RCBC VS.

CIR

FACTS:

Petitioner Rizal Commercial Banking Corporation (RCBC) is a corporation

engaged in general banking operations. It seasonably filed its Corporation Annual Income Tax
Returns for Foreign Currency Deposit Unit for the calendar years 1994 and 1995.[3]

On August 15, 1996, RCBC received Letter of Authority No. 133959 issued by then
Commissioner of Internal Revenue (CIR) Liwayway Vinzons-Chato, authorizing a special audit
team to examine the books of accounts and other accounting records for all internal revenue
taxes from January 1, 1994 to December 31, 1995.

On January 23, 1997, RCBC executed two Waivers of the Defense of Prescription Under
the Statute of Limitations of the National Internal Revenue Code covering the internal revenue
taxes due for the years 1994 and 1995, effectively extending the period of the Bureau of Internal
Revenue (BIR) to assess up to December 31, 2000.

Subsequently, on January 27, 2000, RCBC received a Formal Letter of Demand together
with Assessment Notices from the BIR for the deficiency tax assessments.

Disagreeing with the said deficiency tax assessment, RCBC filed a protest on February
24, 2000 and later submitted the relevant documentary evidence to support it. Much later
on November 20, 2000, it filed a petition for review before the CTA, pursuant to Section 228 of
the 1997 Tax Code.

On December 6, 2000, RCBC received another Formal Letter of Demand with

Assessment Notices dated October 20, 2000, following the reinvestigation it requested, which
drastically reduced the original amount of deficiency taxes.

On the same day, RCBC paid the following deficiency taxes as assessed by the BIR.

RCBC, however, refused to pay the following assessments for deficiency onshore tax and
documentary stamp tax which remained to be the subjects of its petition for review.
 RCBC argued that the waivers of the Statute of Limitations which it executed on January
23, 1997 were not valid because the same were not signed or conformed to by the respondent
CIR as required under Section 222(b) of the Tax Code. As regards the deficiency FCDU onshore
tax, RCBC contended that because the onshore tax was collected in the form of a final
withholding tax, it was the borrower, constituted by law as the withholding agent, that was
primarily liable for the remittance of the said tax.

ISSUE:

Whether petitioner, by paying the other tax assessment covered by the waivers of
the statute of limitations, is rendered estopped from questioning the validity of the said
waivers with respect to the assessment of deficiency onshore tax.

Whether petitioner, as payee-bank, can be held liable for deficiency onshore tax,
which is mandated by law to be collected at source in the form of a final withholding tax.

HELD:

1. YES, Petitioner is estopped from questioning the validity of the waivers.

Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored on the rule that
an admission or representation is rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon. A party is precluded from denying his
own acts, admissions or representations to the prejudice of the other party in order to prevent
fraud and falsehood.

Estoppel is clearly applicable to the case at bench. RCBC, through its partial payment of
the revised assessments issued within the extended period as provided for in the questioned
waivers, impliedly admitted the validity of those waivers. Had petitioner truly believed that the
waivers were invalid and that the assessments were issued beyond the prescriptive period, then it
should not have paid the reduced amount of taxes in the revised assessment. RCBCs subsequent
action effectively belies its insistence that the waivers are invalid. The records show that
on December 6, 2000, upon receipt of the revised assessment, RCBC immediately made payment
on the uncontested taxes. Thus, RCBC is estopped from questioning the validity of the
waivers. To hold otherwise and allow a party to gainsa/contradicty its own act or deny rights
which it had previously recognized would run counter to the principle of equity which this
institution holds dear.
2. YES, Petitoner is liable for Deficiency Onshore Withholding Tax.

Before any further discussion, it should be pointed out that RCBC erred in
citing the abovementioned Revenue Regulations No. 2-98 because the same
governs collection at source on income paid only on or after January 1, 1998. The
deficiency withholding tax subject of this petition was supposed to have been
withheld on income paid during the taxable years of 1994 and 1995. Hence,
Revenue Regulations No. 2-98 obviously does not apply in this case.

In Chamber of Real Estate and Builders Associations, Inc. v. The Executive

Secretary,[32] the Court has explained that the purpose of the withholding tax
system is three-fold: (1) to provide the taxpayer with a convenient way of paying
his tax liability; (2) to ensure the collection of tax, and (3) to improve the
governments cashflow. Under the withholding tax system, the payor is the taxpayer
upon whom the tax is imposed, while the withholding agent simply acts as an agent
or a collector of the government to ensure the collection of taxes.[33]

It is, therefore, indisputable that the withholding agent is merely a tax

collector and not a taxpayer, as elucidated by this Court in the case
of Commissioner of Internal Revenue v. Court of Appeals,[34] to wit:

In the operation of the withholding tax system, the withholding agent is the
payor, a separate entity acting no more than an agent of the government for the
collection of the tax in order to ensure its payments; the payer is the taxpayer he is the
person subject to tax imposed by law; and the payee is the taxing authority. In other
words, the withholding agent is merely a tax collector, not a taxpayer. Under the
withholding system, however, the agent-payor becomes a payee by fiction of law. His
(agent) liability is direct and independent from the taxpayer, because the income tax is still
imposed on and due from the latter. The agent is not liable for the tax as no wealth flowed
into him he earned no income. The Tax Code only makes the agent personally liable for
the tax arising from the breach of its legal duty to withhold as distinguished from its
duty to pay tax since:

the governments cause of action against the withholding agent

is not for the collection of income tax, but for the enforcement
of the withholding provision of Section 53 of the Tax Code,
compliance with which is imposed on the withholding agent
and not upon the taxpayer.[35] (Emphases supplied)
 Based on the foregoing, the liability of the withholding agent is independent
from that of the taxpayer. The former cannot be made liable for the tax due because
it is the latter who earned the income subject to withholding tax. The withholding
agent is liable only insofar as he failed to perform his duty to withhold the tax and
remit the same to the government. The liability for the tax, however, remains with
the taxpayer because the gain was realized and received by him.

While the payor-borrower can be held accountable for its negligence in

performing its duty to withhold the amount of tax due on the transaction, RCBC, as
the taxpayer and the one which earned income on the transaction, remains liable
for the payment of tax as the taxpayer shares the responsibility of making certain
that the tax is properly withheld by the withholding agent, so as to avoid any
penalty that may arise from the non-payment of the withholding tax due.

RCBC cannot evade its liability for FCDU Onshore Tax by shifting the
blame on the payor-borrower as the withholding agent. As such, it is liable for
payment of deficiency onshore tax on interest income derived from foreign
currency loans, pursuant to Section 24(e)(3) of the National Internal Revenue Code
of 1993:

Sec. 24. Rates of tax on domestic corporations.

xxxx
(e) Tax on certain incomes derived by domestic corporations
xxxx

(3) Tax on income derived under the Expanded Foreign Currency Deposit
System. Income derived by a depository bank under the expanded foreign
currency deposit system from foreign currency transactions with
nonresidents, offshore banking units in the Philippines, local commercial
banks including branches of foreign banks that may be authorized by the
Central Bank to transact business with foreign currency depository system
units and other depository banks under the expanded foreign currency
deposit system shall be exempt from all taxes, except taxable income from
such transactions as may be specified by the Secretary of Finance, upon
recommendation of the Monetary Board to be subject to the usual income
tax payable by banks: Provided, That interest income from foreign currency
loans granted by such depository banks under said expanded system to
residents (other than offshore banking units in the Philippines or other
depository banks under the expanded system) shall be subject to a 10%
tax. (Emphasis supplied)
 BPI VS. CIR

FACTS:

Petitioner BPI is a commercial banking corporation organized and

existing under the laws of the Philippines. On two separate occasions, particularly
on 06 June 1985 and 14 June 1985, it sold United States (US) $500,000.00 to the
Central Bank of the Philippines (Central Bank), for the total sales amount of
US$1,000,000.00.

On 10 October 1989, the Bureau of Internal Revenue (BIR) issued

Assessment No. FAS-5-85-89-002054,[3] finding petitioner BPI liable for
deficiency
DST on its afore-mentioned sales of foreign bills of exchange to the Central Bank.

Petitioner BPI received the Assessment, together with the attached

Assessment Notice, on 20 October 1989.

Petitioner BPI, through its counsel, protested the Assessment in a letter dated
16 November 1989, and filed with the BIR on 17 November 1989.

Petitioner BPI did not receive any immediate reply to its protest letter.
However, on 15 October 1992, the BIR issued a Warrant of Distraint and/or
Levy[6] against petitioner BPI for the assessed deficiency DST for taxable year
1985, in the amount of P27,720.00 (excluding the compromise penalty
of P300.00). It served the Warrant on petitioner BPI only on 23 October 1992.

Then again, petitioner BPI did not hear from the BIR until 11 September
1997, when its counsel received a letter, dated 13 August 1997, signed by then BIR
Commissioner Liwayway Vinzons-Chato, denying its request for reconsideration,
and addressing the points raised by petitioner BPI in its protest letter, dated 16
November 1989

ISSUE:

1. Whether or not the right of respondent BIR Commissioner to collect from

petitioner BPI the alleged deficiency DST for taxable year 1985 had
prescribed.

2. Whether or not running of prescriptive period be suspended for collection of

the assessed DST.

HELD:

1. YES, The efforts of respondent Commissioner to collect on

Assessment No. FAS-5-85-89-002054 were already barred by
prescription.

The BIR has three years, counted from the date of actual filing of
the return or from the last date prescribed by law for the filing of such
return, whichever comes later, to assess a national internal revenue tax
or to begin a court proceeding for the collection thereof without an
assessment. In case of a false or fraudulent return with intent to evade
tax or the failure to file any return at all, the prescriptive period for
assessment of the tax due shall be 10 years from discovery by the BIR
of the falsity, fraud, or omission. When the BIR validly issues an
assessment, within either the three-year or ten-year period, whichever
is appropriate, then the BIR has another three years after the
assessment within which to collect the national national internal
revenue tax due thereon by distraint, levy, and/or court proceeding.
The assessment of the tax is deemed made and the three-year period for
collection of the assessed tax begins to run on the date the assessment
notice had been released, mailed or sent by the BIR to the taxpayer.

In the present Petition, there is no controversy on the timeliness of the

issuance of the Assessment, only on the prescription of the period to collect the
deficiency DST following its Assessment. While Assessment No. FAS-5-85-89-

002054 and its corresponding Assessment Notice were both dated 10 October 1989

and were received by petitioner BPI on 20 October 1989, there was no showing as

to when the said Assessment and Assessment Notice were released, mailed or sent

by the BIR. Still, it can be granted that the latest date the BIR could have released,

mailed or sent the Assessment and Assessment Notice to petitioner BPI was on the

same date they were received by the latter, on 20 October 1989. Counting the

three-year prescriptive period, for a total of 1,095 days,[21] from 20 October 1989,

then the BIR only had until 19 October 1992 within which to collect the assessed

deficiency DST.

The earliest attempt of the BIR to collect on Assessment No. FAS-5-

85-89-002054 was its issuance and service of a Warrant of Distraint and/or
Levy on petitioner BPI. Although the Warrant was issued on 15 October
1992, previous to the expiration of the period for collection on 19 October
1992, the same was served on petitioner BPI only on 23 October 1992.

If the service of the Warrant of Distraint and/or Levy on petitioner BPI

on 23 October 1992 was already beyond the prescriptive period for
collection of the deficiency DST, which had expired on 19 October 1992,
then what more the letter of respondent BIR Commissioner, dated 13 August
1997 and received by the counsel of the petitioner BPI only on 11 September
1997, denying the protest of petitioner BPI and requesting payment of the
deficiency DST? Even later and more unequivocally barred by prescription
on collection was the demand made by respondent BIR Commissioner for
payment of the deficiency DST in her Answer to the Petition for Review of
petitioner BPI before the CTA, filed on 08 December 1997.
NO, When the BIR stated in its letter, dated 10 September 1992, that the waiver of

the statute of limitations on collection was a condition precedent to its giving due

course to the request for reconsideration of petitioner BPI, then it was understood

that the grant of such request for reconsideration was being held off until

compliance with the given condition. When petitioner BPI failed to comply with

the condition precedent, which was the execution of the waiver, the logical

inference would be that the request was not granted and was not given due course

at all.
BPI VS. CIR

FACTS:

Petitioner, the surviving bank after its merger with Far East Bank and Trust Company,
is a corporation duly created and existing under the laws of the Republic of the Philippines
with principal office at Ayala Avenue corner Paseo de Roxas Ave., Makati City.

Respondent thru then Revenue Service Chief Cesar M. Valdez, issued to the
petitioner a pre-assessment notice (PAN) dated November 26, 1986.

Petitioner, in a letter dated November 29, 1986, requested for the details of the
amounts alleged as 1982-1986 deficiency taxes mentioned in the November 26, 1986 PAN.

On April 7, 1989, respondent issued to the petitioner, assessment/demand notices

FAS-1-82 to 86/89-000 and FAS 5-82 to 86/89-000 for deficiency withholding tax at source
(Swap Transactions) and DST involving the amounts of P190,752,860.82
and P24,587,174.63, respectively, for the years 1982 to 1986.

On April 20, 1989, petitioner filed a protest on the demand/assessment notices. On

May 8, 1989, petitioner filed a supplemental protest.

Petitioner executed several Waivers of the Statutes of Limitations, the last of which
was effective until December 31, 1994.

On August 9, 2002, respondent issued a final decision on petitioners protest

ordering the withdrawal and cancellation of the deficiency withholding tax assessment in the
amount of P190,752,860.82 and considered the same as closed and terminated. On the
other hand, the deficiency DST assessment in the amount of P24,587,174.63 was reiterated
and the petitioner was ordered to pay the said amount within thirty (30) days from receipt of
such order.
HELD

When it validly issues an assessment within the three (3)-year period, it has another three (3) years
within which to collect the tax due by distraint, levy, or court proceeding. The assessment of the tax
is deemed made and the three (3)-year period for collection of the assessed tax begins to run on the
date the assessment notice had been released, mailed or sent to the taxpayer.11

As applied to the present case, the CIR had three (3) years from the time he issued assessment
notices to BPI on 7 April 1989 or until 6 April 1992 within which to collect the deficiency DST.
However, it was only on 9 August 2002 that the CIR ordered BPI to pay the deficiency.

In order to determine whether the prescriptive period for collecting the tax deficiency was effectively
tolled by BPIs filing of the protest letters dated 20 April and 8 May 1989 as claimed by the CIR, we
need to examine Section 32012 of the Tax Code of 1977, which states:

Sec. 320. Suspension of running of statute.The running of the statute of limitations provided in
Sections 318 or 319 on the making of assessment and the beginning of distraint or levy or a
proceeding in court for collection, in respect of any deficiency, shall be suspended for the period
during which the Commissioner is prohibited from making the assessment or beginning distraint or
levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a re-
investigation which is granted by the Commissioner; when the taxpayer cannot be located in the
address given by him in the return

BPI argues that the governments right to collect the DST had already prescribed
because the Commissioner of Internal Revenue (CIR) failed to issue any reply granting BPIs
request for reinvestigation manifested in the protest letters dated 20 April and 8 May 1989. It
was only through the 9 August 2002 Decision ordering BPI to pay deficiency DST, or after
the lapse of more than thirteen (13) years, that the CIR acted on the request for
reinvestigation, warranting the conclusion that prescription had already set in. It further
claims that the CIR was not precluded from collecting the deficiency within three (3) years
from the time the notice of assessment was issued on 7 April 1989, or even until the
expiration on 31 December 1994 of the last waiver of the statute of limitations signed by BP

filed upon which a tax is being assessed or collected: Provided, That if the taxpayer informs
the Commissioner of any change in address, the running of the statute of limitations will not
be suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his
authorized representative, or a member of his household with sufficient discretion, and no
property could be located; and when the taxpayer is out of the Philippines. (Emphasis
supplied)

The above section is plainly worded. In order to suspend the running of the prescriptive periods for
assessment and collection, the request for reinvestigation must be granted by the CIR.
In BPI v. Commissioner of Internal Revenue,13the Court emphasized the rule that the CIR must first
grant the request for reinvestigation as a requirement for the suspension of the statute of limitations.
The Court said:

In the case of Republic of the Philippines v. Gancayco, taxpayer Gancayco requested for a
thorough reinvestigation of the assessment against him and placed at the disposal of the
Collector of Internal Revenue all the evidences he had for such purpose; yet, the Collector
ignored the request, and the records and documents were not at all examined. Considering
the given facts, this Court pronounced that

x x x The act of requesting a reinvestigation alone does not suspend the

period. The request should first be granted, in order to effect suspension. (Collector v.
Suyoc Consolidated, supra; also Republic v. Ablaza, supra). Moreover, the Collector gave
appellee until April 1, 1949, within which to submit his evidence, which the latter did one day

before. There were no impediments on the part of the Collector to file the collection case
from April 1, 1949

In Republic of the Philippines v. Acebedo, this Court similarly found that

x x x T]he defendant, after receiving the assessment notice of September 24, 1949, asked
for a reinvestigation thereof on October 11, 1949 (Exh. "A"). There is no evidence that this
request was considered or acted upon. In fact, on October 23, 1950 the then Collector of
Internal Revenue issued a warrant of distraint and levy for the full amount of the assessment
(Exh. "D"), but there was follow-up of this warrant. Consequently, the request for
reinvestigation did not suspend the running of the period for filing an action for
collection. [Emphasis in the original]14

The Court went on to declare that the burden of proof that the request for reinvestigation had been
actually granted shall be on the CIR. Such grant may be expressed in its communications with the
taxpayer or implied from the action of the CIR or his authorized representative in response to the
request for reinvestigation.

There is nothing in the records of this case which indicates, expressly or impliedly, that the CIR had
granted the request for reinvestigation filed by BPI. What is reflected in the records is the piercing
silence and inaction of the CIR on the request for reinvestigation, as he considered BPIs letters of
protest to be.

In fact, it was only in his comment to the present petition that the CIR, through the
OSG, argued for the first time that he had granted the request for reinvestigation. His
consistent stance

invoking the Wyeth Suaco case, as reflected in the records, is that the prescriptive period was tolled
by BPIs request for reinvestigation, without any assertion that the same had been granted or at least
acted upon

In this case, BPIs letters of protest and submission of additional documents pertaining to its
SWAP transactions, which were never even acted upon, much less granted, cannot be said to have
persuaded the CIR to postpone the collection of the deficiency DST.
 The inordinate delay of the CIR in acting upon and resolving the request for reinvestigation
filed by BPI and in collecting the DST allegedly due from the latter had resulted in the prescription of
the governments right to collect the deficiency. As this Court declared in Republic of the Philippines
v. Ablaza:

The law prescribing a limitation of actions for the collection of the income tax is beneficial
both to the Government and to its citizens; to the Government because tax officers would be obliged
to act promptly in the making of assessment, and to citizens because after the lapse of the period of
prescription citizens would have a feeling of security against unscrupulous tax agents who will
always find an excuse to inspect the books of taxpayers, not to determine the latters real liability, but
to take advantage of every opportunity to molest peaceful, law-abiding citizens. Without such a legal
defense taxpayers would furthermore be under obligation to always keep their books and keep them
open for inspection subject to harassment by unscrupulous tax agents. The law on prescription
being a remedial measure should be interpreted in a way conducive to bringing about the beneficent
purpose of affording protection to the taxpayer within the contemplation of the Commission which
recommend the approval of the law.
 CIR VS. MENGUITO

Dominador Menguito and his wife are the owners of Copper Kettle Catering Services, Inc.
(CKCSI). They also operate several restaurant branches in the Philippines. One such
branch was the Copper Kettle Cafeteria Specialist (CKCS) in Club John Hay, Baguio City.
The branch was registered as a sole proprietorship. In September 1997, a formal
assessment notice (FAN) was issued against the spouses and they were adjudged to pay
P34 million in deficiency taxes for the years 1991 to 1993. The Bureau of Internal Revenue
found that in order for CKCS to operate in Club John Hay, a contract was entered into by
CKCSI and Club John Hay; hence, CKCS and CKCSI are one and the same.

Mrs. Menguito then sent a letter to the BIR acknowledging receipt of the assessment notice.
She asked for more time to sort the issue. Later, when Menguito eventually filed a protest,
he denied, through his witness (Ma. Therese Nalda, CKCS employee), receiving the FAN;
that the FAN was addressed to the wrong person because it was addressed to CKCSI not
CKCS. He presented as evidence a photocopy of the articles of incorporation (AOI) of
CKCSI.

On the other hand, the Commissioner of Internal Revenue (CIR) presented proof of the due
mailing of the FAN. It however was not able to prove that it issued a pre-assessment notice
(PAN) or a post-assessment notice.

ISSUE: Whether or not due process was observed by the Commissioner of Internal
Revenue.

HELD: Yes. The veil of corporate fiction is pierced because it was proven that CKCSI is
actively managing CKCS. Further, CKCS is more known as CKCSI. Also, the photocopy of
the AOI presented by Menguito is not a conclusive proof of the separate personality of
CKCSI and CKCS.
More importantly, Menguito and his wife are in estoppel because they already
acknowledged the receipt of the FAN through the letter sent by Mrs. Menguito to the BIR.
They cannot later on deny the receipt of the FAN. Worse, it should be Menguito who should
be directly denying the receipt and not through an employee (Nalda) who was not even an
employee of the spouses when the FAN was issued and received in 1997. It was only in
1998 that Nalda was employed by CKCS. Since Menguito did not legally deny the receipt of
the FAN, the presumption that he actually received it still subsists. Further, based on the
records, Menguito, in the stipulation of facts, acknowledged the receipt of the FAN.

Anent the issue of the non-issuance of the PAN, the same is not vital to due process. The
Supreme Court ruled that the strict requirement of proving that an assessment is sent and
received by the taxpayer is only applicable to FANs and to PANs. The issuance of a valid
formal assessment is a substantive prerequisite to tax collection, for it contains not only a
computation of tax liabilities but also a demand for payment within a prescribed period,
thereby signaling the time when penalties and interests begin to accrue against the
taxpayer and enabling the latter to determine his remedies therefor. A PAN or a post-
assessment notice does not bear the gravity of a FAN. Neither notice contains a declaration
of the tax liability of the taxpayer or a demand for payment thereof. Hence, the lack of such
notices inflicts no prejudice on the taxpayer for as long as the latter is properly served a
formal assessment notice.

NOTE: In the case of CIR vs Metro Star Superama (December 2010), the Supreme Court
held that the due issuance of the PAN is part of due process. Hence, this superseded the
ruling in this case as regards the issuance of PANs. (CIR vs Menguito is a September 2008
case