THE REAL AMERICAN DOUGHNUT COMPANY, INC. v. COMMISSIONER OF INTERNAL REVENUE

CTA Form No. 8 111111111111 1111 11111111111111111111111111111111111111111 11111 111111111111111111 23-00058 1-0088 REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY FIRST DIVISION CTA CASE NO. 11343 THE REAL AMERICAN NOTICE OF JUDGEMENT DOUGHNUT COMPANY, INC., ON COMPROMISE AGREEMENT Petitioner, -versus- COMMISSIONER OF INTERNAL REVENUE, Respondent. To: OFFICE OF THE SOLICITOR GENERAL 134 Amorsolo Street, Legaspi Village Makati City ATTY. SYLVIA R.. ALMA JOSE ATTY. AYESHA HANIA B. GUILING-MAT ANOG ATTY. MCLAIR D. GARCIA Bureau of Internal Revenue Litigation Division, Room 703, BIR National Office Building Sen. Miriam P. Defensor-Santiago Avenue Diliman, Quezon City AGAN MONTENEGRO MALSAGA & CO. 7th Floor, Electra House Builing 115- 11 7 Esteban Street, Legaspi Village Makati City GREETINGS: You are hereby notified by these presents that on May 21, 2026, a Judgement on Compromise Agreement was rendered in the above-entitled case, copy of which is attached hereto. Quezon City, Philippines, May 28, 2026. - Atty. Maria J~han-Te Executive Clerk of Court III

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY First Division THE REAL AMERICAN CTA CASE NO. 11343 DOUGHNUT COMPANY, INC., Members: RINGPIS-LIBAN, P.]., Petitioner, REYES-FAJARDO, and -versus - ANGELES, fl. COMMISSIONER OF P ro m u lgate d: INTERNAL REVENUE, R esponde nt. ~~-----------------X MAY 212026 � 3:!PPM X----------------------------------------------------------- r JUDGMENT ON COMPROMISE AGREEMENT RINGPIS-LIBAN, J.: For the Court's resolution is the parties' Joint Motion to Render I~ Judgment Based on Compromise Agreement1 with the attached Judicial Compromise Agreement (Agreement? flied on March 30, 2026. On December 17, 2025, the parties entered into the Agreement for the purpose of amicably settling and ending the instant case. A copy of the original Agreement, notarized and signed by both parties, was attached to the J oint Motion as Annex "A" thereof. Petitioner had already paid the Judicial Compromise Amount in accordance with the Agreement. Copies of BIR Forms 0605 and BIR D eposit Slips were attached to the Joint Mo tion as Annexes "B" to "B-4" thereo f. A copy of the Certificate of Availment issued to petitioner, evidencing that the compromise was duly evaluated and accepted by the National Evaluation Board (NEB), was attached to the Joint Motion as Annex "C" thereof. !/ 1 Docket- Vo l. II, unpaginated. 2 Jd.

JUDGMENT ON COMPROMISE AGREEMENT CTA CASE NO. 11343 THE COURT'S RULING In Republic- of the Philippines v. H eirs of CruiJ et aL}3 the Supreme Court emphatically held that before approving a compromise, courts are bound to strictly scrutinize the same to ensure that the compromise and its execution are compliant with the law and consistent with procedural rules. In obedience to the foregoing, this Court shall now sctutlnlZe the Agreement dated December 17, 2025 and the documents submitted by the parties in support tl1ereof. T he Agreement, in part, reads as follows: JUDICIAL COMPROMISE AGREEMENT This JUDICIAL COMPROMISE AGREEMENT ("Agreement"), made and executed, by and between: THE REAL AMERICAN DOUGHNUT COMPANY, INC. ("TAXPAYER"), a domestic corporation duly organized and existing under the laws of the Republic of the Philippines, with principal office at 3rd Floor, KDC Plaza Building, Don Chino Roces Avenue, Pio Del Pilar, Makati City, represented by its D eputy Chief Financial Officer, DIANE L. YANZON; - and - T he BU REAU OF IN TERNAL REVEN UE ("BIR"), with principal office at Bureau of Internal Revenue, N ational Office Building, Agham Road, Diliman, Quezon City, represented by the Commissioner, HON. CHARLITO MARTIN R. MENDOZA (collectively, the "PARTIES"); - \Vitnesseth That - WHEREAS, the BIR issued to the TAXPAYER a Final D ecision on D isputed Assessment ("FDDA") dated 19 October 2023 for taxable year 2018 assessing the TAXPAYER basic deficiency taxes in the aggregate amount of Php52,768,566.9} ' 3 G.R. No. 20895 6, October 17, 2018.

JUDGMENT ON COMPROMISE AGREEMENT CTA CASE NO. 11343 WHEREAS, the TAXPAYER instituted an action against the BIR entitled "The Real American Doughnut Company, Inc. vs. Commissioner ofInternal Revenue", docketed as CTA Case No. 11 343, pending before the Honorable First D ivision of the Court of Tax Appeals ("CTA"), seeking for the revocation and cancellation of the FDDA of the BIR for the alleged tax deficiency for the year 2018; WHEREAS, the TAXPAYER has submitted to the BIR a Proposal for Amicable Settlement dated 17 June 2024, for the alleged deficiency tax assessment contained in the FDDA; XXX XXX XXX WHEREAS, the PARTIES, for tl1e pU1pose of avoiding and putting an end to a protracted, expensive and mutually prejudicial litigation, have agreed to amicably settle the above- mentioned case, upon terms and conditions hereinafter set forth; NOW, THEREFORE, for and in consideration of the foregoing premises, the PARTIES hereto have agreed as follows: Section 1. Judicial Compromise Amount. In order to settle the above-mentioned case, the TAXPAYER has offered and the BIR has accepted the total payment of TWENTY-ONE MILLION SEVEN HUNDRED FORTY-NINE THOUSAND SEVEN HUNDRED SEVENTY-ONE AND 31/100 PESOS (Php21,749,771.31) ("Judicial Compromise Amount"). Section 2. Submission to the Honorable CTA. This Agreement fully signed by tl1e PARTIES shall be submitted for the approval of the Honorable CTA in CTA Case No. 11343. The PARTIES undertake to perform any and all acts, and submit any and all documents required by the Honorable CTA to be able to render a Judgment by Compromise Agreement in the said case. XXX XXX XXX Section 6. Full and Final Settlement. This Agreement is executed by the PARTIES for the put-pose of amicably settling and ending CTA Case No. 11343. Upon approval by the court, the BIR recognizes the full satisfaction of the supposed tax liability of the TAXPAYER in connection witl1 CTA Case o. 11343 and acknowledges that the TAXPAYER no longer has any tax liability whatsoever based upon, arising from or in connection with the particular subject of CTA Case No. 1134y

JUDGMENT ON COM PROM ISE AG RE EMENT XXX XXX CTA CASE NO. 11343 XXX Section 204(1\.) of the National Internal Revenue Code of 1997, as amended (1997 NIRC), provides: SEC. 204. A11thority of the Commissioner to Compromise, Abate and Rej11nd or Credit Taxes. - The Commissioner may - (A) Compromise the payment of any internal revenue tax, when: (1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. The compromise settlement of any tax liability shall be subject to the following minimum amounts: For cases of financial incapacity, a minimum compromise rate equivalent to ten percent (10%) of the basic assessed tax; and For other cases, a minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax. Where the basic tax involved exceeds One million pesos (P1 ,000,000) or where the settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners. (Emphasis supplied) Based on the above-cited provision, the requisites for a valid compromise agreement are the following: (1) The application for compromise is based on either the doubtful validity of the tax assessment or the taxpayer's financial incapacity to pay such assessmeny

JUDGMENT ON COMPROMISE AGREEMENT CTA CASE NO. 11343 (2) In case the basis of the compromise offer is doubtful validity, the minimum payment of compromise settlement shall be at the rate equivalent to forty percent (40%) of the basic assessed tax, and, if the ground is financial incapacity, the minimum payment should be at the rate equivalent to ten percent (10%) of the basic assessed tax; and (3) The approval of the NEB, which is composed of the Commissioner and his four (4) D eputy Commissioners, if the subject assessment exceeds One Million Pesos (Php1,000,000.00) or where the settlement offered is less than the prescribed minimum rates. The records o f this case show that tl1e application for compromise settlement was grounded on the doubtful validity of respondent's tax assessment, as confirmed by the Certificate of Availment which expressly states that petitioner availed o f the provisions of "Sec. 3.1 of RR 30-2002 Qudicial)." In its Petition for Review, petitioner raised the following grounds to challenge the validity of the deficiency tax assessments for taxable year 2018: first, that respondent's reliance on third-party information data without conf1rmation or verification from the third-party sources - including the matching of petitioner's Summary List of Purchases against third-party Summary Lists of Sales - constitutes a naked assessment bereft of factual and legal basis, tantamount to a denial o f due process; second, that petitioner suffered foreign exchange losses and losses from property and equipment disposal which were unjustifiably disregarded by respondent; third, that the deficiency assessments for VAT, Expanded Withholding Tax (E\"Xi'T), and Withholding Tax on Compensation (\"Xi'TC) have already prescribed pursuant to Section 203 of tl1e 1997 N IRC, given that the Formal Letter of Demand dated March 9, 2023 was received on the same date; and fourth, that the Compromise P enalty was improperly imposed without petitioner's conformity, in violation of settled doctrine. In its Answer, respondent denied petitioner's material allegations and maintained the following special and affirmative defenses: that petitioner is liable for the deficiency taxes as assessed; that the assessments are presumed correct; that respondent's right to assess has not prescribed, given that petitioner executed two \"X/aivers of the Defense of Prescription - the first dated February 4, 2021 extending the period to assess VAT liabilities until June 30, 2022, and tl1e second dated September 5, 2022 extending the period for all internal revenue tax liabilities for taxable year 201 8 until April 15, 2023 - botl1 executed prior to the issuance of tl1e Fotmal Letter of D emand dated March 9, 2023; and that petitioner, as a withholding agent, is imprescriptibly liable for its failure ~

JUDGMENT ON COMPROMISE AGREEMENT CTA CASE NO. 11343 withhold and remit the correct expanded withholding taxes and withholding taxes on compensation. The opposing positions of the parties plainly show that the validity of the deficiency assessments was genuinely and legitimately put in issue. Accordingly, the first requisite under Section 204(A) of the 1997 NIRC pertaining to the ground of doubtful validity o f the assessment is met. As to the second requisite pertaining to the amount of compromise payment, the copy o f the FDDA shows that respondent assessed petitioner for basic deficiency taxes for taxable year 201 8 in the following amounts: Type ofTax Amount of Basic Compromise Deficiency Tax Assessed Amount Paid (Excluding Interest and P1 7,741 ,576.82 Penalties) P2,937,620.27 P164,000.00 Income T ax (IT) P44,353,942.04 P36 ,4 31. 48 P870,1 42.75 Value-Add ed Tax P 7,344,05 0.67 (VAT) Minimum Cotporate P164,000.00 Income Tax (MC) \Vithholding T ax on P 36,431.48 Compensation (WC) Expanded Withholding P870,142.75 T ax (\VE) Based on the submitted Agreement, petitioner paid a total of P21,749,771.31 as the Judicial Compromise Amount, which represents approximately 41.22% of the total basic deficiency taxes assessed in the amount of P52,768,566.94. T his rate exceeds the prescribed minimum compromise rate o f forty percent (40%) of the basic assessed tax for cases grounded on doubtful validity under Section 204(A) of the 1997 NIRC. The amounts paid were duly supported by BIR Forms 0605 (Payment Forms), eFPS Filing Reference Numbers, and BIR Payment D etails via BPI BizLink, all dated D ecember 29, 2025 (Annexes "B" to "B-4"). The computation and payment of the amount of compromise settlement as shown above is thus in accordance with law and is deemed compliant witl1 the second requisite. As to the third requisite, the Court notes that there is sufficient compliance with the law by the submission of tl1e certified tme copy of the Certificate of r\vailment (Compromise Settlement) dated April 21, 2026 (Annex "C") , which states that petitioner's application for the compromise settlement~

JUDGMENT ON COMPROM ISE AGREEMENT CTA CASE NO. 11343 deficiency IT, VAT, WE, WC, and MC taxes amounting to P52,768,566.94 under FDDA dated October 19, 2023 has been approved by the National Evaluation Board (NEB) . The Certificate was signed by James H. Roldan, Assistant Commissioner, Enforcement and Advocacy Service, as Authorized Signatory of the Commissioner of Internal Revenue. The Court further notes that petitioner's Formal Offer of Evidence fl.led on August 20, 2025 and emailed on August 21, 2025, as well as respondent's Comment (Re: Formal Offer of Evidence dated 19 August 2025) emailed on October 16, 2025, need no longer be resolved. With the approval of the Agreement and the rendition of this Judgment, the same are rendered moot and academic, the case being now closed and terminated. With the faithful observance by the parties of all the requisites under Section 204(A) of the 1997 NIRC, the Court approves the Agreement. WHEREFORE, the parties' Joint Motion to RenderJudgment Based on Compromise Agreement is hereby GRANTED. Accordingly, the J udicial Compromise Agreement executed by the parties is hereby APPROVED. The parties are sui.cdy enjoined to faithfully comply with all the terms and conditions of the Agreement. This case is now deemed CLOSED and TERMINATED . SO ORDE RED. L. -1.. ~r .. J ' - - MA. BELEN M. RINGPIS-LIBAN Presiding]ustice WE CONCUR: ~br.~ .. F~ MARIAN IVY F. REYES-FAJARDO Associate Justice H ENRY JeGELES Associate Justice

JUDGMENT ON COMPROMISE AGREEMENT CTA CASE NO. 11343 CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Judgment were reached in consultation before the case was assigned to the writer of the opinion of the Court. ~.~)~ MA. BELEN M. RINGPIS-LIBAN Presiding Justice