HOLIDAY INNS (PHILIPPINES) INC., v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS Quezon City SECOND DIVISION HOLIDAY INNS (PHILIPPINES), CTA CASE NO. 10396 INC., Members: Petitioner, UY, Chairperson, -versus- BACORRO-VILLENA, and CUI-DAVID, Jl. COMMISSIONER OF INTERNAL REVENUE, - -- -- - -- -~e~~~~~e~~----P-r-o-m--u-lg-a-t-o-Er-~~<:--'l-o-f-,-..x x------- . JUDGMENT BASED ON COMPROMISE AGREEMENT BACORRO-VILLENA, J.: On 15 March 2022, the Court received a "Joint Manifestation (Re: Compromise Agreement)"1 from the parties, petitioner Holiday Inns (Philippines), Inc. (petitioner) and respondent Commissioner of Internal Revenue (respondent), stating that they have successfully reached a compromise agreement before the Philippine Mediation Center - Court of Tax Appeals (PMC-CTA), pursuant to A.M . No. n-1- os-SC-PHILJA or otherwise known as the Interim Guidelines for Implementing Mediation in the Court of Tax Appeals (Interim Guidelines). Under the Interim Guidelines, upon approval of the compromise agreement, the Court shall render judgment based thereon.2 Moreover, the subject Compromise Agreement (CA) likewise states that the samp Division Docket, pp. 408-409. See Part IX(A) of the Interim Gui del ines.

JUDGMENT BASED ON COMPROMISE AGREEMENT CTA Case No.lDJ'lfi Holiday Inns (Philippines], Inc. v. CIR Page 2 ofll x-- ------------------------------------- x shall be submitted for the approval of this Court3; hence this Judgment Based on Compromise Agreement (JBCA), notwithstanding the lack of any motion from the parties for the approval thereof. Relative to the above JBCA, the parties transmitted the duly executed CA4 and the Bureau oflnternal Revenue (BIR) Payment Form No. o6os5, as well as the proof ofpayment6 thereof, to the PMC-CTA. In compliance with the Court's Resolution dated 14 July 20227, petitioner further submitted on 25 July 2022 the original Special Power of Attornel authorizing Hazel Kiok Tin to execute the subject CA on petitioner's behalf. On the other hand, respondent submitted on 22 July 20229 the certified true copies of Certificate of Availment'0 and the signature page11 thereof, both dated 30 June 2022. Moreover, in their "Joint Manifestation (Re: Resolution dated 31 August 2022)"12 filed on og September 2022, the parties manifested that the basis for acceptance of compromise is doubtful validity of the assessment; particularly, that the assessment seems to be arbitrary in nature, appearing to be based on presumptions and there is a reason to believe that it is lacking in legal and/or factual basis. The subject CA, which Mediator (Ret.) Justice Amelia R. Cotangco-Manalastas has duly attested, reads as follows: COMPROMISE AGREEMENT This COMPROMISE AGREEMENT ("AGREEMENT"), made and executed, by and between: HOLIDAY INNS (PHILIPPINES) INC., (the "TAXPAYER"), a domestic corporation duly organized � _ _ _ _ _a_n_d_ex_i_st_in_g_under the laws of the Republic of t h / See Section 2, Compromise Agreement, Division Docket, pp. 426-427. 4 !d., pp. 424-43 I. !d., p. 432. 6 !d., p. 433. !d., pp. 448-449. !d., pp. 455-457. 9 Received by the Court on 02 August 2022. 10 Division Docket, p. 460. II !d., p. 461. 12 !d., pp. 470-472.

JUDGMENT BASED ON COMPROMISE AGREEMENT CTA Case No.l.Jl.3..2.(i Holiday Inns (Philippines], Inc. v. CIR x--- ----------------------------------- -x Philippines, with principal office address at 29th Floor Tower II, RCBC Plaza, 6819 Ayala Avenue corner Gil Puyat Avenue, Makati, represented by Hazel [K]iok Tin, Resident Agent;. -and- The COMMISSIONER OF INTERNAL REVENUE (the "CIR"), with principal office at Bureau of Internal Revenue, 511 National Office Building, Agham Road, Diliman, Quezon City, represented by the Commissioner oflnternal Revenue, Hon. Cesar R. Dulay (collectively, the "PARTIES"); -Witnesseth That- WHEREAS, on February 21,2013, the TAXPAYER received the Bureau of Internal Revenue (BIR), Revenue Region No.8's Formal Assessment Notice (FAN) with attached Details of Discrepancies in which the Regional Director demanded the TAXPAYER to pay its alleged deficiency Income Tax (IT) for taxable year (TY) 2019 in the total amount ofP10,554,286.65, inclusive of interest. WHEREAS, on March 20, 2013, the TAXPAYER filed with the BIR, R.R. No. 8 its request for reinvestigation of the FAN (the "Protest") in which it prayed for the annulment of the FAN. WHEREAS, on August 17, 2015, the TAXPAYER received the BIR R.R. No. S's Final Decision on Disputed Assessment (FDDA) dated August 11, 2015. In his FDDA, the CIR, through the Regional Director of BIR, R.R. No. 8 denied the Protest and ordered the TAXPAYER to pay the alleged deficiency Income Tax liabilities for TY 2009 in the aggregate amount of I'13,889,9o8.37, which was computed as follows: I. INCOME TAX (Assessment Notice No. IT-LA23049/El.A.t>>13-o9-13-o139 22,2oo,g84.oo Taxable Income (Loss) per ITR f'J7,932,6go.oo Add: Adjustments/Disallowance a. Disallowed Share in Head Office expenses Adjusted Taxable Income Income Tax Due: r 1,49J.J91.ao PH,379. 8o7.00 Less: Tax Credits/Tax Payments 7,18s,8n.oo 4,719,512.00 Prior Year's Excess Credits , 6,660,295�00 r s,679,2o2.oo Creditable Tax Withheld Per BIR Form 2307 3.959,6go.oo 7.22g,613�37 p 13,889,908.3/ Total Less: Excess Credits Carried Over To The Succeeding Quarter/Year Basic Tax Due Add: Interest (4.16.10 to 9.18.15) TOTAL AMOUNT DUE

JUDGMENT BASED ON COMPROMISE AGREEMENT CTA Case N0.1.0.3.26. Holiday Inns (Philippines), Inc. v. CIR Page 4 ofll x---------------------------------------x WHEREAS, on September 10, 2015, the TAXPAYER filed a request for reconsideration of the FDDA (the "Administrative Appeal") with the CIR. In its Administrative Appeal, the TAXPAYER prayed for the reversal of the FDDA and the cancellation of the C!R's deficiency tax assessments forTY 2009. WHEREAS, on September 16, 2020, the CIR issued a Final Decision confirming the income tax deficiency of the TAXPAYER in the amount of1'13,889,908.37� WHEREAS, on November 9, 2020, the TAXPAYER instituted an action against the CIR entitled "HOLIDAY INNS (PHILIPPINES), INC. VS. COMMISSIONER OF INTERNAL REVENUE", docketed as CTA Case No. 10396, before the Second Division of the Court of Tax Appeals ("CTA"), seeking the cancellation and nullification of the assessment for deficiency income tax forTY 2009 in the amount of1'13,889,9o8.37� WHEREAS, on March 15, 2021, the CTA referred the case to Mediation before the Philippine Mediation Center-Court of Tax Appeals (PMC-CTA). WHEREAS, in the course of the mediation proceedings before the PMC-CTA, the PARTIES have agreed to amicably settle this case upon the TAXPAYER's payment of1'2,664,n8.oo. WHEREAS, on 10 November 2021, the TAXPAYER has remitted and paid to the BIR R.R. No. SA (pursuant to Revenue Administrative Order No. 4-2019) the total amount of 1'2,664,n8.oo, as evidenced by: Payment Form (BIR Form No. o6o5) filed on 9 November 2021, with EFPS Filing Reference No. 292100044523379, covering the TAXPAYER's payment of 1'2,664,n8.oo, representing 40% of the deficiency IT assessment forTY 2009. WHEREAS, the CIR has evaluated the TAXPAYER's proposal for amicable settlement and believes that a compromise would allow immediate tax collection and also put an end to litigation as provided in the Civil Code of the Philippines, serves the interest of the Government. WHEREAS, the PARTIES have agreed to enter into an amicable settlement pursuant to the provisions of the Civil Code of the Philippines, jurisprudence, relevant decisions of the Honorable CTA and the Supreme Court, and pertinent laws and issuance on judicial compromise witqout contravening laws, morals, public order, and public policy. /

JUDGMENT BASED ON COMPROMISE AGREEMENT CTA Case No. JJl3..2.6 Holiday Inns (Philippines), Inc. v. CIR Page 5 ofll x---------------------------------------x WHEREAS, the PARTIES have agreed to accept mediation to avoid prolonged litigation, as authorized by A.M. No.u-1-os-SC- PHILJA. WHEREAS, the PARTIES, for the purpose of avoiding and putting an end to a protracted, expensive, and mutually prejudicial litigation, have agreed to amicably settle the above-mentioned case, upon terms and conditions hereinafter set forth. WHEREAS, the assistance of the assigned mediator resulted in making the parties realize the advantage of ending their dispute by agreeing upon compromise. NOW, THEREFORE, for and in consideration of the foregoing premises, the PARTIES hereto agreed as follows: Section 1. Judicial Compromise Amount. In order to settle the above-mentioned case, the TAXPAYER has offered and paid to the BIR, R.R. No. SA on , and that the CIR has accepted the total payment of P2,664,n8.oo (the "Judicial Compromise Amount"). Section 2. Submission to the Honorable CTA. This Agreement fully signed by the PARTIES shall be submitted for the approval of the Honorable Court of Tax Appeals in CTA Case No. 10396. The PARTIES undertake to perform any and all acts, and submit any and all documents required by the Honorable CTA to be able to render a Judgment by Compromise Agreement in the said case. Section 3� Effectivity of the Agreement. This Agreement shall take effect and bind the PARTIES upon approval by the Honorable CTA. This Agreement shall thereafter remain in force and effect until completion and fulfillment of the covenants and undertaking of the PARTIES hereto. Section 4� Deliverables of the PARTIES upon approval of this of this Agreement by the Honorable CTA. Upon final approval by the Honorable CTA of this Agreement, the CIR undertakes to execute and deliver to the TAXPAYER any and all documents as may be required to effectively and fully implement the provisions of this Agreement. Section 5� Authority to Enter Compromise Agreement. The BIR, through Commissioner Cesar R. Dulay warrants that he has the necessary authority and capacity under the law to enter, sign, and execute this Agreement, and to deliver its implementing documents upon its approval of the Honorable CTA/

JUDGMENT BASED ON COMPROMISE AGREEMENT CTA Case No. .1l!.3..2Ji Holiday Inns (Philippines), Inc. v. CIR Page 6 ofll x-- ------------------------------------ -x The TAXPAYER, through Hazel Kiok Tin, Resident Agent, is duly authorized by the Board of Directors of the TAXPAYER and has full legal capacity to enter, sign, and execute this Agreement, and to deliver payment of the above-agreed additional amount. Section 6. Full and Final Settlement. This Agreement is executed by the PARTIES for the purpose of amicably settling the pending CTA Case No. 10396. Upon approval by the Honorable CTA, the CIR recognizes the full satisfaction of the supposed tax liability of the TAXPAYER in connection with CTA Case No. 10396 and acknowledges that the TAXPAYER no longer has any tax liability whatsoever based upon, arising from, or in connection with the TY 2009 Assessment. Section 7� Disapproval of this Agreement by the Honorable CTA. In the event that this Agreement is disapproved by the Honorable CTA, the PARTIES agree to a curing period of sixty (6o) days, subject to extension, from receipt of the Order/Resolution disapproving this Agreement. During such curing period, the PARTIES mutually agree to perform any and all acts necessary to rectify or correct the deficiency, defect, or imperfection which caused its disapproval, and re-submit the rectified or corrected Agreement for approval of the Honorable CTA. However, in case the deficiency, defect or imperfection is not or cannot be rectified or corrected within the said curing period, or still not approved by the Honorable CTA after it is rectified or corrected by the parties: 1. The amount already paid by the TAXPAYER to the Bureau of Internal Revenue shall be deemed a tax credit which may be applied against internal revenue taxes for which the TAXPAYER may be directly liable, as allowed under existing rules and regulations; and 2. The proceedings of CTA Case No. 10396 shall continue and the discussions pursuant the disapproved Agreement cannot be used by the PARTIES in said proceeding unless consent of the other party be obtained. Section 8. No Admission of Liability. The execution of this Agreement shall not constitute or be interpreted in any way as an admission or acknowledgment of error or liability by the PARTIES. Section 9� Non-Performance. The PARTIES agree that the failure of any PARTY to comply with any of the terms and conditions of this Agreement shall entitle the aggrieved PARTY to file an appropriate motion with the Honorable CTA for the immediate implementation and execution of the terms and conditions of thi~~

JUDGMENT BASED ON COMPROMISE AGREEMENT CTA Case No.1J!3'12 Holiday Inns (Philippines), Inc. v. CIR x- ------------------------------------ --x Agreement or the judgment or order of the Honorable CTA approving the same. Section 10. Signatures and Counterparts. This Agreement may be signed in counterparts, each of which when executed and delivered shall constitute a duplicate original, but all of which shall be taken together as a single instrument. Until and unless each party has received a counterpart hereof signed by the other party hereto, the Agreement shall have no effect and no party shall have any right or obligation hereunder. IN WITNESS WHEREOF, the PARTIES hereto have mutually and voluntarily agreed to the foregoing stipulations and have hereunto signed these presents at the date and place indicated above, for the consideration and approval of the Honorable Court. HOLIDAY INNS COMMISSIONER OF PHILIPPINES, INC. INTERNAL REVENUE Petitioner I TA X P A YER Respondent/CIR By: By: (Sgd.) (Sgd.) HAZEL KIOK TIN HON. CAESAR R. DULAY Authorized Representative Commissioner ofInternal Revenue Witnesses: (Sgd.) (Sgd.) Reichelle Alingasa ATIESTED: (RET.) JUSTICE AMELIA R. COTANGCO-MANALASTAS Mediator '3 From the foregoing, it appears that a Final Decision on Disputed Assessment (FDDA) was issued to petitioner dated u August 2015'4 containing an assessment for deficiency income tax (IT) with basic tax due of P6,66o,2gs.oo. The parties then agreed to amicably settle the case upon petitioner's payment of P2,664,u8.oo or equivalent to forty f percent (4o%) of the basic IT due, on the ground of doubtful validity of the assessment. ]] Citations omitted and emphasis, italics and underscoring in the original text. 14 Pre-marked as petitioner's Exhibit "P-24" and respondent's Exhibit "R-10", Division Docket, pp. 228-229 and 320-321.

JUDGMENT BASED ON COMPROMISE AGREEMENT CTA Case No.l!!J'lU Holiday Inns (Philippines), Inc. v. CIR X-------------------------------------- -X The Court rules in favor of the compromise. In Commissioner of Internal Revenue v. Iconic Beverages, Inc. 15 , the Supreme Court held that the authority of respondent to compromise is purely discretionary, and the courts cannot interfere with the exercise of discretionary functions, absent grave abuse of discretion, to wit: The power of the CIR to enter into compromise agreements for deficiency taxes is explicit in Section 204 (A) of the Tax Code, as amended. The CIR may compromise an assessment when a reasonable doubt as to the validity of the claim against the taxpayer exists, as in this case, or the financial position of the taxpayer demonstrates a clear inability to pay the tax. It is settled that the authority of the CIR to compromise is purely discretionary, and the courts cannot interfere with his exercise of discretionary functions, absent grave abuse of discretion. Here, no grave abuse of discretion exists. In this regard, a compromise agreement has the effect of res judicata on the parties. Compromises are generally to be favored and those entered into in good faith cannot be set aside, except when there is mistake, fraud, violence, intimidation, undue influence, or falsity of documents. None of these exceptions obtain in the present case. With respect to the necessary approval of the CA, Section 6 of Revenue Regulations (RR) No. 16 as amended by RR No. g- 30-2002 , 201317, states: SEC. 6. APPROVAL OF OFFER OF COMPROMISE.- Except for offers of compromise where the approval is delegated to the REB pursuant to the succeeding paragraph, all compromise settlements within the jurisdiction of the National Office (NO) shall be approved by a majority of all the members of the NEB composed of the Commissioner and the four (4) Deputy Commissioners. All decision)/ " G.R. Nos. 24065 I & 240665, 06 July 202 I (Notice of Resolution); Citations omitted and italics in the original text. 16 Revenue Regulations Implementing Sections 7(c), 204(A) and 290 of the National Internal Revenue Code of I997 on Compromise Settlement of Internal Revenue Tax Liabilities 17 Superseding Revenue Regulations Nos. 6-2000 and 7-2001. Amending Certain Provisions of Revenue Regulations No. 30-2002.

JUDGMENT BASED ON COMPROMISE AGREEMENT CTA Case No.l.J!3.22 Holiday Inns (Philippines), Inc. v. C!R Page 9 ofll x-~-------------------------------------x of the NEB, granting the request of the taxpayer or favorable to the taxpayer, shall have the concurrence of the Commissioner. XXX XXX XXX The compromise offer shall be paid by the taxpayer upon filing of the application for compromise settlement. No application for compromise settlement shall be processed without the full settlement of the offered amount. In case of disapproval of the application for compromise settlement. the amount paid upon filing of the aforesaid application shall be deducted from the total outstanding tax liabilities.'8 XXX XXX XXX Furthermore, Revenue Memorandum Order (RMO) No. 3-2017'9 likewise provides: All approved applications for compromise settlement and/or abatement of penalties shall be issued Certificate of Availment (CA) following the prescribed format as per attached Annexes "A" and "B", while denied applications shall be issued Notice of Denial (ND) following prescribed format as per attached annexes "C" and "0".20 Consequently, a compromise settlement of any tax liability where the basic tax involved exceeds PI,ooo,ooo.oo, such as in this case, must bear the approval of the majority of all National Evaluation Board (NEB) members. Such approval shall be evidenced by a Certificate of Availment following the prescribed format. To show proof of the necessary approval, respondent submitted certified true copies of the Certificate of Availment21 and its signature page22 (showing the unanimous approval of members of the NEB). It is noted that the CA bears no date of payment, per Section 1 thereoy 18 Emphasis and underscoring in the original text. 19 Amending Further the Prescribed Format for the Certificate of Availment/Approval and Notice of Denial Relative to Application for Compromise Settlement and/or Abatement of Penalties Pursuant to Section 204 of the Tax Code, as Amended. 20 Emphasis supplied. 21 Supra at note l 0. 22 Supra at note II.

JUDGMENT BASED ON COMPROMISE AGREEMENT CTA Case No . .lJl.J..2.fi Holiday Inns (Philippines), Inc. v. CIR Page 10 ofll X-------------------------------------- -X nevertheless, considering the Certificate of Availment issued, the Court finds no ground to not approve the same. Thus, after careful scrutiny of the parties' documents, submitted in support of the CA, the Court finds the same in order and in compliance with the established laws, rules and regulations. Hence, the Court approves the same and judgment is hereby rendered based therein. WHEREFORE, in view of the foregoing, petitioner Holiday Inns (Philippines), Inc. and respondent Commissioner of Internal Revenue's Compromise Agreement is hereby APPROVED. Having been impressed with judicial imprimatur, the parties are hereby ENJOINED to faithfully comply with all the terms and conditions of the aforesaid Compromise Agreement. Consequently, petitioner Holiday Inns (Philippines), Inc.'s pending Petition for Review filed on 09 November 2020 is rendered MOOT AND ACADEMIC. Accordingly, this case is now deemed CLOSED AND TERMINATED. SO ORDERED. 0-VILLENA WE CONCUR: ER~P.UY Associate Justice ~i~MnX-- LANEE S. CUI-DAVID Associate Justice

JUDGMENT BASED ON COMPROMISE AGREEMENT CTA Case No. .1.1!.3..22 Holiday Inns (Philippines), Inc. v. CIR Page 11 ofll x-- ------------------------------------ -x ATTESTATION I attest that the conclusions in the above Judgment Based on Compromise Agreement were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. ERL~.UY Associate Justice 2nd Division Chairperson CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Judgment Based on Compromise Agreement were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. Presiding Justice