NextGen Day

MANILA – The Court of Tax Appeals (CTA) has ruled in favor of two corporations who were fighting tax charges totaling PHP5 billion.

In two separate cases, the CTA en banc found that the revenue officers (ROs) who suggested the assessments against Robinsons Convenience Stores Inc. and Watsons Personal Care Stores Inc. were not properly authorized at the time with valid letters of authority (LoA).

Associate Justice Catherine Manahan’s 13-page decision dated May 13 affirmed the court’s earlier June 30, 2020 ruling in favor of Robinsons Convenience Stores Inc., which had disputed a PHP3.5 billion tax assessment against it.

The commissioner of internal revenue’s appeal was denied by the tax court, citing, among other things, the fact that the revenue officers (ROs) who recommended the tax assessment against the company for tax years 2009 and 2010 were not the same ones who were given a letter of authority (LoA) to examine the company’s books of accounts and other accounting records.

In deficient income taxes, value-added tax (VAT), and withholding tax on compensation, the corporation was assessed PHP3.507 billion.

However, the court found that when Reynante Martinez, Rosario Arriola, Carolyn Mendoza, Sheila Samaniego, and Rolando Balbido exercised the assessment powers, they were not properly authorized by a new LoA.

“The lack of RO authority is equivalent to the absence of an LoA, resulting in a void evaluation.” “Being a vacuous assessment, the same bears no fruit,” it remarked.

“Any tax examination conducted in violation of the taxpayer’s right to due process is inescapably unlawful,” the tax court continued, “because the absence of an LoA is one such index of violation of due process.”

In the second instance, the CTA en banc found in Watsons’ favor in a 25-page ruling written by Associate Justice Erlinda Uy.

On December 17, 2014, the Bureau of Internal Revenue issued a formal letter of demand against the corporation for deficiency taxes totaling PHP1.458 billion for the year 2010.

On Nov. 3, 2015, the BIR lowered the assessment to PHP430 million in a final decision on the disputed assessment (FDDA).

On March 18, 2016, Watsons filed a petition with the CTA, contesting the assessment.

The BIR issued a letter of authorization (LOA) on Sept. 19, 2011 permitting revenue officers Meliza Wepee, Reynoso Bravo, William Sundiam, Miguel Sulit, Maribel Serafica, and Wilfredo Reyes to review the company’s books, according to the court.

The BIR’s Regular Large Taxpayer Audit Division issued a memorandum of assignment (MOA) on Feb. 25, 2013, referring the case to revenue officers Jennifer Almedilla and Marivic Bautista to continue the audit and investigation in place of the previously assigned revenue officers who resigned, retired, or were transferred to another BIR district.

According to the BIR, it is legal to reassign a case to another issuance of a MoA in order to continue an audit examination.

The tax court ruled in the company’s favor, saying that a MoA “is not sufficient to grant revenue officers the authority to conduct audit investigations,” and that “nowhere (in revenue regulations) expressly dispenses with the requirement for the issuance of a new LoA in cases of reassignment of ROs.”

The court stated that when cases are reassigned or transferred to another tax officer, “a new LoA must be issued.”

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