law provides a specific period for action: xxx" 7 A.M. No. 05-11-07-CTA, November 22,2005. s Records, Vol. 1, Petition for Review, Prayer, p. 38. 9 Id., Pre- Trial Order, Statement of the Case, p. 466. 10 Records Box 1, Exhibit "I," Petitioner's Formal Offer of Evidence ("FOE"). 11 Id., Exhibit "K-1," Judicial Affidavit of Margie B. Alabastro, Q&A 8, p. 2; Records, Vol. 2, Exhibit "WWW," Judicial Affidavit ofLina E.Jacob, Q&A 6, p. 599. 12 Records, Vol. 2, Exhibit "WWW," Judicial Affidavit ofLina E. Jacob, Q&A 7, p. 599. 13 Records Box 1, Exhibit "B," Petitioner's FOE. 14 While the ITR has a stamp dated" APR 14 2007," this appears to be a mistake in the receipt of the BIR and should instead read "APR 14 2008." Considering that the ITR for the year ending December 31, 2007 is due to be filed on April15, 2008 and that the issue date of the Community Tax Certificate ("CTC") in the 2007 ITR is on January 23, 2008, it is impossible for the ITR to be filed on April14, 2007 with a postdated CTC. Moreover, it cannot be claimed that the 2007 ITR is the

DECISION CTA CASE NO. 8478 Retum1s (BIR Form No. 1702) for CY ended 2007. On February 27, 2008, petitioner filed its Annual Information Return of Creditable Income Taxes Withheld (Expanded)/Income Payments Exempt from Withholding Tax16 (BIR Form No. 1604-E). On June 4, 2008, respondent issued a Letter of Authority ("LOA") No. 2001 0006926117 received by petitioner on June 5, 2008, covering all internal revenue taxes from January 1, 2007.18 On January 4, 2010, petitioner received a Revalidation Notice dated December 22, 2010, revalidating the LOA to replace the previously-assigned Revenue Officer.19 On September 28,2010, petitioner received a Notice of Informal Conference ("NIC") dated September 27, 2010.20 On December 23, 2010, respondent issued a Preliminary Assessment Notice, ("PAN"),21 which was received22 by petitioner on December 28,2010.23 After asking for an extension,24 petitioner filed its reply to the PAN on January 31,201125 and June 10, 2011 asking for a reinvestigation of the assessment.26 On September 1, 2011, petitioner received the FAN27 dated August 26, 2011,28 with the following details: 2006 ITR since petitioner already filed its 2006 ITR, that the 2007 ITR does not provide that it is an amended one. Moreover, the 2007 ITR expressly provides that it is for the year ending December 2007, and a comparison of the 2006 and 2007 ITRs shows that the latter is preceded by the former by referring to the amounts of NOLCO and Beginning/Ending Inventories. On top of this, a 2007 ITR was uncovered from the BIR Records showing a receiving stamp with "APR 15 2008" on the 2007 ITR, see BIR Records, pp. 1-33, with annex. 15 Records Box 1, Petitioner's FOE, Exhibit "I." 16 Id., Exhibits "!"and "J-1." 17 BIR Records, p. 44. 18 Records, Vol. 1, Joint Stipulation of Facts and Issues ("JSFI"), p. 284. 19 BIR Records, p. 35. 20 BIR Records, Exhibits "R-3," "R-3-a," "R-3-b," and "R-3-c," pp. 265-267. 21 Id., Exhibits "R-6," "R-6-a," and "R-6-b," pp. 358-363. 22 Id. at 370. 23 Records, Vol. 1, JSFI, p. 284. 24 BIR Records, p. 371. 2s Id. at 935-952. 26 Records, Vol. 1, JSFI, p. 284. 27 Records Box 1, Petitioner's FOE, Exhibit "A;" BIR Records, Exhibit "R-1." 28 Records, Vol. 1, JSFI, p. 284. (

DECISION CT A CASE NO. 8478 Page4of55 I. INCOME TAX ("IT") Taxable Income per ITR [Php] 9,377,113.00 Add: Adjushnents/ disallowance per investigation [Php] 83,987,344.32 Disallowed Expenses due to Non-withholding 3,769,289.73 [PhE] 97,862,197.05 (Schedule 1) 10,105,563.00 [PhE] 107,239,310.05 Unaccounted Expenses (Schedule 2) [Php] 37,533,758.52 Unsupported Expenses (Schedule 3) [Php] 3,281,989.55 Adjusted Taxable Income per investigation [Php] 630,442.00 Basic Income Tax Due 3,912,431.55 Less: Allowable tax credits/payments 630,442.00 [PhE] 3,281,989.55 [Php] 34,251,768.97 Prior Years' Minimum Corporate Income Tax 23,685,332.85 Creditable Tax Withheld at Source claimed per return [PhE] 57,937,101.82 Total Less: Excess Credits Carried Over to Succeeding Year Deficiency Income Tax Add: Interest (04.16.08 to 09.30.11) TOTAL AMOUNT DUE II. VALUE ADDED TAX ("VAT") Taxable Sales per VAT returns [Php] 316,188,408.80 Add: Undeclared Income from Unaccounted Expense (Schedule 2) Taxable Sales per investigation 3,769,289.73 0utput Tax Due Less: Claimed Input Tax ----"'-[P-=.h::.Lp.._]_ _.:..31:..:9.!..,9:..:5.:..7.!..:,6.:..9.:..8.::..53=-- VAT Due Less: Payments per BIR records (Integrated Tax System) 38,394,923.83 Deficiency Value-added Tax Add: Interest (01.26.08 to 09.30.11) 19,491,171.20 TOTALAMOUNTDUE [Php] 18,903,752.63 16,643,909.76 [Php] 2,259,842.87 1,662,996.70 =[~P~h~p]b===~3~,9~22~,8~3~9.~57~ III. EXPANDED WITHHOLDING TAX29 ("EWT") Basic Deficiency Withholding Tax (Schedule 4) [Php] 441,019.08 Add: Interest (01.16.08 to 09.30.11) 326,958.26 TOTALAMOUNTDUE ~[P~h&p]~==~%~7~,9~77~.M~ IV. WITHHOLDING TAX ON COMPENSATION ("WTC") Basic Deficiency Withholding Tax (Schedule 5) [Php] 177,582.49 Add: Interest (01.16.08 to 09.30.11) 131,654.31 TOTALAMOUNTDUE =[bP=h~p]b===~3~09~,2~3~6.~80~ V. FINAL WITHHOLDING TAX ("FWT") Basic Deficiency Withholding Tax (Schedule 1a) [Php] 9,127,910.18 [Php] 18,255,820.35 Add: 50% Surcharge 13,534,315.04 [PhE] 22,662,225.22 Interest (01.16.08 to 09.30.11) [Php] 40,918,045.57 TOTAL AMOUNT DUE VI. FINAL WITHHOLDING OF VAT ("FW-VAT") Basic Deficiency Withholding Tax (Schedule 6) [Php] 1,911,212.34 [Php] 3,822,424.68 Add: 50% Surcharge 2,844,302.86 [PhE] 4,755,515.20 Interest (01.11.08 to 09.30.11) [Php] 8,577,939.88 TOTAL AMOUNT DUE VII. DOCUMENTARY STAMP TAX ("DST") 29 BIR Records, p. 1303.

DECISION CTA CASE NO. 8478 Page5of55 Basic Deficiency Tax (Schedule 7) [Php] 18,407.00 [Php] 36,814.00 Add: 50% Surcharge 27,494.52 [Php] 45,901.52 Interest (01.06.08 to 09.30.11) [Php] 82,715.52 TOTAL AMOUNT DUE On September 29, 2011, respondent received petitioner's Protest Letter to the FAN30 dated September 28,2011, refuting the findings of respondent. 31 On March 8, 2012, petitioner filed its Documentary Stamp Tax Declaration/Return (BIR Form No. 2000) covering a lease transaction dated February 8, 2007 with Goodland Company, Inc. as lessor.32 Due to the inaction of respondent on petitioner's protest, the latter filed the instant Petition for Review with Motion for Suspension of Collection of Tax33 on April26, 2012,34 which was initially raffled to the First Division of the Court of Tax Appeals (" CTA"). On May 9, 2012, the Court issued Summons35 to respondent, ordering her to file her Answer to the Petition for Review within fifteen (15) days from receipt thereof. On the same date, the Court issued a Notice of Hearing36 for the Motion for Suspension of Collection of Tax, setting the hearing on May 15, 2012. On the scheduled hearing, only counsel for petitioner appeared.37 The Court denied the Motion for Suspension of Collection of Tax for failure of petitioner to substantiate .the same with legal or factual bases.38 This was confirmed through a Resolution39 dated May 29,2012. On May 23, 2012, respondent filed by registered mail her Motion for Extension of Time to File Answer4� praying for an additional period 30 Records Box 1, Petitioner's FOE, Exhibits "B" and "B-1." 31 Records, Vol. 1, JSFI, p. 284. 32 Records Box 1, Petitioner's FOE, Exhibit "F," BIR Form No. 2000. 33 Records, Vol. 1, Petition for Review, pp. 10-220, with annexes. 34 Id., JSFI, p. 284. 35 Records, Vol. 1, Summons, p. 221. 36 Id. at 222-223. 37 Records, Vol. 1, Minutes of Hearing dated May 15, 2012, p. 224. 38 Id. 39 Id. at 226. 40 Records, Vol. 1, pp. 228-229. I

DECISION CTA CASE NO. 8478 Page6of55 of twenty (20) days within which to file an Answer; which was later on granted by the Court in its June 5, 2012 Order41. On June 13, 2012, respondent filed, by registered mail, her Answer42. Respondent claims that petitioner failed to submit the required documents in support of its protest against the FAN and Letter of Demand dated August 26, 2011 within the sixty (60) day period from filing of its protest; that because of this, the assessed deficiency IT, VAT, EWT, WTC, FWT, FWT - VAT, DST and Compromise Penalty for CY 2007 has already become final, executory and demandable, thus depriving the Court of jurisdiction to act on the instant petition.43 Respondent also argues that assuming that the Court has jurisdiction to act on the instant petition, petitioner failed to substantiate or controvert by substantial evidence the BIR factual findings, as shown under the Details of Discrepancies attached to the FAN and Letter of Demand dated August 26, 2011, as well as the BIR Letter dated August 26, 2011, bearing the assessed Compromise Penalty for CY 2007.44 Lastly, respondent asserts that she has fully complied with the due process requirement mandated under Section 228 of the 1997 National Internal Revenue Code, as amended (u1997 NIRC"), as implemented by Revenue Regulations ("RR") No. 12-99, when the disputed PAN dated December 23, 2010 and FAN and Letter of Demand dated August 26,2011 were issued; that records clearly show that petitioner was duly afforded an opportunity to controvert the factual findings of respondent on its deficiency taxes for CY 2007 through the issuance of a Notice for Informal Conference and PAN dated August 26, 2011; it was also duly appraised of the factual and legal bases of the deficiencies; and that all presumptions are in favor of the correctness of tax assessments issued by respondent to herein petitioner for CY 2007.45 41 Id. at 231. 42 Records, Vol. 1, Answer, pp. 232-238. 43 Id. at 233-235. 44 Id. at 235-236. 45 Id. at 236-237. (

DECISION CTA CASE NO. 8478 Page 7of55 On June 25, 2012, petitioner filed a Reply46. Thereafter, the Court issued a Notice of Pre-trial Conference47 setting the Pre-Trial Conference on July 20, 2012, which was rescheduled48 to August 3, 2012. Consequently, the parties filed their respective Pre-Trial Briefs on July 31,201249 and August 2, 2012so. On the scheduled Pre-trial Conferencesl, counsels for both parties appeared, counsel for petitioner presented the Secretary Certificate52 authorizing them to sign a Compromise Agreement of a Pre-trial Order that may be issued, while counsel for respondent filed his Special Power of Attorneys3 on August 10, 2012. The parties likewise agreed to submit their Joint Stipulation of Facts and Issues ("JSFI") within fifteen (15)� days therefrom.54 After asking for an extension of fifteen (15) days,ss on September 5, 2012, the parties, through their respective counsels, filed their JSFJ56, which the Court approved in its Resolutions7 dated September 11, 2012. On October 2, 2012, a Pre-trial Orderss was issued by the Court terminating pre-trial and setting the date/ s for the presentation of evidence by the parties. On October 15, 2012, petitioner filed a Motion to Amend Pre- Trial Order,s9 which was granted in open Court during the October 18, 2012 hearing without any objection from respondent, in order to reflect the replacement of petitioner's witness; its reservation of the right to avail modes of discovery; and the changes in the trial dates.6o This was later confirmed in a Resolution61 dated November 13,2012. 46 Records, Vol. 1, Reply, pp. 240-247. 47 Id. at 248. 48 Id., at 249. 49 Records, Vol. 1, Petitioner's Pre-Trial Brief, pp. 250-260. 50 Id., Respondent's Pre-Trial Brief, pp. 261-263. 51 Id., Minutes of Hearing dated August 3, 2012, p. 264. 52 Id. at 265-266. 53 Id. at 267. 54 Id., Minutes of Hearing dated August 3, 2012, p. 264; see pp. 269-270. 55 Records, Vol. 1, pp. 271-276, with annex. 56 Id, JSFI, pp. 284-291. 57 Id. at 293-294. ss Id., Pre-Trial Order ("PTO"), pp. 466-471. 59 Id. at 482-487. 60 Id., Minutes of Hearing dated October 18, 2012, pp. 488-489. 61 Records, Vol. 1, pp. 493-494. I

DECISION CTA CASE NO. 8478 In view of CTA Administrative Circular No. 01-2013, the case was transferred to the Third Division, through an Order62 dated April 4, 2013. During trial, petitioner presented the following witnesses: (1) Ms. Margie B. Alabastro ("Ms. Alabastro")63, Finance Manager and the authorized representative of petitioner; (2) Ms. Mary Ann Capuchino ("Ms. Capuchino")64, the court-commissioned65 Independent Certified Public Accountant ("ICPA"); and (3) Ms. Lina E. Jacob ("Ms. Jacob)66, petitioner's General Manager. On May 30, 2013, petitioner filed a Motion for Leave to Take Deposition67 of its witnesses who are based in Herbalife London, namely, Mr. Mani Manivannan ("Mr. Manivannan") and Ms. Victoria Palmer ("Ms. Palmer"), which was granted by the Court in its Resolution68 dated July 1, 2013. During the July 11, 201369 hearing, counsel for petitioner manifested that they have no more witnesses to present other than the witnesses subject of deposition. The Court granted respondent fifteen (15) days or until July 26, 2013, to file a motion for reconsideration of its Resolution dated July 1, 2013, while counsel for petitioner was granted ten (10) days from receipt thereof to file its comment.70 This was confirmed in Resolution71 dated July 17, 2013. On July 18, 2013, respondent filed her Motion for Reconsiderationn, with petitioner filing a Comment/Opposition with Urgent Ex Parte Motion to Resolve (To Respondent's Motion for Reconsideration Dated 19 July 2013)73on July 31, 2013. 62 Records, Vol. 2, p. 707. 63 Records, Vol. 1, Judicial Affidavit ("JA") of Margie B. Alabastro, pp. 301-463, with annexes; Records, Vol. 1, Minutes of Hearing dated September 25, 2012, p. 464. 64 Records, Vol. 2, JA ofMs. ManJ Ann C. Capuchino, pp. 503-597, with annexes; Records, Vol.1, Minutes ofHearing dated October 18,2012, p. 488; Records, Vol. 2, Minutes ofHearing dated January 22,2013, pp. 684-686. 65 Records, Vol. 1, JA of Ms. ManJ Ann C. Capuchino, pp. 477-480, with annex; Records, Minutes of Hearing dated October 18, 2012, pp. 488-489; see Records, Vol. 1, Oath of Commission dated October 18, 2012, p. 490. 66 Records, Vol. 2, Exhibits "WWW" and "WWW-1," JA ofMs. Lina E. Jacob, pp. 598-683, with annexes; Minutes of Hearing dated January 22, 2013, pp. 684-686; Minutes of Hearing dated May 15, 2013, p. 796. 67 Id. at 797-803. 68 Id. at 806. 69 Id., Minutes of Hearing dated July 11, 2013, p. 807. 7o Id. 71 Id. at 816. 72 Records, Vol. 2, pp. 808-814. 73 Records, Vol. 2, pp. 833-844.

DECISION CTA CASE NO. 8478 Page 9of55 On July 24, 2013, petitioner filed a Compliance (To Order Made in Open Court on 11 July 2013)74, submitting a copy of questions addressed to Mr. Manivannan and Ms. Palmer, which was noted75 by the Court. In response thereto, respondent filed a Comment/Opposition (With Motion to Strike-Off the Record the alleged Compliance filed by petitioner)76 on August 1, 2013. On August 13, 2013, petitioner, through Ms. Alabastro, received the Final Decision on Disputed Assessment ("FDDA")77, which denied petitioner's protest to the FAN due to its failure to present books and other records, in violation of Section 3.1.5 ofRevenue Regulations ('RR") No. 12-1999. On August 16, 2013, petitioner filed an Omnibus Motion to Resolve and Urgent Ex-Parte Motion for the Issuance of an Amended 1 July 2013 Resolution Granting Leave to Take Deposition ("Omnibus Motion")78, which was granted in a Resolution79 dated August 23, 2013. During the August 29, 2013 hearing, counsel for respondent manifested that he would file the appropriate pleading relative to the Resolution of the Court dated August 23, 2013, insofar as the filing of respondent's cross written interrogatories, which the Court noted.so As regards petitioner's Omnibus Motion, the same was granted insofar as the prayer therein to amend the July 1, 2013 Resolution to specifically indicate that the petitioner was granted leave to take the testimony of Mr. Manivannan and Ms. Palmer by Oral Deposition on September 3 and 4, 2013, at the Philippine Embassy in London, United Kingdom.Bl These were confirmed in the Court's Resolution82 dated September 3, 2013. On September 10,2013, petitioner's General Manager Ms. Jacob, filed a letter to the BIR Revenue Region No. 8 Makati, informing it that it already commenced judicial action.s3 This was reiterated by 74 Id. at 820-827. 75 Id. at 832. 76 Id. at 845-850. 77 BIR Records, Exhibit "R-14-c," pp. 1393-1398. 78 Records, Vol. 2, pp. 851-857. 79 Id. at 859-863. 8� Id., Minutes ofHearing dated August 29, 2013, p. 864. 81 Id. 82 Id. at 866-867. ( 83 BIR Records, Exhibit "R-1," pp. 1417-1418.

DECISION CTA CASE NO. 8478 Page 10of55 petitioner's counsel, through a letter84 dated September 12, 2013, informing respondent that petitioner already instituted an appeal before the Court. On September 13, 2013, the Court issued a Resolutionss amending the July 1, 2013 Resolution to specifically indicate that petitioner was granted leave to take the testimony of its witnesses, with the required additional details. During the hearing on November 25, 2013, counsel for petitioner manifested that they were able to depose their last two (2) witnesses on September 3, 2013.86 However, they have not yet received the consularized copy of the transcript from the Department of Foreign Affairs ("DFA").s7 On March 10, 2014, the DFA- Office of Legal Affairs filed with the Court its Endorsement88, with attached transcripts89 of the depositions of Mr. Manivannan and Ms. Palmer taken on September 3 and 4, 2013, together with the requisite Certifications9o executed by Consul Voltaire O.C. Mauricio of the Embassy of the Philippines in London. During the hearing on March 13, 2014, counsel for petitioner moved for the admission of the Depositions of Mr. Manivannan and Ms. Palmer that were transmitted by the DFA to the Court.91 Counsel for respondent was granted fifteen (15) days to file her Comment, while counsel for petitioner was granted ten (10) days from receipt thereof to file a reply.92 Thereafter, the incident shall be deemed submitted for resolution.93 Petitioner was also granted thirty (30) days from receipt of the Resolution on the admission of the subject Depositions to file its Formal Offer of Evidence ("FOE"), while counsel for respondent was granted fifteen (15) days from receipt thereof to file 84 Id. at 1457-1460. 85 Records, Vol. 2, pp. 869-870 86 Id., Minutes of Hearing dated November 25, 2013, p. 873. s7 Id. 88 Id. at 886. 89 Id. at 888-936 and 938-944. 90 Id., at 887 and 937. 91 Records, Vol. 2, Minutes of Hearing dated March 13, 2014, p. 947. 92 Id. I 93 Id.

DECISION CTA CASE NO. 8478 Page 11 o�55 a comment.94 This was later confirmed in a Resolution95 dated March 20, 2014. On March 28, 2014, respondent filed by registered mail her Comment/Opposition96 to the admission of the depositions of Mr. Manivannan and Ms. Palmer; while petitioner filed its Reply (To Respondent's Comment/Opposition Dated 28 March 2014)97 on April 7, 2014. The Court resolved to admit the Depositions of Mr. Manivannan and Ms. Palmer in its Resolution98 dated April16, 2014. After being granted an extension,99 on June 6, 2014, petitioner filed its FOE1oo, offering Exhibits "A," "B," "B-1," "C," "D," "E," "F," "G," "H," "I," "J," "J-1," "K" to "K-11," "K-11-1," "L," "L-1," "M," "N" to "N-1," and "0" to "XXX." This was resolved by the Court in its Resolution101 dated July 14, 2014, admitting all except for Exhibits "C," "E," and "G," for failure to present the originals for comparison with the machine copies. On August 1, 2014, petitioner filed a Motion for Reconsideration (To: Resolution dated 14 July 2014)102, praying for the Court to admit Exhibits "C," "E," and "G" for having complied with the requirements for the presentation of secondary evidence. The Court, in its Resolution103 dated October 22, 2014, denied petitioner's Motion for Reconsideration. � On August 11, 2014, respondent filed an Urgent Omnibus Motion [a. To Reset Trial Hearing [("Motion to Reset")]; b. To Conduct a Hearing before a Commissioner [("Motion to Conduct Commissioner's Hearing")]; and c. To Issue a Subpoena Ad Testificandum to Respondent's Witness [("Motion to Issue Subpoena")].1�4 The Motion to Reset was considered moot, while the Motion to Conduct Commissioner's Hearing was granted by the Court in its Resolutionlos dated August 18, 2014. The Motion to Issue 94 Records, Vol. 2, Minutes of Hearing dated March 13, 2014, p. 947. 95 Id. at 952-953. 96 Id. at 962-967. 97 Id. at 955-961. 98 Id. at 970-973. 99 See Records, Vol. 2, pp. 974-978 and 980. 1oo Records, Vol. 2, Petitioner's FOE, pp. 981-1005. 101 Id. at 1008-1009. 102 Records, Vol. 3, pp. 1010-1022. 1o3 Id. at 1069-1076. 104 Id. at 1025-1026. ( 105 Records, Vol. 3, pp. 1031-1032.

DECISION CTA CASE NO. 8478 Page 12of55 Subpoena was granted in Resolutionl06 dated December 5, 2014, thereafter, a Subpoena Ad Testificandum107 was issued for Revenue Officer ("RO") Ms. Fatima B. Pre ("Ms. Pre"). Presentation of evidence for respondent ensued, wherein the following witnesses were presented: (1) RO Ms. Pre,tos the RO who handled the continuance of investigation and immediate report of the internal revenue tax case of petitioner; and (2) RO Mr. Emilio 0. Romero ("Mr. Romero")109, the RO who conducted a re-investigation relative to the Letter Protest to the FAN. During the hearing on July 7, 2015,110 counsel for respondent manifested that they have no witnesses to present, thus, he was granted fifteen (15) days to file an FOE, and petitioner was granted the same period to file its comment. Thereafter, the incident shall be deemed submitted for resolution of the Court.111 The Court also granted both parties thirty (30) days within which they shall simultaneously file their respective memoranda.112 These were confirmed by the Court in its Resolution113 dated July 20, 2015. After being granted an extension,114 on August 5, 2015, respondent filed, by registered mail, her FOE115 offering Exhibits "R-1," "R-2I " "R-2-aI " "R-3I " "R-3-aI " "R-3-bI " "R-3-cI " "R-4I " "R-4-aI " "R-5I " "R-5-a," "R-5-b," "R-6," "R-6-a," "R-6-b," "R-7," "R-7-a," "R-7-b," "R- 7-c," "R-8," "R-8-a," "R-8-b," "R-8-c," "R-9," "R-9-a," "R-9-b," "R-10," "R-10-a," "R-11," "R-11-a," "R-11-b," "R-12," "R-12-a," R-13," "R-13- a," "R-14," "R-14-a," "R-14-b," "R-14-c," "R-15," "R-15-a," "R-16," and "R-16-a." The Court resolved to admit all Exhibits that were formally offered by respondent through its Resolution116 dated September 4, 2015. 106 Id. at 1080. 107 Id. 1os Id., Exhibit "R-15" and "R-15-a," JA ofRevenue Officer ("RO") Fatima B. Pre, pp. 1198-1207; Minutes of Hearing dated April13, 2015, p. 1148. 109 Id., Exhibits "R-16" and "R-16-a," JA afRO Emilio 0. Romero, pp. 1210-1215. 11o Id., Minutes of Hearing dated July 7, 2015, p. 1175. 111 Records, Vol. 3, Minutes of Hearing dated July 7, 2015, p. 1175. 112 Id. 113 Id. at 1177-1178. 114 See Records, Vol. 3, pp. 1180-1184. 115 Records, Vol. 3, Respondents' FOE, pp. 1186-1196. ( 116 Id. at 1234-1235.

DECISION CTA CASE NO. 8478 Page 13of55 On October 7, 2015, petitioner filed a Motion for Extension to File Petitioner's Memorandum,117 which was granted by the Court in its Resolution11s on October 19, 2015. On November 10, 2015, petitioner filed by registered mail a Memorandum for the Petitioner Ad Cautelam119; while respondent failed to file her memorandum per Records Verification Reports issued by the Court's Judicial Records Division dated October 20, 2015120, November 23, 2015121, and December 2, 2015122. Thereafter, the Court resolved to submit the case for decision through its Resolution123 dated December 4, 2015; hence, this Decision. The Issues124 The parties submit to the Court the following issues: 1. WHETHER THE COURT HAS JURISDICTION OVER THE INSTANT CASE; AND 2. WHETHER THE ASSESSMENTS FOR PETITIONER'S ALLEGED DEFICIENCY TAXES AMOUNTING TO ONE HUNDRED TWELVE MILLION FIVE HUNDRED SIXTY-EIGHT THOUSAND EIGHT HUNDRED FIFTY-SIX AND 50/100 PESOS (PHP112,568,856.50) WERE ISSUED IN ACCORDANCE WITH LAW AND REGULATIONS. Petitioner's Arguments Petitioner claims that respondent erred in disallowing expenses due to non-withholding of taxes; that the discrepancy in the amount stated under the heading of "professional and management fees" represents payment made to a recruitment agency that was already subjected to EWT per the Alphalist and the professional and 117 Records, Vol. 3, pp. 1236-1250, with annexes. 118 Id. at 1252. 119 Id., Memorandum for the Petitioner Ad Cautelam, pp. 1255-1296. 12o Id. at 1253. 121 Id. at 1254. 122 Id. at 1298. 123 Records, Vol. 3, p. 1300. r 124 Records, Vol. 1, PTO, pp. 467-468.

DECISION CTA CASE NO. 8478 Page 14of55 management fees paid to general professional partnerships ("GPP"), which is not subject to withholding tax. It further maintains that respondent failed to discharge the burden of proving the taxability of the unaccounted expenses; that under-declaration of an expense is not prohibited by law, what the law prohibits is to claim a deduction beyond the amount authorized therein; that respondent erred in computing its unsupported expenses; that it was able to adduce sufficient proof to substantiate the deductions claimed through the various official receipts ("OR"), journal/cash vouchers, and petty cash vouchers; that pursuant to BIR Ruling DA 238-03, the absence of original receipts or records does not prevent a taxpayer from proving, by other evidence, that the claimed deduction was really paid or incurred; that respondent erred in subjecting royalties and production bonuses paid to non-resident distributors and interest expense to VAT; that pursuant to Section 4.114 ofRR No. 2-98, as amended by Section 7 ofRR No. 14-02, only payments to non-residents for services rendered in the Philippines are subject to Final Withholding of VAT; and that it kept and preserved its records as required by law and regulations, thus negating the Php50,000.00 penalty assessed against it. Respondent's Counter-Arguments In her Answer, respondent argues that the Court has no jurisdiction over the instant Petition for Review because it has become final, executory and demandable for failure of petitioner to submit the required documents in support of its protest, within the sixty (60) day period from filing of its protest; that even assuming that the Court has jurisdiction, petitioner failed to substantiate or controvert by substantial evidence the BIR factual findings, as shown under the Details of Discrepancies attached to the FAN and Letter of Demand dated August 26, 2011; that she has fully complied with the due process requirement mandated under Section 228 of the 1997 NIRC, as amended and RR No. 12-99; that the assessments issued against petitioner for deficiency IT, VAT, EWT, WTC, FWT, FWT - VAT, DST and Compromise Penalty .for CY 2007 were made in accordance with law and regulations; and that all presumptions are in favor of the correctness of tax assessments. (

DECISION CTA CASE NO. 8478 Page 15of55 The Ruling of the Court At the outset, the Court finds the need to determine whether it has jurisdiction over the instant Petition for Review. The Court has jurisdiction over the Petition for Review. Respondent claims that the Court has no jurisdiction over the Petition for Review because the assessment has become final, executory, and demandable for failure of petitioner to submit the required documents within sixty (60) days after the filing of its protest. The Court does not agree. Section 228 of the 1997 NIRC is instructive, to wit: Sec. 228. Protesting of Assessment. - When the Commissioner or his[/her] duly authorized representative finds that proper taxes should be assessed, he[/she] shall first notify the taxpayer of his[/her] findings: Provided, however, That a pre-assessment notice shall not be required in the following cases: XXX XXX XXX The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his[/her] duly authorized representative shall issue an assessment based on his findings. Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. (

DECISION CTA CASE NO. 8478 Page16of55 If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by th~ decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable.125 Records disclose that petitioner received the FAN dated August 26, 2011 on September 1, 2011,126 On September 29, 2011, the Assessment Division of BIR Revenue Region No. 8 received petitioner's letter protest,127 together with the documentary evidence attached to it. However, on account of respondent's inaction, petitioner filed the instant Petition for Review on April26, 2012,128 Respondent argues that petitioner failed to submit documentary evidence in support of its protest, petitioner on the other hand, insists that it already filed the documents in support of its protest together with its letter protest. In CIR v. First Express Pawnshop Company, Inc.,129 the term "relevant supporting documents" should be understood as those documents necessary to support the legal basis in disputing a tax assessment, as determined by the taxpayer. The BIR can only request the taxpayer to submit additional documents but cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit. Applying this to the instant case, petitioner already submitted the documents it deems sufficient to support its claim when it filed its protest to the FAN. Hence, the tax assessment cannot be considered as final, executory and demandable. \.. Furthermore, under Section 228 of the 1997 NIRC, if the protest is not acted upon within one hundred eighty (180) days from submission of supporting documents, the taxpayer adversely affected by the inaction may appeal to the CTA within thirty (30) days from the lapse 125 Underscoring ours. 126 Records Box 1, Petitioner's FOE, Exhibit "A;" BIR Records, Exhibit "R-1;" Records, Vol. 1, JSFI, p. 284. 127 Records Box 1, Petitioner's FOE, Exhibits "B" and "B-1;" Records, Vol. 1, JSFI, p. 284. 128 Records, Vol. 1, JSFI, p. 284. 129 G.R. Nos. 172045-46, June 16, 2009, 589 SCRA 253. (

DECISION CTA CASE NO. 8478 Page 17of55 of the one hundred eighty (180)-day period. Petitioner filed its administrative protest on September 29, 2011130, together with the documentary evidence attached to it, thus, respondent had until March 27, 2012 to act on petitioner's administrative protest but it failed to do so. Thus, due to the inaction of respondent, petitioner had thirty (30) days from March 27,2012 or until April26, 2012 to file its judicial protest. Consequently, the Court holds that the instant Petition for Review filed on April 26, 2012 was timely filed. The assessments relating to petitioner's alleged deficiency taxes were issued in accordance with law and regulations. The Court finds the need to emphasize that tax assessments by tax examiners are presumed correct and made in good faith, and all presumptions are in favor of the correctness of a tax assessment, unless proven otherwise.131 In the case at bar, respondent assessed petitioner for alleged deficiency taxes for CY 2007 in the total amount of Phpll2,586,856.50, broken down as follows: TAX TYPE AMOUNT IT Php 57,937,101.82 VAT EWT 3,922,839.57 WTC 767,977.34 FWT 309,236.80 FWT-VAT DST 40,918,045.57 Compromise Penalty 8,577,939.88 TOTAL 82,715.52 53,000.00 PHP 112,568,856.50 As shown in the table above, petitioner has alleged deficiencies in IT, VAT, EWT, WTC, FWT, FWT-VAT, DST and Compromise Penalty. The Court will now proceed to discuss in detail the merits of the assessment for each type of tax. 130 Records Box 1, Petitioner's FOE, Exhibit "B-1." 131 Commissioner of Internal Revenue v. Hon. Raul M. Gonzalez, Secretary of Justice, et. al., G.R. No. 177279, October 13,2010,633 SCRA 139, citing Rizal Commercial Banking Corporation v. Commissioner of Internal Revenue, G.R. No. 168498, April 24, 2007, 522 SCRA 144, citing Commissioner of Internal Revenue v. Hantex Trading Co., Inc., G.R. No. 136975, March 31, 2005, 454 SCRA 301. (

DECISION CTA CASE NO. 8478 Page 18of55 I. DEFICIENCY INCOME TAX- Php57,937,101.82 In the FAN132 dated August 26, 2011, petitioner was assessed deficiency IT for taxable year 2007 in the total amount of Php57,937,101.82, inclusive of increments, computed as follows: DETAILS AMOUNT 9,377,113.00 Taxable Income per ITR [Php] 97,862,197.05 Add: Adjustments/disallowance per investigation [Php] 83,987,344.32 [Ph�] 107,239,310.05 3,769,289.73 [Phr] 37,533,758.52 Disallowed Expenses due to Non-withholding (Schedule 1) [Php] 10,105,563.00 [Php] Unaccounted Expenses (Schedule 2) [Php] 3,281,989.55 Unsupported Expenses (Schedule 3) 3,281,989.55 34,251,768.97 Adjusted Taxable Income per investigation 630,442.00 [Ph�] 23,685,332.85 Basic Income Tax Due [Php] 57,937,101.82 Less: Allowable tax credits/payments 3,912,431.55 Prior Years' Minimum Corporate Income Tax 630,442.00 Creditable Tax Withheld at Source claimed per return Total [Ph_pJ Less: Excess Credits Carried Over to Succeeding Year Deficiency Income Tax Add: Interest (04.16.08 to 09.30.11) TOTAL AMOUNT DUE Section 34 of the 1997 NIRC allows taxpayers to deduct business expenses from their gross income. Section 34 provides as follows: Sec. 34. Deductions from Gross Income.- Except for taxpayers earning compensation income arising from personal services rendered under an employer-employee relationship where no deductions shall be allowed under this Section other than under subsection (M) hereof, in computing taxable income subject to income tax under Sections 24(A); 25(A); 26; 27(A), (B) and (C); and 28(A)(l), there shall be allowed the following deductions from gross income; (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 132 Records Box 1, Petitioner's FOE, Exhibit "A;" BIR Records, Exhibit "R-1." (

DECISION CTA CASE NO. 8478 Page 19of55 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. Respondent disallowed certain expenses due to the following: (1) non-withholding; (2) unaccounted expenses; and (3) unsupported (

DECISION CTA CASE NO. 8478 Page20of55 expenses. The Court will now delve into the reasons why these expenses were disallowed. A. Disallowed Expenses Due to Non-Withholding- Php83,987,344.32 Respondent disallowed133 the first type of expenses amounting to Php83,987,344.32, for the following reasons: DETAILS AMOUNT 1.) Expanded Withholding Tax (WE) [Php] 1,464,269.00 1.a) Professional and Management Fees 6,185,661.27 1.b) Payment to Contractors by Top 10K- Services [Php] 17,087,895.00 1.c) Payment by Top 10K- Goods [Ph�] 24,737,825.27 Sub-total 17,087,895.00 Less: Acquisition of Prop. & Eqpt. 7,649,930.27 Total 2.) Withholding Tax on Compensation (WTC) [Ph�] 727,797.05 2.a) Salaries and Wages 3.) Final Withholding Tax (FWT) [Ph�] 75,609,617.00 TOTAL [PHP] 83,987,344.32 l.a) Professional and Management Fees (PMF")- Php1,464,269.00 PMF represents fees paid to the search firm fees, audit fees, legal fees, and discrepancy, which were allegedly not subjected to withholding tax and are not supported with documents, hence, disallowed by the respondent. The PMF is broken down as follows: DETAILS AMOUNT Search Firm Fee Php 1,100,000.00 Audit Fees Legal Fees 239,268.00 125,000.00 Difference TOTAL 1.00 PHP 1,464,269.00 Petitioner alleges that payments made to the recruitment agency, Kapient Philippines, Inc. ("KPI"), is the fee made for the placement of Mr. Enrico Garcia ("Mr. Garcia") as its general manager. Petitioner 133 Records Box 1, Petitioner's FOE, Exhibit "A;" BIR Records, Exhibit "R-1." r

DECISION CTA CASE NO. 8478 Page 21 o�55 presented billing invoices, check vouchers (" CVs") and official receipts134 ("ORs") to support this claim. It also alleges that payments made to Manabat Sanagustin & Co. ("Manabat") and Britanico Sarmiento Franco & Associates ("Britanico"), which are both general professional partnerships ("GPP"), are not subject to EWT pursuant to Section 2.57.5 ofRR No. 2-98, as amended. A perusal of the documentary evidence submitted to the Court shows that payment to KPI was properly subjected t<? 2% withholding tax as evidenced by BIR Form No. 1604-�135, Alphalist of Payees Subject to EWT136, CVs137 and 0Rs138. Hence, respondent cannot enforce the said assessment against petitioner. On the other hand, payments made to Manabat and Britanico, are exempt from withholding tax pursuant to Section 26139 of the 1997 NIRC in relation to Section 2.57.5140 of RR No. 2-98141, as amended. However, after a review of the documentary evidence submitted to the Court, it was discovered that out of the amounts in question, only Php168,000.00 and Php124,234.00 for Manabat and Britanico, respectively, are supported by valid documents142. 134 Records, Vol. 3, Memorandum For the Petitioner Ad Cautelam, item no. 24, p. 1260. 135 Records Box 1, Petitioner's FOE, Exhibit "f." 136 Id., Exhibit "J-1," p. 38 of 39. mId., Exhibit "S-78." 138 Id., Exhibit "S-79." 139 "SEC. 26. Tax Liabilih; 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. For purposes of computing the distributive share of the partners, the net income of the partnership shall be computed in the same manner as a corporation. Each partner shall report as gross income his distributive share, actually or constructively received, in the net income of the partnership." 140 "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: � (A) 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: (1) XXX (4) General Professional Partnerships; xxx" 141 Implementing Republic Act No. 8424, An Act Amending the National Internal Revenue Code, as Amended" Relative to the Withholding on Income Subject to the Expanded Withholding Tax and Final Withholding Tax, Withholding of Income Tax on Compensation, Withholding of Creditable Value-Added Tax and Other Percentage Taxes, effective January 1,1998. 142 Manabat Sanagustin & Co. OR NO. OR AMOUNT OR DATE EXHIBIT OR# 9670 Php 16,800.00 11/19/2007 S-70 OR# 9344 16,800.00 10/4/2007 S-67 OR# 9343 16,800.00 10/4/2007 S-64 ( OR# 9232 16,800.00 8/21/2007 S-61

DECISION CTA CASE NO. 8478 Page 22of55 Thus the Court upholds the assessment on PMF but in the reduced amounts of Php71,268.00143 for Manabat and Php766.00144 for Britanico. l.b) Payment to Contractors by Top 10K (Services)- Php6,185,661.27 Based on the evaluation conducted by the ICPA of petitioner's reconciliation schedule145 and the voluminous CVs, journal vouchers ("JVs") and ORs, it appears that respondent's assessment of petitioner's income payments to contractors by the top 10,000 corporations for purchases of services can be accounted for as follows:146 DETAILS AMOUNT A. Advertising Php 2,299,318.08 1. Giveaways 2. Reimbursement to Employees 87,889.15 Sub-total B. Transportation and Travel Ph� 2,387,207.23 1. Intercompany Billings 2. Reimbursement to Employees Php 151,931.09 Sub-total C. Communication Light and Water 457,802.33 1. Intercompany Billings 2. Reimbursement to Employees Ph� 609,733.42 Sub-total D. Miscellaneous Expenses Php 212,161.04 1. Reimbursement to Employees 8,403.46 2. Local Taxes and Other Fees Sub-total Ph� 220,564.50 E. Warehousing Fees Lodged under Rentals F. Rentals Lodged under Miscellaneous Expenses Php 8,641.00 G. Payments to Various Insurance Companies 67,820.00 PhE 76,461.00 PhE 913,590.76 PhE (231,715.51} OR#9116 16,800.00 7/5/2007 S-58 S-55 OR#9115 16,800.00 7/5/2007 S-52 S-50 OR# 9001 16,800.00 5/31/2007 S-47 S-44 OR# 8674 16,800.00 3/30/2007 EXHIBIT OR# 8651 16,800.00 3/8/2007 S-39 S-37 OR# 8508 16,800.00 1/26/2007 S-18 TOTAL PHP 168,000.00 Britanico Sanniento Franco & Assodates OR NO. OR AMOUNT OR DATE OR# 0508 Php 8,848.00 10/19/2007 OR # 0402 21,840.00 3/30/2007 OR # 0273 93,546.00 1/22/2007 TOTAL PHP 124,234.00 143 Php239,268.00 less Php168,000.00. 144 Php125,000.00 less Php124,234.00. 145 Records Box 1, Exhibit "U." ( 146 Records Box 4, Exhibit "UUU," ICPA Report p. 33

DECISION CTA CASE NO. 8478 1. Maxicare Healthcare Php 447,546.74 2. United Coconut Planters Life Assurance, Inc. 60,139.41 3. AON Philippines, Inc. Ph� 31,190.32 4. Erroneous Booking - Over Ph� 1,086.63 Sub-total Ph� H. Employee Training Cost PHP 539,963.10 I. Staff Functions 102,935.71 TOTAL 1,566,921.05 6,185,661.26147 l.b.A.l) Advertising- Giveaways- Php2,299,318.08 Petitioner alleged that the giveaways were not purchased from any local supplier but were instead inventory products of the company given to its distributors.148 To support its claim, petitioner submitted its General Journal ("GJ") Standard Journal Entry, Inventory Adjustments Schedule, Reclassification Schedule149 and P & E Request Form150. The Court holds that the above are insufficient to refute the assessment. Journal entries and schedules cannot stand alone to invalidate the assessment. Likewise, P & E Request Form is not, in any way, a relevant document to corroborate the schedules and journal entries. Thus, the Court upholds the assessment for advertising giveaways amounting to Php2,299,318.08. l.b.A.2) Advertising- Reimbursement to Employees- Php87,889.15 Petitioner maintains that this payment pertains to reimbursements to employees for production, photographic, advertising, promotion and sample costs which were traceable to specific employees; that being reimbursements, it is not in the nature of income payments; and thus it is not subject to EWT.151 Records show that out of Php87,889.15152, only Php52,994.15 is supported by valid documents, while Php34,895.00 should be disallowed for the following reasons, to wit: 147 Rounding off difference of .01 148 Records, Vol. 3, Memorandum For the Petitioner Ad Cautelam, item no. 27, p. 1261. 149 Records Box 1, Exhibits "V-001" to "V-032." 1so Id., Exhibits "V-033" to "V-148." 151 Records, Vol. 3, Memorandum For the Petitioner Ad Cautelam, item no. 27, p. 1261. 152 Records Box 1, Petitioner's FOE, Exhibit "U-01." (

DECISION CTA CASE NO. 8478 Page 24of55 DATE DESCRIPTION AMOUNT EXHIBIT REASON 11/29/2006 Toll Fees W-03 Outside the period of Claim 12/1/2006 Toll Fees Php 167.00 W-03 Outside the period of Claim Gasoline W-04 Without Supporting Invoice/OR 11/30/2006 Gasoline 167.00 W-05 Outside the period of Claim 11/29/2006 Meals W-06 Outside the period of Claim 11/29/2006 Meals 1,100.00 W-07 Outside the period of Claim Meals W-06 Tape Receipt not readable 2/22/2007 Production 85.00 W-10 Supported by Liquidation Form only 4/30/2007 Photographic W-11 Supported by Journal Voucher only 7/31/2007 Production 312.00 W-33 Supported by Journal Voucher only 5/31/2007 Production W-24 Supported by Journal Voucher only 6/30/2007 Awards/ Recognition 234.00 W-30 Supported by Journal Voucher only 11/30/2007 Promotion W-37 Supported by Journal Voucher only 11/30/2007 Samples 566.40 W-40 Supported by Journal Voucher only 9/30/2007 Samples W-44 Supported by Journal Voucher only 8/31/2007 Production 5,000.00 W-42 Supported by Journal Voucher only TOTAL 1,500.00 4,095.00 2,197.00 7,063.00 5,400.00 5,429.80 688.80 890.00 PHP 34,895.00 l.b.B.l) Transportation and Travel- Intercompany Billings- Php151,931.09 This item pertains to payments to affiliates on airfare, meals and meeting expenses incurred particularly by the following: NAME OF AFFILIATE AMOUNT EXHIBIT Herbalife Australia PTY. Ltd. Php 65,356.44 "UUU," Annex D Herbalife Taiwan 41,928.98 "UUU," Annex D Herbalife International Singapore, Inc. 35,413.48 "UUU," Annex D Herbalife International Communications, Inc. -=P=H-P=-c'1'-5=19-,,29-:33-21:..:10-9:9:- "UUU," Annex D TOTAL Scrutiny of the evidence shows that the amount of Php67,921.86 should be disallowed because it was only supported by billing statements, to wit: DATE AFFILIATE AMOUNT EXHIBIT REASON 8/31/2007 Herbalife International Singapore, Inc. Php 35,413.48 Supported by Billing Statement Only 9/30/2007 Herbalife Australia Pty. Ltd. X-11 Supported by Billing Statement Only 7/31/2007 Herbalife Australia Pty. Ltd. 27,666.88 Supported by Billing Statement Only TOTAL 4,841.50 X-15 PHP 67,921.86 X-18 l.b.B.2) Transportation and Travel - Reimbursement to Employees - Php457,802.33 The Court agrees with the findings of the ICPA that out of the Php457,802.33153, only Php258,180.97154 is substantiated; while the remaining amount of Php199,621.36155 is backed up by cash vouchers 153 Records Box 1, Petitioner's FOE, Exhibits "U-10" to "U-18." ( 154 Id., Exhibits "Y-001" to "Y-306." 155 Id.

DECISION CTA CASE NO. 8478 Page 25of55 and/ or petty cash vouchers ("PCV") only. Thus, the amount Php199,621.36 should be disallowed for not being properly supported. l.b.C.l) Communication, Light and Water - Intercompany Billings - Php212,161.04 Based on the ICPA report, the amount Php212,161.04156 pertains to reimbursement payments to Herbalife Australia PlY Ltd., on telecommunication expenses.157 Petitioner submitted JVs and billing statements, which are insufficient to support petitioner's claim. The Court requires substantial evidence such as ORs and/or invoices, hence, the assessment amounting to Php212,161.04 is upheld. l.b.C.2) Communication, Light and Water- Reimbursements to Employees- Php8,403.46 This amount pertains to employee reimbursements for telephone expenses.158 Out of the said amount, Php1,426.68 is supported by JVs and CVs without ORs and/ or invoices,159 However, upon scrutiny of the invoices and 0Rst6o supporting the amount Php6,976.7816t, they do not contain relevant information such as the year when the transactions took place, and/or they were not in the name of the petitioner. Moreover, the submitted OR/invoices do not pertain to telephone expenses but to food items, grocery items, transportation, etc. Therefore, these documents do not support petitioner's allegations. Thus, the Court upholds in toto the assessment on this category in the amount of Php8,403.43. l.b.D.l) Miscellaneous Expenses - Reimbursement to Employees - Php8,641.00 Miscellaneous expenses refer to donations, notarial, and postage fees,162 broken down as follows: 156 Id., Exhibit "U-20" 157 Records Box 4, ICPA Report, Exhibit "UUU." 158 Id. 159 Id. at 36. 160 Records Box 1, Petitioner's FOE, Exhibits "AA-01" to "AA-28." 161 Php8,403.46 less Php1,426.68. 162 Records Box 4, Petitioner's FOE, Exhibit "UUU." (

DECISION CTA CASE NO. 8478 Page 26of55 DETAILS AMOUNT Donations Php 4,000.00 Notarial Fees Postage Fees 1,725.00 TOTAL 2,916.00 PHP 8,641.00 As noted by the ICPA, the donations and notarial fees amounting to Php4,000.00 and Php1,725.00, respectively, were supported by JVs and/ or CVs only163, and should be disallowed. The remaining Php2,916.00 pertaining to postage fees was supported by acknowledgement receipts164, which is not a significant document, thus, should also be denied. Thus, the Court upholds the assessment amounting to Php8,641.00. l.b.D.2) Miscellaneous Expenses - Local Taxes and Other Fees - Php67,820.00 This pertains to payments to the Bureau of Food and Drugs ("BFAD"), City of Makati and City of Lucena for the renewal fees of the company's products, community tax certificate ("CTC") and filing fees.1 65 The ICPA notes that only Php62,120.00 is supported with ORs while Php5,700.00 is supported only with CVs and/ or PCVs,166 However, upon further examination by the Court of the documents presented, out of the Php62,120.00, only Php26,145.00 is actually supported by valid documents, to wit: PAYEE PARTICULARS AMOUNT EXHIBIT City of Makati Community Tax Certificate Php 10,500.00 BB-35 City of Makati Certificate Fee BB-38 City of Makati Filing Fee 45.00 BB-39 BFAD Renewal 100.00 BB-45 BFAD Renewal 8,000.00 BB-45 BFAD Transfer of location 6,000.00 BB-47 Brgy. San Lorenzo Clearance 1,000.00 BB-50 TOTAL 500.00 PHP 26,145.00 163 Id. at 37. r 164 Records Box 1, Petitioner's FOE, Exhibits "BB-31," "BB-43," and "BB-53." 165 Records Box 4, Petitioner's FOE, Exhibit "UUU," p. 37. 166 Id.

DECISION CTA CASE NO. 8478 Page 27 o�55 As a result, the assessment on local taxes and other fees amounting to Php41,675.00167 is sustained. l.b.E) Warehousing Fees Lodged Under Rentals- Php913,590.76 Payments for warehousing fees lodged under rentals amounting to Php913,590.76 pertain to payments to Lambert Williams Logistics, Inc. ("LWLI") for warehousing freight and freight charges which were lodged under "other rent- warehousing."168 An examination of the documents presented shows that petitioner paid LWLI for warehousing services in the amount of Php2,048,610.23169, while the amount subjected to 2% EWT for LWLI based from the alphalist is Php2,908,922.50170. Consequently, the Court concludes that warehousing fees were all subjected to 2% EWT, hence, this assessment is cancelled. l.b.F) Rentals Lodged Under Miscellaneous Expenses- (Php231,715.51) The ICPA was unable to determine the nature of the rentals (with credit balance) lodged under miscellaneous expense amounting to (Php231,715.51), which was considered by the BIR as a deduction from the amount of non-deductible rental expense.171 Similarly, BIR did not provide any basis for this finding. Therefore, this item is cancelled. l.b.G) Payments to Various Insurance Companies- Php539,963.10 167 Php5,700 plus (Php62,120.00 less Php26,145.00) 16s Jd. 169 CUSTOMER OR NUMBER AMOUNT PER OR EXHIBIT Php 180,335.64 CC-02 Lambert Williams Logistics, Inc. 7587 CC-07 172,196.10 CC-11 Lambert Williams Logistics, Inc. 7856 175,454.02 CC-18 207,896.04 CC-24 Lambert Williams Logistics, Inc. 7938 1%,614.34 CC-29 236,813.89 CC-34 Lambert Williams Logistics, Inc. 8107 205,726.52 CC-39 239,822.56 CC-47 Lambert Williams Logistics, Inc. 8171 CC-53 218,961.85 Lambert Williams Logistics, Inc. 8348 214,789.27 Lambert Williams Logistics, Inc. 8542 Php 2,048,610.23 2,908,922.50 Lambert Williams Logistics, Inc. 8714 PHP (860,312.27) Lambert Williams Logistics, Inc. 8858 Lambert Williams Logistics, Inc. 9085 Total Amount Per OR Total Amount Subjected to EWT per BIR Form 1604-E DIFFERENCE 170 Records Box 1, Petitioner's FOE, Exhibit "J-1," p. 38 of 39. cJ 171 Records Box 4, Petitioner's FOE, Exhibit "UUU," p. 38.

DECISION CTA CASE NO. 8478 Payments to various insurance companies such as Maxicare Healthcare (Php447,546.74), United Coconut Planters Life Assurance, Inc. (Php60,139.41) and AON Philippines, Inc. (Php31,190.32) represent group personal accident and life insurance policies for its employees. The ICPA noted that petitioner erroneously over-booked the said account in the amount of Php1,086.63. Careful examination of the documents presented shows that petitioner was able to provide substantial and corroborating evidence to refute respondent's assessment with regard to payment to insurance companies, in the amount of Php538,876.47172. l.b.H) Employee Training Cost- Php102,935.71 The ICPA noted that petitioner made an accrual in the amount of Php220,000.00 for employee trainings and made a reversal at year- end in the amount of Php117,064.29.173 In effect, actual expense for employee trainings amounted to Php102,935.71174. However, upon examination of the evidence submitted, petitioner presented only JVs17S as supporting documents for the actual expenses for employee training costs. Thus, the assessment in the amount of Php102,935.71 is sustained. l.b.I) Staff Functions- Php1,566,921.05 As noted by the ICPA176, the staff functions amounting to Php1,566,921.05 represents other employee cost, as enumerated in the table below: 172 NAME OF ISSUER ORNO. AMOUNT EXHIBIT Maxicare Healthcare 022179v Php 389,436.00 DD-02 Maxicare Healthcare 022180v DD-02 Maxicare Healthcare 024797v 27,527.74 DD-11 Maxicare Healthcare 023957v 6,811.52 DD-15 Cocolife 63661 23,771.48 DD-18 AON Philippines 15429 60,139.41 DD-23 AON Philippines 16674 20,682.92 DD-29 Total 10,507.40 Over-booked expense TOTAL Php 538,876.47 1,086.63 PHP 539,963.10 173 Records Box 4, Petitioner's FOE, Exhibit "UUU," p. 38. 174 Php220,000.00 less Php117,064.29. ( 175 Records Box 1, Exhibits "EE-01" to "EE-24." 176 Records Box 4, Petitioner's FOE, Exhibit "UUU," p. 38.

DECISION CTA CASE NO. 8478 Page29of55 ACCOUNT DESCRIPTION AMOUNT 1. Optical and Dental/Medical Allowance 2. Birthday and Meal Allowance Php 200,198.24 3. Uniform Allowance 4. Service Award 44,261.45 5. Marriage Benefits 6. Other Employee Reimbursements 98,796.18 7. Contribution to Retirement Fund 8. Accrued Employment Cost 44,238.15 Less: Adjustments 9,000.00 TOTAL 132,813.71 440,418.00 605,687.50 Php 1,575,413.23 8,492.18 PHP 1,566,921.05 l.b.I.l) Optical and Dental/Medical Allowance- Php200,198.24 Findings of the ICPA reveal that out of Php200,198.24, only Php199,116.09 is properly supported by JV, CVs and 0Rs.l77 The difference of Php1,082.15 is supported by CVs and PCVs only. Upon further examination of the documents presented, the Court finds that optical, dental and medical allowance amounting to Php23,249.83 should likewise be denied for the following reasons: CUSTOMER DATE AMOUNT EXHIBIT REASON Mercury Drug Corp. FF-004 Undated Tape Receipt Mercury Drug Corp. - Php 65.20 FF-005 Undated Tape Receipt Mercury Drug Corp. - FF-005 Undated Tape Receipt Mercury Drug Corp. - 84.25 FF-005 Undated Tape Receipt Mercury Drug Corp. - FF-005 Undated Tape Receipt Mercury Drug Corp. - 464.40 FF-005 Undated Tape Receipt Mercury Drug Corp. FF-005 Undated Tape Receipt Mercury Drug Corp. - 101.50 FF-006 Undated Tape Receipt Farmacia Lily & Gen. Mdse. FF-006 Without Name of Payee Farmacio San Lazaro - 293.25 FF-010 Without Name of Payee Farmacia Lily & Gen. Mdse. FF-031 Without Name of Payee Mercury Drug Corp. - 133.93 FF-035 Undated Tape Receipt Padova Pharmacy FF-052 Without Name of Payee Padova Pharmacy 2/12/2007 160.00 FF-056 Without Name of Payee Sandy Cualing 2/16/2007 FF-055 Supported by PCV only Sandy Cualing 3/30/2007 112.10 FF-059 Supported by PCV only Sandy Cualing FF-062 Supported by PCV only Cyrial Pharmacy - 90.00 FF-074 Without Name of Payee Sandy Cualing FF-077 Supported by PCV only Padova Pharmacy 2/23/2007 65.37 FF-081 Without Name of Payee Padova Pharmacy FF-086 Without Name of Payee Sandy Cualing 3/11/2007 80.25 FF-089 Supported by PCV only Sandy Cualing 3/26/2007 FF-092 Supported by PCV only Sandy Cualing 3/12/2007 610.00 FF-095 Supported by PCV only R. Legaspi 3/26/2007 FF-111 Supported by PCV only Winnie Pinpin 5/8/2007 105.00 FF-144 Supported by CV only 5/29/2007 7/1/2007 200.00 8/10/2007 10/1/2007 207.00 10/9/2007 10/18/2007 232.00 3/12/2007 1/22/2007 109.95 170.00 1,082.00 87.00 69.00 578.00 716.00 454.00 1,005.23 324.00 177 Records Box 4, Exhibit "UUU," p. 39. I

DECISION 2/2/2007 7,792.70 FF-145 Supported by CV only CTA CASE NO. 8478 9/13/2007 286.50 FF-192 Supported by PCV only Page 30of55 9/24/2007 649.75 FF-195 Supported by PCV only 10/1/2007 655.95 FF-198 Supported by PCV only Winnie Pinpin 1/18/2007 FF-234 Supported by CV only L. Vallijera 3/12/2007 4,344.00 FF-239 Supported by PCV only L. Vallijera 3/14/2007 511.00 FF-252 Supported by PCV only L. Vallijera 3/28/2007 116.00 FF-257 Supported by CV only M. Santiago 2/28/2007 994.00 FF-277 Supported by PCV only M. Santiago 300.50 A. Vallejera PHP A. Vallejera 23,249.83 A. Zapanta TOTAL 1.b.I.2) Birthday and Meal Allowance- Php44,261.45 ICPA notes that out of the Php44,261.45lodged under birthday and meal allowance, only Php38,295.95 is properly substantiated by CVs, PCVs and 0Rs178 while Php5,965.50179 is backed up by CVs and PCVs only. Therefore, the amount of Php5,965.50 should be denied for not being supported by proper documents. 1.b.I.3) Uniform Allowance- Php98,796.18 As noted by the ICPA1so, uniform allowance can be broken down (as supported by proper documents, loan receipts and CVs/PCVs) to Php89,165.68, Php2,483.62 and Php7,146.88, respectively.1B1 The Court holds that loan receipts, CVs and PCVs are not proper documents, thus, the amounts of Php2,483.62 and Php7,146.88 should be denied. Upon further examination by the Court, it found that an additional Php22,693.00 should be denied for the following reasons: CUSTOMER DATE AMOUNT EXHIBIT REASON Ferdinand Flores 1/17/2007 HH-03 Supported by CV only Rizhell Rivera 2/28/2007 Php 15,000.00 HH-07 Supported by CVonly Karen Rivera 5/15/2007 HH-21 Supported by PCV only Maricar Santiago 1/29/2007 2,666.75 HH-37 Supported by CV only Winnie Pinpin 4/2/2007 HH-43 Supported by CVonly Winnie Pinpin 6/13/2007 622.75 HH-46 Supported by PCV only TOTAL 2,000.00 1,214.00 1,189.50 PHP 22,693.00 1.b.I.4) Service Award- Php44,238.15 178 Records Box 1, Exhibits "GG-01" to "GG-61." 179 Records Box 4, Exhibit "UUU," p. 40. 180 Id. at 41. 1s1 Id. (

DECISION CTA CASE NO. 8478 Service awards pertain to trip expenses (gasoline, hotel, meal allowances) granted to employees for the length of service rendered in the company_182 The Court agrees with the findings of the ICPA that expenses amounting to Php149.60 are only supported by CVs and PVCs, while the amount of Php44,088.55 is properly substantiated.JB3 l.b.I.S) Marriage Benefits- Php9,000.00 This pertains to fixed financial incentives given to a newly-wed employees amounting to Php3,000.00 per employee.184 This was awarded to three (3) employees, namely: Veronica Abuel, Karen Rivera and Winnie Pinpin, as supported by Certificates of Marriage and CVslss. Therefore, this assessment is cancelled. 1.b.I.6) Other Employee Reimbursements- Php132,813.71 This pertains to various expenses such as Christmas raffle prizes, anniversary expenses, flowers for burial, etc.JB6 As noted by the ICPA, only Php131,316.75 was supported by proper documents, while Php1,496.96 was supported by CVs and PCVs only.J87 Further inspection of the evidence reveals that an additional amount of Php10,105.71 should be denied for not being supported by proper documents, broken down as follows: CUSTOMER DATE AMOUNT EXHIBIT REASON FOR DISALLOWANCE Johann Cainglet 12/7/2007 Php 7,625.71 "KK-0511 Supported by Statement of Account Pizzeria 9/17/2007 "KK-1711 Supported by Delivery Receipt TOTAL 2,480.00 PHP 10,105.71 1.b.I.7) Contribution to Retirement Fund- Php440,418.00 This assessment is cancelled since substantial evidence, such as CV, OR, and accrual schedulelss, was provided in order to refute the assessment. 182 Records Box 4, Exhibit "UUU, 11 p. 41. 183 Records Box 1, Exhibits "II-01 II to "II-34. II 184 Records Box 4, Exhibit "UUU, II p. 41. 185 Records Box 1, Exhibits "/J-1 11 to "JJ-6. 11 186 Records Box 4, Exhibit "UUU, II p. 41. 187 Id. 188 Records Box 1, Exhibits "LL-1 II to "LL-3. 11 {

DECISION CTA CASE NO. 8478 Page32of55 l.b.I.B) Accrued Employment Cost- Php605,687.50 This pertains to various accruals for possible employee costs such as travel, gasoline and uniform,189 The Court agrees with the finding of the ICPA that the said accrual may be disallowed as deductions for income tax purposes due to non-withholding. Thus, respondent's assessment on staff functions is sustained but in the reduced amount of Php671,568.57, computed as follows: ACCOUNT DESCRIPTION AMOUNT 1. Optical and Dental/ Medical Allowance 2. Birthday and Meal Allowance Php 24,331.98 3. Uniform Allowance 4. Service Award 5,965.50 5. Marriage Benefits 6. Other Employee Reimbursements 32,323.50 7. Contribution to Retirement Fund 8. Accrued Employment Cost 149.60 Less: Adjustments 0.00 TOTAL 11,602.67 0.00 605,687.50 Php 680,060.75 8,492.18 PHP 671,568.57 Based from the foregoing discussion, payments for services to contractors by top lOk corporation amounting to Php3,650,227.71 is disallowed, computed as follows: DETAILS AMOUNT A. Advertising Php 2,299,318.08 1. Giveaways 34,895.00 2. Reimbursement to Employees Sub-total Php 2,334,213.08 B. Transportation and Travel 1. Intercompany Billings Php 67,921.86 2. Reimbursement to Employees Sub-total 199,621.36 C. Communication Light and Water 1. Intercompany Billings Php 267,543.22 2. Reimbursement to Employees Sub-total Php 212,161.04 D. Miscellaneous Expenses 1. Reimbursement to Employees 8,403.46 2. Local Taxes and Other Fees Sub-total Php 220,564.50 G. Payments to Various Insurance Companies 4. Erroneous Booking - Over Php 8,641.00 41,675.00 Php 50,316.00 Ph� 1,086.63 189 Records Box 4, Exhibit "UUU," p. 42. (

DECISION Php 1,086.63 CTA CASE NO. 8478 Php 102,935.71 Page33of55 Php 671,568.57 PHP 3,648,227.71 Sub-total H. Employee Training Cost I. Staff Functions TOTAL l.c) Payment by Top 10K- Goods- Php17,087,895.00 Respondent computed the above assessment as follows: DETAILS AMOUNT Per ITR/FS Php 141,469,518.00 Per 1601 E/C/F Alphalist Discrepancy Per PAN 12,564,640.00 Adjustment Per Re-investigation Php 128,904,878.00 AMOUNT NOT SUBJECTED TO WITHHOLDING 111,816,983.00 PHP 17,087,895.00 Upon re-investigation conducted by respondent, importations/shipments from Herbalife Luxemburg in the amount of Phplll,816,983.00 were re-considered in the computation of deficiency taxes since the same was reflected in the VAT returns.190 The Court notes that the assessed amount of Phpl7,087,895.00 was already included by respondent in the computation of disallowed expenses due to non-withholding. Hence, the assessment for this category is cancelled. 2.a) Salaries and Wages- Php727,797.05 The discrepancies found by the respondent are as follows: DETAILS AMOUNT 1. Temporary Pay Php 141,313.95191 2. Insurance Retirement Fund 3. Reconciling Item for Retirement Cost 440,418.24192 TOTAL 146,065.00 PHP 727,797.19193 2.a.1) Temporary Pay- Php141,313.95 190 Records Box 1, Formal Assessment Notice, Exhibit "A," Annex "A," par. d. 191 Records Box 4, Exhibit "UUU," Annex S. 192 Id., Annex T. 193 Rounding off difference of .14 (

DECISION CTA CASE NO. 8478 Page 34of55 Temporary pay represents payments to Aljems Andrade, A. Estacio, Louie Aguas, and Rex Tolentino, who are usually hired to do clerical jobs and to fill-in regular workforce.J94 The ICPA noted that payments to Mr. Aljems Andrade ("Mr. Andrade") amounting to Php103,074.40195 for contract labor have exceeded the statutory minimum wage per year of Php60,000.00, and should be subjected to withholding tax on compensation pursuant to Section 2.79 (A) ofRR No.2-98, as amended.J96 On the other hand, petitioner maintains197 that the applicable wage order is Wage Order ('WO") No. NCR-12 from January 1 to August 27, 2007 and WO No. NCR-13 from August 28 to December 31, 2007. The minimum wage rate per the afore-cited WOs are Php350.00/day and Php362.00/day, respectively; that based on the prevailing minimum wage rates, Mr. Andrade could have earned a total minimum wage for the year 2007 in the amount of Php110,448.00198; and that the actual compensation of Mr. Andrade amounting to Php103,074.40 falls below the minimum statutory wage, thus, not subject to tax. The Court agrees with petitioner that for the year 2007, the applicable wage orders are WO Nos. NCR-12 and 13. However, the Court disagrees with the petitioner's computation of statutory minimum wage. Records disclose that Mr. Andrade did not work for 26 days a month for 12 months for the year 2007. Based on the evidence on record, Mr. Andrade worked for 220 days only for the entire 2007 and could have earned a statutory minimum wage of Php77,948.00, computed below: PERIOD NAME OF AMOUNT NO. OF EXHIBIT EMPLOYEE DAYS Jan.1 to Aug. 27,2007 Php 1,300.00 WORKED "PP-01" to "PP- 04" Jan.1 to Aug. 27, 2007 Aljems Andrade "PP-05" to "PP- 08" Jan.1 to Aug. 27, 2007 Aljems Andrade 1,894.10 4 "PP-09" to "PP- 12" Jan.1 to Aug. 27, 2007 Aljems Andrade 5 "PP-13" to "PP-15" Aljems Andrade 2,188.70 4 5 2,259.80 194 Records Box 4, Exhibit "UUU," p. 48. AMOUNT 195 Id., Annex S 196 Id. at49 Php 72,800.00 197 Records, Vol. 3, Memorandum for Petitioner, p. 1267. Php 37,648.00 198 PHP 110,448.00 DETAILS Statutory Minimum Wage Gan to Aug 2007) Php350/day * 26 days/month � 8 months Statutory Minimum Wage (Aug to Dec 2007) Php362/day � 26 days/ month � 4 months TOTAL (

DECISION CTA CASE NO. 8478 Page 35of55 Jan.1 to Aug. 27, 2007 Aljems Andrade 2,513.70 5 "PP-16" to "PP- 21" Jan.1 to Aug. 27, 2007 Aljems Andrade 3,539.40 8 "PP-22" to "PP- 27" Jan.1 to Aug. 27, 2007 Aljems Andrade 2,031.30 5 "PP-28" to "PP- 31" Jan.1 to Aug. 27, 2007 Aljems Andrade 2,468.00 5 "PP-32" to "PP- 34" Jan.1 to Aug. 27, 2007 Aljems Andrade 1,625.00 3 "PP-35" to "PP- 39" Jan.1 to Aug. 27, 2007 Aljems Andrade 2,743.70 6 "PP-40" to "PP- 43" Jan.1 to Aug. 27, 2007 Aljems Andrade 1,668.70 3 "PP-44" to "PP- 48" Jan.1 to Aug. 27, 2007 Aljems Andrade 2,470.50 4 "PP-49" to "PP- 52" Jan.1 to Aug. 27, 2007 Aljems Andrade 4,278.30 5 "PP-53" to "PP- 57" Jan.1 to Aug. 27, 2007 Aljems Andrade 1,878.90 5 "PP-58" to "PP- 61" Jan.1 to Aug. 27,2007 Aljems Andrade 1,778.90 3 "PP-62" to "PP- 66" Jan.1 to Aug. 27, 2007 Aljems Andrade 2,102.30 6 "PP-67" to "PP- 68" Jan.1 to Aug. 27, 2007 Aljems Andrade 1,706.30 4 "PP-69" to "PP- 71" Jan.1 to Aug. 27, 2007 Aljems Andrade 1,980.50 5 "PP-72" to "PP- 73" Jan.1 to Aug. 27, 2007 Aljems Andrade 2,235.90 5 "PP-74" to "PP- 78" Jan.1 to Aug. 27, 2007 Aljems Andrade 2,236.90 5 "PP-79" to "PP- 83" Jan.1 to Aug. 27, 2007 Aljems Andrade 1,651.40 4 "PP-84" to "PP- 87" Jan.1 to Aug. 27, 2007 Aljems Andrade 1,978.90 5 "PP-88" to "PP- 91" Jan.1 to Aug. 27, 2007 Aljems Andrade 2,082.00 5 "PP-92" to "PP- 93" Jan.1 to Aug. 27, 2007 Aljems Andrade 2,103.40 5 "PP-94" to "PP- 98" Jan.1 to Aug. 27, 2007 Aljems Andrade 4,037.10 10 "PP-99" to "PP- 105" Jan.1 to Aug. 27, 2007 Aljems Andrade 1,388.90 1 "PP-106" to "PP-109" Jan.1 to Aug. 27, 2007 Aljems Andrade 2,788.90 6 "PP-110" to "PP-113" Jan.1 to Aug. 27, 2007 Aljems Andrade 2,513.70 6 "PP-114" to "PP-118" Jan.1 to Aug. 27,2007 Aljems Andrade 2,112.50 4 "PP-119" to "PP-123" TOTAL 65,557.70 141 PHP "PP-124" to "PP-128" 4 "PP-129" to "PP-133" Minimum Wage @Php350.00 per Day for 141 Days Php 49,350.00 5 "PP-134" to "PP-138" (Per Wage Order No. NCR-12) 5 "PP-139" to "PP-143" 5 "PP-144" to "PP-148" Aug. 28 to Dec. 31, 2007 Aljems Andrade Php 2,087.10 5 "PP-149" to "PP-153" Aug. 28 to Dec. 31, 2007 Aljems Andrade PHP 2,672.60 5 "PP-154" to "PP-158" Aug. 28 to Dec. 31,2007 Aljems Andrade 2,742.20 4 "PP-159" to "PP-163" Aug. 28 to Dec. 31,2007 Aljems Andrade 1,904.30 5 "PP-164" to "PP-170" Aug. 28 to Dec. 31,2007 Aljems Andrade 2,513.70 7 "PP-171" to "PP-175" Aug. 28 to Dec. 31,2007 Aljems Andrade 2,533.00 5 "PP-174" to "PP-179" Aug. 28 to Dec. 31, 2007 Aljems Andrade 1,782.40 5 "PP-180" to "PP-182" Aug. 28 to Dec. 31, 2007 Aljems Andrade 1,917.00 5 "PP-183" to "PP-185" Aug. 28 to Dec. 31, 2007 Aljems Andrade 2,935.20 4 "PP-184" to "PP-189" Aug. 28 to Dec. 31, 2007 Aljems Andrade 2,297.90 5 "PP-190" to "PP-194" Aug. 28 to Dec. 31, 2007 Aljems Andrade 2,412.10 5 "PP-195" to "PP-197" Aug. 28 to Dec. 31, 2007 Aljems Andrade 2,335.90 5 Aug. 28 to Dec. 31, 2007 Aljems Andrade 1,807.80 79 28,598.00 Aug. 28 to Dec. 31, 2007 Aljems Andrade 2,691.40 103,070.40 Aug. 28 to Dec. 31, 2007 Aljems Andrade 2,493.40 Php 77,948.00 Aug. 28 to Dec. 31, 2007 Aljems Andrade 2,386.70 Ph� 37,512.70 PHP TOTAL Minimum Wage @Php362.00 per Day for 79 Days (Per Wage Order No. NCR-13) Total Compensation received by A. Andrade SHOULD BE MINIMUM WAGE OF A. ANDRADE TO BE EXEMPT FROM WTC From the foregoing, the actual compensation of Mr. Andrade in the amount of Php103,070.40 exceeded the minimum wage of Php77,948.00. Thus, the Court upholds the assessment on temporary pay in the reduced amount of Php103,070.40. 2.a.2) Insurance Retirement Fund- Php440,418.24 Insurance retirement fund pertains to petitioner's provision for the contribution to its funded and non-contributory, defined benefit pension plan,199 The Court agrees with the ICPA that it is the same item lodged under the "Other Employment Cost" account, which pertains 199 Records Box 4, Exhibit "UUU," p. 49. r

DECISION CTA CASE NO. 8478 Page36of55 to actual contribution to retirement fund supported by ORs and vouchers which was claimed as deduction for income tax purposes.2oo Therefore, this item is cancelled. 2.a.3) Reconciling Item for Retirement Cost- Php146,065.00 This pertains to the additional deductible expense arising from the difference between the retirement cost booked per accounting as against the amount of deductible expense for tax purposes.201 However, no evidence was presented to disprove respondent's allegation, hence, said assessment is sustained. In sum, the assessment on salaries and wages in the amount of Php249,135.40 remains, computed as follows: DETAILS �AMOUNT Temporary Pay Php 103,070.40 Reconciling Item for Retirement Cost TOTAL 146,065.00 PHP 249,135.40 3.) Final Withholding Tax ('fFWT")- Php75,609,617.00 Based on the ICPA report202, payments made to non-resident and resident individuals and ~orporations alleged by respondent as not subjected to FWT amounting to Php75,609,617.00203 is comprised of the following items: DETAILS AMOUNT a. Royalties - Resident Corporation Php 41,292,473.00 b. Royalties- Non-Resident Corporation c. Production Bonus 15,272,477.00 d. Interest Expense 12,116,340.00 e. Management Fees TOTAL 4,464,722.00 2,463,605.00 PHP 75,609,617.00 Petitioner alleges that the above amounts are income payments made to resident and. non-resident foreign individuals and corporations per 2007 audited financial statements ("AFS") / income 2oo Jd. 2o1 Id. at 50. 2o2 Id. at 53. 203 Exhibit "A," FAN- Schedule la. (

DECISION CTA CASE NO. 8478 Page37of55 tax return ("ITR"); and that these are commission expenses and interest payments which have been subjected to withholding tax. Records show that the above accounts were reflected In petitioner's 2007 AFS and annual ITR, as follows: DETAILS AMOUNT EXHIBIT Royalties Php 68,681,290.00 0-20 Production Bonus 0-20 Interest Expense 32,719,766.00 0-21 Management Fees 4,464,722.00 TOTAL 2,463,605.00 "I," Line 110 PHP 108,329,383.00 Based on the examination conducted by the Court, the amounts of royalties and production bonus reflected in the AFS in the amount of Php68,681,290.00 and Php32,719,766.00, respectively, are higher than the amount being assessed by the BIR; while the interest expense and management fees are the same amount as indicated in the CY 2007 AFS/ITR against the assessed figures. It appears therefore, that the assessed amounts were already included in the AFS of petitioner. As far as taxable income is concerned, the assessed amount of Php75,609,617.00 was properly recorded in the books of the petitioner, thus, already subjected to the income tax due. In sum, petitioner has disallowed expenses due to non- withholding in the amount of Php3,971,397.11, broken down as follows: DETAILS AMOUNT 1.a) Professional and Management Fees 1.b) Payment to Contractors by Top 10K- Services Php 72,034.00 2.a) Salaries and Wages TOTAL 3,648,227.71 249,135.40 PHP 3,969,397.11 B. Unaccounted Expenses- Php3,769,289.73 After re-investigation of the PAN, respondent computed the unaccounted commission expenses as follows: (

DECISION AMOUNT CTA CASE NO. 8478 Page38 of 55 Php 124,804,929.73204 DETAILS 15,897,829.00205 Commission Expenses per BIR Forms 1601E Commission Expenses per ITR/ FS Php 108,907,100.73 Unaccounted Commission Expenses Less: Adjustments per Re-investigation Php 32,719,766.00 105,137,811.00206 68,681,290.00 Production Bonus 3,736,755.00 Php Royalties Direct Charges - Others PHP 3,769,289.73 UNACCOUNTED COMMISSION EXPENSES PER RE-INVESTIGATION As found by the ICPA,207 the unaccounted expenses pertain to the following adjustments made in the company's books: DESCRIPTION AMOUNT a. Reversal of over accrued royalties Php 1,235,230.72 b. Reversal of aged royalty checks c. Reversal of over accrued other bonus expense 121,405.54 d. Additional accrual of other bonus expense 1,709,836.00 e. Brokerage Fees (169,245.00) TOTAL COMMISSIONS ACCOUNTED FOR 887,021.00 PHP 3,784,248.26 A review of the documentary evidence submitted to the Court reveals that petitioner was able to properly account for the commission expenses lodged under reversal of over accrued royalties amounting to Php1,235,230.722os, reversal of aged royalty checks amounting to Php121,405.54209 and reversal of over accrued other bonus expense of Php1,709,836.002Io. However, documents submitted to support the additional accrual of other bonus expense amounting to Php169,245.00211 pertains to 2006 expenses, and is therefore outside the period of claim. Petitioner likewise failed to submit supporting documents for brokerage fees amounting to Php887,021.00, thus, it will be considered unaccounted and should be included in the computation of deficiency income tax. 204 Records Box 1, Exhibits "P-01" to "P-53," total per BIR Form 1601E is Php124,804,929.65, with rounding off difference of 0.08. 2os Id., Exhibit "0-20." 206 Id., Exhibit "A," Schedule 2. 207 Records Box 4, Exhibit "UUU," p. 66. 2os Id., Annex W, Exhibits "CCC-01" to "CCC-42." 2�9 Id., Exhibit "UUU," Annex X, Exhibits "DDD-1" to "DDD-5." 210 ld., Exhibit "UUU," Annex Y, Exhibits "EEE-1" to "EEE-4." 211 Id., Exhibit" UUU," Annex Z. (

DECISION CTA CASE NO. 8478 Page39of55 Based from the foregoing, petitioner has unaccounted commission expenses not subjected to income tax amounting to Php702,817.47, computed as follows: DETAILS AMOUNT Unaccounted Commission Expenses per Re-investigation Php 3,769,289.73 Less: Properly accounted commission expenses Reversal of over accrued royalties Php 1,235,230.72 Reversal of aged royalty checks 121,405.54 Reversal of other bonus expense 1,709,836.00 Ph� 3,066,472.26 UNACCOUNTED COMMISSION EXPENSES PHP 702,817.47 C. Unsupported Expenses- Php 10,105,563.00 Based on the ICPA Report2t2, respondent's assessment on unsupported expenses amounting to Phpl0,105,563.00 is comprised of the following transactions: NATURE OF PAYMENTS AMOUNT REFERENCE Php 3,974,175.% Exhibit "UUU," part 2, Annex AA a. Credit Card Fee 2,463,604.82 2,497,084.49 Exhibit "UUU," part 2, Annex BB b. Payments to Affiliates 33,479.67 Ph� 1,801,642.53 Exhibit "UUU," part 2, Annex CC 1. Herbalife Singapore Pte. Ltd. Php 1,559,382.95 200.00 2. Herbalife Europe Ltd. 800.00 100.00 c. Accrued Other Miscellaneous Expense 56,075.00 Ph� d. Payment for Local Taxes and Other Fees PHP 1. City of Makati Php 2. City of Lucena 3. Barangay San Lazaro 4. Bureau of Internal Revenue 5. Bureau of Food and Drugs 1,616,557.95 Exhibit "UUU," part 2, Annex DD 115,721.92 Exhibit "UUU," part 2, Annex EE e. Bank Charges 8,641.00 Exhibit "UUU," part 2, Annex FF 6,500.00 Exhibit "UUU," part 2, Annex GG f. Employee Reimbursements 23,310.00 Exhibit "UUU," part 2, Annex HH (965.50) g. Donation and Contribution 62,894.65 Exhibit "GGG" Exhibit "GGG" h. Others 10,105,563.00 i. Cash Over/ (Under) j. Unaccounted Difference TOTAL MISCELLANEOUS EXPENSE PER FSjiTR 1. Credit Card Fee- Php3,974,175.96 Credit card fee pertains to the service fee charged by credit card companies for sales on account.2t3 The ICPA noted that only Php700,287.97 was properly supported, while the remaining amount, Php3,273,887.99 was backed only by JVs2t4. However, the Court found that the documents identified by the ICPA as proper supports for credit card service fees GVs and payment 212 Records Box 4, Exhibit "UUU," pp. 68-69. 213 Id. at 69. 214 Records Box 3, Exhibits "HHH-0001" to "HHH-0034." (

DECISION CTA CASE NO. 8478 Page40of55 advices215) are insufficient to refute the assessment. Thus, the Court upholds the assessment for credit card fee amounting to Php3,974,175.96. 2. Payments to Affiliates- Php2,497,084.49 Petitioner claims that it entered into agreements with Herbalife Europe Limited and Herbalife Singapore. The former through a Non- Resident Distributor Payment Agreement216 executed between petitioner and Herbalife Europe Limited. Under the said agreement, Herbalife Europe remains as an independent contractor as a settlement agent for petitioner.217 Thus, with respect to payments made to Herbalife Europe Ltd., for management services rendered, the Court finds that petitioner was able to provide sufficient proof to rebut the assessment. Petitioner submitted JVs218, intercompany billings219 and invoices22o, to support its claim, thus, the assessment in this regard is cancelled. On the other hand, with respect to payments for management services allegedly rendered by Herbalife Singapore Pte. Ltd., the Court finds that petitioner failed to establish the direct correlation between the expense being deducted and the development, management, operation and/or conduct of its business. The unsigned Service Agreement that it submitted was denied admission by the Court for being a mere photocopy. Further, the debit note22l and the bank validated deposit slip as a proof of electronic fund transfer222 are insufficient to support its claim and to refute respondent's findings. Thus, the assessment by respondent in the amount of Php2,463,604.82 is sustained. 3. Accrued Other Miscellaneous Expense- Php1,801,642.53 21s Records Box 3, Exhibits "HHH-0035" to "HHH-0432." 216 Records Box 1, Exhibit "D." 217 Id. at 2. 21B Records Box4, Exhibits "III-02," "III-04," "III-06," "III-08," "III-10," "III-12," "III-14," "III-16," "III- 18," "III-19," "III-21," "III-23," and "III-25. 11 219 Id., Exhibits "III-01, 11 "III-03, 11 "III-05," "III-07," "III-09, 11 "III-11, 11 "III-13," "III-15, 11 11lll-17, 11 "III- 20, II "III-22, II "III-24," and "III-26. II 220 Id., Exhibits "III-28, 11 "III-30, 11 "III-32, 11 "III-34," "III-36, 11 "III-38, 11 "III-40, 11 "III-42, 11 "III-44," "III- 46, II "III-48," and "III-50. II 221 Id., Exhibit "AAA-1." 222 Id., Exhibit "AAA-3." (

DECISION CTA CASE NO. 8478 Page41 of 55 This account was supported by JVs223 only, the Court finds these documents insufficient to cancel the assessment. Thus, the assessment is upheld amounting to Phpl,801,642.53. 4. Payments for Local Taxes and Other Fees- Php1,616,557.95 The Court agrees with the findings of the ICPA that petitioner was able to provide sufficient proof such as ORs, CVs and PVCs224 up to the amount of Phpl,610,857.95. As for the remaining Php5,700.00, the Court finds that the same is supported only by CVs and PCVs225, hence, only the assessment relating to the latter amount is sustained. 5. Bank Charges- Php115,721.92 These pertain to charges from various banks226. The Court finds that the evidence presented, such as JVs and Metrobank application for fund transfer form227, do not prove nor support petitioner's allegation that these are indeed bank charges; and that the JVs are internally generated documents. In order to support petitioner's claim that these are bank charges, the supporting documents for which the JVs were based should have been presented. Thus, the Court upholds the assessment amounting to Phpll5,721.92. 6. Employee Reimbursements - Php8,641.00 This amount represents payments for notarial fees, postage stamps, service fees and donations.22s However, upon examination of the documents submitted to the Court, only the OR229 amounting to Php22.00 is valid, while the remaining amount of Php8,619.00 is supported by CVs23o, PCVs231, acknowledgment receipt232 and ORs 223 Records Box 4, Exhibits "JJJ-1" to "JJJ-7. 11 224 Id., Exhibits "KKK-01 11 to "KKK-49. 11 225 Id., Exhibits "KKK-46 11 and "KKK-47. 11 226 Id., Exhibit "UUU, 11 p. 70. 227 Id., Exhibits "LLL-01" to "LLL-69. II 228 Id. 229 Records Box 4, Exhibit "MMM-33. II 230 Id., Exhibits "MMM-01, 11 "MMM-03, 11 "MMM-06," "MMM-09, 11 "MMM-12, 11 "MMM-15, 11 "MMM-18, 11 "MMM-21, 11 "MMM-24, 11 and IIMMM-28. 11 231 Id., Exhibits "MMM-02, 11 "MMM-04, 11 "MMM-07, 11 "MMM-10, 11 "MMM-13, 11 "MMM-16, 11 "MMM-22," "MMM-25," "MMM-26, 11 "MMM-29, 11 "MMM-30, 11 and "MMM-32. 11 232 Id., Exhibit "MMM-31. 11 (

DECISION CTA CASE NO. 8478 Page42of55 without petitioner's name and/or without ATP233. Thus, the assessment amounting to Php8,619.00 is sustained. 7. Donation and Contribution- Php6,500.00 The Court agrees with the ICPA that only the amount of Php2,500.00 was properly supported by 0Rs234, thus, the amount Php4,000.00 remains unsubstantiated with proper documents. 8. Others- Php23,310.00 This amount represents payments for destruction charge lodged under other miscellaneous expense, was properly supported by an QR235, and is therefore cancelled. 9. Cash Overj(Under) - (Php965.50) Cash Over/ (Under) amounting to (Php965.50) is cancelled for being properly supported236. 10. Unaccounted Difference- Php62,894.65 The assessment for unaccounted difference is sustained for petitioner's failure to account for the same. In sum, out of the Phpl0,105,563.00 assessed by respondent as unsupported miscellaneous expenses, petitioner was able to provide documentary evidence up to Phpl,669,204.12 only. The remaining Php8,436,358.88 is unsupported, hence, sustained for reasons previously discussed and computed as follows: NATURE OF PAYMENTS AMOUNT a. Credit Card Fee Php 3,974,175.96 b. Payment to Affiliates - Herbalife Singapore c. Accrued Other Miscellaneous Expense 2,463,604.82 d. Payment for Local Taxes and Other Fees 1,801,642.53 5,700.00 233 Records Box 4, Exhibits "MMM-05," "MMM-08," "MMM-11," "MMM-14," "MMM-17," "MMM- 20," "MMM-23," and "MMM-27." 234 Id., Exhibit "NNN-2." 235 Id., Exhibit "000-2." 236 Records Box 3, Exhibit "GGG-1." (

DECISION CTA CASE NO. 8478 Page43of55 e. Bank Charges PHP 115,721.92 �. Employee Reimbursements 8,619.00 g. Donation and Contribution 4,000.00 j. Unaccounted Difference 62,894.65 TOTAL UNSUPPORTED MISCELLANEOUS EXPENSE 8,436,358.88 D. Excess Credits Carried Over to Succeeding Year- Php630,442.00 Excess tax credit amounting to Php630,442.00 was disallowed by respondent as a deduction from income tax due for the reason that it was allegedly forwarded to the succeeding taxable year (2008), as verified in the Integrated Tax System ("ITS"). However, upon examination of the BIR records, there was no document proving respondent's contention, hence this assessment is cancelled. As discussed, petitioner has basic deficiency income tax due in the amount of Php3,957,558.71, computed as follows: DETAILS AMOUNT Taxable Income per ITR Php 9,377,113.00 Add: Disallowed Expenses due to non-withholding Php 3,969,397.11 Unaccounted Expenses 702,817.47 Unsupported Expenses 8,436,358.88 Phe 13,108,573.46 Adjusted Taxable Income Phe 22,485,686.46 Income Tax Due (35%) Php 7,869,990.26 Less: Prior Year's MCIT Php 3,281,989.55 Creditable Tax Withheld 630,442.00 Phe 3,912,431.55 BASIC DEFICIENCY INCOME TAX PHP 3,957,558.71 II. DEFICIENCY VALUE ADDED TAX- Php3,922,839.57 Respondent computed the alleged deficiency VAT amounting to Php3,922,839.57237, as follows: DETAILS AMOUNT Taxable Sales per VAT returns [Php] 316,188,408.80238 Add: Undeclared Income from Unaccounted Expense (Schedule 2) Taxable Sales per investigation 3,769,289.73 [Php] 319,957,698.53 237 Records Box 1, FAN, Exhibit "A." 238 Records Box 4, Exhibits "PPP-01," line 15B + "PPP-09," line 15B + "PPP-19," line 15B + "PPP-28," line 15B. (

DECISION [Php] 38,394,923.83 CTA CASE NO. 8478 [Php] 19,491,171.20239 Page44of55 [PHP] 18,903,752.63 Output Tax Due 16,643,909.76 Less: Claimed Input Tax VAT Due 2,259,842.87 Less: Payments per BIR records (Integrated Tax System) 1,662,996.70 Deficiency Value-added Tax 3,922,839.57 Add: Interest (01.26.08 to 09.30.11) TOTAL AMOUNT DUE The Court agrees with the findings of the ICPA that petitioner's VAT payments amounted to Php18,451,437.85 based on its Quarterly VAT Return (BIR Form No. 2550Q), summarized as follows: QUARTER AMOUNT EXHIBIT 1st Quarter Php 3,183,986.07 "PPP-01," line 25 2nd Quarter "PPP-09," line 25 3rd Quarter 3,062,929.37 "PPP-19," line 25 4th Quarter 6,850,724.70 "PPP-28," line 25 TOTAL 5,353,797.71 PHP 18,451,437.85 Based on the FAN, the deficiency VAT pertains to undeclared income from unaccounted expenses amounting to Php3,769,289.73. As previously discussed, petitioner was able to account the said expenses but only to the extent of Php3,066,472.26, while the amount Php702,817.47 remains unaccounted, to wit: DETAILS AMOUNT Php Unaccounted Commission Expenses per Re-investigation 3,769,289.73 Less: Properly accounted commission expenses 3,066,472.26 702,817.47 Reversal of over accrued royalties Php 1,235,230.72 121,405.54 Reversal of aged royalty checks 1,709,836.00 Reversal of other bonus expense Ph� PHP UNACCOUNTED COMMISSION EXPENSES From the foregoing, petitioner has a basic deficiency VAT arising from unaccounted expenses of Php84,338.10, computed as follows: DETAILS AMOUNT Taxable Sales per VAT Returns Php 316,188,408.80 Add: Undeclared Income from Unaccounted Expenses Taxable Sales per Investigation 702,817.47 Php 316,891,226.27 Output Tax Due Php 38,026,947.15 Less: Claimed Input Tax 19,491,171.20 VAT Due Php 18,535,775.95 239 Records Box 4, Exhibits "PPP-01," line 22 + "PPP-09," line 22 + "PPP-19," line 22 + "PPP-28," line 22. (

DECISION 18,451,437.85 CTA CASE NO. 8478 PHP 84,338.10 Page45 of 55 Less: Payments per BIR Form No. 2550Q BASIC DEFICIENCY VALUE ADDED TAX III. DEFICIENCY EXPANDED WITHHOLDING TAX Php767977.34 Respondent assessed240 petitioner for failure to withhold and remit the withholding tax on the following income payments in the amount of Php767,977.34, to wit: NATURE OF INCOME PAYMENT AMOUNT TAXRATE EWTDUE a.) Professional and Management fees Php 1,464,269.00 10% Php 146,426.90 b.) Payment to Contractors by Top 10K Corp. -Services 6,185,661.27 2% 123,713.23 c.) Payment by Top 10K- Goods 17,087,895.00 1% 170,878.95 Deficiency Expanded Withholding Tax Php 441,019.08 326,958.26 Add: 20% Interest p.a. (04.16.08 to 09.30.11) PHP 767,977.34 TOTAL AMOUNT DUE a.) Professional and Management Fees- Php146,426.90 Professional and management fees was already discussed241. To reiterate, the Php1,100,000.00 pertains to payment to the recruitment agency KPI, as fee for the placement of Mr. Enrico Garcia as its general manager. Examination of the documents show that payment to KPI was properly subjected to 2% withholding tax as evidenced by BIR Form No. 1604-E242, Alphalist of Payees Subject to EWT243, CVs244 and 0Rs245, hence, respondent cannot enforce the said assessment against petitioner. In addition, this account also includes expenses pertaining to audit fees of Php239,268.00 and legal fees of Php125,000.00, payable to Manabat Sanagustin & Co. and Britanico Sarmiento Franco & Associates, respectively, which are general professional partnerships not subject to EWT pursuant to Section 2.57.5 of RR No. 2-98, as amended. However, out of the amounts in question, only the amounts of Php168,000.00 and Php124,234.00 for Manabat and Britanico, 240 Records Box 1, FAN, Exhibit A. 11 11 241 Please see discussions under section l.a. 242 Records Box 1, Exhibit "J." 243 Id., Exhibit "J-1," p. 38 of 39. 244 Id., Exhibit "S-78." 245 Id., Exhibit 115-79." (

DECISION CTA CASE NO. 8478 Page46of55 respectively, were supported by valid documents, broken down as follows: Manabat Sanagustin & Co. OR NO. OR AMOUNT OR DATE EXHIBIT S-70 OR # 9670 Php 16,800.00 11/19/2007 S-67 S-64 OR # 9344 16,800.00 10/4/2007 S-61 S-58 OR # 9343 16,800.00 10/4/2007 S-55 S-52 OR # 9232 16,800.00 8/21/2007 S-50 S-47 OR # 9116 16,800.00 7/5/2007 S-44 OR # 9115 16,800.00 7/5/2007 EXHIBIT S-39 OR # 9001 16,800.00 5/31/2007 S-37 S-18 OR # 8674 16,800.00 3/30/2007 OR # 8651 16,800.00 3/8/2007 OR # 8508 16,800.00 1/26/2007 TOTAL PHP 168,000.00 Britanico Sanniento Franco & Associates ORNO. ORAMOUNT ORDATE OR# 0508 Php 8,848.00 10/19/2007 OR# 0402 21,840.00 3/30/2007 OR# 0273 93,546.00 1/22/2007 TOTAL PHP 124,234.00 As a result, only the amount Php72,034.00 was not subjected to EWT. Thus, petitioner has deficiency EWT of Php7,203.40, computed as follows: GPP TAXBASE TAXRATE EWTDUE Php 7,126.80 Manabat Sanagustin & Co. Php 71,268.00 10% 76.60 Britanico Sarmiento Franco & Associates - - - -76-6.0-0 10% PHP 7,203.40 TOTAL PHP 72,034.00 b.) Payment to Contractor by Top 10k Corp.- Services- Php123,713.23 The Court agrees with the findings of the ICPA246 that payments of services to contractors by top lOk corporations amounting to Php1,251,069.94 were not subjected to EWT, thus, petitioner is liable for deficiency EWT of Php25,021.40, broken down as follows: DETAILS TAX BASE RATE TAX DUE EXHIBIT Nature of Payments by Top 10k for purchases of services: Php 539,963.11 2% Php 10,799.26 "UUU," Annex J Payments to various insurance companies 102,935.71 2% 2,058.71 Employee Training Cost 2,483.62 2% 49.67 "UUU," Annex K Employee Uniforms-Payments to Third Parties 605,687.50 2% "UUU," Annex N Accrued Employment Cost 12,113.75 "UUU," Annex R 246 Records Box No.4, Exhibit "UUU," pp. 75-77. r

DECISION PHP 1,251,069.94 PHP 25,021.40 CTA CASE NO. 8478 Page47of55 TOTAL c.) Payments to Suppliers by Top 10k Corporations for purchases of Goods - Php170,878.95 Similarly, the Court agrees with the findings of the ICPA that purchases of goods (Additions to Plant, Property and Equipment) amounting to Phpl,538,115.00 were not subjected to EWT, thus petitioner is liable for deficiency EWT in the amount of Phpl5,381.15, computed as follows: DETAILS AMOUNT EXHIBIT Amount of Payments by Top 10K Corp. for Purchase of Goods per Company's Schedule of Additions to Property, Plant and Equipment Php 17,087,895.52 "QQQ-1 to2" Less: Payments Subjected to EWT per Alphalist Leasehold Improvements Subjected to 15% EWT Php 380,000.00 "J-1," page 39 Leasehold Improvements Subjected to 10% EWT 410,500.00 "J-1," page 39 Leasehold Improvements Subjected to 2% EWT 10,667,439.68 "J-1," page3 8 Leasehold Improvements Subjected to 1% EWT 1,291,162.67 "J-1," pages 37 and 38 Furniture and Fixtures Subjected to 2% EWT 6,250.00 "J-1," page38 Furniture and Fixtures Subjected to 1% EWT 1,562,534.16 "J-1," pages 37 and 38 Office Equipment Subjected to 1% EWT 1,101,447.58 "J-1," pages 37 and 38 Computer Equipment Subjected to 2% EWT 56,607.14 "J-1," page 38 Computer Equipment Subjected to 1% EWT 73,839.29 PhE 15,549,780.52 "J-1," page 37 Payments not Subjected to EWT Php 1,538,115.00 EWTRate 1% DEFICIENCY EWT PHP 15,381.15 From the foregoing discussion, petitioner is liable for deficiency EWT in the amount of Php47,605.95, computed as follows: NATURE OF INCOME PAYMENT AMOUNT TAXRATE EWTDUE a.) Professional and Management fees Php 72,034.00 10% Php 7,203.40 b.) Payment to Contractors by Top 10K Corp.- Services 2% c.) Payment by Top 10K- Goods 1,251,069.94 1% 25,021.40 DEFICIENCY EXPANDED WITHHOLDING TAX 1,538,115.00 15,381.15 PHP 47,605.95 IV. DEFICIENCY WITHHOLDING TAX ON COMPENSATION- Php309,236.80 As previously discussed, respondent's assessment on salaries and wages amounting to Php249,135.40 is upheld for petitioner's failure to subject it to WTC, thus, it is proper for the petitioner to be held liable for deficiency WTC in the amount of Php60,789.04, computed as follows: DETAILS AMOUNTS 249,135.40 Amount Not Subjected to Withholding Php (

DECISION CTA CASE NO. 8478 Page48of55 Average Withholding Tax Rate: Tax Due & Withheld Php 2,055,153.64 24 40 %0 247 Taxable Compensation 8,423,657.79 = � BASIC DEFICIENCY WITHHOLDING TAX ON COMPENSATION PHP 60,789.04 V. DEFICIENCY FINAL WITHHOLDING TAX- Php40,918,045.57 Respondent assessed petitioner for alleged deficiency FWT in the amount of Php40,918,045.57248, computed as follows: DETAILS INCOME SHOULD BE TAX DEFICIENCY DISCREPANCY PER PAYMENT TAX RATE IMPOSED TAX RATE Royalties - Res. Corp. Php 41,292,473.00 25% RE-INVESTIGATION Royalties- Non-Res. Corp. 35% 10% 25% Production Bonus 15,272,477.00 35% 10% 25% Php 10,323,118.25 Interest Expense 12,116,340.00 35% 10% 5% Management Fees 20% 15% 35% 3,818,119.25 Total 4,464,722.00 35% 0% Add: 2,463,605.00 3,029,085.00 Php 75,609,617.00 50% Surcharge 223,236.10 Interest (01.16.08 to 09.30.11) TOTAL AMOUNT DUE 862,261.75 Php 18,255,820.35 PHP 9,127,910.18 13,534,315.04 40,918,045.57 In the details of discrepancies, respondent stated that these amounts were royalties and income payments made to non-resident foreign corporations which the petitioner failed to subject to FWT (with correct tax rate), in violation of Section 28(B)(1)249 and Section 28(B)(S)(a)2so of the 1997 NIRC.2s1 Petitioner claims that the royalty overrides and production bonuses paid to its resident and non-resident distributors are not to be 247 Records, Box 1, Exhibit "A," Schedule 5. us Id., Schedule 1a. 249 "Sec. 28. Rates ofIncome Tax on Foreign Corporations. - xxx XXX XXX XXX (B) Tax on Non-resident Foreign Corporation. - 1) In General.- Except as otherwise provided in this Code, a foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to thirty-five percent (35%) of the gross income received during each taxable year from all sources within the Philippines, such as interests, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities, emoluments or other fixed or determinable annual, periodic or casual gains, profits and income, and capital gains, except capital gains subject to tax under subparagraph 5 ( c ): Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30% )." 250 "Sec. 28. Rates of Income Tax on Foreign Corporations. - xxx XXX XXX XXX (B) Tax on Non-resident Foreign Corporation. (1) xxx XXX XXX XXX (5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. -(a) Interest on Foreign Loans. -A final withholding tax at the rate of twenty percent (20%) is hereby imposed on the amount of interest on foreign loans contracted on or after August 1, 1986; (b) xxx" 251 Records Box 1, Exhibit "A," Details of Discrepancies par. (j). (

DECISION CTA CASE NO. 8478 Page49of55 understood as the "royalties" under Section 42(A)(4)252 of the 1997 NIRC. Ms. Jacob testified that royalty overrides and production bonuses form part of the benefits given to distributors. Royalty overrides is a payment to qualified Supervisors ranging from 5 to 15% on the monthly volume of their three (3) levels of active downline distributors. A production bonus is how petitioner denominates a commission, which is a bonus of 2% to 7% on downline distributors' collective volume earned by eligible distributors.253 The Court agrees with petitioner that income payments to resident distributors are not royalties subject to FWT but in the nature of commissions. An examination of documents shows that royalty and production bonuses paid to resident and non-resident corporations with valid supporting documents are Php40,581,983.80 and Php25,732,329.23, respectively, as shown below: 252 "Sec. 42. Income from Sources Within the Philippines.- (A) xxx (1) xxx; 4) Rentals and Royalties. Rentals and royalties from property located in the Philippines or from any interest in such property, including rentals and royalties for- a) The use of or the right or privilege to use in the Philippines any copyright, patent, design or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right; b) The use of, or the right to use in the Philippines any industrial, commercial or scientific equipment; c) The supply of scientific, technical, industrial or commercial knowledge or information; d) The supply of any assistance that is ancillary and subsidiary to, and is furnished as a means of enabling the application or enjoyment of, any such property or right as is mentioned in paragraph (a), any such equipment as is mentioned in paragraph (b) or any such knowledge or information as is mentioned in paragraph (c); e) The supply of services by a non-resident person or his employee in connection with the use of property rights belonging to, or the installation or operation of any brand, machinery or other apparatus purchased from such nonresident person; f) Technical advice, assistance or services rendered in connection with technical management or administration od any scientific, industrial or commercial undertaking, venture, project or scheme; and g) The use of or the right to use: (i) motion picture films; (ii) films or video tapes for use in connection with television; and (iii) tapes for use in connection with radio broadcasting." 253 Records, Vol. 2, JA of Lina E. Jacob, offered as testimony of Ms. Jacob during the May 15, 2013 hearing. (

DECISION CTA CASE NO. 8478 DETAILS AMOUNT PER WITH SUPPORTING DIFFERENCE ASSESSMENT DOCUMENTS Royalties/Commissions to Resident Php 41,292,473.00 Php 40,581,.9. 83.80254 Php 710,489.20 Distributors Subjected to 10% EWT 27,388,817.00 25,732,329.23255 1,656,487.77 Royalties/Commissions to Non-Resident PHP 68,681,290.00 PHP 66,314,313.03 PHP 2,366,976.97 Distributors Subjected to 25% & 35% TOTAL The Court likewise agrees with the findings of the ICPA that the amount of Php710,489.20 should be subjected to 10% EWT for not being properly supported with documents. Hence, the Court finds petitioner liable for deficiency EWT amounting to Php71,048.92256. Similarly, the income payment to non-resident distributors are not royalties that should be subjected to FWT but it is a commission subject to withholding tax, hence, the commission amounting to Php1,656,487.77 without supporting documents should be subjected to 25% withholding tax or a deficiency of Php414,121.94. On the other hand, the Court finds merit in respondent's assessment that interest expense amounting to Php4,464,722.00 is subject to 20% FWT. Records show that it was already subjected to a 15% FWT, thus, petitioner is accountable for a deficiency 5% FWT in the amount of Php223,236.10. Anent the assessment for management fee, as previously discussed, petitioner failed to prove that the services were rendered outside the Philippines. The Confirmation Letter of Ms. Ng Woei Bin257, without any supporting documents, is at most self-serving and should not be given any weight. It follows, therefore, that respondent's assessment on management fees is sustained. Thus, based on the foregoing discussion, petitioner is liable for deficiency FWT/EWT in the amount of Php1,570,668.71, computed as follows: DETAILS AMOUNT TAX RATE TAX DUE Royalties/Commission Resident Distributors Royalties/ Commission Non-Resident Distributors Php 710,489.20 10% Php 71,048.92 Interest Expense 1,656,487.77 25% 414,121.94 Management Fee 4,464,722.00 5% 223,236.10 TOTAL 2,463,605.00 35% 862,261.75 PHP 9,295,303.97 PHP 1,570,668.71 254 Records Box 4, Exhibit "UUU," Annex U, computed as Php93,646,823.00 divided by Php92,035,511.03 multiplied by Php41,292,473.00. 25s Id., Exhibit "UUU," Annex V. 256 Php710,489.20 X 10%. 257 Records Box 4, Exhibit "BBB-5." rv

DECISION CTA CASE NO. 8478 VI. DEFICIENCY FINAL WITHHOLDING- VAT- Php8,577,939.88 Respondent assessed the petitioner for alleged deficiency withholding VAT of Php3,822,424.68, computed as follows: DETAILS AMOUNT Production Bonus Php 12,116,340.00 Royalties Interest Expense 15,272,477.00 Total 4,464,722.00 VAT Rate Php 31,853,539.00 Basic Deficiency Withholding VAT Add: 50% Surcharge 12% Php 3,822,424.68 Interest (01.11.08 to 09.30.11) TOTAL DEFICIENCY WITHHOLDING VAT 1,911,212.34 2,844,302.86 PHP 8,577,939.88 The production bonus and royalties pertain to commissions paid to Anthony Wing and Louisa Higgins, non-resident distributors, as evidenced by their respective affidavits2ss. However, the originals of the affidavits were not presented, to prove that the income they received were derived from outside the Philippines. Without such proof, respondent's assessment in the amount of Php3,286,658.04 is upheld, computed as follows: DETAILS AMOUNT Production Bonus Php 12,116,340.00 Royalties Total 15,272,477.00 VAT Rate Php 27,388,817.00 DEFICIENCY WITHHOLDING VAT 12% PHP 3,286,658.04 On the other hand, assessment on interest expense for deficiency withholding VAT in the amount of Php535,766.04259 is cancelled for not being subject to withholding VAT under the 1997 NIRC. VII. DEFICIENCY DOCUMENTARY STAMP TAX- Php82,715.52 Petitioner is allegedly liable for deficiency DST in the amount of Php36,814.00, computed as follows: 258 Records Box 4, Exhibits "TTT-3" to "TTT-4." 259 Php4,464,722.00 X 12%. (

DECISION CfA CASE NO. 8478 DETAILS AMOUNT A. Increase in Due from Related Parties per FS Php 2,042,244.00 Documentary Stamp Tax (Php1.00 for every Php200.00) Php 10,212.00 B. Monthly Rent per BIR Form 1601E 410,500.00 Term (60 months) 60.00 Escalation Rate 10% Total Rental Fee/Tax Base Year1 Php 4,926,000.00 Year2 5,418,600.00 Year3 5,418,600.00 Year4 5,418,600.00 YearS 5,418,600.00 Phe 26,600,400.00 Documentary Stamp Tax (Php3.00 plus Php1.00 for every Php1,000.00 in excess of Php2,000.00) 26,602.00 Basic Deficiency DST 36,814.00 Add: 50% Surcharge Php 18,407.00 Interest (01.06.08 to 09.30.11) 27,494.52 Ph� 45,901.52 TOTAL DEFICIENCY DST PHP 82,715.52 An examination of petitioner's Statement of Cash Flows260 indicates a cash flow from a financing activity, showing an increase in due to related parties amounting to Php2,042,244.00. Related party transactions261 is defined as petitioner's transactions with its parent company and other related parties, which are, under the existing policies, subject to interest at a fixed rate of 0.5% of outstanding payables exceeding ninety (90) days. These transactions consist mainly of cash advances from related parties used for working capital requirements and purchase of inventories.262 Petitioner failed to provide evidence to disprove the assessment. Section 179263 of tlte 1997 NIRC states that a DST shall be collected on every original issue of debt instruments of one peso (Phpl.OO) on each two hundred pesos (Php200.00), or a fractional part thereof, of the issue price of any such debt instrument. Thus, the Court upholds respondent's assessment of deficiency DST liability amounting to Php10,212.00. 260 Records Box 1, Exhibit "0-7." 261 !d., Exhibit "0-21," Note to FS No. 15. 262 !d. 263 "Sec. 179. Stamp Tax on All Debt Instruments. -On every original issue of debt instruments, there shall be collected a documentary stamp tax of one peso (Php1.00) on each Two Hundred pesos (Php200.00), or fractional part thereof, of the issue price of any such debt instruments: Provided, that for such debt instruments with terms of less than one (1) year, the documentary stamp tax to be collected shall be of a proportional amount in accordance with the ratio of its term in number of days to three hundred sixty five (365) days; Provided, further, That only one documentary stamp tax shall be imposed on either loan agreement, or promissory notes issued to secure such loan." (

DECISION CTA CASE NO. 8478 On the other hand, assessment on the DST on Rent in the amount Php26,602.00 is cancelled since it was already paid, as evidenced by BIR Form No. 2000264. VIII. PENALTIES- Php53,000.00 Respondent's imposition of compromise penalty amounting to PhpSO,OOO.OO cannot be sustained. Under Revenue Memorandum Order ('RMO") No. 01-90265, as amended by RMO No. 19-07266, 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 the taxpayer refuses to pay the same.267 RMO No. 19-07 further provides that compromise penalties should not form part of the assessment notice that reflects deficiency basic tax, surcharge and interest; and that it should appear in a separate assessment notice/demand letter as the amount suggested to the taxpayer in lieu of criminal prosecution. Thus, absent any clear showing that petitioner consented to the compromise penalty, its imposition should be cancelled. On the other hand, the Court upholds the Php3,000.00 penalty imposed by the respondent for petitioner's failure to file Quarterly Remittance Return of Final Income Taxes Withheld (BIR Form No. 1603) for the 2nd, 3rd and 4th quarters of 2007, pursuant to Section 250268 of the 1997 NIRC. WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED. The assessment issued by respondent for CY 2007 covering deficiency IT, VAT, EWT, WTC, FWT, FWT-VAT, DST and penalties is hereby UPHELD WITH MODIFICATIONS. 264 Records Box 1, Exhibit "F." 265 Amendments to the Provisions of a "Revised Schedule of Compromise Penalties" for Internal Revenue Violations as Prescribed in RMO 26-86, November 28, 1989. 266 The Consolidated Revised Schedule of Compromise Penalties for Violations of the National Internal Revenue Code, August 8, 2007. 267 RMO No. 19-07, par. 6. 268 "Sec. 250. Failure to File Certain Information Returns. - In the case of each failure to file an information return, statement or list, or keep any record, or supply any information required by this Code or by the Commissioner on the date prescribed therefor, unless it is shown that such failure is due to reasonable cause and not to willful neglect, there shall, upon notice and demand by the Commissioner, be paid by the person failing to file, keep or supply the same, One thousand pesos (Php1,000.00) for each such failure: xxx" (

DECISION CTA CASE NO. 8478 Accordingly, petitioner is hereby ORDERED TO PAY the total amount of Eleven Million Two Hundred Seventy Five Thousand Two Hundred Eighty-Eight and 19/100 Pesos (Php11,275,288.19), inclusive of the 25% surcharge imposed under Section 248(A)(3) of the 1997 NIRC, as amended, broken down as follows: TAX TYPE BASIC TAX 25% SURCHARGE TOTAL Income Tax Php 3,957,558.71 4,946,948.39 Value Added Tax Php 989,389.68 Php 105,422.63 Expanded Withholding Tax 84,338.10 59,507.44 Withholding Tax on Compensation 47,605.95 21,084.53 Php 75,986.30 Final Withholding Tax 60,789.04 PHP 1,963,335.89 Final Withholding of VAT 1,570,668.71 11,901.49 4,108,322.55 Documentary Stamp Tax 3,286,658.04 12,765.00 Total 10,212.00 15,197.26 11,272,288.19 Penalty Php 9,017,830.56 3,000.00 GRAND TOTAL 392,667.18 11,275,288.19 821,664.51 2,553.00 Php 2,254,457.64 In addition, petitioner is also ORDERED TO PAY: 1. Deficiency interest at the rate of twenty percent (20%) per annum on the basic deficiency IT, VAT, EWT, WTC, FWT, FWT-VAT, DST, computed from dates indicated below until full payment thereof pursuant to Section 249(B)269 of the 1997 NIRC, as amended: TAX TYPE BASIC TAX DEFICIENCY INTEREST COMPUTED FROM Income Tax Php 3,957,558.71 April16, 2008 Value Added Tax 84,338.10 January 26, 2008 Expanded Withholding Tax 47,605.95 January 16, 2008 Withholding Tax on Compensation 60,789.04 January 16, 2008 Final Withholding Tax January 16, 2008 Final Withholding of VAT 1,570,668.71 January 11, 2008 Documentary Stamp Tax 3,286,658.04 January 06, 2008 10,212.00 2. Delinquency interest at the rate of twenty percent (20%) per annum on the amount of Php11,272,288.19, representing the basic deficiency IT, VAT, EWT, WTC, FWT, FWT-VAT, DST, and the corresponding twenty five percent (25%) surcharge; and the twenty percent (20%) deficiency interest which have accrued as aforestated in Item (1), computed from August 27, 2011 until full payment thereof pursuant to Section 249(C)270 of the 1997 NIRC, as amended. 269 "SEC. 249. Interest. -(A) xxx (B) Deficiency Interest. - Any deficiency in the tax due, as the term is defined in this Code, shall be subject to the interest prescribed in Subsection (A) hereof, which interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof. xxx" 270 "SEC. 249. Interest. - (A) XXX (B) XXX (C) Delinquency Interest. - In case of failure to pay: (1) The amount of the tax due on any return to be filed, or (2) The amount of the tax due for which no return is required, or (3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner, there shall be (

DECISION CTA CASE NO. 8478 SO ORDERED. LOVELL (BAUTISTA Associate Justice WE CONCUR: ON-VICTORINO MA. BELER~PIS-LIBAN Associate Justice ATTESTATION I attest 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. LOVELL(.BAUTISTA Associate Justice Chairperson CERTIFICATION Pursuant to Section 13 of Article VIII of the Constitution and the Division Chairperson's Attestation, 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. Presiding Justice assessed and collected on the unpaid amount, interest at the rate prescribed in Subsection (A) hereof until the amount is fully paid, which interest shall form part of the tax. xxx"