Commissioner of Internal Revenue vs. La Flor Dela Isabela, Inc. G.R. No. 211289, January 14, 2019

Facts:

La Flor dela Isabela, Inc. (La Flor) is a domestic corporation duly organized and existing under Philippine Law. It filed monthly returns for the EWT and WTC for CY 2005. On 9/3/2008, 2/16/2009, and 12/2/2009, it executed Waivers of the Statute of Limitations. On 1/7/2010, it received four Formal Letters of Demand and Final Assessment Notices (FANs), all dated 12/17/2009. On 1/15/2010, it filed its Letter of Protest contesting the assessment notices.

Commissioner of Internal Revenue (CIR)

On 7/20/2010, it issued the Final Decision on Disputed Assessment (FDDA) involving the alleged deficiency withholding taxes in the aggregate amount of P6,835,994.76.

CTA Third Division Decision

In its 8/3/2012 Decision, it ruled in favor of La Flor and cancelled the deficiency tax assessments against it.

It ruled that based on the dates when La Flor filed its returns for EWT and WTC, the CIR had until 2/15/2008 to 3/1/2009 to issue an assessment pursuant to the three-year prescriptive period under Section 203 of the NIRC. The Waivers entered into by the CIR and La Flor did not effectively extend the prescriptive period for the issuance of the tax assessments.

CTA En Banc Decision

In its 9/30/2013 Decision, it affirmed the Decision of the CTA Division. It ruled that the EWT and WTC assessments were barred by prescription. The 9/3/2008 and 12/2/2009 Waivers were inadmissible because they were never offered in evidence. Further, the 2/16/2009 Waiver was defective because it failed to comply with RMO No. 20-90 as it did not specify the kind and amount of tax involved.

Issues:

1. WHETHER THE PRESCRIPTIVE PERIOD UNDER SECTION 203 OF THE NIRC APPLIES TO EWT AND WTC ASSESSMENTS.
2. WHETHER LA FLOR’S EWT AND WTC ASSESSMENTS FOR 2005 WERE BARRED BY PRESCRIPTION.

Held:

1. Yes, the prescriptive period under Section 203 of the NIRC applies to EWT and WTC assessments.

Yes, La Flor’s EWT and WTC assessments for 2005 were barred by prescription.

Withholding taxes are internal revenue taxes covered by Section 203 of the NIRC.

SEC. 203. Period of Limitation Upon Assessment and Collection. – Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided, That in case where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return was filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day. (Emphasis supplied)

Under the existing withholding tax system, the withholding agent retains a portion of the amount received by the income earner. In turn, the said amount is credited to the total income tax payable in transactions covered by the EWT. On the other hand, in cases of income payments subject to WTC and Final Withholding Tax, the amount withheld is already the entire tax to be paid for the particular source of income. Thus, it can readily be seen that the payee is the taxpayer, the person on whom the tax is imposed, while the payor, a separate entity, acts as the government’s agent for the collection of the tax in order to ensure its payment.

Thus, withholding tax assessments such as EWT and WTC clearly contemplate deficiency internal revenue taxes. Their aim is to collect unpaid income taxes and not merely to impose a penalty on the withholding agent for its failure to comply with its statutory duty.

Second Issue

In Commissioner of Internal Revenue v. Systems Technology Institute, Inc., the Court ruled that waivers extending the prescriptive period of tax assessments must be compliant with RMO No. 20-90 and must indicate the nature and amount of the tax due.

WHEREFORE, the petition is DENIED.

The September 30, 2013 Decision and the February 10, 2014 Resolution of the Court of Tax Appeals En Banc in CTA EB No. 951 are AFFIRMED.