InTAX: August 2021 Issue 2 | Volume 1

Supreme Court

The First Division of the Supreme Court (SC) ruled that pursuant to Revenue Regulations (RR) No. 2-2001, enterprises duly registered with the Philippine Economic Zone Authority (PEZA) are not subject to improperly accumulated earnings tax (IAET) on its income from registered activities whether subject to income tax holiday (ITH) or 5% preferential tax rate. It further explained that prior to the imposition of the IAET assessment on income from registered activities enjoying ITH, it should describe the prima facie instances on why it deemed such income as improperly accumulated pursuant to RR No. 2-2001. There was no evidence presented to refute that the accumulated income was actually for a reasonable need in business operations. [Commissioner of Internal Revenue (CIR) vs. Yumex Philippines Corporation, G.R. No. 222476 dated 5 May 2021; uploaded in the SC website on 12 July 2021]

The Second Division of the SC affirmed the assailed Court of Tax Appeals En Banc (CTA EB) Decision and Resolution* that Revenue Memorandum Order (RMO) No. 13-2012 will not be applied to justify the use of unverified third-party information as basis for assessments of the Bureau of Internal Revenue (BIR). The SC emphasized that the transitory provisions of RMO No. 13-2012 allows the use of unverified third-party information solely as basis for assessments with respect to Letter Notices (LNs) in 2009 and 2010 and not in this case wherein the LN was issued in 2011. Even assuming that the said RMO is applicable, the SC ruled that Confirmation Requests sent out to third parties by registered mail must be supported by registered return cards in order to validly rely on third party information as proper factual bases for the assessment.

In this case, the SC also upheld the CIR failed to prove the filing of false or fraudulent returns for the 10-year extraordinary period to apply**. Hence, the issuance of the Final Assessment Notice beyond the 3-year prescriptive period was not justified. [CIR vs. MCC Transport Singapore PTE, LTD., G.R. No. 255382 dated 28 June 2021; uploaded in the SC website on 30 July 2021]

* In CTA EB No. 1961 Decision dated 14 July 2020 and Resolution dated 19 January 2021, it ruled for the cancellation of the deficiency VAT assessment against MCC Transport Singapore PTE. LTD., and that the data gathered by the BIR from the third-party information sources should be verified in order to render the assessment valid. Under RMO Nos. 04-2003 and 46-2004, the computerized/third-party matching should be verified by seeking confirmation or certification from the third-party information source, or from externally sourced data. Otherwise, the data gathered is unverified and the assessment is void for lack of factual and legal basis.

** The CTA EB noted that the BIR failed to prove its allegation of fraud, as the BIR was only able to verify that there are undeclared sales/receipts representing 1.21% of the taxpayer’s total sales income. Hence, there is no substantial underdeclaration and/or fraud under Section 222 of the Tax Code which provides for the 10-year extraordinary period of prescription.

Attached are the full texts of the decisions.

CIR vs Yumex Philippines Corporation

Commissioner of Internal Revenue Vs. MCC Transport Singapore PTE, Ltd.