BASF PHILIPPINES, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SECOND DIVISION BASF PHILIPPINES, INC., CTA CASE NO. 11071 Petitioner, Members: -versus- RINGPIS-LIBAN, Chairperson, MODESTO-SAN PEDRO, and FERRER-FLORES,]]. COMMISSIONER OF Promulgated: p , /O /Jn1 INTERNAL REVENUE, .�. �. �. � ./. f'"I &spondent. X--------------------------------------------------------------------------------------------:;; DECISION RINGPIS-LIBAN,J.: THE CASE Before this Court is a Petition for Review wherein petitioner prays that judgment be rendered declaring the assessments against it for deficiency income tax, value-added tax (VAT), expanded withholding tax (EWT), and withholding tax on compensation (WTC), for taxable year 2017, in the total amount of P10,220,228.64, inclusive of increments, void and/or invalid, and cancelling the same.1 THE PARTIES Petitioner BASF Philippines, Inc. is a corporation duly organized and existing under Philippine laws, with principal office at Upper Penthouse, Units 3 & 4 CTP Asean Tower, Block 3, Lot 2, Asean Drive, Spectrum District, Filinvest City, Alabang, Muntinlupa City. 2~ 1 Prayer, Petition for Review, Docket- Vol. I, p. 26. 2 Exhibit "P-1", Docket- Vol. III, pp. 986 to 1012.

DECISION CTA Case No. 11071 Respondent is the duly appointed Commissioner of Internal Revenue who holds office at the Bureau of Internal Revenue (BIR), National Office, Diliman, Quezon City.3 ANTECEDENTS (ADMINISTRATIVE LEVEL) The BIR issued a Preliminary Assessment Notice (PAN) dated December 21, 2020,4 assessing petitioner for deficiency income tax, VAT, EWT, WTC, and documentary stamp tax (DST) for taxable year 2017. In response to the PAN, petitioner ftled a letter dated January 5, 2021 on January 6, 2021.5 Thereafter, the BIR issued a Formal Letter of Demand (FLD) with attached Details of Discrepancies and Assessment Notices dated January 27, 2021.6 On February 26, 2021, to protest the FLD, petitioner filed its letter of even date/ requesting for a reinvestigation of the assessments. Respondent then sent petitioner a letter dated March 17, 2021 with the subject, Action on Protest Letter dated February 26, 2021 Requestfor Reinvestigation on April 26, 2021,8 wherein respondent granted petitioner's request for the reinvestigation of the assessments, and informed petitioner to submit the necessary supporting documents within sixty (60) days from the date of filing of its protest. Subsequently, on June 14, 2021, petitioner ftled the letter of even date transmitting documents which were alleged to be requested by the BIRon May 27, 2021.9 Respondent, through Regional Director Jethro :Lvi. Sabariaga of Revenue Region No. 8B, issued the Final Decision on Disputed Assessment (FDDA), with attached Details of Discrepancies and Amended Assessment Notices, dated November 22, 2022, which partially denied petitioner's protest. 10 PROCEEDINGS BEFORE THIS COURT Petitioner flied a Petition for Review on January 19, 2023.11 / 3 Par. 2, Petition for Review, Docket- Vol. I, p. 6. 4 Exhibit "P-3", Docket- Vol. III, pp. 1024 to 1032. 5 Exhibit "P-4", Docket- Vol. III, pp. 1044 to 1046. Cf: Docket- Vol. III, pp. 1033 to 1035. 6 Exhibit "P-5" to "P-5-E", Docket- Vol. III, pp. 1047 to 1060. 7 Exhibit "P-6", Docket- Vol. III, pp. 1061 to 1078. 8 Exhibit "P-7, Docket- Vol. III, p. 1079. 9 Exhibit "P-8", Docket- Vol. III, pp. 1080 to 1082. 10 Exhibits "P-2" to "P-2-D", Docket- Vol. III, pp. 1013 to 1023. 11 Docket- Vol. I, pp. 6 to 31.

DECISION CTA Case No. 11071 On February 15, 2023, respondent received a Summons issued by the Court on February 1, 2023, which ordered the filing of an Answer to said Petition for Review. 12 Respondent's counsel posted a Motion for Extension if Time to File Answer on March 14, 2023,13 asking until April 16, 2023 to file the Answer, which was granted by the Court in its Minute Resolution dated April11, 2023.14 The Judicial Records Division of this Court reported that, as of June 26, 2023, respondent still failed to file an Answer in this case. 15 In the Resolution dated September 8, 2023,16 in view of respondent's failure to file his Answer, the Court set the case for hearing for the reception of petitioner's evidence on November 16,2023. Subsequently, petitioner filed a Motion to Declare Respondent in Default and to Set Additional Commissioner's Hearing on September 18, 2023.17 The Court granted petitioner's motion and declared respondent in default in its Resolution dated November 6, 2023.18 Trial of the case then ensued ex parte. Petitioner offered the testimony of Mr. John Sylvester M. Duran,19 petitioner's Finance and Controlling Specialist. On December 19, 2023, petitioner filed its Manifestation and Submission,2� with the attached hard copy of its Formal Offer if Evidence. 21 In the Resolution dated August 20, 2024,22 the Court admitted all of petitioner's offered exhibits. Petitioner's Memorandum was flied on October 9, 2024.23 The case was considered submitted for decision on October 21, 2024. 24 ~ 12 Docket- Vol. I, p. 477. 13 Docket- Vol. I, pp. 478 to 480. 14 Docket- Vol. II, p. 483 [stapled at the end of Vol. II]. 15 Records Verification dated June 26, 2023 issued by this Court's Judicial Records Division, Docket- Vol. I, p. 483. 16 Docket- Vol. I, pp. 484 to 485. 17 Docket- Vol. I, pp. 486 to 489. 1s Docket- Vol. II, pp. 502 to 504. 19 Exhibit "P-34", Docket - Vol. II, pp. 509 to 537; Minutes of the hearing held on, and Order dated, November 16, 2023, Docket- Vol. II, pp. 963 to 963-B. 20 Docket- Vol. III, pp. 964 to 965. 21 Docket- Vol. III, pp. 968 to 985. 22 Docket- Vol. III, pp. 1383 to 1385. 23 Docket - Vol. III, pp. 1387 to 1418. 24 Minute Resolution dated October 21, 2024, Docket- Vol. III, p. 1423.

DECISION ITA Case No. 11071 THE ISSUES RAISED BY PETITIONER Petitioner summarizes the issues for the Court's resolution, as follows: " a. Whether or not the Assessments are void on account of the Respondent's failure to observe due process; b. Whether or not the Assessments are invalid for lack of factual and/ or legal bases; and c. Whether or not portions of the assessments for VAT, EWT, and WTC issued against the Petitioner are barred by prescription."25 Petitioner's arguments: Petitioner argues that the assessments are void because respondent failed to observe due process when he converted the PAN to FLD without considering the defenses and supporting documents submitted by petitioner, and without explaining the specific facts and law for rejecting petitioner's defenses and submissions; that the assessments are invalid for lack of factual and/or legal bases; and that the portions of the VAT, EWT, and \\'lTC assessments issued against the petitioner are barred by prescription. THE COURT'S RULING The present Petition for Review is partly meritorious. There was no violation of petitioner's right to due process. Petitioner argues that the assessments are void because respondent failed to observe due process when he converted the PAN to FLD without considering the defenses and supporting documents submitted by petitioner and without explaining the specific facts and law for rejecting petitioner's defenses and submissions. Petitioner avers that the FLD itself shows that its explanations in the PAN protest letter were simp!J brushed aside and ignored by respondent. It further asserts that while respondent confirmed receiving the PAN protest letter, there was no reference in the FLD that would show that respondent considered the legal and factual arguments raised by petitioner in its PAN protest letter. According to petitioner, the BIR simply replicated its PAN findings in the FLD, including the same assessment items and the same amount of deficiency 25 Par. 28, petitioner's Memorandum, Docket- Vol. III, p. 1392. ~

DECISION CTA Case No. 11071 taxes; and in fact, the Details of Discrepancies attached to the FLD is allegedly identical to the Details ofDiscrepancies attached to the PAN. The Court is not convinced. Section 228 of the National Internal Revenue Code (NIRC) of 1997 reads, in part, as follows: "SEC. 228. Protesting ifAssessment. - When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: xxx XXX XXX XXX The taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. XXX XXX xxx." (Emphasis added) The foregoing provision explicitly requires that the taxpayer be informed in writing of the law and of the facts on which the assessment is made; otherwise, the assessment shall be void.26 The requirement that the taxpayer must be informed of the factual and legal bases of the assessment is mandatory. It cannot be presumed. As a requirement of due process, this rule enables the taxpayer to make an effective protestY To be sure, the requirement set by law to state in writing the factual and legal bases for the assessment is not a hollow exhortation. The law imposes a substantive, not merely a formal, requirement. 28 Furthermore, it must be emphasized that failure to comply with Section 228 does not only render the assessment void, but also finds no validation in any provision in the Tax Code.29 To implement the above-quoted Section 228, Section 3 of Revenue Regulations (RR) No. 12-99,30 as amended by RR No. 18-2013,31 and e renumbered by RR No. 7-2018,32 provides, in part, as follows: 26 Commissioner of Internal Revenue vs. Avon Products Manufacturing, Inc., et seq., G.R. Nos. 201398-99 and 201418-19, October 3, 2018. 27 Commissioner ofInternal Revenue vs. Spouses Remigio P. Magaan and Leticia L. Magaan, G.R. No. 232663, May 3, 2021. 28 Commissioner of Internal Revenue vs. Unioil Corporation, G.R. No. 204405, August 4, 2021. 29 Ibid., citing Commissioner ofInternal Revenue vs. Reyes, 516 Phil. 176, 191 (2006). 30 SUBJECT: Implementing the Provisions of the National Internal Revenue Code of 1997 Governing the Rules on Assessment of National Internal Revenue Taxes, Civil Penalties and Interest and the Extra-Judicial Settlement of a Taxpayer's Criminal Violation of the Code Through Payment of a Suggested Compromise Penalty. 31 SUBJECT: Amending Certain Sections of Revenue Regulations No. 12-99 Relative to the Due Process Requirement in the Issuance of a Deficiency Tax Assessment. 32 SUBJECT: Amending Certain Sections of Revenue Regulations No. 12-99, as Amended by Revenue Regulations No. 18-13, Relative to the Due Process Requirement in the Issuance of a Deficiency Tax Assessment.

DECISION CTA Case No. 11071 "SECTION 3. Due Process Requirement zn the Issuance of a Deficiency Tax Assessment. - 3.1 Mode of procedure in the issuance of a deficiency tax assessment: XXX XXX XXX 3.1.2 Preliminary AJSessment Notice (PAN). If after review and evaluation by the Commissioner or his duly authorized representative, as the case may be, it is determined that there exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall issue to the taxpayer a Preliminary Assessment Notice (PAN) for the proposed assessment. It shall show in detail the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based (see illustration in ANNEX 'A' hereof). XXX XXX XXX 3.1.4 Formal Letter if Demand and Final Assmment Notice (tlD/FAN). -The Formal Letter of Demand and Final Assessment Notice (FLD/FAN) shall be issued by the Commissioner or his duly authorized representative. The FLD/FAN calling for payment of the taxpayer's deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the assessment shall be void (see illustration in ANNEX 'B' hereof). XXX XXX XXX 3.1.6 Final Decision on a Disputed Assessment (FDDA).- The decision of the Commissioner or his duly authorized representative shall state the (i) facts, the applicable law, rules and regulations, or jurisprudence on which such decision is based, othenvise, the decision shall be !JOid (see illustration in ANNEX 'C' hereof), and (ii) that the same is his final decision." (Emphases and underscoring added) As part of due process in the issuance of tax assessments, this provision prescribes that the PAN, FLD/FAN and FDDA must, respectively, state, among others, the facts and the law on which the assessment is based; otherwise, the FLD/FAN and/or FDDA shall be void. Indeed, in Commissioner rif Internal Revenue vs. Avon Products Manufacturingy Inc.) et seq. (Avon), 33 the Supreme Court made the following pronouncements: "Tax assessments issued in violation of the due process rights of a taxpayer are null and void. While the government has an interest in the swift collection of taxes, the Bureau of Internal Revenue and its officers and agents cannot be overreaching in their efforts, but must perform their duties in accordance with law, with their own rules of procedure, and always with regard to the basic tenets of due process. ~ 33 G.R. Nos. 201398-99 and 201418-19, October 3, 2018.

DECISION erA Case No. 11071 The 1997 National Internal Revenue Code, also known as the Tax Code, and revenue regulations allow a taxpayer to file a reply or otherwise to submit comments or arguments with supporting documents at each stage in the assessment process. Due process requires the Bureau of Internal Revenue to consider the defenses and evidence submitted by the taxpayer and to render a decision based on these submissions. Failure to adhere to these requirements constitutes a denial of due process and taints the administrative proceedings with invalidity. XXX XXX XXX The Bureau of Internal Revenue is the primary agency tasked to assess and collect proper taxes, and to administer and enforce the Tax Code. To perform its functions of tax assessment and collection properly, it is given ample powers under the Tax Code, such as the power to examine tax returns and books of accounts, to issue a subpoena, and to assess based on the best evidence obtainable, among others. However, these powers must 'be exercised reasonably and [under] the prescribed procedure.' The Commissioner and revenue officers must strictly comply with the requirements of the law, with the Bureau of Internal Revenue's own rules, and with due regard to taxpayers' constitutional rights. XXX XXX XXX In carrying out these quasi-judicial functions, the Commissioner is required to 'investigate facts or ascertain the existence of facts, hold hearings, weigh evidence, and draw conclusions from them as basis for their official action and exercise of discretion in a judicial nature.' Tax investigation and assessment necessarily demand the observance of due process because they affect the proprietary rights of specific persons. XXX XXX XXX In Ang Tibqy 11. Tbe Cozo1 if Indm-trial Relations,34 this Court observed that although quasi-judicial agencies 'may be said to be free from the rigidity of certain procedural requirements[, it] does not mean that it can, in justiciable cases coming before it, entirely ignore or disregard the fundamental and essential requirements of due process in trials and investigations of an administrative character.' It then enumerated the fundamental requirements of due process that must be respected in administrative proceedings: (1) The party interested or affected must be able to present his or her own case and submit evidence in support of it. (2) The administrative tribunal or body must consider the evidence presented. (3) There must be evidence supporting the tribunal's decision. (4) The evidence must be substantial or 'such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.' (5) The administrative tribunal's decision must be rendered on the evidence presented, or at least contained in the record and disclosed to the parties affected. /V 34 69 Phil. 635 (1940) [Per J. Laurel, En Bane].

DECISION CTA Case No. 11071 (6) The administrative tribunal's decision must be based on the deciding authority's own independent consideration of the law and facts governing the case. (7) The administrative tribunal's decision is rendered in a manner that the parties may know the various issues involved and the reasons for the decision. XXX XXX XXX The second to the sixth requirements refer to the party's 'inviolable rights applicable at the deliberate state'. The decision-maker must consider the totality of the evidence presented as he or she decides the case. The last requirement relating to the form and substance of the decision is the decision-maker's 'duty to give reason' to enable the affected person to understand how the rule of fairness has been administered in his [or her] case, to expose the reason to public scrutiny and criticism, and to ensure that the decision will be thought through by the decision-maker. XXX XXX XXX Administrative due process is anchored on fairness and equity in procedure. It is satisfied if the party is properly notified of the charge against it and is given a fair and reasonable opportunity to explain or defend itself. Moreover, it demands that the party's defenses be considered by the administrative body in making its conclusions, and that the party be sufficiently informed of the reasons for its conclusions. XXX XXX XXX The importance of providing the taxpayer with adequate written notice of his or her tax liability is undeniable. Under Section 228, it is explicitly required that the taxpayer be informed in writing of the law and of the facts on which the assessment is made; otherwise, the assessment shall be void. Section 3.1.2 of Revenue Regulation No. 12- 99 requires the Preliminary Assessment Notice to show in detail the facts and law, rules and regulations, or jurisprudence on which the proposed assessment is based. Further, Section 3.1.4 requires the Final Letter of Demand must state the facts and law on which it is based; otherwise, the Final Letter of Demand and Final Assessment Notices themselves shall be void. Finally, Section 3.1.6 specifically requires that the decision of the Commissioner or of his or her duly authorized representative on a disputed assessment shall state the facts and law, rules and regulations, or jurisprudence on which the decision is based. Failure to do so would invalidate the Final Decision on Disputed Assessment. 'The use of the word 'shall' in Section 228 of the [National Internal Revenue Code] and in [Revenue Regulations] No. 12-99 indicates that the requirement of informing the taxpayer of the legal and factual bases of the assessment and the decision made against him [or her] is mandatory.' This is an essential requirement of due process and applies to the Preliminary Assessment Notice, Final Letter of Demand with the Final Assessment Notices, and the Final Decision on Disputed Assessment. ttl'

DECISION CTA Case No. 11071 XXX XXX XXX The facts demonstrate that Avon was deprived of due process. It was not fully apprised of the legal and factual bases of the assessments issued against it. The Details of Discrepancy attached to the Preliminary Assessment Notice, as well as the Formal Letter of Demand with Final Assessment Notices, did not even comment or address the defenses and documents submitted by Avon. Thus, Avon was left unaware on how the Commissioner or her authorized representatives appreciated the explanations or defenses raised in connection with the assessments. There was clear inaction of the Commissioner at every stage of the proceedings. XXX XXX XXX It is true that the Commissioner is not obliged to accept the taxpayer's explanations, as explained by the Court of Tax Appeals. However, when he or she rejects these explanations, he or she must give some reason for doing so. He or she must give the particular facts upon which his or her conclusion are based, and those facts must appear in the record. XXX XXX XXX The Commissioner's total disregard of due process rendered the identical Preliminary Assessment Notice, Final Assessment Notices, and Collection Letter null and void, and of no force and effect. This Court has, in several cases, declared void any assessment that failed to strictly comply with the due process requirements set forth in Section 228 of the Tax Code and Revenue Regulation No. 12-99. XXX XXX XXX In CommiJSioner of Internal RetJentte tJ. Rryes/5 this Court ruled as void an assessment for deficiency estate tax issued by the Commissioner for failure to inform the taxpayer of the law and the facts on which the assessment was made, in violation of Section 228 of the Tax Code. XXX XXX XXX Compliance with strict procedural requirements must be followed in the collection of taxes as emphasized in CommiSJioner if Intema/ Revenue v. Algue, Inc.: 3r. Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of /V 35 516 Phil. 176 (2006) [Per C.J. Panganiban, First Division]. 36 241 Phil. 829 (1988) [Per J. Cruz, First Division].

DECISION CTA Case No. 11071 taxation, which is the promotion of the common good, may be achieved. XXX XXX XXX But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate...that the law has not been observed. (Emphasis supplied) xxx. [The Commissioner of Internal Revenue's] disregard of the standards and rules renders the deficiency tax assessments null and void. xxx." (Emphases and undmcoring added) Based on Avon, respondent or his duly authorized representative is mandated to perform assessment functions in accordance with, and strict adherence to, law, with their own rules of procedure, and always with regard to the basic tenets of due process. And due process requires respondent and/or the BIR to consider the defenses and evidence submitted by the taxpayer and to render a decision based on these submissions. Furthermore, in case respondent or his duly authorized representative fails to observe due process, it shall have the effect of rendering the deficiency tax assessment void, and of no force and effect. In the issuance of tax assessments, the concerned taxpayer must be informed in writing of the law and of the facts on which the assessment is made. Such requirement must be embodied in the PAN, FLD/FAN, and FDDA. Specifically, when respondent rejects the taxpayer's explanations, he must give some reason for doing so and the particular facts and law upon which his conclusion are based, and those facts must appear in the record. As a corollary, the concerned taxpayer must not be left unaware on how the respondent or his duly authorized representatives appreciated the explanations or defenses raised in connection with the assessment. In this case, the BIR found the following due from petitioner for taxable year ending December 31, 2017 per PAN issued on December 21, 2020:37 I. INCOME TAX I' 87,689,267.00 Taxable Incomc per return Add: 1\djustments/di:;allowanccs r 39,141,932.38 Receipts Not Subjected to Income Tax (Schedule 1}_ 7,840,480.27 Disallowed Heprcsentatinn and Fntcrtainmcnt (Schedule 2) 37 Exhibit "P-3", Docket- Vol. III, pp. 1024 to 1032.

DECISION 30,158,088.00 219,921,896.45 CTA Case No. 11071 74,620,000.00 p 307,611,163.45 Page 11 of 44 46,355,117.34 21,806,278.46 p 92,283,349.03 Disallowed Accrued Expense (Schedule 3) UnsuJPorted Expenses (Schedule 4) p 17,860,429.83 23,519,706.83 Disallowed Expenses due to Non-withholding 5,659,277.00 p 68,763,642.20 (Schedule 5) 2,787,073.00 Disallowed Salaries & Wages due to Non- 22,7 42,868.18 withholding (Schedule 6) p 26,306,779.83 p 91,506,510.38 Taxable Income 2,787,073.00 Basic Deficiency Income Tax p 777,716,236.43 I ,ess: Tax Credits/Payments 417,160,652.59 Payments p 1,194,876,889.02 Creditable Tax Withheld Foreign Tax Credits p 143,385,226.68 Total Less: Disallowed Foreign Tax Credits p 110,678,366.12 Basic Tax Due 76,195,546.07 :\dd: Interest 12% (A.pr. 16,2018 to Jan. 15, 2021}_ TOTAL AMOUNT DUE 1,775,589.73 188,649,501.92 II. VAT Taxable sales/ recei]:ts J_J_er V.\T return p 110,678,366.12 Add: Disallowed Zero-Rated Sales 2,189,200.09 Taxable sales/ receipts as adjusted 93,134,353.46 206,001,919.67 (17,352,417.75) Ou_t}J_ut Tax Due p 160,737,644.43 I,ess: Allowable input tax per audit - Input Tax from current period Input Tax carried over from previous period p 160,737,644.43 Input Tax Deferred on Capital Goods Exceeding 57,389,944.72 P1I\! Total p 218,127,589.15 Less: Adjustments/ disallowances p 3,564,405.02 Unsupported Input Tax 1,284,357.67 Input Tax on Purchases of Capital Goods exceeding P1M p 4,848,762.69 Excess input tax carried over to succeec.Eng p 5,734,918_.32 2,066,456.05 period VXl' Payable Less: VAT Payments per Return Basic V.-\T Due i\dd: Interest 12% (Jan. 26,2018 to)an. 15, 2021) TOTAL AMOUNT DUE III. EWT Basic Tax Due (Schedule 5) Add: Interest 12%_(Jan. 16,2018 to Jan. 15, 2021}_ TOTAL AMOUNT DUE IV. WTC Basic Tax Due (Schedule 6) Add: Interest 12% (Jan. 16,2018 to Jan. 15, 2021)

DECISION p 1,473,158.25 p 7,801,374.37 CfA Case No. 11071 2,142,658.22 Page 12 of 44 p 5,892,633.00 3,615,816.47 TOTAL AMOUNT PAYABLE p 9,508,449.47 V.DST Basic Tax Due_iSchedule 7j_ Add: Surcharge (25%) Interest 12% (Jan. 6, 2018 to jan. 15, 2021) TOTAL AMOUNT DUE In sum, petitioner was assessed the following items: Tax Type Basic Surcharges Interests Total Income tax VAT r 68,763,642.20 - r 22,742,868.18 r 91,506,510.38 E\"Vf \TIC 160,737,644.43 - 57,389,944.72 218,127,589.15 DST 3,564,405.02 1,284,357.67 4,848,762.69 5,734,918.32 - 2,066,456.05 7,801,374.37 Total 5,892,633.00 - 2,142,658.22 9,508,449.47 P 2 4 4 , 6 9 3 , 2 4 2 . 97 1,473,158.25 P85,626,284.84 P331,792,686.06 P1,473,158.25 Subsequently, in the FLD dated January 27, 2021,38 the assessment retained the same deficiency tax liabilities, with an ac/justed interest rate: I. INCOME TAX 1' 39,141,932.38 1' 87,689,267.00 Taxable Income per return 7,840,480.27 1\dd: 1\djustments/disallowances 30,158,088.00 219,921,896.45 74,620,000.00 1' 307,611,163.45 Rcce~ts Not Subjected to Income Tax (Schedule 1) Disallowed Representation and Entertainment (Schedule 2) 46,355,117.34 f' 92,283,349.03 Disallowed 1\ccrued Expense (Schedule 3) 21,806,278.46 Unsupported Expenses (Schedule 4) 23,519,706.83 Disallowed Expenses due to Non-withholding (Schedule 5) 1' 17,860,429.83 1' 68,763,642'.20 Disallowed Salaries & Wages due to Non-withholding 5,659,277.00 (Schedule 6) 2,787,073.00 23,692,371.63 Taxable Income p 92,456,013.83 1' 26,306,779.83 Basic l)cficicnc:_y_ Income Tax 2,787,073.00 I ,es,;: Tax Credits/Payments 1' 777,716,236.43 l'avments 417,160,652.59 Creditable Tax Withheld Foreign Tax Credit,; Total Less: Disallowed Foreign Tax Credits Ba,;ic Tax Due ,\dd: Interest 12% (Apr. 16,2018 to 1-'eb. 26, 2021) TOTAL AMOUNT DUE II. VAT Taxable ,;ales/ receipts per V1\T return 1\dd: Disallowed Zero-Rated Sales 38 Exhibit "P-5", Docket- Vol. III, pp. 1047 to 1055.

DECISION f> 1,194,876,889.02 CTA Case No. 11071 f> 143,385,226.68 f> 110,678,366.12 Taxable >ales/ receipts a> adju>ted 76,195,546.07 1,775,589.73 Output Tax Due 188,649,501.92 Le": Allowable input tax per audit f> 110,678,366.12 206,001,919.67 (17,352,417.75) Input Tax from current period 2,189,200.09 f> 160,737,644.43 Input Tax carried over from previou> period Input Tax Deferred on Capital Good> Exceeding P1 i\l 93,134,353.46 - Total J,c": Adjmtment>/disallowances f' 160,737,644.43 59,609,445.34 Umupported Input Tax Input Tax on Purcha>e> of Capital Good> exceeding 1"220,347 ,089. 77 PL\l f> 3,564,405.02 Exec" input tax carried over to succeeding period 1,333,575.75 V:\T Pavablc LcS>: VAT Payment> per Return p 4,897,980.77 Ba>ic V.\T Due ,\dd: Interest 12% .Oan. 26,2018 to Feb. 26, 2021}_ TOTAL AMOUNT DUE III. EWT Ba>ic Tax Due (Schedule 5) ,\dd: lntcre>t 12% Qan. 16,2018 to Feb. 26, 2021) TOTAL AMOUNT DUE IV. WTC f> 5,734,918.32 Basic Tax Due (Schedule 6l_ 2,145,645.06 c\dd: Intere>t 12% Qan.16, 2018 to Feb. 26, 2021) TOTAL AMOUNT PAYABLE p 7,880,563.38 V.DST f' 1,473,158.25 f> 5,892,633.00 Basic Tax Due (Schedule 7) 2,224,024.99 ,\dd: Surcharge (25%) 3,697,183.24 lntcre>t 12% (Jan. 6, 2018 to l'eb. 26, 2021) p 9,589,816.24 TOTAL AMOUNT DUE Briefly, the FLD contained the following details: Tax Type Basic Surcharges Interests Total Income tax p 68,763,642.20 - p 23,692,371.63 p 92,456,013.83 160,737,644.43 59,609,445.34 220,347,089.77 VAT 3,564,405.02 - 1,333,575.75 4,897,980.77 5,734,918.32 - 2,145,645.06 7,880,563.38 E\'VT 5,892,633.00 - 2,224,024.99 9,589,816.24 \'VTC P244,693,242. 97 1,473,158.25 P89,005,062. 77 P335,171,463.99 DST P1,473,158.25 Total However, the Court finds that Avon cannot apply here. ,v"

DECISION erA Case No. 11071 The Court notes that in its January 5, 2021 letter-reply to the PAN,39 petitioner merely refuted the findings/ assessments as follows: "Good day. In connection with the Preliminary Assessment Notice received on December 23, 2020, please see below explanations on the 2017 deficiency tax assessments: I. Income Tax- PHP 145,239,844.77 a. Schedule 1: Receipts not Subjected to Income Tax - PHP 39,141,932.38 Recognition of sales upon issuance of sales invoice for the sale of goods. b. Schedule 2: Disallowed Representation & Entertainment - PHP 7,840,480.27 Refer to our Letter reply to Notice of Discrepancy for the explanation and supporting document submitted (See attachment A). c. Schedule 3: Disallowed Accrued Expenses PHP 30,158,088.00 these are expenses incurred but paid in 2018 (See attachment A). d. Schedule 4: Unsupported Expenses - PHP 74,620,000.00 Refer to our reply to Notice of Discrepancies include all supporting documents (See attachment A). e. Schedule 5: Disallowed expenses due to non-withholding - PHP 46,355,117.34 (See attachment A - Letter reply to Notice of Discrepancy). 1. Offshore services of foreign suppliers Represents services of suppliers rendered offshore which are not subject to EWT. 2. Expense payments via Global Corporate Credit Card (GCCC) for travel, communication, repaus & maintenance, representation & entertaintnent are not subject to EWT amounting to PHP 21,875,147.71 3. Professional Fees - payment for General Professional Partnerships are not subject to EWT. f. Schedule 6: Disallowed Salaries & Wages due to Non- Withholding - PHP 21,806,278.46 some personnel costs mapped under salaries and benefits in the audited FS that are not subject to w/tax on compensation (See attachment A) GL# Retirement Provision PHP "-\mount Net Past Service Cost 4,958,190.00 4184000 I\fedical Insurance Others 5,652,545.00 4194300 I\fedical Expenses 5,075,656.24 4194320 Medical Expenses - Check Ups 691,042.13 518,139.73 39 Exhibit "P-4", Docket- Vol. III, pp. 1044 to 1046.

DECISION CfA Case No. 11071 4195100 Events/Parties for Employees 2,355,048.86 4195200 Emplovee Leisure Activities 91,429.06 4199100 Recruitment & Interview Process 4194000 Expert Workshops Events 1,110,615.08 Training 3,623,765.05 TOTAL PHP 24,076,431.15 g. Disallowed/Unsupported Creditable Withholding Tax - PHP 2,787,073.00 pertains to 20% creditable tax deducted by BASF Indonesia on commission revenue payment, please refer to supporting documents submitted in our Letter reply to Notice of Discrepancy. II. Value-Added Tax- PHP 160,737,644.43 a. Unsupported Zero-Rated Sales - PHP 417,160,652.59 USD Inward remittance Certification from Deutsche Bank (See attachment B/B-1) and BOI/PEZA certificates representing zero-rated sales on local customers. b. Schedule 10: Unsupported Input Tax - PHP 110,678,366.12 Refer to Summary List of Purchases and Importations duly attached to our Letter reply to Notice of discrepancy (See attachment A). III. Expanded Withholding Tax- PHP 3,564,405.02 Please refer to explanation on Schedule 5 IV. Withholding Tax on Compensation- PHP 5,734,918.32 Please refer to explanation on Schedule 6 V. Documentary Stamp Tax- PHP 5,892,633.00 Related Parties are trade related transactions within the normal course of business and not a debt instruments therefore not to be subjected to DST (See attachment C - Notes 21 of AFS). Loan Proceeds pertains to DST on short-term bank loans directly remitted by the bank based on pro-rated tenure ranging from 14/360 to 91/360 days (See attachment D). Future Lease Payments are only AFS disclosures that pertains to prior years lease contract agreement. XXX XXX XXX " Notably, petitiOner did not submit in evidence the attachments referred to in its reply to the PAN. Hence, the reply to the PAN standing alone are mere factual allegations not backed by any relevant documents to prove the same. In fact, a reading of the reply given by petitioner to address some of the items of assessment are tJagm one-liner or .ringle Jentence Jfatement.r concerning the supposed facts. In view of the unsubstantiated factual claims, the assessments are deemed uncontested or undisputed. In which case, there was no due process violation _,../

DECISION CTA Case No. 11071 when respondent retained these items in the FLD, and simply reiterated what were previous!J already indicated in the Details of Discrepancies attached to the PAN. One requirement in Avon is that the decision-maker must consider the totality of evidence presented to decide the case. But respondent cannot be expected to comply with this requirement if petitioner did not provide the evidence needed to resolve the factual issues to begin with. Simply put, in this case, the BIR cannot be faulted if it merely reiterated the findings in the PAN. With nothing to consider after the receipt of the letter-reply, respondent is justified in merely restating its findings, without giving any reason for rejecting the petitioner's unsubstantiated refutations. Groundless, vague one-liners or single sentence statements which are not responsive to the issues raised in the PAN are instifficient to overturn the factual findings in the PAN using the Avon case. This should be a guiding rule for the Court, otherwise, an indiscriminate application of Avon will open an opportunity to overturn the presumption of correctness of assessments based on unfounded defenses. Since petitioner failed to show that it refuted these items, petitioner's defenses were not duly proven or have remained unsubstantiated. To be fair, the Court cannot conclude that respondent had anything to consider in re- evaluating these assessments prior to issuing the FLD. Again, Avon is not on all- fours with the present case that will merit voiding the findings of respondent. The BIR 's right to assess portions of the subject deficiency EWT and WTC is barred by prescription. Petitioner argues that by the time respondent issued the subject FLD on January 27,2021, prescription had already set in for deficiency VAT for the �pt and 2"d quarters of taxable year 2017, and deficiency EWT and WTC for the months ofJanuary to July 2017.40 We part!J agree with petitioner. Section 203 of the NIRC of 1997 reads as follows: "SEC. 203. Period rif Limitation ttpon Asswment and Collection. - Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such # 40 Par. 86, petitioner's Memorandum, Docket- Vol. III, p. 1414.

DECISION CTA Case No. 11071 period: Pro!Jided, That in a case where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return was filed. For purposes of this Section, a return flied before the last day prescribed by law for the filing thereof shall be considered as flied on such last day." (Emphases and underscon.ng added) Section 203 clearly provides that internal revenue taxes must be assessed within three (3) years from the last day prescribed by law for the filing of the tax return or the actual date of filing of such return, whichever comes later.41 As a corollary thereto, an assessment notice issued cifter the three-year prescriptive period is not valid and effective,42 except as provided in Section 222 of the NIRC of 1997. Section 114(A) of the NIRC of 1997, as amended, also reads: "SEC. 114. Return and Pqyment if Value-added Tax. - (A) In General. - Every person liable to pay the value-added tax imposed under this Title shall file a quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered persons shall pay the value-added tax on a monthly basis." (Emphasis added) Based on the foregoing provision, petitioner's Quarter!J VAT Returns for the pr and 2nd quarters of taxable year 2017 should have been flied on or before: (1) April25, 2017, for the 1sr quarter; and, (2) July 25, 2017, for the 2nd quarter. \X!ith regard to withholding taxes, Section 2.58 of RR No. 2-98,43 as amended by RR No. 17-2003,44 provides that for taxpayers who availed of the electronic filing and payment system (EFPS), the deadline for electronical,l.y,..-- 41 Refer to Commissioner of Internal Revenue vs. Kudos Metal Corporation, G.R. No. 178087, May 5, 2010. 42 Commissioner ofInternal Revenue vs. Next Mobile, Inc., G.R. No. 212825, December 7, 2015. 43 SUBJECf: Implementing Republic Act No. 8424, "An Act Amending the National Internal Revenue Code, as Amended" Relative to the Withholding on Income Subject to the Expanded Withholding Tax and Final Withholding Tax, Withholding of Income Tax on Compensation, Withholding of Creditable Value-Added Tax and Other Percentage Taxes. 44 SUBJECT: Amending Further Pertinent Provisions of Revenue Regulations No. 2-98, as Amended, Providing for Additional Transactions Subject to Creditable Withholding Tax; Re-Establishing the Policy that the Capital Gains Tax on the Sale, Exchange or Other Disposition of Real Property Classified as Capital Assets Shall be Collected as a Final Withholding Tax, Thereby Further Amending Revenue Regulations Nos. 8-98 and 13-99, as Amended by Revenue Regulations No. 14- 2000; and for Other Purposes.

DECISION CTA Case No. 11071 filing the applicable withholding tax returns and paying the taxes due thereon via the EFPS shall be five (5) days later than the abovementioned deadlines, unless the EFPS regulations provide for different deadline dates. The relevant provisions of RR No. 2-98, as amended, read: "Sec. 2.58. RETURNS AND PAYMENT OF TAXES WITHHELD AT SOURCE. - (A) Month!J retltrn and pqyment rif taxes withheld at source. - (1) XXX XXX XXX (2) WHEN TO FILE- (a) For both large and non-large taxpayers, the withholding tax return, whether creditable or final (including final withholding taxes on interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements) shall be flied and payments should be made, within ten (10) days after the end of each month, except for taxes withheld for the month of December of each year, which shall be filed on or before January 15 of the following year; xxx. XXX XXX XXX (b) With respect, however, to taxpayers, whether large or non- large, who availed of the electronic filing and payment system (EFPS), the deadline for electronically filing the applicable withholding tax returns and paying the taxes due thereon via the EFPS shall be five (5) days later than the deadlines set above, unless the EFPS regulations provide for different deadline dates and except for the final capital gains tax on the sale, barter or exchange of real property where the law flxes a definite deadline for the payment thereof." (Emphases added) Relative thereto, Section 7 of RR No. 9-2001,45 as amended by RR No. 26-2002,46 providing for the staggered filing of returns of taxpayers enrolled 'in the EFPS based on industry classification. For petitioner, whose Line of Business is "OTHER BUSINESS ACTIVITIES N.E.C.",47 and thus, classified under Group E, its monthly EWT and WTC Returns shall be flied eleven (11) days after the end of each month, to wit: "Section 7. TIME OF FILING OF RETURN. - For purposes of filing returns under the EFPS, the taxpayers classified under the following business /V"' 45 SUBJECT: Electronic Filing of Tax Returns and Payment of Taxes. 46 SUBJECT: Amending Further Revenue Regulations No. 9-2001, as Amended by Revenue Regulations No. 2-2002 and Revenue Regulations No. 9-2002, Providing for the Staggered Filing of Returns of Taxpayers Enrolled in the Electronic Filing and Payment System (EFPS) Based on Industry Classification. 47 Refer to Exhibits "P-31" to "P-31-B", "P-32" to "P-32-F", and "P-33" to "P-33-F", Docket- Vol. III, pp. 1341 to 1378 .

DECISION CTA Case No. 11071 industries shall be required to ftle the Monthly Withholding Tax Returns, except withholding of Value-Added Tax; Monthly VAT Declarations; and Monthly Percentage Tax Returns, on or before the dates prescribed and presented herein-below: BUSINESS INDUSTRY MONTHLY MONTHLY V1\T \'(!ITHHOLDING TAX DECL\RATIONS AND RETURNS EXCEPT MONTHLY WITHHOLDING OF PERCENT/1.GE V.-\LUE ADDED T.-\X T,-\X RETURNS XXX XXX XXX GroupE � Eleven (11) days XXX Activities of J';fembership Organizations Inc. Health and Social Work following end of Private Educational Services the month. Public Admin & Defense Compulsory Social Security Public Educational Services Research and Development .-\gricultural, Hunting, and Forestry Farming of "-\n.imals Fishing Other Service Activities Miscellaneous Business Activities Unclassified XXX XXX XXX For purposes of these regulations, the industry of the taxpayer is its primary line of business or the primary purpose of its existence as stated in the Articles of Incorporation, for corporate taxpayers." For purposes of the subject tax assessments of deficiency VAT, EWT and WTC against petitioner for taxable year 2017, the end of the three (3)-year prescriptive period under Section 203 of the NIRC of 1997 is respectively determined as follows: Kind of Tax & Period Actual date of filing of Reckoning date of the three- End of the three-year the pertinent tax return year prescriptive period48 prescriptive� period V.-\T- 1" Quarter 2017 Dec. 26, 2018 Dec. 26, 2021 Dec. 26, 201849 VAT- 2nd Quarter 2017 Dec. 26, 2018 Dec. 26, 2021 EWT -Jan. 2017 Dec. 26, 2018511 Feb. 13, 201752 Feb. 13,2020 E\VT- Feb. 2017 Feb. 8, 201751 Mar. 13, 2017 54 Mar. 13, 2020 E\VT- .\far. 2017 Mar. 9, 201753 .-\pr. 11, 2017 ,-\]:Jr. 11, 2020 E\VT- Apr. 2017 Apr. 11, 2017 55 j\fay11,2017 May 11, 2020 May 10, 201756 48 The last day prescribed by law for the filing of the tax return or actual date of filing the same, whichever comes later. 49 Exhibit "P-31", Docket- Vol. III, pp. 1341 to 1344. 50 Exhibit "P-31-A", Docket- Vol. III, pp. 1345 to 1348. 51 Exhibit "P-32", Docket- Vol. III, 1351 to 1352. 52 February 11, 2017 fell on a Saturday. 53 Exhibit "P-32-A", Docket- Vol. III, 1353 to 1354. 54 March 11, 2017 fell on a Saturday. 55 Exhibit "P-32-8", Docket- Vol. III, 1355 to 1356. 56 Exhibit "P-32-C", Docket- Vol. III, 1357 to 1358.

DECISION CTA Case No. 11071 Kind of Tax & Period Actual date of filing of Reckoning date of the three- End of the three-year the pertinent tax return year prescriptive period~8 prescriptive �period EWT- May 2017 june 13, 201758 June 13, 2020 E\XTT- June 2017 June 8, 201757 Julv 11, 2017 July 11, 2020 EWr- July 2017 July 4, 201759 "\ug. 11, 2017 Aug. 11, 2020 \VTC -Jan. 2017 "\ug. 7, 2017611 Feb. 13, 201762 Feb. 13,2020 \VTC- Feb. 2017 Feb. 6, 201761 Mar. 13, 2017 6~ Mar. 13, 2020 WTC - Mar. 2017 Mar. 7, 201763 Apr. 11, 2017 "\pr. 11, 2020 WTC - A.pr. 2017 [\pr. 4, 2017 65 l\Iay 11, 2017 May 11, 2020 WTC - .\lay 2017 May 3, 201766 June 13, 201768 June 13, 2020 \VTC- June 2017 June 2, 2017r'7 Julv 11, 2017 July 11, 2020 \VTC -july 2017 July 3, 201769 Aug. 11, 2017 A.ug. 11, 2020 Aug. 2, 2017711 Considering that the FLD and Assessment Notices were issued on January 27, 2021 and received by petitioner on February 1, 2021,71 the right of the BIR to assess deficiency VAT for the 1st to 2nd quarters of taxable year 2017 has not been barred by prescription. However, the BIR's right to assess petitioner for deficiency EWT and WTC for the months of January to July 2017, appears to have already prescribed. However, pursuant to Section 4(z) of Republic Act (RA) No. 11469 dated .l\1arch 24, 2020,72 the statutory deadlines and timeliness for the filing and submission of any document were extended, to wit: "SEC. 4. Authorized Powers. - Pursuant to Article VI, Section 23 (2) of the Constitution, the President is hereby authorized to exercise powers that are necessary and proper to carry out the declared national policy. The President shall have the power to adopt the following temporary emergency measures to respond to crisis brought by the pandemic: XXX XXX XXX 57 Exhibit "P-32-D", Docket- Vol. III, 1359 to 1360. ss June 11, 2017 fell on a Sunday while June 12, 2017 is a holiday. 59 Exhibit "P-32-E", Docket- Vol. III, 1361 to 1362. 60 Exhibit "P-32-F", Docket - Vol. III, 1363 to 1364. 61 Exhibit "P-33", Docket- Vol. III, 1365 to 1366. 62 February 11, 2017 fell on a Saturday. 63 Exhibit "P-33-A", Docket- Vol. III, pp. 1367 to 1368. 64 March 11, 2017 fell on a Saturday. 65 Exhibit "P-33-B", Docket- Vol. III, pp. 1369 to 1370. 66 Exhibit "P-33-C", Docket- Vol. III, pp. 1373 to 1374 67 Exhibit "P-33-D", Docket- Vol. Ill, pp. 1371 to 1372. 68 June 11, 2017 fell on a Sunday while June 12, 2017 is a holiday. 69 Exhibit "P-33-E", Docket- Vol. III, pp. 1375 to 1376. 70 Exhibit "P-33-F", Docket- Vol. III, pp. 1377 to 1378. 71 Exhibit "P-5" to "P-5-E", Docket - Vol. III, pp. 1047 to 1060; Q&A No. 17, Exhibit "P-34", Docket- Vol. II, p. 513. 72 AN ACT DECLARING THE EXISTENCE OF A NATIONAL EMERGENCY ARISING FROM THE CORONAVIRUS DISEASE 2019 (COVID-19) SITUATION AND A NATIONAL POLICY IN CONNECTION THEREWITH, AND AUTHORIZING THE PRESIDENT OF THE REPUBLIC OF THE PHILIPPINES FOR A LIMITED PERIOD AND SUBJECT TO RESTRICTIONS, TO EXERCISE POWERS NECESSARY AND PROPER TO CARRY OUT THE DECLARED NATIONAL POLICY AND FOR OTHER PURPOSES, otherwise known as "Bayanihan to Heal As One Act'~

DECISION CTA Case No. 11071 (z) Move statutory deadlines and timelines for the filing and submission of any document, the payment of taxes, fees, and other charges required by law, and the grant of any benefit, in order to ease the burden on individuals under Community Quarantine;" (Emphasis added) To implement the above law, several Revenue Regulations / Revenue Memorandum Circulars (RMC) were issued by the BIR, with respect to the suspension of the running of the statute of limitations in the assessment of taxes under Sections 203 and 222, pursuant to Section 223, of the NIRC of 1997, as amended, to wit: Issuance Date Subject RR No. 7-2020 Mar. 27, 2020 Implementing Section 4 (z) of Republic Act No. 11469, Mar. 27, 2020 otherwise known as "Bayanihan to Heal As One Act", RMC No. 34- particularly on the extension of statutory deadlines and 2020 Apr. 7, 2020 timelines for the filing and submission of any document Apr. 9, 2020 and the_E_avment of taxes RMC No. 39- SUSPENDING THE RUNNING OF THE STATUTE 2020 Apr. 29, 2020 OF LIMITATIONS IN THE ASSESSMENT AND RR No. 10-2020 May 14,2020 COLLECTION OF TAXES PURSUANT TO SECTION 223 OF THE NATIONAL INTERNAL RR No. 11-2020 July 15, 2020 REVENUE CODE OF 1997, AS AMENDED, DUE July 30, 2020 TO THE DECLARATION OF A NATIONAL RR No. 12-2020 EMERGENCY FROM THE CORONA VIRUS DISEASE 2019 (COVID-19) SITUATION RMC No. 74- Further Extension of the Due Dates for the Submission 2020 and/or Filing of Certain Documents and/ or Returns as &.'VIC No. 77- well as Payment of Certain Taxes under Revenue 2020 Regulations No. 7-2020 Amends Section 2 of Revenue Regulations No. 7-2020 relative to the extension of statutory deadlines and timelines for the filing and submission of any document and the payment of taxes pursuant to Section 4 (z) of Republic Act No. 11469, otherwise known as "Bayanihan to Heal As One Act" Amends Section 2 of Revenue Regulations No. 10-2020 relative to the extension of statutory deadlines and timelines for the flling and submission of any document and the payment of taxes pursuant to Section 4 (z) of Republic Act No. 11469, otherwise known as "Bayanihan to Heal As One Act" Amends Revenue Regulations No. 10-2020, as amended by Revenue Regulations No. 11-2020, relative to the extension of statutory deadlines and timelines for the filing and submission of any document and the payment of taxes pursuant to Section 4 (z) of Republic Act No. 11469, otherwise known as "Bayanihan to Heal As One Act" Amending and/or Clarifying Certain Provisions of RMC 34-2020 Clarifying ECQ as Referred to under RMC No. 74-2020

DECISION CTA Case No. 11071 Based on the revenue issuances above, the running of the statute .of limitations under Sections 203 and 222, pursuant to Section 22Y3 of the NIRC of 1997, as amended, was suspended from March 16, 2020 and for sixty (60) days after the lifting of the quarantine. Subsequently, from May 1, 2020 to May 15, 2020, the Inter-Agency Task Force (IATF) for the Management of Emerging Infectious Diseases continued to place the National Capital Region (NCR) under Enhanced Community Quarantine (ECQ).74 On May 15, 2020, IATF Resolution No. 37 was issued placing all Highly Urbanized Cities (HUCs) of the NCR and the J\!Iunicipality of Pateros under Modified Enhanced Community Quarantine (J\!IECQ) until May 31, 2020, without prejudice to the declaration of localized Enhanced Community Quarantine in critical areas. All HUCs of the NCR and the municipality of Pateros was then placed under General Community Quarantine beginningJune 1' 2020.75 Then, on August 3, 2020, NCR was again placed under MECQ effective from August 4, 2020 to August 18, 2020.76 The computation of the period of suspension was clarified in RMC No. 136-2020,77 issued on December 7, 2020, which provides as follows: "Item 32 in the matrix provided under RR No. 11-2020 pertains to the suspension of the statute of limitation provided under Sections 203 and 222 of the Tax Code. The said matrix provided that the suspension shall start from March 16, 2020, when the state of emergency was declared due to COVID-19 virus until sixty days after the lifting of the quarantine. With such suspension, the counting of the three (3)-year prescriptive period for the period to assess and the five (5)-year period to collect, shall exclude the number of days covered by the period of suspension, which is a total of one hundred thirty-seven (137) days. To illustrate: Original Prescriptive Date New Prescriptive Date Case 1 March 15, 2020 March 15, 2020 Case 2 March 16, 2020 July 31, 2020 /Y"" 73 "SEC. 223. Suspension of Running of Statute of Limitations. -The running of the Statute of Limitations provided in Sections 203 and 222 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty (60) days thereafter; xxx" 74 IATF Resolution Nos. 28 and 29 dated April 23, 2020 and April 27, 2020, respectively. 75 IATF Resolution No. 41 dated ~1ay 29, 2020. 76 Memorandum from the Executive Secretary dated August 3, 2020. 77 SUBJECT: Clarification on the Suspension of the Statute of Limitation Provided Under Revenue Regulations (RR) No. 11-2020.

DECISION CTA Case No. 11071 Case 3 Original Prescriptive Date New Prescr!!Jtive Date Case 4 A_pril 15, 2020 August 30, 2020 Case 5 June 15, 2020 October 30, 2020 Case 6 July 15, 2020 April15, 2021 November 29, 2020 August 30, 2021" Moreover, RMC No. 93-2021,78 emphasizes that the running of the statute of limitations for assessment and collection of deficiency taxes is suspended in the affected jurisdictions while the ECQ and/ or l\1ECQ is in effect, including any extension/ s thereof, and for sixty (60) days thereafter; and that the suspension of the running of the statute of limitations shall apply with respect to the issuance and service of assessment notices, warrants and enforcement, and/ or collection of deficiency taxes. Accordingly, the end of the BIR's right to assess was extended as follows: Kind ofTax & Period Original Extended EWT- Jan. 2017 prescriptive period prescriptive period79 EWT- Feb. 2017 EWT -Mar. 2017 Feb. 13, 2020 Feb. 13,2020 EWT- Apr. 2017 Mar. 13, 2020 Mar. 13, 2020 EWT- May 2017 Apr. 11, 2020 Aug. 26, 2020 EWT- June 2017 May 11, 2020 Sept. 25, 2020 EWT- July 2017 June 13, 2020 Oct. 28, 2020 WTC -Jan. 2017 July 11, 2020 Nov. 25, 2020 WTC- Feb. 2017 Aug. 11, 2020 Mar. 11, 2021 WTC -Mar. 2017 Feb. 13, 2020 Feb. 13, 2020 WTC- Apr. 2017 Mar. 13, 2020 Mar. 13, 2020 WTC - May 2017 Apr. 11, 2020 Aug. 26, 2020 WTC- June 2017 May 11, 2020 Sept. 25, 2020 WTC -July 2017 June 13, 2020 Oct. 28, 2020 July 11, 2020 Nov. 25, 2020 Aug. 11, 2020 Mar. 11, 2021 In this case, the FLD and Assessment Notices were issued on January 27, 2021 and received by petitioner on February 1, 2021,80 or beyond the extended three (3)-year prescriptive period to assess the alleged deficiency EWT and ,/'V 78 SUBJECT: SUSPENSION OF THE RUNNING OF THE STATUTE OF LIMITATIONS ON ASSESSMENT AND COLLECTION OF TAXES PURSUANT TO SECTION 223 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED, DUE TO THE DECLARATION OF ENHANCED COMMUNITY QUARANTINE (ECQ) AND MODIFIED ECQ (MECQ) IN THE NATIONAL CAPITAL REGION (NCR) AND OTHER AREAS OF THE COUNTRY. 79 Applying RMC No. 136-2020 and RMC No. 93-2021, NCR was placed under ECQ/MECQ from March 16, 2020 to May 31, 2020 (77 days) and August 4, 2020 to August 18, 2020 (15 days). Hence, suspension of statute of limitations is for 137 days (77 days + 60 days) and 75 days (15 days + 60 days), whichever is applicable. 80 Exhibit "P-5" to "P-5-E", Docket - Vol. III, pp. 1047 to 1060; Q&A No. 17, Exhibit "P-34", Docket- Vol. II, p. 513.

DECISION CTA Case No. 11071 WTC taxes for January 2017 to June 2017, exceptfor the month ofJu!J 2017, when the assessment was issued within the period allowed to assess. Nevertheless, it must be remembered that tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise. All presumptions are in favor of the correctness of tax assessments. 81 While the Court finds that the respondent's right to assess petitioner for deficiency EWT and WTC for the months of January 2017 to June 2017 has prescribed, the burden is still upon petitioner to show which portion of said deficiency taxes pertain to the prescribed months. However, petitioner did not present evidence to show which portion of the dificienry taxes fall under the months that have prescribed. It only presented the returns to prove the date of filing the subject returns. Thus, no deduction or disallowance shall be made relative the portions of the assessed deficiency withholding taxes which have prescribed. Petitioner is liable for deficiency income tax, VAT, EWT and WTC for taxable year 2017. Based on the FDDA,82 petitioner was assessed of deficiency income tax, VAT, EWT, and WTC for taxable year 2017, in the aggregate amount of P10,220,228.64, inclusive of interests, summarized as follows: Tax T~pe Basic Interest Total Exhibit No.83 , "P-2-A" Income tax P4,515,774.21 P2,509,038.38 P7,024,812.59 "P-2-B" VAT 57,567.20 33,499.38 91,066.58 "P-2-C" E\VT 552,974.66 "P-2-D" \VIC 348,834.69 204,139.97 Total 1,609,491.54 941,883.27 2,551,374.81 P6,531,667 .64 P3,688,561.00 P10,220,228.64 I. Deficiency Income Tax Per the FDDA, respondent assessed petitioner of deficiency income tax amounting to P7,024,812.59, including interest, for the taxable year 2017, as follows: 8 / 81 Bonifacio Sy Po vs. Honorable Court of Tax Appeals and Honorable Commissioner of Internal Revenue, G.R. No. 81446, August 18, 1988; Commissioner ofInternal Revenue vs. Bank of the Philippine Islands, G.R. No. 134062, April 17, 2007. 82 Exhibit "P-2", Docket- Vol. III, pp. 1013 to 1019. 83 Docket- Vol. III, pp. 1020 to 1023. 84 Exhibit "P-2", Docket- Vol. III, at p. 1013.

DECISION CTA Case No. 11071 I. INCOME TAX P1,952,010.79 P87,689,267.00 6,976,693.80 Taxable Income per return 6,123,875.22 15,052,579.81 P102, 741,846.81 Add: Adjustments/disallowances per investigation P30,822,554.04 Disallowed Accrued Expenses (Schedule 1) 26,306,779.83 Disallowed Expenses due to Non-Withholding P4,51 5,774.21 (Schedule 2) Disallowed Salaries & Wages due to Non- 2,509,038.38 Withholding (Schedule 3) P7 ,024,812.59 Adjusted Taxable Income Basic Deficiency Income Tax P17,860,429.83 Less: Tax Credits/Payments 5,659,277.00 2,787,073.00 Payments Creditable Tax Withheld Foreign Tax Credits Basic Tax Due Add: 12% Interest (Apr. 16, 2018 to Nov. 30, 2022) TOTAL AMOUNT DUE The deficiency income tax assessment arose from the following items:85 1. Disallowed Accrued Expenses P1,952,010.79 11. Disallowed Expenses due to Non-withholding 6,976,693.80 iii. Disallowed Salaries and Wages due to Non-withholding 6,123,87 5.22 z. Disallowed Accrued Expenses- ?1.952.010.19 Respondent's verification disclosed that petl.tloner has not provided supporting evidence for the accrued expenses amounting to P1,952,010.79. Hence, the aforementioned expenses have been disallowed pursuant to Section 34(A) (1) (a) and (b) of the NIRC of 1997, as amended. The disallowed accrued expenses are computed as follows: 86 Schedule 1 P22,849,276.00 Note 13 of AFS 3,764,312.00 Travel and External Services Professional Fees 26,613,588.00 Disallowed Accrued Expenses Less: Adjustments per Investigation P1,460,572.53 24,661,577.21 22,419,104.68 P1,952,010. 79 GCCC Suppliers 781,900.00 Professional Fees Disallowed Accrued Expenses 85 Exhibit "P-2", Docket- Vol. III, at pp. 1015 to 1017. 86 Details of Discrepancies, Exhibit "P-2", Docket- Vol. III, pp. 1015 to 1016.

DECISION CTA Case No. 11071 Petitioner argues that the disallowed accrued expenses were lifted from Note 13 relating to Trade and Other Pqyables and Accrued Expenses of its 2017 Audited Financial Statements (AFS).87 Thus, petitioner claims that the disallowance is improper because it was derived by respondent from the provisions entered to liability accounts and not from deductions it actually claimed in its 2017 income tax return. 88 The Court notes that the petitioner did not present its 2017 Annual Income Tax Return as evidence, however, a copy of which was attached to the Petition for Review. 89 Moreover, petitioner claims that it can only assume that such disallowed accrued expenses may pertain to professional fees. These professional fees allegedly represent fees of general professional partnerships (GPPs) for services rendered in 2017 but were not yet billed in 2017.90 Petitioner submitted the following billing invoices from supplier R.G. Manabat & Co. (KPMG): Billing Billing Invoice Amount VAT Total Exhibit Invoice No. Date No.91 P348,796.00 P41,855.52 P390,651.52 "P-1 0" 0021667 Jan. 9,2018 523,193.04 62,783.16 585,976.20 "P-1 0-A" 0023710 TOTAL Apr. 10, 2018 P871,989.04 P104,638.68 P976,627.72 Petitioner asserts that the BIR did not explain the breakdown of the Aqjustments per Investigation in Schedule 1 of the FDDA.92 Likewise, the BIR did not submit any documents or records for the Court to verify if the invoices submitted by the petitioner is already included in the Ac!Justmentsper Investigation. Notably, petitioner argues that these accruals of professional fees are provisions entered to the liability accounts.93 On this note, it was held in Commissioner ofInternal Revenue vs. Isabela Cultural Corporation,94 that the accrual of income and expense is permitted when the "all-events test" has been met. This test requires (1) fixing of a right to income or liability to pay; and (2) the availability of reasonably accurate determination of such income or liability. The "all-events test" requires that the right to income or liability be fixed, and the amount of such income or liability be determined with reasonable accurary. However, the test does not demand that the amount be ,� 87 Exhibit "P-9", Docket- Vol. III, at pp. 1176 to 1177. 88 Par. 35, Petition for Review, Docket- Vol. I, p. 18; Par. 54, petitioner's Memorandum, Docket -Vol. III, p. 1408. 89 Docket- Vol. I, pp. 215 to 228. 90 Par. 56, petitioner's Memorandum, Docket- Vol. III, p. 1408. 91 Docket- Vol. III, pp. 1195 to 1196. 92 Refer to par. 55, petitioner's Memorandum, Docket- Vol. III, p. 1408. 93 Par. 35, Petition for Review, Docket - Vol. I, p. 18; Par. 54, petitioner's Memorandum, Docket -Vol. III, p. 1408. 94 G.R. No. 172231, February 12, 2007.

DECISION CTA Case No. 11071 known absolutely, only that a taxpayer has at its disposal the information necessary to compute the amount with "reasonable accuracy," which implies something less than an exact or completely accurate amount.95 Thus, estimates not supported by bills, contracts, or facts to establish the amount of liability with reasonable accuracy may not be deductible yet. They can instead be considered provisions. A provision is an existing liability of uncertain timing or amount.96 It is not yet an incurred expense, hence, not deductible for income tax purposes, and the company has no obligation yet to withhold taxes in the year the provision was recognized. In this case, the invoices which were not yet billed until 2018 are mere provisions and thus not deductible for income tax purposes. Consequently, the amounts of disallowed accrued expenses should be adjusted as follows: Disallowed Accrued Expenses P26,613,588.00 Less: Adjustments P24,661,577.21 25,533,566.25 Per BIR Reinvestigation 871,989.04 P1,080,021.75 Per Court Verification Disallowed Accrued Expenses 11. Disallowed Expenses due to Non-withholding- ?6,976,693.80 Respondent's verification disclosed that petitioner has not withheld the appropriate withholding tax due on its P6,976,693.80 income payments enumerated hereunder. Section 34(K) of the NIRC, as amended, expressly provides that "[a]ny amount paid or payable which is otherwise deductible from, or taken into account in computing the gross income or for which depreciation or amortization maybe allowed under this Section, shall be allowed as a deduction only if it is shown that the tax required to be deducted and withheld therefrom has been paid to the Bureau of Internal Revenue in accordance with this Section of this Code." Hence, the aforementioned expenses have been disallowed pursuant to the above provision of the law.97 Schedule 2 Per ITR/AFS Per 1601-E Disallowed EWT EWTDue Income Payments Subject Rates P348,834.69 toEWT PS,456,297 .00 Rentals 29,508,442.00 Direct Charges-Rental Rental P37,964,739.00 P30,988,045.20 P6,976,693.80 5% Total 95 Commissioner of Internal Revenue vs. Isabela Cultural Corporation, G.R. No. 172231, February 12, 2007. 96 Philippine Accounting Standard (PAS) 37. 97 Exhibit "P-2" (Details of Discrepancies), Docket- Vol. III, pp. 1016 to 1017.

DECISION erA Case No. 11071 Petitioner's witness, Mr. John Sylvester M. Duran, its Finance and Controlling Specialist, explained that the disallowed expenses due to non- withholding pertains to fees paid by petitioner to supplier Cyrus Logistics, Inc. for warehouse storage service and operations management, which do not represent income payments for rental that is subject to 5% EWT as shown in the Billing Invoices submitted by petitioner.98 The Billing Invoices amounting to P6,994,471.17 (exclusive if VAT) are listed as follows: Billing Billing Invoice Date Amount VAT Total Exhibit No. 99 Invoice No. Dec. 09, 2016 P480,095.07 P57,611.41 P53 7,706.48 "P-11" 40461 Jan. 12,2017 478,667.60 58,878.17 537,545.77 "P-11-.A" 40586 Feb.07,2017 411,758.36 49,411.00 461,169.36 "P-11-B" 40832 Feb. 09,2017 57,792.00 6,935.04 64,727.04 "P-11-C" 40843 ~Iar. 10, 2017 352,273.54 42,272.82 394,546.36 "P-11-D" 40950 .\pr. 08, 2017 415,766.50 49,891.98 465,658.48 "P.11-E" 41090 May 09, 2017 453,926.31 54,471.16 508,397.47 "P-11-F" 41262 June 08, 2017 423,529.38 50,823.53 474,352.91 "P-11-G" 41475 July 13, 2017 417,635.80 50,116.30 467,752.10 "P-11-H" 41659 .\ug. 09, 2017 478,423.42 57,410.81 535,834.23 "P-11-I" 41817 "\ug. 09, 2017 168,070.19 20,168.42 188,238.61 "P-11-J" 42013 .\ug. 09, 2017 432,641.49 51,916.98 484,558.47 "P-11-K" 42011 Sept.07,2017 361,380.05 43,365.61 404,745.66 "P-11-L" 42014 Sept. 07, 2017 189,368.16 22,724.18 212,092.34 42016 Sept. 30, 2017 427,301.04 51,276.12 478,577.16 "P-11-~I" 42173 Sept. 30, 2017 196,922.40 23,630.69 220,553.09 42175 Oct.31,2017 160,609.80 19,273.18 179,882.98 "P-11-N" 42379 Oct. 31, 2017 488,856.81 58,662.82 547,519.63 "P-11-0" 42378 Nov. 30, 2017 132,543.60 15,905.23 148,448.83 "P-11-P" 42634 Nov. 30, 2017 "P-11-Q" Dec. 31, 2017 334,956.75 40,194.81 375,151.56 "P-11-R" 42633 TOTAL 131,952.90 15,834.35 147,787.25 "P-11-S" 43031 P6,994,471.17 P840, 774.61 P7,835,245. 78 "P-11-T" Petitioner noted that the fees paid to supplier Cyrus Logistics, Inc. were recorded in the general ledger as rental expense but were classified as purchase of services for withholding tax purposes. Petitioner further claims that it withheld 2% EWT from such fees as shown in the Alphabetical List ofPqyeesfrom whom Taxes were Withheld for the taxable year 2017.100 Per examination of the Alphabetical List if Pqyees from whom Taxes were Withheld for the taxable year 2017, the payments subjected to 2%, 5% and 10% EWT to supplier Cyrus Logistics, Inc. are as follows: 101 ~ 98 Q&A Nos. 36 to 38, Exhibit "P-34", Docket- Vol. II, pp. 517 to 519. 99 Docket- Vol. III, pp. 1197 to 1217. 100 Q&A No. 37, Exhibit "P-34", Docket- Vol. II, p. 517; Exhibit "P-12", Docket- Vol. III, pp. 1218 to 1233. 101 Exhibit "P-12", Docket- Vol. III, pp. 1223 and 1231 to 1233.

DECISION Tax Base Rate EWT Month CTA Case No. 11071 P437,371.50 2% P8,747.43 Page 29 of 44 1,499,358.00 2% 29,987.16 January 701,613.00 2% 14,032.26 February ATC 1112 869,526.50 2% 17,390.53 WC160 2,081,620.00 2% 41,632.40 March WC160 2,204,645.50 2% 44,092.91 "\pril WC160 446,503.50 2% 8,930.07 June WC160 1,422,448.50 2% 28,448.97 July WC160 3,572,018.50 2% 71,440.37 August WC160 1,451,910.00 2% 29,038.20 September WC160 1,674,417.50 2% 33,488.35 October WC160 November WC160 P16,361,432.50 5% P327 ,228.65 December WC160 P1 06,291.40 P5,314.57 WC160 P106,291.40 10% P5,314.57 February Sub-Total_WC160Io3 52,648.00 10% 5,264.80 WC100 619,658.80 10% 61,965.88 January Sub-Total_WClOO JO.j 506,211.60 10% 50,621.16 February WC140 288,344.00 10% 28,834.40 WC140 105,960.00 10% 10,596.00 i\Iarch WC140 388,312.00 10% 38,831.20 April WC140 701,003.10 10% 70,100.31 i\Iay WC140 413,945.90 10% 41,394.59 June WC140 441,160.00 10% 44,116.00 July WC140 941,280.00 10% 94,128.00 "\ugust WC140 679,080.00 10% 67,908.00 September WC140 573,470.00 57,347.00 October WC140 November WC140 PS, 711,073.40 P571,107.34 December WC140 P22, 178,797.30 P903,650.56 Sub-Total_WC140IIIS TOTAL However, upon the Court's verification, there is an unaccounted variance between the sum of Billing Invoices submitted amounting to P6,994,471.17 (exclusive of VA1), vis-a-vis the disallowed expenses amounting to P6,976,693.80. J'vioreover, petitioner did not provide proper tracing of the Billing Invoices paid to supplier Cyrus Logistics, Inc. to the income payments subjected to 2% EWT. Thus, petitioner failed to prove that the P6,976,693.80 disallowed expenses is included in the total income payments of P16,361 ,432.50, as ,.,.., computed above, which were subjected to 2% EWT. 102 That is, Alphanumeric Tax Code. 103 Nature of income payment for ATC WC160 is EWT- Income payments made by top 10,000 private corporations to their local/resident supplier of services. 104 Nature of income payment for ATC WC100 is EWT- rentals: real/personal properties, poles, satellites & transmission facilities, billboards. 105 Nature of income payment for ATC WC140 is EWT- gross commission or service fees of custom, insurance, stock, real estate, immigration & commercial brokers & fees of agents of professional entertainers.

DECISION CTA Case No. 11071 Furthermore, petitioner did not submit its contract with supplier Cyrus Logistics, Inc. or other similar document to allow the Court to verify the nature of these warehouse storage services and confirm that these are not in the nature of rental fees and to clarify why the income payments made to supplier Cyrus Logistics, Inc. are subjected to different withholding tax rates, at 2%, 5% and 10%. Since petitioner failed to properly refute respondent's assessment, the Court has no recourse but to uphold the disallowance of expenses due to non- withholding in the amount ofP6,976,693.80. zzz. Disallowed Salaries and Wages due to Non-withholding- P6, 123,875.22 Respondent's verification disclosed that petitioner failed to subject to withholding tax its salaries and wages paid to its employees in the amount of P6,123,875.22, hence, this was disallowed as a deduction from gross income for income tax purposes pursuant to Section 34(K) of the NIRC, as amended. The disallowed expenses are computed below:106 Schedule 3 P70,886,263.00 P101,040,344.00 Total Salaries and Wages per ITR/.\FS 30,154,081.00 79,230,077.54 Salaries and Allowances P4,958,190.00 P21,810,266.46 Direct Charges�Salaries, Wages and Benefits 5,652,545.00 Total Compensation per 1601-C 5,07 5,656.24 15,686,391.24 Unadjusted Disallowed Salaries and Wages due to Non�Withholding �6,123,875.22 Less: Retirement Provision Net Past Service Cost :\1edical Insurance Disallo"Wed Salaries and Wages due to Non-Withholding Petitioner claims that the disallowed salaries and wages include income payments not subject to WTC, listed as follows: 107 Particulars Amount Medical Expenses P691,042.13 Medical Expenses-Check Ups Employee Leisure Activities 518,139.73 Recruitment & Interview Process 91,429.06 Expert Workshops Events Training Employee Christmas Gifts 1,110,615.08 3,623,765.05 TOTAL 11,333.01 f'6,046,324.06 At the outset, the Court noted that there is an unaccounted difference of P77,551.16 between the assessed amount of P6,123,875.22 and the allegedly income payments not subject to WTC amounting to P6,046,324.06. ~ 106 Details of Discrepancies, Exhibit "P-2", Docket- Vol. III, p. 1017. 107 Par. 62, petitioner's Memorandum, Docket- Vol. III, p. 1409.

DECISION CTA Case No. 11071 We proceed to discuss each item of the income payments not subject to withholding tax on compensation per petitioner's claim. A. Medical Expenses- P691 ,042.13,� Medical Expenses-Check Ups- P518, 139.73 As a rule, if the medical benefits granted per employee per anum do not exceed P1 0,000.00, the same shall be considered as de minimis benefits that are not subject to income tax as well as to withholding tax on compensation income of both managerial and rank and file employees.108 However, if the employer pays more than the ceiling of other benefits provided in Section 32(B)(7)(e) of the NIRC of 1997, as amended by RA No. 10653,109 the excess shall be taxable to the employee receiving the benefits only if such excess is beyond the P82,000.00 ceiling, i.e., if pertaining to supervisory or managerial employees, the excess shall be subject to fringe benefit tax while those pertaining to rank and file employees, the excess shall be subject to withholding tax on compensation. Hence, the medical benefits provided by the employer to its employees in excess of the amount considered as de minimis is subject to either fringe benefit tax or income tax on compensation. However, if the value of the medical benefits provided to an employee�in addition to his remuneration for services rendered, if furnished to such employee for the convenience of the employer, shall not be added to the remuneration paid for the purpose of determining the amount of compensation subject to income and withholding tax. Neither shall facilities or privileges that are of relatively small value constitute compensation income if these are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees as contemplated under Section 2.78.1(A)(3), of Revenue Regulations (RR) No. 2-98, as amended. Petitioner claims that the account Medical Expenses are payments to third- party suppliers for the medical needs of employees such as dental and health services including travel insurance. While the account of NI.edical Check-ups are payments to third-party suppliers for the annual physical/medical examination done for all employees to determine if they are fit to work. 110 Petitioner submitted the following billing invoices to prove that the nature of these accounts does not pertain to payment of compensation and should not be subject to WTC: tv' 108 Section 2.78.1(A)(3)(f), Revenue Regulations (RR) No. 2-98, as amended by RR No. 5-2011. 109 AN ACT ADJUSTING THE 13TH MONTH PAY AND OTHER BENEFITS CEILING EXCLUDED FROM THE COMPUTATIONS OF GROSS INCOME FOR PURPOSES OF INCOME TAXATION, AMENDING FOR THE PURPOSE SECTION 32 (B), CHAPTER VI OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED. 110 Q&A No. 46, Exhibit "P-34", Docket- Vol. II, p. 526.

DECISION CIA Case No. 11071 1. PrevHealth, Inc.111 SOADate Fee Admin Fee VAT Total Exhibit No. Nature of P1,630.71 Services per Dec. 01, 2016 P12,133.33 P1,455.99 P15,220.03 "P-16" 1,122.00 SOA Dec. 01, 2016 9,350.00 - 1,122.00 10,472.00 "P-16-A" Basic 1,630.71 Salary/ Health Feb.01, 2017 9,350.00 - 18,930.91 10,472.00 "P-16-B" Services 4,680.00 Basic Feb.01,2017 12,133.33 1,455. 99 15,220.03 "P-16-C" Salary / H e a l t h Services Mar. 01, 2017 140,855.00 16,902.60 176,688.51 "P-16-D" Basic Salary / H e a l t h i-.Iar. 01,2017 39,000.00 - 43,680.00 "P-16-E" Services Basic Mar. 01, 2017 12,133.33 1,455.99 1,630.71 15,220.03 "P-16-F" Salary/ Health 1\Iar. 01, 2017 9,350.00 1,122.00 Services "-\pr. 01, 2017 7,000.00 - 10,472.00 "P-16-G" Annual "-\pr. 01, 2017 - 840.00 Physical Apr. 01, 2017 10,752.50 1,290.30 7,840.00 "P-16-H" Exam Apr. 01, 2017 12,133.33 - 1,630.71 Medi<;al ,-\pr. 03, 2017 69,255.18 9,307.89 12,042.80 "P-16-I" Emergency 110,765.00 1,455.99 14,886.82 Response May 02,2017 8,310.62 15,220.03 "P-16-J" Protocol 12,133.33 13,291.80 1,630.71 Basic May 02,2017 86,873.69 "P-16-K" Salary/Health June 01,2017 10,752.50 1,455.99 1,290.30 138,943.62 "P-16-L" Services June 01, 2017 12,133.33 1,630.71 June 20, 2017 10,752.50 - 1,290.30 15,220.03 "P-16-~1" Basic 10,000.00 1,200.00 Salary/ Health 1,455.99 12,042.80 "P-16-N" Services Lecture on - 15,220.03 "P-16-0" Healthy - Lungs 12,042.80 "P-16-P" Basic Salary/ Health 11,200.00 "P-16-Q" Services Basic July 03, 2017 12,133.33 1,455.99 1,630.71 15,220.03 "P-16-R" Salaty / H e a l t h Services Executive Check-Up Annual Physical Exam Basic. SalaryI Health Services Basic Salary/ Health Services Basic Salary /Health Services Basic Salary / H e a l t h Services 1\Iedical Emergency Response Drill Basic Salary/ Health Services 111 Exhibits "P-16" to "P-16-CC", Docket- Vol. III, pp. 1250 to 1279.

DECISION CTA Case No. 11071 July 03, 2017 10,752.50 - 1,290.30 12,042.80 "P-16-S" Basic 15,220.03 "P-16-T" Salary / H e a l t h Aug. 01, 2017 12,133.33 1,455.99 1,630.71 12,042.80 "P-16-U" Services 15,220.03 "P-16-V" Basic Aug. 01, 2017 10,752.50 - 1,290.30 12,042.80 "P-16-\V' Salary / H e a l t h 12,042.80 "P-16-X" Services Sep. 06,2017 12,133.33 1,455.99 1,630.71 15,220.03 "P-16-Y" Basic "P-16-Z" Sep. 06,2017 10,752.50 - 1,290.30 5,600.00 "P-16-A.A." SalaryI Health 66,108.49 "P-16-BB" Oct. 03, 2017 10,752.50 - 1,290.30 82,708.49 "P-16-CC" Services 82,708.49 Basic Oct. 03, 2017 12,133.33 1,455.99 1,630.71 P970,267.19 Salary/ Health Services Nov. 02, 2017 5,000.00 - 600.00 Basic Nov. 02, 2017 59,025.44 - 7,083.05 Salary / H e a l t h Dec. 01, 2017 73,846.87 - 8,861.62 Services Dec. 01, 2017 73,846.87 - 8,861.62 Basic P813,245.16 P103,957.11 Salary/ Health Subtotal P53,064.92 Services VAT Basic Salary /Health Services Health Services Health Services Health Services Health Services 2. Home Health Care, Inc.112 Billing Date Fee Deduction Total Exhibit No. Nature of P9,000.00 "P-17" Services per May 15, 2017 P8,928.56 (P1 ,000.00) P1,071.44 85,350.00 "P-17 -"-\" Billin_g June 29, 2017 76,204.89 - 9,145.11 8,600.00 "P-17-B" Wellness Aug. 15, 2017 7,678.58 921.42 Event on - P102,950.00 Subtotal P92,812.03 P11,137.97 Laguna and (Pl,OOO.OO) P115,095.08 TOTAL P906,057.19 P52,064.92 Taguig Site Various Vaccines Various Vaccines Pl,073,217 .19 However, based on the documents submitted by petitioner, there is an unaccounted difference in the amount claimed by petitioner as income payments not subject to WTC against the sum of the invoices provided by petitioner, computed as follows: Medical Expenses P691,042.13 Medical Expenses-Check Ups 518,139.73 Alleged total income payments not subject P1,209,181.86 to WTC as claimed by petitioner J,ess: Billing invoices provided by petitioner 958,122.11 112 Exhibits "P-17" to "P-17-B", Docket- Vol. III, pp. 1280 to 1283.

DECISION P251,059.75 CfA Case No. 11071 (Sum of P906,057.19 and P52,064.92) Unaccounted Difference Moreover, petitioner failed to provide a breakdown of the transactions recorded under the accounts 'Medical Expenses" and 'Medical Expenses - Check Ups" to prove that such transactions are those services described per billing invoices submitted, and thus, not subject to WTC. In this regard, this item of assessment shall be retained. B. Emplovee Leisure Activities- P91 ,429.06; 1 ..., Recrttitment & Interview Process- P1, 110,615.08,� Expert Workshops Events Training- ?3,623.765.05,� EmtJlovee Chn'stmas Gifts- P11 ,333. 01 ~ ......- J Petitioner asserts that the account Emplra'ee Lez'sure Activities are income payments incurred for employee meetings, social events and activities. Then, the account Recrttitment & Interview Process are income payments to head-hunters and advertisers in search of qualified applicants. Whereas, the account of Expert Workshops Events Training are payments made for local and foreign trainings to improve work-related competencies of the employees. Lastly, the account Emplra'ee Christmas Gifts are payment to third-party suppliers for giveaways to various partners. 113 Petitioner submitted invoices and billings to prove that the transactions recorded under these accounts are income payments not subject to WTC, listed as follows: 1. Payments to Center For Leadership and Change, Inc. Billing Date Fee VAT Total Exhibit No.114 Description per Billing or Invoice 1\Iar. 20, 2017 p 42,000.00 p 5,040.00 p 47,040.00 "P-19" Project 1\Ianagement Service Fee Oct. 19, 2017 279,900.00 33,588.00 313,488.00 "P-19-A" Productivity Workshop Oct. 25, 2017 273,600.00 32,832.00 306,432.00 "P-19-B" Productivity Program Nov. 29,2017 228,900.00 27,468.00 256,368.00 "P-19-C" Manager's Workshop TOTAL P824,400.00 P98,928.00 P923,328.00 2. Payment to Fleishman-Hillard Hongkong Limited Billing Date Fee Total Exhibit No. 115 Description per Billing or Invoice June 29, 2017 HK$30,000.00 HK$30,000.00 "P-20" Media Training for Managing Director HK$30,000.00 HK$30,000.00 TOTAL 113 Q&A No. 46, Exhibit "P-34", Docket- Vol. II, p. 526. 114 Docket- Vol. III, pp. 1306 to 1309. 115 Docket- Vol. III, p. 1310.

DECISION CfA Case No. 11071 Note that pet1t10ner did not provide the reference rate for the peso , equivalent of its foreign currency payment amounting to HKD 30,000.00. 3. Payments to GuthrieJensen Global Training Consultants Billing Date Fee VAT Total Exhibit No. 116 Description per Billing or "P-21" Invoice Sep. 29,2017 p 44,000.00 p 5,280.00 p 49,280.00 Sep. 29,2017 44,000.00 5,280.00 49,280.00 "P-21-A" Powerful Presentation Skills TOTAL f'88,000.00 f'10,560.00 f'98,560.00 Powerful Presentation Skills 4. Payment to International Rice Research Institute Invoice Date Fee VAT Total Exhibit No. 117 Description per Billing or Invoice /\.Ug. 25, 2017 p 37,658.00 P- p 37,658.00 "P-22" Training Fee, RDj\J 101 f'37,658.00 f'- f'37,658.00 TOTAL The Invoice from supplier ((International Rice Research Institute" does not indicate whether the supplier is VAT-registered or not, nor was there a breakdown of fees and VAT. 5. Payments to Mansmith and Fielders, Inc. Billing Date Fee VAT Total Exhibit No. 118 Description per Billing or Invoice Sep. 13, 2017 p 304,000.00 p 36,480.00 p 340,480.00 "P-23" In-House Seminar on Think Big. Move Sep. 22,2017 25,099.52 3,011.94119 28,111.46 "P-23-A" Skillfully 3,570.00 120 .\dditional Charges on think Big. "\ug. 23, 2017 29,750.00 f'43,061.94 33,320.00 "P-23-B" i'viove Skillfully TOTAL P358,849.52 f'401,911.46 Small Store Marketing 6. Payment to Mercer Philippines, Inc. Billing Date Fee VAT Total Exhibit No. 121 Description per Billing or Invoice Mar. 29, 2017 p 19,000.00 p 2,280.00 p 21,280.00 "P-24" 2017 Philippines Compensation f'21,280.00 Management \Vorkshop TOTAL f'19,000.00 f'2,280.00 7. Payment to Executive Support, Inc. Billing Date Fee VAT Total Exhibit No. 122 Description per Billing or "P-25" Invoice A.ug. 22, 2017 p 154,700.00 p 18,564.00 p 173,264.00 TOTAL P154,700.00 f'18,564.00 f'173,264.00 Search Support Service Fee 116 Docket - Vol. III, pp. 1311 to 1312. 117 Docket- Vol. III, p. 1313. 118 Docket- Vol. III, pp. 1314 to 1316. 119 Billing Invoice does not have VAT breakdown. 120 Billing Invoice does not have VAT breakdown. 121 Docket- Vol. III, p. 1317. 122 Docket- Vol. III, p. 1318.

DECISION CTA Case No. 11071 8. Payments to Harrison Profiles International, Inc. Billing Date Fee VAT Total Exhibit No.123 Description per Billing or "P-26" Invoice 0.1ay 04, 2017 P196,980.00 P23,637.60 P220,617.60 "P-26-A" Assessment Talent Solutions June 28, 2017 10,000.00 1,200.00 11,200.00 System TOTAL P206,980.00 P24,837.60 P231,817.60 Executive Coaching Session 9. Payments to Infinite Business Infosys Co. Ltd. Billing Date Fee VAT124 Total Exhibit No. 125 Description per Billing or Invoice Feb. 10,2017 p 2,000.00 P- p 2,000.00 "P-27'' Mar. 20, 2017 2,000.00 2,000.00 "P-27 -/1." Character Reference Check July 17,2017 3,000.00 - 3,000.00 "P-27-B" Character Reference Check Sep. 18,2017 5,000.00 - 5,000.00 "P-27-C" Character Reference Check July 31, 2017 1,000.00 1,000.00 "P-27-D" Character Reference Check Dec. 04, 2017 2,000.00 - 2,000.00 "P-27-E" Character Reference Check Dec. 26, 2017 1,000.00 - 1,000.00 "P-27-F" Character Reference Check June 05, 2017 1,000.00 - 1,000.00 "P-27-G" Character Reference Check TOTAL Character Reference Check P17,000.00 - P17,000.00 - P- 10. Payments to Leading Edge Executive Talent Search, Inc. Billing Date Fee VAT Total Exhibit No.126 Description per Billing or Invoice Jan. 26,2017 p 191,880.00 p 23,025.60 p 214,905.60 "P-28" Sep. 19,2017 175,500.00 21,060.00 196,560.00 "P-28-A" "Billing for Services Rendered" Oct. 11, 2017 152,100.00 18,252.00 170,352.00 "P-28-B" TOTAL "Billing for Services Rendered" P519,480.00 P62,337.60 P581,817.60 "Billing for Services Rendered" 11. Payments to Truth Verifier Systems Incorporated Billing Date Fee VAT 127 Total Exhibit No. 128 Description per Billing or May 08,2017 p 24,785.71 p 2,974.29 p 27,760.00 "P-29" Invoice Feb. 07,2017 July 03, 2017 11,635.47 1,396.26 13,031.73 "P-29-A" Background Investigation July 08, 2017 7,392.86 887.14 8,280.00 "P-29-B" July 08, 2017 29,571.43 "P-29-C" plus Operational Expenses Sep. 28,2017 5,000.00 3,548.57 33,120.00 "P-29-D" Sep. 22, 2017 19,785.71 600.00 5,600.00 "P-29-E" Background Investigation Oct. 18, 2017 7,392.86 "P-29-F" plus Operational Expenses 5,000.00 2,374.29 22,160.00 "P-29-G" Background Investigation 887.14 8,280.00 plus Operational Expenses 600.00 5,600.00 Background Investigation plus Operational Expenses Background Investigation plus Operational Expenses Background Investigation _plus Operational Exp_enses Background Investigation plus Operational Expenses Background Investigation 123 Docket- Vol. III, pp. 1319 to 1320. 124 Non-VAT Registered. 125 Docket- Vol. III, pp. 1321 to 1328. 126 Docket- Vol. III, pp. 1329 to 1331. 127 Service Invoice does not have VAT breakdown. 128 Docket- Vol. III, pp. 1332 to 1339.

DECISION CTA Case No. 11071 plus Operational Expenses TOTAL Pl10,564.04 P13,267.69 P123,831.73 The invoices and billings enumerated above, except for the foreign currency payment of HK$30,000.00 to supplier "Fleishman-Hillard Hongkong Limited' which is not included since petitioner did not provide the peso equivalent of this transaction, are summarized as follows: SUJ2]21ier N arne Fees VAT Total Center For Leadership and Change, Inc. P824,400.00 P98,928.00 P923,328.00 GuthrieJensen Global Training Consultants International Rice Research Institute 88,000.00 10,560.00 98,560.00 l\Iansmith and Fielders, Inc. 37,658.00 37,658.00 Mercer Philippines, Inc. 358,849.52 - 401,911.46 Executive Support, Inc. 19,000.00 21,280.00 Harrison Profiles International, Inc. 154,700.00 43,061.94 173,264.00 Infinite Business Infosys Co. Ltd. 206,980.00 2,280.00 231,817.60 Leading Edge Executive Talent Search, Inc. 17,000.00 17,000.00 Truth Verifier Systems Incorporated 519,480.00 18,564.00 581,817.60 TOTAL 110,564.04 24,837.60 123,831.73 P2,336,631.56 P2,610,468.39 - 62,337.60 13,267.69 P273,836.83 However, the total amount per invoices submitted versus the amount per expenses listed by the petitioner do not tally. Per examination, there is an unaccounted difference: Particulars Amount Employee Leisure Activities r 91,429.06 Recruitment & Interview Process Expert Workshops Events Training 1,110,615.08 Employee Christmas Gifts 3,623,765.05 Total Less: Invoices provided by the Petitioner129 11,333.01 N,837,142.20 Unaccounted Difference 2,336,631.56 P2,500,510.64 Furthermore, petltloner failed to provide the detailed schedule of the transactions recorded under the accounts "Emplqyee Leisure Activities", "Recruitment & Interview Process", "Expert Workshops Events Training" and "Emplqyee Christmas Gifts''. Hence, it cannot be ascertained if the transactions per invoices submitted are recorded under the account Salaries and Wages. The Court cannot simply assume that the invoices submitted are included in the expenses claimed by the petitioner without proper tracing of the supporting documents to the schedule or general ledger. Thus, this part of assessment shall also be retained. / 129 Foreign currency payment of HKDJO,OOO.OO to supplier "Fleishman-Hillard Hongkong Limited" is not included as petitioner did not provtde the peso equivalent of this transaction.

DECISION CTA Case No. 11071 In sum, petitioner's basic deficiency income tax due for taxable year 2017 amounted to P4,254,177.50, computed as follows: I. INCOME TAX P87,689,267.00 Taxable Income per return Add: Adjustments/disallowances P1,080,021.75 14,180,590.77 6,976,693.80 P101,869,857. 77 per Court Verification 6,123,875.22 Disallowed Accrued Expenses P30,560,957.33 Disallowed Expenses due to Non-withholding P17,860,429.83 Disallowed Salaries & Wages due to 5,659,277.00 26,306,779.83 2,787,073.00 P4,254,177 .50 Non-withholding Taxable Income Basic Deficiency Income Tax Less: Tax Credits/Payments Payments Creditable Tax Withheld Foreign Tax Credits Basic Tax Due II. Deficiency VAT Respondent assessed petitioner of deficiency VAT amounting to P91 ,066.58, including interest, for taxable year 2017, as follows: 130 II. VAT :[>777,716,236.43 Taxable sales/ receipts per VAT return 239,863.34 Add: Adjustments/Allowances f777,956,099.77 Disallowed Zero-Rated Sales :P93,354,731. 97 (Schedule 4) Adjusted Vatable Receipts 93,297,164.77 P57,567.20 Output Tax Due :P28,783.60 :P110,678,366.12 Less: Tax Paid/Creditable Input Tax 2,189,200.09 76,195,546.07 - 93,134,353.46 1,775,589.73 Input Tax from Current Period :P57,567.20 Input Tax Carried Over from :P188,649,501.92 33,499.38 Previous Period :P95,352,337.15 P91,066.58 Input Tax Deferred on Capital Goods Exceeding PL\I Total Less: /-,djustments/Disallowances Disallowed Input Tax (Schedule 5) Input Tax on Purchases of Capital Goods Exceeding P1M Excess Input Tax Carried Over to Succeeding Period Net VAT Payable Less: V"~T Paid per Return Basic Tax Due "~dd: 12% Interest Qan. 26, 2018 to Nov. 30, 2022) TOTAL AMOUNT DUE t3o Exhibit "P-2", Docket- Vol. III, at p. 1013.

DECISION CTA Case No. 11071 Based on the foregoing, the deficiency VAT arose from the following items of assessment: 1. Disallowed Zero-Rated Sales p 239,863.34 11. Disallowed Input Tax 111. Excess Input Tax Carried Over to Succeeding Period 28,783.60 93,134,353.46 z. Disallowed Zero-Rated Sales- ?239,863.34 The BIR's verification disclosed that petitioner failed to present pieces of evidence to substantiate its claims of zero-rated sales, hence, such sales are subjected to VAT pursuant to Sections 1OS & 106 of the NIRC, as amended, in relation to Sections 4.106-5 and 4.113-1 ofRRNo. 16-2005.131 Schedule 4 p 239,863.34 Sales to J otun Philippines (VATable Sales) P239,863.34 Disallowed Zero-Rated Sales Notably, petitioner admitted that the sale to Jotun Philippines amounting to P239,863.34 is an error on its part for considering this transaction as a zero- rated sale instead of vatable sale, since Jotun Philippines does not enjoy any Board of Investments/Philippine Economic Zone Authority certification.132 In view of this admission and for failure of the petitioner to properly refute this assessment, the disallowance is upheld. zz. Disallowed Input Tax- ?28,783.60 The BIR's verification disclosed that petitioner has not presented documents to support its claimed input taxes amounting to P28,783.60 in order to determine whether the said input taxes were in fact issued by VAT-registered entities. Hence, the same have been disallowed in accordance with the provision of Section 110 of the NIRC, in relations to Sections 113 and 237 of the same Code,133 as amended, as follows: Schedule 5 P239,863.34 Sales to Jotun Philippines (VATable Sales) 0.12 Multiplied by: VAT Rate Disallowed Input Tax P28,783.60 131 Disallowed Zero-Rated Sales, Details of Discrepancies, Exhibit "P-2", Docket - Vol. III, pp. 1017 to 1018. 132 Exhibit "P-6", Docket- Vol. III, at p. 1072. 133 Exhibit "P-2" (Unsupported Input Tax, Details of Discrepancies), Docket- Vol. III, p. 1018.

DECISION CTA Case No. 11071 On the other hand, petitioner submitted the Sales Invoice for the assessed sales transaction to its customer "Jotun (Philippines) Inc." amounting to USD11,702.40Y4 The Court finds the above item of assessment bereft of merit. Under Section 110 the NIRC of 1997, as amended, the term 'input tax' means the VAT due from or paid by a VAT-registered person in the course of his trade or business on importation of goods or local purchase of goods or services, including lease or use of property, from a VAT registered person. It shall also include the transitional input tax determined in accordance with Section 111 of the Tax Code. While the term 'output tax' means the VAT due on the sale or lease of taxable goods or properties or services by any person registered under Section 236 of the Tax Code. Based on the definition provided under the Tax Code, the sale of petitioner to its customer "Jotun Philippines" is not subject to input VAT. There is no factual basis for imposing an input VAT on a sales transaction as the input VAT is imposed on a purchase and/ or importation and not on a sales transaction. Hence, this part of assessment shall be cancelled. zzz. Excess Input Tax Carried Over to Succeeding Period- ?93, 134,353.46 Based on the Details of Discrepancies attached to the FDDA, the excess input tax per VAT returns amounting to P93,134,353.46 was not applied against the output tax in computing deficiency VAT since this shall be carried over to the next succeeding period/quarter(s) as provided under Section 11 O(B) of the NIRC, as amended. 135 The Court finds the disallowance proper. Albeit the amended Quarter!J VAT Return for the 4rh quarter of taxable year 2017 shows an accumulated and excess input VAT credits of P93,134,353.46,136 petitioner failed to prove that such excess credits have not been applied against its output VAT liability in the subsequent periods. Hence, the deduction made by the BIR is proper. In sum, petitioner is liable for deficiency VAT for the taxable year 2017, computed as follows: / 134 Exhibit "P-30", Docket- Vol. III, pp. 1340. 135 Excess Input Tax Carried Over to Succeeding Period, Details of Discrepancies, Exhibit "P-2", Docket- Vol. III, p. 1018. 136 Line 29, Exhibit "P-31-B", Docket- Vol. III, p. 1350.

DECISION p - P110,678,366.12 P777,716,236.43 CTA Case No. 11071 76,195,546.07 239,863.34 Page 41 of 44 2,189,200.09 1,775,589.73 P777,956,099.77, II. VAT 93,134,353.46 P188,649 ,501.92 P93,354, 731.97 Taxable sales/ receipts per V.\T return Add: .A.djustments/Allowances P95,323,553.55 93,325,948.37 p 28,783.60 Disallowed Zero-Rated Sales Adjusted Vatable Receipts Output Tax Due Less: Tax Paid/Creditable Input Tax Input Tax from Current Period Input Tax Carried Over from Previous Period Input Tax Deferred on Capital Goods Exceeding PHvi Total Less: "\djustments/Disallowances Disallowed Input Tax Input Tax on Purchases of Capital Goods Exceeding P1l\f Excess Input Tax Carried Over to Succeeding Period BASIC TAX DUE III. Deficiency EWT Although petitioner claims that assessment for deficiency EWT covering certain months of the taxable year 2017 had already prescribed, neither parties provided a breakdown of the amounts so that the prescribed portion could be determined. Thus, the entire EWT assessment shall be taken as a whole. The BIR's verification disclosed that petitioner failed to withhold and remit the correct EWT on its income payments amounting to P6,976,693.80. Hence, petitioner was assessed of deficiency EWT pursuant to Section 2.57.2 of RR No. 2-98, as amended,137 as follows: III.EWT P348,834.69 Basic Tax Due (Schedule 2) 204,139.97 Add: 12% Interest Gan. 16,2018 to Nov. 30, 2022) P552,974.66 TOTAL AMOUNT DUE Based on the discussion covering the income tax assessment under item no. I. ii. Disallowed Expenses due to Non-withholding - ?6,976,693.80, petitioner is liable for deficiency EWT amounting to P348,834.69, computed as follows: Rent Expense not subjected to 5% EWT rate P6,976,693.80 Withholding Tax Rate (WC100) 5% Basic Tax Due P348,834.69 137 Exhibit "P-2", Docket- Vol. III, at pp. 1014, 1016 and 1018.

DECISION CTA Case No. 11071 IV. Deficiency WTC Likewise, although petitioner claims that the assessment for deficiency WTC covering certain months of the taxable year 2017 had already prescribed, neither parties provided a breakdown of the amounts so that the prescribed portion could be determined. Thus, the entire WTC assessment shall be taken as a whole. The BIR's verification disclosed that petitioner failed to withhold/ remit the corresponding withholding tax on the P6,123,875.22 Salaries, Wages and Benefits previously disallowed from Gross Income. Hence, petitioner ~as assessed for deficiency WTC, pursuant to Section 79(A) of the NIRC, as amended, and implemented under Section 2.78 of the RR No. 2-98, as amended,138 computed as follows: IV. WTC P1,609,491.54 Basic Tax Due (Schedule 3) 941,883.27 Add: 12% Interest Gan. 16, 2018 to Nov. 30, 2022) TOTAL AMOUNT DUE P2,551,374.81 Similarly, based on the discussion covering the income tax assessment under item I. iii. Disallowed Sa/aries and Wages due to Non-withholding - P6, 123,875.22, petitioner is liable for deficiency WTC in the amount of P1,609,491.54 for failure to prove that the same are not subject to \VTC. Hence, the assessment shall be upheld. To summarize, petitioner is liable for a total of P6,241,287.33 basic deficiency taxes for the taxable year 2017, to wit: Tax Type Basic Deficiency Tax p 4,254,177.50 Income tax 28,783.60 VAT 348,834.69 1,609,491.54 EWT WTC P6,241,287 .33 Total ACCORDINGLY, in light of the foregoing considerations, the present Petition for Review is PARTIALLY GRANTED. The assessments for deficiency income tax, VAT, EWT and WTC, for taxable year 2017, are UPHELD WITH MODIFICATIONS. Petitioner is ORDERED TO PAY respondent the aggregate amount of P10,004,828.47 inclusive of surcharge and deficiency interest imposed under ;y- 138 Exhibit "P-2", Docket- Vol. III, at pp. 1014, 1017 and 1018.

DECISION CTA Case No. 11071 Sections 248(A)(3) and 249(B) of the NIRC of 1997, as amended, computed as follows: Basic Tax Income tax VAT EWT WTC Total P4,254,177.50 P28,783.60 P348,834.69 P1,609,491.54 P6,241,287 .33 Add: 25% Surcharge 1,063,544.38 7,195.90 87,208.67 402,372.89 1,560,321.84 Add: 12% Deficiency 1,464,369.48 Interest 1,464,369.48 Income tax: From "-\pr. P6, 782,091.36 17,2018139 toFeb.26, 10,674.38 10,674.38 2021 129,709.16 129,709.16 {F4,254,177.50 X 12% X 598,466.28 598,466.28 1047I 365 days] P46,653.42 P565,752.52 P2,610,330.71 P10,004,828.47 V~r\T: From Jan. 26,2018 to Feb. 26, 2021 {F28,783.60 X 12% X 1128l365days) E\V'T: From Jan. 23, 2018140 to Feb. 26,2021 {F348,834.69 X 12% X 1131 I 365 dayJj \V'TC: From Jan. 23, 2018 141 to Feb. 26,2021 [F/,609,491.54 X 12% X 1131 I 365 dap] Total Amount Due- February 26, 202114?- Finally, petitioner is ORDERED TO PAY respondent delinquenry interest at the rate of twelve percent (12%) per annum on the total unpaid deficiency taxes due of P10,004,828.47 as of February 26, 2021, as determined above, or equivalent to P3,289.26143 per day, computed from February 27, 2021 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended by RA No. 10963, also known as Tax Reform for Acceleration and Inclusion (TRAIN) and as implemented by RR No. 21-2018. SO ORDERED. ~-~-; MA. BELEN M. RINGPIS-LIBAN Associate Justice 139 April 15, 2018 fell on a Sunday. 140 Petitioner is an EFPS filer, hence, for December EINT/INTC Return, payment of the tax due is on January 20 of the following year; January 20, 2018 fell on a Saturday. 141 Ibid. 142 February 26, 2021 is the due date for payment shown in the Assessment Notices attached to the FLD, Exhibits "P-5-A" to "P-5-E", Docket- Vol. III, pp. 1056 to 1060. 143 [P10,004,828.47 x 12%] I 365 days.

DECISION CTA Case No. 11071 WE CONCUR: (On Leave) MARIA ROWENA MODESTO-SAN PEDRO Associate Justice s 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. MA. BELEN M. RINGPIS-LIBAN Associate Justice Chairperson CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. ~- ~- .,...__ MA. BELEN M. RINGPIS-LIBAN Acting Presiding Justice