MAXICARE HEALTHCARE CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS Quezon City Third Division MAXICARE HEALTHCARE CTA CASE NO. 8441 (CTA EB NOS. CORPORATION, 1312 and 1317) Petitioner, 1\!Iembers: -versus- RINGPIS-LIBAN, Chairperson, and MODESTO-SAN PEDRO,JJ. COMMISSIONER OF INTERNAL REVENUE, Promulgated: Respondent. SEP 13 2022 ?, 3 :/0t� .... . X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X JUDGEMENT ON COMPROMISE AGREEMENT Before the Court are the following: 1. Parties' Joint Omnibus Motion [For Approval of Judicial Compromise Agreement and Dismissal of the Case] ftled on May 17, 2021; and, 2. Petitioner's Submission [Re : Origin al Copy of the Ce rtificate of Availment] with M anifestation flied on July 6, 2022. To recall, on May 8, 2017, the Court En Bane in CTA EB NOS. 1312 and 1317 rendered a Decision1 the dispositive portion of which reads: " WHE RE FORE, premises considered, the Petition for Review filed by Maxicare in CTA EB Case No. 1312 is DENIE D for lack of merit. The Petition for Review flied by the CIR in CTA EB Case No. 1317 is GRANTED in part. ' Docket (CTA EB NO . 1312), Vo l. II, pp. 680-710.

JUDGEMENT ON COMPROMISE AGREEMENT CTA CASE NO. 8441 The Amended Decision is hereby REVERSED. Maxicare is ORDERED TO PAY deficiency VAT liability in the aggregate amount of P200,149,302.69, inclusive of 25% surcharge as imposed under Section 248(A)(3) of the 1997 NIRC, as amended, computed as follows: 1st Qtt-2008 2nd Qtr-2008 3rd Qtt-2008 4th Qtr-2008 Total Cost to render I' 330,063,761.96 I' 247,386,731.43 I' 376,254,627.49 I' 572,012,745.55 1'1 ,525,717,866.43 service (Exempt I' 39,607,651.44 p 29,686,407.77 I' 45,150,555.30 I' 68,641 ,529.47 I' 183,086,143.97 sales per VAT returns) (5,214,412.86) (5,209,895.00) (5,402,589.96) (7,139,804.00) (22,966,701.82) 1'34,393,238.58 1'24,476,512.77 1'39,747,965.34 1'61,501,725.47 1'160,119,442.15 Output tax due thereon 8,598,309.64 6,119,128.19 9,936,991.33 15,375,431.37 40,029,860.54 1'42,991,548.22 1'30,595,640. 96 1'49,684,956.67 1'76,877,156.83 1'200,149,302.69 Less: Input tax attributable to Exempt Sales - now allowed as input tax Basic deficiency VAT Add: 25% Surchar~_ Total Amount Due In addition, Maxicare is ORDERED TO PAY: (a) Deficiency interest at the rate of twenty percent (20%) per annum on the basic deficiency VAT computed from the following dates until full payment thereof pursuant to Section 249(B) of the 1997 NIRC, as amended: r ! Perlod�Covered . Basic Deficiency i Reckoning Date t" ..."...................~--- .....[..... .............YAT -��������� ...........L--- : 1" Q\larter 2QQ8 . ; ...... f'34,3??,~38.58 J\pri125, 2QQ~ L.. 2"'Qu~~t~~ 2008 i ... f'~4,476,,512,.,.7.:.7.:....... + JtJ125,2008 i 3;'Q;:;~~t~~2668 r . f'}?,7~7,?()5.34 Oct()IJ.,r25,2QQ~ L 4'h Quarter 2008 f'(}1,501,725.47 January 25, 200? (b) Delinquency interest at the rate of twenty percent (20%) per annum on the total deficiency taxes of P200,149,302.69, representing basic deficiency VAT of 1'160,119,442.15 and 25% surcharge of 1'40,029,860.54, computed from April 30, 20122 until full payment thereof pursuant to Section 249(C)(3) of the 1997 NIRC, as amended. SO ORDERED." On December 12, 2017, upon petitioner's Motion for Reconsideration,3 the Court En Bane in CTA EB NOS. 1312 and 1317 issued an Amended Decision4 the dispositive portion of which reads: 2 Exhibit L, Final Decision on Disputed Assessment, Maxicare's Formal Offer of Documentary Evidence, Division Docket Vol. 1, p. 496-497. 3 Docket (CTA EB NO. 1312), Vol. II, pp. 768-829. 4 Docket (CTA EB NO. 1312), Vol. II, pp, 836-848,

JUDGEMENT ON COMPROMISE AGREEMENT CTA CASE NO. 8441 "WHEREFORE, the Motion for Reconsideration [of the Decision dated 8 May 2017] ftled by Maxicare Healthcare Corporation is GRANTED. Accordingly, the May 8, 2017 Decision of the Court En Bam; and the April21, 2014 Decision and May 5, 2015 Amended Decision of the Court in Division are SET ASIDE. The case is REMANDED to the Court in Division for further proceedings. SO ORDERED." After the Court En Bane denied its Motion for Clarification [Re Amended Decision dated 12 December 2017],5 petitioner consequendy flled a Petition for Certiorari with the Supreme Court seeking to reverse the May 8, 2017 Decision, the December 12, 2017 Amended Decision and the July 16, 2018 Resolution of the Court En Banc.6 On March 13, 2019, the Supreme Court issued a Resolution dismissing the Petition for Certiorari in "G.R. No. 241855-56 (Maxicare Healthcare C01poration vs. Court of Tax Appeals and Commissioner of Internal Revenue) xxx for failure to sufficiendy show that the questioned judgment is tainted with grave abuse of discretion". 7 On July 15,2019, the Supreme Court issued another Resolution detrying petitioner's Motion for Reconsideration with finality and ordered the issuance of an Entry of Final Judgement.8 On April 28, 2021, the parties entered into a Judicial Compromise Agreement for the purpose of amicably setding and ending the case.9 On May 17, 2021, the parties Hled their Joint Omnibus Motion [For Approval of Judicial Compromise Agreement and Dismissal of the Case] and informed the Court about the agreement. In support of the motion, the parties submitted the following documents: 1. Original copy of the Judicial Compromise Agreement signed by petitioner's President and Chief Executive Officer, Christian S. Argos 5 July 16, 2018 Resolution, Docket (CTA EB NO. 1312), Vol. II, pp. 901-913. 6 Docket (CTA EB NO. 1312), Vol. III, pp. 914-959. 7 Notice dated April 24, 2019, Docket (CTA EB NO. 1312), Volume III. 8 Notice dated August 7, 2019, Id 9 Annex A, Joint Omnibus Motion [For Approval of Judicial Compromise Agreement and Dismissal of the Case] filed on May 17, 2021, Division Docket, Vol. 2.

JUDGEMENT ON COMPROMISE AGREEMENT CTA CASE NO. 8441 and by respondent Commissioner of Internal Revenue (CIR), Caesar R. Dulay;10 2. Original copy of the Secretary's Certificate authorizing petitioner's President and Chief Executive Officer, Mr. Christian S. Argos, to enter into a compromise agreement;11 and, 3. Original printout of Payment Form (BIR Form No. 0605) representing the payment of the compromise amount of Php75,240,426.6612 for the basic deficiency Value-Added Tax of Php188,101,066.6513 for calendar year 2008 and EFPS Payment Confirmation with Filing Reference No. 292100041271487. 14 Specifically, the Judicial Compromise Agreement provides in pertinent parts: "WHEREAS, the BIR issued to the TAXPAYER a Formal Letter of Demand ("FLD") dated 17 May 2011 for the year 2008, which was received by the TAXPAYER on 18 MAY 2011, assessing the TAXPAYER basic deficiency value-added tax amounting to One Hundred Eighty-Eight Million One Hundred Thousand One Thousand Sixty-Six Pesos & 65/100 (PhP188, 101 ,066.65); WHEREAS, the TAXPYER then ftled with the BIR its Protest dated 17 June 2011 disputing the FLD dated 17 May 2011; WHEREAS, the BIR issued a FINAL DECISION ON DISPUTED ASSESSMENT ("FDDA") dated 27 March 2012, which denied the Protest ftled by the TAXPAYER; WHEREAS, the TAXPAYER instituted an action against the BIR entitled "Maxicare Healthcare Corporation vs. Commissioner of Intemal Revenue" docketed as CTA Case No. 8441, pending before the Honorable Third Division of the Court of Tax Appeals ("CTA"), seeking the reversal of the FDDA and cancellation of the FLD; WHEREAS, the TAXPAYER has submitted to the BIR a Proposal for Amicable Settlement dated 03 March 2021 for the alleged deficiency tax assessment contained in the FLD and FDDA; 1o Id II Id 12 Annex B, Joint Omnibus Motion [For Approval of Judicial Compromise Agreement and Dismissal of the case] filed on May 17, 2021, Id 13 Judicial Compromise Agreement notarized on April 22, 2021, First Whereas clause, p. 1., Annex A, Joint Omnibus Motion [For Approval of Judicial Compromise Agreement and Dismissal of the case] filed on May 17, 2021, Id 14 Annex B, Id.

JUDGEMENT ON COMPROMISE AGREEMENT CTA CASE NO. 8441 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 provisions of the Civil Code of the Philippines. jurisprudence relevant decisions of the Honorable CTA. and relevant laws on judicial 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 pw;pose 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; 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 Seventy-Five Million. Two Hundred Forty Thousand and Four Hundred and Twenty-Six & 66/100 Pesos (PhP75,240.426.66) ("Judicial Compromise Amount"]. 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 EB Case Nos. 8441. 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 affect 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. XXX XXX XXX 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 its President and Chief Executive Officer. Mr. Christian S. Argos 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. 8441. Upon approval by the Honorable CTA, the BIR recognizes the

JUDGEMENT ON COMPROMISE AGREEMENT ITA CASE NO. 8441 full satisfaction of the supposed tax liability of the TAXPAYER in connection with CTA Case No. 8441 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. 8441. XXX XXX XXX IN WITNESS WHEREF, the PARTIES hereto have mutually and voluntarily agreed to the foregoing stipulations and have hereunto signed these presents at the date and place indicated above. MAXICARE HEALTHCARE BUREAU OF INTERNAL CORPORATION REVENUE By: By: (signed) (signed) CHRISTIAN S. ARGOS CEASAR R. DULAY President and Chief Executive Commissioner Officer XXX XXX xxx" (Undersmring supplied) On July 8, 2021, the Court issued a Resolution requiring the parties to submit within fifteen (15) days from receipt, the original or certified true copy of the Certificate of Availment showing approval of the Compromise Agreement by the majority of the members of National Evaluation Board (NEB), and holding in abeyance the resolution of the Joint Omnibus Motion [For Approval ofJudicial Compromise Agreement and Dismissal of the Case]. On July 6, 2022, petitioner flied its Submission [Re: Original Copy of the Certificate of Availment] with Manifestation, stating the following: "XXX XXX XXX 3. xxx petitioner personally coordinated with respondent Commissioner of Internal Revenue (CIR) to request the issuance of the Certificate of Avaihnent. Acting on petitioner's request, respondent CIR processed the issuance of the Certificate of Availment and undertook to furnish petitioner with the same once available. 4. On July 1, 2022, counsel for respondent CIR gave petitioner's counsel the original copy of the Certificate of Availment. 5. Petitioner respectfully apologizes to the Honorable Court for the delay in the submission of the Certificate of Avaihnent which was issued only on June 29,2022. 6. In compliance with the Honorable Court's directive, petitioner is submitting herewith the attached original ropy of the Certificate of Availment as Annex "A'~

JUDGEMENT ON COMPROMISE AGREEMENT CTA CASE NO. 8441 XXX XXX XXX. " The Court resolves below. Section 204 of the National Internal Revenue Code (NIRC), as amended, expressly gives the CIR authority to compromise, abate and refund or credit taxes: "SEC. 204. Authority ofthe Commissioner to Compromise, Abate and Refund or Crrdit Taxes. - The Commissioner may - (A) Compromise the payment of any internal revenue tax, when: (1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or (2) The fmancial 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 fmancial incapacity, a minunum compromise rate equivalent to ten percent (1 0%) 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 (1'1 000.000) 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." (Undmcoring supplied) In this case, the Court notes that the judicial compromise amount exceeds the threshold set by Section 204(A) of the NIRC, as amended, because the Php75,240,426.66 paid by the taxpayer is jorry-seven percent (41%) of Php160,058,740.44 representing petitioner's basic deficiency Value-Added TaxY Furthermore, the original copy of the Certificate of Availment dated June 29, 2022 states that the application for compromise settlement of the deficiency Value-Added Taxes "under Assessment No./s: FDDA dated March 27, 2012 covering taxable year/period 2008 has/have been approved by the National Evaluation Board (NEB)." A compromise agreement is a contract whereby the parties make reciprocal concessions in order to resolve their differences and, thus, avoid or 15 April 21, 2014 Decision, (CTA EB NO. 1312), Volume I, p. 70.

JUDGEMENT ON COMPROMISE AGREEMENT CTA CASE NO. 8441 put an end to a lawsuit. They adjust their difficulties in the manner they have agreed upon, disregarding the possible gain in litigation and keeping in mind that such gain is balanced by the danger of losing. It must not be contrary to law, morals, good customs and public policy, and must have been freely and intelligendy executed by and between the parties. A compromise agreement may be executed in and out of court. Once a compromise agreement is given judicial approval, however, it becomes more than a contract binding upon the parties. Having been sanctioned by the court, it is entered as a determination of a controversy and has the force and effect of a judgment.16 Recendy, in Kepco Philippines Corporation v. Commissioner ofInternal Revenue,17 a tax assessment case where the Office of Solicitor General opposed the taxpayer's Motion to Render Judgment on the Case Based on the Parties' Compromise Setdement under Section 204(A) of the National Internal Revenue Code, the Supreme Court recognized and upheld the CIR's power and authority to enter into compromise agreements, which is pure!J discretionary and cannot be questioned absentgrave abuse ofdiscretion, thus: "The OSG avers that the compromise agreement is not valid because first, it failed to allege and prove any of the grounds for a valid compromise under Section 3 of Revenue Regulations (RR) No. 30-2002; second, the CTA did not yet issue any adverse Decision against Kepco, hence, there is no 'doubtful validity' to speak of as a ground for a valid compromise pursuant to Section 2 of RR No. 8-2004; and third, Kepco did not pay in full the compromise amount upon filing of the application in violation of Section 2 of RR No. 9-2013. The OSG posits that the CIR improperly arrogated unto himself the power of the NEB to decide on the offer of compromise when the CIR accepted Kepco's additional payment of P16,661,759.20 before the NEB could approve or reject Kepco's original application. XXX XXX XXX Ruling There is no dispute that Kepco entered into a compromise agreement with the CIR on its deficiency taxes for TY 2006, and the CIR issued Certificate of Availment on December 11, 2017. On this basis, the deficiency tax assessment subject of the Petition can now be considered closed and terminated. However, the OSG opposed the motion and questioned the validity of the compromise alleging irregularity in the procedure that led to its approval. We grant the motion and rule in favor of the compromise. The power of the CIR to enter into compromise agreements for deficiency taxes is explicit in Section 204 (A) of the 1997 N ationa! Internal Revenue Code. as amended (1997 NIRC). The CIR may compromise an assessment when a reasonable doubt as to the validicy of the claim against the 16 David M. David v. Federico M. Paragas, Jr., G.R. No. 176973, February 25, 2015. 17 G.R. No. 225750-51, July 28, 2020.

JUDGEMENT ON COMPROMISE AGREEMENT CTA CASE NO. 8441 taxpayer exists. or the fmancial position of the taxpayer demonstrates a clear inability to pay the tax. XXX XXX XXX As to whether the CIR properly accepted Kepco's offer for a compromise because 'the assessment is lacking in legal and/ or factual basis,' the general rule is that the authority of the CIR to compromise is purely discretionacy and the courts cannot interfere with his exercise of discretionacy functions. absent grave abuse of discretion. Here, no grave abuse of discretion exists. Kepco complied with the procedures prescribed under the BIR rules on the application and approval of compromise settlement on the ground of doubtful validity." (Underscoring supplied) Finding the subject compromise agreement to be in order and in compliance with established laws, rules and regulations, taking into consideration the documents submitted by the parties in support thereof, the same is approved. WHEREFORE, in view of the foregoing, petitioner's Submission [Re: Original Copy of the Certificate of Availment] is NOTED. The parties' Joint Omnibus Motion [For Approval of Judicial Compromise Agreement and Dismissal of the Case] is GRANTED. Finally, the Judicial Compromise Agreement is APPROVED and judgment is hereby rendered in accordance therewith. Accordingly, the proceedings 1n the instant case are considered CLOSED and TERMINATED. SO ORDERED. ~- ~- \._ MA. BELEN M. RINGPIS-LIBAN Associate Justice Justice

JUDGEMENT ON COMPROMISE AGREEMENT CTA CASE NO. 8441 ATTESTATION I attest that the conclusions in the above Judgment on Compromise Agreement were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. ~. ~ _,.,(.__ MA. BELEN M. RINGPIS-LIBAN Associate Justice Chairperson CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Judgment on Compromise Agreement were reached in consultation before the case was assigned to the writer of the opinion of the Court. Presiding Justice