CPW PHILIPPINES, INC. v. THE COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF TH E PHILIPPINES COURT OFTAX APPEALS QUEZON CITY SPECIAL THIRD DIVISION CPW PHILIPPINES, INC., CTA Case No. 10665 Petitioner, -versus - Members: REYES-FAJARDO, Chairperson, and ANGELES, lL Promulgated: COMMISSIONER OF JOC 1 a 2026 / INTERNAL REVENUE, /1 .' 30 a-vn ~ Respondent. X----- - --------- - ---- - - -- ---- - -- - ------ - - ------ - ----- - X RESOLUTION REYES-FAJARDO, J.: We resolve respon dent's Motion for Reconsideration (Re: Decision promulgated 13 February 2026)1 filed on March 4, 2026. It seeks the reversal of the Decision 2 p rom ulgated on February 13, 2026, which can celled and set aside d eficien cy tax assessments issued a g a in s t p etition er for ca lendar yea r 2016, and enjoine d r espondent from collecting the sam e. The dispositive portion of the assailed Decision reads:3 WHEREFORE, the Pe titio n for Review fi led on N ovem be r 3, 2021 by CPW P hilip pines, Inc., is G RANTED. Accord ingJy: 1. The Form al Lette r of De ma nd and Assessme nt Notices dated March 10, 2021 iss ued agains t pe titio ne r for deficie ncy income ta x, value-add ed ta x, ex pa nded withhold ing tax, a nd final w ithhold ing tax, in the total amount of P680,363,406.72, Rollo, pp. 1287 - 1308. /d., pp. 1266 -1285. 3 /d., p. 128-!.

RESOLUTIO CT A CASE NO. 10665 inclusi ve of inte rests and miscellaneo us charges, for calendar year 2016, are CANCELLED a nd SET ASIDE; 2. The Final Decision on Disputed Assessment dated September 28, 2021 issued aga inst petitione r for deficiency income tax, value-added tax, expanded withhold in g ta x, and fina l withholding ta x, in the total amo unt of P666,575,540.12, inclusi ve of interests and miscellaneo us charges, for the same calenda r year 2016, are WITHDRAWN and SET ASIDE; and 3. Co nsequently, the Warrant of Distraint and / or Levy No. 1'16-2021-1 34 dated November 10, 2021 issued aga ins t petitioner in relation to its alleged defici ency tax assessments for cale ndar vea r 2016 are likewise CANCELLED and SET J ASIDE. Responde nt, his represe ntatives, agents, or other pe rsons acting in his be half are ENJOINED from implementing the co llection of deficiency income tax, va lue-added tax, expanded withholding tax, and final withholding tax, in the total amo unt of P680,363,406.72, inclusive of inte rests and miscellaneous charges, for calendar yea r 2016. SO ORDERED. The Court cancelled p etitioner's deficiency income tax (IT), value-added tax (VAT), and exp anded withholding tax (EWT) assessments due to violation of p etitioner's right to due process. It found that respondent failed to n1eaningfully consider petitioner's Reply to the Preliminary Assessm ent Notice (PAN) before issuing the Formal Letter of Demand and Final Assessment Notices (FLD/FAN). It also ruled that the administrative services and distribution fees paid by petitioner to Nestle Philippines, Inc. (NPI) were not royalties or passive income subject to final withholding tax (FWT). Respondent filed his Motion for Reconsideration, to which petitioner filed its Comment/Opposition [To Respondent's Motion for Reconsideration dated 4 March 2026 (Re: Decision promulgated on 13 February 2026)] .4 After due consideration of respondent's arguments, We find no cogent reason to disturb the assailed Decision. Rollo, pp. 1313 -1329.

RESOLUTIO CTA CASE 0.10665 The cancellation of the deficiency IT, VAT, and EWT assessntents for violation of petitioner's right to due process is proper. In his Motion for Reconsideration, respondent argues that petitioner was not deprived of the opportunity to be heard. For him, petitioner was p roperly informed at every stage of the administrative proceedings, as show n by the fact that it was able to submit a Reply Letter with supporting documents to refute the assessment. He insists that it was not bound to accept petition er's explanations, especially when unsupported by new or sufficient evidence. Respondent's argument is unavailing. In Commissioner of i nternal Revenue v. Avon Products Manufacturing, Inc. (Avon)S, the Supreme Court made clear that while the CIR "is not obliged to accept the taxpayer's explanations," due process requires that "when he or she rejects these explanations, he or she must give som e reason for doing so." Otherwise, " the right to be heard .. . is m eaningless if the Commissioner can simply ign ore the evidence without reason." Here, the FLD/FAN substantially reproduced the PAN, save for updated interest and a discussion on FWT. Such p erfunctory action did n ot apprise petitioner of the reasons for the rejection of its defenses. Respondent cannot rely on the supposed absence of new supporting documents. If respondent finds petitioner's submissions insufficient, he must say the reasons for sustaining the assessment n otv-vithstanding petitioner's defenses. The burden to inform rests on respondent, not on petitioner to infer why its defenses were rejected. The fact that petitioner was able to refute the assessments does not, by itself, satisfy due process. 5 G. R. Nos. 201398-99, OcLober 3, 2018.

RESO LUTI O CTA CASE 1 0. 10665 Page -+ of 5 The FWT assessment was correctly cancelled. Respondent maintains that the adnunistrative services and distribution fees paid by petitioner to NPI were not payments for actual services but royaltiesf for the use of scientificf technicat indush�iat or commercial knowledge or information under Section 42(A)(4)(f)6 of the NIRCf as amendedf which is subject to final withholding tax pursuant to Section 27(D)(l)? of the NIRCf as amended. Respondent's argument fails to persuade. For FWT on royalties under Section 27(D)(l) of the NIRCf as amended to applyf three (3) requisites must concur: first, the income must be passive; secondf the incom e payment must partake of the nature of royalties; and third, the income must be derived from sources within the Philippines. Heref respondent assails only the second requisitef i.e.f the characterization of the payments as royaltiesf but does not address the Court's finding that the paym ents were not passive income. Respondent failed to show that the administrative services and distribution fees paid by petitioner to NPI were earned outside the active pursuit of NPrs business. As the first requisite is absent such p aym ents cannot be subjected to FWT under Section 27(D)(l) of the NIRCf as amendedf regardless of their alleged characterization as royalties. o (-!) Rentals and Royalties.- Renta ls and royalties from properly loca te d i.r1 Lhe Philippines or from a ny inte rest i.r1 s uch pro perly, incl udi ng rentals o r royal ties fo r- . . . (f)Techn ica I ad vice, assis ta nee or services rende red in connection w iLh LecluLical manc1 ge m enl or admi.n islralio n of any scientific, i.r1dustria l o r comm ercial un dcJLaking, ve nture, project or sch e me: c1nd ... 7 Sectio n 27. Ra les o f lnconw Tax o n Domestic Corp o rations. (D) Rales of Tax o n Certa in Passive Incomes. - (1) lnLeresL from De posits a nd Yield o r any other Mone ta ry Benefit fr o m De p osit Subslitules a nd fro m Trusl Funds and Si.miiM Arrange me nts, a nd Royalties. - A fina l tax dt the ra le of twen ty percent (20%) is he reby im p osed upo n Lhe am o unt of i.r1terest o n curren cy bank d eposit and y ie ld or any othe r m Oill:'Lary benefit fr om dL' p osit s ubs titu tes and fro m trust funds c1nd similM arrdn ge men ls r eceived by d o m estic corpo rati ons, c1nd royalties, derived from sources w ithin the Ph ilippines: Provid ed, however, Tha t inte rest income d erived by a do m estic corpo ration fro m a dep osito ry ba nk under the expanded fo reign currency deposit system shall he s ubject Lo a final i.rKo me Lax at Lhe ra te of seven a nd one-half percent (71 / 2%) of s uch interest income ...

RESOLUTIO CTA CASE NO. 10665 Pclge 5 of 5 The collection of assessed deficiency taxes was properly enjoined. Respondent finally argues that the Court erred in enjoining the collection of the assessed deficiency taxes as p etitioner failed to show existence of a clear and unmistakable right or exh�em e urgency n ecessitating the issuance of the suspension ord er. This contention is misplaced . Commissioner of Internal Revenue v. Robinson's Convenience Stores, Inc. (RCS /)8 decreed that " ... the CTA may also suspend tax collection and waive the bond requirement as part of its ntain decision on the merits, as a necessanJ consequence of cancelling an assessment. The order of suspension forms part of the CTA's complete adjudication of the disputed assessment, not n1erely an interlocutory matter therein." Here, the Decision cancelled p etitioner's deficiency IT, VAT, EWT, and FWT assessm ents. To allow respondent to collect the sam e would render the Decision inutile and would defeat the Court's jurisdiction to afford complete relief. WHEREFORE, respondent's Motion for Reconsideration (Re: Decision promulgated 13 February 2026) filed on March 4, 2026 is DENIED. The Decision promulgated on February 13, 2026 is AFFIRMED. SO ORDERED. ~ Lt.~ -f~,()/\ ~ MARIANIVO F. RE~S-FA}ARDO Associate Justice HENRY~GELES Associate Justice s G.R. o. 259968, Aue ust 27, 2025. Emphc1scs in Lhe originc1l.