CERTIFICATION INTERNATIONAL PHILS., INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES Court ofTax Appeals QUEZON CITY SECOND DIVISION CERTIFICATION CTA CASE N0.10350 INTERNATIONAL PHILS., INC. Petitioner, Members: -versus- RINGPIS-LIBAN, Chairperson, MODESTO-SAN PEDRO, and FERRER-FLORES, JJ Promulgated: f . . ., r COMMISSIONER OF INTERNAL REVENUE, :; : l~ Respondent. X -------------------------------------------------------------------------------------- -------------------------------- X JUDGMENT ON COMPROMISE AGREEMENT MODESTO-SAN PEDRO, J.: Before the Court is the Philippine Mediation Center-Court of Tax Appeals' (PMC-CTA) Mediator's Report, with attached Compromise Agreement, filed on 21 September 2022; and the Joint Motion to Render Judgment Based on Submitted Compromise Agreement ("Joint Motion'') filed on 28 September 2022. On 14 September 2020, Certification International Phils., Inc. ("CIPI" or "petitioner") filed a Petition for Review, 1 asking the Court to render judgment ordering the cancellation and withdrawal of the Final Decision on Disputed Assessment ("FDDA") issued by the Commissioner of Internal Revenue ("CIR" or "respondent") for alleged deficiency income tax, expanded withholding tax ("EWT") and improperly accumulated earnings tax ("IAET") in the total amount ofPhp9,759,907.07. Respondent, on the other hand, filed his Answer to the Petition on 4 January 2021. g/ See Petition for Revi ew, Docket, pp. 7-28.

JliDGMENT 0" COMPROMISE AGREEMENT CTACASE NO. 10350 Page 2 of9 On 14 January 2021, the Court issued a Resolution2 referring the instant case to the PMC-CTA for mediation proceedings, pursuant to Section II of the Interim Guidelines for Implementing Mediation in the Court of Tax Appeals. On 16 July 2021, the Court was apprised by the mediator, (Ret.) Justice Oswaldo D. Agcaoili, that the preliminary mediation conference was held on 23 June 2021. However, as the 30-day period allowed for settlement of the case would have expired on 23 July 2021, the PMC-CTA requested for a final extension of 30 days or until 22 August 2021 to give the parties additional time within which to reach an amicable settlement.3 The request was granted by the Court in the Resolution dated 28 July 2021.4 On 10 March 2022, the parties jointly filed a Manifestation with Motion narrating that petitioner's offer of compromise has been accepted by the respondent. The corresponding compromise amount was paid and the Compromise Agreement was signed on 23 December 2021. In view thereof, the Court granted the Manifestation with Motion and ordered for the suspension of the proceedings of the instant case, pending the completion of an amicable settlement between the parties.5 On 21 September 2022, the PMC-CTA filed with the Court the Mediator's Report issued on even date, signed by (Ret.) Justice Agcaoili, stating that the parties to the case have reached a "Successful Settlement (Complete Compromise Agreement)", with the following attachments: 1. Compromise Agreement, dated 31 March 2022, signed by Renato V. Navarrete on behalf of petitioner, and respondent Caesar R. Dulay, and attested by (Ret.) Justice Agcaoili; 2. Agreement to Mediate and Selection of Mediator, and Selection of Mediator, both dated 26 May 2021, signed by Atty. Ashley Eve C. Rebadulla on behalf of the petitioner, and by Atty. Liezl G. Bohol on behalf of the respondent, whereby the parties manifested their agreement to have the case mediated through compromise settlement, and the selection of (Ret.) Justice Agcaoili as mediator; 3. Secretary's Certificate, dated 10 September 2020, stating that in the special meeting held by petitioner's Board of Directors on 9 September 2020, the law firm of Sapalo Velez Bundang & Bulilan and/or any of its lawyers were granted the full power and authority� 2 See Resolution dated 14 January 2021, id, pp. 166-167. See Request for Extension, id, p. 178. 4 See Resolution dated 28 July 2021, id, p. 180. See Resolution dated 18 March 2022, id p. 185.

JliDGMENT ON COMPROMISE AGREEMENT CTA CASE NO. I0350 Page 3 of9 to appear and represent the petitioner in the pre-trial conference, mediation, judicial dispute resolution and all other proceedings in the case filed by the company against the respondent; 4. Special Power of Attorney, dated 1 March 2021, signed by Romulo L. Aguila, Jr. (Aguila), Regional Director of Revenue Region (RR) No. 7B of the BIR, appointing and authoring Atty. Liezl G. Bohol and/or any lawyer from the Legal Division ofBIR RR No. 7B, East NCR to appear for and on behalf of the respondent at the mediation ofCTA Case No. 10350; 5. Certified true copy of the Certificate of Availment (Compromise Settlement), dated 27 June 2022, signed by Clavelina S. Nacar, Ole- Assistant Commissioner, showing the petitioner's availment of compromise settlement of deficiency income tax, EWT and IAET amounting to Php9,759,907.07; 6. Certified true copy of the Judicial Compromise Agreement approved by majority of the members of the National Evaluation Board (NEB); 7. Signature sheet reflecting the appearances of the representatives of the parties during the mediation conferences held on 23 June, 7 and 22 July 2021; and 8. Printed copies of eFPS filed BIR Form 0605, Filing Reference No., and payment confirmation as proof of settlement of the amounts based on the compromise agreement. The relevant portions of the Compromise Agreement are quoted below, to wit: "WHEREAS, on September 14, 2020, a Petition for Review was filed by petitioner CERTIFICATION INTERNATIONAL PHILS. challenging the validity of the Final Decision on Disputed Assessment issued by respondent Commissioner of Internal Revenue in connection with deficiency tax assessments for taxable year 2006. Under the Final Decision on Disputed Assessment, petitioner was required to pay basic tax due in the amount of One Million Seven Hundred Twelve Thousand Two Hundred Sixty-Four Pesos (Phpl,712,264.00) representing deficiency income tax, Two Hundred Fifty Three Thousand Five Hundred Forty Two Pesos (Php253,542.00) representing deficiency expanded withholding tax, and Eight Hundred Twenty Four Thousand Five Pesos (Php824,005.00) representing deficiency improperly accumulated earnings tax. WHEREAS, during mediation proceedings before the Philippine Mediation Center- Court of Tax Appeals, the parties successfully reached compromise agreement to avoid prolonged litigation, as authorized by A.M. No. 11-1-05-SC-PHILJA; .y'

JliDGMENT ON COMPROMISE AGREEMENT CTA CASE NO. I 0350 Page 4 of9 NOW THEREFORE, in view of the limitation in Section 204 of the 1997 National Intema Revenue Code, petitioner has offered and respondent has accepted the amount of Php684,906.00, representing 40% of the basic Income Tax, Php253,542.00, representing 100% of the basic Expanded Withholding Tax, and Php329,602.00 representing 40% of the basic Improperly Accumulated Earnings Tax stated in the FDDA." On 28 September 2022, the parties filed the instant Joint Motion, requesting the Court to render a judgment based on the executed Compromise Agreement. A review of all the abovementioned documents submitted by the parties and PMC-CTA shows that the same are in order. Pursuant to Section 204(A) ofthe National Internal Revenue Code, as amended, ("NIRC'), the CIR is granted the authority to compromise the payment of any revenue tax, to wit: "SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner may - (A) Compromise the payment of any internal revenue tax, when: (1) A reasonable doubt as to the validity ofthe claim against the taxpayer exists; or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. The compromise settlement of any tax liability shall be subject to the following minimum amounts: For cases of financial incapacity, a mm1mum compromise rate equivalent to ten percent (10%) of the basic assessed tax; and For other cases, a minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax. Where the basic tax involved exceeds One million pesos (Pl,OOO.OOO) or where the settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners. xxx" (Emphasis supplied) Moreover, Section 6 ofRR No. 30-2002, as amended, provides that: IV

Jl;DGMENT ON COMPROMISE AGREEMENT CTA CASE NO. 10350 Page 5 of9 crjfotoueoooffqrnfuiaeussrtlrehedls(sqeit4tcouh)t"efeisoSoDnucfmEncoceecCmtepoheomTufpeefttdrIbyhoOtithenemaCNergxNsioCpsa6omeapot.fyaiwmmoetrAhnahrmipgaseeipslrrosNaeirrsOoopiEtnvohfhfBfeana,eilrvecsacaoero.p.olrl(pfaAmNbrOlocplOleovfo)dfmaseeltserpochdirisaosooltidfmhlofeeCbnitlseeshoegtemaoaaxpCftpseppetrodahotrmtyeomlteoevmNirmse,teiEhdes.esBnshb-ti,RsaoylgEnlarwBeEarhmnixptaatchauivneinjrenpdgosturtttiatfhhhhtoneeyeert X X x" (Emphasis and underscoring supplied) Based on the above-cited provisions, a compromise settlement 1s deemed valid provided that the following requirements are present: 1. idTnohcuaatbpattfhcuietlyavtpaoplipldiaciyatytsiouoncfhrfeaossrspecosonsmmdepenrnott'm;s iassesesshsomuledntboerbtaasxepdayoenr'sefitinhaenr ctihael 2. tteImhhnqeeiuncrgiaiavrmstoaeeuuleetnmhqndeut piitsvboaaafyflsiemoninsarettnoynctofitpatotlehefrniecncepccoaneomprtmcap(ecp4rnior0ttoym%(,m1i)ts0ihoes%eefsm)teohotifentffleitebmhrmaeuisesmbincadtspaoissacuhsybeaamtsslfssleueenbsldtsevestaaadhxlotit,udatwxlhidt;eyhabi,rlneetadhtaieetf 3. lOhTeihsnsseeftoahMuparinpl(rl4tioho)venDaplperpeeosusfoctytrshibC(ePeold,NOmmEOmOBiin,sOiwsmOiohuOnimc.eOhrOrsai)sitefocsrt.ohwmehpseuorsbeejtdehceot fsaetshtsteelesrmsemsepneotnnotdfefexencrteedaendidss db4Hdapoe0vorouo%auwdbvibeltieteofdsfvduifuuAoelblcrnnovae,vsesfdaagnillcolbittiedhdyfiatianihtnRttyctyeiheont)ofehvmgioefererptsnfhgrt3etuoerat.roemi2xetrui,eqR(onstouInhedp0niegeso0rriufne,%taielnldmai,waeeotontndiifhtoucthbe'iunnsaoaptslCsusaoistiNecnonsroescfEtipi.sanbfWsepia3mcctasThi0acifeet-cYinea2tytncit0.naoo)d2gxfmw24eA,0pswa%srvaphoasiaemnioitladthmifesmebnbeeradeynssneStietddcehtscetheItlotdeAoip,mowb6EeneesthTniaa3ttt-phsi.o1ipaistbtnlicet(eethaoehdrennne-. dednoouuumbbtteffuuIrnall,,tettoohsredwthCeierto:uitnorst trdaeneftecererssmtooinnSeewcwhtiehonentht3heeor fatRhsRseeNsasosms.ee3sn0stm-'s2e0pn0rt2o's,parviseaatlyimdeiistnydcoeisdn,siiwnddeheriecedhd 1)1 6 RRC1RR9eeoee9gggdv7uuueelllnoaaaountttfiieioooC1nnnR9osss9emgN7NImpuooorlspsano..tlmieC76omi--nos22esem00n0ISp0tm1ir0enotpgatamllnneeSiddmmsee3c7eet0nn-Si2-otte2i0notn0t0sglf0eI7I2mS,n(,e1cteec6)1nr,t9ntiD2oaoM0nelf4scaRIeyn(7emAt(v2ecb)e0r)en,n0arau2n4l2ed0. 0R4T20(e9aA2vx0;e)nRoLaufnieaedvtbheTi2enla9iuNtx0ieeaLsotRiifoSeatngubhauipellleiatNriitsneiaetostedinrSoisnnnuagNaplleoRRri.sene0evtved8eeri-nnnn0uuag4ele,RRRCeeeovvvdeeeennnuuoueefe

JliDGMENT ON COMPROMISE AGREEMENT CTA CASE NO. 10350 Page 6 of9 tTahxeoCn oth"meSmEfoCisllTsoiIowOniNenrg3mg. arBoyauscniodsmsF:porroAmcicseeptthaencpeayomf CenotmopfroamnyisientSeerntatllermeveenntu.e- gardoeulnindqIuo.efDnrtoeaaucsbcotofnuualnbtvleaolrdiddoiiutsybptuotafestdhteaosastsehsseessmvsmaelneidtniutt.ny-doerfTtthhheeesoeafsRfseeergstsuomlacetoinomtnpmsrooanymtibhseee accepted when it is shown that: (a) The delinquent account or disputed assessment is one sipfaotarnuaherfsdifbeesshlieuessuicfsestblreiatsnecerrinm,intneettwgteeinouafhnhcirtfitytconesr"oo)oathsm;malbfahlxoposaocrwolalorrylkeimarjlsawelenpsofyboileopteenohrftaejfttreototadhohocyabepecreatodaalarpuiesxdueasdnviderautzetssisceitssattdmehilaaosbanensnatyndmdsutt,/dhdeoiee(eninrxFlttvaaeoweybsmprssyhebtpeitirestghcaticsihaionmnsatniuweoesapns,annuuetsottrohrraparefoncsoeqsrtrdscheieueozsedci,resroidetdet"lassdmljxe,ecrwcpeoeltanaovipiitotyeramhsnenroerduttou'dooesyft (b) The assessment seems to be arbitrary in nature, appearing to be based on presumptions and there legal and/or factual basis; or is reason to believe that it is looking in boefltiheevea(ltlche)agtTetdhheefataiaslxusperesasytmoerernefactieilseivdleatconkoiftniilcgeeianonfleaagdsamsleisansnimsdt/eroanrttifvaaencdtpurtaholetbersaetsiioss;nreoaarcscoonutnot (d) The taxpayer failed to file a request for reinvestigation/reconsideration within assessment notice and there is reason 30 days from receipt of final lacking in legal and/or factual basis; or to believe that the assessment is biannelsiaeodvmveee(trehsc)eaatTsdethehsece,itswaaisxoistpnehasioynsfem3rteh0fneadtilCaeisyodsmltaofcmrkeoiilsmnesvgioarientneceelrteo,ipgottahrlethhaCinesrodeau/oourrftthofaoanfrcdTitzuaetaxhdleAbrreepapspirisesea;srleeosnar(stCaotnTivAteo), uthneddeer mS(eafcn).dT2nh2oe8tiaocsefsteahslelsemNgeeandtiltoysnwfaaleilrIeendtiestorsnucaeoldmRopenvlyeonwruaietfhtCetrhoeJdaefnoourmafr1ay9li9Iti7,e;1so9pr9r8e,scwrihbeerde (g) Assessments made based on the "Best Evidence Obtainable Rule" and there is reason to believe that the same can be disputed by sufficient and competent evidence; or noiasosfsstuLeaeisumsatmhint(edeahnnt)itttohiTcane;shrseoeethxriasetessvnsteadrsloeisdndmigtbeyyrneottahrsweaouantsathxtoeipsnasbtyuieceelirdit'esyvweeoxiftaehwncidunhtiiectohvhneidiosepfnbrWeecsiencagrtioivpqetpurirveooesfvtitepohenetrheiSadottdaoitrtufoatisert (i) The assessment is based on an issue where a court of competent jurisdiction made an adverse decision against the Bureau, but for which the Supreme Court has not decided upon with finality." el

JlJDGMENT ON COMPROMISE AGREEMENT CTA CASE NO. 10350 Page 7 of9 (Emphasis and underscoring supplied) LArdpteaeheexesmaefttasstiieimecstgginirirongiedononmnnCeuefeceldrneArydesnd'aisusttsarotllasphayifsntarico,enedkarnssatidestehetnhdmyvwnecu.atiesansstnihlneccntteee.otndobhtAaoipfptsrcororriecookocvopappsersreeudoenrrna.ilvundnyBeeadegcuarotlhtstforhSoeefetoiedhccpriceoneioettdrrvintydsoiawtsCnmliiotidIoten3ahPirent(Ieya1rcd'l,u)soyo(ttnPahthtfodhe)oetutrhrioocietaituistuyfosgadRnuttshihhestRfreeaooisrtnMuNshevRmgeoxeehe.emasvnmtat3iohitsge0iersnaiwa-asrt2aniie,lt0tod'eqih0nouodua2nmnitws,ettiaoahtoaoexsefsff bpaemalyoomwuen:Mntsterpaeanqiwudihrbeiylde,puenatdsiteirroeSngeeacrrtdaisopnpsee2ac0ro4nt(oAd )baeondfctohtmheipTrldaiaxrneCtqouwdiisetihtaessth,sehtoh4we0n%coinmmtphinreoimtmaubismlee Income Basic 40%of Amount Paid Percentage Tax Tax Assessed Basic Tax per of Basic EWT Tax Paid IAET Php1,712,264 Php684,905 .60 Compromise Agreement 40% 253,542 824,005 Php684,906 101,416.80 253,542 100% 329,602.00 329,602 40% Moreover, the parties have shown that the offer of compromise was approved through the submission of the Judicial Compromise Agreement signed by majority of the members of the NEB showing their acceptance of the petitioner's compromise offer. rsCeueqfruftiiicsfiiiecTtenahstte,eerevoCsifpdoeeAucnrvtctiaeviealmlocycfe.ontrhtdeiannpgdalyrtthieefsin'sdicgsonmetdhpaliJtaundtciheceiawlCitCohmomtphrpeormosmeicsieosendAAgagnrredeeemmtheeinrntdt, under STehcutiso, nin2v0i4e(wA)ooffftahitehNfuIlRoCb,sethrveaCnocuerbt ygrtahnetsptahretiepsarotifeasl'lJtohienrteMquoitsiiotnes. On this point, the parties are reminded of the purpose of a compromise agreement and the force and effect of the court's approval of the same. y 7 Supra note I.

Jl'DGMENT ON COMPROMISE AGREEMENT CTA CASE NO. I0350 Page 8 of9 In the case of Far East Bank and Trust Co. et a/. v. Trust Union Shipping Corp. et a/.,8 the Supreme Court explains the objective of compromise agreement, to wit: "A compromise is a contract whereby the parties, by making reciprocal concessions, avoid litigation or put an end to one already commenced. It is an accepted and desirable practice in courts of law and administrative tribunals. Settlement of disputes brought before the courts is, in fact, encouraged. It is settled that contracting parties may establish such stipulations, clauses, terms and conditions as they deem convenient, provided that these are not contrary to law, morals, good customs, public order, or public policy." (Emphasis supplied) Once validated by the courts, the compromise agreement becomes more than a mere contract. It has the force and effect of a judgment that is subject to execution and attains the effect and authority of res judicata, as discussed by the Supreme Court in the case of Viesca vs. Gilinsky,9 to wit: "A compromise agreement has been described as a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. A compromise agreement that is intended to resolve a matter already under litigation is normally called a judicial compromise. Once it is stamped with judicial imprimatur. it becomes more than a mere contract binding upon the parties. Having the sanction of the court and entered as its determination of the controversy. it has the force and effect of any other judgment. Such agreement has the force of law and is conclusive between the parties. It transcends its identity as a mere contract binding only upon the parties thereto. for it becomes a judgment that is subject to execution in accordance with the Rules. Thus. a compromise agreement that has been made and duly approved by the court attains the effect and authority of res iudicata, although no execution may be issued unless the agreement receives the approval of the court where the litigation is pending and compliance with the terms of the agreement is decreed." (Emphasis and underscoring supplied) WHEREFORE, premises considered, the parties' Joint Motion to Render Judgment Based on Compromise Agreement is GRANTED. The Compromise Agreement entered into by the parties is APPROVED and this Judgment on Compromise Agreement is hereby rendered in accordance therewith. The parties are hereby enjoined to faithfully comply with all the terms and conditions of the aforesaid Compromise Agreement. II- 8 G.R. No. 154716.16 September2008. 9 G.R. No. 171698,4 July 2007.

JliDGMENT ON COMPRO\IISE AGREEMENT CTA CASE NO. 10350 Page 9 of9 Accordingly, this case is now deemed CLOSED and TERMINATED. SO ORDERED. WE CONCUR: ~.~ ... ~ MA. BELEN M. RINGPIS-LIBAN Associate Justice ATTESTATION I attest that the conclusion in the above Judgment on Compromise Agreement was reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. ~ ~ -.,L..._ MA. BELEN M. RINGPIS-LIBAN Associate Justice Chairperson CERTIFICATION Pursuant to Article VIII, Section 13 ofthe Constitution and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Judgment were reached in consultation before the case was assigned to the writer of the opinion of the Court. Presiding Justice