G.R. No. 76281 - Commissioner of Internal Revenue vs. Wyeth Suaco Laboratories, Inc.

Wyeth Suaco Laboratories, Inc. is a domestic corporation engaged in manufacturing and selling assorted pharmaceutical and nutritional products.
Its accounting period is on a fiscal year basis ending every October 31.
An investigation was initiated under Letter of Authority No. 52415 dated June 17, 1974, by then Commissioner of Internal Revenue Misael P. Vera, with Revenue Examiner Dante Kabigting reviewing its books of accounts.

Wyeth Suaco was remitting payments for royalties to its foreign licensors and for technical services to Wyeth International Laboratories of London.
The company had declared cash dividends on September 27, 1973 which were paid on October 31, 1973.

Non-remittance of withholding tax at source for the fourth quarter of 1973 on accrued royalties, technical service remunerations, and cash dividends, amounting to a deficiency of P3,178,994.15.
Failure to remit the correct amount of advance sales tax due to the deduction of non-deductible raw materials during specified periods (November 1, 1972 – December 31, 1972 and January 1, 1973 – October 31, 1973) and a short payment related to the importation of “Mega Polymycin D,” resulting in a deficiency sales tax of P60,855.21 and a compromise penalty of P300.

The Bureau of Internal Revenue (BIR) issued two assessment notices dated December 16 and December 17, 1974, both received on December 19, 1974, imposing the aforementioned tax deficiencies.
Wyeth Suaco, through its tax consultant SGV & Co., filed protest letters on January 17, 1975, and February 8, 1975, contending that:

Withholding tax on accrued royalties and dividends should only be remitted upon actual remittance or payment abroad, particularly under the restrictions imposed by Central Bank Circular No. 289.
Regarding technical services, the company maintained that the appropriate withholding tax had been timely remitted.
The discrepancy in the reported sales tax was due to the use of estimated figures by the Bureau of Customs and foreign exchange differences, although it admitted liability for a short payment of P1,000 on its importation of “Mega Polymycin D.”

Subsequently, on September 12, 1975, the Commissioner proposed a compromise settlement under LOI 308. Wyeth Suaco indicated its willingness to settle with a 10% compromise on the basic sales tax, excluding surcharge and interest, while maintaining its objections regarding the withholding tax.

On December 10, 1979, a decision by the then acting Commissioner Ruben B. Ancheta reduced the deficiency withholding tax to P1,973,112.86 but maintained the sales tax at P61,155.21.
Wyeth Suaco filed a petition for review before the Court of Tax Appeals on January 18, 1980, arguing:

On February 7, 1980, the BIR issued a warrant of distraint and levy to enforce the collection of the deficiency taxes, served on March 12, 1980. However, these collection actions were later enjoined by the court on May 22, 1980.

The central issue later revolved around whether the five-year prescriptive period for collection had been interrupted by Wyeth Suaco’s actions:

Although collection from the original assessments would have been barred by prescription (the assessments were received in December 1974 and warrants served in March 1980), Wyeth Suaco’s protest letters were argued to constitute a request for reinvestigation or reconsideration.
A letter from the company’s President and General Manager, dated April 28, 1975, explicitly sought reconsideration of the assessments, which, along with subsequent correspondence from its finance department, demonstrated that the protest was intended as a request for review.

As a result, the Bureau’s Manufacturing Audit Division was directed to conduct a review, leading to the issuance of the final assessment on December 10, 1979, which was received on January 2, 1980.
The prescriptive period was thus interrupted and resumed only after the issuance of the final assessment.

Wyeth Suaco questioned the legality of the BIR’s requirement to remit withheld taxes on incomes not yet paid out (i.e., accrued royalties and dividends).
The company argued that under its accrual method of accounting, the remittance should only occur when the corresponding payments have been made.
On the other hand, the BIR maintained, supported by pertinent provisions of the Tax Code and Revenue Regulations, that withholding tax is due upon accrual.

Whether the BIR’s right to collect the deficiency withholding tax and deficiency sales tax was barred by prescription.
Whether Wyeth Suaco’s protest, which included requests for reinvestigation or reconsideration, effectively interrupted the running of the five-year prescriptive period for tax collection.

Whether withholding tax on accrued royalties and dividends should be remitted upon accrual or only upon actual payment or remittance abroad.
The interpretation and application of the provisions of the Tax Code and related regulations governing the accrual method of accounting and tax remittance obligations.

Whether the assessments of deficiency sales tax and withholding tax were made in accordance with legal and factual standards, particularly in light of the presumed correctness of the tax examiner’s findings.
The burden of proof on Wyeth Suaco to demonstrate any irregularities in the calculations of the deficiencies.