Fluor Daniels Inc (FD) vs CIR

(CTA Case)
FACTS
On April 2007, FD was assessed by the BIR for 2004 deficiency taxes consisting of
Income, VAT, EWT with interest and compromise (P144m).
The core issue of the case was the software maintenance service rendered by FII (a
non-resident foreign corp) to FD and the SMS fees paid to FI which constituted the EWT
(as 32% income services). FD filed a protest alleging that the FI has no tax liability
considering its foreign character and by virtue of Tax Treaty between the US and Phil.
BIR then issued a FDDA which changed FDs EWT liability to FWT citing RMC 44-05,
which treated the SMS fee as license generating royalty income subject to 15%
preferred rate under the Tax Treaty. The total tax liability was then reduced.
Insisting on its non-liability, FD appealed to the CTA.
ISSUE: W/N the change of assessment from EWT to FWT is a new assessment.
W/N the SMS fees is considered royalties pursuant to RMC 44-05.
DECISION:
Yes. CTA held that changing the assessment from EWT to FWT only in the issuance of
the FDDA would certainly deprive petitioner of the reasonable opportunity to be heard
and submit evidence in support of its defense, which is a clear violation of the due
process requirements pursuant to the mandatory provisions of Section 228. Considering
that the FDDA constitutes respondent's final decision on the matter, petitioner was
therefore, not given the chance to refute within the administrative level the findings of
respondent as to the applicability of RMC No. 44-05 to its case, which is a clear
violation of Section 228 of the 1997 NIRC, as amended.
No. The questioned assessment covers taxable year 2004, thus respondent could not
possibly use the provisions of the said circular as her basis in changing her earlier
assessment. In a long line of cases, the High Tribunal has consistently ruled that the
rulings, circulars, rules and regulations promulgated by the Commissioner of Internal
Revenue would have no retroactive application if to so apply them would be prejudicial
to the taxpayers.