NATIONAL REINSURANCE CORPORATION OF THE PHILIPPINES v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS Quezon City S....vecial Second Division NATIONAL REINSURANCE CTA CASE NO. 11156 CORPORATION OF THE PHILIPPINES, Members: Petitioner, RINGPIS-LIBAN, P.j., Cbaitper.ron, -versus- MODESTO-SAN PEDRO, and FERRER-FLORES, JJ. COMMISSIONER OF INTERNAL Promulgated: REVENUE, ReJpondetlt. x--------------------------------------------------------------------~~--;~;~~----------x T / DECISION RINGPIS-LIBAN, P.J: THE CASE The Petitio11 for Review filed on May 16, 2023, prays for cancellation and withdrawal of the assessments issued by respondent against petitioner on its alleged deficiency value-added tax (VAT) in the amount of P54,035,930.96, inclusive of surcharges and interest, for the calendar year (CY) 2017. 1 THE PARTIES Petitioner National Reinsurance Corporation of the Philippines is a corporation duly organized and existing under the laws of the Philippines.2 It is primarily established to be the organization through which the Philippine insurance and reinsurance markets may participate in the Asian Reinsurance Corporation, and accordingly subscribe to and purchase the shares of capital stock of said corporation allotted to the Republic of the Philippines; to carry on ;t/ 1 Summary of the Case, Pre-Tnal Order dated :\Iarch 5, 2024, Docket-\'ol. II, p. 869. 2 Par. a, Stipulation of Facts, ]oil!! S!ipllla!ioti o/r--adJ a//{/ !J.me.~� (TSFI), Docket- \'ol. II, p. 808.

Page 2 of21 DECISION CL\C\SENO.ll156 the business of reinsurance of whatever kind and nature, whether life or non-life; and to perform any and all acts and deeds necessary to carry out the objectives of Presidential Decree No. 1270, as well as in carrying out the business of insurance and reinsurance, whether in the Philippines or abroad.3 Respondent is the duly appointed Commissioner ofinternal Revenue who is tasked to assess and collect all national internal revenue taxes, fees and charges, and enforce all forfeitures, penalties, and fines connected therewith. He holds office at the Bureau of Internal Revenue (BIR) National Office Building, BIR Road, Diliman, Quezon Cit-y.-+ THE FACTS OF THE CASE On December 3, 2021, OIC-.A.ssistant Commissioner "tvlanuel Y. Mapoy issued the Letter of Azttl?ori!J (LOA) No. LOA-125-2021- 00000201 /SN:eL.r\.201900048019 dated December 3, 2021,5 authorizing Revenue Officers Rhea Joy Chua, Lilia Yvette rv1arie Aspiras, Solomon Hope Jr. Talpis, and Owen Villanueva, and Group Supervisor Rosario Arriolao, to examine the books of accounts and other accounting records of petitioner for all internal revenue taxes for the period from January 1, 2017 to December 31, 2017. Respondent then issued the 1\fotice of DiJcrepcmry (NOD) dated J\1ay 20, 2022.6 In response thereto, on June 22, 2022, petitioner filed its letter of even date, expressing its position with attached supporting documents, relative to the findings stated in the said NOD.7 Thereafter, on August 26, 2022, peUtloner received the Preliminmy AJJeJJment Notice (P.AN) with DetailJ of DiJcrepamieJ dated August 22, 2022,8 finding petitioner liable for the following findings: Deficiency Tax .Amount Income tax p 249,598.61 VAT 51,612,233.81 Fringe benefits tax Expanded withholding tax (E\"VT) 3,798,877.74 Final tax Compromise penalt-y 2,526,896.54 TOTAL TAX DEFICIENCY 258,891.54 135,000.00 p 58,581,498.24 ~------~-r �1 Par. b, Stipulation of Facts,JSFI, Docket- \"ol. II, pp. 808 to 809; Exhibit "P-2-1", Docket- Vol. I\', at pp. 1375 to 1376. 4 Par. c, Stipulation of Facts, JSFI, Docket- 1�ol. II, p. 809. >Exhibit "P-6", Docket- \�ol. n�, p. 11100; Exhibit "R-1", BIR Records (Exhibit "R-1"), p. 16 1� Exhibit "P-9", Docket- \"ol. I\', pp. 1417 to 1424; Exhibit "R-2", Docket- \�ol. I, pp. 761 to 768. 7 Exhibit "P-10", Docket- \"ol. I\", pp. 1425 to 1439. ~Exhibit "P-11", Docket- Yo!. n�, pp. 1440 to 1449; Exhibits "R-3" and "R-4", BIR Records, pp. 1113 to 1119 and 1126 to 1135, respectively.

Page 3 of21 DECISION CT"-\ C\SE NO. 111.56 On September 9, 2022, petitioner filed its letter of even date, stating its position against the PAN.9 However, on November 10,2022, petitioner sent its letter of even date to OIC Asst. Commissioner Maridur V. Rosario,10 informing the latter that it already paid the enumerated deficiency taxes below, as shown in the attached BIR Form No. 0605 and EFPS payment, to wit: Deficiency Tax Amount Income tax EWTon current year income payments 251,486.24 E\VT on prior year income payments Final withholding tax 1,254,029.21 TOTAL TAX PAID 1,282, 101.71 260,812.10 ------�--�� p 3,048,429.25 -----'- The BIR then issued the Formal Letter ofDemand, with Details ofDiscrepamieJ~ and Assessment Notices (FLD/FAN), both dated December 5, 2022,11 containing the VAT deficiency assessment in the amount of P52,611 ,951.44, inclusive of interest, plus a compromise penalty in the aggregate amount ofP120,000.00. On January 3, 2023, petitioner flied its letter of even date, embodying its Req11estfor RecmZJideration against the subject FLD /FAN. 12 Thereafter, respondent issued the Final Decision on DiJputed AsJes.rment (FDDA) dated J'v1arch 24, 2023, 13 which was received by petitioner on April27, 2023, assessing petitioner of deficiency VAT and compromise penalty for CY 2017, in the aggregate amount of P54,035,930.96, inclusive of interest and compromise penalties, the details of which are as follows: I. VALUE-ADDED TAX p 130,645,676.82 Vatable receipts subject to 12% per VAT return Output tax Due p 15,677,481.22 Less: Net creditable input taxes, net of carry-over P15,677,481.24 52"110.17 Less: Disallowed input taxes (Schedule 1) Total P1 5,625,3 71.07 Add: Additional Input Tax Allocable to Exempt 33,000.148.50 (17,374,777.43) Sales (Schedule 2) VAT payable p 33,052,258.65 Less: Payments per VAT return p 33,052,258.65 Basic Tax Due Add: Penalty 20.863,672.31 12% interest (01.26.18 to 04.30.23) P53.915.930.96 TOTAL AMOUNT DUE ;'1/ '!Exhibit "P-12", Docket- \'ol. n-, pp. 1450 to 1"162. Ill Exhibits "P-13'' to "P-17 -1 ",Docket - \'ol. n-, PP� H63 to 1480. II Exhibit "P-18", Docket- \'ol. I\', pp. 1-181 to 1491. l2 Exhibit "P-19", Docket- Vol. I\', pp. 1492 to 1500. n Refer to par. d, Stipulation of Facts,JSFI, Docket- \,ol. II, p. 809; Exhibit "P-21", Docket- Vol. I, pp. 313 to 315.

Page 4 of21 DECISION CT'l. C\SE NO. 11156 II. COMPROMISE PENALTY p 120.000.00 TOTAL AMOUNT DUE P54.035.930.96 On May 16, 2023, petitioner filed the present Petition for Review with Urgent Motion to Smpend Tax Collection (lvith Prqyerfor the Issuance ifStattts Quo Ante Order and/ or IJ/rit ifPreliminary frgimction). 14 Respondent filed his Comment/ Opposition [to Petitiomr's Ut;gent 1\!Iotion to Suspend Tax Collection (with Prqyerfor the Issuance ifStatNs Quo Ante Order and/ or IJ/rit ifPreliminary Ityimction) dated 16 Mqy 2023) on July 6, 2023. 15 At the hearing held for the said Urgent lviotion to SuJpend Tax Collection (with Prqyerjor the !JJ!(ance ifStat/Is Qt!o Ante Order and/ or IJ/rit ifPreliminary ftgimction) on August 15, 2023, petitioner presented the testimony of its Vice President and Head of Finance, l'vir. Santino U. Sontillano. 16 The Formal Offer if Evidence (for Petitioner's Urgent J\1.otion to Suspend Tax Collection (with Prayerjor the !Jmance ifStatusQllo Ante Order and/ or Writ ifPreliminal]! It!Jzmction) was filed on August 31, 2023,17 to which respondent submitted his Comment (on Petitioner's Formal Ojjer if Evidence) on September 5, 2023. 18 In the Resolution dated October 9, 2023,19 the Court admitted petitioner's offered exhibits, except Exhibits "P-2" and "P-25", as petitioner failed to file copies of either exhibit that had been duly presented, compared, and marked during a Commissioner's Hearing, having filed only pre-marked copies of the same. In the Resolution dated October 26, 2023,20 the Court denied petitioner's Urgent lv1otion to Smpend Tax Collection (with Prqyerfor the Issztance ifStatus Quo Ante Order and/ or IJ/rit ifPreliminary fi?Jttnction) for lack of merit. Petitioner then flied a J\1.otionfor Reconsideration with Motion with Leave rifCo;trf for the AdmiSJion ~fFormal Offer ifEvidence (Re: Resolzttion on the Formal Offer ifEvidem;e dated 09 October 2023) on October 26, 2023,21 praying for the Court to render judgment: (1) giving due course to the instant Motion; (2) admitting Exhibits "P- 2" and "P-25", as part of petitioner's evidence for the purposes for which they were offered and correcting the records as to their proper comparison and marking; (3) correcting the records as regards Exhibits "P-21", "P-21-1", and "P- 24", as noted by the Court; and (4) admitting Exhibits "P-26" and "P-26-1", as part of petitioner's evidence for the purposes for which they were offered. 14 Docket�- \'ol. I, pp. 6 to 31. IS Docket- \'ol. I, pp. 323 to 334. 1r, Exhibit "P-26", Docket- Vol. I, pp. 347 to 356; l\Iinutes of the hearing held on, and Order, dated "'l.ugust 15, 2023, Docket- \"ol. I, pp. 407 to 409. 1' Docket- \"ol. I, pp. '~26 to :129. IX Docket- \"ol. I, pp. 433 to 1~35. 1 ~ Docket- \"ol. I, pp. 462 to 463. 211 Docket-\"ol. II, pp. 791 to 795. 2' Docket- \"ol. II, pp. 796 to 806.

Page 5 of21 DECISION CL\. C\SE NO. 11156 Respondent submitted a Manife.rtatiotl in Liel! ifl-'..,iling a Comment on November 24, 2023. 22 Petitioner likewise filed a Motion for Recomideration (Re: Re.roltttion on tbe Petitioner'.r Ur;gent Motion to Su.spend Tax Colledion dated 26 Odober 2023) on November 28, 2023. 23 Respondent then submitted his Comment and Oppo.rition (to Petitioner'J Motion for Recomideration [Re: Re.rolution on tbe Petitioner'.r Urgent J\1.otion to Su.rpend Tax Collection dated 26 Odober 2023}) on January 18,2024.24 In the Resolution dated April 17, 2024,25 the Court: (1) partially granted petitioner's i\1.otion for Ruomideration with fl.1.otion for Leave of Coztrtfor the AdmiJJion ofFormal Olftr ofEvidence (Re: ReJolution on tbe Fomzal Offer if"Evidence dated 09 Odober 2023) and, thus, admitted Exhibits "P-2", "P-25", "P-26", and "P-26-1"; (2) denied petitioner's Motion for Ruomideration (Re: Re.rolzttion on Petitioner'.r Urgent Motion to St!Jpend Tax Collection dated 26 Odober 2023) for lack of merit; and (3) affirmed the Court's Resolution dated October 26, 2023. Respondent flied his Amwer (to Petitioner'.r Petition for Review dated 16 lv!qy 2023) on August 22, 2023,26 interposing the following special and affirmative defenses, to wit: (1) the assessment was issued in accordance with the provisions of the Tax Code, as amended, and its implementing rules and regulations; and (2) petitioner is liable for the assessed deficiency VAT and compromise penalties. On September 11, 2023, respondent filed the BIR Record.r of this case, consisting of one (1) folder, consecutively numbered from pages 1 to 1591.27 The Pre-Trial Conference was set and held on October 19, 2023. 28 Prior thereto, Re.spondent'.r Pre-Trial Bn"ejwas filed on October 4, 2023/9 while the Pre- Trial Brief (of Petitioner National Reimttrance Corporation of the PbilippineJ) was submitted on October 13, 2023.30 During the above-stated Pre-trial Conference, the Court: (1) upon the parties' motion, gave them thirty (30) days from such date or until November 20, 2023, within which to file their Joint Stipulation of Facts and Issues; (2) gave petitioner the same period to file the motion for commissioning of an Independent Certified Public Accountant (ICPA); and (3) directed the parties to ~ 22 Docket- \'ol. II, pp. 821 to 823. 21 Docket -� \'ol. II, pp. 825 to 8/10. 2~ Docket- \'ol. II, pp. 855 to 863. Zo Docket- \'ol. II, pp. 963 to 965. 2r, Docket- \'ol. I, pp. 410 to 417. 27 Complian(e dated September 11, 2023, Docket- \'ol. I, pp. 437 to 439. 2X Notice of Pre-Trial Conference dated September cl, 2023, Docket- \'ol. I, pp. 431 to 432; I--linutes of the hearing held on, and Order dated, October 19, 2023, Docket-\'ol. II, pp. 786 to 789. 20 Docket- \'ol. I, pp. 442 to 445. -'11 Docket- \'ol. II, pp. ,169 to 486.

Page 6 of21 DECISION CL\ C\SE NO. 11156 appear before the 1'v1ediation Office on February 7, 2024 at 9:00 a.m. 31 However, the Philippine l\!Iediation Center Unit - Court of Tax Appeals issued the No Agreement to i\1ediate dated February 7, 2024,32 stating that the parties decided not to have their case mediated. On November 15,2023, the parties submitted their joint Stipulation ofFacts and Issues,33 which was admitted and approved by the Court in its Resolution dated January 3, 2024,3+thereby deeming the termination of the Pre-Trial. The Pre-Trial Order dated 1\Iarch 5, 2024 was then issued.35 Trial then ensued, with both parties presenting and offering their respective testimonial and documentary evidence. Petitioner offered the testimonies of the following individuals, namely: (1) J'vir. Jose Luis M. Yupangco,36 Assistant Manager of Isla Lipana & Co.; (2) l\!Ir. Raul G. Tumangday,37 Senior 1\Ianager and Compliance Officer of petitioner; (3) l\!Ir. Santino U. Sontillano,38 Vice President and Head of Finance of petitioner; and (4) 1\1s. Irene G. Lozada,39 Deputy Accounting Head of petitioner. On July 26, 2024, petitioner filed its Formal Offer of Evidence,40 to which respondent submitted his Comment/ Opposition (on Petitioner's Formal Offer rif Evidence) on .l\ugust 6, 2024.+ 1 In the Resolution dated October 8, 2024,4:o the Court admitted petitioner's offered exhibits, except Exhibit "P-25", for petitioner's continued failure to submit the actually marked copy of the same. For his part, respondent presented the testimony of Revenue Officer Rhea Joy Chua.43 Thereafter, the ReJpondent's Fomzal Offer of Evidence was ftled on October 18, 2024,++ to which petitioner submitted its Comment on Respondent's Formal Offer ~ 31 i\Iinutes of the hearing held on, and Order dated, October 19, 2023, Docket- Vol. II, pp. 786 to 789 . .12 Docket- \-ol. II, p. 865. 1�1 Docket-\'ol. II, pp. 808 to 820. 14 Docket- \'ol. II, pp. 853 to 85-i. 33 Docket- \'ol. II, pp. 869 to 877. 1!.Exhibit "P-31 ",Docket- Vol. II, pp. 487 to 499; :Minutes of hearing held on, and Order dated, i\Iarch 7, 2024, Docket- Vol. II, pp. 878 to 879. .17 Exhibit "P-32", Docket- \'ol. II, pp. 636 to 642; i\Iinutes of hearing held on, and Order elated, i\Iarcb 7, 202~~. Docket- \'ol. II, pp. 878 to 879. .1x Exhibit "P-34", Docket-\'ol. II, pp. 691 to 696; i\Iinutes of hearing held on, and Order dated, ;-\pril 18, 2024, Docket-\'ol. II, pp. 966 to 968. 19 Exhibit "P-33", Docket- Yol. II, pp. 890 to 903; i\Iinutes of hearing held on, and Order elated, July 9, 2024, Docket- \'ol. II, pp. 1254, and 1256 to 1257, respectively. +II Docket- \'ol. I\', pp. 1340 to 1372. +I Docket- \'ol. I\', pp. 1665 to 1667. +2Docket- Vol. I\",pp.1671 to 1673. 1.1 Exhibit "R-10", Docket- \'ol. I, pp. 452 to 460. H Docket- \'ol. I\', pp. 1679 to 1684.

Page 7 of21 DECISIO~ CT-\ C\.SE NO. 11156 rifEvidente on October 30, 2024.+5 In the Resolution dated November 29, 2024,+6 the Court admitted all of respondent's offered exhibits. On February 3, 2025, petitioner filed its Memorandtmz,+7 while respondent submitted a 1Vlcmifestatio!1 on February 11, 2025;+8 stating that he is adopting the arguments he raised in his Amwer dated August 22, 2023, as his Memora11dzl!n. The case was considered submitted for decision on February 13, 2025.49 THE STIPULATED ISSUE The parties submit the following issue for this Court's resolution, to wit: "Whether Petitioner is liable to pay the assessed deficiency value-added tax (VAT) and compromise penalties, inclusive of interest, for taxable year 2017 in the aggregate amount of Php54,035,930.95.''50 THE ARGUMENTS OF THE PARTIES Petitioner argues that the respondent's assessment for deficiency VAT was not issued in accordance with the provisions of the Tax Code, as amended, and its implementing rules and regulations, on the bases of the following: (a) the disallowance of input V[\T does not give rise to output VAT liability in the absence of any output VAT, and that it only reduces the amount of input VAT which may be offset against any future output VAT liability; and (b) that even after the disallowance of input VAT, petitioner has more than enough input tax to absorb the proposed VAT assessment. Petitioner likewise insists that there is no factual and legal bases to hold petitioner liable for the deficiency VAT for CY 2017 in the aggregate amount of P54,035,930. 96, inclusive of surcharges, interest, and penalties computed until 30 .A.pril2023 on the following grounds: (a) that respondent had no authority or basis in law to disallow the input VAT on account of it being carried over to the succeeding period; and (b) that respondent's justification in recommending the issuance of the FLD /F.AN and/ or FDDA is not supported by law. Respondent, in his Amwer, contends that the assessment was issued in accordance with the provisions of the Tax Code, as amended, and its ~ "5 Docket- \�ol. n�, pp. 1688 to 1690. ""Docket-\'ol. I\', pp. 169�1 to 1695. -17 Docket-- \'ol. I\-, pp. 1702 to 1728. I~ Docket- \To!. n�, pp. 1740 to 1742. �19 Minute Resolution dated February 13, 2025, Docket-\-ol. IV, p. 1739. 511 Stipulation of Issue, JSFI, Docket- \-ol. II, p. 809.

Page 8 of21 DECISION CL\ C\SE NO. 11156 implementing rules and regulations; and that petitioner is liable for the assessed deficiency VAT and compromise penalties. THE COURT'S RULING The present Petition for Review is partly meritorious. In his FDDA, respondent assessed petitioner of deficiency VAT and compromise penalty, including interest, for CY 2017, in the aggregate amount of P54,035,930.96, to wit: VALUE ADDED TAX 130,645,676.82 12":(, VATable Receipts subject to 12% per VAT Return 15,677,481.22 VAT Rate Output Tax 15,677,481.24 52,110.17 Less: Net creditable input taxes, net of carry over 15,625,371.07 Less: Disallowed input taxes (Schedule 1) 33,000,148.50 (17,17cl,777.13) Total 33,052,258.65 Add: ,-\dditional Input Tax Allocable to Exempt 33,052,258.65 Sales (Schedule 2) _ _ _2_0_:_,8_6~3,672.31_ . VAT Payable 53.915.930.96 Less: Payments per V/'..T Return Basic Tax Due Add: Penalty 12�/o interest (01.26.18 to 04.30.23) TOTAL AMOUNT DUE II. COMPROMISE PENALTY TOTAL AMOUNT DUE: 54,035.930.96 The Court will now determine the propriety of the following items which comprise the deficiency VAT assessment: A. Disallowed input taxes p 52,110.17 B. Additional input tax allocable to exempt sales 33,000,148.50 A. Disallowed input taxes - P52,110.17 Respondent's verification disclosed a discrepancy between the amount of services rendered by non-residents as claimed by petitioner in its VAT returns and the amount of expenses subjected to final withholding VAT. Consequently, input taxes amounting to P52,110.17, as computed below, were accordingly /f/

Page 9 of21 DECISION CT~-\ C-\SE NO. 11156 disallowed pursuant to Section 110 of the NIRC, as amended, in relation to Sections 113 and 237 of the same Code:51 Schedule 1: P14,479,636.75 14,045,385.32 ,--- f> 434,2.SH3 Services rendered by non-residents r:er VAT returns Less: Expenses subjected to final withholding V/\.T 12% Difference p 52,110.17 I\fultip!J' by: 12'Yo Input Tax _Di~allowe~ inp~~:xes - - - - - � Sections 4.110-8(d) and 4.114-2(b) ofRevenue Regulations (RR) No. 16- 2005,52 as amended by RR No. 4-2007,53 provide for the substantiation requirement of input tax credits from services rendered by non-residents, as follows: "SEC. 4.110-8. SubJtantiation o[IntJttf Tax CreditJ. - J :l XXX XXX XXX (d) Input tax from payments made to non-residents (such as for services, rentals and royalties) shall be supported by a copy of the Monthly Remittance Return of Value-Added Tax Withheld (BIR Form 1600) filed by the resident payor in behalf of the non-resident evidencing remittance ofVAT due which was withheld by the payor. XXX XXX XXX SEC. 4.114-2. Withholding of VAT on Government Monry PavmentJ and PavmentJ to Non-ReJidentJ.- '~ ,.- XXX XXX XXX (b) The government or any of its political subdivisions, instrumentalities or agencies, including GOCCs, as well as private corporations, individuals, estates and trusts, whether large or non- large taxpayers, shall withhold twelve percent (12%) VAT with respect to the following payments: (1) Lease or use of properties or property rights owned by non-residents; and ~ 51 Detai!r o/Di.rcrepcmde.r, ~-\nnex ~\.,Exhibit "P-18'', Docket- \'ol. I\', at p. 1-l-85. 52 SUBJECT: Consolidated \'alue-.-\dded Tax Regulations of 2005. 51 SUB)ECT: ~-\mending Certmn Provisions of Revenue Regulations No. 16-2005, ~-\s ~-\mended, Otherwise 1'-.!wwn as the Consolidated \'alue-"\dded Tax Regulations of 2005.

Page 10 of21 DECISION CL\ C\SE NO. 11156 (2) Other serv1ces rendered m the Philippines by non- residents. In remitting VAT withheld, the withholding agent shall use BIR I'orm No. 1600 Remittance Return of VAT and Other Percentage Taxes Withheld. VAT withheld and paid for the non-resident recipient (remitted using BIR Form No. 1600), which VAT is passed on to the resident withholding agent by the non-resident recipient of the income, may be claimed as input tax by said VAT- registered withholding agent upon filing his own VAT Return, subject to the rule on allocation of input tax among taxable sales, zero-rated sales and exempt sales. The duly filed BIR Form No. 1600 is the proof or documentary substantiation for the claimed input tax or input VAT." (EmpbaJeJ added) As can be gleaned from the afore-quoted provisions, the duly filed BIR Form 1600 and proof of payment thereof shall serve as sufficient documentary substantiation for the claimed input tax on payments made to non-residents. Indeed, a comparison between the amount of services rendered by non- residents, as reflected in petitioner's VAT returns, and the amount shown in BIR Forms No. 1600, which was subjected to final withholding VAT, reveals a discrepancy of P434,248.42, and not P434,251.43 as found by respondent. Consequently, petitioner overclaimed its input tax on services rendered by non- residents in the amount ofP52,109.81, computed as follows: _________ ___ ___ __ ______ Se_r:vices Rendered by Non-Residents - - - - - - - � � - - - - - - - - - - -r--------~---� CY 2017 Per VAT Return5~ Per BIR Form No. 160055 Difference __ 1" (2uartcr VAT Return is l~gl1~~{(lmvcr) Final �----- -�---:---- Final Final Amount of Withholding Amount of Withholding Amount of Withholding VAT VAT VAT Services Services Services ------ _1'_ _3,238,39950 _t:._ 388,607.9"~- I' 3,238,399.58 I' 388,607.95 I' (0.08) I'_ _(O.(Il)_ _ _ _12_7 ,002.28 ___1_,203,47341- - - - -1- 44- ,41-6.81 (145, 121.08) - _(_1_7.:l14 53) ~- 9os.~I 1.07 _ _ __ 7,549,258.92 905,91107 - - - - - -I-- ----- 316,035.12 2,054,256.42 246,510.77 579,369.58 -�- Total 1'14,045,388.33 1'1,68~,446.60 -~52,109 ~81 =---~--~~- - = 1'434,248.42 Thus, the Court upholds the disallowance of petitioner's claimed input tax in the amount ofP52,109.81, and not P52,110.17 as determined by the BIR. ~ )-I BIR Records (Exhibit "R-9"), pp. 222 to 245 summarized in p. 246. ;; BIR Records (Exhibit "R-9"), pp. 209 to 220 summarized in p. 221.

Page 11 of21 DECISION CT~\ C\SE NO. 11156 B. Additional input tax allocable to exempt sales - P33,000,148.50 Respondent's verification disclosed that petitioner's allocated input tax on its exempt sales per VAT returns amounted only to P2,433,823.50, instead of P35,433,972.00. Thus, respondent disallowed the difference of P33,000,148.50, pursuant to Section 4.11 0-4(2) of RR 16-2005 which states that "if any input tax cannot be directly attributed to either a VAT taxable or VAT exempt transaction, the input tax shall be pro-rated to the Vt\T taxable and VAT-exempt transactions and only the ratable portion pertaining to the transaction subject to VAT may be recognized for the input tax credit." Below is the BIR's computation of the P33,000,148.50 disallowed input tax allocable to petitioner's exempt sales:56 Schedule 2: Per Audit Exempt Revenues x Total Input Tax Total Revenues P2,727J43.102.85 X 37,131,460.94 ~ p 35,433,972.00 2,857,788,779.67 Per Return 2 433 823.50 Additional Input Tax allocable to Exempt Sales P33,000,148.50 Ivloreover, the BIR, in response to petitioner's argument in its Requestfor Recomideration,57 contends in the subject FDDA that: "You argued that BIR did not take into account the excess VAT as of December 31, 2017, carried from previous years, which amounted to P143,140,581.42, which has remained unutilized as of this date. And that even if the entire VAT recognized for the current year is disallowed, it should not result in any VAT exposure because it has sufficient input VAT carry-over from prior years, that is rnore than enough to absorb any output V1\T from current year's revenues that are subject to VAT. Your excess input tax for the year under audit was already carried over to succeeding period and cannot be utilized for any VAT exposure, hence, the herein assessment is hereby reiterated." 58 Disagreeing with the foregoing findings, petitioner submits that there is no legal basis for respondent to impose VAT liability based solely on such disallowance or reduction of input VAT credits, as VAT liability cannot arise solely from the disallowance or reduction of input VAT credits. Accordingly, in as much as petitioner claimed input VAT as a purchaser, the disallowance of the said input VAT reported should not give rise to a transaction subject to VAT, as )'/' sr. Detail.r o/Dt~rm;pamie.r, ~\nnex .\,Exhibit "P-18", Docket- \Tol. I\T, pp. 1485 to 1486. 57 Exhibit "P-19", Docket- \-ol. I\T, at pp. 1493 to 1494. 5~ Exhibit "P-21", Docket- \To!. I, at p. 314.

Page 12 of21 DECISION CL\. C\SE NO. 11156 there was no sale or exchange of goods that transpired to begin with. It further avers that Section 106 of the Tax Code specifically provides that VAT liability arises from sales transactions, either involving goods and services, and from the importation of goods in the Philippines.59 Petitioner likewise points out that nowhere in the Tax Code does it provide that the disallowance of input VAT results in a VAT liability. The disallowance of input VAT should, at most, reduce the amount of input V.i\T which may be offset against the output VAT liabilit)' of a taxpayer, and cannot be used to increase a taxpayer's output VAT liability.60 It further claims that, by converting a mere disallowance of input VAT into an actual tax liability without any basis whatsoever, respondent arbitrarily imposed a tax not on any sale or consumption, but on the property or capital of petitioner, which is contrary to law. 61 It further submits that even if the portion of the input tax credits being disallowed by respondent amounting to P33,052,258.65 would be removed from petitioner's 2017 input VAT credits, there is still an excess input VAT amounting to P143,140,581.42 to absorb the output VAT for the year being assessed, or any output VAT of the subsequent years, as the adjusted input VAT credit is still much greater than its output VAT liability for the year (i.e., P15,677,481.22). 1\s such, there should not still be any deficiency VAT payment due from petitioner resulting from any disallowance of its excess input VAT. 62 Petitioner further argues that the practice of respondent to assess deficiency VAT whenever input VAT is disallowed based on the presumption that the same had been carried forward and utilized in the succeeding period/s has already been overruled by the CT;\ on two (2) grounds: (1) the succeeding year, which allegedly benefited from the input VAT carried forward, is obviously not covered by the tax audit; and (2) the legal remedy or action of respondent is to subject the succeeding year to tax audit and, to assess the alleged VAT liability, if any, pursuant to that audit.C'3 Lastly, petlUoner insists that the audit period and authority of the respondent cover only the year 2017. As such, respondent has no authority to rule on the availability and validity of input tax credit available to petitioner in 2018. To rule otherwise would be violative of petitioner's right to due process, as the assessment would be effectively expanded beyond the period covered by the 2021 LOA.64 ~ 5~ Pars. 28 to 31, petitioner's Memorc111dNm, Docket- \'oL I\', pp. 1711 to 1712. w Pars. 32 and 35, petitioner's iVfemora11dmn, Docket~ \�ol. I\', p. 1712. " 1 Par. 42, petitioner's J\1emorcmdum, Docket- \' oL I\', p. 1716. r.2 Par. 50, petitioner's J\lfemora11dum, Docket- \� ol. I\', p. 1719. r,l Pars. 55 to 55.2, petitioner's Aiemom!ldmn, Docket- \'ol. I\', pp. 1720 to 1721. r.~ Par. 60, petitioner's J\iemorc/1/dl!m, Docket- \'oL I\', p. 17 22.

Page 13 of21 DECISION CT.-\ C'I.SE NO. 11156 However, the Court is not convinced. The input VAT disallowance made by the BIR is proper and in order. Section 110(C) of the National Internal Revenue Code (NIRC) of 1997, as amended, provides for the determination of the amount of input tax creditable for a certain period, to wit: "SEC. 110. Tax Credits. - x x x (C) Determination if Creditable Input Tax. - The sum of the excess input tax carried over from the preceeding month or quarter and the input tax creditable to a VAT-registered person during the taxable month or quarter shall be reduced by the amount of claim for refund or tax credit for value-added tax and other adjustments, such as purchase returns or allowances and input tax attributable to exempt sale. The claim for tax credit referred to in the foregoing paragraph shall include not only those filed with the Bureau of Internal Revenue but also those filed with other government agencies, such as the Board of Investments and the Bureau of Customs." (Emphases added) Based on petitioner's 2017 Qllarter!J Valzte-Added Tax Retzmu (BIR Forms No. 2550-Q), as summarized below, it is evident that petitioner was engaged in taxable and exempt sales, or in mixed transactions, viz: Period Covered VATable Sales Exempt Sales Total For CY 2017 1" Quarter65 - p 5,333,075.25 p 477,333,095.32 p 482,666, 170.57 - - - - - - - - - - - - - - - - - - - - - - - ---------- -~- f------------~-~ ~---�-----~-------� ______?'d Ql!arter66_~ __ 116,888,497.92 519,317,618.12 636,206, 116.04 - f - - - - - - - - - - - - � - - -~---------- --�--------- ---- ---- ______3'd Q:':l_atter~ ___ 1,370,624.92 1'196,608,954.45 1,197,979, 579.37 ----� ----------- -�------~--- � 4'11 Quarter68 7,053,478.73 533,883,434.96 540,936, 913.69 � - - - - - - - - - - - - - - - -~-�-- - - - - - - - - - - - - t - - - ---� Total for CY 2017 P130,645,676.82 P2,727,143,102.85 P2,857,788, 779.67 Under Section 112(A) of the NIRC of 1997, as amended, if a VAT- registered entity is engaged in VATable and VAT-exempt transactions, and the input VAT cannot be directly identified with specific sales, the input VAT credits allowable will be computed under an apportionment formula, to wit: "xxx where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input r tax due or paid cannot be directly and entirely attributed to any one r.s Exhibit "P-23", Docket~ \�ol. n�, at p. 1504. r,r, Exhibit "P-28", Docket~ \-ol. I\', at p. 1611. r,/ Exhibit "P-29", Docket~\'ol. I\', at p. 1613. "~Exhibit "P-30", Docket~ \'ol. I\', at p. 1615.

DECISION CT-\. C-\.SE NO. 11156 of the transactions, it shall be allocated proportionately on the basis of the volume of sales. xxx" As a corollary thereto, Section 4.110-4 of RR No. 16-2005 provides as follows: "SEC. 4-110-4. Apportionment ~{ Inpttt Tax on ]\!fixed Tnmsadions. -A VAT-registered person who is also engaged in transactions not subject to V_,\T shall be allowed to recognize input tax credit on transactions subject to VAT as follows: 1. XXX XXX XXX 2. If any input tax cannot be directly attributed to either a VAT taxable or VAT-exempt transaction, the input tax shall be pro-rated to the VAT taxable and VAT-exempt transactions and only the ratable portion pertaining to transactions subject to VAT may be recognized for input tax credit." (Emphasis added) Clearly, when there are mixed sales transactions, and a direct attribution of the input VAT cannot be made on such sales, a proportionate allocation on the basis of volume of sales must be made. However, no tax credit is allowed for input taxes in case of VAT-exempt transactions. Correspondingly, it can be inferred that the BIR's V" \T assessment against petitioner has both factual and legal bases. Since petitioner has transactions exempt from payment of VAT, the corresponding input taxes attributable thereto should have been deducted from the available input tax pursuant to Section 11 O(A) (C) of the NIRC of 1997, as amended. The Court further notes that in its 2017 QHarter!J T/altte-Added Tax Retun1s, petitioner declared the following input taxes arising from current purchases of capital goods not exceeding P1 Million, domestic purchases of goods other than capital goods, domestic purchases of services, services rendered by non-residents and amortization of input V[\Ton capital goods purchases exceeding P1l'vfillion: 1" Quarter (I �:,hibit 2"" Quarter (I �:,hibit 3'" Quarter 4'" Quarter (I �:,hibit CY2017 "P-2.1") 69 "P<'H'') 7(1 "1'-)11")72 (I �:,hibit "P-2~") 71 llljl!ll I .�1'/" 1111 1 (-'/1-/'-/('/-//L/lll_li)J.d.\(C '.(' _ - : - - - - - t - - - - � - - - - - - - - - 511,7111.77 1.)2,542.511 Input \'.\Ton purch�,1'c ot- capit�.1l goods not exceeding f'l i\Iillion m Docket- \'ol. 1\', pp. 1504 to 1505. 7o Docket- 'i'ol. I'i', pp. 1611 to 1612. II Docket- \'ol. I\', pp. 1613 to 1614. -"Docket- \'ol. I\', pp. 1615 to 1616.

Page 15 of21 DECISION CT-\ C-\SE NO. 11156 Input\',\']' on dcJn1l�stic purchases of goods othl'r than capital goods f' 17(,,72(,.79 f' HX,WII..'\5 5'\,2211.116 fl(,.(,211.71 -!115,257-'J I ~~--~---~- -~---~--~-~--~--~- -----~- -~~----c_:...._--'-1----~~----'-'--=-.:C..:..-f-~~~~_:__ Input\'.\']' on in1porL1tion of goods (lthcr tlun clpital goods Input\'.\'!' on de m1cstic purchase <Jf scn�iccs Input\'.\'!' on SctYiccs rendered br non-residents 127,11112.21) 9115,911.117 .'\1(,,ll.'\5.12 1,717,55o-l1 Subtotal - Input VAT on current purchases p 10,719,706.34 t� 9,054,280. 92 I' 14,946,864.38 ,. 2,410,609.28 I' 37,131,460.92 . //;;;m1i:;_tt!iou r!{inf111 I �IT o11 '"fila/ .~oor/ffJtn�htrle.r 1'.\lt'ffli;(~ PI ,\/;}/irm: Inpm \' .\'!' on capital goods purchases c~cccding J> I ~fillion from 1,."\11-l,7."\."\.l'l 1,19K,l7r,.-l7 1,091,GI9.KII 5111,975.95 1,."\11-\,7"\."\ 1.:' ptTYious quarter I"''"' Input\'.\'!' on capital goods purchases C:S:CL'CJing I' I ~fill ion dcfcrrl'd t~or the sucCL'l'ding ~-criod Subtotal- Amortization of input VAT on capital goods purchases exceeding l--;;f'""1_M_i:-cll:-io__n_~c-=--__1'____10�,556.:.6i_ ___~_l� -~-106,556:�2_f--___P_ __._5..c.8_9,'-6_4.:...3._8,--'-4-l______5_5..'.,3.:...6:...:9..c..0_1_+----1'_____8~_,1~6:19_ TotallnputVAT paid or incurred during the year 2017 1'10,826,263.00 I' 9,160,837.59 p 15,536,508.22 I' 2,465,978.29 p 37,989,587 .10___ Since petitioner had V1\Table sales and exempt sales for the year 2017, and its input VAT cannot be directly identified with specific sales, the Court shall allocate the input VAT proportionately on the basis of the volume of petitioner's sales, as follows: ---� --- ---~----~- ___ 1" Quarte_r______ _2"d Qt�arter ----~ _____l"'_Quarter. ____ -~uarter____ CY 2017 \'arable Sab/1Zl'cl'ii:'I:S_ _ _ J>___:>.1~117':)2'i f _11.0_~~-:_lnn --~- ~_ _ 1,1711,(,2-l,~ ___f'____L1151,47H.7."\ f 1."\11/�-l'i/�/(,X' 4TI,Y\\II<J5.YJ. - -5-1''.-i,.-"\l'7-,(-dH- -12- t - - - - ' -l-,l-%-,W' -H_.9:54,._45- - - ! - - -5-.'\.-"\,-HH' -."\-,4'.'\-4.-%- - 1 - - - - 2,- "1~ :'7-,14�-'\,II.(.:...K..:J 1'482,666,170.57 Total Sales/Receipts 1'636,206,116.04 1'1,197 ,979,579.37 1'540,936,913.69 1'2,857, 788,77_2.67 . �1/!ot"alion I ;ador: ", of\'. \Table Sales to -- 0T- oo- toaC-l -IS�-a:x- lec� sn- 1p-t~S~ al.e..,:~ .; t~ o - -~------ 1.~ 11- 14-92-11-1-1"-, r - - - ��--1-H--.'-\7-2-7---!1-1-4-"-,-- ,------. Total Sale' 9il.H951 Iill Ill", c-;--;-c--.,..,...,.,,-:--c-- ~~- - - - - - - ~~- �----~--~----------1----------f----- Total input \'.\T from current purchases and an1orti:t.ation of input \'.\'!'on ctpital goods purch:lSl"S l':\CCL"ding f' 11\lillion per\'. \'t' returns P l!l)Q(,,2(,.J.IJ() J> 15,5.1(,,511:-\.2:2 f'2,4(>5,97H.29 ----------~~�---- ----~~-- .111 17,-!14.5"\ ((,<),524 .."\5)

Page 16 of21 DECISION CT\ C\SE NO. 11156 r--c--� . . ( )ycrclam1cd tnput tax 011 SL'f\'iCL',:.1 fl'llLkrcd by tH>n-rcsidL�nts ~~-- f----:cU:-nJ-c-c-rs-t-at-c�t:..:.11'c--n-t,~,f--- -------~-----\----- -- ~-------~- --------------f---~---~- - - input\'. \T dct(:rrcd on c1pit�,1l gooJs purchasL�s L'XCL'l'ding Pl1\Iillinn from 3rd 'I LUtter to 4th 73 .Ill .II[ L!Uartcr .\djustc�d total input \'. \'l' fron1 current purchases and an1ortization of input \ '. \T on capital goods purchases cxcccding 1'1\fillion PI II,H2C,,2(,_"l.l I I P~, 17K,252. 12 P15,536,511H.?2 1'2,.)%,453.95 - - - - - ---~----- -~-----~-- -~--~~---- -~--------- �----~---~-+------ 'l//o,~~kd 1/.l".f~llrm:l".� ~- _ _ -~---- ----~ ~- -------~-- ~- _______ ---+-----------� ______ ------~- _ Input \'.\T .\1loc:ttcd f' I.H'i4,'J41 !'! 36,0822_.3_5-'51 _t~\Tabi_<: :-;,tics _________ !" 119.621.55 ~ 1,6HC,,2%.44 f' 17,775.54 1--- f' 31,24H.:y, Input VAT Allocated to Exempt Sales 10,706,641.46 7,491,955.68 15,518,732.68 2,365,205.69 Total 1' IO,H2Ct,2Ct3.111 f' ~.17H,252.12 f' 15,5)(,,51 IH.22 f' 2)%.453.95 It must be noted that prior to allocation, the total input VAT of P37,989,587.10 from current purchases and amortization of input VAT' on capital goods purchases exceeding P1Million per VAT returns was adjusted to account for the P52,1 09.81 overclaimed input VAT on services rendered by non- residents, and the P.01 understatement of input VAT deferred on capital goods purchases exceeding P1l'v1illion from 3rc1 quarter to 4th quarter. Based on the foregoing allocation, of the !>37,937,477.30 adjusted input VAT, the amount of !>1,854,941.79 represents input VAT allocable or attributable to petitioner's VATable sales, while the remaining amount of !>36,082,535.51 represents input VAT allocable or attributable to petitioner's exempt sales. A further perusal of petitioner's 2017 Qztarter!J T/alue-Added Tax ReturnJ shows that, for the 1'\ 2nd and yt~ quarters,14 petitioner failed to deduct from its total available input VAT, the portion allocable or attributable to its VAT- exempt sales, and that it was only in the 4th quarter that petitioner deducted from the total available input VAT, the amount of !>2,433,823.50, representing input VAT allocable or attributable to its VAT-exempt sales for the same quarter.75 But as pointed out earlier, the amount of creditable input tax in a month or quarter shall be net of input tax attributable to VAT-exempt sales, pursuant to Section 11 O(C) of the NIRC of 1997, as amended. Consequently, petitioner had overclaimed its input VAT arising from current purchase transactions and amortization of input VAT on capital goods purchases exceeding P1Million for the year 2017 in the amount ofP33,648,712.01, computed as follo\~ ' 1 Line 23.-1., Exhibit "P-29", Docket-\'ol. I\', p. 1614 and Line 20B, Exhibit "P-30", Docket- \Tol. I\', p. 1615. 71 Line 23C, Exhibits "P-23", "P-28", "P-29, Docket- Vol. I\T, pp. 1505,1612 and 1614, respectively. 7s Line 23C, Exhibit "P-30", Docket- Vol. IV, p. 1616.

Page 17 of21 DECISIO~ CT.-\ C\SE ~0. 11156 -- CY 2017 Input VAT Allocable to Exempt Sales -- Should-be Deduction from the Total Amount Deducted Overclaimed Input ~vailable Input VAT Per VAT Return VAT --��--------� p 10,706,641.46 1" Quarter f> 10,706,641.46 2nJ Quarter 7,491,955.68 7,491,955.68 3rc1 Quarter - 152}8,732.6�__ .. 15,518,732.68 2,365,205.69 (68,617.81) 4'11 Quarter ---- f> 2,433,823.50 P36,082,535.51 P2,433,823.50 P33,648, 712.01 Total - �- Nonetheless, petitioner asserts that it has at the start of the year 2017, excess input VA.T carried over from prior periods, amounting to P143,140,581.42 which is accordingly more than enough input tax to absorb the output VAT for the year being assessed, or any output VAT of the subsequent years - the adjusted input VAT credit is still much greater than its output VXr liability for the year (i.e., P15,677,481.22) ..As such, petitioner insists that there should not still be any deficiency VAT payment due from petitioner resulting from any disallowance of its excess input VAT.76 The Court does not agree. Undoubtedly, petitioner's 2017 Quarter!J Valtte-Added Tax Retl!rns show that it had excess input tax credits at the beginning of CY 2017 in the amount P143,140,581.42,77 which at the end of CY 2017 amounted to P163,018,863.81. 78 However, after deducting the input VAT disallowances ofP33,700,821.81, petitioner's excess tax credits at the end of CY 2017 should only be P129,318,042.00, computed as follows: ,-------��--��-----------�--�-------------,--------- Excess tax credits at the end of CY 2017 P163,018,863.81 Le.u: Disallowances per this Court's finding � - - - - - - f - - - - - - - - - - - - 1 - - - - - - - - � - ___ t----t Overclaimeel input \T_-\T from services rendered by ____ __1_1o_n-Ee_si_clen_t__s________ ---�------�---- ______!__ 52,1()_~ _______ �--- Understatement of the input \-~-\Ton capital goods purchases exceeding P 1:\Iillion carried-over to the f-----f-f-o_ur_th.r_ ua_ rte_r ________________ --+--------'--(-0-.0"1-) --+------------- Input \ -~"-T allocable to exempt sales which was not f-----t---deducted from the total <n�aila~le inpyt 1_'~\_'l_'-�---l---.......c..3::..c3,'---64_�8'--'-,7_1_2.....:.0_1--+-----------�----� �rota! Disallowances 33,700,821.81 ------------------ - - - � - - - - - - - - - -� Should-be excess tax credits at the end of CY 2017 --------- ------------��-------------- In other words, petitioner's reported excess tax credits at the end of CY 2017 amounting to P163,018,863.81 and carried-over to itsQttarter!J T/altte-A~ 1" Par. 50, petitioner's J'vfemorandum, p. 1719. n Line 20~\, Exhibit "P-23'', Docket- \'ol. n�, p. 1504. 7~ Line 29, Exhibit "P-30-4, Docket- \'ol. I\', p. 1616.

Page 18 of21 DECISIO~ CL\ C-'I.SE NO. 11156 Tax Return for the 1sr quarter of CY 201879 were overstated by P33,700,821.81. Thus, notwithstanding the invalidity of the P33,700,821.81, this amount remained available for utilization or crediting against petitioner's output tax liabilities in the succeeding periods. It equally bears stressing that if the Court were to allow the offsetting of the assessed disallowed input VAT of P33,700,821.81 against the excess tax credits of P163,018,863.81, petitioner may end up benefiting petitioner twice from it, i.e., as tax credit against output VAT in the subsequent periods; and as settlement/payment of the subject deficiency VAT assessment, at the expense of the government. Similarly, if the Court should decide not to sustain respondent's assessment or disallow the input VAT of P33,700,821.81, this would net only put an additional burden on the taxpayer to amend subsequent returns to remove the excess input tax already utilized so as to prevent any BIR assessment on the matter, but would also burden the BIR to monitor the decisions of this Court in ensuring that the utilized excess tax credits are not being utilized again in the subsequent periods. This additional burden placed upon both parties would result to an outright disregard of the basic principle in tax law - that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. 80 In fine, petitioner failed to sufficiently establish that the disallowed input tax credits ofP33,700,821.81 were not utilized in the subsequent periods. Hence, petitioner is liable for basic deficiency VAT for CY 2017 in the amount of P33,700,821.81, computed as follows: Vatable receipts subject to 12'/'o per V"-\T return f> 130 6-15 67CJ.Q.7 p 15.677,-181.22 Output tax Due Less: Net creditable input taxes, net of carry-o,�er P15,677,481.24 52 109.81 Less: Disallowed input taxes Total P15,625,371.43 Less: "-\dditional input tax allocable to exempt sales 33,648,712.()1 Understatement of input VAT deferred on capital .01 (1 8.023,340.59) goods purchases exceeding P1Million from 3rd quarter to 4th quarter p 33,700,821.81 VAT payable P33, 700,821.81 Less: Payments per V"-\T return Basic Deficiency VAT Due ~ 7~ Line 2(H, Exhibit "P-35", Docket- \'ol. I\', p. 1617. ~1 ' Commi.r.rioner o/Intemal Re!JeJ!Ne IJJ. S!radcom Co1poration, G.R. No. 255520, .-'l.pril 21, 2025, citing Commi.r.,"ioner o/ Internal N!Jenue v.r. A(gue. l1zo-., 241 Phil. 829 (1988) [Per J. Cruz, First Division].

Page 19 of21 DECISION CTA.C\SENO.ll156 Petitioner is not Hable to pay the subject compromise penalties. In the FDDA, the BIR assessed petitioner of compromise penalties in the aggregate amount of P120,000.00, due to the following alleged violations: 81 - - - � � - - - --------~--~- Compromise Penalty Nature ofViolation (RMO 7-2015) Failure to supply correct information at the time required by law or regulations- Income Tax (Pursuant to Section 34 of the NIRC, as p 20,000.00 an1.ended) 50,000.00 Failure to supply correct information at the time required by law or 25,000.00 regulations- \Talue _Added Tax 25,000.00 (Pursuant to Section 1OS of the NIRC, as amended) P120,000.00 Failure to withhold or remit correct amount of Expanded ---- Withholding Tax (Pursuant to Section 58 of the NIRC, as amended; RR 2 98, as amended) - Failure to withhold or remit correct amount of Final Withholding Tax (Pursuant to Section 57 of the NIRC, as amended; RR 2-98, as amended) TOTAL � - - - - - - - - ----------~-----~--~-------------- It must be stressed, however, that a compromise is, by its nature, mutual in essencc.82 It implies agreement. One party cannot impose it upon the other. 83 Compromise penalties are only amounts suggested in settlement of criminal liability and may not be imposed or exacted on the taxpayer in the event of refusal to pay the suggested amount. 84 Considering that there is no indication that petitioner consented to the subject compromise penalties, the said aggregate amount cannot be sustained. ACCORDINGLY, the present Petition for Review is PARTIALLY GRANTED. The assessment issued by respondent against petitioner covering compromise penalties for CY 2017 are CANCELLED and SET ASIDE. However, the deficiency VAT assessment for CY 2017 is UPHELD with MODIFICATIONS. Consequently, petltloner 1s ORDERED TO PAY respondent the aggregate amount of P62,080,607.01, inclusive of surcharge and deficiency interest imposed under Sections 248(A)(3) and 249(B) of the NIRC of 1997, as amended, by Republic Act (fu\) No. 10963, also known as Tax Reform for Acceleration and Inclusion (TH..1.-\IN), as implemented by RR No. 21-2018, computed as follow~ � 01 Exhibit "P-11\", Docket-- \'ol. 1\', at pp. 1-183 to 1484. o2 Refer to r 'da. De Sa11 Agu.rtin ''-'� Crmlltli..-.,-iomr o/fntemal Re;mzue, G.R. ~o. 138485, September 10, 2001. 0-1 Commi.r.rio11er of!lltemal Re;1mue ''-'�A bad, eta!., G.R. No. L-19627, June 27, 1968. 0~ Refer to Part III. 5, Revenue Memorandum Order No. 7-2015.

Page 20 of21 DECISION CTA CASE NO. 11156 Basic Tax p 33,700,821.81 8,425,205.45 Add: 25% Surcharge 12% Deficiency Interest from Jan. 26, 2018 to Dec. 31, 19,954,579.75 2022 P62,080,607 .01 {P33,700,821.81 x 12%x 1801/365 dqys] Total Amount Due - December 31, 2022 In addition, petitioner is ORDERED TO PAY respondent delinquency interest at the rate of twelve percent (12%) per annum on the P62,080,607.01 total amount due as of December 31, 2022, or an amount equivalent to P20,410.06 per day,85 from December 31, 2022 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended by RA No. 10963 and implemented by RR No. 21-2018. Lastly, pursuant to Section 13 of RA No. 9282, considering that this decision is partly favorable to the national government, the BIR, through respondent, is hereby authorized to seize and distraint any goods, chattels, or effects, and the personal property, including stocks and other securities, debts, credits, bank accounts, and interests in and rights to personal property and/or levy the real property of petitioner in sufficient quantity to satisfy the tax or charge with any increment thereto incident to delinquency. SO ORDERED. ~.~)--- MA. BELEN M. RINGPIS-LIBAN Presiding Justice WE CONCUR: coR~dt oN'G. f-fiRr RER~-F ~RES Associate Justice ss P62,080,607.01 x 12%/365 days.

Page 21 of21 DECISION CT-\ C\SE NO. 11156 CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, is it hereby certified that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. ~-~)- MA. BELEN M. RINGPIS-LIBAN Presiding Justice