AJINOMOTO PHILIPPINES CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES Court ofTax Appeals QUEZON CITY THIRD DIVISION AJINOMOTO PHILIPPINES C.T.A. CASE NO. 7877 CORPORATION, Members: Petitioner, BAUTISTA, Chairperson, PALANCA-ENRIQUEZ, and -versus- COTANGCO-MANALASTAS, JJ. COMMISSIONER OF INTERNAL Promulgated: REVENUE, DEC 11 2012 Respondent. ~~~ 17:av�a . ....._. X ---------------------------------------------------------------------------------------- X DECISION PALANCA-ENRIQUEZ, J.: THE CASE This is a Petition for Review filed by Ajinomoto Philippines Corporation (hereafter "petitioner") praying for the nullification of the Assessment and Formal Demand for payment of deficiency Income Tax of Pl81,164,275.04, Value-Added Tax of P24,974,439.13, Expanded Withholding Tax of P45,403,934.34, Withholding Tax on Compensation of

C.T.A. CASE NO. 7877 2 DECISION P5,985,020.16 and Fringe Benefit Tax ofP30,582,321.15, or the aggregate amount oLP288,109,989.82, all for fiscal year ending March 31,2005. THE PARTIES Petitioner Ajinomoto is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal office address at 331 Ajinomoto Building, Sen. Gil Puyat Avenue, Makati City. On the other hand, respondent Commissioner of Internal Revenue (hereafter "CIR") is the official authorized under Section 4 of the National Internal Revenue Code of 1997 to assess and collect internal revenue taxes, as well as the power to decide disputed assessments, among others, subject to the exclusive appellate jurisdiction of this Court. THE FACTS The facts, as culled from the records, are as follows: On March 31 , 2005, petitioner filed with the BIR its Annual Income Tax Return for the fiscal year ending March 31 , 2005. On June 17, 2008, Marco M. Perez ("Mr. Perez") executed a Waiver of the Defense of Prescription under the Statute of Limitations under the N1RC of 1997, as amended, which was received by respondent on June 25, 2008.

C.T.A. CASE NO . 7877 3 DECISION On December 5, 2008, petitioner received an undated letter from respondent informing petitioner that the results of investigation of its internal revenue taxes for fiscal year ending March 31, 2005 had been submitted with proposed assessment. On December 11, 2008, respondent provided petitioner a copy of the Waiver, which was accepted by Atty. Romulo L. Aguila. On December 16, 2008, petitioner received a Preliminary Assessment Notice ("PAN") for deficiency Income Tax, VAT, Expanded Withholding Tax, Withholding Tax on Compensation and Fringe Benefit Tax for fiscal year ending March 31, 2005. On December 22, 2008, petitioner received the Formal Letter of Demand and Assessment Notices, dated December 15, 2008, requmng petitioner to pay the following deficiency taxes: Income Tax P181, 164,275.04 Value-Added Tax 24,974,439.13 Expanded Withholding Tax 45,403,934.34 Withholding Tax on Compensation 5,985,020.16 Fringe Benefit Tax 30,582,321.15 The Details of Discrepancy and Assessment Notices, are as follows: INCOME TAX Assessment No. IT-FY 3.2005-000230 I MCIT I RCIT P17,522,302.00 Taxable Income I P919,454,291.00 I

C.T.A. CASE NO. 7877 4 DECISION Adjustments: 345,230,400.12 345,230,400.12 Debits to sale (per gl by object Account, p. 1338) II ,3 71 ,086.49 II ,3 71 ,086.49 Undeclared GP based on understated I ,2 76 ,055, 777.61 374,123,788.61 Importation 2% 32% Gross income subject to MCIT 25,521,115.55 119,719,6 12.35 Tax Rate Tax due 6,688,255.00 Less: Creditable tax withheld/tax payments 13,790,845.00 Creditable tax withheld-form 2307 20,479,100.00 Tax payments 2,090,414.18 18,388,685 .82 Carry over to succeeding period Less: prior years 2307 353,306.70 Unsupported 4,729, 179.00 5,082,485.70 13,306,200. 12 I 06,413,412.23 Basic tax still due 74,725,862.81 Interest fr. 7.16.05-12 . 13.08 25,000.00 Compromise penalty for non compliance with RMC 13-82 for failure to register books of accounts per Referral No. LTAD-LQOO 1-10- 08 dated I0.12.2006 (p.818) Total amount due and collectible p 181 ' 164,275.04 VALUE ADDED TAX Assessment No. VAT-FY 3.2005-000273 Taxable sales per VAT returns 3,474,484,828.26 6,638,959.26 Add : Exempt sales 3,481,123,787.52 Gross sales subject to VAT 348, 112,3 78.75 Output tax Less: Allowable Input Tax Local input tax p 164,043 , 140.72 Input tax on Importation 67,784,720.00 Total 231,827,860.72 Less: a. di sallowance of input tax due to non-compliance on invoicing requirements: Non-VAT P419, 176.97 Not in data base 14,049 .59 433,226.56 b. unsupported input tax on importation-no IEIRD 3,779,609.00 c. overclaimed input tax on machinery and equipment

C.T.A. CASE NO. 7877 5 DECISION (should be capitalized) 6,800,689.39 220,814,335.77 VAT payable 127,298 ,042.98 Less: VAT payments 113,023,093 .70 Deficiency VAT 20% interest 4.25 .05 to 12.31.08 14,274 ,949.28 Compromise penalty - non submission of I 0 ,6 7 4 , 4 8 9 .85 SLS and SLP (per DPQAD certification) Total amount due and collectible 25,000.00 P24,974,439 .13 EXPANDED WITHHOLDING TAX P25 ,889,724.82 Assessment No. EWT-FY 3.2005-000243 19 ,489 ,209.5 2 Basic tax still due 2 5,000 .00 Interest fr. 4.16.05-12.13.08 45 ,403 ,934.34 Compromi se penalty Total amount due and co llectible WITHHOLDING TAX ON COMPENSATION PI 0,626,026.43 Assessment No. WC-FY 3.2005-000141 32% Income payments still subject to withholding tax 3,400 ,32 8.46 Tax rate 2,559,691.70 Basic tax due Interest fr. 4.16.05-1 2.31.08 25,000.00 Compromise penalty P5 ,985 ,020.16 Total amount due and collectible FRINGE BEN EF IT TA X 36,085 ,752.83 Assessment No. FBT-FY 3.2005-000066 53,067,28 3. 57 Total frin ge benefits g iven 16,981 ,530.74 Grossed-up monetary value Frin ge benefits - Total frin ge benefits per FBT returns Deficiency FBT 16,981 ,530.74 Surcharge 4,245 ,382. 69 Interest from 4. 16.06-12 .3 1.08 9,330,407 .72 Compromise penalty Total amount due and collectible 25,000 .00 P30,582,321 . 15

C.T.A. CASE NO. 7877 6 DECISION On January 5, 2009, petitioner protested the Preliminary Assessment Notice, received by petitioner on December 16, 2008, and Formal Letter of Demand, received on December 22, 2008. On February 2, 2009, petitioner received the Final Decision, dated January 23, 2009, denying petitioner's request for cancellation of the deficiency tax assessment. On March 3, 2009, petitioner filed the instant Petition for Review. On April 13, 2009, respondent filed her answer, alleging special and affirmative defenses: the right of respondent to assess petitioner for deficiency taxes did not prescribe in view of the execution of a waiver extending the period of assessment; the PAN, Formal Letter of Demand and Final Decision on Disputed Assessment were issued in accordance with law, rules and jurisprudence. On April 30, 2009, petitioner filed a "Reply" to respondent's Answer alleging that: the Head Revenue Executive Assistant ("HREA") is not authorized to sign the waiver of the Statute of Limitations under Revenue Delegation Authority Order No. 05-01. The revenue official expressly authorized to sign the waiver in cases of large taxpayers is the Assistant Commissioner ("ACIR"), and HREA is certainly not ACIR. The authority to execute and sign a waiver cannot be merely implied from the job title ofw

C.T.A. CASE NO. 7877 7 DECISION the person executing and signing the waiver. Petitioner cannot be deemed to have acquiesced to defects of the notarial acknowledgment of the purported waiver since it gained knowledge of the said defects only on December 11, 2008. The BIR did not follow the provisions of Revenue Regulations No. 12-99. The PAN was issued even before the expiration of the 15-day period granted by the NIRC of 1997, as amended, and RR 12-99 for the Notice of Informal Conference. Likewise, the Formal Letter of Demand was received by petitioner even before the lapse of the 15-day period for the petitioner to respond to the PAN. Hence, respondent did not follow the procedure prescribed in RR 12-99. Petitioner presented Rommel Arroyo, Salome Luber, Roxanne Cerezo, Katherine Constantino, and Jemardi Orendez, as witnesses, and documentary evidence. On January 8, 2010, pursuant to CTA Administrative Circular No. OJ- 2010, dated January 5, 2010, "Implementing the Fully Expanded Membership in the Court of Tax Appeals", this case was transferred to the Third Division of this Court. On the other hand, respondent presented Revenue Officer Felina Guimbao and Group Supervisor Melinda Ann Perez, as witnesses. However, as regards Felina Guimbao, respondent was deemed to have waived the righ~

C.T.A. CASE NO. 7877 8 DECISION to present said witness in a Resolution dated July 18, 2011. Respondent also presented documentary evidence, marked as Exhibits "I " to "7 ", inclusive of their submarkings, which were all admitted by the Court in a Resolution dated February 15, 2012. Both parties were granted thirty (30) days from notice within which to file their simultaneous memoranda. After which, the case shall be deemed submitted for decision. Both parties having filed their respective memorandum, the case was deemed submitted for decision on April24, 2012. ISSUES As stipulated upon by the parties, the Issues for this Court's consideration are: I WHETHER THE RIGHT OF RESPONDENT COMMISSIONER TO ASSESS THE ALLEGED DEFICIENCY TAXES HAS PRESCRIBED. II WHETHER THE REQUIREMENTS OF SECTION 228 OF THE NATIONAL INTERNAL REVENUE CODE AND REVENUE REGULATIONS NO. 12-99 WERE COMPLIED WITH.

C.T.A. CASE NO. 7877 9 DECISION III WHETHER AJINOMOTO WAS INFORMED OF THE FACTUAL AND LEGAL BASES OF THE DEFICIENCY TAX ASSESSMENTS. IV WHETHER THE DEFICIENCY TAX ASSESSMENTS HAVE FACTUAL AND LEGAL BASES. Petitioner's Arguments Petitioner contends that respondent's right to assess deficiency taxes for fiscal year ending March 31, 2005 has prescribed considering that: (a) petitioner filed the pertinent tax returns for fiscal year ending March 31 , 2005, but no deficiency tax assessments were issued within three (3) years from the date of filing of the said returns; (b) the purported waiver was invalid and did not extend the prescriptive period within which the respondent may issue deficiency tax assessments since (i) the purported waiver was executed without any written notarized authority from the board of directors of petitioner, (ii) the purported waiver was not signed by the duly authorized representative of the respondent, (iii) the purported waiver failed to indicate the date of acceptance by the BIR, (iv) petitioner was furnished a copy of the purported waiver beyond the 3-year period or prescribed under the NIRC; (c) petitioner is not estopped from assailing the

C.T.A. CASE NO. 7877 10 DECISION validity of the purported waiver; and in order to expedite the issuance of deficiency tax assessment before the purported extended date of prescriptive period, the BIR issued the notice of informal conference, PAN, FAN and Final Decision without regard to petitioner's right to due process under Section 228 ofthe NJRC of 1997, as amended, and Revenue Regulations No. 12-99. Respondent CIR 's Counter-Arguments Respondent counter-argues that its right to assess petitioner of the internal revenue tax liabilities for fiscal year ending March 31, 2005 had not yet prescribed, the deficiency tax assessments have factual and legal bases and were issued in accordance with Section 228 of the NJRC of 1997, as amended, and Revenue Regulations 12-99, and in the absence of proof to the contrary, petitioner is liable for the deficiency tax assessments for fiscal year ending March 31 , 2005 because the presumption under the law is in favor of the correctness of tax assessments. THE COURT'S RULING The petition is partly meritorious. First Issue: Prescription In cases of assessment of internal revenue taxes, Section 203 of the NIRC of1997, as amended, provides, as follows:

C.T.A. CAS E NO. 7877 11 DECISION "SEC. 203. Period of Limitation Upon Assessment 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 filling of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided, 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 filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day." Pursuant to the above provision, as a general rule, internal revenue taxes shall be assessed, within three (3) years after the last day prescribed by law for the filing of the return, or the day the return was filed, if the same was filed beyond the period prescribed by law. The assessment referred to herein is the Formal Assessment Notice, which is the official BIR action demanding the settlement of a taxpayer's liability. In this case, petitioner was being assessed of (a) Income Tax of Pl81 ,164,275.04; (b) Value-Added Tax of P24,974,439.13; (c) Expanded Withholding Tax of P45,403 ,934.34; (d) Withholding Tax on Compensation of P5 ,985,020.16; and (e) Fringe Benefit Tax of P30,582,321.15, all for fiscal year ending March 31,2005. (a) as regards Income Tax, Section 77 (B) of the NJRC of 1997, as amended, provides:

C.T.A. CASE NO. 7877 12 DECISION "SEC. 77. Place and Time of Filing and Payment of Quarterly Corporate Income Tax. - XXX XXX. (B) Time of Filing the Income Tax Return. - The corporate quarterly declaration shall be filed within sixty (60) days following the close of each of the first three (3) quarters of the taxable year. The final adjustment return shall be filed on or before the fifteenth (15th) day of April, or on or before the fifteenth (15th) day of the fourth (4th) month following the close of the fiscal year, as the case may be." Records show that petitioner filed its Annual Income Tax Return for fiscal year ending March 31, 2005 on July 14, 2005 (Exhibit "A") and paid the income tax due thereon (Exhibits "M" to "P ''). Pursuant to the above-quoted Section 77, petitioner had until July 15, 2005 within which to file its Annual Income Tax Return for fiscal year ending March 31, 2005 and pursuant to Section 203, respondent had three (3) years from July 15, 2005 or until July 15, 2008 within which to assess petitioner of deficiency income tax. (b) as regards Value-Added Tax, Section 114 ofthe NIRC of 1997, as amended, provides: "SEC. 114. Return and Payment of 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. \) ~

C.T.A. CASE NO. 7877 I3 DECISION XXX xxx." Records show that petitioner filed its Quarterly VAT Return and paid the corresponding VAT thereof, to wit: Quarter Date of Filing of Quarterly VAT Return First Quarter and Payment of VAT thereof Second Quarter July 23, 2004 (Exhibits "B ", "B-4", "Q ", "U" Third Quarter Fourth Quarter and "U-1 ") October 25, 2004 (Exhibits "B-1 ", "B-5 ", "R ", "U-2" and "U-3 ") January 24, 2005 (Exhibits "B-2 ", "B-6 ", "S", "U-4 " and "U-5 ") April 22, 2005 (Exhibits HB-3 ", "B- 7", HT", "U-6 " and "U-7") Pursuant to the aforesaid Section 114, petitioner had until the following dates to file its Quarterly VAT Returns: Qu a rter Date of Actual Deadline to File First Quarter Filing of Quarterly Quarterly VAT Second Quarter Third Quarter VAT Return R et urn s Fourth Quarter July 23, 2004 July 25 , 2004 October 25, 2004 October 25, 2004 January 24, 2005 January 25 , 2005 April22, 2005 April 25, 2005 Applying Section 203 of the same Code, respondent had three (3) years, or until the following dates to assess petitioner of deficiency Value- Added Tax: Qu ar ter Deadline to Assess deficiency VAT First Quarter July 25, 2007 Second Quarter October 25, 2007

C.T.A. CASE NO. 7877 14 DECISION Third Quarter January 25, 2008 Fourth Quarter April 25, 2008 (c) as regards Expanded Withholding Tax and Creditable Withholding Tax, Section 4(1) of Revenue Regulations 06-01, amending pertinent provisions of Revenue Regulations 1-98, 2-98, as amended, and 7-95, as amended, provides: "SEC. 4. Time for Filing of Withholding Tax and Value- Added Tax Returns and the Payment of Taxes Due Thereon. - The time for filing of the various tax returns as indicated below and the payment of the taxes due thereon shall be revised in accordance with the appropriate amendments to the existing regulations, as presented below. (1) Sections 2.58(A)(2) and 2.81 of Revenue Regulations No. 2-98, as amended, are hereby further amended to read as follows: 'SECTION 2.58 RETURNS AND PAYMENT OF TAXES WITHHELD AT SOURCE. (A) Monthly return and payment of taxes 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 filed and payment should be made, within ten (1 0) days after f 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 ofthe following year.

C.T.A. CASE NO . 7877 15 DEC ISION (b) With respect, however, to taxpayers, whether large or non-large, who availed of the electronic filing and payment (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. xxx xxx." (c.1) Expanded Creditable Withholding Tax - Records show that petitioner electronically filed its Monthly Remittance Return of Creditable Income Taxes Withheld (Expanded) ("BIR Form 1601-E") for fiscal year ending March 31 , 2005, and paid the expanded withholding taxes due thereon, as follows: Month Date of Filing of Monthly Expanded Creditable Withholding Tax Return April2004 May 14, 2004(Exhibits "D ", "D-1 2"and "W") May 2004 June 14, 2004(Exhibits "D-1 ", "D-13 "and"W-1 ") June 2004 July 14, 2004 (Exhibits "D-2", "D-1 4"and"W-2") July 2004 August 13, 2004 (Exhibits "D-3 ", "D-15 "and "W-3 ") August 2004 September 14, 2004(Exhibits "D-4", "D-16 "and "W-4") September 2004 October 13, 2004(Exhibits "D-5 ", "D-1 7"and " W-5 ") October 2004 November 12, 2004(Exhibits "D-6 ", "D-18"and "W-6") November 2004 December 14, 2004 (Exhibits "D- 7", "D-1 9"and "W-7') December 2004 January 14, 2005 (Exhibits "D-8", "D-20 "and "W-8") January 2005 February 14, 2005 (Exhibits "D-9", "D-21 "and " W-9 ') February 2005 March 14, 2005 (Exhibits "D-10 ", "D-22"and " W- 10 ") March 2005 April 14, 2005 (Exhibits "D-11 ", "D-23 "and "W- 11 ') Pursuant to the above Section 4(1) of Revenue Regulations 06-01, taxpayers, whether large or non-large, who availed of the electronic filing and payment of creditable and final withholding taxes shall have a deadlinetrt

C.T.A. CAS E NO. 7877 16 DECISION of fifteen (15) days from the end of each month to electronically file the applicable withholding tax returns and pay the taxes due thereon, except for those taxes withheld for the month of December of each year, which shall be filed if thru EFPS on or before January 20 of the following year. Applying Section 203 ofthe NIRC of 1997, as amended, the deadlines to file petitioner' s expanded creditable withholding tax for fiscal year ending March 31 , 2005, are as follows, and from said deadlines, respondent has three (3) years to assess petitioner of deficiency expanded creditable withholding tax, to wit: Month Deadline to File Deadline to Assess E x pand ed D efi c ie n cy April2004 C reditabl e E x pand ed May 2004 Withholding Tax Creditab le June 2004 Return thru EFPS Withholding Tax July 2004 May 15,2004 May 15, 2007 August 2004 June 15, 2004 June 15, 2007 September 2004 July 15, 2004 July 15, 2007 October 2004 August 15, 2004 August 15, 2007 November 2004 September 15, 2004 September 15, 2007 December 2004 October 15, 2004 October 15, 2007 January 2005 November 15, 2004 November 15, 2007 February 2005 December 15, 2004 December 15, 2007 March 2005 January 20, 2005 January 20, 2008 February 15, 2005 February 15, 2008 March 15, 2005 March 15, 2008 April 15, 2005 April 15, 2008

C.T.A. CASE NO. 7877 17 DECISION (c.2) as regards Withholding Tax on Compensation - Records show that petitioner electronically filed its Monthly Remittance Return of Income Taxes Withheld on Compensation ("BIR Form 1601-C") for fiscal year ending March 31, 2005, and paid the expanded withholding taxes due thereon, as follows: Month Date of Filing of Withholding Tax on Compensation Return April2004 May 14, 2004(Exhibits "E", "E-12 "and "X'') May 2004 June 14, 2004 (Exhibits "E-1 ", "E- 13 "and"X-1 '') June 2004 July 14,2004 (Exhibits "E-2 ", "E-14 "and"X-2 '') July 2004 August 16, 2004(Exhibits "E-3 ", "E-15 "and "X-3 ") August 2004 September 14, 2004(Exhibits "E-4", "E-16 "and "X-4'') September 2004 October 13, 2004(Exhibits "E-5 ", "E-1 7"and "X-5 ") October 2004 November 12, 2004(Exhibits "E-6", "E-18"and "X-6 '') November 2004 December 14, 2004(Exhibits "E- 7", "E-19"and "X-7'') December 2004 January 20, 2005 (Exhibits "E-8 ", "E-20 "and "X-8'') January 2005 February 14, 2005 (Exhibits "E-9", "E-21 "and "X-9 '') February 2005 March 14,2005 (Exhibits "E-10 ", "E-22 "and "X-10 '') March 2005 April14, 2005 (Exhibits "E-11 ", "E-23 "and "X-II'') Pursuant to the above Section 4(1) of Revenue Regulations 06-01, taxpayers, whether large or non-large, who availed of the electronic filing and payment of income taxes withheld on compensation shall have a deadline of fifteen (15) days from the end of each month to electronically file the applicable withholding tax returns and pay the taxes due thereon, except for those taxes withheld for the month of December of each year, trr

C.T.A. CASE NO. 7877 18 DECISION which shall be filed if thru EFPS on or before January 20 of the following year. Applying Section 203 ofthe NJRC of 1997, as amended, the deadlines to file petitioner's income taxes withheld on compensation for fiscal year ending March 31 , 2005 , are as follows , and from said deadlines, respondent has three (3) years to assess petitioner of deficiency expanded creditable withholding tax, to wit: Month Deadline to File Deadline to Assess Withholding Tax Deficiency April2004 on Compensation Withholding Tax May 2004 Return thru EFPS on Compensation June 2004 May 15, 2004 May 15,2007 July 2004 June 15, 2004 June 15, 2007 August 2004 July 15, 2004 July 15, 2007 September 2004 August 15, 2004 August 15, 2007 October 2004 September 15, 2004 September 15, 2007 November 2004 October 15, 2004 October 15, 2007 December 2004 November 15, 2004 November 15, 2007 January 2005 December 15, 2004 December 15, 2007 February 2005 January 20, 2005 January 20, 2008 March 2005 February 15, 2005 February 15, 2008 March 15, 2005 March 15, 2008 April 15, 2005 April 15, 2008 In sum, the last day to assess petitioner of the following deficiency taxes should be: (a) income tax, on July 15, 2008 ; (b) deficiency value- added tax, on April 25 , 2008; (c.l) expanded creditable withholding tax, on f

C.T.A. CASE NO. 7877 19 DECISION April 15, 2008; and (c.2) income taxes withheld on compensation, on April 15, 2008. Records show, however, that the Formal Assessment Notices for deficiency income tax, value-added tax, expanded creditable withholding tax and income taxes withheld on compensation, together with the Formal Letter of Demand, were issued only on December 15, 2008, and received by petitioner on December 22, 2008, more than five (5) months after the BIR's right to issue the assessment notices had prescribed. Clearly, said assessment notices were issued beyond the three (3)-year prescriptive period. Waiver o(the Statue o(Limitation However, Section 222 (b) of the NIRC of 1997, as amended, provides for an exception to the period of limitation, as follows: "SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. - XXX XXX. (b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the w period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon."

C.T.A. CASE NO. 7877 20 DECISION In the instant case, records show that petitioner, thru Marco M. Perez, executed a Waiver of the Statute of Limitations on June 17, 2008, extending the period to assess to December 31, 2008 (Exhibit "F') . In the recent case of Commissioner of Internal Revenue vs. Kudos Metal Corporation, 640 SCRA 241-244, the Supreme Court ruled that the following are the requisites for a valid waiver: "1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase 'but not after 19 which indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription, should be filled up. 2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a representative, such delegation should be in writing and duly notarized. 3. The waiver should be duly notarized. 4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver, the CIR or the revenue official authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and executed by the taxpayer or his duly authorized representative. 5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of!Jf

C.T.A. CASE NO . 7877 21 DECISION the period agreed upon m case a subsequent agreement IS executed. 6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection of the agreement." Applying the foregoing ruling to the present case, after a careful perusal of the waiver, we find the following defects: First, the waiver was executed by Mr. Perez without any written notarized authority from the board of directors of petitioner. Petitioner, being a juridical entity, it acts only through its duly authorized representative, either through its Board of Directors, or through its officers duly authorized by the board. Considering that Mr. Perez is petitioner's Section Manager (Exhibits "F" and "Y'') and there is no proof that Mr. Perez was duly authorized by the board to sign the waiver for the petitioner, and considering further that petitioner is denying to have authorized Mr. Perez to sign the waiver (Exhibit "Y"); then, it is evident that the waiver was indeed executed without written authority from the Board. Second, the waiver failed to indicate the date of acceptance by the BIR. The need to indicate the date of acceptance is to fix with certainty if Df

C.T.A. CASE NO. 7877 22 DECISION the waiver was actually agreed upon before the expiration of the three-year prescriptive period (Philippine Journalists, Inc. vs. Commissioner of Internal Revenue, 447 SCRA 230). Since a waiver is not a unilateral act of the taxpayer, but in fact and in law an agreement between the taxpayer and the BIR, the agreement by the BIR should be made prior to the expiration of the three- year prescriptive period. Accordingly, the date of acceptance is a requisite for determining whether the waiver was validly perfected before the expiration of the original three-year period (Commissioner ofInternal Revenue vs. FMF Development Corporation, 556 SCRA 709). Third, petitioner was furnished a copy of the waiver only on December 11, 2008, beyond the three-year prescriptive period to assess under the NIRC. The requirement to furnish the taxpayer with a copy of the waiver is not only to give notice of the existence of the document but of the acceptance by the BIR and the perfection of the agreement (Philippine JournaUsts, Inc. vs. Commissioner of Internal Revenue, 44 7 SCRA 23 1). A waiver is an agreement executed for the purpose of extending the period to assess. Section 222 (b) of the NIRC of 1997, as amended, provides that both the Commissioner and the taxpayer should have agreed in writing to the assessment after the period prescribed in Section 203. Hence, the perfection of an agreement depends upon the concurrence of the offer and the ~

C.T.A. CAS E NO. 7877 23 DECISION acceptance. Settled is the rule that no contract shall anse unless the acceptance of the contract is communicated to the offeror (The Insular Life Assurance Company, Ltd. vs. Asset Builders Corporation, 442 SCRA 162). Finally, the waiver was not signed by the duly authorized representative of the BIR. The aforequoted fourth requisite provides that the CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the waiver. Revenue Memorandum Order 20-90 provides that for tax cases involving more than Pl ,OOO,OOO.OO, the revenue officer authorized to sign the waiver is only the Commissioner of Internal Revenue. While Revenue Delegation Authority Order No. 05-01 ("RDAO 05-01 ") delegates the authority to sign and accept the Waiver of the Defense of Prescription under the Statute of Limitations; however, for large taxpayers cases, it is the Assistant Commissioner of Internal Revenue ("ACIR") of the large taxpayers service who is authorized to sign and accept the waiver. A perusal of the waiver shows that the wmver was accepted by Romulo Aguila, Jr., OIC - Head Revenue Executive Assistant of the Large Taxpayers Service - Regular. The OIC - Head of Revenue Executive Assistant of the Large Taxpayers Service is definitely not the ACIR of the et Large Taxpayers Service; but, a rank lower than the ACIR. Since RDAO 05-

C.T.A. CASE NO. 7877 24 DECISION 01 is a delegation of the authority of the Commissioner to sign and accept the waiver, then only the named revenue officers duly authorized thereof must act in behalf of the Commissioner. The OIC - Head of Revenue Executive Assistant of the Large Taxpayers Service being not the duly authorized representative named in RDAO 05-01 to sign and accept the waiver, then said waiver cannot be considered to have been validly accepted by the BIR. In the case of Commissioner of Internal Revenue vs. FMF Development Corporation, 556 SCRA 709, the Supreme Court invalidated the waiver therein for not having been signed by the proper signatory of the BIR. Considering that the waiver executed between the petitioner and respondent is defective, then pursuant to the afore-quoted ruling of the Supreme Court, the periods to assess the deficiency income tax, value-added tax, expanded creditable withholding tax and income taxes withheld on compensation were not extended. Consequently, the Formal Assessment Notices for deficiency income tax, value-added tax, expanded creditable withholding tax and income taxes withheld on compensation, having been issued only on December 15, 2008, beyond the three (3)-year prescriptive period, said Assessment Notices are null and void. ~

C.T.A. CASE NO. 7877 25 DECISION d) as regards Fringe Benefit Tax, Section 2.33 (A), 2nd paragraph of Revenue Regulations 3-98 provides: "SEC. 2.33. SPECIAL TREATMENT OF FRINGE BENEFITS (A) Imposition of Fringe Benefits Tax- xxx The tax imposed under Sec. 33 of the Code shall be treated as a final income tax on the employee which shall be withheld and paid by the employer on a calendar quarterly basis as provided under Sec. 57 (A) (Withholding of Final Tax on certain Incomes) and Sec. 58 A (Quarterly Returns and Payments of Taxes Withheld) of the Code. XXX XXX." While Section 58 ofthe NIRC of1997, as amended, provides: "SEC. 58. Returns and Payment of Taxes Withheld at Source. - (A) Quarterly Returns and Payments of Taxes Withheld. - Taxes deducted and withheld under Section 57 by withholding agents shall be covered by a return and paid to, except in cases where the Commissioner otherwise permits, an authorized agent bank, Revenue District Officer, Collection Agent, or duly authorized agent bank, Revenue District Officer, Collection Agent, or duly authorized Treasurer of the city or municipality where the withholding agent has his legal residence or principal place of business, or where the withholding agent is a corporation, where the principal office is located. The taxes deducted and withheld by the withholding agent shall be held as a special fund in trust for the government until paid to the collecting officers.

C.T.A. CASE NO. 7877 26 DECISION The return for final withholding tax shall be filed and the payment made within twenty-five (25) days from the close of each calendar quarter xxx." There is nothing in the record which shows that petitioner filed a Quarterly Remittance Return of Final Income Taxes Withheld (On Fringe Benefits Paid to Employees Other than Rank and File) (BIR Form 1603). Even the CIR in the computation of petitioner's deficiency fringe benefit tax in the Formal Letter of Demand (Exhibit "J ') and in the letter to petitioner for informal conference (Exhibit "2 ", p . 6), did not find any fringe benefit tax quarterly remittance return filed by petitioner for fiscal year ending March 31,2005. Even the Court-commissioned !CPA's computation ofpetitioner's deficiency fringe benefit tax (Annex 34 of Exhibit "ZZZ ') did not show any quarterly remittance return of final income taxes withheld on fringe benefits paid to employees other than rank and file or payment of petitioner on fringe benefit tax. Accordingly, Section 222 (a) of the NJRC of 1997, as amended, which provides: "SEC. 222. - Exception as to Period of Limitation of Assessment and Collection of Taxes. - In the case of false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (1 0) years after the discovery of the falsity, fraud or omission xxx", IS applicable to the assessment for fringe benefit tax.

C.T.A. CASE NO. 7877 27 DECISION will apply to the assessment for fringe benefit tax as regards the period to assess, which is ten (10) years from the date of discovery of the omission. Considering that the Formal Assessment Notice was issued on December 15, 2008, then the same was issued within the ten (10)-year prescriptive period. Petitioner was assessed of fringe benefit tax m the amount of P30,582,321.15, computed, as follows: Total fringe benefits given P36,085,752.83 Grossed-up monetary value (total fringe 53,067,283.57 benefits given divided by 68%) Fringe benefits (grossed-up monetary value 16,981 ,530.74 multiplied by fringe benefit tax rate of 32%) Total fringe benefits per FBT returns - Deficiency FBT Surcharge P16,981,530.74 Interest from April 16, 2005 to December 31, 4,245,382.69 2008 9,330,407.72 Compromise penalty Total amount due and collectible 25,000.00 P30,582,321.15 The basic deficiency fringe benefit tax of P16,981 ,530.74 was computed, as follows: Cost of Goods Sold: Pl0,544,153.28 Factory Rent -land 2,990,000.00 Factory Rent - Japanese staff 4,545,556.53 S-grade housing 4,578,606.04 S-grade car 570,716.67 Repairs and maintenance - vehicles (P1,141,433.44 x 50%)

C.T.A. CASE NO. 7877 28 DECISION Depreciation - vehicles 971,967.31 (P1,943,934.61 X 50%) Representation - others 3~565~684.96 Total 27,766,684.79 Fringe benefit rate 50% Fringe benefits 13~883~342.40 Factory rent - Japanese staff 22980~000.00 Total Fringe Benefits - Cost of P16~863~342.40 Goods Sold Operating Expenses: P3,565,684.96 19~222A10.43 Representation - others Depreciation - vehicles 8~820~846.20 36~085~752.83 (P17,641,692.40) X 50% 12,386,531.16 53,067,283.57 Total 50% P16,981,530.74 Fringe benefit rate Fringe benefits 6,193,265.58 Rental - Japanese staff 5,100,000.00 Miscellaneous - house subsidy 3,273,716.60 Miscellaneous - Japanese child 1,351,891.20 tuition 1,507,497.26 Miscellaneous- drivers wages Membership dues and 1~796~039.79 subscription Total fringe benefits given Grossed up monetary value Fringe benefits We will discuss the deficiency assessment ofFBT in seriatim: A. Factory Rent- Land The BIR subjected this account to a 50% FBT rate to arrive at the "Total Fringe Benefits-Cost of Sales" amount. The related "fringe benefit given" for this account amounted to P5 ,272,076.64 (P10,544,153.28 x 50%).

C.T.A. CAS E NO . 7877 29 DECISION A perusal of the detailed GL account 53402 - Factory Rent - Land (Exhibit "SS '') discloses that this account is composed of the following charges: (1) Rental Expense in the total amount of P8,000,000.00, representing the annual cost of lease for certain real properties located in Bulacan, Pasig City and San Juan, as evidenced by the Lease Contract (Exhibit "TT'') between Union Ajinomoto Realty Corporation and Union Ajinomoto, Inc. 1 and ; (2) Rental expense in the amount of P2,544,153.26 which pertains to a reclassification expense, as evidenced by the downloaded journal entry JE-82306 (Exhibit "WW") from GL account 63604 (Exhibit "SS-1 4 '') . The original entry for the said amount in GL 63604 was evidenced by downloaded journal entry 82291 (Exhibit "WW-1 ") which was made to offset a loan receivable with rent. A.1) As regards the rental expense in the amount of P8,000,000.00, the Lease Contract provides that petitioner shall use and occupy the leased premises for its lawful business purposes including but not limited to the owning, holding and operating of petitioner's plant(s) and/or building(s). The BIR Certificate of Registration shows that petitioner has established plant/offices in Bulacan and San Juan (Exhibits "VV" and ''VV-1 ''). On the other hand, the use of the Pasig lot for business operation was 1 Former name of Peti tioner as evidenced by the SEC Certificate of Fil ing of Amended Articles of Incorporati on presented as Exhibi t UU.

C.T.A. CASE NO. 7877 30 DECISION supported by the payment of business tax and real property taxes for the said location (Exhibit "V-2 ") . Considering that these rental payments were for real properties used by petitioner for its operation, then, these rental payments do not fall under the definition of fringe benefits given by the employer to an employee. Accordingly, the rental expense in the amount of P8,000,000.00 should not be subjected to a deficiency fringe benefit tax. A.2) As regards the rental expense in the amount of P2,544,153.26, which is a reclassification expense, we agree with the Court-commissioned ICPA that in the absence of documentary evidence in support of said journal entry, the rental expense of P2,544,153.26 shall remain subject to fringe benefit tax ofP598,624.30, computed, as follows: Factory Rent - Land P2,544, 153.26 x Fringe Benefit Rate 50% Fringe Benefit Base Grossed up Monetary Value (over 68%) Pl ,272,076 .63 x Fringe Benefit Tax Rate PI ,870,700.93 Fringe Benefit Tax 32% p 598,624.30 B. Factory Rent- Japanese Staff Based on the undated letter (Exhibit "H '') of Atty. Romulo Aguila, the OIC-Head Revenue Executive Assistant of the BIR's Large Taxpayers Service-Regular section, we agree with the Court-commissioned ICPA that

C.T.A. CASE NO. 7877 31 DECISION respondent used the account Factory - Rent Japanese Staff twice in her assessment, although with different amounts. Initially, it was shown as the second item under Cost of Sales, but with a higher amount of P2,990,000.00 as against the GL (Exhibit "SS-1 ") and Trial Balance (Exhibit "CC", p . 11) of P2,880,000.00. This amount was subjected to a 50% FBT rate to arrive at the "Total Fringe Benefit - Cost of Sales" amount. The related "fringe benefit given" for this account amounted to P1 ,495,000.00 (P2,990,000x50%). Secondly, it was shown as the last item added to arrive at the "Total Fringe Benefits - Cost of Sales" amount. The BIR reflected a higher amount ofP2,980,000.00 as against the GLand Trial Balance amount ofP2,880,000.00. This amount was subjected anew at 100% of its balance. An examination of the detailed GL account 53510 -Factory Rent- Japanese Staff (Exhibit "SS-1 ") shows that this account is composed of the following charges: (1) Rental expense in the amount of P960,000.00, representing the annual cost of lease for a condominium unit to be used by Mr. Tanigawa, as evidenced by the Agreements to Extend Contract of Lease between Davao Motor Sales Co. and the petitioner (Exhibits "TT-l " and "TT-2") . (2) Rental expense in the amount of P960,000.00, representing the annual cost of lease for a condominium unit to be used by Mr. Tamura, as evidenced by the copy of Contract of

C.T.A. CASE NO. 7877 32 DECISION Lease between River Oaks Realty Corporation and the petitioner (Exhibits "TT-3 " and "TT-l 3 ") . (3) Rental expense in the amount of P960,000.00, representing the annual cost of lease for a residential house to be used by Mr. Shiraishi, as evidenced by the Renewal of a Contract of Lease between CCMC Development Corporation and the petitioner (Exhibit "TT-4 ''). Based on the contracts, the residential units leased by petitioner for its Japanese employees were not adjacent to the business or factory of the petitioner. Accordingly, we agree with the Court-commissioned ICPA that these rental payments are subject to fringe benefit tax of P677,647.06, computed, as follows: Rent - Japanese Staff p 2,880,000.00 x Fringe Benefit Rate 50% Fringe Benefit Given Gross up Monetary_ Value P I,440,000.00 x Fringe Benefit Tax Rate p 2,117,647.06 Fringe Benefit Tax 32% p 677,647.06 C. S-Grade Housing and S-Grade Car C.l) The BIR derived the amount of P4,545,556.53 as basis of S- Grade Housing Loan from the S-Grade Housing loan account balance of P3 ,097,984.26 with GL Account No.13171 (Exhibit " CC", p. 4) and the loan payments made during the year amounting to Pl ,447,572.27, as summarized in Annex "46 " of the ICPA Report (Exhibit "ZZZ'').

C.T.A. CASE NO . 7877 33 DECISION The BIR subjected to 50% the amount of P4,545,556.53 to arrive at the "fringe benefits" amount. The related "fringe benefit given" for this account amounted to P2,272,778.26 (P4,545,556.53 x 50%). C.2) On the other hand, the BIR derived the amount of P4,578,606.04 as basis of S-Grade Car Loan from the S- Grade Car loan account balance of P3,038,278.95 with GL Account No.l3172 (Exhibit "CC", p . 4) and the loan payments made during the year amounting to P1,540,327.09, as summarized in Annex "46" ofthe ICPA Report (Exhibit "ZZZ "). The BIR subjected to 50% the amount of P4,578,606.04 to arrive at the "fringe benefits" amount. The related "fringe benefit given" for this account amounted to P2,289,303.02 (P4,578,606.04 x 50%). Pursuant to Section 33(B)(5), as implemented by Section 2.33(B)(5) of Revenue Regulations No. 03-98, if the employer lends money to his employee free of interest or at a rate lower than twelve per cent (12%), such interest foregone by the employer or the difference of the interest assumed by the employee and the rate of twelve per cent (12%) shall be treated as a taxable fringe benefit. However, in the absence of supporting documents that would show ct that the amounts of P4,545,556.53 and P4,578,606.04 pertain to the

C.T.A. CASE NO. 7877 34 DECISION respective S-Grade Housing and Car loan amount and not to the interest foregone by the employer, the entire amount representing the GL account balance of P3,097,984.26 and P3,038,278.95 for S-Grade Housing and Car account, respectively, are subject to FBT of P728,937.47 and P714,889.17, respectively, computed, as follows: Ba lance S-Grade Housing S-Grade Car x Fringe Benefit Rate 1�3 ,097,984.26 1�3 ,038,278.95 Fringe Benefit Gi ven 50% Gross up Monetary Va lue P1 ,548,992 .1 3 50% x Fringe Benefit Tax Rate 1�2 ,2 77 ,9 2 9 . 6 0 P1 ,519, 139.48 Fri nge Benefit Tax 32% 1�2,234, 028.65 p 728,937.47 32% p 714,889.17 D. Repairs and Maintenance- Vehicles The basis ofthe BIR computation of the amount ofP1 ,141 ,433.44 was derived from the GL Account 53110 - Repairs and Maintenance- Vehicle (Exhibit "CC ", p . 10). The related fringe benefit given for this account was computed by subjecting 50% of the said amount to a 50% fringe benefit rate, thus, amounted to P285,358.36 (P l,l41 ,433.44 x 50% = P570,716.72 x 50%). A careful examination of the supporting documents (Exhibits "FFF" to "FFF-38 " and "GGG " to "GGG-55 ") of the repairs and maintenance expense shows that only the amount of P216,915.71 was duly supported with receipts ~

C.T.A. CASE NO. 7877 35 DECISION in the name of the petitioner and does not partake of the nature of personal expense attributable to the employee, as summarized below: Exhibit No. Payee Cash Invoice I Amount FFF I00 Ortigas Tire Trading Corp. OR No. p 3,969.09 FFF-1 I00 Ortigas Tire Trading Corp. 227 FFF-2 New Capitol Tire Trading Corp. 236 8,372.73 FFF-3 I00 Ortigas Tire Trading Corp. 14112 4,300.00 FFF-4 I00 Ortigas Tire Trading Corp. 583 2,144 .00 FFF-8 Archie Auto Parts & Services 801 7,700.00 Manta Industrial Sales 10502 FFF-12 I00 Ortigas Tire Trading Corp. 23206 150.00 FFF-24 Manta Industrial Sales 249 338.18 FFF-28 Manta Industrial Sales 23406 1,710.91 FFF-28 Manta Industrial Sales 23407 1,877.27 FFF-28 Manta Industrial Sales 23408 900.00 FFF-28 Manta Jndustrial Sales 23409 618.18 FFF -2 8 Wheelman Commercial Sales 23419 473.64 FFF-29 Wheelman Commercial Sales 0028 804.55 FFF-30 Wheelman Commercial Sales 0040 I ,059 .09 FFF-30 Wheelman Commercial Sales 0046 886.36 FFF-30 Wheelman Commercial Sales 0047 886.36 FFF-30 I00 Ortigas Tire Trading Corp. 0055 886.36 FFF-31 I00 Ortigas Tire Trading Corp. 584 9, 159.09 GGG I00 Ortigas Tire Trading Corp. 481 7,654.00 GGG-1 A-J Tire Supply 485 5, 155.45 GGG-3 Wheelman Commercial Sales 1450 12 , 536 .36 GGG-4 Wheelman Commercial Sales 0004 4,872.73 GGG-4 Wheelman Commercial Sales 0005 1,818.18 GGG-4 Wheelman Commercial Sales 0006 I ,053.64 GGG-4 Wheelman Commercial Sales 0007 156.36 GGG-5 Wheelman Commercial Sales 0023 3,272.73 GGG-5 Wheelman Commercial Sales 0024 8,918.18 GGG-5 Andy's Auto Electrical Services 0025 I ,045.45 GGG-6 Wheelman Commercial Sales 0352 13 ,554 .55 GGG-7 Wheelman Commercial Sales 0039 2,027.27 GGG-7 Wheelman Commercial Sales 0041 I ,704.55 GGG-7 0043 3,518 . 18 I ,652.73

C.T.A. CASE NO. 7877 36 DECISION GGG-7 Wheelman Commercial Sales 0050 1,309.09 GGG-10 K-Square Petron Services 01405 1,914.5 5 GGG-11 K-Square Petron Services 01668 4,304.55 GGG-12 K-Square Petron Services 01669 8,296.36 GGG-13 K-Square Petron Services 01836 5,446 .38 GGG-14 K-Square Petron Services 02151 2,407.27 GGG-15 K-Square Petron Services 02250 2,185.45 GGG-16 K-Square Petron Services 02424 1, 175.45 GGG-17 K-Square Petron Services 2581 19,960.61 GGG-18 K-Square Petron Services 2857 7,183.64 GGG-24 Honda Cars Makati, Inc 0121203 15 ,707.54 GGG-37 Joe Radiator Repair Shop 25304 GGG-42 Joe Radiator Repair Shop 2567 650.00 GGG-43 J. Fernando Auto Supply 835280 2,115.00 GGG-46 Manta Industrial Sales 23391 GGG-47 Manta Industrial Sales 23420 60.00 GGG-48 Manta Industrial Sales 23236 1,718. 18 GGG-49 Manta Industrial Sales 23260 5,218.18 GGG-51 RFG Battery Inc 9865 8,772.73 TOTAL 1,790.91 I 1,523.64 p 216,915.71 Hence, only the amount of P216,915.71 should be excluded from fringe benefit tax. The remaining amount of P462,258.87 repairs and maintenance is subject to fringe benefit tax of Pl08,766.79, computed as follows: Repairs and Maintenance- Vehicles P462,258.87 [(1,141,433.44-216,9I5.71) X 50%] 50% x Fringe Benefit Rate Fringe Benefit Given P231, I29.43 Gross up Monetary Value P339,896.22 x Fringe Benefit Tax Rate Fringe Benefit Tax 32% P108,766.79

C.T.A. CASE NO. 7877 37 DECISION E. Depreciation- Vehicles under Cost of Sales The basis of the BIR computation of the amount ofP1,943,934.61 was derived from the GL Account 53240- Depreciation- Vehicle (Exhibit "CC", p . 11). The related fringe benefit given for this account was computed by subjecting 50% of the said amount to a 50% fringe benefit rate, thus, amounted to P485 ,983.65 (P1,943,934.61 x 50%= P971 ,967.31 x 50%). Based on the schedule provided by petitioner and the ICPA, the vehicles subjected to depreciation under this account were from the following: Particular Depreciation Amount Assets used in the Petitioner's daily operations Fire truck p 454,545.45 Ambulance 99,090.91 Forklifts 309,090 .92 Total p 862,727.28 Assets used for the Factory's sales, freight, delivery and other plant activities to cargo I mail transport Tractor Heads p 189,818.18 Nissan Pathfinder pick up 120,000.00 L-300 118 ,787 .88 Honda Motorcycle 13,545.45 Total P442,151.51 Assets used for the Factory's sales, freight, delivery and other plant activities relating to passenger transport Toyota Revo p 21,201.3 Various Toyota Corolla Altis 374,727.27 Nissan Cefiro 237,272.73 Total P633,201.30

C.T.A. CASE NO. 7877 38 DECISION Assets recorded under this account that does not qualify to be motor vehicles but petitioner represented that these bicycles were used inside the factory for inter- department transactions Various bicycles 5,854.55 Total Depreciation subjected to fringe benefit by the BIR P1,943,934.64 (Exhibit "ZZZ", p. 64). However, only the following assets with the related depreciation expense of P791 ,080.09 were verified to be owned by the petitioner and do not partake of the nature of personal expense attributable to a particular employee: Particular Plate No. Exhibit Depreciation Amount No. Assets used in the Petitioner's daily operations Ambulance XDK-786 WWW-3 p 99,090.91 Assets used for the Factory's sales, freight, delivery and other plant activities to cargo I mail transport Tractor Heads WMA-569 www 90,909.09 Tractor Heads URM-550 WWW-1 98,909.09 L-300 XRC-597 WWW-4 59,393.94 L-300 XRN-267 WWW-5 59,393 .94 Total 308,606.06 Assets used for the Factory's sales, freight, delivery and other plant activities relating to passenger transport Toyota Revo XSG-632 WWW-7 21,201.30 Toyota Corolla Altis WTB-686 WWW-2 124,909.09 Nissan Cefiro XEE-473 WWW-6 237,272.73 Total 383,383.12 Total Depreciation not subject to fringe benefit tax P791,080.09 Accordingly, only the remaining depreciation expense under the cost of sales account of P576,427.27 is subject to fringe benefit tax of Pl35,629.95 , computed, as follows:

C.T.A. CASE NO. 7877 39 DECISION Depreciation - Vehicle [(I ,943,934.63- p 576,427.27 791 ,080.09) X 50%] 50% x Fringe Benefit Rate Fringe Benefit Given p 288,213.64 Gross up Monetary Value p 423 ,843.58 x Fringe Benefit Tax Rate Fringe Benefit Tax 32% p 135,629.95 F. Representation - Others - under Cost of Sales and Operating Expense We agree with the Court-commissioned !CPA's findings that the BIR erroneously used as basis in the computation of representation under "Cost of Sales" the representation amount of P3 ,565,684.96 recorded under GL 63110, instead of the amount per GL53953 in the amount ofP2,261,030.95. The Representation- Others (Exhibit "CC", p . 15) was included anew in the computation of fringe benefit under "Operating Expenses". Accordingly, the basis used by the BIR was higher by P1,304,654.01 (P3,565,684.96 less P2,261 ,030.95). The alleged "fringe benefits given" for this account was computed at 50% of the total balance per GL 63110. Therefore, the related "fringe benefits given" for this account amounted to P1 ,782,842.48 (P3,565,684.96 X 50%). Based on the examination of the supporting documents (Exhibits "AAAA" to "AAAA -64 ", "BBBB " to "BBBB-85 ", "TTT" to "TTT- 105 " and "UUU" to

C.T.A. CASE NO. 7877 40 DECISION "UUU-45 ") submitted, only representation expense under the "Cost of Sales" and "Operating Expense" in the amounts of P118,752.47 and P220,881.39 (A nnex 56 of Exhibit "ZZZ'') , respectively, were duly supported with receipts in the name of the petitioner and do not partake of the nature of personal expense attributable to the employees. Hence, only the said amounts should be excluded from the fringe benefit tax. The other representation expense under "Cost of Sales" and "Operating Expense" of P2,261 ,030.95 and P3,565 ,684.96, respectively, remain subject to fringe benefit tax of P504,065.52 and P787,012.61, respectively, computed, as follows: Representation Expense per GL Cost of Sales Operatine Expenses Less: Duly Receipted p 2,261,030.95 p 3,565,684.96 Representation - Others 118,752.47 220,881.39 x Fringe Benefit Rate p 2, 142,278.48 P3 ,344,803.57 Fringe Benefit Given 50% 50% Gross up Monetary Value p 1,071,139.24 PI ,672,40 I.79 x Fringe Benefit Tax Rate P I,575,204.76 P2,459,414.40 Fringe Benefit Tax 32% 32% p 504,065.52 P787,012.61 G. Depreciation -Vehicles under Operating Expense The basis of the BIR's computation in the amount of P17,641,692.40 was derived from the GL account 63 540 - Depreciation Vehicles (Exhibit "CC ", p. 15). The alleged "fringe benefits given" for this account was initially computed by multiplying the account by 50%. Thereafter, the product was subjected to the fringe benefit rate of 50% to arrive at the "Total fringe

C.T.A. CASE NO. 7877 41 DECISION benefits-operating expenses" amount. The related "fringe benefits given" for this account amounted to P4,410,423.10 (P17,641,692.40 x 50% = P8 ,820,846.20 X 50%). The vehicles subjected to depreciation under this account and as assessed by the BIR to be subjected to fringe benefit tax were from the following: Particular Depreciation Amount Trucks and commercial vehicles subjected to depreciation used by the petitioner for sales, freight, delivery and other plant activities relating to cargo transport: Various Mitsubishi Canter p 4,753,704.55 Various Mitsubishi FE635 and FE515 3,182,818.18 Various Mitsubishi L300 FB 2,970,363.64 Various Isuzu trucks 2,736,212.12 Various Suzuki Carry all 222,654.55 Various Mitsubishi Adventure I,5 17,393 .94 Mitsubishi Leader and van 299,545.45 Various Toyota Tamaraw FX 173 , 4 5 4 . 5 4 Total 15,856,146.97 Vehicles used by sales personnel in the conduct of sales operations: Various Toyota Altis I Corollas 1,338,636.37 Vehicles used for passenger transport. Petitioner represented that these vehicles were used by office personnel as well as local and foreign visitors for official business purposes: Toy_ota Camry 230,909.09 Toyota Super Grandia 216,000.00 Total 446,909.09 Total Depreciation subjected to fringe benefit by the BIR P17,641,692.43 (Exhibit "ZZZ", p . 58). As evidenced by the Land Transportation Office Registrations (Exhibits "XD:'" to "..xx�-24 ") , only the following were ascertained to be registered in the name of the petitioner and do not partake of the nature of personal

C.T.A. CASE NO. 7877 42 DECISION expense attributable to a particular employee, hence should not be subjected to fringe benefit tax: Depreciation Particular Exhibit No. Amount Trucks and commercial vehicles subjected to depreciation used by the petitioner for sales, freight, delivery and other plant activities relating to cargo transport: Mitsubishi Canter XXX-8 p 122,909.09 WFX-666 XXX-9 122,909.09 WLY-980 XXX-26 143,727.27 WSS-430 XXX-120 143,727.27 WFX-350 XXX-27 143,727.27 WSS-490 XXX-121 143,727.27 WFX-550 XXX-28 143,727.27 WSS-420 XXX-118 114,000.00 WCS-580 XXX-29 143,727.27 WSS-460 XXX-30 143,727.27 WSS-450 XXX-31 143,727.27 WSS-470 XXX-34 145,545.45 XDF-416 XXX-38 124,363.64 XDF-426 XXX-40 145,545.45 XDF-436 XXX-43 145,545.45 XDY-479 XXX-45 124,363 .64 XDY-319 XXX-88 153,909.09 XJU-435 XXX-75 153,909.09 XJG-665 XXX-47 153,909.09 XJY-420 XXX-49 153,909.09 XJY-410 XXX-50 153,909.09 XKK-636 XXX-51 134,727.27 XJY-517 XXX-54 153,909.09 XJY-890 XXX-55 152,000.00 XJY-870 XXX-85 135,681.82 XKY-325 XXX-56 135,681.82 XKY-496 XXX-87 6,242.42 XRC-635 XXX-87 100,000.00 XRC-635 XXX-61 77,424.24 XRC-738 XXX-62 87,500.00 XRC-708

C.T.A. CASE NO. 7877 XXX-65 43 DECISION XXX-65 XXX-66 75,000.00 XRC-509 XXX-69 4,681.82 XRC-509 XXX-69 XRC-660 XXX-70 62,500.00 XRN-820 XXX-70 37,500.00 XRN-820 XXX-119 XRN-840 XXX-119 2,340.91 XRN-840 XXX-71 37,500.00 XSC-537 XXX-72 XSC-537 2,340.91 XSC-550 XXX-107 37,500.00 XSC-540 XXX-102 XXX-110 2,340.91 Mistubishi FE635 and FE515 33,181.82 WEG-367 XXX-I 37 500.00 WLV-961 XXX-108 P4,280,098.45 WFZ-648 XXX-100 WLV-879 142,000.00 WEG-437 XXX-3 142,000.00 WLV-941 XXX-4 122,000 .00 WLY-920 XXX-5 142,000.00 WLV-950 XXX-109 142,000.00 WFZ-666 XXX-7 142,000.00 WFZ-668 XXX-10 142,000.00 WLV-550 XXX-110 142,000.00 WGD-666 XXX-12 122,909.09 WFX-444 XXX-93 122,909.09 WMS-580 XXX-14 122,909.09 WMS-601 XXX-33 122,909.09 WMS-599 XXX-81 122,909.09 XDF-446 XXX-95 137,272.73 XDF-435 XXX-76 137,272.73 XDY-641 137,272.73 XDY-643 XXX-94 145,545.45 XXX 124,363 .64 Mitsubishi L300/ FB XXX-2 124,363.64 WLT-131 XXX-6 124 363.64 WDW-666 2,661,000.01 WLV-549 XXX-13 WLV-789 75,090.91 WMS-480 86,363.64 86,363.64 75,090.91 76,181.82

C.T.A. CASE NO. 7877 XXX-15 44 DECISION XXX-21 XXX-22 87 ,636 .36 WMS-699 XXX-23 96,727 .27 WSS-510 XXX-24 96,727.27 WSS-570 XXX-25 96 ,727 .27 WSS-480 XXX-99 96,727.27 WSS-650 XXX-101 96,727.27 WSS-640 XXX-35 96,000.00 XDF-431 XXX-41 96,000.00 XDF-463 XXX-122 96,000.00 XDF-456 XXX-86 96,000.00 XDF-409 XXX-82 96,000 .00 XDY-469 XXX-77 97,272.73 XJU-405 XXX-52 97,272.73 XJU-445 XXX-53 97,272 .73 XJG-324 XXX-96 97,272.73 XJF-397 XXX-90 97,272.73 XKW-510 XXX-117 100,000.00 XJW-101 XXX-74 84,848.49 XNN-664 XXX-116 84,848.49 XNN-694 25 ,454 .55 XSB-589 XXX-89 25 454.55 XSB-599 XXX-112 2,257,333.36 XXX-17 Isuzu trucks XXX-20 I 07,272 .73 WNM-984 XXX-36 154,545.45 WDU-561 XXX-37 154,545.45 WRG-330 XXX-39 114,000.00 XA E-447 XXX-48 171 ,818.18 XD E-379 XXX-111 171 ,818 .18 XDE-359 XXX-57 171,818 . 18 XDE-400 XXX-57 178,727.27 XGP-750 XXX-114 138,636.36 XPK-654 XXX-114 124,772 .73 XRH-487 XXX-59 XRH-487 XXX-60 13 , 363.64 XRH-493 XXX-63 97,045.45 XRH-493 XXX-64 10,393.94 XRA-359 97,045.45 XRA-339 97,045.45 XRH-486 83 , 181.82 XRA-329 83 , 181.82

C.T.A. CASE N O. 7877 45 D EC IS IO N XPM-972 XXX- 115 83 181.82 2 ,0 5 2 ,3 9 3 .92 Suzuki Carry all XHT-945 XXX-83 74,2 18.18 XHT-941 XXX-92 74218 . 18 148,436.36 Mitsubishi Adventure XDY-477 XXX-42 I 05 ,454 .55 XDY-461 XXX -97 105 ,454 .55 XDY-931 XXX-113 I 05 ,4 54 .55 XDY-436 XXX-44 I 05 ,4 54 .55 XHN-664 XXX-79 106,363 .64 XNN-684 XXX -78 95, 151.52 XPR-248 XXX-58 76, 121.2 1 XRC-680 XXX-68 47,575 .76 XRN-830 XXX-73 28 545.45 775,575.78 Mitsubishi Lead er a nd va n WMS-691 XXX-104 145, 636.36 XKK-245 XXX-84 153 ,909 .09 XRC-860 XXX-67 3 I06.06 302 651.51 T ota l 12,477,489.39 Vehicles used by sales personnel in th e conduct of sales operations: Toyo ta Altis I Corollas WNM -450 XXX-16 99 ,090 .91 WPT-6 56 XXX - 18 117,454 .55 WPT-959 XXX- 19 117,454. 55 XAK-505 XXX-80 124,909 .09 XCW-811 XXX-91 123,090. 9 1 XDM-551 XXX-106 123,090. 9 1 XHV-636 X X X -4 6 97,818.18 XHA-131 XXX-103 97,818 .18 XHA- 12 1 XXX -98 97,818. 18 XMX-25 1 XXX-123 80,757. 58 XPW-411 XXX-105 64 606.06 1,1 43,909.10 Vehicles used for passenger transport. P etitioner represented th at these vehicles were used by offi ce personn el as well as loca l a nd foreign visitors for official business purposes: Toyo ta Super Gra ndia

C.T.A. CASE NO. 7877 46 DEC ISION XCW-836 XXX-32 216 000.00 p 13,837,398.49 Total Depreciation not to be subjected to fringe benefit tax Accordingly, only the remammg depreciation expense of P1 ,902,146.96 is subject to fringe benefit tax of P447,563.99, computed, as follows: Depreciation- Vehicle p I,902, 146.96 [( 17,64 1,692.40- 13,837,398.49)x50%] 50% x Fringe Benefit Rate Fringe Benefit Given p 951,073.48 Gross up Monetary Value p I,398,637.47 x Fringe Benefit Tax Rate Fringe Benefit Tax 32% p 447,563.99 H. Rental- Japanese Staff The BIR subjected this account to a 50% fringe benefit rate to arrive at the "Total Fringe Benefits-Cost of Sales" amount. The related "fringe benefit given" for this account amounted to P5 ,272,076.64 (P10,544,153.28 x 50%). Examination of the detailed GL account 53402 - Factory Rent - Land (Exhibit "SS ') shows that this account is composed of the following charges: (1) Rental expense in the amount of P390,000.00, representing six months (April to September 2004) lease of an apartment used by Mr. Hayashi. This is evidenced by a copy of the Contract of Lease between CTM Management Corporation and the petitioner for the period January 23, 2004 to July 22, 2004 (Exhibit "TT-5 ') .

C.T.A. CASE NO. 7877 47 DECISION (2) Rental expense in the amount of P960,000.00, representing the annual cost of lease of a residential unit used by Mr. Okuda, as evidenced by the original Contract of Lease between the Spouses Vicente and Amelita Villegas and the petitioner for the period November 2, 2003 to November 1, 2004(Exhibit "TT-6 '') and the copy of the Contract of Lease for the period November 2, 2004 to November 1, 2005 (Exhibit "TT- 7") . (3) Rental Expense in the amount of P960,000.00, representing the annual cost of lease of a condominium unit used by Mr. Takagi, as evidenced by the original Contract of Lease between Ramon B. Ajero and the petitioner for the period March 1, 2004 to February 28, 2005 (Exhibit "TT-8 ''). (4) Rental Expense in the amount of P390,000.00, representing six months (October 2004 to March 2005) lease of a condominium unit used by Mr. Hidaka, as evidenced by the Contract of Lease between CTM Management Corporation and the petitioner for the period October 8, 2004 to October 7, 2005 (Exhibit "TT-9 '') . (5) Rental Expense in the amount of P960,000.00, representing the annual cost of lease of a condominium unit used by Mr. Komatsu. This is supported by a Contract of Lease between Ms. Desiree Ong and Mr. Shunichi Komatsu for the period September 30, 2004 to September 29, 2005 (Exhibit "TT-10 '') with an acknowledgment receipt (Exhibit " TT-10", p. 8) from the lessor that the payment was received from the petitioner. (6) Rental Expense in the amount of P720,000.00, representing six months (April to September 2004) lease of a condominium unit used by Mr. Sakai, as supported by a Contract of Lease between Ms. Ester M. Cumagun and Mr. Yoshihiko Sakai for the period April 18, 2003 to April 17, 2004 (Exhibit " TT-11 '') with an acknowledgment receipt (Exhibit "TT-11 ", p. 7) from the Lessor that the payment was received from Mr. Sakai.

C.T.A. CASE NO. 7877 48 DECISION (7) Rental Expense in the amount of P720,000.00, representing six months (October 2004 to March 2005) lease of condominium unit used by Mr. Kagaya, as supported by the Contract of Lease between Ms. Ester Cumagun and Mr. Yoshihiko Sakai for the period April 18, 2004 to April 17, 2005 (Exhibit " TT-12 ") . Based on the contracts, the residential/condominium units leased by petitioner for its Japanese employees were not adjacent to the business or factory of the petitioner. Accordingly, these rental payments are subject to a fringe benefit tax ofP1,764,705.88, computed, as follows: Lease Lease Total Contract Contract between between Lessor and Lessor and Petitioner Japanese Staff Monetary value of fringe ben efi t: 390,000.00 960,000.00 3,750,000.00 Condominium unit for Mr. Hiyashi 960,000.00 720,000.00 5,514,705.88 Residential unit for Mr. Okuda 960,000 .00 720,000.00 Condominium unit for Mr. Takagi 390,000.00 2,400,000.00 32% Condominium unit for Mr. Hidaka P1,764,705.88 Condominium unit for Mr. Komatsu 2,700,000.00 100% Condominium unit for Mr. Sakai 50% 2,400,000.00 Condominium unit for Mr. Kagaya I ,350,000.00 Total Monetary Value of Frin ge Benefit x Fringe Benefit Portion Fringe Benefit Given Grossed Up Monetary Value x Fringe Benefit Rate Fringe Benefit Tax Due I. Miscellaneous Expense- Housing Subsidy The basis of the BIR computation in the amount ofP3,273,716.60 was derived from the GL Account 64474 - Mise Exp - Housing Sub (Exhibit

C.T.A. CASE NO. 7877 49 DECISION "CC", p. 16). The "fringe benefits given" for this account was computed at its full amount of P3,273,716.60. Based on the records, the housing subsidy was granted to petitioner's regular personnel requiring transfer of their place of residence as a result of a new work assignment. Subsidy was intended to free the employee from the burden of shouldering rent expenses as a result of a necessary work transfer. Since the fringe benefit was necessary for the trade or business of the petitioner and was more for the convenience or advantage of the employer rather than of the employee, this fringe benefit should not be subjected to fringe benefit tax. Yet, a perusal of the documents (Exhibits "HHH" to "HHH-23 ') presented before this Court shows that the duly supported housing subsidy granted to supervisors and managers which should not be subjected to fringe benefit tax amounted only to P473,750.00, as shown hereunder: Exhibit No. Payee Period Amount Total HHH Andres Despi September 2004 p 4,900.00 p 14,700.00 HHH (4/5) Andres Despi November 2004 HHH (5/5) Andres Despi December 2004 4 ,900 .00 25,500.00 HHH-1 (2/4) Antonio Flores March 2005 4 ,900 .00 HHH-1 (2/4) Antonio Flores September 2004 5,100.00 HHH-1 (3 /4) Antonio Flores February 2005 5,100 .00 HHH-1 (3/4) Antonio Flores December 2004 5,100 .00 HHH-1 (4/4) Antonio Flores October 2004 5,100.00 HHH-2 (2/4) Reynaldo Calderon August 2004 5,100.00 HHH-2 (3 /4) Reynaldo Calderon September 2004 4 , 900 .00 4 , 900 .00

C.T.A. CASE NO. 7877 50 DECIS ION HHH-2 (4/4) Reynaldo Calderon November 2004 4,900.00 14,700.00 HHH-4 (2/5) Jerry Luy September 2004 5,000.00 35,000.00 HHH-4 (2/5) Jerry Luy March 2005 5,000.00 HHH-4 (3 /5) Jerry Luy December 2004 5,000.00 50 ,000. 00 HHH-4 (3/5) Jerry Luy January 2005 5,000 .00 7,000.00 HHH-4 (4/5) Jerry Luy February 2005 5,000.00 HHH-4 (4/5) Jerry Luy October 2004 5,000.00 72,000 .00 HHH-4 (5/5) Jerry Luy November 2004 5,000.00 33,600.00 HHH-6 (2/6) Rex Degala January 2005 5,000.00 31 ,000.00 HHH-6 (2/6) Rex Degala June 2004 5,000.00 HHH-6 (3/6) Rex Degala July 2004 5,000.00 HHH-6 (3 /6) Rex Degala September 2004 5,000.00 HHH-6 (4/6) Rex Degala August 2004 5,000.00 HHH-6 (4/6) Rex Degala March 2005 5,000 .00 HHH-6 (5/6) Rex Degala December 2004 5,000.00 HHH-6 (5/6) Rex Degala November 2004 5,000.00 HHH-6 (6/6) Rex Degala October 2004 5,000.00 HHH-6 (6/6) Rex Degala May 2004 5,000.00 HHH-7(3 / 3) Roberto Chua April 2004 7,000.00 H H H -8{_2/7) Eduardo Ang January 2005 6,000.00 HHH-8 (2/7) Eduardo Ang December 2004 6,000.00 HHH-8 (3/7) Eduardo Ang October 2004 6,000.00 HHH-8 (3/7) Eduardo Ang November 2004 6,000 .00 HHH-8 (4/7) Eduardo Ang February 2005 6,000.00 HHH-8 (4/7) Eduardo Ang March 2005 6,000.00 HHH-8 (5/7) Eduardo Ang July 2004 6,000.00 HHH-8 (5/7) Eduardo Ang June 2004 6,000.00 HHH-8 (6/7) Eduardo Ang September 2004 6,000 .00 HHH-8 (6/7) Eduardo Ang May 2004 6,000.00 HHH-8 (7/7) Eduardo Ang April 2004 6,000 .00 HHH-8 (7/7) Eduardo Ang August 2004 6 ,000 .00 HHH-16 (2/8) May Abergas April 2004 5,600.00 HHH-16 (3/8) May Abergas June 2004 5,600 .00 HHH-16 (4/8) May Abergas August 2004 5,600.00 HHH-16 (5/8) May Abergas September 2004 5,600.00 HHH-16 (6/8) May Abergas November 2004 5,600.00 HHH-16 (8/8) May Abergas December 2004 5,600.00 HHH-17 (2/5) Vener Paragili June 2004 7,000.00 HHH-17 (3/5) Yener Paragi li September 2004 8,000.00 HHH-17 (4/5) Vener Paragili November 2004 8,000 .00 HHH-17 (5/5) Vener Paragili December 2004 8,000 .00 HHH-18 (2/5) Raul Anacin April2004 8,000.00 HHH-18 (3/5) Raul Anacin June 2004 8,000 .00 HHH-18 (4/5) Raul Anacin September 2004 8,000 .00

C.T.A. CASE NO. 7877 51 DECISION HHH-18 (5/5) Raul Anacin November 2004 8,000.00 32,000.00 HHH-19 (2/6) Benny Ong March 2004 4,000 .00 HHH-19 (2/6) Benny Ong September 2004 4,000.00 34,000.00 HHH-19 (3/6) Benny Ong July 2004 4,000 .00 35,000.00 HHH- 19 (3/6) Benny Ong June 2004 4,000.00 HHH-19 (4/6) Benny Ong May 2004 4,000.00 41,250.00 HHH-19 (4/6) Benny Ong February 2005 4,000 .00 48,000.00 HHH-19 (6/6) Benny Ong March 2005 5,000.00 P473,750.00 HHH-19 (6/6) Benny Ong February 2005 5,000.00 HHH-21 (1/3) Gil Gonzales May 2004 7,000.00 HHH-21 (2/3) Gil Gonzales April2004 7,000.00 HHH-21 (2/3) Gil Gonzales June 2004 7,000.00 HHH-21 (3/3) Gil Gonzales March 2005 7,000.00 HHH-21 (3/3) Gil Gonzales August 2004 7,000.00 HHH-22 (1/6) Francisco Darasin May 2004 3,750 .00 HHH-22 (1/6) Francisco Darasin July 2004 3,750.00 HHH-22 (2/6) Francisco Darasin June 2004 3,750.00 HHH-22 (2/6) Francisco Darasin September 2004 3,750.00 HHH-22 (3/6) Francisco Darasin August 2004 3,750.00 HHH-22 (3/6) Francisco Darasin October 2004 3,750.00 HHH-22 (4/6) Francisco Darasin February 2005 3,750.00 HHH-22 (4/6) Francisco Darasin March 2005 3,750.00 HHH-22 (5/6) Francisco Darasin December 2004 3,750 .00 HHH-22 (5/6) Francisco Darasin November 2004 3,750.00 HHH-22 (6/6) Francisco Darasin January 2005 3,750.00 HHH-23 (1/6) Edwin Chua April 2004 8,000.00 HHH-23 (2/6) Edwin Chua June 2004 8,000.00 HHH-23 (3/6) Edwin Chua August 2004 8,000.00 HHH-23 (4/6) Edwin Chua September 2004 8,000.00 HHH-23 (5/6) Edwin Chua November 2004 8,000.00 HHH-23 (6/6) Edwin Chua December 2004 8,000 .00 TOTAL While the remaining amount of P2,799,966.60 is subject to a fringe benefit tax of P 1,317,631.34, computed, as follows: Fringe Benefit Given p 2,799,966.60 Grossed Up Monetary Value p 4,117,597.94 x Fringe Benefit Rate Fringe Benefi t Tax Due 32% P1,317,631.34

C.T.A. CASE NO. 7877 52 DECISION J. Miscellaneous Expense- Japanese Child Tuition The basis of the BIR's computation of fringe benefit given for this account was derived from the GL account 64482 Mise Exp - School Assistance (Exhibit "CC", p.17) amountingtoP1,351,891.20. Pursuant to Section 33(B)(9) of the NIRC of 1997, as amended, educational assistance granted to the employee or his dependents are fringe benefits. Hence, respondent is correct in subjecting the amount of P1 ,351,891.20 to a fringe benefit tax ofP636,184.09, computed, as follows: Fringe Benefit Given p 1,35 1,891 .20 Grossed Up Monetary Value p I,988,075 .29 x Fringe Benefit Rate Fringe Benefit Tax Due 32% p 636,184.09 K. Miscellaneous Expense- Driver's Wages The BIR computed the fringe benefits given for this account at 100% which was derived from the GL account 64485 Mise Exp- Driver's Wages (Exhibit "CC", p. 17) with a balance ofP1,507,407.26. No supporting documents were presented by petitioner to disprove the findings of the respondent. Hence, the assessment for fringe benefit on this account shall be sustained for which the corresponding fringe benefit tax due amounts to P709,368.12, as computed hereunder:

C.T.A. CASE NO . 7877 53 DECISION Fringe Benefit Gi ven p I,507,407.26 Grossed Up Monetary Value p 2,216,775 .38 x Fringe Benefit Rate Fringe Benefit Tax Due 32% p 709,368.12 L. Membership Dues and Subscription Based on the GL, the Membership Dues/Subscription, with account 66425 (Exhibit "CC ", p . 16) amounts to P1,798,539.79. The alleged fringe benefits given for this account amounting to Pl,796,039.792 was computed by the BIR at 100% of the account balance. A perusal of the supporting documents (Exhibits "III" to "III-48 ") presented before this Court shows that the amount of P 131 ,657.79 represents payments for membership dues, subscription of newspapers and specialized magazines or reading materials and internet subscriptions which were duly supported with receipts in the name of the petitioner and do not benefit a particular employee, to wit: Exhibit Payee OR Amount No. Japanese Chamber of Commerce & Industry of th e Phil s., Inc. No. P33,000.00 Ill The Japanese Association, Manila, Inc. 56926 111-1 Baguio-B enguet Entrepreneurs & Traders Associ ati on 20905 32,727 .27 111-2 Philippine Marketing Association, Inc. 0163 550 .00 Il l- 3 Philippine Chamber of Food Manufacturers, Inc. 4775 111-4 Marquez News & Magazine Agency 4231 12,000 .00 [11-5 E.C. Busa Tradin g & Printing Service 25750 10, 181.82 lll-6 19791 I ,527. 00 698.18 2 Ending balance ofP I,798,539. 79 less SGV year-end adjustment ofP2,500 .00.

C.T.A. CASE NO. 7877 54 DECISION 111-7 E.C. Busa Trading & Printing Service 19762 785.45 111-8 Marquez News & Magazine Agency 26046 I ,547.00 111-9 The Freeman Newspaper 119482 111-10 Marquez News & Magazine Agency 26129 100.00 111-11 The Freeman Newspaper 119507 786.00 111-12 The Freeman Newspaper 119524 100.00 111-13 Marquez News & Magazine Agency 26532 100.00 III-14 E.C. Busa Trading & Printing Service 21328 820.00 111-15 Grandstar News and Magazines 1134 756.36 111-16 The Freeman Newspaper 124319 528.00 111-17 Marquez News & Magazine Agency 26825 100.00 111-18 Grandstar News and Magazines 1618 811.00 111-19 Marquez News & Magazine Agency 26930 528.00 111-20 The Freeman Newspaper 124344 786.00 111-21 E.C. Busa Trading & Printing Service 21662 100.00 111-22 Marquez News & Magazine Agency 27061 756.36 111-23 E.C. Busa Trading & Printing Service 21699 820.00 111-24 E.C. Busa Trading & Printing Service 21830 756.36 111-25 Grandstar News and Magazines 10959 756.36 111-26 Marquez News & Magazine Agency 27299 484.00 111-27 E.C. Busa Trading & Printing Service 22461 786.00 111-28 Marquez News & Magazine Agency 27458 785.45 111-29 Marquez News & Magazine Agency 24997 786.00 111-30 Grandstar News and Magazines 11399 795 .00 111-31 E.C. Busa Trading & Printing Service 22498 542.00 111-32 E.C. Busa Trading & Printing Service 22621 772.73 111-33 Marquez News & Magazine Agency 27710 741.82 111-34 Business World Publishing Corp 150060 736.00 111-35 S.R. Manlangit Marketing 0143 3,500.00 111 -36 S.R. Manlangit Marketing 0033 3,600.00 111-37 Grandstar News and Magazines 12313 3,600.00 111-38 Philippine Association of Food Technologists, Inc. 3905 644.00 111-39 Mosaic Communication I 0,000.00 111-40 Mosaic Communication 804 200.00 111-41 Mosaic Communication 653 245.45 111-42 Mosaic Communication 675 252.73 111-43 Mosaic Communication 205 200.00 111-44 Mosaic Communication 242 220.00 111-45 Mosaic Communication 373 200.00 111-46 Mosaic Communication 487 225.45 1335 247.27

C.T.A. CASE NO. 7877 55 DECISION 111-47 Mosaic Communication 1423 272.73 II 1-48 Mosaic Communication 1446 200.00 TOTAL f'131,657. 79 Accordingly, the above membership dues/subscription ofP131,657.79 do not constitute fringe benefits subject to fringe benefit tax. Thus, only the remaining balance of Membership Dues/Subscriptions with no available supporting documents in the amount of Pl,664,382.00 shall remain subject to fringe benefit tax ofP783,238.59, computed, as follows: Membership Dues/Subscriptions per GL p I,796,039.79 Less: Duly receipted expenses 131 ,657.79 Fringe Benefit Given p I,664,382.00 Grossed Up Monetary Value p 2,447,620.59 x Fringe Benefit Rate Fringe Benefit Tax Due 32% f' 783,238.59 In sum, petitioner is liable of deficiency fringe benefit tax, but in the reduced amount ofP12,392,831.10, computed, as follows: Fringe Grossed Up Fringe Benefits Given Monetary Benefit Tax Due (at 32%) Value Cost of Sales: P I,272,076.63 P I,870,700.93 p 598,624.30 Factory Rent-Land I ,440,000.00 2,117,647.06 677,647.06 Factory Rent-Japanese Staff I,548,992. 13 2,277,929.60 728,937.47 S-Grade Housing I ,519,139.48 2,234,028.65 714,889.17 S-Grade Car 231,129.43 339,896.22 I 08,766.79 Repairs and Maintenance-vehicles 288,213.64 423,843.59 135 ,629 .95 Depreciation-vehicles 1,071,139.24 I ,575,204.76 504,065.52 Representation-others Sub-Total f' 7,370,690.55 f'l 0,839,250.81 f' 3,468,560.26

C.T.A. CASE NO. 7877 56 DECISION Operating Expenses: P I ,672,40 I. 79 p 2,459,414.40 p 787,01 2.61 Re pre sentation-others 951,073.48 1,398,637.47 447,563. 99 Depreciation- ve hicles 5,514,705.88 Rental-Japanese Staff 3,750,000.00 4,117,597.94 I ,764 ,7 0 5.88 Mi scell aneous-housing subsidy 2, 799 ,966.60 I,988,075 .29 I,317,631. 34 Miscellaneous-Japanese Child Tuition 1,351 ,891.20 2,216,775.38 Mi scell aneous-Drivers wages I ,507,407.26 2,447,620.59 636 , 184.09 Membership dues and subscription I ,664,382 .00 709,3 68.12 Sub-Total P13,697,122.33 P20,142,826.96 783,238.5 9 Total Basic Fringe Benefit Tax p 6,445,704.62 Add: 25% Surcharge p 9,914,264.88 TOTAL 2,478,566. 22 P12,392,831.1 0 Second, Third and Fourth Issues As regards the other issues raised herein whether or not the provisions of Section 228 of the NIRC of 1997, as amended, and Revenue Regulations 12-99 were complied with; whether or not the assessments have factual and legal bases; and whether or not petitioner was informed of the factual and legal bases of the assessment, records show that respondent issued the Notice of Informal Conference, Preliminary Assessment Notice with Details of Discrepancies and Formal Letter of Demand, together with the Details of Discrepancies and Assessment Notices, which were duly received by the petitioner. Though respondent successively issued the Notice of Informal Conference, the Preliminary Assessment Notice and the Formal Letter of Demand, together with the Details of Discrepancies and Assessment Notices, one after another, the fact remains that petitioner has been duly

C.T.A. CASE NO. 7877 57 DECISION notified of the procedures prescribed under Section 228 and has been informed of the factual and legal bases of the assessments. In fact, petitioner was able to exhaustively protest respondent's assessments in a Letter dated December 23, 2008. Even the Court-commissioned ICPA in his Final and Consolidated Report made mention of the basis of the BIR' s computation of the deficiency tax assessments. Had the assessment no factual and legal bases and had petitioner not been properly informed of the said factual and legal bases of the assessment, then the Court-commissioned ICPA and this Court would not have been able to compute the deficiency FBT assessment against the petitioner. Finally, in the case of Commissioner of Internal Revenue vs. Menguito, 565 SCRA 481-482, the Supreme Court ruled that: "A post-reporting notice and pre-assessment notice do not bear the gravity of a formal assessment notice. The post- reporting notice and pre-assessment notice merely hint at the initial findings of the BIR against a taxpayer and invites the latter to an 'informal' conference or clarificatory meeting. Neither notice contains a declaration of the tax liability of the taxpayer or a demand for payment thereof. Hence, the lack of such notices inflicts no prejudice on the taxpayer for as long as the latter is properly served a formal assessment notice. In the case of respondent, a formal assessment notice was received by him as acknowledged in his Petition for Review and Joint Stipulation; and, on the basis thereof, he filed a protest with the BIR, Baguio City and eventually a petition with the CTA."

C.T.A. CASE NO. 7877 58 DECISION Pursuant to the foregoing jurisprudence, lack of post-reporting notice or pre-assessment notice inflicts no prejudice to the taxpayer as long as the taxpayer has been properly served a formal assessment notice. In the instant case, petitioner received not only the Formal Letter of Demand, together with the Details of Discrepancies and Assessment Notices, but it also received the Notice of Informal Conference and Preliminary Assessment Notice. Hence, it cannot be said that petitioner was deprived of its statutory and procedural due process. WHEREFORE, premises considered, the present Petition for Review is hereby PARTLY GRANTED. Accordingly: A. The Formal Letter of Demand, with Formal Assessment Notices: 1) No. IT-FY 3.2005-000230, for deficiency Income Tax, in the amount ofP181,164,275.04 is hereby ordered CANCELLED and SET ASIDE, for having been issued beyond the three (3)-year prescriptive period to assess; 2) No. VAT-FY 3.2005-000273, for deficiency Value Added Tax, in the amount of P24,974,439.13 is hereby ordered CANCELLED and SET ASIDE, for having been issued beyond the three (3)-year prescriptive period to assess;

C.T.A. CASE NO. 7877 59 DECISION 3) No. EWT-FY 3.2005-000243, for deficiency Expanded Withholding Tax, in the amount of P45,403,934.34 is hereby ordered CANCELLED and SET ASIDE, for having been issued beyond the three (3)-year prescriptive period to assess; and 4) No. WC-FY 3.2005-000141, for deficiency Withholding Tax on Compensation, in the amount of P5,985,020.16 is hereby ordered CANCELLED and SET ASIDE, for having been issued beyond the three (3)-year prescriptive period to assess. B. However, as regards the Formal Letter of Demand with Assessment Notice No. FBT-FY 3.2005-000066, for deficiency Fringe Benefit Tax, in the amount of P30,582,321.15, petitioner is liable in the reduced amount of P12,392,831.1 0, representing basic deficiency Fringe Benefit Tax of P9,914,264.88, and 25% surcharge ofP2,478,566.22, as computed above. In addition, petitioner is liable to pay (a) deficiency interest at the rate of twenty percent (20%) per annum on the basic deficiency Fringe Benefit Tax of P9,914,264.88 computed from April 15, 2005 until full payment thereof, pursuant to Section 249(B) of the NIRC of 1997, as amended; and (b) delinquency interest at the rate of twenty

C.T.A. CASE NO. 7877 60 DECISION percent (20%) per annum on the total deficiency taxes of P l2,392,831.1 0 and on the 20% deficiency interest which have accrued as afore-stated in (a), computed from December 31, 2008 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended. SO ORDERED. ~~/Jr~ OLGA PALANCA-ENRIQUEZ Associate Justice L_A-/-~~ AMELJ1t'R~COTANGCO-MANALASTAS Associate Justice ATTESTATION I attest that the conclusions in the above ecision were reached in consultation before the case was assigned to the riter of the opinion of the Court's Division.

C.T.A. CASE NO. 7877 61 DEC ISION 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. G~-D~ ERNESTO D. ACOSTA Presiding Justice