TYCO INFORMATION SOLUTIONS CORP. v. BUREAU OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY THIRD DIVISION TYCO INFORMATION SOLUTIONS CORP., CTA CASE NO. 8592 Members: Petitioner, -versus- BAUTISTA, Chairperson FASON-VICTORINO, and RINGPIS-LIBAN, JJ. BUREAU OF INTERNAL REVE NUE, Promulgated: Respondent. OCT 2 2015 X- - - - - - - - - - - - - - - - - - - - - - :---_..._-:--:--:---- ~ '2.- 1! !!�-::'.:. - - - - -X DECISION Fabon - Victorino, J .: This Petition for Review dated December 21, 2012 filed by petitioner Tyco Information Solutions Corporation assails t he Final Decision on Disputed Assessment (FDDA) dated November 16, 2012 issued by respondent Bureau of Internal Rev enue (BIR) finding it liable for deficiency income tax (IT) and value-added taxes (VAT) for the year 2006 in the amounts of P15,680,443.17 and P4,948,142.75, respectively, exclusive of increments.1 Petitioner is a domestic corporation, with principal office at 4th floor Philcox Bldg. , 172 Salcedo St. , Legaspi Village, Makati City.2 I Respondent, represented by the Commissioner of Internal Revenue (CIR), is a government agency under the Department of Finance with main office at the BIR National Office Building , Diliman, Quezon City. 1 Pre-Trial Order, docket, p. 157. 2 Petition for Rev iew, docket , p. 6.

DECISION erA case No. 8592 On September 26, 2007, petitioner received Letter of Authority No. LOA 2001 000694873 dated September 25, 2007, authorizing the examination of its books of account and other accounting records covering taxable year 2006. Petitioner also received on the same day respondent's First Request for Presentation of Records4 dated September 25, 2007. This was followed by the Second Request for Presentation of Records5 and the Final Notice6 which petitioner received on October 15, 20077 and on November 20, 20078, respectively. Respondent later issued a Notice of Informal Conference dated April 27, 2009 indicating that petitioner was liable for deficiency IT and VAT. 9 On December 18, 2009, respondent issued the Preliminary Assessment Notice (PAN) 10, assessing petitioner deficiency IT and VAT, as follows: I. INCOME TAX Taxable Income p 1 118 741.84 Add: Adjustments per Audit Disallowed Purchases (Cost of Sales) a. United Global Stylus Trading, Inc. (Schedule 1) P29 884 445.61 b. Eurosales Corporation (Schedule 2) 8,661,194.61 c. ERRB Buy and Sell Trading, Inc. (Schedule 3) 6 255 625.00 44 801 265.26 Adjusted Taxable Income p 45 920 007.10 Income Tax Due p 16 072 002.49 Less: Tax Credits: p 227 528.16 Tax Payments Creditable Tax Withheld at Source 164,031.16 391.559.32 Basic Deficiency Income Tax Due Add: SO% Surcharge p 15 680 443.17 Interest (04.16.07- 01.12.10) TOTAL AMOUNT DUE 7,840 221.58 8 609 207.70 P32 129.872.45 II. VALUE ADDED TAX j p 52 255 906.11 Taxable Receipts per VAT Returns Output Tax Due p 5,832 444.59 3 Exhibit "R-1", BIR records, p. 1. 4 Exhibits "R-2" and "R-2-b", BIR records, pp. 14 to 15. 5 Exhibit "R-3", BIR records, p. 16. 6 Exhibit "R-4", BIR records, p. 17. 7 Exhibit "R-3-B", BIR records, p. 16 8 Exhibit "R-4-B", BIR records, p. 17. 9 Exhibit "R-5", BIR records, pp. 193 to 197. 10 BIR records, pp. 220 to 224.

DEOSION erA Case No. 8592 Less: Input Tax 1"5 686 277.83 738.135.08 Inout Tax for the oeriod 4,948 142.75 11 p 5,094,309.51 Less: Disallowed In out Tax!schedule 4) 146,166.76 VAT Due Less: VAT Pavments p 4,948,142.75 VAT Due Add: 50% Surcharae 2,474 071.38 Interest !01.26.07-01.12.101 2 933 638.61 TOTAL AMOUNT DUE P10.355.852. 74 On January 21, 2010 12 petitioner received Assessment , Notices dated January 19, 2010 together with the Formal Assessment Notice (FAN) 13 with the corresponding Details of Discrepancies, reiterating petitioner's deficiency IT and VAT. On February 18, 2010, petitioner sent its protest letter dated February 16, 2010 14 to Regional Director Jaime B. Santiago. On November 26, 2012, petitioner received from respondent a Letter dated November 16, 2012 15, reiterating its alleged tax deficiency of P15,680,443.17 and P4,948,142.75 for IT and VAT, respectively, exclusive of increments. This prompted petitioner to file the instant Petition for Review on December 21, 2012. On April 10, 2013, the Court received respondent's Answer with Motion to Dismiss filed through registered mail on April 4, 2013. In the Resolution dated July 3, 2013, 16 the Court denied respondent's Motion ruling that petitioner's administrative protest was valid and the decision issued by RDO Gerry 0. Dumayas through the Letter dated November 16, 2012 is appealable to the CTA. This ruling was affirmed in the Resolution of September 11, 2013 17 which denied respondent's Motion for Reconsideration 18� I 11 1"4,948,142.74 in the FAN's Details of Discrepancies. 12 Exhibit "R-7", BIR records, p. 257. 13 Exhibit "R-6", BIR records, pp. 240 to 243. 14 Par. 3, Summary of Admitted Facts, JSF, docket, p. 144. 15 Exhibit "P-8", docket, pp. 196 to 197; Par. 4, Summary of Admitted Facts, J5F, docket, pp. 144 to 145. 16 Docket, pp. 86 to 98. 17 Resolution dated September 11, 2013, docket, pp. 113 to 116. 18 Docket, pp. 99 to 105.

DECISION erA case No. 8592 On November 25, 2013, the parties submitted their Joint Stipulation of Facts19 on the basis of which a Pre-Trial Order2� was issued on December 19, 2013. During trial, petitioner presented its President Jerick Co. 21 He testified that petitioner is engaged in the business of supplying IT products and services to its customers obtained from its suppliers. The filing of the instant case was triggered by respondent's denial of petitioner's protest against its Formal Assessments. In October, 2007, petitioner received an LOA from respondent for the examination of its books of account and other accounting records for the year 2006. After the examination, petitioner was assessed deficiency taxes due to the disallowance of purchases the supporting invoices of which failed to comply with the NIRC requirements. The purchases also appeared to be excessive, implausible, and fictitious as the suppliers were found to be fictitious. To dispute such findings, the witness presented the respective BIR Certificates of Registration and Secretary's Certificates of its suppliers to show their existence and that they had business dealings with petitioner for the supply of IT products and services. He likewise presented delivery receipts allegedly to prove that these suppliers delivered goods and services to petitioner. The addresses of these suppliers are indicated in the invoices or delivery receipts. These suppliers were referred by other players in the industry and were able to deliver the goods as required indicating that they are legitimate. He further testified that petitioner's suppliers themselves submitted letters-reply to the BIR examiner contesting the finding that their companies were fictitious. It is highly improbable that petitioner will be able to sell computer products and services amounting to more than fifty million pesos without making any purchases from such suppliers. As to the respondent's finding that the subject / purchases were excessively priced hence implausible, the 19 Docket, pp. 144 to 148. 20 Docket, pp. 157 to 162. 21 See Judicial Affidavit of Jerick Co, docket pp. 133-137

DEOSION CTA case No. 8592 witness admitted that petitioner has no evidence to show the prices of other suppliers in the market. He explained that petitioner's requirements are unique and can only be supplied by the three (3) suppliers. He is intrigued by the fact that the very same examiner who disallowed the purchases of goods and services for the year 2006 allowed similar purchases from the same three (3) suppliers for the subsequent years and held they were legitimate transactions. As authorized in the Secretary's Certificate, he caused the filing of the instant Petition. Petitioner's second witness Chong Bernard Lu, claimed that he is a businessman and Director of various businesses including World Balance Inc., Ultrasonic Broadcasting Corp., certain restaurants in Makati, and an animation studio in Timog Avenue, Quezon City. He testified that in 2006, he worked as a freelance middleman or one who scouts persons in need of certain products and looks for suppliers for that product. He earned a commission from the suppliers for every successful transaction. Petitioner was one of his clients, who, in 2006, needed IT products. Thus, he referred to it three (3) suppliers, namely, Euro Sales Corporation, United Global Stylus Corporation, and ERRV Buy and Sell Trading. He is familiar with these three (3) companies and vouched as to their existence but not as to their legitimacy. He presumed that petitioner and the three (3) suppliers had several transactions because he was paid his referral commissions. However, being a mere middleman, he could not identify any documents pertaining to their transactions. After petitioner rested, respondent presented Revenue Officer II Dominador A. Callangan, presently assigned at the National Investigation Division of the BIR but has been working in the said agency since 2003. j He was previously assigned at BIR RDO 47, East Makati. His duties included tax verification and post-audit examination of books of accounts and other accounting

DECISION erA case No. 8592 records of taxpayers to determine if any tax liability exists, and to report his findings and recommendations. Pursuant to a Letter of Authority (LOA) with Request for presentation of records, received by petitioner on September 26, 2007, he conducted an investigation of the latter's internal revenue taxes for 2006. On October 15, 2007, petitioner received from respondent a Second Request for Presentation of Records. Despite receipt of the LOA, and the two (2) requests for presentation of records, petitioner failed to comply. Thus, a Final Notice dated September 25, 2007 was sent to petitioner which it received on November 20, 2007. On April 27, 2009, a Notice of Informal Conference, detailing the bases of the finding for deficiency taxes was issued to petitioner. On December 18, 2009, a Preliminary Assessment Notice (PAN) was issued to petitioner. This was followed by a Formal Assessment Notice (FAN) dated January 19, 2010, with Assessment Notices which petitioner received on January 21, 2010. Petitioner filed an unsigned 2-page protest on February 18, 2010. After its formal offer of exhibits, respondent rested. 22 The following are the issues submitted by the parties for the resolution of the Court. 1. Whether or not the income tax and VAT assessments in the amount of P15,680,443.17 and P4,948,142.75, respectively, are valid; 2. Whether or not the assessment has become final and executory; and j 3. Whether or not the instant Petition for Review is already barred by prescription. 22 Docket, p. 145.

DEOSION erA case No. 8592 DISCUSSION/RULING Under Section 228 of the 1997 Tax Code, petitioner had 30 days to appeal respondent's denial of its protest to the CTA. 23 Perusal of the record shows that petitioner received the letter-decision with finality from RDO Gerry Dumayas on November 26, 2012. 24 In the Resolution25 dated July 3, 2013, this Court already ruled that the said letter dated November 16, 2012 issued by RDO Gerry Dumayas, is appealable to the CTA. The Court explained in this wise: "There is no doubt that a Regional Director of the BIR, as a duly authorized representative of the CIR, may authorize the assessment of taxpayers for deficiency tax. The record reveals that Regional Director Jaime B. Santiago caused the issuance of the Final Assessment Notice (FAN) dated January 19, 2010. He also informed petitioner that the entire docket, together with the protest letter dated February 16, 2010, would be forwarded to RDO No. 47 East Makati headed by RDO Gerry Dumayas for further verification, evaluation and necessary action. Clearly, RDO Gerry Dumayas merely exercised his delegated authority to rule upon the protest letter in compliance to the directive of his superior. Significantly, the decision denying petitioner's protest clearly and categorically states that the same is final and appealable to the CTA within 30-days from date of receipt; otherwise, the subject deficiency assessment becomes final, executory and demandable. Finally, in the absence of any clear repudiation of authority by Regional Director Jaime B. Santiago, it is 23 Fishwealth Canning Corporation vs. Commissioner of Internal Revenue, G.R. No. 179343, / January 21, 2010 24 Exhibit "P-8", docket, pp. 196 to 197; Par. 4, Summary of Admitted Facts, JSF, docket, pp. 144 to 145. 25 Docket, pp. 86 to 98.

DECISION CTA case No. 8592 safe to conclude that RDO Gerry Dumayas was duly authorized to issue the assailed decision."26 Accordingly, petitioner had thirty (30) days from November 26, 2012 or until December 26, 2012 to appeal to the CTA the adverse decision of respondent. Thus, the instant Petition for Review was seasonably filed on December 21, 2012. We now determine the merit of petitioner's repudiation of his alleged liability for deficiency income tax and deficiency VAT in the amount of P15,680,443.17 and P4,948,142.75, respectively, for the year 2006. Respondent assessed petitioner for alleged deficiency income tax and VAT, inclusive of surcharge and interest, in the aggregate amount of P42,949,161.91, computed as follows: Deficiency income tax p 32,482,145.42 Deficiency VAT 10,467,016.49 TOTAL P42,949,161.91 I. Deficiency Income Tax- P32,482,145.42 The alleged deficiency income tax in the amount of P32,482,145.4227, inclusive of interest is broken down as follows: Taxable Income P29 884 445.61 p 1 118 741.84 Add: Adjustments per Audit 8 661 194.65 44 801 265.26 Disallowed Purchases (Cost of Sales) 6 255 625.00 P45,920,007 .10 a. United Global Stylus Trading, Inc. (Schedule 1) b. Eurosales Corporation (Schedule 2) c. ERRB Buy and Sell Trading, Inc. (Schedule 3) Adjusted Taxable Income Income Tax Due P16,072,002.49 Less: Tax Credits p Tax Payments Creditable Tax Withheld at Source 227,528.16 Basic Deficiency Income Tax Due 164 031.16 391 559.32 26 Docket, p. 97. 27 Exhibit "R-6", BIR records, pp. 240 to 243. / p 15680443.17

DECISION CTA Case No. 8592 Add: 50% Surcharge 7 840 221.58 Interest (04.16.07- 02.22.10) 8 961 480.67 TOTAL AMOUNT DUE P32,482,145.42 Pursuant to Section 34 of the NIRC of 1997, as amended, and the invoicing requirements under existing tax laws and implementing guidelines, respondent disallowed as expense deductions the purchases made by petitioner from the following suppliers: Disallowed Purchases P44,801,265.26 a. United Global Stylus Trading, Inc. 29,884,445.61 b. Eurosales Corporation 8,661,194.65 c. ERRB Buy and Sell Trading, Inc. 6,255,625.00 The disallowance was based on the finding that petitioner failed to substantiate its alleged several purchases from United Global Stylus Trading, Inc., Eurosales Corporation, and ERRB Buy and Sell Trading Inc. The sales invoices it presented were unsigned by the alleged suppliers and there were no official receipts (ORs), delivery receipts (DRs), etc. evidencing transactions to justify the claimed expense deduction. As to respondent's theory that some of petitioner's purchases from United Global Stylus Trading, Inc. were made before the issuance of the Permit to Print, and the cost of Ecquaria SOP and ERS Software Licenses and four CPU Licenses in the amount of P19,180,500.00 was excessive and implausible, thus, the conclusion that the afore- mentioned suppliers were fictitious and non-existent entities, suffice it to say that he who alleges fraud or mistake affecting a transaction must substantiate his allegation, since it is presumed that a person takes ordinary care of his concerns and that private transactions have been fair and regular. 28 Fraud is never presumed but must be proved by clear and convincing evidence, mere preponderance of evidence not even being adequate. 29 Intentional acts to deceive and deprive another of his right, or in some manner / injure him must be specifically alleged and proved by the 28 Spouses Ramos vs. Raul Obispo and Far East Bank and Trust Company, G.R. No. 193B04, February 27, 2013 29 Francisco Alonso (Deceased). Substituted By Mercedes V. Alonso, Tomas V. Alonso And Asuncion V. Alonso vs. Cebu Country Club, Inc., G.R. No. 130876, December 05, 2003

DEOSION CTA Case No. 8592 plaintiff by clear and convincing evidence.30 In this regard, respondent utterly failed. Respondent's contention that the BIR's investigating officers visited the business address of United Global Stylus Trading, Inc. and discovered that no such business entity in the given address; that verification, particularly from the Securities and Exchange Commission (SEC) showed that such entities/suppliers were bogus or fictitious, likewise failed to convince the Court that petitioner's transactions with the three suppliers were clothed with fraud or deceit. Neither testimonial nor documentary evidence was presented by respondent to prove the existence of fraud in the purchases made by petitioner, except its self-serving claim in the Formal Assessment Notice with Details of Discrepancies31 and the Notice of Informal Conference. 32 Notably, respondent did not present the BIR investigating officers who allegedly visited the suppliers' given addresses to verify their existence. Further, not a single document was adduced to support the contention that the BIR investigating officer gathered information from the SEC showing that petitioner's suppliers were bogus. In fine, there are no factual and legal bases to hold that petitioner's subject transactions with its suppliers during the pertinent period are fraudulent. On the issue of whether the purchases made by petitioner from its suppliers are allowable deductions, Section 34(A){l)(b) of the NIRC of 1997, as amended, is instructive, to wit: "SEC. 34. Deductions from Gross Income. - xxx (A) Expenses. - J (1) Ordinary and Necessary Trade, Business or Professional Expenses. 30 Heirs of Salvador Hermosilla, Namely: Adelaida H. Dolleton, Ruben Hermosilla, Lolita H. De La Vega, Erlinda H. Inovio, Celia H. Vivit, Zenaida H. Achoy, Precilla H. Limpiahoy, and Edgardo Hermosilla vs. Spouses Jaime Remoquillo and Luz Remoquillo, G.R. NO. 167320, January 30, 2007 31 Exhibit "R-6", docket, pp. 237 to 239. 32 Exhibit "R-5", docket, pp. 193 to 197.

DECISION erA Case No. 8592 XXX XXX XXX (b) Substantiation Requirements. No deduction from gross income shall be allowed under Subsection (A) hereof unless the taxpayer shall substantiate with sufficient evidence, such as official receipts or other adequate records: (i) the amount of the expense being deducted, and (ii) the direct connection or relation of the expense being deducted to the development, management, operation and/or conduct of the trade, business or profession of the taxpayer." (Emphasis supplied) For purposes of deduction of ordinary and necessary trade, business, or professional expenses, the following requisites must concur: (a) the expense must be ordinary and necessary; (b) it must have been paid or incurred during the taxable year; (c) it must have been paid or incurred in carrying on the trade or business of the taxpayer; and (d) it must be supported by receipts, records or other pertinent papers. 33 Thus, to meet the requirements of the law, the taxpayer seeking allowance of such deduction, such as petitioner, must present official receipts or invoices of its transactions. 34 Moreover, no deduction from gross income shall be allowed unless the taxpayer can substantiate with sufficient evidence the amount of expense being deducted, and the direct connection or relation of the expense being deducted to the development, management, operation and/or conduct of the trade, business or profession of the taxpayer. A revisit of the evidence presented shows that some of petitioner's purchases were sufficiently substantiated by sales invoices and delivery receipts, 35 as shown below: / 33 Commissioner of Internal Revenue vs. Isabela Cultural Corporation, G.R. No. 172231, February 12, 2007. 34 H. Tambunting Pawnshop, Inc. vs. Commissioner of Internal Revenue, G.R. No. 173373, July 29, 2013. 35 Exhibits "P-12" to "P-32", docket, pp. 201 to 221.

DEOSION erA case No. 8592 Description Sales Delivery Exhibit Amount Invoice Receipt No.36 No. No. Purchases made from Eurosales Corporation 106 units of Wyse Terminal S30 with 058237 0203 P-12 p 2,221,064.29 keyboard, mouse and rapport enterprise 060838 upqrade 225839 0213 P-13 40,219.64 2 Units Wyse Terminal S30 with 226340 0224 P-14 1,138,392.86 keyboard and mouse 227941 0233 P-15 3, 776,785.71 1 lot Online Local Chief Executive 228942 System Software 0243 P-16 761,517.86 1 lot DILG Uniformed and Non- Uniformed Personnel Information 0250 P-17 723,214.29 System 1 lot Thin Client System Solution with implementation configuration on site support and software maintenance 1 lot Project Management Tools, Materials and Services Subtotal p 8,661,194.65 Purchases made from United Global Stylus Trading, Inc. 44 Units Wyse Terminals S30 with 644843 1517 P-21 p 926,383.93 keyboard and mouse, powercord with 655144 1522 rapport software licenses 935045 1537 P-22 2,112,098.21 100 Units Wyse Terminals S30 with 655646 1527 keyboard and mouse, powercord with P-23 291,385.71 rapport software licenses 934247 1532 P-24 1,379,464.29 5 Users Prepalms Software including installation and software maintenance 935748 1542 . 100 Units Wyse Terminals 3150SE with P-25 .... 3,013,656.25 keyboard, mouse and power cord with Propalms Software License for 30 Users P-26 I 229,004.46 Hewlett Packard, ML 150 servers, 1 CPU 1 GB Ram with Samsunq monitors 1 Lot Aware DMA Document Management and Document Imaging software and high speed scanner mode 1260 including software maintenance for two years, technical support, professional services and traininq 2 Units Sony Vaio laptop notebooks intel 36 Docket, pp. 201 to 221. 37 BIR records, p. 145. 38 BIR records, p. 144. 39 BIR records, p. 122. 40 BIR records, p. 121. 41 BIR records, p. 120. 42 BIR records, p. 119. 43 BIR records, p. 148. 44 BIR records, p. 147. 45 BIR records, p. 130. 46 BIR records, p. 146. 47 BIR records, p. 131. 48 BIR records, p. 129.

DEOSION CTA Case No. 8592 2 core duo 2 GB ram with bag, dvd 936349 1549 P-27 531,998.21 writer 3 Units AMD workstation wf 17 inch monitor, 1 GB memory external dvd writer, 1 Unit external dvd writer, 3 Units Intel Pentium D. duo core, 1 GB ram, 80 GB hard disk drive and 5 Users Microsoft Windows Server 2003 with CAL and TS CAL and Oracle Database Software Subtotal p 8,483,991.06 Purchases made from ERRB Buy & Sell Trading, Inc. 1 Lot Statement of Assets and Liabilities 830550 1810 P-28 p 3,044,642.86 Software 8313 51 1818 P-29 1,665,178.57 1 Lot DILG Legal Service System 831652 1825 P-30 1,392,857.14 Software 1 Lot LGEMIS, Local Government 8323 53 1834 P-31 85,267.86 Executive Management Information System Software 833454 1843 P-32 67,678.57 4 Units Wyse Terminal S90 with keyboard, mouse, powercord and mounting bracket 5 Units Wyse Terminal S30 with keyboard, mouse and powercord Subtotal p 6,255,625.00 Total P23,400,8l0.7l However, some of the purchases were made before the BIR Authority to Print was issued, hence, shall be disallowed, detailed as follows: Date of Date of Sales Amount transaction issuance of the Invoice BIR Authority January3, 2006 641655 p 17 436,818.18 January 15, to Print 6423 56 3,928,181.82 2006 January 25 2006 January 20, January 25, 2006 643057 35,454.55 2006 January 25, 2006 Total P21,400,454.55 49 BIR records, p. 128. 50 BIR records, p. 127. 51 BIR records, p. 126. 52 BIR records, p. 125. 53 BIR records, p. 124. 54 BIR records, p. 123. 55 BIR records, p. 151. 56 BIR records, p. 150. 57 BIR records, p. 149.

DECISION CTA Case No. 8592 With the disallowed purchases in the amount of P21,400,454.55, together with the declared taxable income, petitioner shall be held liable for basic deficiency income tax, computed as follows: Taxable income p 1,118,741.84 Add: Adjustments per investigation 21,400,454.55 Disallowed Purchases P22,519,196.39 Taxable income per investigation Income tax due thereon p 7,881,718.73 Less: Allowable tax credits/payments Payments 1'227,528.16 Creditable Tax Withheld at Source 164,031.16 391,559.32 Deficiency Income Tax p 7,490,159.41 II. Deficiency Value-added Tax- P10,467,016.49 Respondent computed the deficiency VAT assessment of P10,467,016.49 as follows: 58 Taxable Receipts per VAT Returns p 52,255,906.11 p 5 832 444.59 Output Tax Due Less: Input Tax p 5,686 277.83 738,135.08 4,948, 142.7559 p 5 094,309.51 Input Tax for the period Less: Disallowed Input Tax 146,166.76 VAT Due p 4,948,142.75 Less: VAT Payments VAT Due 2,474,071.38 Add: 50% Surcharge 3,044,802.36 Interest (01.26.07-02.22.10) P10,467,016.49 Total Amount Due Respondent disallowed petitioner's claimed input taxes for purchases of goods from fictitious suppliers in the amount of P4,948,142.75, pursuant to Sections 110 and 113(A) and (B) of the NIRC of 1997, as amended. However, respondent failed to prove the presence of fraud in the purchases made by petitioner from its suppliers, 1 uJ thus, the input tax claimed by petitioner should be allowed, broken down as follows: 58 Exhibit "R-7", BIR records, p. 255. 59 P4,948,142.74 in the FAN's Details of Discrepancies.

DECISION CTA Case No. 8592 Description Sales Delivery Exhibit Input Tax Invoice Receipt No.60 No. No. Purchases made from Eurosales Corporation 106 units of Wyse Terminal S30 with 0582 0203 P-12 p 266,527.71 keyboard, mouse and rapport enterprise upgrade 0608 0213 P-13 4,826.36 2 Units Wyse Terminal S30 with keyboard 2258 0224 P-14 136,607.14 and mouse 2263 0233 P-15 453,214.29 1 lot Online Local Chief Executive System 2279 0243 P-16 Software 91,382.14 1 lot DILG Uniformed and Non-Uniformed 2289 Personnel Information System 0250 P-17 86,785.71 1 lot Thin Client System Solution with implementation configuration on site support and software maintenance 1 lot Project Management Tools, Materials and Services Subtotal p 1,039,343.35 Purchases made from United Global Stylus Trading, Inc. Ecquaria SOP and ERS Software Licenses, 6416 1517 P-21 p 1,743,681.82 4 CPU License 6423 1522 P-22 Tarantella Software License for 250 users 6430 1537 392,818.18 Tarantella Software License for 10 users 6448 1527 3,545 45 44 Units Wyse Terminals S30 with 6551 keyboard and mouse, powercord with 9350 1532 111,166.07 rapport software licenses 6556 1542 253,451.79 100 Units Wyse Terminals S30 with 9342 1549 keyboard and mouse, powercord with P-23 34,966.29 rapport software licenses 9357 P-24 165,535.71 5 Users Prepalms Software including 9363 installation and software maintenance P-25 361,638.75 100 Units Wyse Terminals 3150SE with keyboard, mouse and power cord with P-26 27,480.54 Propalms Software License for 30 Users P-27 63,839.79 Hewlett Packard, ML 150 servers, 1 CPU 1 GB Ram with Samsung monitors ' J 1 Lot Aware DMA Document Management and Document Imaging software and high speed scanner mode 1260 including software maintenance for two years, technical support, professional services and traininq 2 Units Sony Vaio laptop notebooks intel 2 core duo 2 GB ram with baq, dvd writer 3 Units AMD workstation w/ 17 inch monitor, 1 GB memory external dvd writer, 1 Unit external dvd writer, 3 Units Intel Pentium D. duo core, 1 GB ram, 80 GB hard disk drive and 5 Users Microsoft 60 Docket, pp. 201 to 221.

DECISION CTA Case No. 8592 Windows Server 2003 with CAL and TS CAL and Oracle Database Software Subtotal p 3,158,124.39 Purchases made from ERRS Buy & Sell Trading, Inc. 1 Lot Statement of Assets and Liabilities 8305 1810 P-28 p 365,357.14 Software 8313 1818 1 Lot DILG Legal Service System 8316 1825 P-29 199,821.43 Software 1 Lot LGEMIS, Local Government 8323 P-30 167,142.86 Executive Management Information System Software 8334 1834 P-31 10,232.14 4 Units Wyse Terminal S90 with keyboard, mouse, powercord and 1843 P-32 8,121.43 mounting bracket 5 Units Wyse Terminal S30 with keyboard, mouse andpowercord Subtotal p 750,675.00 Total P4,948,142.74 The Court however disallowed certain transactions between petitioner and United Global Stylus Trading, Inc. on January 3, 2006, January 15, 2006 and January 20, 2006 for inability to substantiate them, the disallowance of input VAT in the amount of P2,140,045.45 should be upheld, as shown below: Purchases made from United Global Stylus 641661 p 1,743,681.82 Trading, Inc. 642362 392,818.18 Ecquaria SOP and ERS Software Licenses, 4 6430 3,545.45 CPU License Tarantella Software License for 250 users P2,140,04S.4S Tarantella Software License for 10 users Total Disallowed input VAT Also, input VAT in the amount of P1,531,558.61 from purchases of services by petitioner shall be disallowed, pursuant to Section 110(A)(1)(b) in relation to 113(A)(2) of the NIRC of 1997, as amended, for failure of petitioner to submit the corresponding official receipts, as follows: Description Sales Input Tax Invoice No. I Purchases made from Eurosales Corporation 1 lot Online Local Chief Executive System 2258 p 136 607.14 61 BIR records, p. 151. 62 BIR records, p. 150

DEOSION CfA Case No. 8592 Software 1 lot DILG Uniformed and Non-Uniformed 2263 453,214.29 Personnel Information System 1 lot Thin Client System Solution with 2279 91,382.14 implementation configuration on site support and software maintenance 1 lot Project Management Tools, Materials and 2289 86,785.71 Services Subtotal p 767,989.28 Purchases made from United Global Stylus Trading, Inc. 5 Users Prepalms Software including 9350 p 34,966.29 installation and software maintenance 1 Lot Aware DMA Document Management and 9342 361,638.75 Document Imaging software and high speed scanner mode 1260 including software maintenance for two years, technical support, professional services and training Subtotal p 396,605.04 Purchases made from ERRB Buy & Sell Trading, Inc. 1 Lot DILG Legal Service System Software 8313 p 199,821.43 167,142.86 1 Lot LGEMIS, Local Government Executive 8316 p 366,964.29 Management Information System Software P1,531,558.61 Subtotal Total Accordingly, the total amount of P4,948,142.74 input tax disallowed by respondent shall be reduced to P3,671,604.06.63 The remaining amount of P1,276,538.68 represents petitioner's valid input tax creditable against its output tax due for year 2006. Thus, petitioner is liable to pay basic deficiency VAT in the amount of P3,671,604.06, computed as follows: Taxable Receipts per VAT Returns p 52,255 906.11 Output Tax Due p 5,832 444.59 Less: Input Tax p 2,014 673.77 Input Tax Claimed per Return 5,686,277.83 p 3,817,770.82 Less: Disallowed Input Tax 3 671,604.06 Output Tax Payable I 146,166.76 Less: Payments per return Deficiency VAT p 3,671,604.06 63 Sum of P1,531,558.61 and P2,140,045.45.

DECISION CTA Case No. 8592 Finally, in the absence of fraud, the imposition of fifty percent (50%) surcharge on the alleged deficiency income tax and VAT is deemed unfounded and without legal basis pursuant to Section 248(8) of the NIRC of 1997, as amended. WHEREFORE, the Petition for Review dated December 21, 2012 filed by Tyco Information Solutions Corp. is PARTIALLY GRANTED. The assessment issued by respondent against petitioner for taxable year 2006 covering deficiency income tax and value-added tax is hereby MODIFIED. Accordingly, petitioner is ORDERED TO PAY the amount of THIRTEEN MILLION NINE HUNDRED FIFTY- TWO THOUSAND TWO HUNDRED FOUR PESOS AND THIRTY- FOUR CENTAVOS (1'>13,952,204.34) representing deficiency income tax and value-added tax for taxable year 2006, inclusive of the twenty-five percent (25%) surcharge imposed under Section 248(A)(3) of the NIRC of 1997, as amended, computed as follows: 25% Deficiencv Tax Basic Tax Surcharge Total Income Tax p 9 362 699.26 Value-added Tax p 7 490,159.41 p 1,872 539.85 Total 4,589 505.08 3,671,604.06 917,901.02 P13.952.204.34 P11.161.763.47 P2.790.440.87 In addition, petitioner is hereby ORDERED TO PAY: a) Deficiency interest at the rate of twenty percent (20%) per annum on the basic deficiency income tax and value-added tax computed from the dates indicated below until full payment thereof pursuant to Section 249(8) of the NIRC of 1997, as amended; Income Tax Basic Tax 20Dfo Deficiency Value-added Tax P7.490 159.41 Interest Computed 1>3,671,604.06 from Aoril 15. 2007 January 25, 2007 b) Delinquency interest at the rate of 20% per annum on the total amount of P13,952,204.34 and on the 20% deficiency interest which have accrued as afore-stated in (a), computed from November 26, 2012 until full payment / thereof pursuant to Section 249(C) of the NIRC of 1997, as amended.

DEOSION CTA Case No. 8592 SO ORDERED. . FABON-VICTORINO We concur: LOVELL R. BAUTISTA ~- ~ ~ L_' Associa e Justice (With Concurring and Dissenting Opinion) MA. BELEN M. RINGPIS-LIBAN Associate Justice ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. R. BAUTISTA hairperson 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. Presiding Justice

REPUBLIC OF T H E PHILIPPINES COURT OF TAX APPEALS QUEZON CITY En Ban e TYCO INFORMATION CTA Case No. 8592 SOLUTIONS CORP., M embers: P e tition er, BAUTISTA, Chairperson FABON-VICTORIN O, - versus- and RINGPIS-LIBAN, JL BUREAU OF INTERNAL P romulgated: REVENUE , OCT 2 2015 Respondent. ~2,.:/.!!,-r� ..... � X--------------------------------------------------------------------------------------------------------X CONCURRING & DISSENTING OPINION RINGPIS-LIBAN, l : With all due respect to the ponencia of my esteemed colleague, the Honorable Associate Justice Esperanza R. Pabon-Victorino, I concur with the majority decision partially granting the Petition for Review. However, on the point of imposing deficiency interest under Section 249(B), I am of the opinion that this should extend only up to the time when the taxpayer is required to pay the assessed tax after being informed thereof; and that the imposition of the delinquency interest under Section 249(B) shall commence from the time when the concerned taxpayer failed to pay the assessed tax within the time allowed as stated in the formal letter of demand. O therwise, the deficiency interest would be allowed to accrue at the same time that the delinquency interest begins to accrue, which will result in an unduly harsh, even usurious, 40% interes t rate per annum, and be an absurd application of law. Furthermore, a perusal of the N IRC of 1997, as amended shows that the term "deficiency" was defined in only three (3) types of internal revenue taxes: namely, income tax, estate tax and donor's tax, pursuant to Sections 56(B), 93 and 104 of the N IRC of 1997, as amended. T herefore, deficiency interest under Section 249(B) of the N IRC of 1997, as amended, should be applied only where there is a deficiency income tax, deficiency estate tax and deficiency donor's taxr'

Page 2 Concurring & Dissenting Opinion CTA Case No. 8592) x------------------------------------------------x In the case at bar, except for deficiency income tax, no deficiency interest may be imposed on the deficiency VAT. Based on the foregoing, I vote to PARTIALLY GRANT the Petition for Review in CTA Case No. 8592, however, that petitioner be ORDERED TO PAY deficiency interest only on its deficiency income tax, and not on its deficiency VAT, and only up to the time when the taxpayer is required to pay the assessed tax after being informed thereof. Further, that the imposition of delinquency interest under Section 249(B) shall commence from the time when petitioner failed to pay the assessed tax within the time allowed as stated in the formal letter of demand. ON.~~~ MA. BELEN M. RINGPIS-LIBAN Associate Justice