COMMISSIONER OF INTERNAL REVENUE v. MCC TRANSPORT SINGAPORE PTE., LTD.

R EPUBLIC OF TH E PH ILIPPI NES Court of Tax Appeals QUEZ()N C ITY En Bane C OMM I SSIONF:R O F INT E R NAL CTA EB NO. 1961 REVENUE, (C711 Case No. 9045) Petitioner, ' P rese n t: DEL ROSARIO, P.J., C AST ANE DA, .JR., UY, -versus- FA BO N-VICTORI NO , R ING PlS-LIBAN, M AN J\ 1-J AN, BACORRO-V II.J L I4:NA, and MO DF:STO-SAN P F:DRO, JJ. MCC T RANSPORT SI NGAPORE Promulgated: PTE. LT D., 1 Respondent. J Ul ~20 X ----------------------------------------------------------------~ ~ ------e-<--..-.-[-:-1J'P__.:_"_""X ' D EC I S IO N M ODESTO-SA N PEDRO, J.: The Ca.�;� e Thi s is a P etition Co r R.eview 1 und er Section 3(b), Rule 82 ofthe R e vised Rules of the Co urt of Tax Appeals ("RRCTA ") /' seeki ng the reversa l and setting aside of the Decision promul gated on 18 May 2018 and the Reso lution dated 12 October 2018, both rende red b) the Spec ia l T h ird D ivis ion ("Court in Di vision"), and to rende r a new j udg ment o t�dering respondent to pay the deficie ncy Va lue-/\ddcd T ax (" V/\T" ) in the aggregate amo unt of 1 See Petition for Re\ ic'' ~Rollo, pp. 5-47. with annc\c~. �'SECTION 3. Who 1/c~l' .lppeal: Period 1o File f'elllton Xli.X ll. \)I. \\\ (b) A party adverse!) affected b) a decision or resolution of a Di' ision of the Court on a motion for reconsidermi on or nc" trial ma) appeal to the C01 1rt b) ti l ing before it a peti tion for review with in fifteen days from receipt of a copy of the questioned decision or rc~olu t ion. Upon proper mot ion and the pa) ment of the full amount of the docket and other Ia" ful fcc~ and depo-;it f'l)r costs before the expirat ion of the reglementar} period herein lill.ed. the Court ma) grant an additionnl period not Cli.Ceecling fifteen days from the expiration of the ori ginal period "ithin "hich to tile the petition for review." A.M. No. 05-1 1-07-C' I /1., 22 November 2005. v

IJECISION CTA Ell NO 196l(lTA Ca~t: No. 9(J!I5) P25,772,734.83 for taxable year 2009 plus surcharge and delinquency and deficiency interests.'' The Parties Petitioner Commissioner of Internal Revenue ("CIR") is the duly appointed Commissioner of the Bureau of Internal Revenue ("BIR") who has the power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto or other matters arising under the National Internal Revenue Code (hereinafter referred to as the "Tax Code") or other laws or portions thereof administered by the BIR. He holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City.' Meanwhile, respondent MCC Transport Singapore Pte. Ltd., is a foreign corporation duly organized and existing under the laws or Singapore. It is engaged in international shipping of cargoes to and from the Philippines through its general shipping agent, Maersk 1-'ilipinas, Inc., with registered office address at c/o Maersk Filipinas, Inc., 9/F One E-Com Center, Harbor Drive corner Sunset Ave., Mall of Asia Complex, Pasay City.6 The Facts Respondent electronically filed its Quarterly VAT Returns for taxable year 2009 on the following dates: 1---------'P' e. r--iod C ov ere d 7 - --- -- ------~-~--~- . Date' "Fil.ed and- P- ai:.d--_8_ _--1 __1"_QLJ_ati~_l" ~0(l9 _ _ 27_;\_pril 2009 _____ 1------ 1n"Quarter 2009 _}I__Julx 2009 3rd Quarter 2009 21 October 2009 4'11 Quatier 2009 _ 22 January 2010 On 15 September 20 I0, respondent received Letter of Authority ("LOA") No. LOA-051-20 10-00000270, dated 13 September 2010, authorizing l3IR examiners to examine its books of account and other accounting records for all internal revenue taxes for the period I January 2009 to 31 December 2009.0 Thereafter, petitioner issued I>cttcr Notice No. 051-TRS-09-00-00024, dated 24 May 2011, with attached Details of Withholding Agents/Payors and Payees/Income Recipients Records. In the said Letter Notice, petitioner disclosed that per the BJI{'s computerized/third-party matching, it noted 4 See Prayer in the Petition for Review; Rollo, p. 15. 5 See The Facts in the Decision; Rollo, p. 21. 6 !d., pp. 20-21. 7 /d., p. 21. 8 Ibid. 9 Ibid. ~ '

DECISI0:-1 CTA EB NO 1961[CTA Case Nu. 90"1:1) Page 3 of12 certain discrepancies between respondent's sales/receipts in its VAT returns vis-a-vis the information provided by respondent's withholding agents for taxable year 2009. 10 In its Letter Reply, dated 4 August 20 I I, respondent explained that it had no transactions with the withholding agents identified by the BIR in the Letter Notice.'' Subsequently, respondent received the Preliminary Assessment Notice ("PAN"), dated 26 December 2013, with attached Details ofDiscrepancies on 27 December 2013. In the PAN, the 131R J(Jund respondent to have undeclared sales/receipts amounting to P83,886,643.55 and consequently found it liable for deficiency VAT in the amount of P23, 125,134.46, representing the basic tax, fifty percent (50%) surcharge, and deficiency interest for taxable year 2009. 12 Respondent filed its Protest to the I'AN on I 0 January 2014. 13 Thereafter, petitioner issued the Formal Assessment Notice ("FAN") with attached Details of Discrepancies and Assessment Notice No. VT- ELA4967/LA43131/LN024-09-14-095 on 21 January 2014, which was received by respondent on 22 January 2014. 11 On 20 February 2014, respondent filed a Letter, dated 17 February 2014, seeking reconsideration of the FAN.'" Petitioner replied through a Letter, dated 4 March 2014, which was received by respondent on 7 March 2014. In the Letter, petitioner advised respondent that its entire tax docket, together with its Letter, were forwarded to Revenue District Office ("ROO") No. 51-J>asay City for reconsideration. 16 On 31 March 2014, respondent received from the Officer-in-Charge ("OIC") Revenue District Officer of RDO No. 51-Pasay City a letter informing respondent that the case was reassigned to a new Revenue Officer and a new Group Supervisor and requesting the same to submit to the named Revenue Officer the documents in support of the protest to the FAN. 17 On 16 April 2015, respondent received the Final Decision on Disputed Assessment ("FDDA") with attached Detai Is of Discrepancies, both dated 15 April 2015, finding respondent liable for deJiciency VAT in the aggregate amount ofP25,772,734.83 for taxable year 2009 representing basic tax, 50% surcharge, and interest. 1H 10 Ibid. II /d., p. 22. 12 Ibid. " Ibid. 14 Ibid. 15 Ibid. 16 Ibid. 17 !hid. 18 /d., p. 23. ~

DECISION CTA EB NO. 1901lCTA Case No. 9045) Page4 of 12 Aggrieved, respondent tiled a Petition for Review before the Court in Division on 14 May 2015. 19 On 18 May 2018, the Court in Division promulgated the assailed Decision20 cancelling and withdrawing the FDDA, dated 15 April 2015, as follows: "WHEREFORE, premises considered. the Petition for Review is GRANTED. Accordingly. the Final Decision on Disputed Assessment dated April 15, 2015. assessing petitioner i(H� deficiency value-added tax, including surcharge and interest, in the aggregate amount of P25, 772,734.83 for the year ended December 3 I. 2009 is CANCELLED and WITIIDRAWN.'' In cancelling and withdrawing the FDD/\, the Court in Division ruled that the third-pm1y information to which the assessment is based was not verified by the BIR except for respondent's two (2) sales transactions totaling to P86,275.08. However, even if the said amount was veri tied, the Court in Division still cancelled the assessment, since the FAN was received by the respondent beyond the 3-year prescriptive period. Further, the Court in Division explained that the I0-year prescriptive period does not apply in this case since the petitioner failed to prove that the respondent tiled a fraudulent return with intent to evade taxes. Thereafter, on 7 June 2018, the petitioner tiled his Motion for Reeonsideration. 21 Meanwhile, respondent tiled its "Comment (to Respondent's Motion for Reconsideration dated 7 June 2018)" on 13 July 2018. 22 On 12 October 2018, the Court in Division issued the assailed Resolution23 denying petitioner's Motion for Reconsideration for lack of merit. The dispositive portion is hereby quoted, to wit: "WHEREFORE, premises considered, respondent's Motion for Reconsideration is DENIED for lack of merit.'' On 30 October 2018, petitioner li led a Motion for Extension of Time to File Petition for Review, 24 which was granted by the Court En Banc25 On 15 November 2018, petitioner tiled the instant Petition for Review. 26 However, he failed to attach a copy of Revenue Delegation Authority Order ("JU)/\0") Nos. 3-2006 and 02-2007 which show the 19 Ibid. 20 /d., p. 19-42. 21 See Resolution; Rollo. p. 44. 22 Ibid. 23 Rollo, pp. 44-47. 24 ld.. pp. 1-3. 25 See Minute Resolution; Rullo, p. 4. 26 Rollo, pp. 5-47, with annexes. ~

DECISION CTA 1:-'B NO 196l(CTA Cas.: No. 40�15) authority of Regional Director Glen A. Gcraldino to act and on behalf of petitioner. Hence, the Court En Bane. in a Resolution dated 14 December 2018, ordered petitioner to submit a copy of the said RDAOs.27 In compliance with the 14 December 2018 Resolution, the petitioner belatedly filed a Manifestation with Motion to Admit with the attached RDAOs on 15 January 2019.2x Thcrcal'tcr, the Couti l~n Bane issued a Resolution dated II February 2019, directing respondent to file its Comment within ten (I 0) days from receipt of the said Resolution. The Court l~n Bane also manifested in the same Resolution that it will decide on whether it will give due course to the instant Petition only after respondent's submission of its Comment or upon the expiration of the period given for filing 29 Respondent submitted its Comment (to Petitioner's Petition for Review dated 6 November 2018) on II March 2019 30 On 17 March 2019, the Court lc'n Bane relcrrcd the case for mediation pursuant to Section ll of the Interim Guidelines for Implementing Mediation in the Couti of Tax Appeals. 31 Subsequently, on 24 May 2019, the parties filed their No Agreement to Mediate, dated 23 May 2019, stating that they have decided not to have their case mediated by the Philippine Mediation Center Unit-Court of Tax Appcals. 32 Considering the decision of the patiics not to mediate, the Court En Bane issued a Resolution dated 18 June 2019 directing them to file their respective mcmoranda33 On 30 July 2019, the petitioner tiled a manifestation stating that he is adopting the arguments he raised in his Petition for Review as his Memorandum. 31 Meanwhile, the respondent tiled its Memorandum on 31 July 2019. 35 On 11 September 2019, the Court l~n /Jane promulgated a Resolution submitting the case for dccision. 36 lienee, this Decision. 27 !d.. pp. 50-51. " !d. pp. 52-61. 29 !d.. pp. 62-64. 30 !d. pp. 65-84. 31 ld, pp. 86-87. J1 !d.. pp. 88-92 11 !d. pp. 94-95. " ld, pp. 96-98. 15 /d., pp. I00-136. 1" !d.. pp. 139-1 <10. ~

DtCISION CTAEHNO l961(Cri\CaseNo 9(J.1)) The lssues37 WIIETIIER THE COURT IN DIVISION ERRED IN CANCELLING AND WITHDRAWING TilE fDDA DATED 15 APRIL 2015 ASSESSING RJ:SPONDENT FOR DEFICIENCY VAT INCLUDING SURCIIARGE AND INTERJ:ST, IN THE AGGREGArl: AMOUNT OF 1'25,772,734.83 FOR TAXABLI: YEAR 2009 DUE TO ALLEGED PRESCRIPTION AND I�OR PETITIONER'S FAILURE TO SECURE THE RI:QUIRFD CERTIFICATIONS OR CONFIRMATION FROM TilE TIIIRD PARTY SOURCES. Arguments of the Parties Petitioner's Arguments's Petitioner argues that although he did not secure the certifications or confirmations from the third-party ini(Jrmation sources to support the information it gathered from the computerized/third-party matching, the absence of such confirmation did not affect the validity ofthc assessment. lie insists that nowhere in Revenue Memorandum Order ("RMO'') No. 04-2003 or 46-2004 docs it state that the absence of said certi lications or confirmations renders the assessment void. Petitioner also alleges that since the lack of certifications or confirmations do not render the assessment void, his assessment finding respondent to have undeclared sales/receipts amounting to 1'83,886,643.55 should be sustained, and since his assessment exceeds 30% of respondent's declared sales/receipts in its VAT returns, the same should be considered as a false return which triggers the applicability or the ten (I 0) year prescriptive period. Respondent's Counter-Arguments19 Respondent alleges that the instant Petition for Review raises no new issue and should be denied outright. Respondent maintains that petitioner's arguments arc identical to the ones it raised in his Motion for Reconsideration which were already denied by the Court in Division in its assailed Resolution and Decision. Futiher, respondent insists that the assessment is void since petitioner failed to observe the necessary due process in the issuance of the assessment, 37 See Issues for Resolution in the Petition for Review: Rollo. pp. 9-10. 18 See Petition for Revievv; Rollo, pp. 5-47, with annexes. -'9 See Memorandum: Rollo, pp. 100-137. ~

DECISIO~ CTA EB NO l961(C I A Case Nn. 90t~~l in violation of Section 228 ofthe Tax Code which requires the assessment to be based on facts. Respondent explains that petitioner's assessment is based on unverified and inaccurate third party information which renders the assessment void. Finally, respondent argues that petitioner's allegation that it substantially underdcclared its sales/receipts is raise and is without factual basis. It insists that the applicable prescriptive period should only be three (3) years, and since the FAN was issued beyond the said three (3) year period, the assessment has already prescribed. The Ruling o{the Court The data gathered by the BIR from the third-party information source should be verified in order to rendet� the assessment valid. The contention of the petitioner that the validity of the assessment is not affected by the absence of the ccrti lications or confirmations from the third-party sources to validate the amounts obtained by the BIR from its computerized/third-party matching is wrong and without merit. The pertinent portions of RMO No. 04-2003 and 46-2004 state: ''Revenue Memorandum Order No. 4-200J Subject: Guidelines and Procedures on the Processing of Quatierly Summary Lists of Sales and Purchases and of the Imposition of Penalties Therefor as Provided under Revenue Regulations No. 8-2002 XXX XXX XXX I. Background The Bureau of Internal Revenue is reengineering its work processes in order to increase revenue collections and to pursue quality audit by making use of available internal and external information resources. In order to strengthen and enhance its assessment functions. the utilization of information technology has been identilled as an effective tool to improve tax administration through the development of the Reconciliation of Listings for Enforcement (RELIEF) System. The RELIEF System was created to support third party information program and voluntary assessment program of the Bureau through the cross-referencing of third party information from the taxpayers' Summary Lists of Sales and Purchases prescribed to be submitted on a quarterly basis pursuant to Revenue Regulations Nos. 7-95. as amended by RR 13-97, RR 7-99 and RR 8-2002. The RELIEf System shall cover all VAT taxpayers above threshold limits set by RR 8-2002 to submit Summary l.ists of Sales and Purchases in magnetic form based on a prescribed electronic format. The consolidation ~

DECISION CTA /:.,'8 NO 196l(CTA Case No_ 9045) and matching of information with other externally sourced data will detect undcrdeclaration of revcnucs/nvcrdcclaration of cost and expenses, thus resulting to greater tax potential." "Revenue Memorandum Order No. 46-04 SUBJECT : Additional Supplement and Guidelines in Handling Letter Notices with Discrepancies Arising from Data Matching Processes as det!ned in Revenue Memorandum Order (RMO) Nos. 34-2004 and 30- 2003, as amended by RMO Nos. 42-2003 and 24-2004, which remain Unserved, have been Served but are Without Response, or are Under Protest by Taxpayers XXX XXX XXX Ill. PROCEDURES XXX XXX XXX Action on Protested LNs due to TPI discrepancy The Revenue Officer assigned to handle the Letter Notice shall: I. Evaluate the merits of the taxpayer's Protest by: 1.1 Requiring the taxpayer to submit the necessary schedules and supporting documents to substantiate his claims. 1.2 Reconciling the Schedule of Sales/Local Purchases submitted by the taxpayer against the Details of Taxpayer's Customers/Suppliers' Records (DTCS) culled from the Quarterly Summary List of Sales/Purchases submitted by taxpayer's suppliers and customers, respectively. 1.3 Reconciling the Schedule of Importation submitted by the taxpayer against the Details of Importation with Return Information Matching (DIRIM) culled from data provided by the Bureau of Customs (BOC). 1.4 Checking for the propriety of the transactions reflected in the schedules submitted by the taxpayer by validating receipts, import entry declarations, etc.). 2. Require the taxpayer to execute a Sworn Statement (Annex A) attesting to the veracity of the schedules and authenticity of the documents presented/submitted. 3. Obtain Sworn Statements from Tl'l sources (Annexes "B" and "C")."'10 Although the said RMOs do not explicitly slate that the absence of the confirmation or cetiification renders the assessment void, the abovementioned provisions confirm that the BIR is required to verify the amounts it obtained from its computerized/third-patiy matching by securing confirmation or 40 Emphasis supplied. ~

DECISION CTA EB NO. l96l{CTA Ct~se No. 90,1:\l certification from the third-party inl(mnation source, or from externally sourced data. Without accomplishing the aforementioned, the data gathered from the computerized/third party matching arc left unverified, and the resulting assessment is void for lack of factual and legal basis. As ruled by the Supreme Court in Commissioner of Internal Revenue v. Hantex Trading Co., /nc. 41 an assessment, in order to stand judicial scrutiny, must be based on facts supported by credible evidence. The relevant portions of the said case are hereby quoted, as follows: "We agree with the contention of the petitioner that, as a general rule, tax assessments by tax examiners arc presumed correct and made in good faith. All presumptions are in favor of the correctness of a tax assessment. It is to be presumed. however. that such assessment was based on sufficient evidence. Upon the introduction of the assessment in evidence, a prima tacie case of liability on the part of the taxpayer is made. If a taxpayer files a petition for review in the CTA and assails the assessment, the prima tacie presumption is that the assessment made by the B!R is correct. and that in preparing the same. the BIR personnel regularly performed their duties. This rule for tax initiated suits is premised on several factors other than the normal evidentiary rule imposing proof obligation on the petitioner-taxpayer: the presumption of administrative regularity; the likelihood that the taxpayer will have access to the relevant information; and the desirability of bolstering the record-keeping requirements of the NIRC. However, the prima facie correctness of a tax assessment docs not apply upon proof that an assessment is utterly without foundation, meaning it is arbitrary and capricious. Where the Bl R has come out with a "naked assessment." i.e .. without any foundation character. the determination of the tax due is without rational basis. In such a situation, the U.S. Court of Appeals ruled that the determination of the Commissioner contained in a deficiency notice disappears. Hence, the determination by the CTA must rest on all the evidence introduced and its ultimate determination must find support in credible evidence. XXX XXX XXX Thus. the computations of the 1-:lll:l and the HIR on the quantity and costs of the importations of the respondent in the amount of Pl05,761 ,527.00 for 1987 have no factual basis, hence, arbitrary and capricious. The petitioner cannot rely on the presumption that she and the other employees of the BIR had regularly performed their duties. As the Court held in Collector of Internal Revenue v. Benipayo, in order to stand judicial scrutiny, the assessment must be based on facts. The presumption of the correctness of an assessment, being a mere presumption, cannot be made to rest on another presumption."'12 41 G.R. No. 136975.] I March 2005. 42 Emphasis supplied. w

l>t:CISION CTA CH NO l961(l'TA Casl.' Nn 90�1:") Page 10 of �12 Furthermore, the issue raised by the petitioner is not novel and has been resolved by this court in Commissioner ol Internal Revenue v. G& W Architects, Engineers and Project Consultants, Co.,'13 where it was ruled: "The assessment being based on unvcriticd information, this Court could not just recklessly take it hook, line and sinker. absent any substantiation. Petitioner likewise failed to show that he complied with the guidelines set forth in RMO No. 46-04, which requires the execution and presentation of sworn statements from third-party informants to attest to veracity of the schedules and data on which the assessment is based. There being no verification, the reliability of such information is questionable. Moreover, while there is a presumption of correctness of assessment issued hy !Petitioner], it i., an elementary rule that being a mere presumption, the same cannot be made to rest on another presumption which is ]Petitioner's] presumption that the under- declared purchases translated and would automatically result in profit, undeclared income or additional taxable sales which would in turn increase ]Respondent's] income tax and VAT liability." In this case, out of respondent's alleged undeclared sales/receipts assessment totaling to 1'83,886,643.55, the Court in Division, upon examination, ruled that petitioner was only able to verify two sales transactions made to Starfirc Co., Inc. and Transcontainer Philippines, Inc., with the aggregate amount of1'86,275.08. At this juncture, the Court can only consider these transactions as valid undeclared sales/receipts assessment oi'thc petitioner. Petitioner failed to establish that respondent's VAT returns were fraudulent, with intent to evade. As discussed above, the petitioner was only able to verify its undeclared sales/receipts assessment up to the amount of P86,275.08, which only represents 1.21 'Yo (P86,275.08/P7, I08,00 1.37) of the total declared sales of the respondent. Given this, the petitioner failed to prove that there is substantial under-declaration and or fhtud under Section 222 of the Tax Code. Hence, the three (3) year prescriptive period under Section 203 of the Tax Code must apply. Under Section 203 of the Tax Code, internal revenue taxes shall be assessed within three (3) years alter the last day prescribed by law for the filing of the return or when the return was li led, whichever is later. Hence, based on this provision, the petitioner had the following dates to assess the respondent, as follows: 41 CTA E.R No. 1571.21 Fcbruary201R ~

DECISION CTA EB NO. 196\(CTA Cas~! No. 9045) Page11 of12 - - Last Day to File as Required by Period Covered44 -----f--- __ ---f- Date Filed and Last Day to Assess Ist Quarter 2009 Paid45 ;ind-(l~-;;;:!er 2069 276!Jril2009 _____ 25 A!LJ!lj\_Wl_2009 _ _27~pril 2012 _ 21 July 2009 _ 25 July 2009 _ 25 July 2012 }"!Q~arter 2009 21 October 2009 - 25 October2009 - 25 October 2012 __fh _Qu_ar~er 2009 _ _1_2January?Ql 0 __ [_ _?__5_.T::tnuary_ 2_()_1__() __ [_____?_:;.January 20 l:J _ Considering that the FAN was only received by respondent on 22 January 2014, the same was clearly issued beyond the 3-year prescriptive period allowed by the Tax Code. Given the foregoing, we uphold the ruling of the Court in Division finding petitioner's deficiency VAT assessment for calendar year 2009 null and void. WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED for lack of merit. Accordingly, the Court in Division's Decision promulgated on 18 May 2018 and the Resolution dated 12 October 2018 are hereby AFFIRMED. SO ORDERED. MARIA WE CONCUR: ROMAN G. DEL ROSARIO Presiding Justice a.u,._~ c. a....;t-"~<.~.. ~ . fUANITO C. CASTANEDA, JR. Associate Justice EI~P.UY Associate Justice 44 See The Facts in the Decision; Rollo, p. 21. 45 Ibid. ~

DECISION CTA EB NO. JQ6l(lTA Ca~e Nu. 90-15) ~ ABON- VICTORINO Qui' ~ Ai. '---- MA. BELEN M. RINGPIS-LIBAN Associate Justiec ~~7-~ CATHERINE T. MANAUAN Associate .I ustiec " CI~RTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. Presiding Justice ~