Case Summary (G.R. No. 211289)
CTA Third Division Ruling
The CTA Third Division held that the three-year prescriptive period expired between February 15, 2008 and March 1, 2009. The FANs issued in December 2009 were thus time-barred. The court found only the February 16, 2009 waiver in evidence and ruled it defective under RMO 20-90 for failing to specify the nature and amount of tax. It canceled all assessments and denied the CIR’s motion for reconsideration.
CTA En Banc Ruling
Affirming the Third Division, the CTA En Banc reiterated that (a) two waivers were inadmissible because never formally offered or identified; and (b) the sole admitted waiver lacked the RMO 20-90 requirements. Accordingly, the prescriptive period stood unextended and all assessments for 2005 were canceled. The CIR’s motion for reconsideration was denied.
Issues on Certiorari
I. Applicability of Section 203’s three-year prescriptive period to EWT and WTC assessments against a withholding agent.
II. Whether La Flor’s deficiency assessments for 2005 were barred by prescription.
Procedural Arguments
La Flor urged outright dismissal of the petition for failing to indicate MCLE compliance dates and paragraph numbering. The Supreme Court, applying its 2014 amendment to Bar Matter No. 1922, held that omissions in MCLE particulars now merit disciplinary sanctions but no dismissal. It also confirmed that non-numbered paragraphs carry no prescribed sanction. The petition—therefore—proceeded to the merits.
Withholding Tax System and Agent Liability
Under the withholding tax regime, the payee remains the taxpayer; the withholding agent acts as government’s collection agent and is personally liable only for failure to withhold or remit properly. Precedent classifies deficiency withholding assessments as internal revenue taxes due from the payee’s income, not mere civil penalties upon the agent.
Prescriptive Period under Section 203, NIRC
Section 203 of the NIRC prescribes a general three-year period to assess internal revenue taxes (including withholding taxes), counting from the last legal filing date. Section 222(a) extends this to ten years only in cases of fraud, false returns, or non-filing. The Court rejected the CIR’s contention that withholding tax deficiencies fall outside Section 203 as “penalties,” affirming they are deficiency internal revenue taxes subject to the ordinary prescriptive period.
Validity of Waivers under RMO No. 20-90
RMO 20-90 mandates that waivers must state clearly the kind an
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Factual Background
- La Flor dela Isabela, Inc. (“La Flor”) is a domestic corporation organized under Philippine law.
- For calendar year 2005, La Flor filed monthly returns for Expanded Withholding Tax (EWT) and Withholding Tax on Compensation (WTC).
- On September 3, 2008, La Flor executed a waiver of the statute of limitations for its 2005 liabilities, followed by subsequent waivers on February 16, 2009 and December 2, 2009.
- On November 20, 2009, La Flor received a Preliminary Assessment Notice for 2005 deficiency taxes.
- On January 7, 2010, it received four Final Assessment Notices (FANs), all dated December 17, 2009, covering penalties and deficiency assessments for late filing/payment and withholding taxes for 2005.
- La Flor filed its Letter of Protest on January 15, 2010; the Commissioner of Internal Revenue (CIR) issued a Final Decision on Disputed Assessment on July 20, 2010, assessing P6,835,994.76 in alleged deficiencies.
Procedural History
- La Flor petitioned the Court of Tax Appeals Third Division (CTA Division) to annul the assessments; on August 3, 2012, the CTA Division granted relief, finding the assessments barred by prescription and the waivers invalid or inadmissible.
- The CTA Division denied the CIR’s motion for reconsideration on October 5, 2012.
- The CIR filed a Petition for Review before the CTA En Banc; on September 30, 2013, the CTA En Banc affirmed the Division’s decision and denied reconsideration in its February 10, 2014 Resolution.
- The CIR elevated the case to the Supreme Court via certiorari under Rule 45.
Issues Presented
- Whether the three-year prescriptive period under Section 203 of the National Internal Revenue Code (NIRC) applies to EWT and WTC assessments against a withholding agent.
- Whether La Flor’s EWT and WTC deficiency assessments for 2005 were barred by prescription.
Petitioner’s Contentions
- Section 203’s prescriptive period applies only to asse