GOLDEN DONUTS, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY THIRD DIVISION GOLDEN DONUTS, INC., CTA Case No. 10336 Pe tition e r, Members: -ve r s u s - MANAHAN , Chairperson, REYES-FAJARDO, and ANGELES, JJ. COMMISSIONER OF Promulgated: INTERNAL REVENUE, Respondent. JUl 30 2mlt X - - - - - - - - - - - - - - - - - - - - - - - -~------ 't_ ;_t:J_'2_~ _Wf! ~ ---X DECISION MANAHAN,J.: This is a Petition for Reviewl filed by petitioner Golden Donuts, Inc. (GDI) against respondent on August 28, 2020, praying for the nullity and ca n cellation of the alleged assessment for deficiency income t ax (IT), value-added tax (VAT), final tax (Fl) , expanded withholding tax (EWT) , and documentary stamp t ax (DST) for the taxable year (TY) 2010 in the amount of P 159,296 ,703.65.2 THE PARTIES Petitioner GDI is a corpora tion duly organized under the laws of the Republic of the Philippines with office address at GDI Building, Reliance corner Sheridan Streets , Mandaluyong City .3 It is registered with the Bureau of Internal Revenue (BIR) with Tax Identification No. (TIN) 000- 122-565-00000 under the BIR Large Taxpayers Service, Revenue District Office (RDO) No. 116 - Regular Large Taxpayers (LT) Division 1.4 1 Docket, CTA Case No. 10336, Vol. I, pp. 6-42. 2 /d., Vol. I , Prayer , Petition for Review, p. 41. 3 Id. , Vol. II, Summary of Admitted Facts, Joint Stipulation of Facts a n d Issu es (JSFI) , p. 754 . 4 !d., Vol. I, E xh ibit "P- 1", Certificate of Regist ration , p . 69 . ~

DECISION CTA Case No. 10336 Respondent is the duly appointed Commissioner of Internal Revenue (CIR) with office address at BIR Building, Diliman, Quezon City.5 THE FACTS On October 10, 2011, petitioner received a Letter of Authority (LOA) No. 116-2011-00000151 (eLA201100003039) dated October 6, 2011,6 signed by then Officer-in-Charge (OIC)- Assistant Commissioner - Large Taxpayers Service Alfredo V. Misajon, designating Revenue Officers Riza Budafto, Aurora Pelayo, Olivia Aviles, Olivia Sison, Rogelio Gonzales and Group Supervisor Marivic Bautista of LT Regular Audit Division 1, to examine petitioner GDI's books of accounts for the period January 1, 2010 to December 31, 2010. 7 On February 14, 2013, petitioner executed a Waiver of Defense of Prescription Under the Statute of Limitations (1st Waiver)8 under the 1997 National Internal Revenue Code (NIRC), as amended, valid until December 31,2014, which was accepted by OIC-Assistant Commissioner Alfredo V. Misajon on March 22, 2013.9 On November 19, 2014, petitioner received the Preliminary Assessment Notice10 (PAN) dated November 19, 2014 for the alleged deficiency IT, VAT, FT, withholding tax on compensation (WTC), EWT, and DST in the aggregate amount of P312,088, 978.56, inclusive of interest and penalties. 11 On December 4, 2014, petitioner executed a Waiver of Defense of Prescription Under the Statute of Limitations (2nd Waiver)1 2 under the 1997 NIRC, as amended, which was accepted by OIC-Assistant Commissioner Nestor Valeroso on December 16, 2014.13 Petitioner received the copy of the Formal Letter of Demand14 (FLD) dated February 2, 2015 and its Audit ' Docket, Vol. II, Summary of Admitted Facts, JSFI, p. 754. 6 !d., Vol. I, Exhibit "P-2", p. 71. 7 Id., Vol. II, Summary of Admitted Facts, JSFI, p. 754. 8 Id., Vol. I, Exhibit "P-4", p. 76; BIR Records, Exhibit "R-4", pp. 1242-1244. 9 Id., Vol. II, Summary of Admitted Facts, JSFI, p. 754. 1o !d., Vol. I, Exhibit "P-12", pp. 87-89. 11 Jd., Vol. II, Summary of Admitted Facts, JSFI, p. 755. 12 Jd., Vol. I, Exhibit "P-14", p. 120; BIR Records, Exhibit "R-9", pp. 1244-a to 1244-c. 13 Jd., Vol. II, Summary of Admitted Facts, JSFI, p. 755. 14 Jd., Vol. I, Exhibit "P-15", pp. 121-123; BIR Records, Exhibit "R-11", pp. 1669-1684.~

DECISION CTA Case No. 10336 Result/Assessment Notices15 on even date in the aggregate amount ofP272,615,710.31, broken down as follows:t6 Kinds Basic Deficiency Interest Total Amount of Tax Tax !'45, 784,191.23 !'103,568,526.63 !'57' 784,335.40 75,358,770.86 165,542,217.96 IT 90,183,447.10 68,650.57 151,677.27 83,026.70 249,544.50 546,234.21 VAT 296,689.71 1,230,239.64 2,692, 902.41 1,462,662.77 52,333.70 114,151.82 FT 61,818.12 1"122, 743,730.50 1"272,615,710.30 WTC 1"149,871,979.80 EWT DST Total On March 4, 2015, petitioner filed a letter dated March 3, 2015 as its protest on the said FLD.l7 On July 30, 2020, petitioner received a copy of the Final Decision on Disputed Assessment18 (FDDA) and corresponding Assessment Notices, demanding payment of total deficiency taxes in the amount ofP159,296,703.65 on or before December 31, 2019, broken down as follows:t9 Kinds Basic Deficiency Interest Total Amount of Tax Tax !'40,644,268.61 !'66,324,849.63 IT !'25,680,581.02 52,876,952.02 85,386,195.20 VAT 32,509,243.18 852,276.52 1,374,504.78 FT 522,228.26 3,770,895.13 6,081,492.63 2,310,597.50 EWT 80,500.30 129,661.41 DST 49,161.11 1"98,224,892.58 1"159,296, 703.65 1"61,071,811.07 Total Thus, petitioner filed the instant petition on August 28, 2020. On September 17, 2020, respondent was directed by the Court to file his Answer to the instant petition.2o 15 BIR Records, Exhibit "R-11", pp. 1663-1668. 16 Docket, VoL II, Summary of Admitted Facts, JSFI, p. 755; Docket, Vol. V, Memorandum for Petitioner, p. 3173. 17 !d., Vol. V, Exhibit "P-16", pp. 3065-3079. 18 !d., Vol. I, Exhibit "P-17'', pp. 152-153. 19 !d., Vol. II, Summary of Admitted Facts, JSFI, p. 755; Docket, Vol. V, Memorandum for Petitioner, p. 3174. 2o Id., Vol. I, Summons dated September 17, 2020, p. 567. dl'o""-

DECISION CTA Case No. 10336 On November 16, 2020, respondent filed his Answer21 after the Court granted22 its Motion for Extension of Time to File Answer,23 raising the following special and affirmative defenses, to wit: 1. The Honorable Court's power of judicial review over decisions of the Commissioner of Internal Revenue on disputed assessment is by nature exclusive and appellate, hence, petitioner should not be allowed to raise issues for the first time on appeal; 2. The FLD is valid and was received by petitioner; 3. The deficiency assessment issued against petitioner is correct; and 4. The assessment issued against petitioner is valid and lawful. On December 11, 2020, the Court referred the case to the Philippine Mediation Center- Court of Tax Appeals (PMC-CTA) for mediation by the parties. 24 However, the parties decided not to have their case mediated by the PMC-CTA.25 Thus, the case was set for Pre-Trial Conference and directed the parties to file their respective Pre-Trial Brief.26 on May 20, 2021, respondent filed his Pre-trial Briej27 while petitioner's Pre-Trial Briej28 was filed on June 25, 2021. On July 16, 2021, the parties submitted their Joint Stipulation ofFacts and Issues. 29 Thus, on April 8, 2022, this Court issued the Pre-Trial Order3o of the instant case. 21 Docket, Vol. I, pp. 577-595. 22 Jd., Vol. I, Resolution dated October 28, 2020, p. 576. 23 Jd., Vol. I, pp. 569-572. 24 Id., Vol. I, Resolution dated December 11, 2020, pp. 709-710. 25 Jd., Vol. I, No Agreement to Mediate dated February 11, 2021, p. 711. 26 Jd., Vol. I, Resolution dated February 22, 2021, p. 714; Notice of Pre-Trial Conference, pp. 715-720. 27 Jd., Vol. I, pp. 723-727. 2s Id., Vol. I, pp. 731-739. 29 Id., Vol. II, pp. 754-759. 30 Jd., Vol. V, pp. 3001-3017. ~

DECISION CTA Case No. 10336 Then trial ensued. Petitioner presented first its witnesses and evidence.3 1 The Formal OfferofEvidencefor Petitioner32 was filed on May 5, 2022 On August 18, 2022, this Court admitted petitioner's E"""1PPP7x---"h811'i"29b"'""iP",'tP-s""1-PP8"7-P--2-A1A-013""""''',' ''"""P"P"PP-P--92--1"2117'"3"-"'-,BPA"""-PP"9'--'-32"A"P"2P"'-"'-1,"1"7P"P4P--"-C4-1'2""03'"'"P"""',-PP""1-P-P551--""172''0-4D-"""APP,"-"-"'61P' ""6"-P'"P2-'"-411P-"711-P7-""-E",'1"'""6'PP-"A-P-"12P-"147-'-1--AAA"8P""""-,''' "A33P07"-,""2,'"4P""-PP-A4---32310"7",--'AA""P""P-'' 4-""22PP5---A"33'91"",""P'"' -P""2PP-54---333A9"2",-"A'"' P"""P-'P6-"-2-3PA63-"4."1'0' """tPo'P-"-P23P-74-64""-0''L-"".AP4P"---I23'C85"P"P"'A'-4"""1PP, "--"23'P96"-P""7''--A4""PP1.1--- to P-7-M.3-ICPA", "P-8-A.1 to P-8-D.9-ICPA", "P-9-A.1 to P-9- L.3-ICPA", "P-10-A to P-10-D-ICPA", "P-11-A to Pll-H-ICPA", "P-12-A to P-12-AP-ICPA", "P-13-A.1 to P-13-AI.16-ICPA", "P- 14-A to P-14-X-ICPA", "P-15-A to P-15-AE-ICPA", "P-16-A toP- 16-AE-ICPA", "P-17-B.1-ICPA to P-17-AG.10-ICPA", "P-18-B.1- ICPA to P-18-Q.7-ICPA", "P-18-Q.9-ICPA to P-18-Y.2-ICPA", "P- 18-Y.4-ICPA to P-18-AL.12-ICPA", "P-19-A to P-19-M-ICPA", "P- 19-0-ICPA Pto-2P0--1B9H-A-IVC-PICAP"A, ""P' "-2P0-1-B9-LA-XIC-PICAPAto to P-19-FN-ICPA" ' "P-20-A to P-20-FR.5-ICPA", "P-21.A.1 to P-21-E.38-ICPA", "P-21-E.41-ICPA to P-21-E.57- ICPA", "P-22-A to P-22-CG-ICPA", "P-23-A.1-ICPA to P-23- D.108-ICPA", "P-23-D.llO-ICPA to P-23-D.161-ICPA", "P-23- D.163-ICPA to P-23-E.62-ICPA", "P-23-F.l-ICPA to P-23-F.17- ICPA", "P-23-F.19-ICPA to P-23-F.73-ICPA", "P-23-F.75-ICPA to P-23-H.4-ICPA", "P-24-A to P-23-AA-ICPA", "P-25-A-ICPA toP- 225-F-ICPA", "P-26-A.1 to P-26-D.38-ICPA", "P-26-D.40-ICPA to P-26-D.41-ICPA", "P-26-D.43-ICPA to P-26-D.71-ICPA", "P- 26-D.73-ICPA to P-26-D.lll-ICPA", "P-26-D.113-ICPA to P-26- D.ll5-ICPA", "P-27-A to P-27-EI-ICPA", "P-27- EK-ICPA to P- 27-UC-ICPA", "P-29-A to P-29-BX-ICPA", "P-30-A.1 to P-30-C.2- I3C3P-AA".1' "toP-P3-13-3A-Lt.o4-PIC-3P0A-E"Q, "-PIC-3P3A-L" '.6"-PIC-3P2A-AtotoP-P3-33-2Z-.J8--IICCPPAA""', "P- "P- 33-BA.1-ICPA to P-33-BI.4-ICPA", "P-33-BJ.1-ICPA to P-33- B0.4-ICPA", "P-33-BQ.1-ICPA to P-33-BZ.6-ICPA", "P-33-DA.1- ICPA to P-33-FR.2-ICPA", "P-33-FR.4-ICPA to P-33-MA.4-ICPA", "P-34-A to P-34-B-ICPA", "P-35-A to P-35-B-ICPA", "P-36-A.1 to P-36-B.121-ICPA", "P-36-C.31-ICPA to P-36-C.71-ICPA", "P-37- A to P-37-U-ICPA", "P-38-A to P-38-H-ICPA", "P-39-A.1 to P-39- T.8-ICPA", "P-39-T.10 to P-39-AB.2-ICPA", "P-40-A to P-40-D- ICPA", "P-41-A.1 to P-41-K.4-ICPA", "P-42-A to P-42-F-ICPA", 31 Docket, Vol. V, Minutes of the hearing held on April19, 2022, pp. 3018-3021. 32 !d., Vol. V, pp. 3029-3059. ~

DECISION CTA Case No. 10336 "A-ICPA", "B-ICPA", "C-ICPA to C.16-ICPA", "D-ICPA to D.15- ICPA", "E-ICPA to E.35-ICPA", "F-ICPA to F.39-ICPA", "G-ICPA", "H-ICPA" ' "I-ICPA to I.11-ICPA" ' "J-ICPA" ' "K-ICPA" ' "L-ICPA" ' "M-ICPA to M.5-ICPA", "N-ICPA", and "O-ICPA".33 However, the following were denied to wit: Exhibits "P-1 7- A.1-ICPA to P-17-A.10-ICPA", "P-18-A.1-ICPA to P-18-A.12- ICPA", "P-18-Q.8-ICPA", "P-18-Y.3-ICPA", "P-19-N-ICPA", "P-19- A"PW-2-I1C-PEA.3"9' -I"CPP-2A0-tBoI-IPC-2P1A-"E'.4"0P--I2C0P-AB"J,-IC"PP-A2"3'-D".P1-6220--IBCKP-AIC",PA"P"-' 23-E.63-ICPA to P-23-E.251-ICPA", "P-25-A.1-ICPA", "P-26- D.39-ICPA", "P-26-D.42-ICPA", "P-26-D.72-ICPA", "P-26-D.112- ICPA", "P-27-EJ-ICPA", "P-28-A to P-28-E-ICPA", "P-33-L.S- ICPA", "P-33-AA.1-ICPA to P-33-AZ.5-ICPA", "P-33-BI.5-ICPA to P-33-BI.lO-ICPA", "P-33-BP.l-ICPA to P-33-BP.4-ICPA", "P-33- CA.1 to P-33-CZ.9-ICPA" ,"P-33-FR.3-ICPA", "P-36-C.1-ICPA to P-36-C.30-ICPA", "P-36-D.1-ICPA to P-36-D.9-ICPA", "P-39-T.9- ICPA", "P-39-AB-ICPA", "P-41-L.1-ICPA to P-41-AK.6-ICPA" and "P-43-A-ICPA", for not being found in the records of the case; and Exhibits "P-23-F.18-ICPA" and "P-23-F.74-ICPA", for being totally unreadable/blurred or almost blank. Petitioner moved for the reconsideration of the denied exhibits on September 15, 2022. 34 Except for Exhibits "P-23- E.103-ICPA to P-23-E.119-ICPA", "P-23-E.179-ICPA", "P-23- E.228-ICPA", and P-33-AQ.2-ICPA, all other denied exhibits were recon:sidered and admitted. 35 Respondent then presented his witness and other evidence on March 7, 2023.36 Respondent filed his Formal Offer of Evidence37 on March 17, 2023 where all exhibits offered were admitted by the Court, hence, the parties were directed to submit their respective memoranda.38 Respondent submitted a Manifestation39 on July 14, 2023 which states that he was adopting all his arguments in his submitted Answer as his Memorandum. On the other hand, a 33 Docket, Vol. V, Resolution dated August 18, 2022, pp. 3108-3118. 34 Jd., Vol. V, Motion for Reconsideration (Re: Resolution dated August 18, 2022, pp. 3124-3127. 35 Jd., Vol. V, Resolution dated January 6, 2023, pp. 3141-3144. 36 Jd., Vol. V, Order dated March 7, 2023, pp. 3146-3147. 37 Jd., Vol. V, pp. 3148-3154. 38 Jd., Vol. V, Resolution dated June 1, 2023, pp. 3163-3164. 39 Jd., Vol. V, pp. 3165-3167.~

DECISION CTA Case No. 10336 Memorandum for Petitioner4� was filed on July 21, 2023. Thus, the case was submitted for decision on July 27, 2023.41 ISSUE The issue to be resolved by the Court is as follows: "Whether or not petitioner is liable to pay the amount of Php159,296,703.65 representing petitioner's deficiency IT, VAT, FT, EWT, and DST inclusive of surcharge and interest, for taxable year 2021 (sic), plus 25% surcharge and 20% deficiency and delinquency interest at the rate of 12% per annum from 1 January 2018 until the amount is fully paid pursuant to Section 249(C) of the 1997 NIRC, as amended, in relation to Section 249(A) of the same Code, as amended by the TRAIN law."42 Petitioner's Arguments43 Petitioner argues that the assessments issued by respondent were null and void for want of authority of the revenue officers and group supervisors to examine its books of accounts forTY 2010 as the Authorization Letter dated March 27, 2013 signed by Mr. Cesar D. Escalada, Chief, Regular LT Audit Division 1, was not equivalent to an LOA. Petitioner insists that the mandatory requisites for a valid assessment are not present in the instant case as the FLD and the Assessment Notices failed to indicate a definitive amount of tax liabilities and clear and categorical demand for payment as required under Section 228 of the 1997 NIRC, as amended, and Revenue Regulations (RR) No. 12-99, and that the FDDA does not indicate a valid due date for payment. Petitioner insists further that the assessments were invalid for lack of factual and legal bases, and that the portions of the EWT and FT assessments issued against petitioner were barred by prescription. 40 Docket, Vol. V, pp. 3170-3231. 41 Jd., Vol. V, Minute Resolution dated July 27, 2023, p. 3234. 42 Id., Vol. II, Minutes of the Pre-Trial Conference held on July 1, 2021, p. 747; Docket, Vol. II, Order dated July I, 2021, p. 749. 43 Supra, Note 40. ~

DECISION CTA Case No. 10336 Respondent's Arguments44 Respondent argues that the Court's power of judicial review over his decisions on disputed assessment is by nature exclusive and appellate, hence, petitioner should not be allowed to raise issues for the first time on appeal. Respondent further argues that the FLD was validly issued and received by petitioner. Respondent insists that the assessment for the deficiency taxes was correct, valid, and lawful. RULING OF THE COURT This Court shall determine first whether the appeal was timely filed, thus, acquiring jurisdiction over the instant petition. Sections 7(a) and 11 of Republic Act (RA) No. 112545, as amended by RA No. 928246 , provide as follows: "SEC. 7. Jurisdiction.- The CTA shall exercise: (a) Exclusive appellate jurisdiction to review by appeal, as herein provided: (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue; XXX XXX XXX "SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. -Any party adversely affected by a decision, ruling or inaction of the Commissioner of Internal Revenue xxx may file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein. 44 Supra, Note 21. 45 AN ACT CREATING THE COURT OF TAX APPEALS. 46 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 OR REPUBLIC ACT NO. 1125, AS AMENDED, OTHERWISE KNOWN AS THE LAW CREATING THE COURT OF TAX APPEALS, AND FOR OTHER PURPOSES.~

DECISION CTA Case No. 10336 Appeal shall be made by filing a petition for review under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30) days from receipt of the decision or ruling or in the case of inaction as herein provided, from the expiration of the period fixed by law to act thereon. xxx." (Emphasis supplied) The instant petition is grounded on respondent's FDDA issued against petitioner GDI. As shown above, petitioner received said FDDA on July 30, 2020. Petitioner, thus, has thirty (30) days from July 30, 2020 or until August 29, 2020 to file the instant petition. Petitioner filed the instant petition on August 28, 2020. Hence, petitioner's Petition for Review was timely filed. According to the FDDA47, petitioner was assessed of deficiency IT, VAT, FT, EWT and DST, in the aggregate amount of P159,296,703.65 including interest forTY 2010, as shown below: Tax Basic Interest Total Amount IT Deficiency Tax VAT FT P25,680,581.02 N0,644,268.61 P66,324,849.63 EWT DST 32,509,243.18 52,876,952.02 85,386,195.20 TOTAL 522,228.26 852,276.52 1,374,504.78 2,310,597.50 3,770,895.13 6,081,492.63 49,161.11 80,500.30 129,661.41 P61,071,811.07 P98,224,892.58 P159,296,703.65 INCOME TAX Details ofiT assessment in the amount ofP25,680,581.02 reflected in the FDDA are as follows: IT-1 Assessment Tax Base IT (30%) Details IT-1.1 10,577.33 3,173.20 Disallowed Royalty and Management Fee 7,657,672.35 2,297,271.71 IT-2 Undeclared Rovaltv Income I ,814,426.81 IT-3 Discrepancy in Ending Inventory 1,973,327.65 544,328.04 IT-4 Disallowed Charitable Contributions 71,142,981.01 591,998.30 Income Payments not Sub{ected to EWT 2,818,172.67 21,342,894.30 IT-5 Additional Income on Undeclared Sales per SLS, 845,451.80 SAWT and LN Data IT-6 Additional Income on Undeclared Purchases per 184,876.92 55,463.68 SLP, 1604E and LN Data 25,680,581.02 TOTAL 47Docket, Vol. 1, Exhibit "P-17'', pp. 152 to 153. ~

DECISION CTA Case No. 10336 IT-1 - Disallowed Royalty and Management Fee -?10,577.33. The Independent Certified Public Accountant (ICPA) noted that petitioner did not present any schedule nor relevant supporting documents. For failure of the petitioner to provide evidence to refute the discrepancy noted by the respondent, the assessment on disallowed royalty and management fee amounting to 1"10,577.33 shall remain. IT-1.1 Undeclared Royalty Income -?7,657,572.35. In the Details of Discrepancies attached to the FDDA, respondent found petitioner liable for undeclared royalty income in the amount of 1"7,657,572.35. The respondent computed the difference between the total of the sales subjected to royalty income multiplied by 6.60% royalty rate and the royalty income declared in the ITR/AFS multiplied by 20% final withholding tax. Petitioner argues that respondent's finding is erroneous. Petitioner noted that this assessment item only appeared for the first time in the FDDA4 8 stage, and nowhere to be found during the PAN49 and FLDSD stages. Based on the review by the ICPA, the respondent was not able to consider the fact that not all of petitioner's franchisees are subject to a 6.60% royalty rate. Petitioner claims that two (2) of its franchisees namely Eastway Bakeries, Inc. and North Area Bakeries, Inc., herein referred to as "EBI" and "NABI", respectively, paid royalties to the petitioner at a lower rate of 3.0% in 2010. However, evaluation and review of the franchise agreements51 of the petitioner's franchisees, reveal that the Franchise Agreement of NABI was not submitted, and the Court 45 Docket, Vol. I, Exhibit "P-17", pp. 152 to 162. 49 !d., Vol. I, Exhibit "P-12", Docket- Vol. I, pp. 87 to 99. 5o !d., Vol. I, Exhibit "P-15", pp. 121 to 136. 51 Exhibits "P-13-8.1-ICPA" to "P-13-AI.l6-ICPA", USB.~

DECISION CTA Case No. 10336 confirmed that the royalty rate of EBI is only 3.0%52. Without the Franchise Agreement of NABI, its royalty rate will remain at 6.6%, royalty fee re-computed as follows: Franchisee's Sales 1'2,351 ,329,428.00 Management Fee 2,871,403.00 1'2,354,200,831.00 Less: Franchise Sales of EBI 1'68,557 ,901.0054 68,557,901.0053 Sub- Total 3% 2,285,642,930.00 Royalty Rate Sub- Total 6.60% Franchise Sales of EBI 150,852,433.38 Royalty Rate Royalty Income Per Audit 2,056,737.03 Less: Royalty Income Declared per 152,909,170.41 ITR/AFS Royalty Income 1'118,175,746.00 147,719,682.50 Add: 20% FWT 29,543,936.50 1'5,189,487.91 Undeclared Royalty Income However, the undeclared royalty income ofP5,189,487.91 cannot be assessed against the petitioner because this assessment item was only included in the FDDA55 which was not found in the FLD56 and PANS7_ To allow respondent to incorporate new assessments in the FDDA would deprive the taxpayer of its right to due process and would put the latter at the mercy of the former. Hence, this particular assessment item amounting to P7,657,572.35 should be cancelled for being issued contrary to the guidelines of RR No. 12-99, as amended by RR No. 18-2013. IT-2 - Discrepancy in Ending Inventory -?1,814,426.81. In the Details of Discrepancies attached to the FDDA, respondent assessed petitioner the total amount of P1,814,426.81 for discrepancies in the Filed Inventory Lists for the years 2009 and 20 10 against the ending inventory declared in the Audited Financial Statements/Income Tax Return 52 Exhibit "P-13-A.4", USB. 53 !CPA Report, p. 10; Annex B-ICPA; Exhibits "P-14-A-ICPA" to "P-14-L-ICPA", USB. 54 !CPA Report, p. 10; Annex B-ICPA; Exhibits "P-14-A-ICPA" to "P-14-L-ICPA", USB. �Docket, Vol. I, Exhibit "P-17", pp. 152 to 162. 56 !d., Vol. I, Exhibit "P-15", pp. 121 to 136. 57 Id., Vol. I, Exhibit "P-12", pp. 87 to 99. ~

DECISION CTA Case No. 10336 (AFS I ITR). This discrepancy allegedly affects the amount of cost of sales and consequently underI overstates gross income a violation of Section 41 of the 1997 NIRC, as amended. Respondent adds that the changes in the amounts of inventories were not properly substantiated with valid documents, hence disallowed pursuant to Section 34(A)(l)(b) of the 1997 NIRC, as amended. Dec. 31, 2009, Inventory Lists Per FS/ITR Difference Inventory Lists: 1'40,308,323.00 1'24,302,850.00 1'12,756,788.98 Central Warehouse 1,671,983.93 47,166,523.00 Outlets 1,576,700.09 (10 942 362.17) Production Center 1'1 ,814,426.81 27,551,534.02 Dec. 31, 2010, Inventory Lists: 1'31 ,845,653.55 Central Warehouse 2,556,649.37 Outlets 1,821,857.91 Production Center 36,224,160.83 Net Discrepancy Petitioner argues that the respondent's assessment is erroneous and states that this assessment item must be cancelled for lack of factual and legal basis. Moreover, petitioner asserts that respondent failed to consider the fact that the discrepancy arose because petitioner's external auditor made adjustment entries to account for the errors in the Inventory List prepared by the petitioner's accounting staff. The accounting staff who prepared the Inventory List inadvertently omitted some items such as boxes and dining supplies. Petitioner's external auditor spotted the error and reflected the correct amount in the AFS and ITR. To support its argument, petltwner presented the following documents as well as schedules for the re- computation of its ending inventory for the TYs 2009 and 2010: a. 2010 AFiFlSe�d'S 8 n v e n t o r y List;sg b. 2009 I c. 2010 Filed Inventory List;6o ss Exhibits "P- 12- A-I CPA" to "P-12-AP-ICPA", USB. so Exhibits "P-15-A-ICPA" to "P-15-AE- !CPA", USB. 60 Exhibits "P-16-A-ICPA" to "P-16-AE- !CPA", USB~

DECISION CTA Case No. 10336 d. 2009 Inventory Count Sheet;61 e. 2010 Inventory Count Sheet;62 f. 2009 Inventory Schedule per type;63 g. 2010 Inventory Schedule per type;64 h. 2009 Schedule of Ending Inventory (Boxes and Other Dining Suppliers - 201 0);65 1. 2010 Schedule of Ending Inventory (Boxes and Other Dining Suppliers - 20 1OJ ;56 J. 2009 Schedule of Purchases (Boxes and Dining S u p p l i e s ) ; 67 k. 2010 Schedule of Purchases (Boxes and Dining Supplies) ;68 1. 2009 Supporting Documents for Boxes and Other Dining Supplies;69 m. 2010 Supporting Documents for Boxes and Other Dining Supplies;?o n. Reconciliation of ITR and Inventory list. Upon review of the voluminous invoices and official receipts of petitioner's suppliers, 71 the commissioned ICPA was able to provide reconciliation and re-computation schedules of the ending inventory in taxable years 2009 and 20 10 to account for the alleged discrepancy. Reconciliation for Calendar Year (CY) 2009: PARTICULARS PER PERFS/ ITR DIFFERENCE REFERENCE INVENTORY MI�DONUTS FLOUR MIXES LISTINGS FILLINGS FLAVORINGS 1,022,429.97 1,022,429.97 . TOPPINGS 1,369,167.67 1,369,167.67 . SUGARS SHORTENING 140,115.79 140,115.79 35,607.96 2,045,050.75 2,009,442.79 . MI�BAKERY MI-PANCAKE 659,471.48 659,471.48 (0.01) M1�SAVORY 2,479,026.41 2,479,026.41 135,603.34 M1-SOUP 173,125.06 MI�BREAKFAST/LUNCH/DINNER 401,103.71 401,103.72 (14,205.03 MI�OMELET 35,603.34 (27,226.98 1,283,892.22 (12,348.85) 1,110,767.16 . 14,205.03 . 27,226.98 12,348.85 61 Exhibits "P-17�AA.1-ICPA" to P-17-AG. 10-ICPA", USB. 62 Exhibits "P- !8-AA.1-ICPA" to P-18-AL. 10-ICPA", USB. 63 Exhibit "P-43-A-ICPA", Annex C- !CPA of the !CPA Report, USB. 64 Exhibit "P-43-A-ICPA", Annex D- !CPA of the !CPA Report, USB. 65 Exhibit "P-43-A-ICPA", Annex E- !CPA of the !CPA Report, USB. 66 Exhibit "P-43-A-ICPA", Annex F- !CPA of the !CPA Report, USB. 67 Exhibit "P-43-A-ICPA", Annex G- !CPA of the !CPA Report, USB. 68 Exhibit "P-43-A�ICPA", Annex H- !CPA of the !CPA Report, USB. 69 Exhibits "P�l9-A�ICPA" to "P-19�FN�ICPA", USB. 70 Exhibits "P-20-A -!CPA" to "P-20-FR.S-ICPA", USB. 71 Exhibits "P-17-A.1" to "P-17-AG.10-ICPA", "P-18.A.1�ICPA" to "P-18-AL.12-ICPA", "P� 19-A" to "P-19-FN-ICPA", "P-20-A" to "P�20-FR.5-ICPA", USB. o-., _..

DECISION CTA Case No. 10336 MI-SALAD - 12,070.05 (I2.070.05) MI-GOURMET SANDWICHES - 57,641.42 (57,641.42) MI-WRAPS MI-PASTA 91,873.02 7,476.37 (7,476.37) MI-COLD BEVERAGES 1,044,554.66 17,583.44 (17,583.44) SOFTDRINKS 796,237.o2 91,873.02 - PUNCH 1,044,554.66 348,293.75 5,155.87 OTHER BEVERAGES 38,803.28 791,081.65 Ml-HOT BEVERAGES (5,419.20) Annex E-ICPA 15,831,513.67 353,712.95 I COFFEE 38,803.28 - I CHOCO POWDER 27,551,533.90 15,831,261.67 252.00 MI-NON FOODS - 12,590,022.85 (12,590,022.85) MI BOXES & OTHER DINING SUPPLIES 40,116,990.55 (12,565,456.65) TOTAL - ADD DEDUCTIADJUSTMENTS - 247,259.65 (3,344,885.53) Exhibit 12- - 2,566,527.751 !CPA MI-GRMO 3,374,451.99 3,153,553.06 MI-FIXED ASSETS ORACLE - (12,756,789.12) MI-OTHERS ORACLE MIGRATION - 80,513.60 UNUSED KITCHEN & DINING - 1,916,611.88 SUPPLIES - (124,367.04) MI-QTY DIFFERENCE MI-CLEARING 27,551,533.90 (0 07) MI-RECEIVING ACCRUAL 680,693.68 MI-QTY DIFFERENCE- FIXED (263,750.41) ASSETS 3,344,885.53 Ml-STAGING 43,461,876.08 SUB-TOTAL TOTAL 3,153,553.06 LESS: ALLOWANCE FOR 40,308,323.02 OBSOLESCENCE NET TOTAL Careful examination of the above table shows the inventory difference amounting to -P3,320,319.33 shall remain because it was not supported with documents or reference materials from which the Court can verify the accuracy of the said accounts, to wit: PARTICULARS DIFFERENCE MI-DONUTS- TOPPINGS !'35,607. 96 MI-BAKERY MI-PANCAKE - 0.01 MI-SAVORY MI-SOUP - 35,603.34 MI-BREAKFASTI LUNCH I DINNER 173,125.06 MI-OMELET - 14,205.03 MI-SALAD MI-GOURMET SANDWICHES - 27,226.98 MI-WRAPS MI-PASTA - 12,348.85 MI-COLD BEVERAGES- OTHER BEVERAGES MI-HOT BEVERAGES- COFFEE - 12,070.05 MI-NON-FOODS MI-GRMO - 57,641.42 MI-FIXED ASSETS ORACLE - 7,476.37 MI-OTHERS ORACLE MIGRATION - 17,583.44 UNUSED KITCHEN & DINING SUPPLIES MI-QTY DIFFERENCE 5,155.87 - 5,419.20 252.00 -247,259.65 2,566,527.75 -3,374,451.99 -80,513.60 -1,916,611.88

DECISION 124,367.04 CTA Case No. 10336 0.07 -680,693.68 MI-CLEARING 263,750.41 MI-RECEIVING ACCRUAL -1"3,320,319 .33 MI-QTY DIFFERENCE - FIXED ASSETS MI-STAGING TOTAL Furthermore, scrutiny of the documents supporting the inventory difference account, "MI-Boxes & Other Dining Supplies", amounting to 1'12,590,022.85 such as Schedule of Inventory Count72 as well as the Physical Count Sheet73 reveal that the inventory difference was all accounted for except for Farmers MRT- BODS (1'84.78)74 and SMMM S' Market- BODS (1'7,006.32)75 because they were not supported with Physical Count Sheet. Petitioner has also set-up an allowance for possible inventory obsolescence amounting to 1'3, 153,553.06 as stated in its AFS. 7 6 The re-computation of the ending inventory of CY 2009 upon consideration of reconciling items with supporting documents shows the following: Inventory per Inventory Listing77 1"27 , 5 5 1 , 5 3 4 . 0 3 Inventory per FS/ITR7S 40,308,323.00 Difference 12,756,788.97 Less: 1"3 ,320,319.33 Inventory Without Supporting -84.78 3,327,410.43 Documents 7,006.32 -1"9,429,378.54 Inventory Without Physical Count Sheet: Farmers MRT - BODS SMMM S' Market - BODS Adjusted, CY 2009 72 Annex E-ICPA to Annex E.35-ICPA, USB. 73 Exhibits "P-17-A.1-ICPA" to "P-17-AG.10-ICPA", USB. 74 Annex E.34-ICPA, USB. 1s Annex E.35-ICPA, USB. 76 Exhibit "P-12-AC-ICPA", Notes to FS No. 17; Exhibit "P-12-AM-ICPA", Notes to FS No. 29; USB. 77 Exhibit "P-15-AE-ICPA", USB. 78 Exhibit "P-12-C-ICPA", USB.&�?._

DECISION CTA Case No. 10336 Reconciliation for CY 2010: PARTICULARS PER PERFS/ ITR DIFFERENCE REFERENCE INVENTORY MI-DONUTS FLOUR MIXES LISTINGS FILLINGS FLAVORINGS 785,075.0I 785,075.0I - TOPPINGS 706,725.26 706,725.26 - SUGARS 263,183.64 263,183.64 SHORTENING 2,939,558.33 2,939,558.33 - MISCELLANEOUS 1,085,879.89 I ,085,879.89 2,403,300.38 2,403,300.38 234,439.86 MI-BAKERY 1,030,083.50 795,643.64 (270,915.201 MI-PANCAKE 270,915.20 MI-SAVORY - 120,444.091 MI-SOUP 20,444.09 (356,875.701 Ml-BREAKFAST /LUNCH/DINNER - 356,875.70 MI-OMELET - fl3,014.66l MI-SALAD - 13,014.66 148,337. I31 MI-GOURMET SANDWICHES 48,337.I3 (186,827.031 MI-PIZZA - 186,827.03 MI-WRAPS - 13,I09.251 MI-PASTA 3,I09.25 1144,646.231 MI-COLD BEVERAGES - 144,646.23 - 13,751.891 SOFTDRINKS 3,751.89 12,964.441 PUNCH I31,782.59 2,964.44 115,228.821 OTHER BEVERAGES 259,455.94 15,228.82 MI-HOT BEVERAGES 305,332.83 - COFFEE I31,782.59 CHOCO POWDER 259,455.94 10.031 MI-NON-FOODS 305,332.86 Ml-BOXES & OTHER DINING SUPPLIES TOTAL 342,724.60 342,724.65 LESS: ALLOWANCE FOR 86,443.63 OBSOLESCENCE 86,443.63 i NET TOTAL 25,884,615.15 ' 25,884,6b.20 10.051 113,264,240.911 - I3,264,240.91 114,095,915.571 Annex F-ICPA 36,224,160.80 50,320,076.37 - 3,153,552.06 13,153,552.061 ll0,942,363.5I I 36,224,160.80 47,166,524.31 Study and evaluation of the CY 20 10 reconciliation table made by the ICPA also reveals that inventory difference amounting to ('1"831,674.66) shall remain because it was not supported with documents or reference materials from which the Court can verify their accuracy, to wit: PARTICULARS DIFFERENCE MI-DONUTS- Miscellaneous !'234,439.86 MI-BAKERY -270,915.20 MI-PANCAKE MI-SAVORY -20,444.09 MI-SOUP -356,875.70 MI-BREAKFAST /LUNCH/DINNER MI-OMELET -13,014.66 MI-SALAD -48,337.13 MI-GOURMET SANDWICHES -186,827.03 MI-PIZZA MI-WRAPS -3,109.25 -144,646.23 -3,751.89 -2,964.44

DECISION CTA Case No. 10336 MI-PASTA -15,228.82 MI-COLD BEVERAGES- Other Beverages -0.03 MI-NON-FOODS -0.05 TOTAL -!'831 ,674.66 Moreover, scrutiny of the documents supporting the inventory difference account, "MI-Boxes & Other Dining Supplies" amounting to Pl3,264,240.91 such as Schedule of Inventory Count79 as well as the Physical Count Sheetso reveal that the inventory difference was all accounted except for Procurement- BODS amounting to (P311.79)81 because it was not supported with Physical Count Sheet. Petitioner has also set-up an allowance for possible inventory obsolescence amounting to P3,153,553.06 as stated in its AFS.s2 The re-computation of the ending inventory of CY 2010 upon consideration of reconciling items with supporting documents shows the following: Inventory per Inventory Listing83 !'36,224, 160.83 Inventory per FS/ITR84 47,166,523.00 10,942,363.51 Difference Less: -!'831,674.66 Inventory Without Supporting Documents -311.79 -831 '986.45 Inventory Without Physical Count !'10,110,377.06 Sheet: Procurement - BODS Adjusted, CY 2010 79 Annex F-ICPA to Annex F.39-ICPA, USB. so Exhibits "P-18-A.1-ICPA" to "P-18-AL.12-ICPA", USB. 81 Annex F.39-ICPA, USB. 82 Exhibit "P-12-AC-ICPA", Notes to FS No. 17; Exhibit "P-12-AM-ICPA", Notes to FS No. 29; USB. 83 Exhibit "P-16-AE-ICPA", USB. 84 Exhibit "P-12-C-ICPA", USB.~

DECISION CTA Case No. 10336 From the foregoing, petitioner has a net discrepancy in its ending inventory ofP680,998.52, to wit: Adjusted Inventory, December 31, 2009 -P9,429,378.54 Adjusted Inventory, December 31, 2010 -10,110377.06 Net Discrepancy P680,998.52 IT-3 - Disallowed Charitable Contributions -?1,973,327.65. Based on !CPA's inquiry, these pertain to petty disbursements of thirty-nine (39) stores in 2010 to external parties e.g., individuals in the community where the store is located. However, petitioner did not present any schedule nor relevant supporting documents to refute the respondent's disallowance. The Court agrees with the !CPA's conclusion that considering no reconciliation and relevant supporting documents were provided, the disallowed charitable contribution amounting to P1,973,327.65 is proper. IT-4 - Income Payments Not Subjected to EWT ?71,142,981.01. Respondent's analysis of petitioner's income payments per Trial Balance as against the Alphalist of Payees (BIR Form 1604E) disclosed that there were income payments that were not subjected to EWT, which is a violation of RR No. 2-1998, as amended. The total discrepancy amounting to P71,142,981.01 was disallowed for failure to withhold and remit the corresponding withholding tax pursuant to Section 34(K) of the 1997 NIRC, as amended: Goods Servicl'S ncntals Prof/ Prof/ Oircctor's TOTAL 7.044,957.44 IH.623. 120.04 Brokerage i\lanagemcnt Fcc 18,623,120.04 1.045.791.14 353.930.70 125,233.34 Fee 125.233.34 539.546.09 539546.09 Prepaid Rent 4.288A98.J2 1.045.791.14 Prepaid Rent- Current 17.533.729.27 4.214.128.63 353,930.70 Advanced Rental 4,214.128.63 4288.498.32 Prepaid Insurance 17.533.729.27 Prepaid Interest Prepaid Others 7.044.957.44 Building and Improvements e?tf>p Store and Leasehold Improvements Store/ Office Furniture and Fixtures - - - - - - - - - �-�� ---�-

DECISION CTA Case No. 10336 Store/ Office Equipment I 0.642.210.26 4.814.470.04 3,774.277.84 I 0.642.210.26 Kitchen Dining Equipment 13.033.334.86 562.631.52 13,033.334.86 Transportation Equipment 1.144.125.00 996.415.16 Software Cost 1.766.266.68 62.029,639.60 1.766.266.68 Deposit- Rentals 2,542.207.00 4.814.470.04 Refundable Deposit 776.224.130.80 3.774.277.84 Prepaid Rent- Non-Current 141.242.39 )2.408.93 Local Purchases 4.944.981.93 562.631.:12 Insurance 3.220.759.71 996.415.16 Freight and Other Charges 11.231.862.16 783.659.90 2, 786,509.35 776,224.130.80 Music and Decor 4,635.555.36 1.144.125.00 Production Cost 941.327 .34 2.542.207.00 Rental- Equipment 438.028.51 1.579.0-l-4.13 141.242.39 Rental -Office/ Store 1.126.605.32 62.029.639.60 Repairs and Maintenance 6.644.317.70 744.832.83 Boxes and Other Dining Supplies 52.408.93 Cleaning and Sundry Supplies 1.004.307.71 18.472,665.37 52.512.343.85 4.944.981.93 Glassware and Kitchen Supplies 4,418.136.93 3.220.7:19.71 Linen and Uniform 837.153.578.90 11,231.862.16 Ot11ce Supplies 791,540.415.22 32,151.379.94 4,635.555.36 Audit, Legal and Other Fees 989.806.38 Insurance Expense 4;->,()]3,l63.0t> 112.(149.07 438.028.51 Medical Expense 1.126.605.32 Seminar and Training 2,887.1 33.71 373.X44 78 33.832.743.48 3.325.866.90 55.298.853.20 620.000.00 6.644.317.70 Icc and Refrigeration 48,500,297.39 27.702.19 40.523.418.48 783,659.90 52.627.314.52 1.243.047.80 3.570.169.25 Light, power and water Telephone, telex and postage 2.601.257.94 (0.090,07='.00) 2Y-12.207.UU 2.071 ,.538.68 1.863.047.80 941.327.34 Management fcc 1.219.012.95 1.863.047 80 1,579,044.13 Transportation expense 3.509,005.31 30,840,172.55 385.333.33 513.482.!3 Travelling expense 24,149,497.55 2,927,S40.33 3.18S,020.81 744,832.83 Bank service charges 748.784.49 1.004.307.71 Director's Fcc 12!.794.92 18,472.665.37 Dues and subscription 993.518.84 4.418,136.93 Inauguration Cost 12,224,499.47 52.512.343.85 Janitorial Expense 1.463.817.51 32.151.379.94 QC Research Development Cost 1.357' 756.13 Representation Expense I .360,627.49 989.806.38 Security Agency Fee 384.866.& l 112.049.07 Collection Fee- Ministop 1.496.322.64 620.000.00 Miscellaneous Expense 373.844.78 Advertising Expense 178,51ll.237.53 27.702.19 Promotions 144. ?04.561.68 2,601.257.94 Local advertising expense 1.219.012.95 Local promo expense 3---l-.30='.07:->.8:-> 4. 752.053.11 Interest expense 748.784.49 Interest expense (PAS 39) (41.925.0-1-4.94) 121.794.CJ2 (7,619,369.09) 993.518.84 Per Trial Balance 12,224.499.47 Per Alphalist 1.463.817.51 1.]57. 756.13 Not ::;u\JjcctcU tu EWT I ,360.627.49 384.866.81 Reconciliation: Protest Letter 1.496.322.64 Not subjected to EWT {FDDA) 1.109.984.327.81 1,031 ,542.417.60 78,441 ,'J1 0.21 (7,298.923.22) 71,142,986,99 Petitioner raised three arguments. First, respondent simply assumed that all account titles in the Trial Balance and AFS are subject to EWT and therefore applied the EWT rate for each item. Petitioner maintains that tax assessment must be based on facts and respondent cannot issue an assessment against the taxpayer based on a mere presumption.85 Second, petitioner claims that there was no reference to the particular suppliers or specific transactions that are being assessed with EWT. The FDDA did not provide sufficient verifiable details that would show the legal and factual basis for subjecting the same to EWT. Third, petitioner refers to the finding of the ICPA that there are accounts that should not be subjected to EWT on payments made to (i) exempt entities (general professional partnership); (ii) credit cards; and (iii) non-regular suppliers. 85 Collector of Intemal Revenue v. Alberto D. Benipayo, G.R. No. L-13656, 13 January 1962. ...--

DECISION CTA Case No. 10336 Based on the review of the ICPA, the respondent failed to consider the following items. PERTBAND RECONCILING REMAINING NCOME PAYMENT FDDA PER ALPHALIST ITEMS DISCREPANCY A B c D=A-B-C 1. Purchase of Goods 840,040.712.61 791,540,415.22 33,172,031.70 15,328,265.69 2. Services 136,585,192.59 144,204,561.68 12,215,741.04 (19,385,110.13) 3. Rentals 64,672,916.03 40,523,418.48 33,991,625.71 (9,842, 128.16) 4. Professional Fee/ Brokerage 3,711,200.23 783,659.90 2,240,315.08 687,225.25 55,812,335.33 52,627,314.52 2,717.773.01 467,247.80 5. Professional FeeI Management Fee TOTAL 1' 100.822,356.791,029,679,369.80 84,337,486.54 (13, 194,499.55 Below is the detailed reconciliation prepared by the ICPA and marked as Annex 1-ICPA. 1. Goods- .P33,172,031.70. Particulars Amount Not Subjected to EWT per FDDA P48,500,297.39 Reconciliations: Production Cost (Erroneous Adjustment to (7,297,214.31) FDDA) Production Cost (Transfer) 10,932,168.41 Part of Local Purchases (17,432,051.35) PPE Adjustments (19,367 ,053.62) Payments to Non-Regular Suppliers Total Reconciling Items (7,880.83) (33, 172,031.70) Not Subjected to EWT per !CPA l"15,328,265.69 a. Production Cost- (.P7,297,214.31). Study of the reconciliation made by the ICPA in Annex I-ICPA reveals that the amount of .P7 ,297,214.31 was erroneously included by the respondent as additional production cost (Goods) in the FDDA.86 The ICPA made an adjustment to properly break down the account to its correct classifications. b. Production Cost (subject to 1% EWT)- .P10,932, 168.41. The ICPA made the adjustment to correct the balance of "Production Overhead cost at 1%" amounting to Bu Exhibit "P-2-E-ICPA", USB. ~

DECISION CTA Case No. 10336 P 10,932, 168.41 which was originally included in the account "Production Overhead Cost at 2% to its proper classifications. This is also discussed under 2.h. c. Local purchases- (1'17,432,051.35). Per petitioner's allegation, there were various purchases of goods which were locally purchased and were considered twice by the respondent amounting to 1'17,432,051.35, broken down as follows: Account Amount Annex 1.9-ICPA Boxes and Other Dining Supplies P11,231,862.16 Reference Cleaning and Other Sundnr Suonlies Glassware and Kitchen Utensils 4,635,555.36 Exhibit P-2-E-to F-ICPA Glassware and Kitchen 438,028.51 TOTAL 1,126,605.32 Pl7,432,051.35 However, no proof was submitted to determine whether the said accounts were already included in the "Local Purchases" account m the FDDA amounting to 1'776,224, 130.80, thus, petitioner's assertion cannot be given credit. d. PPE Adjustments- (!'19,367,053.62). The ICPA prepared account reconciliationss7 and made adjustments to properly break down the account to its correct classifications which the Court considered. e. Payments to Non-Regular Suppliers- (1"7,880.83). Petitioner was able to provide sufficient evidence such as summary of non-regular suppliers (Petty cash)Ss, petty cash voucher, invoices and Official 87 Annex !-!CPA, Annex 1.10-ICPA, USB. 88Annexl.l1-ICPA, USB._....--

DECISION CTA Case No. 10336 Receipts (0Rs)89 for the payment of its trivial casual purchases from non-regular suppliers amounting to P7,880.83, thus assessment on this item will be cancelled. 2. Services- Pl2,215,741.04. Particulars Amount Not Subjected to EWT per FDDA Reconciliations: (1:'7,619,369.09) Bank service charges (112,049.07) Interest expense (384,866.81) (1,496,322.64) Interest expense (PAS 39) _(353,930.70) (1,144,125.00) Prepaid Interest 30,815,937.75 (10,448,014.97) Insurance expense (double entry) (56,360,702.08) 2,542,207.00 Production Cost (add back adjustment in 1,233,572.68 FDDA) 23,495,718.34 Production Cost (erroneous adjustment to FDDA) (3, 165.54) Production Cost (Transfers) (12,215,741.04) (1:'19,835, 110.13) Freight and Other Charges (transfer) Audit. Legal and Other Fees (transfer) PPE Adjustments Payments to Non-Regular Suppliers Total reconciling items: Not subjected to EWT (!CPA) a. Bank service charge- {Pll2,049.07). The Court agrees with the ICPA that bank service charges are not subject to withholding tax, thus the amount ofP112,049.07 will be cancelled. b. Interest expense- (P384,866.81). 89 Exhibits "P-23-F.1-ICPA" to "P-23-F.141-ICPA". USB. ~

DECISION CTA Case No. 10336 The Court agrees with the ICPA that interest payments of the petitioner to a loan from a local bank which were appropriately disclosed in the AFS90 amounting to 1"384,866.81 is not subject to withholding tax, and thus will be cancelled. c. Interest expense (PAS 39)- (1"1,496,322.64). Petitioner argued that the accrual of additional interest to payables were also subjected to withholding taxes despite its nature. Unfortunately, petitioner failed to support the foregoing allegations with documentary evidence, thus, the assessment item will remain. d. Prepaid Interest- (1"353,930.70). Petitioner also asserts that having the same nature as the interest expense, these prepayments were not subjected to withholding taxes. However, petitioner failed to provide documentary evidence, thus, the assessment item will also remain. e. Insurance Expense- (1"1,144,125.00). In the FDDA, the respondent included two (2) line items for insurance expense in the amounts of 1"1,144,125.00 and 1"941,327.34. However, upon evaluation of petitioner's Trial Balance,91 the Court agrees with the ICPA that the petitioner has only one (1) account for insurance which is 900113 - Insurance Expense with the audited balance of 1"941,327.34, thus assessment on insurance expense amounting to 1"1,144,125.00 will be cancelled. f. Production Cost- P30,815,937.75. The Court agrees with the reconciliation92 of the ICPA that this 1s just an adjustment to reverse 90 Exhibit "P-12-Z�ICPA", Notes to FS No. 12; Exhibit "P�12�AF�ICPA", Notes to FS No. 22, USB. 9t Exhibit "R-14", BIR Records, p. 1333. 9> Annex !-!CPA, USB.~

DECISION CTA Case No. 10336 reclassifications made by the respondent in the FDDA in order to properly distribute the account to its appropriate classifications by adding back the stated amount to the 2% assessment. g. Production Cost- (I'l0,448,014.97). In relation to 1.a and 2.fhereof, the Court agrees with the ICPA that based on his reconciliation, 93 the respondent erroneously included additional production cost in FDDA in excess of the total production cost per GDI's trial balance. The ICPA reversed the adjustment to properly break down the account to its correct classifications. h. Production Cost (transfers)- (I'56,360,702.08). The total production costs amounting to I'62 ,029,639.60 were all subjected to 2% withholding tax by the respondent. However, upon reconciliation94 of the ICPA, production cost consists of various overheads which payments were clearly subjected to 1%, 2%, 5%, 10% withholding taxes. It also includes income payments not subject to income tax which were redistributed accordingly, broken down as follows: Production Overhead Cost@ 1% P10,932, 168.41 Production Overhead Cost@ 2% 5,668,938.65 Production Overhead Cost (a) 5% 1' 161 ,221.40 Production Overhead Cost (ci) 10% 205,997.74 Not Subject to Withholding Tax Total Production Cost 44,061,314.53 P62,029,640.7395 The ICPA made the adjustment to properly correct the balance of "Production Overhead cost @ 2%" amounting to I'5,668,937.5296 (I'62,029,639.60 less I'56,360,702.08) to its correct classifications. 93 Annex I-ICPA. USB. 94 Annex 1.5-JCPA, USB. 95 Rounding off Difference of 1.13. % Rounding off Difference of 1.13. ~

DECISION CTA Case No. 10336 1. Freight and other charges subject to 2% f'2,542,207.00. The Court agrees with the reconciliation97 of the ICPA that this is just an adjustment to reverse reclassifications made by the respondent in the FDDA in order to properly distribute the account to its appropriate classifications by adding back the stated amount to the 2% assessment. The same were included in the analysis for 10% withholding tax as brokerage fee. However, upon scrutiny of the invoices and 0Rs9s, only the amount of !'124,539.46 were subjected to 2% withholding tax amounting to f'2,490.80. Thus, the assessment on freight and other charges of !'2,417,667.54 (!'2,542,207.00 less !'124,539.46) shall remmn. Annex 1.8-ICPA Payee Amount CWT Reference DIMENSIONAL SERVICE CORPORATION r328.I7 Exhibit P-23-D.15 to D.17-ICPA DIMENSIONAL SERVICE CORPORATION 1~16,408.30 Exhibit P-23-D.28 to D.30-ICPA DIMENSIONAL SERVICE CORPORATION 93.47 Exhibit P-23-D.31 to D.34-ICPA DIMENSIONAL SERVICE CORPORATION 4,673.62 318.20 Exhibit P-23-D.31 to D.34-ICPA DIMENSIONAL SERVICE CORPORATION 15,909.60 Exhibit P-23-D.59 to D.61-ICPA DIMENSIONAL SERVICE CORPORATION 55.12 Exhibit P-23-D.62 to D.65-ICPA DIMENSIONAL SERVICE CORPORATION 2,756.21 112.25 Exhibit P-23-D.62 to D.65-ICPA DIMENSIONAL SERVICE CORPORATION 5,612.68 273.48 Exhibit P-23-0.66 to 0.68-ICPA DIMENSIONAL SERVICE CORPORATION 13,674.08 103.04 Exhibit P-23-D.84 to D.86-ICPA DIMENSIONAL SERVICE CORPORATION 5,151.93 Exhibit P-23-D.87 to D.89-ICPA DIMENSIONAL SERVICE CORPORATION 3,125.00 62.50 Exhibit P-23-0.95 to 0.97-ICPA DIMENSIONAL SERVICE CORPORATION 16,041.03 320.82 Exhibit P-23-0.101 to 0.103-ICPA DIMENSIONAL SERVICE CORPORATION 6,0I2.54 120.25 Exhibit P-23-0.157 to 0.159-ICPA DIMENSIONAL SERVICE CORPORATION 6,528.90 130.58 Exhibit P-23-0.160 to 0.162-ICPA TOTAL 13,637.01 272.74 9,388.27 187.77 5,620.29 112.41 PI24,539.46 P2.490.80 J. Audit, legal and other fees subject to 2% !'1,233,572.68. The Court agrees with the ICPA that based on his reconciliation,99 this is an adjustment to properly break down the account to its correct classifications which was originally included in the FDDA amounting to f'2,266,961.42 at 15% withholding tax, to wit: 97 Annex 1-ICPA, Annex 1.8-ICPA, USB. 98 Exhibits "P-23-D.l-ICPA"" to "P-23-D.l79-ICPA", USB. 99 Annex 1-ICPA, USB. ~

DECISION P1 ,233,572.68 CTA Case No. 10336 1,033,388.74 P2 ,266,961.42 Audit, Legal and Other Fees @ 2% Audit, Legal and Other Fees @ 10% TOTAL k. PPE Adjustments- 1'23,495,718.34. In relation to 1.d hereof, the ICPA prepared account reconciliations1oo and made adjustments to properly break down the account to its correct classifications. 1. Payments to Non-Regular Suppliers- (P3, 165.54). In relation to 1.e hereof, petitioner was able to provide sufficient evidence such as summary of non- regular suppliers (Petty cash)lOl, petty cash voucher, invoices and 0Rs102 for the payment of its trivial casual purchases from non-regular suppliers amounting to 1'3,165.54, thus assessment on this item will be cancelled. 3. Rentals- 1'33,991,625.71. Particulars Amount Not Subjected to EWT per FDDA 1"24, 149,497.55 (562,631.52) Refundable Deposit (PAS 39) (3,774,277.84) (30,815,937.75) Deposit Rental 1,161,221.40 (33,991,625.71) Production Cost (add back adjustment in (1"9,842, 128.16) FDDA) Production Cost (Transfers) Total reconciling items: Not subjected to EWT per ICPA 10o Annex !-!CPA, Annex !.10-ICPA, USB. 101 Annex !.11-ICPA, USB. 102 Exhibits "P-23-F.l-ICPA" to "P-23-F.l41-ICPA", USB.~

DECISION CTA Case No. 10336 a. Refundable deposit - (!'562 ,631. 52). The Court agrees with the ICPA finding that the refundable deposits, due to their nature which is only given to the lessor in compliance with the lease agreement and will be refunded to petitioner at the end of the lease term, do not result to an income payment subject to 5% withholding tax, thus, assessment on refundable deposit amounting to !'562,631.52 will be cancelled. b. Deposit Rental- (!'3,774,277.84). The Court agrees with the ICPA finding that the Deposit Rentals, due to their nature which is only given to the lessor in compliance with the lease agreement and will be refunded to petitioner at the end of the lease term, do not result to an income payment subject to 5% withholding tax, thus, assessment on Deposit Rentals amounting to !'3,774,277.84 will be cancelled. c. Production Cost- (!'30,815,937.75). This was already settled in 2.f hereof. d. Production Cost (subject to 5% EWT)- !'1,161,221.40. This assessment item was already settled in 2.h hereof. 4. Professional Fee/ Brokerage - !'2,240,315.08. Particulars Amount Not subjected to EWTfFDDAl 1"2,927,540.33 Reconciliations: Payments to General Professional Partnership (909,994.56) Audit, Legal and Other Fees (subject to WTC) (27,500.00) Production Cost (Transfers) 205,997.74 Freight and Other Charges (transfer) Audit, Legal and Other Fees (transfer) (2,542,207.00) Total reconciling items: 1,033,388.74 Not subjected to EWT per !CPA (2,240,315.08) 1"687,225.25

DECISION CTA Case No. 10336 a. Payments to General Professional Partnership (GPP) - (P909, 994.56). Scrutiny of schedule of payment to GPPI03 which is exempt from withholding tax under Section 26 of the 1997 NIRC, as amended, and its corresponding supporting documents104 reveal that only payments to GPP in the amount of 1'639,210.00 were properly supported with official receipts, while the amount of 1'270,784.56 were only supported with journal entries. Thus, assessment on payment to GPP amounting to 1'270,784.56 shall remain, to wit: Payee Amount Reference SGV & CO f'15,034.56 Exhibit "P-23-A.7-ICPA" SGV & CO 75,000.00 Exhibit "P-23-A.S-ICPA" Romulo Mabanta 180,750.00 Exhibit "P-23-A.9-ICPA" Buenaventura f'270,784.56 b. Audit, Legal and Other Fees paid as per diem - (P27 ,500.00). Scrutiny of schedule of Audit, Legal and Other Fees (Subject to WTC)1�5 and the computerized journal entries which were also approved by the petitioner's VP- Finance and Administration106 reveals that the amount of 1'27,500.00 were already subjected to withholding tax. Thus, the assessment item will be cancelled. c. Production Cost (subject to 5% EWT)- 1'205,997.74. This assessment item was already settled in 2.h hereof. d. Freight and Other Charges (Transfer) (1'2,542,207.00). 1o3 Annex !.1-!CPA, USB. 104 Exhibits "P-23-A.l-ICPA" to "P-23-A. 9-ICPA", USB. 1os Annex !.3-!CPA, USB. 106 Exhibits "P-23-C.1-ICPA" to "P-23-C.10-ICPA", USB~

DECISION CTA Case No. 10336 This assessment item was already discussed m 2.j hereof. e. Audit, Legal and Other Fees (Transfer)- !'1,033,388.74 This assessment item was already settled m 2.i hereof. 5. Professional Fee/ Management Fee- !'2,717,773.01. Particulars Amount Not subjected to EWT (FDDA) I'3, 185,020.81 Reconciliation: (450 ,811. 59) Management fee (timing difference) (2,266,961.42) (2,717,773.01) Audit, Legal and Other Fees (transfer) I'467,247.80 Total reconciling items: Not subjected to EWT (!CPA) a. Management Fee (timing difference)- (!'450,811.59). Petitioner asserts that this is just a timing difference. However, evaluation of schedule of Management Fee107 and the computerized journal entries and the computation of Management FeeJos reveal that the payments made in the last quarter of 2009 that were allegedly included in the first quarter return of 2010 amounting to !'13,477,707.60 were not supported with documents, thus, the Court cannot ascertain their accuracy. Hence, the assessment item on management fee amounting to !'450,811.59 will remarn. b. Audit, legal and other fees subject to 2% (!'2,266, 961.42). This was already discussed in 2 .i hereof. 107 Annex 1.2-ICPA, USB. ws Exhibits "P-23-C.l-ICPA" to "P-23-C.lO-ICPA", USB.~

DECISION CTA Case No. 10336 From the foregoing, petitioner has income payments not subjected to withholding tax in the amount of 1"6,684,861.83, broken down as follows: Particulars Goods Services Rentals Prof/ Bro Fee Prof/ MnQi Fee TOTAL Reference 48 500 297.39 (7 619 369.09) 24 149 497.55 71 142 986.99 Not sub"ected to EWT {FDDA) 2 927 540.33 3 185 020.81 Reconciliation: 1539 210.00) (639 210.00) Annex I.HCPA Pavments to GPP rz7 500.00) Annex 1.2-ICPA Mgnt fee____\!imi_ng d1fference) (112 049.07) 127 500.00) Annex 1.3-ICPA Audit Legal and other Fees 1384 866.81) (112 049.07) Exh P-2-E !CPA Bank service charqes (384 866.81) Exh P-12-Z-ICPA Interest exoense Exh P-2-E-ICPA Interest expense (PAS 39) Annex !.4-JCPA Preoaid Interest 111114 125.00 (1144 125.00) Exh P-2-E-ICPA Insurance expense (double (562 631.52) (562 631.52) Exh P-2-E-ICPA entry). (3 774 277 .84) (3 774 277 .84) Exh P-2-E-ICPA Refundable Deposit (PAS 39) 30 815 937.75 (30 815 937.75) Exh P-2-E-to F.6- !CPA Deposit Rental (7,297 214.31) {10 448,014.97) Exh P-2-E-to F.6- Production Cost (17 745 229.28) !CPA (add back adjustment in 10 932 168.41 !56 360 702.08) 1 161 221.40 205 997.74 (44 061314.53) Annex LS-ICPA FDDA 2 417 667.54 1 233 572.58 12 542 207 .om (124 539.46) Annex I.8-ICPA Production Cost (e~~-neous adjustment to 1 033 388.74 12 266 951.42) FDDA Annex I.9�ICPA Production Cost (Transfers) (19,367,053.62) 23,495,718.34 4,128 664.72. Annex I.IO-ICPA Freight&Other Charges (7 880.83) (3,165.54) (11 046.37\ Annex I.ll ICPA (transfer) ~udit,L~ai&Other Fees (15 739 980.35) (10;~90 027.16) (33 991 625.71) (1 959 530.52) (2 266 951.42) (54 458 125.16) transfer 32,760 317.04 (18,109,396.25) (9,842,128.16) 958,009.81 918,059.39 6,684,861.83 Part of Local Purchases (double entrv) PPE Ad�ustments Payments to Non Reaular Suooliers Total reconciling items: Not subjected to EWT IT-S Additional Income on Undeclared Sales per SLS, SAWT & LN Data ?2,818, 172.67. In the Details of Discrepancies attached to the FDDA, respondent assessed petitioner for additional income for undeclared sales in the total amount ofP2,818,172.67 after comparing petitioner's Summary of List of Sales (SLS), Summary Alphalist of Withholding Tax (SAWT) and Third Party Information (TPI) from BIR Audit Information Tax Exemption and Incentives Division (AITEID) (LNjRelief Data). The unreconciled discrepancy in sales reflects the amount of revenue/income which petitioner failed to declare in its AFS/ITR. This assessment was made pursuant to Sec. 32 of the 1997 NIRC, as amended, and should be subject to income tax pursuant to Sec. 27 of the same Code, to wit:~

DECISION SLS SAWT LN/Relief Data Undeclared Sales CTA Case No. 10336 8.000,000.00 Page 31 of 58 0.00 8.000.000.00 0.00 SLS 7.478.329.3 I Year 2010 LN/Relief Data Client Certification 11,936.35 Coca Cola 60.903.363.38 22.435.57 68.381.692.69 0.00 Queen City Food Chain 5~.089.089.60 60.431.845.00 54.1 01.025.95 3.413.099.20 Pridez Foods Services 48.166.028.~6 53.198.004.90 48.188.464.03 0.00 Golden Frost 33.180.597.83 29.767.498.63 64,621.017.48 0.00 2.480.065.25 Donutification 61.514.535.67 20.216.884.20 61.211.251.01 792,223.54 Golden Tribloc 17.736.818.95 12.622,621.55 0.00 Rise Shine 11.830.398.0 I 0.00 683,868.97 Chaco Hill Food Chain 2.074.668.83 0.00 48.657.50 Brilliant Bakers 1.639.657.57 81.936.136.06 1.630,382.80 0.00 North Area Bakeries 76.425.628.08 77.109.497.05 Metro Bakers Prime Realty 331.826.50 298.972.95 22,930,615.69 Consolidated Global Imports 250.315.45 69.960.59 0.00 12.29% Undeclared sales Multiplied by GP rate - Additional taxable income on undeclared sales 2,818,172.67 Petitioner argued that in the absence of confirmation requests and third-party certifications, the additional income on undeclared sales based on TPI is unverified and not founded on facts and the resulting assessment is invalid and must be cancelled for lack of factual and legal bases. In the implementation of the BIR's RELIEF system, Revenue Memorandum Order (RMO) No. 04-2003109 states: I. BACKGROUND The Bureau of Internal Revenue is reengineering its work processes in order to increase revenue collections and to pursue quality audit by making use of available internal and external information resources. In order to strengthen and enhance its assessment functions, the utilization of information technology has been identified as an effective tool to improve tax administration through the development of the Reconciliation of Listings for Enforcement (RELIEF) System. The RELIEF System was created to support third party information program and voluntary assessment program of the Bureau through the cross-referencing of third party information from the taxpayers' Summary Lists of Sales and Purchases prescribed to be submitted on a quarterly basis pursuant to Revenue Regulations 10o Guidelines and Procedures on the Processing of Quarterly Summary Lists of Sales and Purchases and of the Imposition of Penalties Therefor as Provided under Revenue Regulations No. 8-2002.~

DECISION CTA Case No. 10336 Nos. 7-95, as amended by RR 13-97, RR 7-99 and RR 8-2002. The RELIEF System shall cover all VAT taxpayers above threshold limits set by RR 8-2002 to submit Summary Lists of Sales and Purchases in magnetic form based on a prescribed electronic format. The consolidation and matching of information with other externally sourced data will detect underdeclaration of revenues/overdeclaration of cost and expenses, thus resulting to greater tax potential.IIO Corollarily, RMO No. 46-2004 111 has laid down the procedures to be followed for TPI discrepancy, as follows: XXX Ill. PROCEDURES XXX Action on Protested LNs due to TPI discrepancy The Revenue Officer assigned to handle the Letter Notice shall: XXX XXX XXX 2. Require the taxpayer to execute a Sworn Statement (Annex A) attesting to the veracity of the schedules and authenticity of the documents presented/ submitted. 3� Obtain Sworn Statements from TPI sources (Annexes "B" and "C") attesting to the veracity of the data provided. 3. 1 If the TPI source is registered in the RDO/LTDO/LTAID having jurisdiction over the subject taxpayer, the RO shall: 3 .1.1 Prepare "Confirmation Requests" (using the format prescribed in Annex "C" of RMO No. 30-2003 to be signed by the heads of the concerned RDO/LTDO/LTAID) for purposes of verifying the accuracy of the figures appearing in the DTCS[ .] IIO Emphasis and underscoring supplied. Ill Additional Supplement and Guidelines in Handling Letter Notices with Discrepancies Arising from Data Matching Processes as defined in Revenue Memorandum Order (RMO) Nos. 34-2004 and 30- 2003, as amended by RMO Nos. 42-2003 and 24-2004, which remain Unserved, have been Served but are Without Response, or are Under Protest by Taxpayers. ~

DECISION CTA Case No. 10336 3.1.2 If the TPI source agrees with the figures in the "Confirmation Requests" (CR), secure a Sworn Statement from the TPI source to allow the RO to build a case against the taxpayer. 3.2 If the TPI source is outside the jurisdiction of the RDO/LTDO/LTAID where the taxpayer is registered, the RO shall: 3.2.1 Coordinate with the RDO/LTDO/LTAID where the TPI source is registered, in order to: a. Prepare a CR to be transmitted and signed by the RDO/LTDO/LTAID having jurisdiction over TPI source (CRs should be coursed thru the RDO/LTDO/LTAID where the taxpayer is registered); b. Secure a sworn statement from the TPI source thru the RDO/LTDO/LTAID having jurisdiction over the same; and, c. Assist the heads of the concerned RDO/LTDO/LTAID in the preparation of Monthly Status Report on Confirmation Requests Transmitted (Annex "D") outside the RDO/LTDO/LTAID of the TPI source and submit the same to the SCG, for monitoring purposes.112 Based on the foregoing guidelines, in assessment proceedings, if there arises TPI discrepancies, the taxpayer is required to submit schedules and reconciliations to substantiate its claim. In addition, the taxpayer is required to execute a sworn statement to attest to the veracity and authenticity of the schedules and documents presented or submitted. On the other hand, the BIR is mandated to obtain sworn statements from TPI sources to attest to the veracity of the data provided. To obtain the sworn statements, the BIR must first send confirmation requests to the third-party sources or coordinate with the Revenue District Office (RDO) having jurisdiction over the third-party sources, to course through the confirmation requests to the latter. Upon examination of the records of the case, respondent did not send confirmation requests to TPI sources in relation to 112 Emphasis and underscoring supplied.~

DECISION CTA Case No. 10336 the undeclared sales amounting to 1'14,930,615.69 (1'22,930,615.69 - !'8,000,000.00), thus, no sworn statements were executed by the said third party sources. While it is axiomatic that all presumptions are in favor of the correctness of tax assessments, the assessment itself should not be based on presumptions no matter how logical the presumption might be. In order to stand the test of judicial scrutiny, the assessment must be based on actual facts. The presumption of the correctness of an assessment, being a mere presumption, cannot be made to rest on another presumption.113 For lack of factual and legal bases, respondent's findings on undeclared income amounting to 1'1,834,972.67 (!'14,930,615.69 x 12.29%) corresponding to the alleged undeclared sales oft'14,930,615.69 due to TPI matching should thus be cancelled. Furthermore, the alleged undeclared revenue amounting to 1'8,000,000.00 pertains to a contract between petitioner and Coca Cola Bottlers Philippines, Inc. whereby the latter extended a marketing subsidy to petitioner to be utilized over the course of the seven (7)-year contract. 114 This marketing support fund was not fully utilized. Thus, petitioner recorded the fund as other income at the end of the contract in the year 20 17. Petitioner has declared the other income in its 2017 Annual Income Tax Return (AFIR)1 1S and AFS 116 accordingly. Examination of petitioner's 2017 AITR and AFS revealed that petitioner declared an amount of 1'14,452, 198.00117 for the account "Other Income - Rebates". To corroborate, petitioner also presented the breakdown of Other Income for the year 2017:118 113 Collector of Internal Revenue (now Commissioner) v. Alberto D. Benipayo, G.R. No. L� 13656, 31 January 1962. ll4 Exhibits "P-28-A-ICPA" to "P-28-E-ICPA", USB. 115 CY 2017 AITR, Exhibit "P-29-BN-ICPA", Schedule 3, Line 1, USB. 116 2017 AFS, Exhibit "P-29-AL-ICPA", Notes to FS No. 24, USB. 117 Exhibit "P-29-BN-ICPA", Schedule 3, Line 1, USB. 118 Annex K-ICPA, USB. ~

DECISION CTA Case No. 10336 GOLDEN DONUTS, INC. Amount Reference OTHER INCOME BREAKDOWN 398,190.71 FOR THE YEAR 2017 58.514.02 Exhibit "P-29-BN-ICPA", Schedule 3, 1,800,000.00 Line 1. Claims from Suppliers 151,219.35 Exhibit "P-29-AL-ICPA", Note to FS No. Design Fees 1,316.27 24. Development Fee 678,407.60 FA Charges on Damaged or Lost Assets 7,474,022.02 Exhibit "P-29-BL-ICPA", Line 33. Insurance 591,839.56 Linen & Uniforms 1,040,502.95 Marketing Suuuort 558,360.86 Other Charges 282,725.42 Penalty Charges 72,770.90 Premium Items 13,392.80 Rebates 1,215,574.48 Scrap 115,361.49 Service Charge 14,452,198.43 Traini~ Fees Unaccounted Variance OI-Others OI-Boxes 273,818.80 01-Condiments 33,545.99 OI-Overages 87,315.86 OI-Service Charge 334,421.95 Interest accretion on rental Deoosit 443,470.00 TOTAL 15,624,771.03 It is noted from the above table that the account "Other Income-Others" of i' 14,452, 198.43 includes "Marketing Support" of !'7,474,022.02. However, without details of the "Marketing Support" account, the Court cannot ascertain whether the said amount is the unutilized portion of the Marketing Support Fund in the amount of !'8,000,000.00 granted by Coca-Cola Bottlers Philippines, Inc. to the petitioner back in 2010. Thus, the assessment on additional taxable income on undeclared sales amounting to !'983,200.00 shall remmn: c_,..---

DECISION P8,000,000.00 CTA Case No. 10336 12.29% p 983,200.00 Undeclared Sales Multiply by GP Rate Additional Taxable Income IT-6 - Additional Income on undeclared Purchases per SLP, 1604E & LN Data ?184,878.92. In the Details of Discrepancies attached to the FDDA, respondent claimed that petitioner had additional income in the amount of P184,878.92 on undeclared purchases after matching the Summary List of Purchases (SLP), Alphabetical List of Payees, and TPI from BIR AITIED (LN/ Relief Data). Hence, the corresponding income tax due thereon was assessed pursuant to Sections 32 and 27 of the 1997 NIRC, as amended. Year 2010 SLP 1604E LN Data Undeclared 0.00 0.00 1,319,424. 72 Purchases Consolidated Prime Development Corp. - - 1,319,424.72 Undeclared purchases 1,319,424.72 Divided by COS rate 87.71% Grossed-up Multiplied by GP rate 1,504,303.64 Additional taxable income on 12.29% undeclared purchases 184,878.92 Petitioner adduced that any assessment ansmg from comparison of taxpayer's data with TPI, which is not accompanied by third party certifications as to amounts per TPI under RMO No. 04-03 should be declared void. As discussed earlier, in assessment proceedings, if there arises TPI discrepancies, the BIR is mandated to obtain sworn statements from TPI sources to attest to the veracity of the data provided. To obtain the sworn statements, the BIR must first send confirmation requests to the third-party sources or coordinate with the RDO havingjurisdiction over the third-party sources, to course through the confirmation requests to the latter. Upon examination of the records of the case, respondent did not send confirmation requests to TPI sources in relation to undeclared purchases amounting to P1,319,424.72, thus, no~..._ , _

DECISION CTA Case No. 10336 sworn statements were executed by the said third party sources. Based on the foregoing, the Court can only conclude that respondent failed to comply with its own regulations, thus resulting in an assessment arising from or based on unverified information. For lack of factual and legal bases, respondent's findings on undeclared income amounting to P184,878.92 corresponding to the alleged undeclared purchases of P1,319,424.72 due to TPI matching should be cancelled. In view of the foregoing, Assessment Notice No. IT-116- LOA-0000 151-10-19-188 is sustained but in the reduced amount of P3,099,889.60, computed as follows: IT-1 Disallowed Royalty & Management Fee i'10,577.33 IT-1.1 Undeclared Royalty Income - IT-2 Discrepancy in Ending Inventory 680,998.52 IT-3 Disallowed Charitable Contributions 1,973,327.65 IT-4 Income Payments Not Subjected to EWT 6,684,861.83 IT-5 Additional Income on Undeclared Sales 983,200.00 IT-6 Additional Income on Undeclared Purchases - Total Adjustments Per Audit 10,332,965.33 Income Tax Rate 30% Income Tax Due 3,099,889.60 Less: Income Tax Paid - Basic Income Tax Deficiency P3,099,889.60

DECISION CTA Case No. 10336 VALUE-ADDED TAX The respondent assessed the petitioner for deficiency VAT for TY 2010 in the amount of '1"32,509,243.18. Details of assessment reflected in the FDDA,ll9 are as follows: VT-1 Assessment Details Tax Base VAT (12%) Undeclared Sales per Recon of SLS, SAWT and LN 22,930,615.69 2,751,673.88 VT-2 Data Additional Sales on Undeclared Purchases per 1,504,303.64 180,516.44 VT-3 SLP, 1604E and LN Data 129,323,118.54 VT-4 Collections for Nationwide Advertising and 15,518,774.22 VT-5 Promotions Programs 16,950,527.75 Unsupported input per SLP and SLI vs VATR Disallowed due to violations m invoicing 257,533.51 requirements (3,149,782.62) Less: Final Withholding VAT per 1600 32,509,243.18 TOTAL VT-1 - Undeclared Sales per Recon of SLS, SAWT & LN Data - ?22,930,615.69. In relation to "IT-5", respondent noted unreconciled discrepancies amounting to '1"22,930,615.69 on the matching of sales per SLS as against SAWT and BIR AITEID Data (LN/Relief) and which were assessed pursuant to Sections 32 and 106 of the Tax Code. Petitioner, on the other hand, repleads its argument that in the absence of confirmation requests and third-party certifications, the additional income on undeclared sales based on TPI is unverified and not founded on facts and the resulting assessment is invalid and must be cancelled for lack of factual and legal bases. As already settled in the discussion under IT - IT-5, for failure to provide substantial documents, assessment on undeclared sales amounting to '1"8,000,000.00 shall be cancelled for failure of the respondent to send confirmation requests, consequently, no sworn statements were executed from TPI sources. 119 Exhibit "P-17'', Docket- Vol. 1, pp. 152 to153.~

DECISION CTA Case No. 10336 VT-2 - Additional Sales on undeclared Purchases per SLP, 1604E & LN Data ?1,504,303.64. In relation to "IT-6", respondent noted a discrepancy on the declared purchases per SLP as against Relief Data and 1604E. As such, these purchases were grossed-up to come up with the taxable sales not declared amounting to !'1,504,303.64. This issue is assessed pursuant to Section 106 of the Tax Code as amended by RR 16-2005 and RR 4-2007. Likewise, petitioner repleads its argument that any assessment arising from comparison of taxpayer's data with TPI, which is not accompanied by third party certifications as to amounts per TPI under RMO No. 04-03 should be declared void. As discussed earlier under IT - IT-6, assessment on undeclared purchases amounting to !'1,319,424.72 was cancelled for failure of the respondent to provide confirmation requests and sworn statements from TPI sources. Consequently, the grossed-up sales on undeclared purchases amounting to J>l ,504,303.64 (!'1 ,319,424. 72-;- 87.71 %) will also be cancelled. VT-3 Collections for Nationwide Advertising and Promotions Program ?129,323, 118.54. Respondent's analysis of the Trial Balance and as disclosed in the Notes to FS reveals that petitioner collects from its various franchisees a certain amount that will be used for nationwide advertisement and promotional programs of the Dunkin Donuts Systems in the Philippines. Petitioner being a trustee of the fund and having sole discretion to facilitate the implementation of the said advertising programs, enjoys the benefit of input taxes derived from said advertising and promotional expenses. Respondent maintains that collections for these funds should be considered as gross receipts subject to VAT pursuant to Sections 105 and 108 of the 1997 NIRC, as amended.~

DECISION CTA Case No. 10336 Year 2010 Franchisee's Net Sales Rate per Franchise Collections subject to Local Advertising Fund (LAFJ Agreement VAT Local Promotional Fund (LPF) 2.351,329.428.00 National Advertising Fund (NAF) 2,351,329,428.00 0_5% 11,756,647.14 Vatable collections 2,351,329,428.00 0.5% 11,756,647.14 4.5% 105,809,824.26 129,323,118.54 Petitioner argues that the following accounts are not collections of the petitioner from its franchisees but represent amounts set aside for the following expenses/purposes: 1. National Advertising Fund (NAF) - these are contributions held in trust by the company and shall be exclusively used in the implementation of the national advertising and promotion program. Petitioner attached BIR Ruling DA-137-97,120 which states that "GDI's receipt of the NAF contributions from its franchisees are merely held in trust and could realize no gain or profit as a result of its receipt but which is to be used solely for national advertising expenses and not includible in GDI's gross income; hence, GDI is not subject to income tax and consequently in the expanded withholding tax". 2. Local Advertising Fund - the credit amount represents set up of local advertising and local promotions. This is done to advertise the brand or support an existing product, new product, store anniversary or local store promotion. 3. Local Store Marketing Fund - the credit amount represents various correcting entries. Petitioner claims that these are not collections but merely set-up/adjusting entries, thus, should not be considered as collections subject to VAT. Upon review of BIR Ruling No. DA-137-97 dated March 21, 1997, petitioner's NAF was classified as a trust fund not subject to taxes. Since the petitioner's receipt of the NAF contributions from its franchisees are merely held in trust and could realize no gain or profit as a result of its receipt but which is to be used 12o Exhibits "P-34-A-ICPA" to "P-34-B-ICPA", USB~

DECISION CTA Case No. 10336 solely for national advertising and promotions program, and advertising-related expenses for the benefit of the said franchisees are not includible in petitioner's gross income; hence, petitioner is not subject to IT and consequently in the EWT. It was also reiterated/ stated in petitioner's Notes to Financial Statement Nos. 11 121 , 14 122, and 26 123 that the petitioner acts as a trustee of the fund which shall be used exclusively in the implementation of the national advertising and promotions program. It was presented as "Funds Held in Trust" account in the Statement of Financial Position. Furthermore, as shown in the Journal Entries1 24 for the account "NAF Head Office - National Advertising Fund", petitioner did not claim input VAT credits arising out of disbursements from National Advertising Fund. This was confirmed by the commissioned ICPA in his report1 25. Moreover, in the Details of Discrepancies attached to the FDDA, petitioner was assessed the amount of !'129,323, 118.54 126 representing VAT on the contributions of its franchisees to the NAF. However, scrutiny of the PAN127 and FLD128 reveals that only the amount of !'12,983,466.20 was being assessed, a substantial amount compared to the FDDA. Petitioner was not given the opportunity to refute and provide supporting documents for the assessed amount in the FDDA during the PAN and FLD stages, thus a violation of petitioner's right to due process. In Commissioner of Internal Revenue v. First Sumiden Circuits, Inc., 129 this Court ruled that an assessment not included in the PAN or FAN/FLD cannot be added to the FDDA for it is a violation of taxpayer's right to due process, to wit: "We agree with the court a quo that this assessment item is void for violating respondent's right to due process. 121 Exhibit "P-12-Y-ICPA", USB. '"Exhibit "P-12-AA-ICPA", USB. 123 Exhibit "P-12-AI-ICPA", Franchise Agreement, c; USB. 124 Exhibits "P-33-A.1-ICPA" to "P-33-2.8-ICPA", USB. '"Docket, Vol.- IV, Exhibit "P-41", !CPA Report, p. 2172. 126 Exhibit "P-2-G-ICPA", USB. 127 BIR Records, Exhibit "R-14", p. 1511. 128 Exhibit "P-3-L-ICPA", USB. 12o CTA EB No. 1831, February 12, 2020.~

DECISION CTA Case No. 10336 The "realized forex gain not subjected to tax" only appears in the FDDA, and is not found in the PAN and FLD. Section 228 of the NIRC of 1997 provides that the taxpayer shall be informed in writing of the law and the facts on which the assessment is made, otherwise, the assessment shall be void. Since an entirely new assessment item in the form of "realized forex gain not subjected to tax" was included in the FDDA, petitioner was not given the chance to refute within the administrative level the said assessment. It should therefore be cancelled." From the foregoing, assessment on the collections for Nationwide Advertising and Promotions Program amounting to P129,323, 118.54 will be cancelled. VT-4 - Unsupported Input per SLP & SLI vs. VATR P16,950,527. 75. In the Details of Discrepancy attached to the FDDA, respondent disallowed petitioner's input VAT in the amount of P16,950,527.75 due to alleged discrepancy between the input tax per SLP and SLI as against petitioner's VAT Returns: Per Summary List of Purchases Purchases Input Tax 904,382,564.33 Goods 395,475.49 109,170,348.71 4,974,866.12 8,664,843.93 Services 909,752,905.94 72,207,032.77 117,835,192.65 Capital Goods 981,959,938.71 137,935,439.36 (20,100,246.72) Total 1,149,461,994.68 (167 ,502,055.97) 3,149,782.63 Per Summary List of Importation (16,950,464.09) 26,248,188.58 Total Purchases per Summary Lists (141,253,867.39) Total Purchases per VATR Unsupported purchases and input tax per PAN Recon: Input on payments to NRFC, not reflected in SLP Net unsupported input tax . Petitioner claims that respondent failed to consider the following reconciling items: a. The amount of P7,764,457.30 pertain to valid various expenses erroneously encoded in petitioner's SLS but should have been in the SLP. c.--

DECISION CTA Case No. 10336 b. The difference of P7,857,266.09 pertains to capital goods transaction which was declared in the SLP at the time of purchase but for purposes of VAT return, only the amortized input VAT is reported to compute the total VAT payable since for monthly transactions with P1 Million and above, they must be deferred and amortized over 5 years or estimated useful life whichever is shorter. c. Other reconciling items. To support its allegations, petitioner submitted the following for review by the ICPA: a. 2010 Quarterly VAT Returns (2550Q)13D; b. 2010 Sales Transaction, Reconciliation of Listing for Enforcementl31�' c. 2010 Purchase Transaction, Reconciliation of Listing for Enforcement132; d. Imports Transaction, Reconciliation of Listing for E n f o r c e m e n t 133 '� e. 2010 Unsupported Input VAT Reconciliation Schedulel34; and f. 2010 Supporting Documents for Unsupported Input VAT in SLS 135. The ICPA, upon checking the documents presented, noted that the difference pertains to various purchases not encoded in SLP and presented the following corresponding explanations, to wit: 130 Exhibits "P-7-A.1-ICPA" to "P-M.3-ICPA", USB. 13 1 Exhibits "P-24-A-ICPA" to "P-24-AA-ICPA", USB. 132 Exhibits "P-31-A-ICPA" to "P-31-MS-ICPA". USB. 133 Exhibits "P-35-A-ICPA" to "P-35-B-ICPA", USB. 134 Annex M- !CPA, USB. 135 Exhibits "P-36-A.1-ICPA" to P-36-C.71-ICPA", USB.~

DECISION VAT Base VAT Amount CTA Case No. 10336 1141,253,867.391 (16,950,464.09) 52,505,491.78 6,300,659.01 Net unsupported input tax 12,!98,319.07 I ,463,798.29 Reconciling items: 30,888,278.00 3,706,591.86 a. Management fee not encoded in SLP b. Advertising fee not encoded in SLP 39,563,275.00 4,747,590.39 c. Purchase of capital goods not encoded in SLP- 2010 l ,682,334.50 2Dl ,880.14 d. Purchase of capital goods not encoded in SLP 705,953.[7 84,718.38 - 2009 and below e. Invoices erroneously encoded in SLP 3,710,215.87 (445,226.021 f. Brokera e and other char es a. Management fee not encoded in SLP - 1'52,505,491. 78. ICPA noted that this pertains to payments to Antares Management, Inc. which were erroneously not included in the SLP. This is duly supported by the technical service agreement as attached in 2.3.1 and marked as Exhibits "P-11-A-ICPA" to "P- 11-H-ICPA" and further supported with remittance documents 136. Upon review and study of the documents presented, the Court cannot give evidentiary value to the Technical and Assistance Agreement137 between Antares Management Inc. and petitioner, as well as the journal entries138 because they are not valid supporting documents for input taxes, thus, management fee amounting to 1'52,505,491.78 and its corresponding input tax of 1'6,300,659.01 remains unsupported. b. Advertising fee not encoded in SLP- 1'12,198,319.07. The ICPA confirmed that petitioner was not able to present a schedule nor supporting documents to enable the Court to validate the advertising fee. Without supporting documents, assessment on VAT on Advertising fee amounting to 1'1,463,798.29 will remain. 136 Annex M.1-ICPA, USB; Exhibits "P-36-A.1-ICPA" to "P-36-A.20-ICPA", USB. 137 Exhibits "P-11-A-ICPA" to "P-11-H-ICPA", USB. 138 Annex M.1-ICPA, USB; Exhibits "P-36-A.1-ICPA" to "P-36-A.20-ICPA", USB.~

DECISION CTA Case No. 10336 c. Purchase of capital goods not encoded in SLP (2010)- P30,888,278.00. ICPA finds that petitioner was not able to properly declare its purchases of capital goods in its VAT returns for the years 2007 to 2010. Thus, an amended VAT return for the 4th quarter of 2010 was filed to recognize the input VAT from these purchases which is marked as Exhibit "P-7-M.l- ICPA" to "P-7-M.3-ICPA". The total amount of the additional declaration for capital goods amounted to !"70,451,553.00 which includes purchases from 2010. d. Purchase of capital goods not encoded in SLP (2009) - !"39,563,275.00. ICPA finds that the capital goods purchased in the previous year (CY 2009) are also included in GDI's reconciliation. However, the Court was not able to establish if these purchases were actually not included in the previous year's declarations. This pertains to letters c and d above. In its amended quarterly VAT return for CY 2010139, petitioner declared purchases of capital goods exceeding one million amounting to P70,451,553.00140 with corresponding input VAT of P8,454, 186.36141 and the input tax on Purchases of Capital Goods exceeding one Million Deferred for the Succeeding Period of !"7,053,857.36. The amount of Pl,400,329.00 is the amortization of Capital Goods for CY 2010. Petitioner alleged that the capital goods amounting to P70,451,553.00142 are purchases for the years 2009 (P39 ,563,253.25)143 and 2010 (P30,888,265.50)144 as indicated in its summary of purchased capital goods. 139 Exhibits "P-7-M.l-ICPA" to "P-7-M.3-ICPA", USB. !40 Exhibit "P-7-M.2-ICPA", Line 21C, USB. 141 Exhibit "P-7-M.2-ICPA", Line 21D, USB. !42 Difference of 1'34.25. !43 Annex M.4-ICPA, USB. 144 Annex M.2-ICPA, USB. ~

DECISION CTA Case No. 10336 However, upon scrutiny of the documents presented such as summary of capital goods purchased for years 2010 145 and 2009 146 and its corresponding invoices and official receipts147, only input VAT amounting to P76,568.67 were supported with proper documents. Consequently, only the input tax of P76,568.67 shall be spread evenly over a period of sixty (60) months or the actual number of months comprising the estimated useful life of a capital good, pursuant to Sec. 4.110-3 of RR No. 16-05. However, petitioner failed to provide a schedule of amortization of capital goods, thus, the amount of P76,568.67 should also be denied: SUPPLIER VAT REFERRENCE MICROPHASE CORPORATION P508.93 Exhibit P-36-B. 14-ICPA SLID INNOVATIVE INFRASTRUCTURE, INCORPORATED I 15.72 Exhibit P-36-8.15-ICPA MICROPHASE CORPORATION 508.93 Exhibit P-36-8.19-ICPA NEW DATCHE PHILIPPINES TRADERS CORPORATION 3,208.93 Exhibit P-36-8.20-ICPA SLID INNOVATIVE INFRASTRUCTURE, INCORPORATED 1,904.46 Exhibit P-36-8.21-ICPA MICROPHASE CORPORATION 10,500.00 Exhibit P-36-8.32-ICPA SLID INNOVATIVE INFRASTRUCTURE, INCORPORATED 535.72 Exh1bit P-36-8.33-ICPA American Technologies 1,607.14 Exhibit P-36-8.52-ICPA MECHANICAL HANDLING EQUIPMENT CO., INC. 2,320.27 Exhibit P-36-8.54-ICPA MICRO IMAGE INTERNATIONAL 3,642.86 Exhibit P-36-8.66-ICPA DEXTERTON CORPORATION 717.86 Exhibit P-36-8.76-ICPA MICRO IMAGE INTERNATIONAL 4,861.07 Exhibit P-36-8.84-ICPA MICRO IMAGE INTERNATIONAL 6,428.57 Exhibit P-36-8.90-ICPA MICRO IMAGE INTERNATIONAL 13,125.00 Exhibit P-36-8.94-ICPA MICRO IMAGE INTERNATIONAL 17,314.29 Exhibit P-36-8.95-ICPA MICROPHASE CORPORATION 6,578.57 Exhibit P-36-8.96-ICPA QUARTZ 8USINES 1,232.14 Exhibit P-36-8.104-ICPA QUARTZ 8USINES Exhibit P-36-8.109-ICPA QUARTZ 8USINES 525.00 Exhibit P-36-8.121-ICPA 750.00 Scan Livingston Graphics, Inc. 76,385.46 TOTAL 183.21 Exhibit P-36-D.3-ICPA P76,568.67 In this regard, assessment on input VAT on purchases of capital goods for CY 2009 and 2010 H5 Annex M.2-ICPA, USB. 146 Annex M.4-ICPA, USB. 147 Exhibits "P-36-B.l-ICPA" to "P-36-B.l21-ICPA" (CY 2010); "P-36-D.l-ICPA" to "P-36- "-= D.9-ICPA" (CY 2009), USB. 0:: ~

DECISION CTA Case No. 10336 is upheld, but only up to the amount of amortization declared in its 4th quarter CY 20 10 of P1,400,329.00. e. Invoices erroneously encoded in SLP- P1,682,334.50. ICPA noted that other mvmces were also erroneously encoded in SLP. Evaluation and scrutiny of the schedulesl48 and the supporting invoices and official receiptsl49 reveals that the invoices erroneously encoded in the SLP amounting to P1,682,334.50 have a corresponding VAT amount of P201,880.14. However, only input VAT amounting to P5,731.86 was supported with proper documents while the amount of Pl96,148.28 were in violation of accounting and invoicing requirements, thus, the assessment will remain but only as to the amount of P196, 148.28, broken down as follows: SUPPLIER NAME VAT REFERENCE REASON JOHANS FABR1CON CORPORATION P1,440.00 Exhibit P-36-C.1- Without JOHANS FABRICON CORPORATION 835.71 !CPA TIN JOHANS FABRJCON CORPORATION Exhibit P-36-C.3- Without wall cro\vn design center 1,585.71 !CPA TIN COMMUNITY COMMERCIAL 428.57 Exhibit P-36-C.4- Without COMMUNITY COMMERCIAL 338.13 !CPA TIN COMMUNITY COMMERCIAL 575.88 Exhibit P-36-C.S- Without COMMUNITY COMMERCIAL 324.64 !CPA TIN DQA DESIGN AND PLANNiNG, INC. 236.20 Exhib1t P-36-C.6- Without DQA DESIGN AND PLANNING, INC. !CPA TIN DONUTS ADS INC. 10,392.00 Exhibit P-36-C. 7- Without WORLDINNOX ENTERPRISE 10,392.00 !CPA TIN DONUTS ADS INC. Exhibit P-36-C.S- Without BROSS FURNITEK CONTRACTORS 345.26 !CPA TIN DONUTS ADS INC. 2,410.71 Exhibit P-36-C.9- Without ELEKSIS MARKETING CORPORATION !CPA TIN BROSS FURNITEK CONTRACTORS 230.16 Exhibit P-36-C.lO- Without 2,121.42 !CPA TIN Exhibit P 36 C.ll- Without 19.42 !CPA TIN 7,285.71 Exhibit P-36-C.l3- !CPA Without 685.68 Exhibit P-36-C.l4 TIN !CPA Without Exhibit P-36-C.15- TIN !CPA Exhibit P-36-C.16- Without !CPA TIN Exhibit P 36-C.l7- Without !CPA TIN Exhibit P-36-C.18- Without !CPA TIN Exhibit P-36-C.19- Without !CPA TIN Without TIN 148 Annex M-ICPA; Annex M.3-ICPA. USB. 149 Exhibits "P-36-C.1" to "P-36-C-71", USB. c;wr

DECISION CTA Case No. 10336 BROSS FURNITEK CONTRACTORS 1,885.71 Exhibit P-36-C.20- Without BROSS FURNITEK CONTRACTORS 5,785.68 !CPA TIN wall crown design center 1.514.73 Exhibit P-36-C.21- Without DONUTS ADS INC. !CPA TIN DONUTS ADS INC. 31.82 Exhibit P-36-C.22- Without AXIS COMPUTER, INC 386.29 !CPA TIN TECHNOFAB STEEL CO. 18,214.29 Without DONUTS ADS INC. 50,292.13 Exhibit P-36-C.23- TIN DONUTS ADS INC. 231.82 !CPA Without COMMUNITY COMMERCIAL Exhibit P-36-C.24- TIN COMMUNITY COMMERCIAL I 1.57 !CPA Without SPECIAL OFFICE CONCEPT 300.00 Exhibit P-36-C.25- TIN JOHANS FABRICON CORPORATION 501.42 !CPA Without JOHANS FABR!CON CORPORATION 304.38 Exhibit P-36-C.26- TIN JOHANS FABR!CON CORPORATION 62 I .43 !CPA Without JOHANS FABRICON CORPORATION 2,455.71 Exhibit P-36-C.27- TIN JOHANS FABRICON CORPORATION 2,571.43 !CPA Without JOHANS FABRICON CORPORATION 126.43 Exhibit P-36-C.28- TIN DONUTS ADS INC. I ,026.00 !CPA DONUTS ADS INC. 14,244.64 Exhibit P 36 C.29- Without DONUTS ADS INC. !CPA TIN DONUTS ADS INC. 46.29 Exhibit P-36-C.30- Without DONUTS ADS INC. 190.92 !CPA TIN DONUTS ADS INC. Exhibit P-36-C.31- Without DONUTS ADS INC. 17.36 !CPA TIN RUEY SHING REFRIGERATION EQUIPMENT PHILIPPINES, 637.81 Exhibit P-36-C.32- Without CORP. !CPA TIN DONUTS ADS INC. 29.15 Exhibit P-36-C.33- Without DONUTS ADS INC. 13.50 !CPA TIN DONUTS ADS INC. 39.46 Exhibit P�36-C.34- Without RUEY SHING REFRIGERATION EQUIPMENT PHILIPPINES, 6,868.12 !CPA TIN CORP. 24.81 Exhibit P-36-C.35- Without DONUTS ADS INC. 23.14 !CPA TIN DONUTS ADS INC. 78.89 Exhibit P-36-C.36- Without DONUTS ADS INC. 9,689.49 !CPA TIN TECHNOLUX EQUIPMENT AND SUPPLY CORPORATION 59.17 Exhibit P-36-C.37- Without DQA DESIGN AND PLANNING, INC. 59.17 !CPA TIN DONUTS ADS INC. 26.04 Exhibit P-36-C.38- Without DONUTS ADS INC. 298.93 !CPA TIN DONUT5 AD5 INC. 5,196.00 Exhibit P-36-C.39- Without DONUTS ADS INC. 13.43 !CPA TIN 43.39 172.62 Exhibit P�36-C.40- Without 230.17 !CPA TIN Exhibit P-36-C.41- Without !CPA TIN Exhibit P-36-C.42- Without !CPA TIN Exhibit P-36-C.43- Without !CPA TIN Exhibit P 36 C.44- Without !CPA TIN Exhibit P-36-C.45- Without !CPA TIN Exhibit P-36-C.46- Without !CPA TIN Exhibit P-36-C.47- Without !CPA TIN Exhibit P-36-C.48- Without !CPA TIN Exhibit P-36-C.49- Without !CPA TIN Exhibit P-36-C.SO- Without !CPA TIN Exhibit P-36-C.Sl- Without !CPA TIN Exhibit P-36-C.S2- Without !CPA TIN Exhibit P-36-C.53- Without !CPA TIN Exhibit P-36�C.54- Without !CPA TIN Exhibit P�36-C.55- Without !CPA TIN Exhibit P-36-C.56- Without !CPA TIN Exhibit P-36-C.57 Without ICP/1 TIN Exh1bit P-36-C.58- Without !CPA TIN

DECISION 4,200.00 Exhibit P-36-C.59- Without CTA Case No. 10336 19.73 !CPA TIN Page 49 of 58 Exhibit P-36-C.60� Without 230.18 !CPA TIN SAN PABLO SIN!NG-LAYA CORPORATION 230.18 Without DONUTS ADS INC. 554.46 Exhibit P-36-C.61- TIN DONUTS ADS INC. 3,750.00 !CPA DONUTS ADS INC. 713.57 Exhibit P-36-C.62- Without PRECIOUS VENTURE 1,542.86 !CPA TIN AGB MACBUILD CORP. 875.16 Exhibit P-36-C.63- Without POST MASTER DEPOT, INC. 2,604.00 !CPA TIN BROSS FURN!TEK CONTRACTORS 4,628.56 Exhibit P-36-C.65- Without R.D.A. PORTABLE TOILET RENTAL SERVICE !CPA TIN SOMERVILLE REFRIGIRATION INC. Exhibit P-36-C.67- Without BROSS FURNITEK CONTRACTORS !CPA TIN Unsupported Exhibit P-36-C.68- TOTAL !CPA Without Exhibit P-36-C.69- TIN !CPA Without Exhibit P-36-C.70- TIN !CPA Without Exhibit P-36-C. 71- TIN ICPA Without TIN 12,889.00 ri96,148.28 f. Brokerage and other charges - P705, 953.17. ICPA noted that charges for insurance and freight were entered as part of importation for VAT return. It should be part of local purchases (service) but entered in SLP partly in goods. To refute respondent's assessment, petitioner submitted origina11so and amended 151 quarterly VAT Returns for the 4th quarter of CY 20 10 as well as schedule of brokerage and other fees.1s2 With the submission of the original and amended quarterly VAT Returns for the 4th quarter of CY 2010 only, the Court cannot determine the veracity of petitioner's allegation, thus assessment on insurance and freight amounting to P705, 953.17 and its corresponding VAT amount of P84,714.38 shall remain. From the foregoing, respondent's assessment on the discrepancy between the input tax per SLP and SLI as against petitioner's VAT Returns shall remain but in the reduced amount of P9,890,874.98 broken down as follows: 1so Exhibits "P-7-L.l-ICPA" to "P-7-L.3-ICPA, USB. IS! Exhibits "P-7-M.l-ICPA" to "P-7. 1s2 Annex M-ICPA; Annex M.5-ICPA, USB.~

DECISION r 6,300,659.01 CTA Case No. 10336 Page 50 of 58 1,463,798.29 Management Fee 1,400,329.00 Advertising Fee Amortization of Capital Goods 196,148.28 84,714.38 For 2009 & 2010 Invoices Erroneously encoded in SLP 445,226.02 Brokerages and Other Charges Unsupported Identified by ICPA r 9,890,874.98 TOTAL VT-5 Disallowed Due to Violations in Invoicing requirements- ?257,533.51. Respondent's scrutiny of the supplier's invoices disclosed that there were purchases invoices/receipts which failed to comply with the invoicing requirements as prescribed under Section 113 of the 1997 NIRC, as amended, in relation to Section 4-113-1(8) of the RR No.16-2005, as amended: Supplier's Name Disallowed Violation Input VAT DONUT 168 ADS INC Without TIN FLASH MEDIA CORP 23.14 Without TIN GRAND POTENTIAL PRESS 1,285.20 Input VAT not segregated/Without TIN HAMBURG TRDG CORP 14,035.71 Without TIN HAWAllAN COFFEE CO 4,955.36 Without TIN INTEGRATED MFG SERVICES PROVIDER 81,401.79 Without TIN KUDOS EVENTS MANAGEMENT !NT 8,773.78 Without TIN MALABON LONGLIFE TRDG CORP 12,321.43 Without TIN MURPHY DIST!BUTIONS 32,268.00 Without TIN NORTHERN GAS COPR Without TIN PAPERTECH 340.39 Without TIN PINECREST SALES AND MKTG CORP 6,152.68 Without TIN PLASTIMER INDUSTRIAL CORP 14,595.78 Without TIN PRINT EASY ENTERPRISE Without TIN ROBTON INDUSTRIES INC 626.36 Without TIN SCAN LIVINGSTON GRAPHICS 9,514.29 Without TIN SHAQ PAPER AND PLASTIC CO LTD 2,597.25 Without TIN TREV!SO CORP 17,541.43 Without TIN UNICOMM INGREDIENT 5,035.50 Without TIN UNITED ASIA JNTL PLASTIC CORP 3,780.00 Without TIN VARIDEL CORP 1,800.00 Input VAT not segregated/Without TIN TOTAL DISALLOWED INPUT TAX 437.14 33,503.57 6,544.73 257,533.51 The respondent made a wholesale disallowance of input VAT corresponding to purchase invoices/ receipts allegedly on the ground that the invoicing requirements were not complied with. Petitioner argues that the wholesale disallowance is unwarranted for being confiscatory in nature. Petitioner further argues that the respondent cannot claim that the invoicing requirements were not met when respondent failed to examme each and every VAT invoice~

DECISION CTA Case No. 10336 The Court considered the documents submitted by the petitioner to the respondent. Upon further scrutiny of the BIR Records, invoices, and 0Rs153 the Court agrees with all the findings of the respondent that input VAT amounting to P257,533.51 will be disallowed in violation of the invoicing requirements. In view of the foregoing, Assessment Notice No. VT-116- LOA-0000151-10-19-189 is sustained but in the reduced amount of P7,958,625.86, computed as follows: VATable Sales per VAT Return p 1,328, 738,441.67 Add: Findings per Investigation 8,000,000.00 8,000,000.00 VT-1 Undeclared Sales 1,336,738,441.67 VT-2 Additional Sales on Undeclared Purchases - VT-3 Collections for NAF - 12% VATable Sales per Audit 160,408,613.00 VAT Rate Output Tax Due per Audit Unutilized Input Tax for the Year 129,724,365.49 Less: Audit Findings VT-4 Unsupported input per SLP &SLI vs. VATR 9,890,874.98 VT-5 Disallowed due to Violation in Invoicing Requirements 257,533.51 10,148,408.49 Net Allowable Input Tax per Audit 1!9,575,957.00 Net VAT Due per Audit 40,832,656.00 Less: VAT Credits/Payments VAT Remittance per 2550M/Q 29,724,24 7.51 Final VAT Withholding per 1600 3,149,782.63 32,874,030.14 Basic VAT Deficiency I' 7,958,625.86 FINAL TAX The respondent assessed petitioner for the entries in the dividends payable set-up in the amounts of P316,361.00 and P4,897,939.00, or in the aggregate amount of P5,214,300.00. These income payments are subject to final tax that allegedly 153 BIR Records, Exhibit "R-14", pp. 1687 to 1733. ~

DECISION CTA Case No. 10336 were not properly withheld and remitted, hence, assessed in the amount of P522,228.26 pursuant to Section 57(A) of the 1997 NIRC, as amended, and Section 2.57.1 of RR No. 2-98, as amended: Franchise Fee, per TB (2,528,028.00) 13,284,954.20 26,256,171.00 Dividends Payable, credits per TB (316,361.00) (2,528,028.00) Reconciliation 7,900,572.00 l. Dividends for domestic corp. (1,236,418.20) (316,361.00) 34,156,743.00 2. Cancelled check (316,361.00) (1,236,418.20) 3. To reclass double entry 10% 4. To correct set-up of dividend payable (4,897,939.00) II ,303,575.00) 3,415,674.30 5. To adjust dividends payable to RE (1,303,575.00) 2,893,446.04 6. To reverse entry made in Sept. 522,228.26 Income payments subject to 10% final tax Multiplied by Final tax per audit Less: Final tax paid per 1601F Final tax still due - basic Petitioner has provided the composition of its final tax due wherein the difference was located in the recorded credits in the Dividends Payable account. Allegedly, respondent did not consider that some of the credits in the account are adjustments made to correct the dividend payable balance m the previous years. To refute respondent's assessment, petitioner presented Final Withholding Tax Returns; 154 General Information Sheet; 155 and 2010 AFS. 156 Upon scrutiny of the BIR Form No. 1601-FIS7, petitioner indeed paid a total ofP2,893,446.04 Final Tax for the year 2010. Study of petitioner's AFS 158 reveals that for the years 2009 and 2010, petitioner declared Dividends of P5,214,300.00 as well as in its 2010 Trial Balance. 159 Evidently, the final tax paid by the petitioner on dividends payable is proper except for the amount of P798.26 which is unaccounted, to wit: 154 Exhibits "P-9-A.1-ICPA" to "P-9-L.3-ICPA", USB. 155 2010 General Information Sheet marked as Exhibit "P-38-A" to "P-38-H", USB. 156 2010 Audited Financial Statements (AFS) marked as Exhibit "P-12-A" to P-12-AP", USB. 157 Exhibits "P-9-A.1-ICPA" to "P-9-L.3-ICPA", USB. 158 Exhibits "P-12-E-ICPA"; "P-12-AB-ICPA", Notes to FS No. 16, USB. 159 BIR Records, p. 1335. ~

DECISION CTA Case No. 10336 Franchise Fee, per TB (2,528,028.00) 13,284,954.20 P26,256,17l.OO Dividends Payable, credits per TB (316,361.00) Reconciliation (2,528,028.00) 2,686,272.00 1. Dividends for domestic corp. (1,236,418.20) (316,361.00) 28,942,443.00 2. Cancelled check (316,361.00) 3. To reclass double entry (1 ,236,418.20) 10% 4. To correct set-up of dividend payable (4,897,939.00) (316,361.00) 2,894,244.30 5. To adjust dividends payable toRE (1 ,303,575.00) 2,893,446.04 6. To reverse entry made in Sept. (4,897,939.00) Income payments subject to 10% final tax (1 ,303,575.00) P798.26 Multiplied by Final tax per audit Less: Final tax paid per 1601F Final tax still due - basic EXPANDED WITHHOLDING TAX Income payments recorded under the Trial Balance (TB)/Financial Statements (FS) were matched with the income payments subjected to EWT per Alphalist of Payees. According to respondent, this procedure revealed that petitioner failed to subject all income payments declared on the TB/FS to EWT. Therefore, as required under the provisions of Sec. 57 of the NIRC and Sec. 2.57 .2 of RR 2-1998, as amended by RR 17-2003 and RR 30-2003, deficiency EWT amounting to r2,310,597.50 was assessed with details as follows: Income Discrepancy per Rate EWT Payment FDDA Goods r485,002. 97 Services f'48,500,297.39 1% (152,387.50) Rentals (7,619,375.07) 2% 1,207,474.88 Brokerage Fee 24,149,497.55 5% Management 2,927,540.33 10% 292,754.03 Fee 3,185,020.81 15% 477,753.12 TOTAL r71, 142,981.01 P2,310,597.50 Petitioner repleads its arguments found in the discussion under IT-4 which the Court finds tenable. As already settled in the discussion in IT-4, petitioner has net income payments that were not subjected to withholding tax amounting to r6,684,861.83. However, upon computation of its corresponding EWT, petitioner has a tax effect of -r293,181.27,~.,--

DECISION CTA Case No. 10336 thus, petitioner should not be held responsible for withholding of taxes on the following income payments, to wit: Income Payment Discrepancy Rate Tax Effect Goods P32,760,317.04 1% P327,603.1 7 Services (18,109,396.25) 2% (362,187.93) (9,842, 128.16) 5% (492, 106.41) Rentals Professional 958,009.81 10% 95,800.98 FeeI Brokerage 918,059.39 15% 137,708.91 Professional FeeI Mngt P6,684,861.83 - Fee P293,181.27 TOTAL DOCUMENTARY STAMP TAX In the Details of Discrepancies attached to the FDDA, respondent assessed petitioner for deficiency DST in the amount ofP49, 161.11 on debt instruments and lease contracts pursuant to Sections 179 and 194 of the 1997 NIRC, as amended: Source Particulars Amount DST Obligations under Finance AFS Note 25 Lease 10,102.35 4,072.77 PerTB Current portion 2,020,470.00 PerTB 47,643.37 PerTB Non-Current portion 814,554.00 61,818.49 PerTB Lease Contracts: 12,657.38 PerTB 49,161.11 AFS Note 17 Prepaid Rent 3,268.21 0. 75 AFS Note 18 DST Due: Advanced rental 357,791.84 Less: DST payments DST still due Deposits Rental 7,330,854.42 Prepaid Rent- Non Current 618,349.70 Rent Expenses 31,068,770.00 Rent Expenses 4,997,391.00

DECISION CTA Case No. 10336 Petitioner argues that the 1997 NIRC, as amended, does not expressly impose a DST on finance leases. Revenue Memorandum Circular (RMC) No. 46-2014 cited by the respondent was issued only in 20 14 and cannot be given retroactive application to TY 2010. In the case of DST on lease contracts which is due at the time the contract of lease is executed, petitioner asserts that there is no legal and factual basis to support the method employed by simply imposing the rate of DST on the amount of prepaid rent, rent deposits and rent expense appearing in the TB. Petitioner also states that DST paid on debt instruments and lease contracts executed in TY 2010 was fully accounted for. In response, respondent stated that RMC No. 46-2014 is a clarificatory issuance on the very nature of finance lease being an obligation. The imposition of DST on all debt instruments has long been covered under Section 179 of the 1997 NIRC, as amended. Hence, respondent stands firm in his position that DST on financial lease is assessable under Section 179. DST is imposed on rental expenses on the premise that there is an agreed contract of lease executed by the petitioner and the lessor. There being no detailed reconciliation of an existing and new contract oflease, respondent has no recourse but to impose DST on rental expenses claimed by petitioner. The ICPA stated in his report that respondent was not able to consider payments made by GDI's lessor. Since DST payments could be shouldered by either of the parties, it is not appropriate to subject all of the lease to deficiency. Furthermore, it is not conclusive that all rent accounts are subject to DST since it is imposed upon the execution of the lease contracts. The method used by the BIR to recompute is assuming that the Company executes contract annually and at the beginning of the year which is quite unusual. However, petitioner only submitted schedule of DST paymentslso, statement of account, and official receipts161 as proof of DST payments amounting to f>14,870.34. Without the related Lease Contract and the detailed reconciliation of an existing and new contract, the Court cannot verify the accuracy 16o Annex 0-ICPA, USB. 161 Exhibits "P -39-A.l-ICPA" to "P-39-AB.2-ICPA". USB. 011""'"" ~

DECISION CTA Case No. 10336 of the DST being paid and as to whether the DST will be shouldered by the lessor. On the other hand, assessment on the non-current portion of the lease contracts amounting to P814,554.00 and P618,349. 70 will be cancelled on the basis that DST was already collected on the original issue of the debt instrument. Hence, DST assessment is upheld but in the reduced amount of P42,256.03, computed as follows: Source Particulars Amount DST 1'10,102.35 AFS Note 25 Obligation Under Finance Lease: 2,020,470.00 Current Portion 47,024.02 PerTB Non-Current Portion 3,268,210.75 57,126.37 PerTB 357,791.84 14,870.34 PerTB Lease Contract: 1'42,256.03 PerTB Prepaid Rent 7,330,854.42 AFS Note 17 Advance Rental AFS Note 18 Deposit-Rentals 31,068,770.00 Prepaid Rent� 4,997,391.00 NonCurrent 47,023,018.01 Rent Expense Rent Expense DST Due DST Payment DST Still Due WHEREFORE, in light of the foregoing considerations, the present Petition for Review is PARTIALLY GRANTED. The assessments issued by respondent against petitioner covering deficiency IT, VAT, FT, and DST for CY 2010 are to be UPHELD IN PART, while the assessment on EWT shall be CANCELLED. Accordingly, petitioner is ORDERED TO PAY respondent the aggregate amount of FORTY-ONE MILLION EIGHT HUNDRED THIRTY-FIVE THOUSAND TWO HUNDRED THIRTEEN AND 17/100 (P41,835,213.17), inclusive of 25% surcharge, 20% deficiency interest and 20% delinquency interest imposed under Sections 248(A)(3), 249(B) and (C)(3) of the NIRC of 1997, as amended, computed until December 31, 2017, as follows: o----

DECISION CTA Case No. 10336 Basic Tax Due IT VAT FT DST TOTAL P11,101,569.75 Add: 25% Surcharge P3,099,889.60 r7,958,625.86 P798.26 p 42,256.03 20% Deficiency Interest 774,972.40 1,989,656.47 199.57 10,564.01 2,775,392.44 Apr. 16, 2011 to Mar. 31, 2015162 2,456,131.70 2,456,131.70 {?3,099,889.60 X 20% X 1446 I 365! 6,654,719.49 6,654,719.49 20% Deficiency Interest Jan. 26,2011 to Mar. 31, 671.85 671.85 2015 (1'7,958,625.86 X 20% X 1526 P6,330,993.70 P16,603,001.81 P1 ,669.68 35,564.53 35,564.53 /365} P88,384.56 P23,024,049.76 20% Deficiency Interest Jan. 16,2011 to Mar. 31, 2015 {?798.26 X 20% X 1536/365} 20% Deficiency Interest Jan. 16,2011 to Mar. 31, 2015 (?42,256.03 X 20% X 1536!365} Total Amount Due, Mar. 31, 2015 20% Deficiency Interest 1,708,761.06 1,708,761.06 Apr. 01,2015 to Dec. 31, 2017 4,387,056.23 4,387,056.23 (1'3,099,889.60 X 20% X 1006 440.03 /365} 440.03 {?7,958,625.86 X 20% X] 006 23,292.91 23,292.91 /365} (!'798.26 X 20% X 1006/365} (?42,256.03 X 20% X 1006/365} 20% Delinquency Interest 3,489,851.87 3,489,851.87 Apr. 01,2015 to Dec. 31, 2017 9,152,120.45 9,152,120.45 (/'6,483,864.97 X 20% X 1006 920.38 /365} 920.38 {J>16,603,001.81 X 20'70 X 48,720.48 48,720.48 1006 /365) {P 1,669.68x 20% X 1006/ 365} 1'11,529,606.64 1'30,142,178.49 1'3,030.08 1'160,397.96 1'41,835,213.17 (P88,384,.56 X 20% X 1006/365} Total Amount Due, Dec. 31, 2017 In addition, petltwner is ORDERED TO PAY respondent delinquency interest at the rate of twelve percent (12%) per annum on the total unpaid deficiency taxes due as of March 31, 2015, in the amount of P23,024,049.76 or equivalent to P7,569.55163 per day, computed from January 1, 2018 until full payment thereof pursuant to Section 249� of the NIRC of 1997, as amended by RA No. 10963, also known as Tax Reform for Acceleration and Inclusion (TRAIN) and as implemented by RR No. 21-2018. 162 BIR Records, Exhibit "R-11", Due Date per FLO and Assessment Notices, pp. 1663- 1684. 12% I 365. ~ 163!'23,024,049.76 X

DECISION CTA Case No. 10336 SO ORDERED. ~~7~ CATHERINE T. MANAHAN Associate Justice WE CONCUR: (on leave) MARIAN IVY F. REYES-FAJARDO Associate Justice HENRY f[J;_NGELES 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. c~�r-~ CATHERINE T. MANAHAN Associate Justice Chairperson CERTIFICATION Pursuant to Article VIII, Section 13 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's Division. Presiding Justice