PAYO, MANUFACTURING CORPORATION represented by its Chief Operating Officer, Clovis Jones Louis Sabornido v. COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE (formerly UDK-SP No.027)

REPUBLIC OF THE PHILIPPINES COURT OFTAX APPEALS QUEZON CITY FIRST DIVISION PAYO MANUFACTURING CTA Case No.10164 CORPORATION represented by its Chief Operating Officer, Members: Clovis Jones Louis Sabornido, DEL ROSARIO, PJ, Chairperson, Petitioner, MANAHAN, and -versus- REYES-FAJARDO, JL. COMMISSIONER OF THE -------X BUREAU OF INTERNAL Promulgated: REVENUE, x----------------R-e-s-p-on-d-e-n-t-. ---O-~C_~T_ ~_0_~:~:-:~~~~-M JUDGMENT BY COMPROMISE REYES-FAJARDO, J.: On December 14, 2021, a duly notarized Judicial Compromise Agreement (JCA), 1 was executed by and between petitioner's representative Clovis Jones Louis Sabornido, and respondent, which is hereby reproduced in verbatim: JUDICIAL COMPROMISE AGREEMENT KNOWN ALL MEN BY THESE PRESENTS: This JUDCIAL COMPROMISE AGREEMENT ("Agreement"), made and executed, by and between: PAYO MANUFACTURING CORPORATION ("TAXPAYER"), a domestic corporation duly organized and existing under the laws of the Republic of the Philippines, with principal office at Km. 7, Bangkal, Davao City, represented by its Chief Docket, pp. 331-336. Footnotes omitted. wv

JUDGMENT BY COMPROMISE AGREEMENT CTA Case No. 10164 Operating Officer, CLOVIS JONES LOUIS SABORNIDO; -and- The BUREAU OF INTERNAL REVENUE ("BIR'), with principal office at the Bureau of Internal Revenue, National Office Building, Agham Road, Diliman, Quezon City, represented by the Commissioner, HON. CAESAR R. DULAY (collectively, the "PARTIES"); -Witnesseth That- WHEREAS, the TAXPAYER instituted an action against the BIR entitled "Payo Manufacturing Corporation vs. Commissioner of Internal Revenue", docketed as CIA Case No. 10164, pending before the Honorable First Division of the Court of Tax Appeals (" CTA"), seeking for the revocation and cancellation of the Follow- up Collection Letter of the BIR for the alleged tax deficiency for the year 2013; WHEREAS, the TAXPAYER has submitted to the BIR a Proposal for Amicable Settlement to pay 51% of the basic Tax of the alleged deficiency for 2013; WHEREAS, the TAXPAYER has applied/ availed of Compromise Settlement for its alleged Tax Delinquency for 2013 and paid 41% of its basic tax prior to the institution of the case and has offered to pay an additional 10% of the basic taxes assessed against it; WHEREAS, the BIR has evaluated the TAXPAYER'S proposal for amicable settlement and believes that a judicial compromise to allow immediate tax collection and also put an end to litigation as provided in the Civil Code of the Philippines, serves the interest of the Government; WHEREAS, the PARTIES have agreed to enter into an amicable settlement pursuant to the provision of the Civil Code of the Philippines and relevant laws on compromise without contravening law, morals, public order and public policy; WHEREAS, the Honorable CTA has issued rulings allowing judicial compromises similar to the instant case. WHEREAS, the PARTIES, for the purpose of avoiding and putting an end to a protracted, expensive and mutually prejudicial litigation, have agreed to amicably settle the above-mentioned case, upon terms and conditions hereinafter set forth; ~

JUDGMENT BY COMPROMISE AGREEMENT CTA Case No. 10164 NOW, THEREFORE, for and in consideration of the foregoing premises, the PARTIES hereto have agreed as follows: Section 1. Judicial Compromise Amount. In order to settle the above-mentioned case, the TAXPAYER has offered and the BIR has accepted the total payment of P359,025.92("Judicial Compromise Amount"). Out of the Judicial Compromise Amount, and prior to the institution of the instant case, the TAXPAYER has already paid P288,663.00 or 41% of the basic assessed deficiency taxes, and has now offered an additional Php70,362.92, or 10% of the assessed deficiency taxes. Section 2. Submission to the Honorable CTA. This Agreement fully signed by the PARTIES shall be submitted for the approval of the Honorable CTA in CTA Case No. 10164. The PARTIES undertake to perform any and all acts, and submit any and all documents required by the Honorable CTA to be able to render a Judgment by Compromise Agreement in the said case. Section 3. Effectivity of the Agreement. This Agreement shall take effect and bind the PARTIES upon approval by the Honorable CTA. This Agreement shall thereafter remain in force and effect until completion and fulfillment of the covenants and undertaking of the PARTIES hereto. Section 4. Deliverables of the PARTIES upon approval of this Agreement by the Honorable CTA. Upon final approval by the Honorable CTA of this Agreement the BIR undertakes to execute and deliver to the Taxpayer any and all documents as may be required to effectively and fully implement the provisions of this Agreement, withdrawing and cancelling the aforementioned Follow-up Collection Letter. Section 5. Authority to Enter Compromise Agreement. The BIR, through Commissioner Caesar R. Dulay warrants that he has the necessary authority and capacity under the law to enter, sign, and execute this Agreement, and to deliver its implementing documents upon its approval of the Honorable CTA. The TAXPAYER warrants that, CLOVIS JONE LOUIS SABORNIDO, is duly authorized by the Board of Directors of the TAXPAYER and has full legal capacity to enter, sign, and execute this Agreement, and to deliver payment of the above-agreed additional amount. Section 6. Full and Final Settlement. This Agreement is executed by the PARTIES for the purpose of amicably settling and ending CTA Case No. 10164. Upon approval by the court, the BIR recognizes the full satisfaction of the supposed tax liability of the CfY

JUDGMENT BY COMPROMISE AGREEMENT CTA Case No. 10164 TAXPAYER in connection with CTA Case No. 10164 and acknowledges that the TAXPAYER no longer has any tax liability whatsoever based upon, arising from or in connection with the particular subject of CTA Case No. 10164. Section 7. Disapproval of this Agreement by the Honorable CTA. In the event that this Agreement is disapproved by the Honorable CTA, the PARTIES agree to a curing period of sixty (60) days from receipt of the Order/Resolution disapproving this Agreement. During such curing period, the PARTIES mutually agree to perform any and all acts necessary to rectify or correct the deficiency, defect or imperfection which caused its disapproval, and re-submit the rectified or corrected Agreement for approval of the Honorable CTA. However, in case the deficiency, defect or imperfection is not or cannot be rectified or corrected within the said curing period, or still not approved by the Honorable CTA after it is rectified or corrected by the parties: 1. The amount already paid by the TAXPAYER to the BIR shall be deemed a tax credit which may be applied against internal revenue taxes for which the TAXPAYER may be directly liable, as allowed under existing rules and regulations; and 2. The proceedings of CTA Case No. 10164 shall continue and the discussions pursuant to the disapproved Agreement cannot be used by the PARTIES in said proceedings unless consent of the other party be obtained. Section 8. No Admission of Liability. The execution of this Agreement shall not constitute or be interpreted in any way as an admission or acknowledgement of error or liability by the PARTIES. Section 9. Non-Performance. The PARTIES agree that the failure of any PARTY to comply with any of the terms and conditions of this Agreement shall entitle the aggrieved PARTY to file an appropriate motion with the Honorable CTA for the immediate implementation and execution of the terms and conditions of this Agreement or the judgment or order of the Honorable CTA approving the same. Section 10. Signature and Counterparts. This Agreement may be signed in counterparts, each of which when executed and delivered shall constitute a duplicate original, but all of which shall be taken together as a single instrument. Until and unless each party has received a counterpart hereof signed by the other party hereto, the Agreement shall have no effect and no party shall have any right and obligations hereunder. ~

JUDGMENT BY COMPROMISE AGREEMENT CTA Case No. 10164 IN WITNESS WHEREOF, the PARTIES hereto have mutually and voluntarily agreed to the foregoing stipulations and have hereunto signed these presents at the date and place indicate above. PAYOMANUFACTURING BUREAU OF INTERNAL CORPORATION REVENUE By: By: (Sgd.) (Sgd.) CLOVIS JONES LOUIS HON. CAESAR R. DULAY SABORNIDO Commissioner Chief Operating Officer Republic of the Philippines v. Heirs of Cruz, et al. 2 ordains that "[b]efore approving a compromise, courts are bound to strictly scrutinize the same to ensure that the compromise and its execution are compliant with the law and consistent with procedural rules." In this regard, Section 204(A) of the National Internal Revenue Code (NIRC), as amended, reads: SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner may - (A) Compromise the payment ofany internal revenue tax, when: (1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. The compromise settlement of any tax liability shall be subject to the following minimum amounts: For cases of financial incapacity, a minimum compromise rate equivalent to ten percent (10%) of the basic assessed tax; and For other cases, a minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax. Where the basic tax involved exceeds One million pesos (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. 2 G.R. No. 208956, October 17, 2018. vi

JUDGMENT BY COMPROMISE AGREEMENT CTA Case No. 10164 For the Court to approve said JCA, the following requisites must be present: one, the authority of the parties' themselves, or their representatives to enter into compromise agreement; 3 two, the compromise must be based on doubtful validity of the government's claim against the taxpayer (doubtful validity); or financial incapacity of the latter (financial incapacity); three, the subject matter being compromised is not prohibited by law, or by its implementing rules and regulations;4 four, payment of the compromise amount, i.e., at least 40% of the basic tax/ es for doubtful validity; or at least 10% of the basic tax/ es for financial incapacity; and five, approval5 of the National Evaluation Board (NEB). These requisites were met. Consider: First, the persons who executed said JCA were properly clothed with authority to do so. To be precise, Clovis Jones Louis Sabornido's authority to compromise, on petitioner's behalf, is based on the notarized Secretary's Certificate dated November 18, 2021, issued by the latter's Corporate Secretary,6 whereas respondent's authority to compromise internal revenue taxes is conferred by Section 204(A) of the NIRC, as amended. Second, it would appear that the Formal Letter of Demand, Final Assessment Notices, with Details of Discrepancy (FLD/FAN) dated August 24, 2016, do not have corresponding proof of service to petitioner. This casts doubt on the validity of respondent's claim against it. Third, this case stemmed from petitioner's appeal of the BIR's Follow-up Collection Letter dated October 4, 2018. 7 Specifically, petitioner was requested to pay the total amount of P779,120.63, representing the deficiency income tax (IT), value-added tax (VAT), and expanded withholding tax (EWT) for taxable year (TY) 2013.8 The BIR Payment Forms (Form No. 0605) 9 submitted by respondent further shows that petitioner paid P70,362.92, representing deficiency IT, VAT, and EWT. The Certificate of Availment dated June 27, 2022, 3 Article 1317 of Republic Act No. 386, or the Civil Code, states that no one may contract in the name of another without being authorized by the latter. 4 Article 1409 of the Civil Code provides that contracts contrary to law are void. 5 See Section 6, RR No. 30-2002. 6 Docket, p. 329. 7 Page 2 of Petition for Review. Docket, p. 11. 8 Annex A, Petition for Review. Docket, p. 22. 9 See table on the succeeding page. C(Y

JUDGMENT BY COMPROMISE AGREEMENT CTA Case No. 10164 Page 7 of10 also confirmed that petitioner's application for compromise refers to deficiency IT, VAT, and EWT forTY 2013, under Assessment Nos. IT- ELA58204-13-02814, VT-ELA58204-13-02814, and WE-ELA58204- 1302814.to Section 2 of RR No. 30-200211 declares that withholding tax cases may not be compromised, unless the applicant-taxpayer invokes provisions of law that cast doubt on the taxpayer's obligation to withhold. Petitioner sought to amicably settle the alleged deficiency IT, VAT, and EWT forTY 2013. However, it failed to invoke a provision of law casting doubt on its obligation to withhold. Ordinarily, said deficiency EWT for TY 2013, may not be allowed to be compromised for being prohibited by Section 2 of RR No. 30-2002. Yet, as noted earlier, it appears that the BIR failed to serve the FLD/FAN dated August 24, 2016,12 including the deficiency EWT for TY 2013 to petitioner. Indeed, the FLD/FAN " ... signals the time 'when penalties and interests begin to accrue against the taxpayer and enabling the latter to determine his remedies[.]' Thus, it must be 'sent to and received by the taxpayer, and must demand payment of the taxes described therein within a specific period."'13 Therefore, the noted circumstance falls under one of the instances where compromise may be accepted. Section 3(1)(f) of RR No. 30-2002 provides: SEC. 3. Basis For Acceptance of Compromise Settlement. - ... 1. Doubtful validity of the assessment. - The offer to compromise a delinquent account or disputed assessment under these Regulations on the ground of reasonable doubt as to the validity of the assessment may be accepted when it is shown that: 10 Docket, p. 343. 11 SUBJECT: Revenue Regulations Implementing Sections 7(c), 204(A) and 290 of the National Internal Revenue Code of 1997 on Compromise Settlement of Internal Revenue Tax Liabilities Superseding Revenue Regulations Nos. 6-2000 and 7-2001. 12 BIR Records, pp. 199-203. 13 Commissioner of Internal Revenue v. T-Shuttle Services, Inc., citing Commissioner of Internal Revenue v. Fitness by Design, Inc., G.R. No. 799 Phil. 391 (2016). rfr

JUDGMENT BY COMPROMISE AGREEMENT CTA Case No. 10164 (f) The assessments were issued on or after January 1, 1998, where the demand notice allegedly failed to comply with the formalities prescribed under Sec. 228 of the National Internal Revenue Code of 1997 ... Fourth, in the BIR's FLD,14 the total basic deficiency taxes forTY 2013 amounted to 1"703,629.18, consisting of: 1) IT in the sum of 1"268,851.00; 2) EWT in the sum of 1"6,391.10; and 3) VAT in the sum of 1"428,387.08. Meanwhile, the JCA 15 shows that petitioner offered, and respondent accepted, the judicial compromise amount of 1"359,025.92, composed of: 1) 1"288,663.00, or equivalent to 41% of the basic assessed deficiency taxes, which petitioner paid prior to the filing of this instant case;16 and 2) 1"70,362.92, or an additional 10% of the assessed deficiency taxes, 17 evidenced by three (3) BIR Payment Forms, with attached BIR Payment Slips, provided by respondent, broken down as follows: Location of BIR Payment Amount in PHP Tax Type Forms (0605) and Payment 24,667.17 IT Slips18 39,304.65 VAT Docket, p. 354 6,391.10 Docket, p. 355 WE Docket, p. 356 Truly, the Judicial Compromise Amount in the total sum of 1"359,025.92 is 51.04% of the total assessed basic taxes per FLD amounting to 1"703,369.18.19 Fifth, all the members of the NEB approved the above JCA.20 Said approval was further confirmed in the Certificate of Availment dated June 27, 2022, issued in favor of petitioner.21 14 BIR Records, pp. 202-203. 15 In Commissioner of Internal Revenue v. Iconic Beverages, Inc., G.R. Nos. 240651 and 240665, Resolution dated July 6, 2021, the Supreme Court recognized a duly notarized Compromise Agreement as basis for determining the taxpayer's payment of the compromise amount, as well as the acceptance thereof by the BIR. 16 See Section 1, JCA. Docket, p. 332. 17 Ibid. 18 The respective BIR payment slips are appended to said BIR Payment Forms (0605) and are unpaged. 19 1'359,025.92/1'703,369.18 ~ 51.04% 20 Docket, p. 344. 21 Id. at p. 343. ry

JUDGMENT BY COMPROMISE AGREEMENT CTA Case No. 10164 Therefore, approval of the parties' JCA is in order. WHEREFORE, the Court resolves to: 1) NOTE respondent's Manifestation and Compliance, filed on August 5, 2022, submitting the original copies of the BIR Payment Forms (0605), and Payment Slips, as required in the Resolution dated July 20, 2022; 2) APPROVE the Judicial Compromise Agreement dated December 14, 2021, executed by and between Payo Manufacturing Corporation, represented by Clovis Jones Louis Sabornido, and the Commissioner of Internal Revenue; and 3) DECLARE CTA Case No. 10164 CLOSED and TERMINATED. SO ORDERED. ~~r.~.J:~ MARIAN IVY). REYEi-FAJARDO Associate Justice We Concur: Presiding Justice ~ J'. ,/lf....~c<,f,...,___ _ CATHERINE T. MANAHAN Associate Justice

JUDGMENT BY COMPROMISE AGREEMENT CTA Case No. 10164 CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the Judgment by Compromise Agreement were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. Presiding Justice