Case Digest (G.R. No. 178697) Core Legal Reasoning Model
Core Legal Reasoning Model
Facts:
On November 24, 1998, the Commissioner of Internal Revenue (CIR) issued Letter of Authority No. 000019734 authorizing examination of Sony Philippines, Inc.’s books and other accounting records “for the period 1997 and unverified prior years.” On December 6, 1999, the CIR issued a preliminary assessment of deficiency Value-Added Tax (VAT), Expanded Withholding Tax (EWT), VAT on royalties and penalties for late remittance of final withholding tax and other internal revenue taxes, aggregating ₱15,895,632.65. Sony protested on February 2, 2000, and submitted supporting documents. When the CIR failed to act within the prescribed period, Sony filed a petition for review with the Court of Tax Appeals-First Division on October 24, 2000. The CTA-First Division disallowed the deficiency VAT assessment, upheld a reduced EWT assessment of ₱1,035,879.70 and penalties of ₱1,269,593.90. On May 17, 2007, the CTA En Banc affirmed that decision; its July 5, 2007 Resolution denied the CIR’s motion Case Digest (G.R. No. 178697) Expanded Legal Reasoning Model
Expanded Legal Reasoning Model
Facts:
- LOA and Tax Assessments
- On November 24, 1998, the Commissioner of Internal Revenue (CIR) issued Letter of Authority (LOA) No. 19734 authorizing audit of Sony Philippines, Inc. (Sony) for “period 1997 and unverified prior years.”
- After examination, the CIR issued final assessments for:
- Deficiency VAT – Basic tax P 7,958,700.00 plus penalties and interest, total P 11,141,014.41.
- Deficiency Expanded Withholding Tax (EWT) – Basic tax P 1,416,976.90 plus penalties and interest, total P 1,992,462.72.
- Deficiency VAT on royalty payments – Penalties total P 462,758.14.
- Penalties for late remittance of final withholding tax on royalties, income payments, and EWT of branches – Total P 2,288,473.78 and P 10,923.60 respectively; Grand total of all assessments and penalties P 15,895,632.65.
- Protest and CTA First Division Decision
- Sony filed a protest on February 2, 2000, submitted supporting documents on February 16, and petitioned the Court of Tax Appeals (CTA) on October 24, 2000.
- On October 26, 2004, the CTA-First Division:
- Cancelled the deficiency VAT assessment, recognizing input VAT credit on subsidized advertising expenses.
- Upheld EWT assessment on motor vehicles, professional fees, and commission payments (5% rate); disallowed EWT on rental deposit as beyond LOA coverage.
- Upheld penalties for late remittance except compromise penalties; directed Sony to pay EWT of P 1,035,879.70 and penalties of P 1,269,593.90 plus 20% interest.
- CTA En Banc and Supreme Court Petition
- The CIR filed for reconsideration; on May 17 and July 5, 2007, the CTA-En Banc affirmed the First Division decision and denied reconsideration.
- CIR elevated the case to the Supreme Court raising four grounds:
- Sony’s liability for deficiency VAT.
- Proper withholding rate on commission expense.
- Validity of 5% withholding on rental deposit.
- Timeliness of final withholding tax (FWT) remittance on royalties from January to March 1998.
Issues:
- Whether Sony is liable for the deficiency VAT of P 11,141,014.41 under LOA 19734.
- Whether the P 2,894,797.00 commission expense should be subjected to 10% EWT instead of 5%.
- Whether the 5% withholding tax on the P 10,523,821.99 rental deposit is proper.
- Whether the FWT on royalties from January to March 1998 was filed and remitted on time.
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)