Case Digest (G.R. No. 178697)
Facts:
Commissioner of Internal Revenue v. Sony Philippines, Inc., G.R. No. 178697, November 17, 2010, Supreme Court Second Division, Mendoza, J., writing for the Court. The petitioner is the Commissioner of Internal Revenue (CIR); the respondent is Sony Philippines, Inc. (Sony).
On November 24, 1998 the CIR issued Letter of Authority (LOA) No. 000019734 authorizing revenue officers to examine Sony’s books “the period 1997 and unverified prior years.” A preliminary assessment for 1997 deficiency taxes and penalties was issued December 6, 1999; after Sony protested, the CIR issued final assessment notices and details of discrepancies showing a combined grand total deficiency (including VAT, EWT and penalties) of about P15.9 million, with the principal figures being a deficiency VAT of P11,141,014.41 and a deficiency expanded withholding tax (EWT) of P1,992,462.72.
Sony filed a protest on February 2, 2000 and submitted supporting documents on February 16, 2000. When 180 days lapsed without final resolution, Sony filed a petition for review with the Court of Tax Appeals (CTA) on October 24, 2000. After trial, the CTA-First Division (decision dated October 26, 2004, penned by Presiding Justice Acosta) partially granted Sony’s petition: it cancelled the deficiency VAT assessment (finding, inter alia, that advertising expenses evidenced by VAT invoices gave rise to input VAT credits) but upheld a modified EWT assessment (including EWT on motor vehicles and professional fees and treating certain commissions as subject to 5% withholding) and penalties, while disallowing the EWT assessment on rental deposits because those related to January–March 1998, a period found to be outside the LOA’s coverage. The CTA-First Division’s dispositive paragraph ordered cancellation of the VAT deficiency but upheld payment of P1,035,879.70 (deficiency EWT) and P1,269,593.90 (penalties), plus delinquency interest.
The CIR moved for reconsideration and, after its denial by the CTA-First Division on April 28, 2005, elevated the case to the CTA-En Banc. The CTA-En Banc affirmed the First Division in a May 17, 2007 Decision and denied the CIR’s motion for reconsideration on July 5, 2007. The CIR then filed this petition for review on certiorari before the Supreme Court challenging the CTA rulings on: (1) liability for the deficiency VAT; (2) the proper withholding tax rate on commissions (10% vs. 5%); (3) the propriety o...(Pro-only)
Issues:
- Did the CIR err in assessing respondent Sony for deficiency VAT for 1997 (P11,141,014.41)?
- (a) Should Sony’s commission expense (P2,894,797.00) have been subject to 10% withholding tax instead of 5%? (b) Was the CIR’s assessment of 5% withholding tax on the rental deposit (P10,523,821.99) proper?
- Was Sony’s remittance of final withholding tax on royalties coverin...(Pro-only)
Ruling:
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Ratio:
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Doctrine:
- (Pro-only)