Case Summary (G.R. No. 76281)
Factual Background
Wyeth Suaco Laboratories, Inc. was a domestic corporation engaged in manufacture and sale of pharmaceutical and nutritional products with a fiscal year ending October 31. Revenue Examiner Dante Kabigting, acting under Letter of Authority No. 52415, examined Wyeth Suaco's books and on October 15, 1974 reported that Wyeth Suaco had accrued royalties payable to foreign licensors, remuneration for technical services to a foreign affiliate, and declared cash dividends on September 27, 1973 paid October 31, 1973. The report concluded that Wyeth Suaco had failed to remit withholding tax at source for the fourth quarter of 1973 on accrued royalties, technical services and dividends, producing an asserted deficiency withholding tax of P3,178,994.15. The examiner also found underpaid advance sales tax for various periods and an alleged short payment on an import, yielding a deficiency sales tax of P60,855.21 plus a compromise penalty of P300, totaling P61,155.21.
Administrative Assessment and Protest
The Bureau of Internal Revenue issued assessments by notices dated December 16 and 17, 1974, received December 19, 1974. Wyeth Suaco, through tax consultant Sycip, Gorres, Velayo & Co. (SGV & Co.), sent protest letters dated January 17 and February 8, 1975 requesting cancellation or withdrawal of the assessments for lack of factual and legal basis. Wyeth Suaco contended that withholding on royalties and dividends became payable only upon actual remittance, and that Central Bank restrictions (CB Circular No. 289 and implementing memorandum) prevented full remittance. Wyeth Suaco also disputed the revenue examiner's landed cost computations supporting the sales tax assessment, while admitting liability for a P1,000 short payment on a specific import.
Administrative Review and Final Assessment
The Bureau of Internal Revenue’s Manufacturing Audit Division undertook review and reinvestigation in response to Wyeth Suaco’s protests. The Bureau offered compromise under LOI 308 on September 12, 1975; Wyeth Suaco accepted a 10% compromise only on basic sales tax. After review, Acting Commissioner Ruben B. Ancheta rendered a final assessment dated December 10, 1979, reducing the withholding tax assessment to P1,973,112.86 while maintaining the sales tax deficiency at P61,155.21. The final assessment was received by Wyeth Suaco on January 2, 1980.
Procedural History
Wyeth Suaco filed a petition for review with the Court of Tax Appeals on January 18, 1980 praying for enjoinment of collection on the ground of prescription and for annulment of the assessments. The Commissioner issued warrants of distraint and levy on February 7, 1980, served March 12, 1980. The Court of Tax Appeals enjoined collection by resolution of May 22, 1980. On August 29, 1986 the Court of Tax Appeals rendered a decision enjoining the Commissioner from collecting the deficiency withholding tax for the fourth quarter of 1973 and the deficiency sales tax, holding that the right to collect had prescribed under Section 319(c) of the Tax Code of 1977. The Commissioner sought review by certiorari in the Supreme Court.
Issue Presented
The dispositive issue presented to the Supreme Court was whether the Commissioner’s right to collect the assessed deficiency withholding tax and deficiency sales tax from Wyeth Suaco Laboratories, Inc. had prescribed under Section 319(c) of the National Internal Revenue Code of 1977, or whether the prescriptive period had been interrupted by Wyeth Suaco’s protest and request for reinvestigation or reconsideration.
Petitioner's Argument on Prescription
The Commissioner conceded that more than five years had elapsed between the original assessments received December 19, 1974 and the service of distraint and levy on March 12, 1980, but argued that the running of the five-year prescriptive period was interrupted when Wyeth Suaco, through SGV & Co., protested the assessments by letters of January 17 and February 8, 1975 and thus effectively requested reinvestigation or reconsideration. The Commissioner relied on the settled rule that a taxpayer’s request for review or reconsideration interrupts prescription, citing prior decisions such as Commissioner of Internal Revenue v. Capitol Subdivision, Inc. and others.
Respondent's Position on Prescription
Wyeth Suaco Laboratories, Inc. contended that its protest letters sought only cancellation or withdrawal of the assessments for lack of legal and factual basis and did not request reinvestigation or reconsideration; accordingly, Wyeth Suaco argued that the five-year period for collection under Section 319(c) was not suspended or interrupted and that the Commissioner’s collection remedy had prescribed.
Court's Analysis on Interruption of Prescription
The Court examined the record and found evidence that Wyeth Suaco did seek reconsideration. It relied on a letter of James A. Gump, President and General Manager of Wyeth Suaco, dated April 28, 1975 expressly stating that the company was "seeking reconsideration" of the alleged deficiencies as a follow-up to earlier protests. The Court further observed that Wyeth Suaco’s Finance Manager acknowledged on July 1, 1975 that the matter was "undergoing review and consideration" by the Manufacturing Audit Division, thereby demonstrating that the Bureau had reinvestigated the assessments in response to Wyeth Suaco’s communications. The Court held that although the initial protest letters did not use the specific words "reinvestigation" or "reconsideration," they must be treated as requests for reconsideration because they induced the Bureau to undertake review. Consequently, the running of the five-year prescriptive period was interrupted upon receipt of the taxpayer’s protest and recommenced only upon service of the final assessment.
Final Assessment and Restart of Prescriptive Period
The Court concluded that the statutory five-year period began to run anew upon Wyeth Suaco’s receipt of the Bureau’s final assessment on January 2, 1980. Because the warrants of distraint and levy were served on Wyeth Suaco on March 12, 1980, the Commissioner’s collection proceedings were instituted within the five-year period following the final assessment. The Court therefore found no prescription bar to collection.
Merits: Withholding Tax at Source
On the substantive tax issues, the Court addressed Wyeth Suaco’s contention that withholding taxes on royalties and dividends become payable only upon actual remittance abroad and that the Bureau could not require remittance where Central
...continue reading
Case Syllabus (G.R. No. 76281)
Parties and Procedural Posture
- COMMISSIONER OF INTERNAL REVENUE filed a petition for review on certiorari assailing a decision of the Court of Tax Appeals enjoining collection of assessed taxes.
- WYETH SUACO LABORATORIES, INC. is the private respondent and assesses as the taxpayer against whom deficiency withholding and sales taxes were levied.
- The petition raised prescription and substantive legality of the assessments as the principal issues for this Court's review.
Key Factual Allegations
- The Bureau of Internal Revenue issued Letter of Authority No. 52415 dated June 17, 1974 authorizing an examination of Wyeth Suaco.
- The investigation report dated October 15, 1974 disclosed unpaid withholding taxes on accrued royalties, technical-service remuneration and declared cash dividends and showed an asserted aggregate deficiency withholding tax of P3,178,994.15.
- The report also found alleged misstatements in landed cost resulting in a deficiency advance sales tax and compromise penalty totaling P61,155.21.
- The BIR issued assessments dated December 16 and 17, 1974 which Wyeth Suaco received on December 19, 1974.
- Wyeth Suaco through SGV & Co. sent protest letters received January 20 and February 10, 1975 contesting the assessments and seeking cancellation or withdrawal.
- The BIR's Manufacturing Audit Division undertook a review in response to these protests and the Acting Commissioner rendered a final assessment dated December 10, 1979, received by Wyeth Suaco on January 2, 1980 fixing withholding liability at P1,973,112.86 and sales tax at P61,155.21 (later reflected as P60,855.21 deficiency sales tax).
- The BIR issued a warrant of distraint and levy which was served on Wyeth Suaco on March 12, 1980.
Procedural History
- Wyeth Suaco filed a petition for review in the Court of Tax Appeals on January 18, 1980 praying that collection be enjoined as barred by prescription and that the assessments be declared void.
- The Court of Tax Appeals granted injunctive relief and on August 29, 1986 reversed the BIR's enforcement and enjoined collection of the deficiency taxes.
- COMMISSIONER OF INTERNAL REVENUE brought the present petition for review on certiorari to this Court.
Issues Presented
- Whether the BIR's right to collect the assessed deficiency withholding and sales taxes was barred by prescription under Section 319 (c) of the National Internal Revenue Code of 1977.
- Whether Wyeth Suaco was obligated to remit withholding taxes on accrued royalties and dividends recorded under the accrual method of accounting.
- Whether the BIR's assessment of deficiency sales tax should be sustained in the absence of contrary proof by the taxpayer.
Contentions of the Parties
- COMMISSIONER OF INTERNAL REVENUE contended that the filing of protests by Wyeth Suaco amounted to requests for reinvestigation or reconsideration that interrupted the five-year period for collection under Section 319 (c).
- Wyeth Suaco contended that its protest letters sought only cancellation or withdrawal and did not constitute requests for reinvestigation or reconsideration capable of suspending prescription.
- Wyeth Suaco further contended that withholding tax on royalties and dividends should be remitted only upon actual payment or remittance abroad rather than upon accrual.