Karl Jason C.

Josol TAXATION LAW 2 CASE DIGESTS Fiscal Mariegold Cabrales Northwestern University Laoag College of Law

COMMISSIONER OF INTERNAL REVENUE vs. SPS. REMIGIO & LETICIA MAGAAN (G.R.
232663 May 3 2021.)

FACTS:
On November 9, 2005, a confidential informant filed a Complaint Affidavit before the
Bureau of Internal Revenue alleging therein that the Magaan spouses had been operating two
financial companies, Imilec Tradehaus and Services Company and L4R Realty and
Development Corporation and that they have allegedly earned Php 35M+ from April 1998 to
January 2002, but was undeclared in their income tax returns. The spouses were assessed a
total of P24,329,405.68 worth of deficiency taxes inclusive of surcharge and interests.
Subsequently, the Magaan Spouses filed a Petition for Review before the Court of Tax Appeals
(CTA) where it ruled that the Magaan Spouses may be held liable based on Maniwang's
confidential information after finding that said spouses received income from the checks issued
by Maniwang, but these were undeclared.
In its June 30, 2015 Resolution, the CTA Second Division denied the Magaan Spouses'
Motion for Reconsideration. The Magaan Spouses filed a Petition for Review before the CTA En
Banc where it ruled in 2017, that since fraud was not proven, the Second Division erroneously
applied the 10-year prescription period and declared that the assessments were void for lacking
factual and legal bases, hence, unfounded.
Presiding Justice Roman G. Del Rosario and two other Associate Justices dissented
from the En Banc's ruling citing that the CIR sufficiently proved that the Magaan Spouses
committed fraud in not declaring the interest income from the loan secured by the Real Estate
Mortgage and that said REM was never questioned and that Maniwang’s testimony that she
paid the loan was unrebutted and concluded thus, that fraud, having been proven, the 10-year
prescriptive period applied, and the assessments had not prescribed.
In its June 28, 2017 Resolution, the CTA En Banc denied the CIR’s Motion for
Reconsideration. Justice Del Rosario reiterated his dissent, joined by the same justices. On
August 29, 2017, after 'having moved for an extension; the CIR filed this Petition. Respondent
Magaan Spouses filed their Comment on January 3, 2018, and in tum, petitioner filed a Reply
insisting that while they filed a Rule 45 petition, this case falls under the exception that such
petitions may only raise questions of law.
Petitioner claims that the CTA En Banc's factual findings were totally devoid of support
or were glaringly erroneous, constituting grave abuse of discretion arguing that the tax
assessments against respondents had factual and legal bases, to wit: 1) that despite receiving
these notices, including a Subpoena, respondents only submitted the Articles of Partnership of
Imilec Tradehaus proving that they were not its partners; 2) that the loans' existence was also
confirmed by the notarized Real Estate Mortgage’; 3) That the existence of the checks was also
allegedly established upon the submission of the originally marked exhibits; 4) that respondents
were well informed of the factual and legal bases of the assessments through notices and
letters, and had the opportunity to contest these, but simply ignored them; 5) having proved
respondents' intent to evade paying correct taxes with clear and convincing evidence, heavily
relying on Justice Del Rosario's dissent. As this constitutes fraud, petitioner maintains that the
10-year prescriptive period applies, and the deficiency income and percentage tax assessments
were seasonably issued.
On the other hand, respondents argue that fraud has not been proven citing the
following points. Firstly, that the checks' existence cannot be proven by Maniwang's oral
recollection given that: 1) no proof that the checks were deposited in their bank accounts, and
deny having received any income from the checks; 2) given that the original copies had been
available to petitioner who only refused to submit them; 3) that Maniwang's affidavit was not
corroborated by a disinterested person; 4) that since the original checks were not formally
offered, respondents say these cannot be considered evidence under Rule 132, Section 34 of
the Rules of Court; and that 5) Maniwang also failed to explain how much from her check
payments corresponds to the principal and interest.
Furthermore, respondents assert that the assessments are void for having no legal and
factual bases. They contend that petitioner failed to prove fraud with competent and convincing
evidence and that said assessments made were allegedly only "guesstimated" by deducting the
alleged principal amount from the total amount of checks issued claiming that such computation
is "illogical, wrong, and a result of shallow investigative work.” Respondents add that when a
Karl Jason C. Josol TAXATION LAW 2 CASE DIGESTS Fiscal Mariegold Cabrales Northwestern University Laoag College of Law

certification had been issued proving that they indeed filed tax returns, petitioner changed tactic
to now say that they filed fraudulent returns by not including the interest income. Finally,
respondents say they cannot be faulted for not presenting their tax returns from 1998 to 2001,
since the Bureau of Internal Revenue only issued the Letter of Authority in 2006. Since more
than three years went by after the taxable years in question, they say they cannot be expected
to have kept their tax returns, books of accounts, and other accounting records. Hence, this
petition.

ISSUE/S:

1) Whether or not the Court of Tax Appeals En Banc committed grave abuse of discretion
2) Whether or not petitioner Commissioner of Internal Revenue has sufficiently informed
respondent Spouses Remigio and Leticia Magaan of the factual bases of the deficiency
income . and percentage tax assessments
3) Whether or not petitioner Commissioner of Internal Revenue has established fraud with
clear and convincing evidence.

HELD:
1) The Court of Tax Appeals En Banc did not commit grave abuse of discretion. As
will be discussed, the deficiency income and percentage tax assessments are
void because respondents have not been sufficiently informed of their factual
basis. Moreover, petitioner failed to prove that respondents received any taxable
income from the informant. No intent to evade payment of taxes can be inferred
here. Since fraud has not been proven, the deficiency income and percentage tax
assessments have already prescribed.

2) No. Respondents were not properly informed of the factual basis of fraud to
justify the belatedly issued deficiency assessments. The basis of their connection
with Imilec Tradehaus is material in showing that they used it to evade the correct
payment of taxes. Assessments must be based on facts and not mere
presumptions. In failing to provide respondents with material information,
petitioner denied them the opportunity to effectively protest. This renders the
assessments void, for which respondents cannot be held liable.

3) No. Petitioner failed to establish that respondents received income from

Maniwang's check payments. Most of the checks were issued to Imilec
Tradehaus, and respondent Remigio Magaan's riame appeared as co-payee
starting November 1999 and being a check co-payee does not automatically
establish the fact of income. Even if respondent Remigio admitted having
extended a loan to Maniwang, this act is not subject to taxation.
Petitioner failed to prove that respondents received taxable income from
the check payments. Indeed, Maniwang's testimony did not establish that the
checks were deposited in their bank accounts.
Second, petitioner did not even submit respondents' tax returns to prove
that their income from the alleged loan payments were not declared. Notably,
petitioner had initially assessed respondents as if no return had been filed. After
the Court of Tax Appeals had found that respondents have duly filed tax returns,
petitioner changed tune to claim that respondents filed fraudulent returns. Even
then, petitioner failed to prove the basis of the deficiency assessments. It offered
nothing but the check payments to claim that respondents filed fraudulent tax
returns. Without proving receipt of taxable income, the obligation to pay taxes
does not arise. Petitioner cannot impute intent to evade payment of correct taxes.
Finally, the checks were not formally offered in evidence.
Karl Jason C. Josol TAXATION LAW 2 CASE DIGESTS Fiscal Mariegold Cabrales Northwestern University Laoag College of Law

COMMISSIONER OF INTERNAL REVENUE vs. MCDONALD’S PHILIPPINES REALTY

CORP., (G.R. 242670 May 20, 2021.)

FACTS:
Petitioner CIR is the duly appointed Commissioner of the BIR while respondent here in
McDonald's Philippines Realty Corporation a corporation organized and existing under the laws
of Delaware, USA licensed to do business in the Philippines. On August 31, 2007, the BIR
Large Taxpayers Service issued LOA No. 00006717 (August 31, 2007 LOA) to the following
revenue officers: Eulema Demadura (Demadura ), Lover Loveres, Josa Gomez, and Emalyn de
la Cruz authorizing them to examine the books of accounts and other accounting records of the
respondent corporation for all internal revenue taxes for January 1, 2006 to December 31, 2006.
On December 2, 2008, the BIR transferred the assignment of Demadura and directed
and designated Rona Marcellano (Marcellano) to continue the audit thereof however, no new
LOA was issued in the name of Marcellano. On January 25, 2011, the petitioner issued a Formal
Letter of Demand (FLD) to the respondent demanding payment of deficiency income tax and
VAT liabilities for C.Y. 2006 in the aggregate amount of Php17M+ inclusive of interest.
On February 23, 2011, the respondent filed a protest letter with the petitioner, requesting
the cancellation and withdrawal of the deficiency income tax and VAT assessments for C.Y.
2006. However, on April 18, 2013, the petitioner issued the Final Decision on Disputed
Assessment (FDDA) which (i) granted the respondent's request for cancellation of deficiency
income tax assessments for C.Y. 2006, and (ii) reiterated the petitioner's demand for payment of
the respondent's deficiency VAT for C.Y. 2006 in the total amount of Pl6M+.
On May 20, 2013, the respondent filed a petition for review with the CTA Division, which
declared that the C.Y. 2006 assessment is void on the ground that Marcellano was not
authorized by way of an LOA to investigate the books of accounts of the respondent. It is to this
effect that caused the petitioner to file a motion for reconsideration with the CTA Division which
nonetheless was denied. On November 7, 2016, the petitioner filed a petition for review with the
CT AEn Banc but was denied for lack of merit. The petitioner filed a motion for reconsideration,
which was denied by the CTA En Banc. Hence, this petition.

ISSUE: Whether a separate or amended LOA must be issued in the name of a substitute or
replacement revenue officer in case of reassignment or transfer of a revenue officer originally
named in a previously issued LOA

HELD:
Yes. The Court reiterated that in the absence of such an authority, the assessment or
examination is a nullity. There must be a grant of authority, in the form of an LOA, before any
revenue officer can conduct an examination or assessment. The revenue officer so authorized
must not go beyond the authority given. Unless authorized by the CIR himself or by his duly
authorized representative, an examination of the taxpayer cannot be undertaken. Unless
undertaken by the CIR himself or his duly authorized representatives, other tax agents may not
validly conduct any of these kinds of examinations without prior authority and only the CIR and
his duly authorized representatives may issue the LOA which includes the Deputy
Commissioners, the Revenue Regional Directors, and such other officials as may be authorized
by the CIR.
An LOA is an authority given to the appropriate revenue officer assigned to perform
assessment functions. It empowers and enables said revenue officer to examine the books of
accounts and other accounting records of a taxpayer for the purpose of collecting the correct
amount of tax. The issuance of an LOA is premised on the fact that the examination of a
taxpayer who has already filed his tax returns is a power that statutorily belongs only to the CIR
himself or his duly authorized representatives.
This case is an occasion for the Court to rule on a disturbing trend of audits or
investigations conducted by revenue officers who are not specifically named or authorized in the
LOA, under the pretext that the original revenue officer authorized to conduct the audit or
Karl Jason C. Josol TAXATION LAW 2 CASE DIGESTS Fiscal Mariegold Cabrales Northwestern University Laoag College of Law

investigation has been reassigned or transferred to another case or place of assignment, or has
retired, resigned or otherwise removed from handling the audit or investigation.
The Court took this opportunity puts an end to this practice, where it decreed the
following salient points on the matter of reassignment or transfer of a Revenue Officer, to wit:

1) The Reassignment or Transfer of a Revenue Officer Requires the Issuance of a New or

Amended LOA for the Substitute or Replacement Revenue Officer to Continue the Audit
or Investigation
2) Due Process Requires Identification of Revenue Officers Authorized to Continue the Tax
Audit or Investigation
3) The Use of Memorandum of Assignment, Referral Memorandum, or Such Equivalent
Document, Directing the Continuation of Audit or Investigation by an Unauthorized
Revenue Officer Usurps the Functions of the LOA
4) Revenue Memorandum Order No. 43-90 dated September 20, 1990 Expressly and
Specifically Requires the Issuance of a New LOA if Revenue Officers are Reassigned or
Transferred
5) Revenue Officer Marcellano Was Not Authorized to Continue the Audit of the
Respondent's Books of Accounts for C. Y. 2006, Rendering the Assessment Void

COMMISSIONER OF INTERNAL REVENUE vs. DOLE FRESH FRUIT COMPANY (CTA EB

NO. 2341)

FACTS:
Petitioner CIR is the duly appointed Commissioner of Internal Revenue while respondent
herein is Dole Fresh Fruit Company (DFFC) is a corporation duly organized and existing under
the laws of the State of Nevada, USA. DFFC owns 0.64% of the total stockholdings of Dole
Philippines, Inc. (DPI), a corporation organized and existing under the Philippine Law. On
February 19, 2013 DFFC sold and transferred to Dole Asia Holdings Pte. Ltd. (DAHL), a
Singapore private limited company, all its rights, title and interests in and to the Common B
shares in DPI, for a purchase price of Php 105M+. On the year 2013, DFFC filed with the BIR
Internal Tax Affairs Division (ITAD) to request confirmation that the transaction is exempt from
capital gains tax under the RP-US Tax Treaty and thereafter filed its capital gains tax (CGT)
return and paid capital gains taxes in the amount of P9,036,864.40.
On October 1, 2014, DFFC filed with the BIR an Application for Tax Credits/Refund
(Form No. 1914) to recover the erroneously paid capital gains taxes amounting to
P9,036,864.40.12 On February 16, 2016, the Court in Division issued a Resolution ordering
respondent to serve his cross-interrogatories within ten (10) days from notice.
On March 13, 2019, the Judicial Records Division of this Court issued a Records
Verification Report stating that the CIR failed to flle his Memorandum. On February 5, 2020, the
Court in Division rendered the assailed Decision.
On June 29, 2020, DFFC filed its "Comment (to: Motion for Reconsideration flied by CIR
dated 26 February 2020)." On September 8, 2020, the Court in Division issued the questioned
Resolution. Aggrieved, the CIR flied within the extended period, this Petition for Review on
October 15, 2020.
On December 28, 2020, respondent filed its "Comment (to CIR's Petition for Review
dated 15 October 2020). In the Resolution dated January 19,2021, the Court noted
respondent's "Comment (to CIR's Petition for Review dated 15 October 2020)." Accordingly, the
instant case was deemed submitted for decision.
ISSUE: Whether or not the Court in Division erred in declaring DFFC entitled to a refund of the
capital gains taxes erroneously paid to and collected by the CIR

HELD:
No. The CTA En Banc found that DFFC is entided to refund of the capital gains taxes
erroneously paid to and collected by the CIR. The sale of DFFC's shares is exempt from CGT in
Karl Jason C. Josol TAXATION LAW 2 CASE DIGESTS Fiscal Mariegold Cabrales Northwestern University Laoag College of Law

the Philippines pursuant to the RP-US Tax Treaty. In the instant case, DFFC was able to prove
that it is entided to refund. It was able to establish by preponderance of evidence that it is an
entity incorporated and residing in the US; that it is not registered either as a corporation or a
partnership in the Philippines nor has been issued a license do business in the Philippines; that
the real properties of DPI that were sold do not consist of more than 50% of all its assets in the
Philippines; and that it complied with all the requirements for a claim for refund of erroneously
paid taxes.

PEOPLE VS. ROBIEGIE CORPORATION (CTA EB NO. 2188 January 8, 2021)

FACTS:

Robiegie Corporation (RC), the respondent herein is a SEC-registered corporation

engaged in the business of operating a drugstore where in July 7, 2017, a complaint was filed
against said corporation for the collection of alleged deficiency income tax, value-added tax
(VAT), increments for late payments of withholding tax on compensation (WTC), and
compromise penalties, etc. for taxable year (TY) 2007.
It started on April 15, 2008 where RC filed its Annual Income Tax Return and Audited
Financial Statements for December 31, 2007 and 2006. Then in September 10, 2010, RC
submitted its documents to contest the deficiency taxes as reflected in the Notice for Informal
Conference with Computation of Deficiency Taxes and Details of Discrepancies. Thereafter in
December 30, 2011, RC filed a Letter Protest to the Preliminary Assessment Notice with Details
of Discrepancies and the same was given due course.
In October 2013, Warrant of Distraint and/or Levy was issued and served to RC,
however, no property could be located that may be levied upon for the satisfaction of its tax
liabilities. RC did not acquire any property during its existence and likewise has no existing bank
account and on various dates, hence, Warrants of Garnishment were issued to different banks
but it has no existing bank deposits that could be garnished;
On July 31, 2017, Summons was issued by the Court requiring RC to file an Answer to
the Complaint. Moreover, a Summons was served upon RC on March 6, 2018. Thereafter, a
Pre-Trial conference was conducted on June 21, 2018 and after which the parties submitted
their Joint Stipulation of Facts and Issues (JSFI).
On February 13, 2019, the Court issued an Order directing plaintiff to file a comment to
the aforesaid motion of respondent RC. Plaintiff failed to file its comment within the period
prescribed by the Court which led to the issuance of a Resolution dated April 1, 2019, granting
respondent's Motion for Leave of Court to File Demurrer to Evidence.
On November 29, 2019, plaintiff filed a Petition for Review with the Court En Banc which
was docketed as CTA EB No. 2188. Plaintiff is now the petitioner in the Court En Banc. On
December 11, 2019, respondent RC filed its Comment/Opposition to the Petition for Review and
on January 8, 2020, this case was submitted for decision.

ISSUE: Whether or not the CTA Third Division erred in holding that the tax assessments are
invalid for want of authority of the revenue officers who conducted the audit/ examination,
through a Letter of Authority

HELD:
No. The CTA En Banc upheld the decision of the CTA Third Division. The CTA En Banc
agrees with respondent Robiegie Corporation following its position that the assessments are
deemed invalid and concluding thereat that petitioner has no right to collect the alleged
deficiency taxes for taxable year 2007, firmly attesting to the importance of issuing a new LOA
for purposes of granting authority to a new set of ROs to continue the tax investigation.
The assertion of plaintiff’ that an MOA is sufficient to empower the ROs to continue the
examination of taxpayers' books of accounts and other accounting records is misplaced. It
stressed that assuming for the sake of argument that the MOA cum LOA authorizes the
Karl Jason C. Josol TAXATION LAW 2 CASE DIGESTS Fiscal Mariegold Cabrales Northwestern University Laoag College of Law

continuation of the investigation, Revenue District Officer (RDO) Teodoro A. Huelva who signed
the MOA holds a rank lower than an RD then it has already violated Section 10 of the 1997
NIRC, as amended. Further, in the case of CIR vs. Sony Philippines, Inc. (Sony), the Supreme
Court ruled that the absence of a valid LOA makes the assessment or examination a nullity.
With regard to the re-assignment of the audit examination to a new set of officers, the
provisions of Section C (1) and (5) of RMO 43-90 dated September 20, 1990, are clear when it
provides that the continuation of an audit to replace the officer(s) named in the previous LOAs
requires the issuance of a new LOA. All audit investigations must be conducted by a designated
RO, duly authorized to perform audit and examination of taxpayer's books and accounting
records, pursuant to an LOA and that in case of re-assignment or transfer of cases to another
RO, it is mandatory that a new LOA shall be issued in favor of the latter. It is evident from the
aforequoted provisions of law, revenue issuances and the doctrine enunciated in the Medicard
and Sony cases that the subject MOA and Assignment Slip cannot clothe ROs Enguera,
Bisares, and Pielago with the requisite authority to continue the examination of petitioner's tax
liabilities for taxable year 2007. Simply put, the said MOAs cannot be equated with the LOA, as
required by law and jurisprudence.

COMMISSIONER OF INTERNAL REVENUE VS. UNIOIL CORP. (GR NO.204405 08-04-2021)

FACTS:
Respondent Unioil is a corporation duly organized and existing under Philippine laws
while petitioner CIR is the Commissioner of the Bureau of Internal Revenue (BIR). On January
26, 2009, respondent Unioil received a Formal Letter of Demand and Final Assessment Notice
(FAN) from BIR finding Unioil liable for deficiency withholding tax on compensation and
deficiency expanded withholding tax for the year ending December 31, 2005. Unioil protested to
the FAN and thereafter filed the Instant Petition for Review considering that the CIR failed to act
on its protest and the (180) day period already expired. Thereafter the CIR filed her answer on
December 14, 2009.
UNIOIL denied receiving the Preliminary Assessment Notice. The CTA Third Division
ruled in favor of Unioil citing that “to establish, among others, that a PAN was issued in
compliance with existing revenue issuances; but the same failed to show that they were sent to
petitioner, either through personal delivery or mail. No other documentary or testimonial
evidence was submitted by [the CIR] to disprove [Unioil]'s alleged non-receipt of the PAN and
[the CIR]'s failure to do so leads to the conclusion that no PAN was really issued. While there
are instances when the non-issuance of a PAN prior to a FAN is allowed, the same are
unavailing because the instant case is not among those enumerated.”
The CTA Third Division no longer discussed the other issues and arguments raised by
the parties considering its finding that the CIR did not issue a PAN which consequently avoided
the assessment against Unioil for deficiency withholding taxes in the total amount of
P536,801.10. The CIR moved for partial reconsideration and contended that Unioil did receive a
PAN since it was able to file a Protest thereon. However, the CTA Third Division stood pat on its
ruling. Thus, the CIR appealed to the CTA En Banc arguing for the validity of its assessment
against Unioil and the latter's liability for deficiency withholding taxes. However, the CTA En
Banc affirmed the ruling of the CTA Third Division. Obtaining no relief from the CTA, the CIR
filed this petition for review on certiorari and submitted for the first time proof of its issuance of a
PAN and Unioil's actual receipt thereof.

ISSUE/S:

1) Whether or not the CTA erred in finding that respondent was denied its right do
due process based on the purported failure to received a PAN
Karl Jason C. Josol TAXATION LAW 2 CASE DIGESTS Fiscal Mariegold Cabrales Northwestern University Laoag College of Law

2) Whether or not respondent Robiegie Corporation is liable for Deficiency

Withholding Tax on Compensation and deficiency expanded withholding tax for
failure to submit all relevant documents to rebut the assessment notice

HELD:

1) No. The CTA did not err in finding that Robiegie Corporation was denied its right to due
process based on its failure to receive a PAN. The CIR's negligence in their power and
duty to properly assess taxes is palpable in this case. First, the CIR failed to establish
the fact of their issuance of a PAN by not keeping proper records of the tax audit and
assessment of Unioil. During the trial, the CIR even relied on Unioil's proffered evidence
as proof of issuance. Second, the issue on the ostensibly "missing" PAN arose because
of the CIR's contention that the timely issuance thereof sufficiently interrupted the
three-year prescriptive period for the assessment of taxes under Section 20334 of the
NIRC. Last, the FAN accompanying the Formal Letter of Demand did not comply with the
obligatory provision on protesting a tax assessment under Section 22835 of the NIRC.
Ultimately, void assessment bears no valid fruit. The Court ruled that the assessment is
void for not stating the factual and legal bases therefor and the three-year period for
assessment has already prescribed

2) No. The CIR's assessment of Unioil for deficiency withholding taxes has already
prescribed. Section 203 of the NIRC mandates the government to assess internal
revenue taxes within three years from the last day prescribed by law for the filing of the
tax return or the actual date of filing of such return, whichever comes later. Hence, an
assessment notice issued after the three-year prescriptive period is no longer valid and
effective.

10K SOUTH CONCRETE MIX SPECIALIST , INC. VS. COMMISSIONER OF INTERNAL

REVENUE (CTA Case No. 9730, Nov. 18, 2021)

FACTS:
Petitioner 10K South Concrete Mix is a domestic corporation duly organized and existing
under the laws of the Republic of the Philippines while respondent CIR is sued in his official
capacity, having been duly appointed and empowered to perform the duties of his office, as the
chief of the Bureau of Internal Revenue (BIR). On September 30, 2014, respondent issued
Letter of Authority No. LOA-052-2014-00000288 authorizing the examination of petitioner's
assessment. On November 17, 2017, petitioner received a letter from BPI and Security Bank
that said banks received a Warrant of Garnishment. Aggrieved, petitioner filed the instant
Petition for Review (With Urgent Motion to Lift Garnishment and To Suspend the Collection of
Tax) on December 8, 2017.
In the Resolution dated October 24, 2018,the Court ordered the lifting of the Warrant of
Garnishment dated November 2, 2017 pending the final disposition of the instant case; and the
cash deposit or bond was dispensed with. Moreover, respondent was ordered to cease and
desist from collecting the subject deficiency income tax, VAT, final withholding tax, and
compromise penalty for the taxable year 2013 in the aggregate amount of P43M+. On June 10,
2019, petitioner filed an Omnibus Motion for Reconsideration and Motion to Reopen
Proceedings and later filed a Supplemental Formal Offer of Evidence on September 20, 2019.
For his part, respondent presented a sole witness, Revenue Officer Eugene Valentine V.
Berganio. Thereafter, respondent filed his Formal Offer of Evidence while petitioner filed its
Comment (On Respondent's Formal Offer of Evidence Dated December 16, 2019 on December
20, 2019. On March 9, 2020, the Court issued the Resolution admitting all of respondent's
exhibits. Considering the filing of petitioner's Memorandum on July 16, 2020, without
respondent's Memorandum, the instant case was submitted for decision on December 21, 2020.
Karl Jason C. Josol TAXATION LAW 2 CASE DIGESTS Fiscal Mariegold Cabrales Northwestern University Laoag College of Law

ISSUE/S:

1) .Whether or not petitioner is liable for alleged deficiency income tax, VAT and final
withholding tax for taxable year 2013 in the aggregate amount of P43,216,903.36
2) Whether or not respondent's right to assess petitioner deficiency VAT for the first and
second quarters of taxable year 2013 and deficiency final withholding tax for taxable
year 2013 had already prescribed
3) Whether or not the Warrants of Garnishment dated November 2, 2017 issued by
respondent and served upon Security Bank & Trust Co. and Bank of the Philippine
Islands on November 9, 2017 and November 10, 2017, respectively, were void

HELD:

1) No. Petitioner is not liable for alleged deficiency income tax, VAT and final withholding tax for
the taxable year 2013 because respondent failed to prove that the FLD/FAN was mailed to, and
received by, petitioner. Considering that respondent failed to present the Registry Receipt
issued by PHLPOST or the Registry Return Card signed by petitioner or its authorized
representative, and that the Postmaster Certification failed to prove that what was mailed to
petitioner was the FLD/FAN, respondent failed to discharge the burden of proving the fact of
mailing of the FLD/FAN. Accordingly, for having failed to comply with the due process
requirements set forth in Section 288 of the NIRC, as amended, and RR No. 12-99, as
amended, the assessment issued by respondent against petitioner in the instant case is void.

2) Yes. Respondent's right to assess petitioner for the alleged deficiency taxes had already
prescribed. Considering that petitioner never received the FLO/FAN, respondent may no longer
assess petitioner for the alleged deficiency taxes for taxable year 2013 as respondent's right to
do so had already prescribed. The pertinent provisions of the NIRC of 1997, as amended, show
that the BIR is given a period of three (3) years to assess internal revenue taxes, which is
reckoned from the last day prescribed by law for the filing of the tax return or the actual date of
filing thereof, whichever comes later.

3) Yes. The Court emphasized that a void assessment bears no valid fruit, hence the Warrants
of Garnishment issued by respondent are void. Respondent who failed to prove the fact of
mailing to, and actual receipt by, petitioner of the FLO/FAN has thus rendered the assessment
void. Corollary thereto, respondent failed to assess petitioner for alleged deficiency taxes within
the three (3)- year prescriptive period. Consequently, the Warrants of Garnishment, having
emanated from a void assessment, are likewise void.

THUNDERBIRD PILIPINAS HOTELS AND RESORTS, INC., VS. COMMISSIONER OF

INTERNAL REVENUE (G.R. No. 211327 Nov. 11, 2020)

FACTS:

Petitioner Thunderbird Pilipinas is a domestic corporation operating a casino and resort

complex registered with the Poro Point Management Corporation as a Poro Point Special
Economic and Freeport Zone enterprise in San Fernando City, La Union while respondent
herein is the Commissioner of Internal Revenue of BIR in its official capacity. On April 16, 2007,
Thunderbird Pilipinas filed its annual income tax return for taxable year 2006 but showed a
deferred rent expense of P14,201,733.00. On November 19, 2008, the Bureau of Internal
Revenue issued Assessment Notices against petitioner for deficiency income tax and
expanded withholding tax, respectively, together with a Formal Letter of Demand in the
aggregate amount of P15,331,711.00, inclusive of interest and penalties.
Karl Jason C. Josol TAXATION LAW 2 CASE DIGESTS Fiscal Mariegold Cabrales Northwestern University Laoag College of Law

Thunderbird Pilipinas protested the assessments but was denied by the Regional
Director and after which the petitioner received a collection letter directing the latter for the
payment of the assessed tax within 10 days from receipt. On April 3, 2009 Thunderbird filed its
Petition for Review before the Court of Tax Appeals, seeking to cancel the deficiency income
and expanded withholding tax assessments for 2006. On July 18, 2012, the Court of Tax
Appeals First Division rendered its Decision, finding Thunderbird Pilipinas liable for deficiency
income and expanded withholding taxes. It held that since PAGCOR was no longer exempt from
income tax, pursuant to the rulings in Abakada Guro Party List v. Ermita and PAGCOR v.
Bureau of Internal Revenue, Thunderbird Pilipinas the licensee/contractee of PAGCOR -is
likewise subject to income tax from its casino operations. For lack of evidence, it also rejected
Thunderbird Pilipinas's contention that it was not liable for deficiency expanded withholding tax.
Thunderbird Pilipinas moved for reconsideration, but the First Division denied its Motion
for Reconsideration. On appeal, the Court of Tax Appeals En Banc affirmed the First Division's
rulings. Hence, Thunderbird Pilipinas filed this Petition. In compliance with this Court's July 9,
2014 Resolution, respondent Commissioner of Internal Revenue filed a Comment, to which
petitioner filed its Reply.

ISSUES:

1) Whether or not the Decision in the 2011 case of PAGCOR v. Bureau of Internal Revenue
should be applied prospectively;
2) Assuming that the 2011 PAGCOR case may be applied retroactively, whether or not it is
binding on petitioner Thunderbird Pilipinas Hotels and Resorts, Inc., a licensee of
PAGCOR;
3) Whether or not petitioner Thunderbird Pilipinas Hotels and Resorts, Inc. is liable for
deficiency income tax for taxable year 2006;
4) Assuming that petitioner Thunderbird Pilipinas Hotels and Resorts, Inc. is subject to
income tax, whether or not it is liable to pay only 3% of its gross income to the national
government instead of 5% pursuant to its registration as a Poro Point Special Economic
and Freeport Zone enterprise;
5) Whether or not its payment to PAGCOR of 25% of its gross gaming revenue can be
applied against its deficiency income tax;
6) Whether or not petitioner Thunderbird Pilipinas Hotels and Resorts, Inc. is liable for
deficiency expanded withholding tax on legal fees paid to Fortun Narvasa & Salazar Law
Office and Punongbayan & Araullo, rental payments to Poro Point Management
Corporation, and management / fees paid to Thunderbird Resorts, Inc.;
7) Seventh, whether or not the 25% surcharge imposed by the Court of Tax Appeals on
alleged deficiency taxes is valid.

HELD:

1) Yes. It is clear that from the decided case of PAGCOR vs. BIR where the Court has
clarified that only PAGCOR's income from other related services was removed from the
tax privilege by Republic Act No. 9337 particularly: (1) PAGCOR's income from licensing
of casinos, gaming, and other related operations, as well as other income not connected
to its casino operations, are subject to corporate income tax; and (2) PAGCOR is subject
to a 5% franchise tax on its gaming and other related operations. And that it is still
exempt from income tax on incomes derived from its main operations.

2) Yes. This Court's pronouncement in Acesite, we construe Section 13(2)(b) of

Presidential Decree No. 1869 to mean that the tax exemption of PAGCOR extends only
to those individuals or entities that have contracted with PAGCOR in connection with
PAGCOR's casino operations. The exemption does not include private entities that were
licensed to operate their own casinos. Here, petitioner was authorized and licensed by P
AGCOR to construct and operate a casino complex, by virtue of the April 11, 2006
Memorandum of Agreement91 and the October 31, 2006 License.Petitioner does not fall
Karl Jason C. Josol TAXATION LAW 2 CASE DIGESTS Fiscal Mariegold Cabrales Northwestern University Laoag College of Law

within the purview of Section 13(2)(b ). Therefore, revenues derived by petitioner from its
casino operations are not exempt from income tax.

3) This Court accords the highest respect to the Court of Tax Appeals' factual findings. We
recognize its developed expertise on the subject, being the court solely dedicated to
considering tax issues, unless there is a showing of abuse in the exercise of authority.
We find no compelling reason to overturn its factual findings on the amounts of
deficiency expanded withholding tax assessments.

4) Yes it is clear from the provisions of Paragraph 2 of Section 15-A Poro Point Freeport
Zone (PPFZ) of RA 9400 (March 20, 2007 It amended certain provisions of Republic Act
No. 7227, including the insertion of a new Section 15-A, thus: The provisions of existing
laws, rules and regulations to the contrary notwithstanding, no national and local taxes
shall be imposed on registered business enterprises within the PPFZ. In lieu of said
taxes, a five percent (5%) tax on gross income earned shall be paid by all registered
business enterprises within the PP FZ and shall be directly remitted as follows: three
percent (3%) to the National Government, and two percent (2%) to the treasurer's office
of the municipality or city where they are located.

5) Likewise, the Court of Tax Appeals correctly rejected petitioner's argument that its payment of
the 25% license fee is already inclusive of the 5% income tax. It stated: The 25% license fee/
gross gaming revenue paid by petitioner is different and distinct form the income tax to which
petitioner is being assessed. The 25% gross gaming revenue is being paid by virtue of the
License entered into by petitioner with P AGCOR. It is based on the aggregate gross gaming
revenue of the Fiesta Casino. On the other hand, 5% income tax is based on the total gross
revenues originating from the Fiesta Casino.

6) Yes, liable. The Court emphasized that these assertions raise questions of facts that will
entail an evaluation of evidence, which are beyond the scope of a judicial review under Rule 45
of the Rules of Court. Settled is the rule that the factual findings of the Court of Tax Appeals are
binding on this Court and can only be disturbed on appeal if not supported by substantial
evidence

7) Yes it is valid. This Court finds the imposition of the 25% surcharge to be proper and the
Court held that the law is clear in requiring the payment of the surcharge in case of nonpayment
within 30 days after notice and demand. The surcharge and interest "are invariably considered
as 'part of the tax,' so that the rule governing payment of taxes on the dates fixed by law would
apply, and would leave no room for discretion on the part of revenue officials, or the Court of Tax
Appea