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Paguio, Dumayas & Associates, CPAs Certified Public Accountants and Management Consultants
QUALITY ASSURANCE BULLETIN I August 2018 Edition 1
www.paguiodumayasassoc.com
Paguio, Dumayas & Associates, CPAs Certified Public Accountants and Management Consultants
QUALITY ASSURANCE BULLETIN I August 2018 Edition 2
RECENT BUREAU OF INTERNAL REVENUE ISSUANCES
1. REVENUE REGULATIONS NO. 18-2018 - Amending Specific Provisions of Revenue Regulations No.
8-2016 Particularly Certain Guidelines on the Processing of Applications for Tax Clearance for Bidding
Purposes
2. REVENUE REGULATIONS NO. 19-2018 - Amends Revenue Regulations (RR) No. 13-2018
Particularly on the Use of Invoices I Receipts of Previously Registered VAT Taxpayers who are now
Non-VAT Taxpayers Pursuant to Section 84 of Republic Act (RA) No. 10963, or the "Tax Reform for
Acceleration and Inclusion (TRAIN Law)"
TAX ADVISORIES
1. Tax Clearance Advisory 1
2. Tax Clearance Advisory 1
3. Tax Advisory regarding eFPS
RECENT COURT OF TAX APPEALS CASES
1. SONOMA SERVICES, INC. VS. COMMISSIONER OF INTERNAL REVENUE
2. ORIENT OVERSEAS CONTAINER LINE LTD. Represented by OOCL (Philippines), Inc. VS.
COMMISSIONER OF INTERNAL REVENUE
3. ERWIN CASACLANG VS. COMMISSIONER OF INTERNAL REVENUE
4. MIFFI LOGISTICS CO., INC. VS. COMMISSIONER OF INTERNAL REVENUE
5. UPSI PROPERTY HOLDINGS, INC. VS. COMMISSIONER OF INTERNAL REVENUE
6. PROCESS MACHINERY CO., INC. VS. COMMISSIONER OF INTERNAL REVENUE
7. MEGABUCKS MERCHANDISING CORP.VS. COMMISSIONER OF INTERNAL REVENUE
SECURITIES AND EXCHANGE COMMISSION ISSUANCE
1. OFFICE OF THE GENERAL COUNSEL: SEC OGC-Opinion 18-15
Re: Cold storage, cold logistics and distribution as Public Utility; Ownership of a Land.
OTHER RELEVANT ISSUANCES
1. Davao Regional Trial Court Ruled In Favor Of Group of CPAs That Their Accreditation Required By
The SEC Is Not Allowed Under The Law. (Source: Philippine Daily Inquirer 24 Aug 2018-DAXIM L.
LUCAS—DORIS DUMLAO ABADILLA—)
TABLE OF CONTENTS
Paguio, Dumayas & Associates, CPAs Certified Public Accountants and Management Consultants
QUALITY ASSURANCE BULLETIN I August 2018 Edition 3
REVENUE REGULATIONS NO. 18-2018
Amending Specific Provisions of Revenue
Regulations No. 8-2016 Particularly Certain
Guidelines on the Processing of Applications for
Tax Clearance for Bidding Purposes
Pursuant to Sections 7(a) and 244 of the
National Internal Revenue Code of 1997, as
amended, these regulations are hereby
promulgated for the purpose of amending certain
provisions of Revenue Regulations (RR) No.
8-2016, by changing certain guidelines and
policies in the processing and issuance of Tax
Clearance for bidding purposes.
This is in line with the Bureau's objective
of extending utmost and unequivocal service to
its stakeholders pursuant to its commitment to
the mechanisms of "Ease of Doing Business" in
this country to enable the taxpayers cope with the
ever changing dynamics and demands of the
business community for the benefit of the Bureau
and the taxpayers.
SEC. 2. AMENDMENT. - Items 4.4.1 and
4.4.2 (c) of RR No. 8-2016 shall be amended to
read, respectively, as follows:
"4.4.1 All applications for the issuance of
Tax Clearance in accordance with the
requirements under RA No. 9184 and EO No.
398 shall be manually filed with the Collection
Division of the Revenue Regional Office where
the taxpayer or partnership/corporation is
currently and duly registered or with the
concerned office under the Large Taxpayers
service if the taxpayer is classified as Large
taxpayer, until such time that an on-line
application for this purpose has been made
available for use of prospective bidders."
c. For those with previously issued Tax Clearance
for bidding purposes. the requested Tax
Clearance shall only be issued if they are found
to be regular eFPS users from the time of
enrollment up to the time of filing of application.
The regular usage of eFPS shall not apply to new
applicants. The submission of the new applicant's
latest income tax and business tax returns not
filed and paid through the Bureau's eFPS shall
suffice. " ··
REVENUE REGULATIONS NO. 19-2018
Amends Revenue Regulations (RR) No. 13-2018
Particularly on the Use of Invoices I Receipts of
Previously Registered VAT Taxpayers who are
now Non-VAT Taxpayers Pursuant to Section 84
of Republic Act (RA) No. 10963, or the "Tax
Reform for Acceleration and Inclusion (TRAIN
Law)"
Pursuant to the provisions of Sections
244 and 245 of the National Internal Revenue
Code of 1997 (Tax Code), as amended, these
Regulations are hereby promulgated to amend
the transitory provisions of RR No. 13-2018 on
the use of invoices/receipts which were stamped
"Non-VAT registered as of (date of filing an
application for update of registration). Not valid
for claim of input tax."
AMENDMENT. - Section 13 of RR No. 13
-201 8 is hereby amended by providing deadline
on the use of stamped Non-VAT invoices/
receipts to read as follows:
"SECTION 13. TRANSITORY PROVISIONS.
A number of unused invoices/receipts, as
determined by the taxpayer with the approval of
the appropriate BIR Office, may be allowed for
use, provided the phrase "Non-VAT registered
as of (date of filing an application for update
of registration). Not valid for claim of input tax.''
shall be stamped on the face of each and every
copy thereof, until new registered non-VAT
invoices or receipts have been printed and
received by the taxpayer or until August 31,
2018, whichever comes first. Upon receipt of
newly-printed registered non-VAT invoices or
receipts, the taxpayer shall submit, on the same
day, a new inventory list of, and surrender for
cancellation, all unused previously-stamped
invoices/receipts."
Paguio, Dumayas & Associates, CPAs Certified Public Accountants and Management Consultants
QUALITY ASSURANCE BULLETIN I August 2018 Edition 4
TAX CLEARANCE ADVISORY
1
In compliance with Revenue Regulations
(RR) No.18-2018, dated June 5, 2018 amending
certain provisions of RR No. 8-2016, all
applications for the issuance of Tax Clearance for
Bidding Purposes in accordance with the
requirements under Republic Act No. 9184 and
Executive Order No. 398 shall be manually filed
with the Collection Division of the Revenue
Regional Office where the taxpayer or
partnership/corporation is currently and duly
registered or with the concerned office under the
Large Taxpayers Service if the taxpayer is
classified as Large Taxpayer, until such time that
an on-line application for this purpose has been
made available for use of prospective bidders.
This is in line with the Bureau's objective
of extending utmost and unequivocal service to its
stakeholders pursuant to its commitment to the
mechanisms of "Ease of Doing Business" in this
country to enable the taxpayers cope with the
ever changing dynamics and demands of the
business community for the benefit of the Bureau
and the taxpayers.
Considering that RR 18-2018 was
published in the Manila Bulletin on August 6,
2018, its implementation shall take effect on
August 22, 2018 pursuant to Section 4 of RR
18-2018.
In this regard, all concerned taxpayers are
hereby advised to visit the BIR website
www.bir.gov.ph for more information regarding
this Tax Clearance Advisory.
TAX CLEARANCE ADVISORY
2
To ensure smooth transition in the
implementation of the decentralization of the
processing of application for Tax Clearance for
Bidding Purposes pursuant to Revenue
Regulations No. 18-2018 the Accounts
Receivable Monitoring Division may still accept
and process the applications for tax clearance
for bidding purposes of those who had already
secured the Tax Compliance Verification
Certificate and Delinquency Verification
Certificate from the concerned offices until their
expiry dates. However, the concerned Revenue
Offices are authorized to receive applications for
renewals and for new applicants.
TAX ADVISORY
BIR Form Nos. 0619-E and 0619-F are
not yet available in Electronic Filing and
Payment System (eFPS) and in order for the
eFPS taxpayers to remit the withholding taxes
for the first two (2) months of the calendar
quarter, they shall use BIR Form No.0605 per
BIR Tax Advisory dated January 31, 2018.
However, there have been numerous
inquiries from the eFPS taxpayers regarding
what form to use if there is no remittance for the
month since BIR Form No. 0605 can only be
used if there is payment. In view of this, eFPS
taxpayers are hereby advised not to file BIR
Form No. 0605 if there is no remittance to be
made and no penalties shall be imposed for this.
Once BIR Form Nos. 0619-E and 0619-F are
already available in the eFPS, then they are
required to file the applicable form with or
without remittance to be made.
Paguio, Dumayas & Associates, CPAs Certified Public Accountants and Management Consultants
QUALITY ASSURANCE BULLETIN I August 2018 Edition 5
SONOMA SERVICES, INC. VS.
COMMISSIONER OF INTERNAL REVENUE CTA Case No. 9249
This is a petition for review filed by Sonama
Services Inc. to seek the refund or issuance of tax
credit certificate allegedly representing its excess
and unutilized creditable withholding tax (CWT).
Petitioner filed its Annual Income Tax
Return (AITR) through Electronic Filing and
Payments System (eFPS). It indicated therein its
choice to claim the refund. Consequently, petitioner
did not carry over its excess and unutilized CWT to
the succeeding taxable year. However, respondent
has been inactive on its administrative claim for
refund.
Petitioner anchors its claim on Sections 58
(D) and 76 of the National Internal Revenue Code
(NIRC) of 1997, as amended, which provide:
“SEC. 58(D) Income of Recipient - Income
upon which any creditable tax is required to be
withheld under Section 57 shall be included in the
return of its recipient but the excess of the amount
of tax so withheld over the tax due on his return
shall be refunded to him subject to the provisions
of Section 204;”
“SEC. 76. Final Adjustment Return - Every
corporation liable to tax under Section 27 shall file
a final adjustment return covering the total taxable
income for the preceding calendar or fiscal year. If
the sum of the quarterly tax payments made during
the said taxable year is not equal to the total tax
due on the entire taxable income of that year, the
corporation shall either: (A) Pay the balance of tax
still due; or (B) Carry over the excess credit; or (C)
Be credited or refunded with the excess amount
paid, as the case may be.”
However, in addition to the requisites
provided under Section 76, the claim for refund
must be filed within the two-year prescriptive
period as provided under Sections 204(C) and
229 of the Tax Code, as amended.
In the present case, both the administrative and the judicial claims were filed within the two-year prescriptive period. And petitioner complied with all other requisites. In sum, petitioner has sufficiently proven its entitlement to a cash refund. WHEREFORE, the present Petition for Review is GRANTED. Accordingly, respondent is hereby ORDERED TO REFUND OR TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner, representing its excess and unutilized CWT.
ORIENT OVERSEAS CONTAINER LINE LTD. Represented by OOCL (Philippines), Inc.
VS. COMMISSIONER OF INTERNAL REVENUE
CTA Case No.9179
This involve the Petition for Review and the Supplement thereof, filed by petitioner Orient Overseas Container Line Ltd., as represented by OOCL (Philippines), Inc. Petitioner prays for the nullification and cancellation of respondent Commissioner of Internal Revenue's Final Decision on Disputed Assessment (FDDA) imposing deficiency Income Tax, Percentage Tax, Expanded Withholding Tax, and Compromise Penalties. After careful evaluation of the case records, more particularly the evidence duly presented by the parties, the Court finds the deficiency tax assessments issued by respondent against the petitioner to be intrinsically void. The invalidity of such deficiency tax assessments springs from the absence of authority on the part of the revenue officers who conducted the examination of petitioner's books of accounts and other accounting records. “1997 NIRC SEC. 13. Authority of a Revenue Officer. -Subject to the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner, a Revenue Officer assigned to perform assessment functions in any district may, pursuant to a Letter of Authority issued by the Revenue Regional Director, examine taxpayers within the jurisdiction of the district in order to collect the correct amount of tax, or to recommend the assessment of any deficiency tax due in the same manner that the said acts could have been performed by the Revenue Regional Director himself.”
Paguio, Dumayas & Associates, CPAs Certified Public Accountants and Management Consultants
QUALITY ASSURANCE BULLETIN I August 2018 Edition 6
In relation to the foregoing provisions,
Revenue Memorandum Order (RMO) No. 43-90
issued by the CIR identifies those officials who
are authorized to issue and sign Letter of
Authority (LOA).
“(D)(4) For the proper monitoring and
coordination of the issuance of LOA, the only BIR
officials authorized to issue and sign LOA are the
Regional Directors, the Deputy Commissioners
and the Commissioner. For the exigencies of the
service, other officials may be authorized to issue
and sign LOA but only upon prior authorization by
the Commissioner himself.”
In the present case, the revenue officers
named under LOA were different from those who
actually examined petitioner's books of accounts
and other accounting records.
In the case of Commissioner of Internal
Revenue v. Sony Philippines, Inc., the Supreme
Court held that absent of any prior authority on
the part of the revenue officers who conducted
the audit/examination of taxpayer's books of
accounts and other accounting records, the
deficiency tax assessment arising therefrom is
a nullity.
WHEREFORE, the present Petition for
Review is GRANTED. Accordingly, the deficiency
income tax, percentage tax, expanded withholding
tax, and compromise penalties as found in
respondent's Final Decision on Disputed
Assessment are CANCELLED and SET ASIDE.
ERWIN CASACLANG
VS.
COMMISSIONER OF INTERNAL REVENUE
CTA Case No. 9091
The case involves a Petition for Review
filed by Erwin Casaclang, praying for the refund of
his alleged erroneously paid and illegally
collected income tax for calendar year 2012.
Petitioner Erwin Casaclang an employee
of the Asian Development Bank ("ADB").
Petitioner anchors his claim that he is
exempted from income tax on the provisions of
Revenue Memorandum Order No. 31-2013 which
provides those employed by organizations
covered by separate international agreements or
specific provision of law.
Section 45(b), Article XII of the agreement
between ADB and the Government of the
Republic of the Philippines regarding the
headquarters of the ADB provides:
“Officers and staff of the Bank, including
for the purposes of this Article experts and
consultants performing missions for the Bank,
shall enjoy the following privileges and
immunities…(b) Exemption from taxation on or in
respect of the salaries and emoluments paid by
the Bank subject to the power of the Government
to tax its nationals…From the above, only officers
and staff of the ADB who are not Philippine
nationals shall be exempt from Philippine
income tax.”
The claim of the Petitioner that he is
exempt from the payment of income tax has no
legal basis. Under the above-cited revenue
issuance, it is clear that the exemption is still
subject to the power of the Government to tax its
nationals, including the herein Petitioner.
Sections 23(A) and 24(A)(1)(a) of the
NIRC of 1997, as amended, leave no room for
doubt that resident citizens are subject to tax on
income derived from all sources within and
without the Philippines, to wit:
“SEC. 23. General Principles of Income Taxation
in the Philippines. -Except when otherwise
provided in this Code: (a) Citizen of the
Philippines residing therein is taxable on all
income derived from sources within and without
the Philippines.”
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“SEC. 24. Income Tax Rates.- (A)(1)(a) On
the taxable income defined in Section 31 of this
Code, other than income subject to tax under
Subsections (B), (C) and (D) of this Section,
derived for each taxable year from all sources
within and without the Philippines by every
individual citizen of the Philippines residing
therein;”
With the Philippines' reservation in the ADB
Charter to the effect that it maintains the right to
subject to income tax the compensation of resident
citizens employed by the ADB, the rule then is that
resident citizens employed by foreign governments
and/or international organizations, such as ADB,
are subject to the graduated income tax rates
under Section 24(A) of the NIRC of 1997, as
amended.
However, considering RMC No 31-13 was
issued in calendar year 2013, the same should be
made to apply prospectively in the interest of
justice and equity. Hence, compensation income of
resident citizens employed by foreign governments
and/or international organizations shall only be
subject to income tax beginning calendar year
2013.
WHEREFORE, premises considered, the
instant Petition for Review is GRANTED.
Respondent Commissioner of Internal Revenue is
hereby ORDERED to refund in favor of Petitioner
Erwin Casaclang representing his erroneously and
illegally collected income tax on compensation
income from the Asian Development Bank for
calendar year 2012.
MIFFI LOGISTICS CO., INC.
VS.
COMMISSIONER OF INTERNAL REVENUE
CTA Case No. 9122
This involves a Petition for Review filed
on August 20, 2015 by MIFFI Logistics, Co., Inc.
as petitioner, against the Commissioner of
Internal Revenue, as respondent, before the
Court in Division.
Petitioner seeks the quashal of the
Warrant of Distraint and/or Levy issued by
respondent and the cancellation and withdrawal
of the deficiency income tax and compromise
penalty for fiscal year (FY) 2006.
The issues presented by both parties to
the court involve but not limited to the following:
(1) prescription of the respondent’s right to
assess deficiency; (2) nullity of the respondent’s
assessment; (3) accounts not subjected to
income tax and withholding taxes; and (4)
validity of the Warrant of Distraint and/or Levy.
To discuss further, petitioner challenges
the respondent’s right to assess its alleged
income tax liabilities due to prescription citing
Section 203 of the 1997 National Internal
Revenue Code (1997 NIRC) which provides for
a three (3) year prescriptive period to assess.
Petitioner further asserts that there are no
allegations of fraud or falsity on the ITR that
would justify the application of ten (10)-year
prescriptive period to assess deficiency income
taxes.
Moreover, Petitioner insists that the
assessment is null and void as it violates its right
to due process. The income tax assessment did
not contain the law and the facts on which the
assessment is made as mandated by Section
228 of the 1997 NIRC, the FAN was prepared
even before the period allowed by law to
respond to the PAN has not yet prescribed, and
the audit investigation was conducted with an
invalid Letter of Authority (LOA).
Respondent belittles the reliance of
petitioner on the case of Philippine Journalists,
Inc. us. Commissioner of Internal Revenue
because the phrase "other matters...
Continuation...
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QUALITY ASSURANCE BULLETIN I August 2018 Edition 8
...(mentioned in Republic Act (RA) 1125, as
amended by RA 9282) which was ruled upon by
the Supreme Court, refers to challenging the
collection procedure itself "post-assessment".
Respondent maintains that the collection procedure
may be challenged before the Court but the
assessment remains valid and final.
The court responds citing Section 228 of
the 1997 NIRC which provides that the taxpayer
shall be informed in writing of the law and the facts
on which the assessment is made. Otherwise, the
assessment is void. Moreover, the pleadings filed
by respondent in Court do not even contain any
allegations of fraud nor of any other circumstance
that would justify the application of the exceptional
period of ten (10) years to assess the income tax
liabilities of petitioner. Therefore, the three-year
period to assess the income tax liabilities applies
and thus, the FAN issued falls outside the
prescriptive period making such assessment void
and without any effect.
Having concluded that the subject income
tax assessment for is void together with the WDL,
this Court finds that the discussion on the other
issues becomes unnecessary.
WHEREFORE, the instant Petition for
Review filed by MIFFI Logistics Co., Inc. is hereby
GRANTED.
Accordingly, the FAN/FLD issued by
respondent for alleged deficiency income taxes for
FY 2006 as well as the WDL issued against
petitioner as a result thereof are hereby
CANCELLED and SET ASIDE.
UPSI PROPERTY HOLDINGS, INC.
VS.
COMMISSIONER OF INTERNAL REVENUE
CTA Case No. 8860
A Petition for Review was filed by UPSI
Property Holdings, Inc. against the Commissioner
of Internal Revenue, as respondent, before the
Court in Division.
Petitioner seeks for the cancellation and
withdrawal of the deficiency income tax and
fringe benefit tax (FBT) assessment issued
against it.
The issue on this case is the jurisdiction
of the Court of Tax Appeals to entertain the
Instant Petition for Review.
Petitioner affirms the jurisdiction of the
Court over the petition because it is an appeal
from the Final Decision on Disputed Assessment
(FDDA) issued by the Respondent on its protest.
With the FDDA as a reference, petitioner asserts
that the Petition for Review was timely filed
because it was lodged with the court thirty (30)
days from its receipt of the said FDDA.
On the substantive aspect of the tax
assessments, petitioner challenges the factual
and legal bases of the FBT, which according to
the respondent were erroneously treated by
petitioner as representation expenses but the
receipts showed that they were issued in the
name of one of its employees, thus the requisites
under RMO No. 10-20 for the deductibility of the
following are not met.
In respondent’s view that the Court has
no jurisdiction over the subject matter of this
Petition is because the FLD/FANs issued to
petitioner have become final, executory and
demandable due to its failure to file a timely
protest, thus there was no “disputed assessment”
that can be appealed to the Court.
It must be noted that, under Section 228:
Protesting of Assessment “ …such
assessment may be protested administratively by
filing a request for reconsideration or
reinvestigation within thirty (30) days from receipt
of the assessment in such form and manner…”
Continuation...
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– which the Petitioner failed to comply since the
protest for FAN was filed beyond the prescribed
period.
Meanwhile Section 3.1.5- Disputed
Assessment- “The taxpayer or his duly authorized
representative may protest administratively against
the aforesaid formal letter of demand and
assessment notice within thirty (30) days from the
receipt thereof.
xxx xxx xxx
If the taxpayer fails to file a valid protest
against the formal letter of demand and
assessment notice within thirty days (30) from the
receipt thereof, the assessment shall become final,
executory and demandable.”
It is important to stress the well-entrenched
rule that the Court of Tax Appeals is a court of
special jurisdiction and it can take cognizance only
of such matters that are clearly within its
jurisdiction.
Section 7(1) of RA 9282 provides that:
“Decisions of the Commissioner of Internal
Revenue in Cases involving disputed assessments,
refunds of internal revenue taxes, fees or other
charges, penalties in relation thereto, or other
matters arising under the NIRC or other laws
administered by the BIR.”
In the instant case, there is no disputed
assessment appealable to this Court because the
FLD/FANs have already attained finality long
before the FDDA was issued by the respondent.
Furthermore, the FDDA did not superseded
the FAN because it was issued after the FAN has
already become final and executory.
The FDDA is not equivalent to a FAN to
have the effect of superseding the latter. An FDDA
is a decision of the CIR on a disputed assessment
and clearly differs from the assessment itself.
Wherefore, in view of the foregoing, the
Petition for Review is hereby DENIED for lack of
jurisdiction.
PROCESS MACHINERY CO., INC.
VS.
COMMISSIONER OF INTERNAL REVENUE
CTA Case No. 9217
A petition for review was filed by Process
Machinery Co. Inc. that seeking the reversal and
setting aside of the Final Decision on Disputed
Assessment (FDDA) for alleged Value-Added Tax
deficiency.
Based on the Joint Stipulation of Facts
and Issues (JSFI), the BIR held PMCI liable for
alleged undeclared sales based on the issued
official receipts. Which, upon respondent’s
verification it was disclosed that petitioner issued
official receipts to cover transactions wherein,
respondent believes that the issued VATable
documents should be subject to VAT under
Section 108 of the NIRC, as amended.
Petitioner, insists that these alleged
undeclared sales had, in fact, been fully declared
in the VAT returns and for which the correct taxes
were paid. Further, in affirming the validity of the
examiner’s assessment in the FDDA, respondent
required the petitioner to declare the very same
transactions twice: first in the VAT sales invoice
and then in the VAT official receipts and, in effect,
compel it to pay VAT on the same transactions
twice.
It must be noted that Section 113(A) of the
NIRC, as amended prescribes the use or
issuance of VAT invoices and receipts. It reads
that for every sale of goods, a VAT invoice should
be issued and for every sale of service, a VAT
official receipt should be issued.
In essence, PMCI is engaged in the sale
of goods, hence, respondent’s basis for the
assessment should properly be the VAT invoices
issued by the taxpayer and not it’s VAT Official
Receipts.
Petitioner’s accountant explained
procedure followed by PMCI for the issuance of
both VAT invoices and official receipts covering
the same transactions. The pertinent portion of
the Amended Judicial Affidavit reads:
Continuation...
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QUALITY ASSURANCE BULLETIN I August 2018 Edition 10
“Question: What is the relationship between the
official receipts issued by Process and the sales
invoice?
Answer: Maam, the official receipts are issued
when the sales invoice has been paid. The official
receipts indicates the sales invoice number. The
invoice and receipt refer to the same transaction.”
Nowhere in Section 113(D) does the law
allow the respondent to impose the 12% VAT on
the same transaction as a consequence to the
taxpayer who issues both VAT invoice and official
receipt to cover the same. Furthermore, the
provision is clearly inapplicable to PMCI since, as
shown by its VAT invoices, it is a VAT-registered
taxpayer and its sales of processing equipment are
not VAT-exempt.
To reiterate, the Court was able to
independently verify and is, thus, convinced that
PMCI’s alleged undeclared sales were
substantiated with VAT invoices and were correctly
reported in its VAT returns.
Accordingly, to allow this item of
assessment to prosper would be to sanction the
respondent in collecting anew VAT on transactions
for which taxes were proven to have already been
declared and paid. That would be tantamount to
unjust enrichment which is not permitted by law.
Wherefore, premises considered, the Instant
Petition for Review is GRANTED. The VAT
assessment issued by respondent is hereby
CANCELLED.
MEGABUCKS MERCHANDISING CORP.
VS.
COMMISSIONER OF INTERNAL REVENUE
CTA Case No. 9345
A petition for review was filed by
Megabucks Merchandising Corp that seeks for
the nullification of the Audit Result/Assessment
assessing petitioner for the deficiency income
tax, value-added tax, expanded withholding tax,
withholding tax on compensation, and
documentary stamp tax with accessory
penalties.
The petitioner executed several Waivers
of the Defense of Prescription under the Statute
of Limitations of the NIRC. Section 203 of the
NIRC, as amended mandates that internal
revenue taxes must be assessed within three
years reckoned from the period fixed by law for
filing of the tax return or the actual date of filing,
whichever comes later.
In the case of the petitioner, the FLD and
the Assessment Notices were issued beyond the
three-year prescriptive period to assess, thus, to
authorize the extension of the prescribed period
an execution of a valid waiver may stipulate to
extend the period of assessment by a written
agreement created prior to the lapse of the
period as stated in Section 222(b) of the NIRC of
1997.
In relation thereto, Revenue
Memorandum Order (RMO) No. 20-90 provides
that both the date of execution by the taxpayer
and date of acceptance by the BIR should be
before the expiration of the period of
prescription.
From the foregoing, the petitioner
executed four (4) waivers, the First Waiver was
executed after the expiration of the period, and
thus, respondent’s right to assess was already
barred by prescription. The Second Waiver
executed, also, lapsed the prescribed period,
while the Third Waiver, however, was duly
executed by the Petitioner but the said waiver
does not indicate the fact of receipt by the
Petitioner of its file copy which violates the RMO
No. 20-90 which requires that “the fact of
receipt ...
Continuation...
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QUALITY ASSURANCE BULLETIN I August 2018 Edition 11
by the taxpayer of his file copy must be indicated in
the original copy to show that the taxpayer was
notified of the acceptance of the BIR and the
perfection of the agreement,” further, makes the
Third Waiver to be defective.
Since the waivers executed are invalid and
without force, the period to assess was not
extended.
Petitioner, also argues the lack of due date
for the date of payment on the FANs issued makes
the FAN not valid because the failure to indicate a
definite due date negates respondent from the
demand of payment and renders the assessment
void.
It must be noted that the issuance of a valid
formal assessment is a prerequisite for collection of
taxes.
Wherefore, premises considered, the
instant Petition for review is GRANTED.
Accordingly, the Audit Result/Assessment is
hereby CANCELLED.
OFFICE OF THE GENERAL COUNSEL
SEC OGC-Opinion 18-15
Re: Cold storage, cold logistics and distribution as
Public Utility; Ownership of a Land.
This is a response for a request for an
opinion on whether, Igloo Supply Chain Philippines,
Inc. is considered engaged in a partially
nationalized activity.
In the attached Articles of Incorporation,
the primary purpose is stated as follows:
“to engage in the business of the operation
of cold storage facilities, cold logistics and
distribution of services, value added cold
processing and related services”
It was likewise asked if the owning of lands
and warehouses is considered as engaged in
nationalized or partially nationalized activity.
The Constitution however, does not
provide a definition of a public utility. In view of
the foregoing, the Supreme Court, in JG Summit
Holdings, Inc. v. Court of Appeals et. al., defined
public utility as follows:
“A public utility is a business or service
engaged in regularly supplying the public with
some commodity or service of public
consequence and telegraph service. The
principal determinative characteristic of a public
utility is that of service to or readiness to serve,
an indefinite public or portion of the public as
such which has a legal right to demand and
receive its services or commodities.”
The classification of ice plants and cold
storage services as a public utility is however,
qualified by its use and service to the public.
Igloo Philippines can be classified as an
ice-refrigeration plant as it provides cold
storage and refrigeration facilities. Philippine
laws and jurisprudence provide that ice
refrigeration plants are considered public utilities
if their enterprise is devoted to the public or their
services are sold to the public for compensation.
The Commission had previously opined
that if the enumerated activities in the primary
purpose of a corporation are too broad and
encompassing making possible the undertaking
of mass media or public utility, then such is
deemed as nationalized or partially nationalized.
Therefore, considering its general and
unqualified business purpose clause, Igloo
Philippines is allowed to indiscriminately offer its
services to the public for compensation, and
should be considered as a public utility. As such,
Igloo Philippines is considered engaged in
partially nationalized activity and should comply
with the afore-said requirements of the
Constitution and the Public Service Act.
Equally important, Igloo Philippines,
being an owner of a land, should be considered
as a partially nationalized corporation, Section 2
-A of the Anti-Dummy Law provides that a
corporation having in its name and under its
control a property, the enjoyment of which is
reserved by the Constitution or the laws of the
Philippines to Filipinos, is in effect nationalized.
Continuation...
Paguio, Dumayas & Associates, CPAs Certified Public Accountants and Management Consultants
QUALITY ASSURANCE BULLETIN I August 2018 Edition 12
THE REGIONAL TRIAL COURT OF DAVAO
RULED IN FAVOR OF A GROUP OF CPAs THAT
THEIR ACCREDITATION REQUIRED BY THE
SEC IS NOT ALLOWED UNDER THE LAW
A few years ago, the former leadership of
the Securities and Exchange Commission issued a
rule “Paragraph 3 Rule 68 of the Amended
Implementing Rules and Regulations (IRR) to the
Securities Regulation Code (SRC), Securities and
Exchange Commission (SEC) Memorandum
Circular No. 13-2009) requiring the mandatory
accreditation of auditing firms and regulators before
they could conduct audits on the books and
financial statements of locally registered
companies.
The rationale was simple: the corporate
regulator wanted to ensure that audits done on
Philippine corporations, large or small, would
comply with certain baseline standards. The goal
was to ensure that would be investors and
stakeholders would be able to rest easy that the
financial statements of any particular company
would adhere to a certain quality.
There was only one problem though: many
players in the local auditing industry felt that the
rule was discriminatory against smaller auditing
firms or even individual certified public accountants
who catered to firms that couldn’t afford the
services of a large audit firm.
So a party-list firm—called 1Accountants
Party-List Inc.—sued the SEC before the courts to
stop the implementation of this rule. The case
didn’t look like it would prosper, initially, with the
court denying the party-list group’s petition to issue
an injunction against the corporate regulator’s
order.
But that was two years ago. After evaluating
all the evidence and arguments presented by both
sides, a regional trial court in Davao City declared
the SEC rule null and void for running counter to
the Philippine Accountancy Act of 2004. That’s
because that law specified that local accountants
are regulated by the Philippine Regulatory Board of
Accountancy (PRBOA), chaired by Joel Tan
Torres. In addition to being subject to PRBOA’s
rules, they are, first and foremost, required to pass
their basic regulatory tests to become accredited
CPAs.
Further, it was stated in Section 13 of
R.A. No. 9298 that the only accreditation
required for them to the practice of public
accountancy is that of PRC and PRBOA only,
hence, there is no basis for the SEC to impose
on them additional accreditation.
As such, the Davao RTC ruled that
imposing another layer of regulation would be
against the law.
More importantly, the court also ruled
that the SEC overstepped its mandate when
ordering a separate accreditation scheme for
accountants and auditors, saying the
ill-conceived regulation was “unconstitutional”
and “issued without authority.”
“An administrative order issued by the
SEC must be in harmony with the law,”
“Regulations are not supposed to be a substitute
for the general policy-making that Congress
enacts in the form of public law. Although,
administrative regulations are entitled to respect,
the authority to prescribe rules and regulations is
not an independent source of power to make
laws.” presiding judge Mario Duaves said in his
decision that was handed down a few weeks
ago. “Accordingly, the SEC is directed to refrain
from enforcing or implementing the assailed
mandatory accreditation requirement of external
auditors and auditing firms before they can
conduct statutory audit of financial statements on
covered entities.”
It took a while, but the small guys won
this round. Now, it bears watching whether the
new SEC leadership will hew closely to the
philosophy of the past or chart its own regulatory
path. We’ll know soon enough.
SOURCE: (Philippine Daily Inquirer 24 Aug 2018-DAXIM L. LUCAS—
DORIS DUMLAO ABADILLA—)
Paguio, Dumayas & Associates, CPAs Certified Public Accountants and Management Consultants
QUALITY ASSURANCE BULLETIN I August 2018 Edition 13
EDITORIAL BOARD
Unit 3207 Cityland Pasong Tamo
Condominium, Pasong Tamo St.,
Barangay Pio del Pilar, Makati City
We are a team of Certified Public Accountants, who aim to be the
accounting firm of choice for business entities in terms of:
Audit and Assurance
Taxation
Business Process Outsourcing
Management Consultancy
This bulletin is a compilation of relevant
issuances, rulings and memoranda
from various government agencies to
enhance the technical skills of the
professional staff of Paguio, Dumayas
and Associates, CPAs and is not
intended to replace the original
issuances of the related government
agencies.
FLOYD C. PAGUIO
Managing Partner
AIRA IZA G. GALLEGOS
Tax Specialist
AILEEN P. MELCHOR
Senior Tax Specialist
KEN JOHN B. ASADON
Tax Supervisor
Contact us at: 950-9853/950-9854