Special InTAX: June 2023 Issue 1 | Volume 2

Supreme Court

The First Division of the Supreme Court (SC) ruled that the running of the three-year prescriptive period should be counted from the filing of original return despite another form was filed on a later date where the amendment involved was not a substantial amendment. In this case, the taxpayer originally filed a monthly VAT declaration (BIR Form No. 2550M) on the last day prescribed by law for the filing of the quarterly VAT return instead of a quarterly VAT return (BIR Form No. 2550Q). Although the taxpayer filed the BIR Form No. 2550Q more than a year later to correct the form used (no change in the figures), the SC did not consider this as a substantial amendment* which should affect the running of the prescriptive period for that particular quarter.

The VATability of interest income was also discussed in the SC decision wherein it was ruled that VAT should not be applied to the interest income on the loans granted to affiliates unless it is clearly established that the loan transactions are incidental transactions of the taxpayer’s main line of business. The SC emphasized that in order for a transaction to be considered incidental to the main line of business, there must be some intimate connection (causal link or tie) between the transaction in question (granting of financial assistance to affiliates) and the main business activity/primary purpose of the taxpayer (providing management services to clients). Regardless of the fact that such loans were entered into on an isolated basis only and not for commercial or economic purpose, the SC finds that the granting of a loan to an affiliate as a form of financial assistance, and entered into a few times, cannot be considered as akin to managing, controlling, or directing the affairs of, or advertising or publicizing, the business of another. Hence, there was an apparent lack of showing of connection to hold that the loan transactions are incidental to the taxpayer’s main line of business. [Lapanday Foods Corporation vs. Commissioner of Internal Revenue, G.R. 186155 dated 17 January 2023; uploaded on the SC website on 08 February 2023]

*According to the SC, a substantial amendment is an increase or reduction of either taxable sales/receipts or input VAT for any of the months of the taxable quarter in question, which may lead to a change in the amount of the VAT payable for the quarter. Here, the accumulated sales/receipts reported in the three (3) monthly VAT declarations for the quarter remained the same.

Please click on the link for the full text of the decision: Lapanday Foods Corporation vs. Commissioner of Internal Revenue, G.R. 186155 dated 17 January 2023