G.R. No. 169225 - Commissioner of Internal Revenue vs. Hambretch and Quist Philippines, Inc.

On February 15, 1993, Hambrecht & Quist Philippines, Inc. (respondent) informed the Bureau of Internal Revenue (BIR), through its West-Makati District Office, of its change of business address from Corinthian Plaza to PCIB Tower II, both located in Makati City. The BIR-West Makati received this letter on February 18, 1993.
On November 4, 1993, respondent received a follow-up, or tracer, letter dated October 11, 1993, from the Accounts Receivable/Billing Division of the BIR’s National Office, demanding payment of alleged deficiency income and expanded withholding taxes for the taxable year 1989 amounting to ₱2,936,560.87.

On December 3, 1993, respondent’s external auditors filed a protest letter with the Accounts Receivable/Billing Division against the deficiency income and expanded withholding tax assessments indicated in the October 11, 1993 tracer letter.
The deficiency assessment primarily stemmed from disallowance of various expenses such as professional fees, donations, repairs and maintenance, salaries and wages, and predominantly management fees. The withholding tax assessment focused largely on alleged failure to withhold tax on management fees.
Revenue Regulations No. 6-85 (EWT Regulations) was noted not to impose expanded withholding tax on management fees paid to a non-resident.

On October 27, 2001, the Commissioner of Internal Revenue (CIR) denied respondent’s protest, citing that the protest was filed beyond the 30-day reglementary period under Section 229 of the National Internal Revenue Code (NIRC).
On December 6, 2001, respondent filed a Petition for Review with the Court of Tax Appeals (CTA), appealing the CIR’s denial.

The CTA Original Division (September 24, 2004) upheld the validity of the assessment notice sent by registered mail on January 8, 1993, to respondent’s former business address since the formal notice of change of address happened only on February 18, 1993. As respondent failed to protest within 30 days, the assessment became final and unappealable.
Despite this, the CTA ruled that the CIR failed to collect within the prescriptive period and accordingly canceled the assessment notice.
Petitioner’s motions for reconsideration were denied, and the CTA En Banc affirmed the cancellation in its August 12, 2005 decision.

CIR filed a Petition for Review on Certiorari before the Supreme Court raising issues on the jurisdiction of the CTA to rule on the prescription of the government’s right to collect tax and whether such right had prescribed.

Whether the Court of Tax Appeals (CTA) has jurisdiction to rule that the government’s right to collect the tax has prescribed despite the assessment being final and unappealable.
Whether the period to collect the tax assessment has prescribed considering respondent’s request for reinvestigation.