Case Summary (G.R. No. 242670)
Parties
Petitioner: Commissioner of Internal Revenue, represented by the Bureau of Internal Revenue (BIR) National Office, Diliman, Quezon City.
Respondent: McDonald’s Philippines Realty Corporation, a Delaware corporation licensed in the Philippines, based in Makati City.
Key Dates
• August 31, 2007: LOA No. 00006717 issued to Demadura et al. to audit C.Y. 2006.
• December 2, 2008: Demadura reassigned; Marcellano directed to continue audit via referral memorandum.
• January 11, 2011: Formal Letter of Demand for P17,486,224.38 issued.
• February 23, 2011: Respondent’s protest filed.
• April 18, 2013: Final Decision on Disputed Assessment sustaining VAT deficiency of P16,229,506.83.
• June 1, 2016: CTA Division declared assessment void for lack of authority.
• January 4, 2018: CTA En Banc affirmed voiding of assessment.
• May 10, 2021: Supreme Court decision denying CIR’s petition.
Applicable Law
• 1987 Philippine Constitution (due process).
• NIRC of 1997, Section 6(A) (examination power), Section 10(c) (LOA issuance), Section 13 (authority of revenue officers).
• Revenue Memorandum Order No. 43-90 (September 20, 1990), Sections D(4) and D(5) (LOA issuance and reassignment requirements).
Facts
On August 31, 2007, the BIR’s Large Taxpayers Service issued an LOA authorizing four named officers to audit the respondent’s C.Y. 2006 tax records. When Eulema Demadura was reassigned on December 2, 2008, a referral memorandum designated Rona Marcellano to continue the audit without issuing or amending the LOA. Following issuance of a Formal Letter of Demand and the respondent’s protest, the CIR issued a Final Decision on Disputed Assessment demanding P16,229,506.83 in VAT deficiency. The respondent elevated the matter to the Court of Tax Appeals (CTA), which invalidated the assessment for lack of proper LOA authority.
Issue
Whether a new or amended LOA must be issued in the name of a substitute or replacement revenue officer when the originally authorized officer is reassigned or transferred.
Petitioner’s Arguments
The CIR contends that once an LOA is validly issued, it authorizes examination by “any” revenue officer during the audit period. The petitioner asserts that RMO 43-90 is obsolete post-NIRC, that noncompliance does not void an assessment, and that existing jurisprudence only requires general BIR authority, not specific naming of officers.
Respondent’s Arguments
McDonald’s Philippines Realty maintains that Section 13 of the NIRC requires LOAs to identify the specific revenue officer. RMO 43-90 remains valid and mandates new LOAs upon reassignment. Lack of authority violates due process and results in nullity. A referral memorandum cannot substitute for an LOA. Established cases (Sony Philippines, Medicard) support strict LOA requirements.
Court’s Analysis
The Supr
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Procedural Posture
- Petition for Review on Certiorari under Rule 45 filed by the Commissioner of Internal Revenue (CIR) to the Supreme Court, challenging the Court of Tax Appeals (CTA) En Banc Decision dated January 4, 2018 and Resolution dated September 27, 2018 in CTA EB No. 1535.
- The CTA En Banc had affirmed the CTA Division’s Decision of June 1, 2016 and Resolution of October 3, 2016 in CTA Case No. 8655, which invalidated a ₱16,229,506.83 deficiency VAT assessment for Calendar Year (C.Y.) 2006 against McDonald’s Philippines Realty Corp.
- Motion for reconsideration filed by the CIR before the CTA En Banc was denied, prompting the elevation to the Supreme Court.
Facts of the Case
- CIR, as head of the Bureau of Internal Revenue (BIR), issued Letter of Authority (LOA) No. 00006717 on August 31, 2007, authorizing revenue officers Eulema Demadura, Lover Loveres, Josa Gomez, and Emalyn dela Cruz to audit respondent’s books for all internal revenue taxes for January 1 to December 31, 2006.
- On December 2, 2008, Demadura was transferred and Rona Marcellano was designated by a referral memorandum to continue the audit, without a new or amended LOA in Marcellano’s name.
- On January 25, 2011, the CIR issued a Formal Letter of Demand for deficiency income tax and VAT amounting to ₱17,486,224.38 for C.Y. 2006.
- Respondent protested on February 23, 2011, requesting cancellation of the assessments.
- On April 18, 2013, the CIR’s Final Decision on Disputed Assessment cancelled the income tax deficiency but upheld the VAT deficiency of ₱16,229,506.83.
- Respondent filed a petition for review with the CTA Division on May 20, 2013; the CTA Division declared the assessment void for lack of LOA in Marcellano’s name.
- CIR’s motion for reconsideration before the CTA Division was denied.
- CIR then filed a petition for review with the CTA En Banc on November 7, 2016; the CTA En Banc denied it for lack of merit.
Issue
- Whether the reassignment or transfer of a revenue officer originally named in a valid LOA requires the issuance of a separate or amended LOA in the name of the substitute or replacement revenue officer in order to validly continue an audit or investigation.
Petitioner’s Arguments
- The LOA is issued to the taxpayer, not to a specific revenue officer, so any revenue officer may act under a valid LOA during the audi