MARKET STRATEGIC FIRM, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF T AX APPEALS QUEZON CITY SECOND DIVISION MARKET STRAT EGIC FIRM, CTA CASE No. 9280 I NC., Pe titioner, Members: -versus- CASTANEDA, JR., Chairperson, MINDARO- GRULLA, and BACORRO- VILLENA, JJ. COMMISSION ER OF I NTE RNAL REV ENUE, Promulgat e dFE�B10 2020L Respondent. Y x----------------------------------------------------------I�-=-3--�--�-�XM � DECISION MI NDA RO-GRULLA, J.: Submitted for Decision on May 10, 2019 is a Petition for Review1 filed by petitioner Market Strategic Firm, Inc. (MSFI) on March 3, 2016, pursuant to Section 7(a)(1f of Republic Act (RA) No. 1125,3 as amended, as well as Section 3(a)(1)4 of Rule 4 and Section 4(a)5 of Rule 8 of the Revised 1 Vol. I, pp. 10-162 . 2 Sec. 7 . Jurisdiction . -The CTA sha ll 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 cha rg es, penalties in relation t hereto, or other matters a ri sing under the National I nternal Revenue Code or other laws administered by the Bureau of Internal Revenue; XXX 3 Act Creating the Court of Tax Appeals. 4 Sec. 3. Cases within the ju risdiction of the Court in Division.- The Court in Division shall exercise: L

Market Strategic Firm, Inc. vs. CIR Page 2 of 35 CTA Case No. 9280 DECISION Rules of the Court of Tax Appeals, as amended, to review and set aside the Denial rendered by Commissioner Kim S. Jacinto-Henares on the Motion for Reconsideration on the Final Decision on Disputed Assessments (FDDA). Respondent is being sued in her official capacity as the CIR, having been duly appointed to exercise the powers and perform the duties of her office including, inter alia, the power to decide disputed assessments, refunds of internal revenue taxes, fees and other charges, penalties imposed in relation thereto, or other matters arising under the Tax Code. Respondent holds office and may be served with summons, notices and other processes of this Court at the 5th Floor, Bureau of Internal Revenue National Office Bldg, BIR Road, Diliman, Quezon City. On September 20, 2011, Respondent, through Mr. Alfredo V. Misajon, then Officer in Charge-Assistant Commissioner for Large Taxpayers Service, issued Letter of Authority No. 116-2011-000000506 against Petitioner to examine its books of accounts and other accounting records for all internal revenue taxes for the period from January 1 to December 31, 2010. After undergoing audit procedure, on September 15, 2014, Respondent, through Nestor S. Valeroso, Officer in (a) Exclusive original over or appellate jurisdiction to review by appeal the following: (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue. 5 Sec. 4. Where to appeal; mode of appeal.- (a) An appeal from a decision or ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or claim for refund of internal revenue taxes erroneously or illegally collected, the decision or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade & Industry, the Secretary of Agriculture, and the Regional Trial Court in the exercise of their original jurisdiction, shall be taken to the Court by filing before it a petition for review as provided in Rule 42 of the Rules of Court. The Court in Division shall act on the appeal. 6 BIR Records, p. 1. L

Market Strategic Firm, Inc. vs. CIR Page 3 of 35 CTA Case No. 9280 DECISION Charge-Assistant Commissioner for Large Taxpayers Service, issued a Formal Letter of Demand/Assessment Notice7 against Petitioner for alleged deficiency taxes, penalties and interests in relation to taxable year 2010 as follows: (a) Income Tax (IT) in the amount of Php3,303, 769,658.39; (b) Value Added Tax (VAT) in the amount of Php1,457 ,842,274.38; (c) Expanded Withholding Tax (EWT) in the amount of Php10,043,621.96; (d) Withholding Tax on Compensation (WTC) in the amount of Php3, 764,838. 00 (e) Unremitted Withholding Tax on Compensation in the amount of P113, 983.52; and (f) Improperly Accumulated Earnings Tax in the amount of P4,707,219.63. However, on September 14, 2015, Petitioner received the FDDA8 signed by Assistant Commissioner Nestor S. Valeroso, denying Petitioner's protest in part and found the Petitioner liable for alleged deficiency taxes, penalties and interests in relation to taxable year 2010 as follows: Basic Tax Income tax VAT EWT WTC Total Add: 611 584 501.21 315 655 720.92 4 697 746.00 58 436.52 931 996 404.65 Surcharge 157,827,860.46 157,827,860.46 Interest 536,183,672.00 4,347,667.00 54,081.00 290,647,641.00 831,233,061.00 & 1, 147,768,173.21 9,045,413.00 112,517.52 764,131,222.38 1,921,057,326.11 Penalties Total Thereafter, petitioner filed its Motion for Reconsideration9 on October 14, 2015. However, on February 2, 2016, Respondent Commissioner Kim S. Jacinto- Henares rendered a denial 10 of the Motion and reiterated its assessment in the FDDA. 7 Exhibit "R-11", BIR Records, pp. 565-597. 8 Exhibit "R-14", Ibid., pp. 1633-1662. 9 Exhibit "P-31", Ibid., pp. 1663-1758. 10 Exhibit "R-17", Ibid., p. 1764. !

Market Strategic Firm, Inc. vs. CIR Page 4 of 35 CTA Case No. 9280 DECISION Hence, this Petition for Review was filed. On May 24, 2016, an Answer11 was filed by the CIR. The CIR's Pre-Trial Brief12 was filed on July 14, 2016, while MSFI's Pre-Trial Brief13 was filed on July 18, 2016. The parties filed their Joint Stipulation of Facts and Issues (JSFI) 14 on August 5, 2016. On August 31, 2016, 15 the Court granted the commissioning of Mr. Prudencio F. Tatunay, Jr. as the Independent Certified Public Accountant (!CPA) in this case. MSFI presented witnesses Ms. Consuela 0. Cadelina and Ms. Mary Rose V. Nunez on August 31, 2016, 16 Ms. Russel M. Elemia on September 26, 2016, 17 Ms. Kathleen L. Cheng on October 17, 2016/8 Ms. Annalyn E. Cayetano on November 14, 2016, 19 Mr. Prudencio Tatunay on December 14, 201620 and Ms. Hazel Ann. F. Hapin on February 13, 2017. 21 On March 6, 2017, MSFI filed its Formal Offer of Evidence.ZZ MSFI's documentary exhibits are as follows: Exhibit Description P-1 Letter of Denial issued and signed by Commissioner of Internal Revenue Kim S. Jacinto-Henares, and received by the Petitioner on February 2, 2016 11 Dockets, Vol. II, pp. 758-774. 12 Ibid., pp. 790-797. 13 Ibid., pp. 815-822. 14 Dockets, Vol. III, pp. 1202-1211. 15 Order, Ibid., p. 1258. 16 Minutes of the hearing, Ibid., p. 1257. 17 Minutes of the hearing, Ibid., p. 1406. 18 Minutes of the hearing, Dockets, Vol. V, p. 2053. 19 Minutes of the hearing, Ibid., p. 2338. 20 Minutes of the hearing, Ibid., p. 2408. 21 Minutes of the hearing, Dockets, Vol. VI, p. 2546. 22 Dockets, Vol. VI, pp. 2563-2604, excluding the attachments. l

Market Strategic Firm, Inc. vs. CIR Page 5 of 35 CTA Case No. 9280 DECISION P-2 Final Decision on Disputed Assessment P-2-a Details and Discrepancies Assessment Notice P-2-b toP- Schedules 2-e Final Decision on Disputed Assessment (Part II) all issued by Mr. Nestor S. Valeroso, ore-Assistant P-2-f toP- Commissioner for Large Taxpayers Service on 2-k September 10, 2015 Letter of Authority No. 116-2011-00000050, issued P-2-1 on September 20, 2011, for the examination of Petitioner's books of accounts and other accounting P-3 records for all internal revenue taxes for the period from January 1 to December 31, 2010 P-4 Formal Letter of Demand with Details of Discrepancies P-4-a Assessment Notices, Schedules all issued by Mr. Nestor S. Valeroso, ore- P-4-b toP- Assistant Commissioner for Large Taxpayers Service on September 15, 2014 4-g Protest Letter to the Formal Letter of Demand, filed by Petitioner on October 13, 2014 P-4-h toP- Petitioner's Monthly Terminal Accountability Report 4-m for Sucat Branch: P-5 January 2010 February 2010 P-6-A-1 March 2010 P-6-A-2 April 2010 P-6-A-3 May 2010 P-6-A-4 June 2010 P-6-A-5 July 2010 P-6-A-6 August 2010 P-6-A-7 September 2010 P-6-A-8 October 2010 P-6-A-9 November 2010 P-6-A-10 December 2010 P-6-A-11 P-6-A-12 t.

Market Strategic Firm, Inc. vs. CIR Page 6 of 35 CTA Case No. 9280 DECISION P-6-B-1 Petitioner's Monthly Terminal Accountability Report P-6-B-2 for Fairview Branch: P-6-B-3 January 2010 P-6-B-4 February 2010 P-6-B-5 March 2010 P-6-B-6 April 2010 P-6-B-7 May 2010 P-6-B-8 June 2010 P-6-B-9 July 2010 P-6-B-10 August 2010 P-6-B-11 September 2010 P-6-B-12 October 2010 November 2010 P-6-C-1 December 2010 P-6-C-2 Petitioner's Monthly Terminal Accountability Report P-6-C-3 for Lucena Branch: P-6-C-4 January 2010 P-6-C-5 February 2010 P-6-C-6 March 2010 P-6-C-7 April 2010 P-6-C-8 May 2010 P-6-C-9 June 2010 P-6-C-10 July 2010 P-6-C-11 August 2010 P-6-C-12 September 2010 October 2010 P-6-D-1 November 2010 P-6-D-2 December 2010 P-6-D-3 Petitioner's Monthly Terminal Accountability Report for Calamba Branch: P-7 October 2010 November 2010 P-8-1 December 2010 Petitioner's Supplementary Information Required P-8-1-1 Under Revenue Regulation 15-2010 for year ended December 31, 2010 or Supplemental Information to P-8-2 Terminal Accountability Report Monthly Remittance Return of Creditable Income P-8-2-1 Taxes Withheld (Expanded) for the Month of January 2010 Monthly Alphalist of Payees for the Month of January 2010 Monthly Remittance Return of Creditable Income Taxes Withheld (Expanded) for the Month of February 2010 Monthly Alpha list of Payees for the Month of February 2010 l

Market Strategic Firm, Inc. vs. CIR Page 7 of 35 CTA Case No. 9280 DECISION P-8-3 Monthly Remittance Return of Creditable Income Taxes Withheld (Expanded) for the Month of March P-8-3-1 2010 P-8-4 Monthly Alphalist of Payees for the Month of March 2010 P-8-4-1 Monthly Remittance Return of Creditable Income P-8-5 Taxes Withheld (Expanded) for the Month of April 2010 P-8-5-1 Monthly Alphalist of Payees for the Month of April P-8-6 2010 Monthly Remittance Return of Creditable Income P-8-6-1 Taxes Withheld (Expanded) for the Month of May P-8-7 2010 Monthly Alphalist of Payees for the Month of May P-8-7-1 2010 P-8-8 Monthly Remittance Return of Creditable Income Taxes Withheld (Expanded) for the Month of June P-8-8-1 2010 P-8-9 Monthly Alphalist of Payees for the Month of June 2010 P-8-9-1 Monthly Remittance Return of Creditable Income P-8-10 Taxes Withheld (Expanded) for the Month of July 2010 P-8-10-1 Monthly Alphalist of Payees for the Month of July P-8-11 2010 Monthly Remittance Return of Creditable Income P-8-11-1 Taxes Withheld (Expanded) for the Month of August P-8-12 2010 Monthly Alphalist of Payees for the Month of August 2010 Monthly Remittance Return of Creditable Income Taxes Withheld (Expanded) for the Month of September 2010 Monthly Alpha list of Payees for the Month of September 2010 Monthly Remittance Return of Creditable Income Taxes Withheld (Expanded) for the Month of October 2010 Monthly Alpha list of Payees for the Month of October 2010 Monthly Remittance Return of Creditable Income Taxes Withheld (Expanded) for the Month of November 2010 Monthly Alpha list of Payees for the Month of November 2010 Monthly Remittance Return of Creditable Income L

Market Strategic Firm, Inc. vs. CIR Page 8 of 35 CTA Case No. 9280 DECISION P-8-12-1 Taxes Withheld (Expanded) for the Month of P-9 December 2010 Monthly Alpha list of Payees for the Month of P-9-1/P- December 2010 28 Petitioner's Annual Information Return of Creditable Income Taxes Withheld (Expanded)/Income P-9-2 Payments Exempt from Withholding Taxes for CY P-10-a 2010 (BIR Form 1604-E) Petitioner's Schedule of Expanded Taxes Payable for P-10-b the Year 2010, with "Rundate: 02/24/2011 and Runtime:09:30:54 to 09:30:57" (Schedule 4 of BIR P-10-b-1 Form 1604-E: Alpha list of Payees subject to P-10-b-2 Expanded Withholding Tax) P-10-b-3 Filing Reference No. 004-563-344-000 for CY 2010 (BIR Form 1604-E) P-10-c Monthly Remittance Return of Income Taxes Withheld on Compensation for December 2009 (BIR P-10-c-1 Form 1601-C) P-10-c-2 P-10-c-3 Monthly Remittance Return of Income Taxes P-10-d Withheld on Compensation for January 2010 (BIR Form 1601-C) with the following attachments: P-10-d-1 Filing Reference No. P-10-d-2 E-payment Payment Confirmation Receipt P-10-d-3 BIR eFPS Payment Confirmation Monthly Remittance Return of Income Taxes P-10-e Withheld on Compensation for February 2010 (BIR Form 1601-C) with the following attachments: P-10-e-1 Filing Reference No. P-10-e-2 E-payment Payment Confirmation Receipt P-10-e-3 BIR eFPS Payment Confirmation Monthly Remittance Return of Income Taxes Withheld on Compensation for March 2010 (BIR Form 1601-C) with the following attachments: Filing Reference No. E-payment Payment Confirmation Receipt BIR eFPS Payment Confirmation Monthly Remittance Return of Income Taxes Withheld on Compensation for April 2010 (BIR Form 1601-C) with the following attachments: Filing Reference No. E-payment Payment Confirmation Receipt E-payment Acknowledgment Receipt t..

Market Strategic Firm, Inc. vs. CIR Page 9 of 35 CTA Case No. 9280 DECISION P-10-f Monthly Remittance Return of Income Taxes Withheld on Compensation for May 2010 (BIR Form P-10-f-1 1601-C) with the following attachments: P-10-f-2 Filing Reference No. P-10-f-3 E-payment Transaction Acknowledgment P-10-g BIR eFPS Pa_yment Confirmation Monthly Remittance Return of Income Taxes P-10-g-1 Withheld on Compensation for June 2010 (BIR Form P-10-g-2 1601-C) with the following attachments: P-10-g-3 Filing Reference No. E-payment Payment Confirmation Receipt P-10-h BIR eFPS Payment Confirmation Monthly Remittance Return of Income Taxes P-10-h-1 Withheld on Compensation for July 2010 (BIR Form P-10-h-2 1601-C) with the following attachments: P-10-h-3 Filing Reference No. E-payment Payment Confirmation Receipt P-10-i BIR eFPS Payment Confirmation Monthly Remittance Return of Income Taxes P-10-i-1 Withheld on Compensation for August 2010 (BIR P-10-i-2 Form 1601-C) with the following attachments: Filing Reference No. P-10-i-3 E-payment Payment Confirmation Receipt for the P-10-j Monthly Remittance Return of Income Taxes Withheld on Compensation for August 2010 (BIR Form 1601-C); and BIR eFPS Pa_yment Confirmation Monthly Remittance Return of Income Taxes Withheld on Compensation for September 2010 (BIR Form 1601-C) with the following attachments: P-101-1 Filing Reference No. P-101-2 E-payment Payment Confirmation Receipt BIR eFPS Payment Confirmation P-10~-3 Monthly Remittance Return of Income Taxes Withheld on Compensation for October 2010 (BIR P-10-k Form 1601-C) with the following attachments: Filing Reference No. P-10-k-1 E-payment Payment Confirmation Receipt P-10-k-2 BIR eFPS Payment Confirmation P-10-k-3 Monthly Remittance Return of Income Taxes Withheld on Compensation for November 2010 (BIR P-10-1 Form 1601-C) with the following attachments: Filing Reference No. P-10-1-1 E-payment Payment Confirmation Receipt P-10-1-2 BIR eFPS P~ent Confirmation P-10-1-3 L

Market Strategic Firm, Inc. vs. CIR Page 10 of 35 CTA Case No. 9280 DECISION P-10-m Monthly Remittance Return of Income Taxes Withheld on Compensation for Deccember 2010 (BIR Form 1601-C) with the following attachments: P-10-m-1 Filing Reference No. P-11 Annual Information Return of Income Tax Withheld on Compensation and Final Withholding Taxes for P-11-a CY 2010 (BIR Form 1604-CF) P-12-a Filing Reference No. Monthly Value-Added Tax Declaration for the Month P-12-a-1 of January 2010 (BIR Form 2550M) with the P-12-a-2 following attachments: P-12-a-3 Filing Reference No. E-payment Payment Confirmation Receipt P-12-b BIR eFPS Payment Confirmation Monthly Value-Added Tax Declaration for the Month P-12-b-1 of February 2010 (BIR Form 2550M) with the P-12-b-2 following attachments: Filing Reference No. P-12-c eFPS Payment Details Quarterly Value-Added Tax Return for the First P-12-c-1 Quarter of CY 2010 (BIR Form 2550Q) with the attached P-12-d Filing Reference No. Monthly Value-Added Tax Declaration for the Month of April 2010 (BIR Form 2550M) with the attached P-12-d-1 Filing Reference No. P-12-e Monthly Value-Added Tax Declaration for the Month of May 2010 (BIR Form 2550M) with the following P-12-e-1 attachments: P-12-e-2 Filing Reference No. P-12-e-3 E-payment Transaction Acknowledgement E-payment Acknowledgement Receipt P-12-f Quarterly Value-Added Tax Return for the Second Quarter of CY 2010 (BIR Form 2550Q) with the P-12-f-1 following attachments: P-12-f-2 Filing Reference No. P-12-f-3 E-payment Payment Confirmation Receipt P-12-g BIR eFPS Payment Confirmation Monthly Value-Added Tax Declaration for the Month P-12-g of July 2010 (BIR Form 2550M) with the attached P-12-h Filing Reference No. Monthly Value-Added Tax Declaration for the Month P-12-h-1 of August 2010 (BIR Form 2550M) with the attached t

Market Strategic Firm, Inc. vs. CIR Page 11 of 35 CTA Case No. 9280 DECISION P-12-i Filing Reference No. P-12-i-1 Quarterly Value-Added Tax Return for the Third P-12-j Quarter of CY 2010 (BIR Form 2550Q) with the P-12-j-1 attached P-12-k Filinq Reference No. P-12-k-1 Monthly Value-Added Tax Declaration for the Month of October 2010 (BIR Form 2550M) with the P-12-1 attached Filing Reference No. P-12-1-1 Monthly Value-Added Tax Declaration for the Month P-12-1-2 of November 2010 (BIR Form 2550M) with the P-12-1-3 attached P-13-a Filinq Reference No. P-13-a-1 P-13-b Quarterly Value-Added Tax Return for the Fourth Quarter of CY 2010 (BIR Form 2550Q) with the P-13-b-1 following attachments: P-13-c Filing Reference No. E-payment Payment Confirmation Receipt P-13-c-1 BIR eFPS Payment Confirmation P-14 Quarterly Income Tax Return for the First Quarter of CY 2010 (BIR Form 1702Q) with the attached: Summary of Alphalist of Withholding Taxes for the period ended March 2010 Quarterly Income Tax Return for the Second Quarter of CY 2010 (BIR Form 1702Q) with the attached: Summary of Alphalist of Withholding Taxes for the period ended June 2010 Quarterly Income Tax Return for the Third Quarter of CY 2010 (BIR Form 1702Q) with the attached: Summary of Alphalist of Withholding Taxes for the period ended September 2010 Annual Income Tax Return for CY2010 (BIR Form 1702) stamped as "received" by the Bureau of Internal Revenue on April 14, 2011 with the following attachments: P-14-a Payment Confirmation Receipt for the amount of P8,393,094.00, stamped as 'received' by the Bureau of Internal Revenue on April 14, 2011 P-14-b�I P- Statement of Management's Responsibility with the 14-b-1 Audited Financial Statements (for the years ended December 31, 2010 and 2009); P-14-c Filing Reference (No. 121100004664065), stamped as 'received' by the Bureau of Internal Revenue on April 14, 2011; L

Market Strategic; Firm, Inc;, vs. CIR Page 12 of 35 CTA Case No. 9280 DECISION P-14-d Acknowledgement Receipt of eSubmission, stamped as 'received' by the Bureau of Internal Revenue on April 14, 2011; and P-14-e List of Attachments to Annual Income Tax Return for the year ended December 31, 2010, stamped as 'received' by the Bureau of Internal Revenue on April 14, 2011 P-14-g Summary Alphalist of Withholding Taxes for the period ended December 2010 P-14-f Janitorial and Messengerial Services line item in the P-16 Annual Income Tax Return reflecting the amount of P-16-1 P8,918,674 P-16-2 Petitioner's Summary List of Purchases for January P-16-3 2010 P-16-4 Petitioner's Summary List of Purchases for February P-16-5 2010 P-16-6 Petitioner's Summary List of Purchases for March P-16-7 2010 P-16-8 Petitioner's Summary List of Purchases for April P-16-9 2010 P-16-10 Petitioner's Summary List of Purchases for May P-16-11 2010 Petitioner's Summary List of Purchases for June P-18 2010 Petitioner's Summary List of Purchases for July P-19-1 to 2010 P-19-50 Petitioner's Summary List of Purchases for August 2010 P-27 Petitioner's Summary List of Purchases for P-27-a September 2010 Petitioner's Summary List of Purchases for October 2010 Petitioner's Summary List of Purchases for November 2010 Petitioner's Summary List of Purchases for December 2010 Service Agreement between petitioner and LTBG_ MGMT. CORP., which commenced on July 16, 2008 and valid for a period of five (5) years Screenshots of Entries of the Mass Allocations Judicial Affidavit of Consuelo 0. Cadelif\a Signature of Consuela A. Cadelif\a t

Market Strategic Firm, Inc. vs. CIR Page 13 of 35 CTA Case No. 9280 DECISION P-31 Motion for Reconsideration filed on October 14, P-32 2015 P-32-A Judicial Affidavit of Mary Rose V. Nunez P-33 P-33-A Signature of Mary Rose V. Nunez P-35 Judicial Affidavit of Russel M. Elemia P-35-A Signature of Russel M. Elemia . P-36 Judicial Affidavit of Kathleen L. Cheng P-37 Signature of Kathleen L. Cheng P-37-1 P-38 Judicial Affidavit of Hazel Ann F. Hapin P-38-A Signature of Hazel Ann F. Hapin P-39 Payment Form (Year Ended December 31, 2010) for P-39-A P-39-8 the total amount of P5,319,688.24 with P-39-8-1 Filing Reference P-50-0- 0000 Judicial Affidavit of Prudencio F. Tatunay P-50-0- Signature of Prudencio F. Tatunay 0001 Independent Certified Public Accountant (ICPA) P-50-1- 0001 Report P-50-1A- Signature of Prudencio F. Tatunay 0002 toP- Transmittal Letter of the ICPA Report and Annexes 50-1A- 0003 Signature of Prudencio F. Tatunay on the P-50-1A- 0004 toP- Transmittal Letter 50-1A- 0052 Executive Summary (ICPA Report) P-50-1A- 0004 toP- Long Form Report (ICPA Report) 50-1A- 0052 1. Comparative Reconciliation of Sales not P-50-18- Subjected to Income Tax 0155 toP- 1.A. Summary - Understatement of Sales 50-18- 0206 l.A. Monthly TAR Summary per Branch P-50-1C- 0207 toP- l.A TAR submitted to BIR 50-1C- l.B. Comparative Analysis- Discount l.C. Non-sale Transactions - Prepaid Cards, etc. L

Merket Streteglc Firm, Inc. vs. CIR Pege 14 of 35 CTA Case No. 9280 DECISION 0445 l.C. Telecommunication Contract P-50-1C- 0446 toP- l.D. Exempt Sales- Periodicals & Magazines 50-1C- l.E. Other Income - Non POS Transactions, Rent, 0469 etc. P-50-10- 1. E. BSP Certificate of Registration 0483 toP- 50-10- l.F. Credit Card Discount Fees 0509 P-50-1E- l.G. Merchandise Transfers and Supplies Sold 0510 toP- 50-1E- l.H. Audited Financial Statements & 2010 Income 0738 Tax Return P-50-1E- 1.1. Permit to Use Enhanced Computerized Books of 0739 toP- Accounts 50-1E- 1.J. Transmittal of TAR and Books of Accounts to 0746 the BIR P-50-1F- 2. Analysis of Other Income not Subjected to 0747 toP- Income Tax 50-1F- 2.A. Reconciliation of Purchase Rebates (GL vs. TB) 0904 2.A. Purchase Rebates - Ads 1 P-50-1G- 0905 toP- 2.A. Purchase Rebates - Ads 2 50-1G- 0914 P-50-1H- 0915 toP- 50-1H- 0959 P-50-11- 0960 toP- 50-11- 0968 P-50-lJ- 0969 toP- 50-lJ- 0971 P-50-2- 0001 P-50-2A- 0002 P-50-2A- 0003 toP- 50-2A- 0156 P-50-2A- t,

Merket Streteglc Firm, Inc. vs. CIR Pege 15 of 35 CTA Case No. 9280 DECISION 0156 toP- 2.A. Purchase Rebates - Old 50-2A- 2.B. Reconciliation of Clearing Accounts (GL vs TB) 0284 2.B.A\P Trade- Clearing 2.B.A.\P Trade- Conversion Clearing P-50-2A- 2.B.A\P Trade- RTV Clearing 0284 toP- 2.B.A\P Trade- E2E Clearing 2.B.A\P Non-Trade- Clearing 50-2A- 2.B. A\P\Nontrade Conversion Clearing 0319 2.C. Reconciliation of Reimbursables (GL vs TB) P-50-28- 2.C. Reimbursable - Electricity 0320 2.C. Reimbursable - Water P-50-28- 2.C. Reimbursable - Common Area 0321 toP- 2.C. Reimbursable - Others 50-28- 0352 P-50-28- 0352 toP- 50-28- 0354 P-50-28- 0354 toP- 50-28- 0373 P-50-28- 0373 toP- 50-28- 0382 P-50-28- 0382 toP- 50-28- 0421 P-50-28- 0421 toP- 50-28- 0422 P-50-2C- 0423 P-50-2C- 0424 toP- 50-2C- 0445 P-50-2C- 0445 P-50-2C- 0445 toP- 50-2C- 05150 P-50-2C- t

Market Strategic Firm, Inc. vs. CIR Page 16 of 35 CTA Case No. 9280 DECISION 0510 toP- 50-2C- 0528 P-50-20- 2.D. Reconciliation of Utilities (GL vs TB) 0529 toP- 50-20- 0649 P-5-2E-S- 2.E. Summary of Payment Details - Purchase 001 toP- Rebates 2E-S-225 P-50-2E-S- 2. E. Payment Details - Purchase Rebates 001 toP- 50-2E- 5866 P-50-2F- 2. F. Payment Details- AP Clearing Accounts 0001 toP- 50-2F- 7076 P-50-2G- 2.G. Summary of Payment Details - Reimbursables S-001 to P-50-2G- S-056 P-50-2G- 2.G. Payment Details - Reimbursables 0001 toP- 50-2G- 1110 P-50-2H- 2.H. Summary of Credit Memos- Purchase Rebates 0001 Old P-50-2H- 2.H. Credit Memos- Purchase Rebates Old 0002 toP- 50-2H- 0019 P-50-3- 3. Summary of Reconciliation - Unsupported 0001 Purchases P-50-3A 3.A. LTBG Mgmt Corp. P-50-3A- 3.A. Details form Suppliers' Ledger 0002 toP- 3A-0004 P-50-3A- 3.A. Summary of Supporting Documents 0005 P-50-3A- 3.A. Supporting Documents 0006 toP- 50-3A- 0085 P-50-3A- 3.A. Summary List of Purchases- LTBG (2010) 0086 toP- L

Market Strategic Firm, Inc. vs. CIR Page 17 of 35 CTA Case No. 9280 DECISION 50-3A- 3.A. Agreement- LTBG and MSFI 0097 P-50-3A- 3.B Powerline Electrical Supply & Services, Inc. 0099 toP- 3.B Details form Suppliers' ledger 50-3A- 3.B Sworn Certification (Powerline Electrical Supply 0101 & Services, Inc.) P-50-38 3.B Supporting Documents P-50-38- 3.B Summary List of Purchases- Powerline (2010) 0102 3.B Summary List of Purchases - Powerline (March P-50-38- 2011) 0103 3.B Expanded Withholding Tax- Powerline (2010) 4. Comparative Analysis - Allocation P-50-38- 0104 toP- 4.AB- Manual and Mass Allocation 4.AB. Summary of General Ledger 50-38- 4.AB. Details of General Ledger 0152 P-50-38- 4.A Mass Allocation 0153 toP- 4.A Mass Allocation per Department 50-38- 0157 4.A . Method of Mass Allocation P-50-38- 0158 4.B Manual Allocation P-50-38- 4.B Manual Allocation per Department 0159 P-50-4- 0001 toP- 50-4-0002 P-50-4A8 P-50-4A8- 0003 P-50-4A8- 0004 toP- 50-4A8- 0568 P-50-4A P-50-4A- 0569 toP- 50-4A- 0584 P-50-4A- 1393 toP- 50-4A- 1396 P-50-48 P-50-48- 1397 toP- 50-48- L

Market Strategic Firm, Inc. vs. C!R Page 18 of 35 CTA Case No. 9280 DECISION 1399 4.8. Documents for Manual Allocation P-50-48- 1400 toP- S. Comparative Analysis - Additional Gross Income 50-48- S.A Summary List of Purchases Submitted to BIR 1415 S.B. Jollibee Food Corporation - Confirmation P-50-5- Certificate 0001 toP- S.B. Republic Biscuit Corporation - Confirmation 50-5-0026 Certificate P-50-SA- S.C. Summary List of Purchases - March 2011 0027 toP- (Toyota Commonwealth) S.C. Vehicle Sales Invoice 50-SA- 0165 S.C. DTI's Approval of Promotional Activity P-50-58- 0166 S.C. Winner of Toyota Grandia P-50-58- S.C. Monthly Remittance Return of Final Taxes 0167 Withheld P-50-SC- 0168 S.D. Suppliers' Ledger (Micro-D International & P-50-SC- Microphase Corporation) 0169 toP- 6. Summary of Reconciliation 50-SC- 6.A. Reconciliation of MSF SLP and Income 0170 Payments vs FDDA SLP and Income Payments P-50-SC- 0171 toP- 6.8. BIR Form 1604-E and Alpha List of Payees 50-SC- duly received by BIR 0173 P-50-SC- 6.C. BIR FDDA Schedule S 0174 P-50-SC- 0175 toP- 50-SC- 0180 P-50-50- 0181 P-50-6- 001 P-50-6A- 0002 toP- 50-6A- 0031 P-50-68- 0032 toP- 50-68- 0067 P-50-6C- 0068 toP- L.

Merket Stretegic Firm, Inc. vs. CIR Pege 19 or 35 CTA Case No. 9280 DECISION 50-6C- S.A Summary of List of Purchases Submitted to BIR 0071 P-50-SA- 7. Summary of Over-claimed Purchases/Expenses 0027 toP- 7 .A. Reconciliation of Purchases (GL vs TB) 50-SA- 0165 7 .A. Beginning Inventory P-50-7- 0001 7 .A. Handling and Delivery - Trucking P-50-7A- 0002 toP- 7.A. F and H Charges 50-7A- 0002 7.A. COS- Outright VAT P-50-7A- 0003 toP- 7. B. Reconciliation of Other Outside Services (GL vs 50-7A- TB) 0005 7.B. Manpower Cost- Courier Services P-50-7A- 7.B. Manpower Cost- Messengerial 0005 toP- 7.B. Manpower Cost- On Loan 50-7A- 0006 7.B. Manpower Cost- Other Services P-50-7A- 0590 toP- 7.B. Manpower Cost- ITS 50-7A- 0662 P-50-7A- 0662 toP- 50-7A- 0778 P-50-78- 0779 P-50-78- 0780 P-50-78- 0780 P-50-78- 0780 toP- 50-78- 0782 P-50-78- 0782 toP- 50-78- 0788 P-50-78- 0788 toP- 50-78- 0789 t

Market Strategic Firm, Inc. vs. CIR Page 20 of 35 CTA Case No. 9280 DI!!CISION P-50-78- 7.B. Manpower Cost- MBU 0789 toP- 7.B. Service Fee- SMAC 50-78- 0818 I P-50-78- i 0818 toP- 50-78- 7.B. Service Fee- Gold GC 0832 P-50-78- 7. B. Service Fee - Others 0832 toP- 50-78- 7. B. IT Exp - ITS Service 0839 P-50-78- 7.B. IT Exp- Others 0839 toP- 50-78- 7.C. Reconciliation of Communication (GL vs TB) 0845 7.C. Communication P-50-78- 0845 toP- l.H. Audited Financial Statements & 2010 Income 50-78- Tax Return 0846 11.1. Comparative Reconciliation of Sales not P-50-78- Subjected to VAT 0846 toP- 11.1. VAT Returns (2550M & 2550Q) 50-78- 0847 l.A. Summary - Understatement of Sales P-50-7C- 0848 l.A. Monthly TAR Summary per Branch P-50-7C- 0849 toP- 50-7C- 0867 P-50-1H- 0915 toP- 50-1H- 0959 P-50-11-1- 0001 P-50-11-1- 0002 toP- 50-11-1- 0049 P-50-1A- 0002 toP- 50-1A- 0003 P-50-1A- 0004 toP- {.

Market Strategic Firm, Inc. vs. CIR Page 21 of 35 CTA Case No. 9280 DECISION 50-1A- l.A. TAR submitted to BIR 0052 P-50-1A- l.B. Comparative Analysis - Discount 0053 toP- 50-1A- l.C. Non-sale Transactions - Prepaid Cards, etc. 0154 P-50-18- l.C. Telecommunication Contract 0155 toP- 50-18- l.C. Memorandum of Understanding - Sodexho 0206 Pass, Inc. P-50-1C- l.E. Other Income - Non POS Transactions, Rent, 0207 toP- etc. 50-1C- l.E. BSP Certificate of Registration 0445 P-50-1C- l.F. Credit Card Discount Fees 0446 toP- 50-1C- l.G. Merchandise Transfers and Supplies Sold 0469 P-50-1C- 2. Analysis of Other Income not Subjected to 0470 toP- Income Tax 50-1C- 2.A. Reconciliation of Purchase Rebates (GL vs TB) 0482 2.A. Purchase Rebates - Ads 1 P-50-1E- 0510 to P-50-1E- 0738 P-50-1E- 0739 toP- 50-1E- 0746 P-50-1F- 0747 toP- 50-1F- 0904 P-50-1G- 0905 toP- 50-1G- 0914 P-50-2- 0001 P-50-2A- 0002 P-50-2A- 0003 toP- 50-2A- 0156 �

Market Strategic Firm, Inc. vs. CIR Page 22 of 35 CTA Case No. 9280 DECISION P-50-2A- 2.A. Purchase Rebates - Ads 2 0156 toP- 2.A. Purchase Rebates - Old 2.B. Reconciliation of Clearing Accounts (GL vs TB) 50-2A- 2.B. A\P Trade- Clearing 0284 2.B. A\P Trade- Conversion Clearing P-50-2A- 2.B AP Trade - RTV Clearing 0284 toP- 2.B. A/P Trade - E2E Clearing 50-2A- 2.B. A\P Non-Trade- Clearing 0319 2.B. A\P\ Nontrade Conversion Clearing P-50-28- 2.C. Reconciliation of Reimbursables (GL vs TB) 0320 2.C. Reimbursable - Electricity P-50-28- 2.C. Reimbursable - Water 0321 toP- 2.C Reimbursable - Common Area 50-28- 0352 P-50-28- 0352 toP- 50-28- 0354 P-50-28- 0354 toP- 50-28- 0373 P-50-28- 0373 toP- 50-28- 0382 P-50-28- 0382 toP- 50-28- 0421 P-50-2C- 0421 toP- 50-2-0422 P-50-2C- 0423 P-50-2C- 0424 toP- 50-2C- 0445 P-50-2C- 0445 toP- 50-2C- 0445 P-50-2C- 0445 toP- 50-2C- {_

Market Strategic Firm, Inc. vs. CIR Page 23 of 35 CTA Case No. 9280 DECISION 0510 P-50-2C- 2.C. Reimbursable - Others 0510 toP- 50-2C- 0528 P-50-20- 2.D. Reconciliation of Utilities (GL vs TB) 0529 toP- 50-20- 0649 P-50-2E-S- 2.E Summary of Payment Details - Purchase 001 toP- Rebates 50-2E-S- 225 P-50-2E- 2.E Payment Details - Purchase Rebates 0001 toP- 50-2E- 5866 P-50-2F-S- 2.F Summary of Payment Details - AP Clearing 001 toP- Accounts 50-2F-S- 222 P-50-2F- 2.F. Payment Details - AP Clearing Accounts 0001 toP- 50-2F- 7076 P-50-2G- 2.G. Summary of Payment Details - Reimbursables S-001 to P-50-2G- S-056 P-50-2G- 2.G. Payment Details - Reimbursables 0001 toP- 50-2G- 1110 P-50-2H- 2.H. Summary of Credit Memos- Purchase Rebates 001 Old P-50-2H- 2.H. Credit Memos- Purchase Rebates Old 0002 toP- 50-2H- 0019 P-50-1C- l.C Prepaid Cards 0207 toP- 50-1C- 0339 P-50-1C- l.C. Telecommunication Contract 0446 toP- 50-1C- L

Market Strategic Firm, Inc. vs. CIR Page 24 of 35 CTA Case No. 9280 DECISION 0469 S. Comparative Analysis - Additional Gross Income P-50-5- S.A. Summary List of Purchases Submitted to BIR 0001 toP- 50-5-0026 S.B. Jollibee Food Corporation - Confirmation P-50-SA- Certificate Confirmation 0027 toP- S.B. Republic Biscuit Corporation - march 2011 50-SA- Certificate 0165 s.c Summary List of Purchases - P-50-SB- (Toyota Commonwealth) 0166 P-50-58- S.C Vehicle Sales Invoice 0167 S.C. DTI's Approval of Promotional Activity P-50-SC- S.C Winner of Toyota Grandia 0168 P-50-SC- S.C. Monthly Remittance Return of Final Taxes 0169 toP- Withheld 50-SC- S.D Suppliers' Ledger (Micro-D International & 0170 Microphase Corporation) P-50-SC- 3. Summary of Reconciliation - Unsupported 0171 toP- Purchases 50-SC- 3.A. LTBG Mgmt Corp. 0173 3.A. Details form Suppliers' ledger P-50-SC- 0174 3.A Summary of Supporting Documents P-50-SC- 3.A Supporting Documents 0175 toP- 50-SC- 3.A Summary List of Purchases- LTBG (2010) 0180 P-50-SD- 0181 P-50-3- 0001 P-50-3A P-50-3A- 0002 toP- 50-3A- 0004 P-50-3A- 0005 P-50-3A- 0006 toP- 50-3A- 0085 P-50-3A- 0086 toP- 50-3A- L

Market Strategic Firm, Inc. vs. CIR Page 25 of 35 CTA Case No. 9280 DECISION 0097 3.A. Expanded Withholding Tax- LTBG (2010) P-50-3A- 3.A Agreement- LTBGA and MSFI 0098 3.B Powerline Electrical Supply & Services, Inc. P-50-3A- 3.B Details form Suppliers' ledger 0099 toP- 3.B Sworn Certification (Powerline Electrical Supply & Services, Inc.) 50-3A- 3.B Supporting Documents 0101 P-50-38 3.B Summary List of Purchases- Powerline (2010) P-50-38- 3.B Summary List of Purchases - Powerline (March 0102 2011) 3.B Expanded Withholding Tax- Powerline (2010) P-50-38- II. 6. Summary of No TIN of MSF 0103 II.6 Summary of Not Billed Separately P-50-38- 0104 toP- II. 6 Summary of No TIN of Suppliers 50-38- II.6 Summary of Others 0152 P-50-38- II.6 Summary of Related Parties 0153 toP- 50-38- A.1 No TIN of MSF 0157 P-50-38- 0158 P-50-38- 0159 P-50-II-6- 0001 toP- 50-II-6- 0329 P-50-II-6- 0330 toP- 50-II-6- 0331 P-50-II-6- 0332 toP- 50-II-6- 0343 P-50-II-6- 0344 toP- 50-II-6- 0351 P-50-II-6- 0352 toP- 50-II-6- 0356 P-50-II- 6A-00001 t

Market Strategic Firm, Inc. vs. CIR Page 26 of 35 CTA Case No. 9280 DECISION to P-50-II- 6A-20945 P-50-II- A.2 Not Billed Separately 6A-20946 to P-50-II- 6A-20953 P-50-II- A.3 No TIN of MSF 6A-20954 to P-50-II- 6-A-21454 P-50-II- A.2. Not Billed Separately 6A-24030 to P-50-II- 6A-24031 P-50-II- A.3 No TIN of Suppliers 6A-24032 to P-50-II- 6A-24053 P-50-II- B. Others - No Official Receipts 68-00001 to P-50-II- 68-00359 P-50-II- C. Related Parties 6C-00001 to P-50-II- 6C-00165 P-50-II- D. MSF Certificate of Registration 60-0001 to P-50-II- 60-0004 P-50-II-6E E. Sample Invoices from BIR Records P-50-II- E.l. No TIN of MSF 6E-0001 to P-50-II- 6E-0143 P-50-II- E.2 No TIN of Suppliers 6E-0144 to P-50-II- 6E-0151 P-50-II- E.3 Others 6E-0152 to P-50-II- 6E-0155 P-50-II- E.4. Related Parties 6E-0156 to P-50-II- c

Market Strategic Firm, Inc. vs. CIR Page 27 of 35 CTA Case No. 9280 DECISION 6E-0157 II. Self Assessment - BIR Form 0605 P-50-III- 0001 toP- IV. Reconciliation of the Alphalist and Monthly Remittances 50-III- IV. BIR Monthly Remittances - 1601C 0009 IV. BIR Annual Information Return - 1604CF P-50-IV- 0001 IV. Self- Assessment Payment Form - 0605 P-50-IV- 0002 toP- 50-IV- 0083 P-50-IV- 0084 toP- 50-IV- 0091 P-50-IV- 0092 toP- 50-IV- 0096 The CIR filed his Comment (Re: Petitioner's Formal Offer of Evidence) 23 on March 10, 2017. In a Resolution24 dated October 13, 2017, the Court admitted MSFI's Formal Offer of Evidence except for the following: 1. Exhibits "P-6-C-1" to "P-6-C-12", "P-12-c", "P-12-g", "P-12-g-1", "P-12-h"I "P-12-h-1"I "P-12-i"I "P-12-i- 1", "P-12-J""I "P-12-J"-1"I "P-12-k"I "P-12-k-1"I "P-12- 'I" "P-12-1-1" "P-12-1-2" "P-12-1-3" "P-13-a" "P-IIII 13-a-1"I "P-13-b"I "P-13-b-1" I "P-13-c"I "P13-c-1 I and "P-14-g", for failure to submit the duly marked exhibits; 2. Exhibits "P-37", "P-37-1", "P-50-11-0960 to P50-11- 0968", and "P-50-lJ-0969 to P-50-1J0971", for failure to identify; 3. Exhibits "P-50-0-0000" and "P-50-0-0001", for failure to submit the duly marked exhibits and for failure to identify; 23 Dockets, Vol. VIII, pp. 3539-3542. 24 Ibid., pp. 3546-3550. L

Market Strategic Firm, Inc. vs. CIR Page 28 of 35 CTA Case No. 9280 DECISION 4. Exhibits "P-50-1C-0340 to P-50-1C-0445", "P50-5- 0002 to P-50-5-0026", for failure to properly identify; 5. Exhibits "P-50-3A", "P-50-36", "P-50-4A6", P50-4A", "P-50-46", "P-50-6A-0008 to P-506A-0031", "P-50- 66-0032 to P-50-66-0067", and "P-50-II-6E", for not being found in the records and for failure to identify; and 6. Exhibits "P-50-6C-0068 to P-50-6C-0071", for not being found in the records. On November 26, 2017, MSFI filed its Motion for Partial Reconsideration (of the Resolution promulgated on 13 October 2017),25 wherein the Court, through a Resolution26 dated October 3, 2018, admitted Exhibits "P-6-C-1" to "P-6- C-12"I "P-12-c"I "P-12-g"I "P-12-g-1"I "P-12-h"I "P-12-h-1"I "P-12-i", "P-12-i-1"I "P-12-J.,I "P-12-J'-1"I "P-12-k"I "P-12-k- 1" "P-12-1" "P-12-1-1" "P-12-1-2" "P-12-1-3" "P-13-a" "P-'IIII I 13-a-1"I "P-13-b"I "P-13-b-1'' I "P-13-c"I "P13-c-1 I "P-14-g'' I "P-37", "P-37-1", "P-50-11-0960 to P50-11-0968", "P-50-lJ- 0969 to P-50-1J0971", "P-50-1C-0340 to P-50-1C-0445", "P50-5-0002 to P-50-5-0026", "P-5-III-A0010 to P-5-III- A0045" and "P-50-66-0008 to P-50-66-0011". The ICPA Report was filed by MSFI on November 21, 2016. The CIR presented his witnesses, Revenue Officer (RO) Joel M. Aguila and RO Maria Gracielle Cecilia S. Anaban on January 21, 2019Y On February 11, 2019, the CIR filed his Formal Offer of Evidence28 offering Exhibits "R-1" "R-2" "R-3" "R-4" "R-'I I I '5" "R-5-a" "R-6" "R-7" "R-8" "R-9" "R-10" "R-11" "R-IIIIIf I 12 to R-12-e", "R-13", "R-14", "R-15 to R-15-d", "R-16" and "R-17" as his documentary exhibits. MSFI filed its Comment29 on February 18, 2019. In the Resolution30 dated March 8, 2019, the Court admitted the CIR's Formal Offer of Evidence except for 25 Ibid. I pp. 3553-3561. 26 Ibid. I pp. 3572-3576. 27 Minutes of the hearing, Dockets, Vol. VIII, p. 3615. 28 Ibid., pp. 3622-3634. 29 Ibid. I pp. 3635-3646. 30 Ibid. I pp. 3648-3649. {

Market Strategic Firm, Inc. vs. CIR Page 29 of 35 CTA Case No. 9280 DECISION Exhibit "R-15-d" for not being found in the records of the case. The CIR's documentary exhibits are as follows: Exhibit Description R-1 Letter of Authority (LOA) No. LOA-116-2011- 00000050/ SN:eLA201100002943 dated 20 R-2 September 2011 R-3 R-4 Checklist of Requirements I Presentation of R-5 Records/Documents R-5-a Memorandum of Assignment dated 18 February 2013 R-6 Letter dated 26 February 2013 Notarized Waiver of the Defense of Prescription Under R-7 the Statute of Limitations of the National Internal Revenue Code, dated 01 April 2013 R-8 Secretary's Certificate Notarized Waiver of the Defense of Prescription Under R-9 the Statute of Limitations of the National Internal R-10 Revenue Code, dated 23 SeQ_tember 2013 Notarized Waiver of the Defense of Prescription Under R-11 the Statute of Limitations of the National Internal R-12 to Revenue Code, dated 03 March 2014 R-12-e Memorandum recommending the issuance of the Preliminary Assessment Notice (PAN) with attached R-13 Revenue Officer's Report dated 07 July 2014 Preliminary Assessment Notice (PAN) with Details of R-14 Discrepancies dated 20 Auqust 2014 Memorandum dated 08 September 2014 R-15 to recommending the issuance of the Formal Letter of R-15-d Demand (FLO) with Revenue Officer's Report Formal Letter of Demand (FLO) with attached Details R-16 of Discrepancies Final Assessment Notice (FAN)/BIR Forms 0401 Memorandum recommending the issuance of the Final Decision on Disputed Assessment (FDDA) with attached Revenue Officer's Report and Matrices of Computations, dated 20 Auqust 2015 Final Decision on Disputed Assessment (FDDA) with Details of Discrepancies and Matrices of Computations dated 10 September 2015 Audit Result I Assessment Notice (BIR Forms 0401) Memorandum dated 26 January 2016 recommending c.

Market Strategic Firm, Inc. vs. CIR Page 30 of 35 CTA Case No. 9280 DECISION the denial of petitioner's Motion for Reconsideration R-17 I Letter dated 27 January 2016 The Memorandum31 for the CIR filed on April 2, 2019 was admitted on April 11, 2019, while the Memorandum32 for the MSFI filed on April 22, 2019 was admitted. Hence, the case was considered submitted for decision on May 10, 2019. 33 The parties submitted the following issues34 for the Court's decision: Whether this Court has jurisdiction over the instant petition; and Whether Petitioner is liable for the alleged deficiency taxes assessed per FDDA in the aggregate amount of P1,921,057,326.11 for deficiency Income Tax, Value-Added Tax, Expanded Withholding Tax and Withholding Tax on Compensation for taxable year 2010 as well as Compromise Penalties, 50% Surcharge, 20% Deficiency and Delinquency interest pursuant to Sections 248 and 249 of the National Internal Revenue Code (NIRC) of 1997, as amended. Although MSFI did not raise the issue of lack of authority of the RO to conduct the audit, in the case of Commissioner of Internal Revenue vs. Lancaster Philippines, Inc., 35 the Supreme Court affirmed that this Court can resolve an issue not raised by the parties in their pleadings or memoranda, to wit: "On whether the CTA can resolve an issue which was not raised by the parties. we rule in the affirmative. 31 Ibid., pp. 3655-3671. 32 Ibid., pp. 3678-3836. 33 Dockets, Vol. II, p. 973. 34 Supra, note 14. 35 G.R. No. 183408, July 12, 2017. {_

Market Strategic Firm, Inc. vs. CIR Page 31 of 35 CTA Case No. 9280 DECISION Under Section 1, Rule 4 of A.M. No. 05-11-07- CTA, or the Revised Rules of the Court of Tax Appeals, the CTA is not bound by the issues specifically raised by the parties but may also rule upon related issues necessary to achieve an orderly disposition of the case. The text of the provision reads: SECTION 1. Rendition of judgment. - XXX In deciding the case, the Court may not limit itself to the issues stipulated by the parties, but may also rule upon related issues necessary to achieve an orderly disposition of the case. The above section is clearly worded. On the basis thereof. the CTA Division was, therefore. well within its authority to consider in its decision the question on scope of authority of revenue officers who were named in the LOA even though the parties had not raised the same in their pleadings or memoranda. The CTA En Bane was likewise correct in sustaining the CTA Division's view concerning such matter." (Italics in the original; Underlining supplied.) A review of the RO's authority to conduct the audit which resulted in the assessments is intrinsically related to the issue of the validity of the assessments. The BIR Records show that LOA No. 116-2011- 0000005036 was issued, authorizing ROs Ma Salud Madela, Myrna Ramirez, Zenaida Paz, Cletofel Parungao, Allan Maniego and Joel Aguila under GS Glorializa Samoy to examine MSFI's books of accounts and other accounting records for the period from January 1 to December 31, 2010. However, records show that Mr. Cesar D. Escalada, Chief of RLTAD I issued Memorandum of Assignment (MOA) No. LOA-116-2013-030637 referring the continuation of the audit/investigation to RO Allan Maniego under GS Wilfreda S. Reyes. The said MOA explicitly states that it was issued 36 Supra, note 6. 37 Exhibit "R-3", BIR Records, p. 455. L

Market Strategic Firm, Inc. vs. CIR Page 32 of 35 CTA Case No. 9280 DECISION for the "continuation of the audit/investigation to replace the previously assigned Revenue Officer(s) who resigned/retired/transferred to another district office." Section 6 of the National Internal Revenue Code (NIRC) of 1997 provides: "SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement. - (A) Examination of Returns and Determination of Tax Due. - After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax: xxx" (Underlining supplied.) In relation, Section 13 of the NIRC also states: "SEC. 13. Authority of a Revenue Officer.- Subject to the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner, a Revenue Officer assigned to perform assessment functions in any district may, pursuant to a Letter of Authority issued by the Revenue Regional Director, examine taxpayers within the jurisdiction of the district in order to collect the correct amount of tax, or to recommend the assessment of any deficiency tax due in the same manner that the said acts could have been performed by the Revenue Regional Director himself." (Underlining supplied.) Pursuant to this, RMO No. 43-90 identifies and limits the BIR Officials who are authorized to issue LOAs, viz.: "D. Preparation and issuance of L/As. XXX XXX XXX 4. For the proper monitoring and coordination of the issuance of Letter of Authority, the only BIR t..

Market Strategic Firm, Inc. vs. CIR Page 33 of 35 CTA Case No. 9280 DECISION officials authorized to issue and sign Letters of Authority are the Regional Directors, the Deputy Commissioners and the Commissioner. For the exigencies of the service, other officials may be authorized to issue and sign Letters of Authority but only upon prior authorization by the Commissioner himself." (Underlining supplied.) RMO No. 43-90 is explicit that the continuation of audit to replace the officer(s) named in a previous LOA requires the issuance of a new LOA in cases of reassignment or transfer to another RO. Thus: "Any reassignment/transfer of cases to another RO(sl. and revalidation of L/As which have already expired, shall require the issuance of a new UA, with the corresponding notation thereto, including the previous L/A number and date of issue of said L/As." (Underscoring supplied.) Clearly, in all tax assessments, the audit investigation must be conducted by a duly designated RO tasked to perform audit and examination of taxpayers' books, pursuant to an LOA issued by the Regional Director. In case of re-assignment or transfer of cases to another RO, a new LOA with a corresponding notation thereto, signed by an authorized officer to issue an LOA, must be certain. In Commissioner of Internal Revenue vs. Composite Materials, Inc./8 the Supreme Court, citing Medicard Philippines Inc. vs. Commissioner of Internal Revenue, 39 categorically held that an RO may only examine the taxpayer's books pursuant to an LOA issued by the Regional Director and emphasized that the Referral Memorandum issued by the RDO directing another RO to continue with the examination of the taxpayer records is not equivalent to an LOA nor does it cure the RO's lack of authority. Thus, the MOA herein cannot be treated as an LOA as precisely, any re-assignment of cases requires the issuance of a new LOA and its void character is further emphasized by the fact that it was not signed by the Regional Director pursuant to Section 13 of the NIRC. 38 G.R. No. 238352, September 12, 2018. ~G.R. No. 222743,April 5, 2017. t..

Market Strategic Firm, Inc. vs. CIR Page 34 of 35 CTA Case No. 9280 DECISION Clearly in this case, the CIR failed to comply with the issuance of a new LOA, instead a new MOA was issued for the continuation of the investigation. Thus, the investigation conducted was without the requisite authority. In Medicard, the Supreme Court emphasized the importance of an LOA and the authority of ROs who conducted the audit and examination of the taxpayer. It went on further to declare as void the subject disputed assessment for lack of an LOA authorizing the ROs to examine the taxpayer's books of account and other accounting records. Absent the necessary issuance of a new LOA signed by the Regional Director, there is no authority to conduct the continuation of the investigation or audit. 40 WHEREFORE, premises considered, the instant Petition for Review is hereby GRANTED. Accordingly, the Formal Letter of Demand/Assessment Notice against Market Strategic Firm, Inc. for alleged deficiency taxes, penalties and interests in relation to taxable year 2010 issued on September 15, 2014 and the Final Decision on Disputed Assessment issued on September 14, 2015 are hereby CANCELLED and WITHDRAWN. SO ORDERED. frf.f:UnT:to 1-t ~Jl~~.C~ WE CONCUR: N: Mi~bARO-GRULLA Associate Justice c. 5h r.~~ Goff~~~ (with Separate Concurrin!!. ~p-inion) JUANITO C. CASTANEDA, JR. Associate Justice 40 Nikken Philippines, Inc. vs. CIR, CTA EB No. 1569, June 7, 2018.

Market Strategic Firm, Inc. vs. CIR Page 35 of 35 CTA Case No. 9280 DECISION (Joins Justice .f...�i Castaneda's Separate JEAN M BACORRO-VILLENA fAssocillte 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. ~fi: c. C1.,;ta:-S~ ~~ . JUANITO C. CASTANEDA, JR. Associate Justice 2"ct Division Chairperson CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, 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

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SECOND DIVISION MARKET STRATEGIC CTA CASE NO. 9280 FIRM, INC., Members: Petitioner, CASTANEDA, JR., Chairperson, MINDARO-GRULLA, and - versus - BACORRO-VILLENA, 11. COMMISSION ER OF PromuIgated: INTERNAL REVENUE, FEB 1 0 2020 L Respondent. -~~~~-- 7 ______x x-------------------------------------------------------1-------I-o-:--J-o_ SEPARATE CONCURRING OPINION CASTAN EDA, JR., J.: I concur with the ponencia of my esteemed colleague, Associate Justice Cielito N. Mindaro-Grulla in granting the present Petition for Review and in cancelling and withdrawing respondent Commissioner of Internal Revenue's assessment for deficiency taxes for taxable year 2010. I agree with the ponencia in ruling that the revenue officers who actually conducted the audit investigation of petitioner's books of accounts and other accounting records for taxable year 2010 are bereft of the requisite authority but not because of failure to issue a new LOA in their favor. One of the powers granted to the Commissioner of Internal Revenue (CIR) under the National Internal Revenue Code of 1997, as ~

SEPARATE CONCURRING OPINION CTA Case No. 9280 amended (1997 NIRC) is the power to make assessment of any deficiency tax. Section 6(A) of the 1997 NIRC is explicit on the matter, to wit: "SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement. - (A) Examination of Returns and Determination of Tax Due. - After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax: Provided_ however, That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. The tax or any deficiency tax so assessed shall be paid upon notice and demand from the Commissioner or from his duly authorized representative. x x x" (Emphasis supplied) In the exercise of his assessment powers, the CIR is also empowered to conduct by himself the examination of any taxpayer, or he may authorize other tax officers to conduct such examination. Section 6(A) of the 1997 NIRC likewise vested the CIR's duly authorized representatives the power to authorize the examination of any taxpayer for the purpose of collecting the correct amount of tax. The term "duly authorized representative" under Section 6(A) of the 1997 NIRC which may authorize examination of taxpayers refers to a Revenue Regional Director, in accordance with Sections 10 and 13 of the 1997 NIRC. The term likewise refers to other tax officials with the rank equivalent to a division chief or higher, pursuant to the CIR's authority to delegate powers vested in him under Section 7 of the 1997 NIRC. Notably, the issuance of LOAs for the examination of taxpayers is not one of those enumerated powers which the CIR cannot delegate. Section 7 of the 1997 NIRC reads as follows: "SEC. 7. Authority of the Commissioner to Delegate Power. - The Commissioner may delegate the powers vested in him under the pertinent provisions of this Code to any or such subordinate ~

SEPARATE CONCURRING OPINION CfA Case No. 9280 officials with the rank equivalent to a division chief or higher, subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner: Provided, however, That the following powers of the Commissioner shall not be delegated: (a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance; (b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau; (c) The power to compromise or abate, under Sec. 204(A) and (B) of this Code, any tax liability: Provided, however, That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (PSOO,OOO) or less, and minor criminal violations, as may be determined by rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner, discovered by regional and district officials, may be compromised by a regional evaluation board which shall be composed of the Regional Director as Chairman, the Assistant Regional Director, the heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members; and (d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept." (Emphasis supplied) Section 10 of the 1997 NIRC, in enumerating the powers of a Revenue Regional Director include, among others, the power to issue letters of authority for the examination of taxpayers within the region under his/her jurisdiction. The said provision, in part, reads: "SEC. 10. Revenue Regional Director.- Under rules and regulations, policies and standards formulated by the jL

SEPARATE CONCURRING OPINION erA Case No. 9280 Commissioner, with the approval of the Secretary of Finance, the Revenue Regional Director shall, within the region and district offices under his jurisdiction, among others: XXX XXX XXX (c) Issue Letters of Authority for the examination of taxpayers within the region; XXX XXX XXX (h) Perform such other functions as may be provided by law and as may be delegated by the Commissioner." (Emphasis supplied) On the other hand, Section 13 of the 1997 NIRC, in defining the authority of a revenue officer to conduct the examination of taxpayers for purposes of an assessment, provides as follows: "SEC. 13. Authority ofa Revenue Officer.- Subject to the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner, a Revenue Officer assigned to perform assessment functions in any district may, pursuant to a Letter of Authority issued by the Revenue Regional Director, examine taxpayers within the jurisdiction of the district in order to collect the correct amount of tax, or to recommend the assessment of any deficiency tax due in the same manner that the said acts could have been performed by the Revenue Regional Director himself." (Emphasis supplied) In relation to the foregoing provisions, Revenue Memorandum Order (RMO) No. 43-90 issued by the CIR identifies those officials who are authorized to issue and sign LOA. It may be noted that a Chief of the Regular Large Taxpayers Audit Division I is not included therein. The relevant portion of the said issuance reads: "D. Preparation and issuance of L/As. XXX XXX XXX jl<.-

SEPARATE CONCURRING OPINION CTA Case No. 9280 4. For the proper monitoring and coordination of the issuance of Letter of Authority, the only BIR officials authorized to issue and sign Letters of Authority are the Regional Directors, the Deputy Commissioners and the Commissioner. For the exigencies of the service, other officials may be authorized to issue and sign Letters of Authority but only upon prior authorization by the Commissioner himself." (Emphasis and underscoring supplied) To reiterate, it is only the CIR or his duly authorized representatives who can authorize the audit examination of taxpayers for purposes of assessment of any deficiency taxes. Stated differently, unless duly authorized by the CIR himself or by his duly authorized representatives, an examination of the taxpayer by a revenue officer cannot be validly made. 1 Considering that only the above officials are given the power to authorize examination of taxpayers for assessment purposes through the issuance of an LOA, it is only them who can effect any modification or amendment to a previously-issued LOA, should the need therefor arises. Parenthetically, RMO No. 43-90 provides that any reassignment or transfer of cases to another revenue officers shall require the issuance of a new LOA. Be that as it may, I believe that the same does not and cannot negate the authority of the CIR and its duly authorized representatives to effect amendment or modification of a previously-issued LOA instead of issuing a new one in order for the assessment of a taxpayer to validly proceed. Note that RMO No. 43- 90 itself does not state the legal effect in the event that the named revenue officers under the previously-issued LOA are transferred or reassigned and a new or replacement LOA is not issued. A duly issued LOA, valid in all other respects, does not become invalid just because the revenue officers named therein happened to be reassigned or transferred. Indeed, to construe it otherwise would be tantamount to the curtailment of the statutorily granted authority of the CIR and its duly authorized representatives to authorize the audit examination of taxpayers by a mere RMO provision. It must be Je- 1 Medicard Philippines, Inc. v. Commissioner ofInternal Revenue, G.R. No. 222743, April 5, 2017.

SEPARATE CONCURRING OPINION CTA case No. 9280 emphasized that an RMO is just an internal issuance containing directives or instructions outlining procedures, techniques, methods, processes, operations, activities, work flow and the like which are necessary to carry out programs or to achieve policy goals and objectives.2 As such, they do not grant any vested right to any taxpayer over any particular work procedure, which procedure is internal to the BIR and may change from time to time as the exigencies of service may require, or as may be allowed given particular factual contexts, provided only that due process or statutory rights are not subverted.3 In the present case, there is no question that LOA No. 116- 2011-00000050 was duly issued by the OIC-Assistant Commissioner for Large Taxpayers Service. However, the revenue officers named therein were different from those who actually examined petitioner's books of accounts and other accounting records for taxable year 2010. As it appears, Revenue Officer (RO) Allan Maniego and Group Supervisor (GS) Wilfreda S. Reyes conducted the audit examination petitioner's books of accounts and other accounting records for taxable year 2010 on the basis of Memorandum of Assignment No. LOA-116-2013-0306 issued by Mr. Cesar D. Escalada, OIC-Chief of RLTAD I. Guided by the foregoing disquisition, I submit that the Memorandum of Assignment issued by Mr. Escalada cannot validly grant RO Maniego and GS Reyes the authority to conduct the audit examination pursuant to LOA No. 116-2011-00000050. As OIC-Chief of RLTAD I, Mr. Escalada does not have any power to authorize audit examination of taxpayers or to effect any modification or amendment to a previously-issued LOA because, as mentioned earlier, only the CIR or his duly authorized representatives are granted such power. In the case of Commissioner of Internal Revenue v. Sony Philippines, Inc.,4 the Supreme Court held that absent any prior authority on the part of the revenue officers who conducted the audit examination of taxpayer's books of accounts and other accounting records, the deficiency tax assessment arising therefrom is a nullity. Jc- 2 Revenue Administrative Order No. 001-12 dated April 2, 2012. 3 Medicard Philippines, Inc. v. Commissioner of Internal Revenue, CTA case No. 7948, June 5, 2014, penned by Associate Justice Ma. Belen M. Ringpis-Liban, concurred in by Associate Justice Lovell R. Bautista and Associate Justice Esperanza R. Fabon-Victorino. 4 G.R. No. 178697, November 17, 2010, 649 Phil. 519.

SEPARATE CONCURRING OPINION CTA Case No. 9280 In view of the foregoing, I vote to GRANT the present Petition for Review. ~C-.~,5}.. JffANi"TO-C. CASTANED}(, .JR. Associate Justice