Case Summary (G.R. No. 186155)
Procedural Background
• January 21, 2004: BIR issued a Formal Assessment Notice against Lapanday for taxable year 2000:
– VAT: PHP 8,561,775.88
– EWT: PHP 374,749.21
– FWT: PHP 5,815,233.36
– DST: PHP 1,578,579.59
• Lapanday protested; the BIR’s Final Decision on Disputed Assessment (October 28, 2004) cancelled FWT but maintained VAT, EWT, and DST.
• CTA First Division (October 18, 2007 Decision; February 4, 2008 Resolution) cancelled EWT and DST but affirmed VAT deficiency for Q1 and Q4 of 2000.
• CTA En Banc (January 29, 2009 Decision) affirmed the VAT assessment in full.
• Lapanday filed a Rule 45 petition for review with the Supreme Court.
Key Dates
• April 25, 2000 – Lapanday filed a Monthly VAT Declaration (Form 2550M) covering March 2000.
• September 4, 2001 – Lapanday filed an amended Quarterly VAT Return (Form 2550Q) covering Q1 2000.
• January 21, 2004 – BIR issued the Formal Assessment Notice.
• January 29, 2009 – CTA En Banc Decision.
• January 17, 2023 – Supreme Court Decision.
Applicable Law
• 1987 Philippine Constitution
• National Internal Revenue Code (NIRC) of 1997, as amended:
– Sec. 105 (VAT liability in the course of trade or business, including incidental transactions)
– Sec. 108 (taxable transactions)
– Sec. 114 (filing of monthly and quarterly VAT returns)
– Sec. 203 (three-year prescriptive period for assessments)
– Sec. 222 (exceptions to prescription)
• Revenue Regulations 7-95 (as amended by RR 8-2002)
• Jurisprudence: Phoenix Assurance Co. v. CIR; Mindanao II Geothermal Partnership v. CIR; Magsaysay Lines, Inc. v. CIR; PSALM v. CIR; Atlas Consolidated Mining & Dev’t Corp. v. CIR; Mirant Pagbilao Corp. v. CIR.
Issues Presented
- Did the VAT assessment for Q1 2000 prescribe?
- Is interest income on inter-company loans subject to 10% VAT as incidental services?
- If taxable, should VAT be computed at 1/11 of gross receipts absent issuance of VAT official receipts?
Findings of the CTA First Division
• Held interest on loans to affiliates was a transaction incidental to Lapanday’s management business and thus subject to VAT under Sec. 105.
• Ruled VAT assessments for Q2 and Q3 of 2000 had prescribed; assessments for Q1 and Q4 were timely because Q1’s quarterly return was belatedly filed on September 4, 2001.
• Cancelled EWT and DST assessments but affirmed a deficiency VAT of PHP 3,464,253.56 plus interest.
Findings of the CTA En Banc
• Counted the three-year prescriptive period from the actual filing (September 4, 2001) of the Q1 2000 quarterly return, not the April 25, 2000 deadline.
• Upheld VAT-taxability of interest income as services incidental to Lapanday’s business, even if unprofitable.
• Applied a straight 10% VAT on gross receipts, since no VAT official receipts were issued to apply the 1/11 rule.
Supreme Court’s Analysis on Prescription
• Under Sec. 203, the three-year period runs from the later of (a) the last day to file the quarterly return, or (b) the date of actual filing.
• The Form 2550M filed April 25, 2000 covered only March; the Form 2550Q filed September 4, 2001 covered January–March.
• Phoenix Assurance: a substantial amendment to a return shifts the prescriptive date to the filing of the amended return.
• Here, although the returns differed in scope (monthly vs. quarterly), the figures for taxable sales and VAT payable were identical and thus not a “substantial” amendment.
• Atlas (on refund claims) is inapplicable and later superseded by Mirant.
• Therefore, prescription ran from April 25, 2000; the BIR’s assessment on January 21, 2004 came after April 25, 2003 and is barred.
Supreme Court’s Analysis on VAT Taxability
• Sec. 105 extends VAT to transactions “in the course of trade or business,” includ
Case Syllabus (G.R. No. 186155)
Antecedents
- Petitioner Lapanday Foods Corporation (Lapanday) is a domestic corporation engaged in rendering management services.
- Respondent Commissioner of Internal Revenue (CIR) has authority to assess deficiency taxes under the National Internal Revenue Code (NIRC).
- On January 21, 2004, the BIR issued a formal assessment against Lapanday for the taxable year 2000, covering:
• Value-Added Tax (VAT): PHP 8,561,775.88
• Expanded Withholding Tax (EWT): PHP 374,749.21
• Final Withholding Tax (FWT): PHP 5,815,233.36
• Documentary Stamp Tax (DST): PHP 1,578,579.59 - Lapanday protested, leading to a Final Decision on Disputed Assessment (FDDA) dated October 28, 2004 which:
• Canceled the FWT assessment
• Maintained VAT, EWT, and DST assessments with adjusted totals: VAT PHP 7,879,593.84; EWT PHP 410,236.79; DST PHP 514,881.47
Procedural History
- Lapanday appealed the FDDA to the Court of Tax Appeals (CTA) as CTA Case No. 7097 (First Division).
- The CTA First Division issued a Decision on October 18, 2007 and Resolution on February 4, 2008.
- On January 29, 2009, the CTA En Banc rendered an adverse Decision in C.T.A. EB No. 367.
- Lapanday filed a Petition for Review under Rule 45 before the Supreme Court.
CTA First Division Ruling
- Canceled the EWT and DST assessments for lack of basis.
- Affirmed the deficiency VAT assessment, holding:
• Loans extended to affiliates were “incidental transactions” under Section 105 of the NIRC.
• Only first and fourth quarter VAT assessments were timely; second and third quarters had prescribed under Section 203 of the NIRC. - Computed deficiency VAT due for 1st and 4th quarters (undeclared gross receipts PHP 17,164,125.87) plus surcharge and interest, total PHP 3,464,253.56, and imposed 20% delinquency interest from November 29, 2004.
CTA En Banc Ruling
- Affirmed the CTA