Notes on Bar Questions –Commercial 2024

QUESTION 01: Nympha (Copyright Ownership of Images)

Legal Provisions:

  • Intellectual Property Code of the Philippines (Republic Act No. 8293), as amended:
    • Section 175 (Unprotected Subject Matter): “Notwithstanding the provisions of Sections 172 and 173, no protection shall extend, under this Act, to any idea, procedure, system, method or operation, concept, principle, discovery or mere data, as such, even if they are expressed, explained, illustrated or embodied in a work; news of the day and other miscellaneous facts having the character of mere items of press information; or any official text of a legislative, administrative or legal nature, as well as any official translation thereof.”
    • Section 193 (Moral Rights – Right of Attribution): This section, while not quoted verbatim in the provided text, is implicitly referred to by the suggested answer which mentions “the moral right of attribution of Tobias provided by the IP Code.”
  • Relevant Jurisprudence (as cited in the comparison):
    • Republic v. Heirs of Tupaz IV (G.R. No. 197335, 7 September 2020): This case reinforces that an author is one who “used his skill and labor to concretize what Nympha had envisioned.”

QUESTION 02: North Nova, Inc. (NNI) Corporate Term Expiration

Legal Provisions:

  • Revised Corporation Code (Republic Act No. 11232):
    • Section 11 (Corporate Term): “With the enactment of the Revised Corporation Code (RCC), corporations organized before the effectivity of the RCC, are deemed extended and amended to perpetual existence, unless the corporation upon a vote of its stockholders representing a majority of its outstanding capital stock, notifies the SEC that it elects to retain its specific corporate term under its articles of incorporation”.
  • Relevant Jurisprudence/Opinions (as cited in the comparison):
    • SEC-OGC Opinion, no. 28-19, 19 July 2019:

“The automatic conversion of the corporate term to perpetual existence does not require an amendment of the Articles of Incorporation.”

  • Transitory Period: “the option to retain the term of the corporation, under the two-year transition period under the RCC expired last February 23, 2021.”

QUESTION 04: Audrey (E-commerce Transaction Enforceability)

Legal Provisions:

  • Electronic Commerce Act (Republic Act No. 8792):
    • Section 16 (Formation and Validity of Contracts): “Under the Electronic Commerce Act, except as otherwise agreed by the parties, an offer, the acceptance of the offer, and such other elements required under existing laws for the formation of contracts may be expressed in, demonstrated, and proved using electronic data messages or electronic documents.”
    • Section 5 (c) (Definition of Electronic Data Message – inferred from context): A screenshot of a purchase order “is considered an electronic data message since it pertains to information sent, received, or stored by electronic and optical means.”
    • Section 11 (Legal Recognition of Electronic Documents – inferred from context): “electronic documents shall have the legal effect, validity or enforceability as any other document or legal writing.” and “An electronic document shall also be the equivalent of a written document under existing laws.”

QUESTION 05: Nurturing Family Organization (NFO) Donation

Legal Provisions:

  • Revised Corporation Code (Republic Act No. 11232):
    • Doctrine of Corporation by Estoppel (as stated in the suggested answer): “Under the doctrine of corporation by estoppel, a person who assumed an obligation in favor of a non-existent corporation, having transacted with the latter as if it was duly incorporated, is prevented from denying the existence of the latter to avoid enforcement of a contract.”
  • Relevant Jurisprudence (as cited in the comparison):
    • Missionary Sisters of Our Lady of Fatima v. Alzona, et al. (G.R. No. 224307, 6 August 2018):

This case applies the doctrine of corporation by estoppel where “the subsequent incorporation of the donee and the affirmation of the recipient’s authority to accept on its behalf cured whatever defect that may have attended the acceptance of the donation”.

QUESTION 06: ABC Corp. Liquidation and Shareholder Rights

The question refers to various corporate actions within a liquidation plan. Here are the relevant verbatim provisions for the concepts involved:

1. Financial Rehabilitation and Insolvency Act (FRIA) of 2010 (Republic Act No. 10142): This is the overarching law governing liquidation. While a single comprehensive verbatim provision for “liquidation” encompassing all aspects isn’t practical due to its length, the law provides for the framework of corporate liquidation proceedings.

2. Revised Corporation Code (Republic Act No. 11232):

  • Merger:
    • Section 75. Plan of Merger or Consolidation. [No verbatim provided in source, but this section governs the plan of merger or consolidation.]
    • Section 76. Stockholders’ or Members’ Approval. [No verbatim provided in source, but this section dictates that the plan of merger or consolidation shall be approved by the affirmative vote of at least two-thirds (2/3) of the outstanding capital stock or of the members of each of the constituent corporations.]
    • Section 80. Appraisal Right. “Any stockholder of a stock corporation who dissents from the merger or consolidation may demand payment of the fair value of the shares held by the dissenting stockholder: Provided, That the shares are not traded in the stock exchange or are not listed for trading in the stock exchange: Provided, further, That the demands for payment shall be made within thirty (30) days from the date on which the vote was taken, and the dissenting stockholder shall surrender the certificate or certificates of stock representing the shares to the corporation for notation that such shares are dissenting shares.” [While this is the general appraisal right, the specific context of merger applies.]
  • Sale or other disposition of assets (Dacion en Pago):
    • Section 39. Sale or other disposition of assets. “A corporation may, by a majority vote of its board of directors or trustees, sell, lease, exchange, mortgage, pledge, or otherwise dispose of its property and assets, upon such terms and conditions as its board of directors or trustees may deem reasonable and expedient: Provided, That when the transaction would result in the sale or disposition of all or substantially all of the properties and assets of the corporation, as determined by the Securities and Exchange Commission, the approval of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock shall be necessary; and in case of nonstock corporations, the approval of at least two-thirds (2/3) of the members.” [This section covers dacion en pago as a form of disposition.]

3. Securities Regulation Code (Republic Act No. 8799):

  • Rule 19 (Tender Offer Rule) of the Amended Implementing Rules and Regulations of the SRC: [No verbatim provided in source]
    • Section 19.1. Requires a tender offer to minority shareholders when:
      • An individual or group of individuals intends to acquire 35% or more of the outstanding voting shares in a public company.
      • An individual or group of individuals intends to acquire at least 35% of the outstanding voting shares of a public company through a single transaction or series of transactions within a 12-month period.
      • An individual or group of individuals already owns 35% or more and intends to acquire an additional 2% or more of the outstanding voting shares in a public company.
      • An individual or group of individuals intends to acquire 51% or more of the outstanding voting shares in a public company.
    • The purpose is to provide minority shareholders an exit opportunity at a fair price when control of the company changes.

QUESTION 10: ABC Corporation (Source of Income for NRFC)

Legal Provisions:

National Internal Revenue Code (NIRC) of 1997, as amended:

  • Section 28(B)(1). Tax on Nonresident Foreign Corporations. “Except as otherwise provided in this Code, a foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to twenty-five percent (25%) of the gross income received during each taxable year from all sources within the Philippines, such as interests, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities, emoluments or other fixed or determinable annual, periodical or casual gains, profits and income, and capital gains, except capital gains subject to tax under Subsections (C) and (E) of Section 27, or under Section 28(A)(7)(c).” [This section establishes the tax rate for NRFCs on Philippine-sourced income.]
  • Section 42. Income from Sources Within and Without the Philippines. “(A) Gross Income from Sources Within the Philippines. — The following items of gross income shall be treated as gross income from sources within the Philippines: (1) Interest.— … (2) Dividends.— … (3) Services.— Compensation for labor or personal services performed in the Philippines; (4) Rentals and Royalties.— Rentals and royalties from property located in the Philippines or from any interest in such property, including rentals or royalties for— (a) The use of, or the right or privilege to use in the Philippines any copyright, patent, design or model, plan, secret formula or process, goodwill, trademark, trade-brand or other like property or right; (b) The use of, or the right to use in the Philippines any industrial, commercial or scientific equipment; (c) The supply of scientific, technical, industrial or commercial knowledge or information; (d) The supply of assistance, or the rendering of technical or consultancy services in connection with the foregoing; and (e) The use of, or the right to use, films, motion pictures, radio tapes, records, or other like property or rights. (5) Sale of Real Property.— Gains, profits and income from the sale of real property located in the Philippines; and (6) Sale of Personal Property.— Gains, profits and income from the sale of personal property, as provided in Subsections (E), (F) and (G) of this Section.”

“(C) Gross Income from Sources Partly Within and Partly Without the Philippines. — Items of gross income, other than those specified in Subsections (A) and (B) of this Section, may be treated as gross income from sources partly within and partly without the Philippines, under rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner.” [This section is relevant for complex international transactions where income is generated from activities in multiple jurisdictions.]

  • Relevant Jurisprudence: The determination of income source for services performed in cross-border transactions is often guided by where the activity is performed or where the benefit is received/utilized. For telecommunications, if the call originates or terminates in the Philippines, or uses facilities located within the Philippines, the income attributable to that portion of the service is typically considered Philippine-sourced.
  • Relevant Jurisprudence: While the provided document doesn’t cite a specific case for this exact scenario, the principles governing the source of income for services for Nonresident Foreign Corporations (NRFCs) are established in Philippine tax jurisprudence. Generally, the source of income from services is where the activity that gives rise to the income is performed. For international telecommunication services, if a portion of the service (e.g., call origination, termination, or routing through local gateways) occurs in the Philippines, then the income attributable to that portion is considered Philippine-sourced and subject to Philippine taxation.

QUESTION 11: Jose (Capital Gains Tax & Tax-Free Exchange)

Legal Provisions:

  • National Internal Revenue Code (NIRC) of 1997, as amended (Republic Act No. 8424, as amended by TRAIN Law RA 10963, and CREATE Law RA 11534):
    • Section 24(D)(1). Capital Gains from Sale of Real Property. “The provisions of Section 39(B) notwithstanding, a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher, is hereby imposed upon capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines, classified as capital assets, including ‘pacto de retro’ sales and other forms of conditional sales, by individuals, including estates and trusts: Provided, That the tax liability, if any, on gains from sales or dispositions of shares of stock in a real estate corporation, as defined in Section 6(C), shall be the same as that imposed on gains from sales or dispositions of shares of stock in other corporations as provided for in this Title.”
    • Section 40(C)(2). Exchange of Property. “No gain or loss shall be recognized if in pursuance of a plan of merger or consolidation – (a) A corporation which is a party to a merger or consolidation exchanges property solely for stock in a corporation which is a party to the merger or consolidation; or (b) A shareholder exchanges stock in a corporation which is a party to the merger or consolidation solely for stock in another corporation also a party to the merger or consolidation; or (c) A security holder of a corporation which is a party to the merger or consolidation exchanges securities in such corporation solely for securities in another corporation also a party to the merger or consolidation. No gain or loss shall also be recognized if property is transferred to a corporation by a person, alone or together with others, not exceeding four (4) persons, in exchange for stock or units of participation in such a corporation of which as a result of such exchange the transferor or transferors collectively, gains or takes control of said corporation: Provided, That stocks issued for services rendered shall not be considered as issued in exchange for property.”

Relevant Jurisprudence: The principle of tax-free exchange under Section 40(C)(2) of the NIRC is consistently upheld by the Supreme Court. While no specific case is mentioned in the provided text for this question, landmark cases affirming this provision include:

  • CIR v. Rufino (G.R. No. L-14357, May 29, 1959): An older case, but it established the principle of non-recognition of gain or loss in corporate reorganizations that meet the statutory requirements.
  • CIR v. Solidbank Corp. (G.R. No. 148191, November 25, 2003): While not directly on Section 40(C)(2), this case reiterates the strict construction of tax exemptions and tax-free exchanges, meaning the requirements of the law must be fully met.

QUESTION 12: VAT-registered contractor (VAT on Services vs. Goods)

Legal Provisions:

  • National Internal Revenue Code (NIRC) of 1997, as amended (Republic Act No. 8424, as amended):
    • Section 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. “(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added tax equivalent to twelve percent (12%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties. The phrase ‘gross receipts’ means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding value-added tax.”
    • Section 106. Value-Added Tax on Sale of Goods or Properties. “(A) Rate and Base of Tax. — There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to twelve percent (12%) of the gross selling price or gross value in money of the goods or properties sold, bartered, exchanged or leased, or similar transactions expressly deemed a sale subject to the tax herein imposed. The phrase ‘gross selling price’ means the total amount of money or its equivalent which the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or properties, excluding the value-added tax. The excise tax, if any, on such goods shall form part of the gross selling price.”

QUESTION 13: KMK Law Offices (VAT Zero-Rated Sales)

Legal Provisions:

  • National Internal Revenue Code (NIRC) of 1997, as amended (Republic Act No. 8424, as amended):
    • Section 108(B). Transactions Subject to Zero Percent (0%) Rate. “The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) VAT: … “(2) Services other than those mentioned in the preceding paragraph rendered to a person or entity doing business outside the Philippines or to a nonresident person not engaged in trade or business in the Philippines, when the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);”

Relevant Jurisprudence: The interpretation of VAT zero-rated sales, particularly for services rendered to non-residents, has been clarified in various Supreme Court decisions.

  • CIR v. Acesite (Phils.) Hotel Corp. (G.R. No. 147295, September 16, 2005): While dealing with hotel services, this case generally discusses the nature of zero-rated sales under the NIRC.
  • CIR v. Toshiba Information Equipment (Phils.), Inc. (G.R. No. 150154, August 9, 2005): This case, among others, reiterates that for services to be zero-rated, they must be rendered to a non-resident foreign corporation doing business outside the Philippines and paid for in foreign currency accounted for under BSP rules.

QUESTION 14: PBB Corporation (VAT on Interest Income)

Legal Provisions:

  • National Internal Revenue Code (NIRC) of 1997, as amended (Republic Act No. 8424, as amended):
    • Section 108(A). Rate and Base of Tax [on Sale of Services and Use or Lease of Properties].

“There shall be levied, assessed and collected, a value-added tax equivalent to twelve percent (12%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties.”

  • Section 109(1)(P) (Exempt Transactions): “Services rendered by persons subject to percentage tax under Title V of this Code;” This refers to financial services by banks and non-bank financial intermediaries performing quasi-banking functions, which are subject to Gross Receipts Tax (GRT) under Title V, not VAT.
  • Section 116 (Percentage Tax on Banks and Non-bank Financial Intermediaries Performing Quasi-Banking Functions): Imposes GRT on specified financial services.
  • Relevant Jurisprudence/BIR Rulings: Generally, interest income from lending activities is subject to VAT if the lender is a “lending investor” or habitually engaged in the lending of money. If lending is merely incidental to the primary business (e.g., management services), the interest income may not be subject to VAT.

Relevant Jurisprudence: The VATability of interest income hinges on whether the entity is considered a “lending investor” or is habitually engaged in financial services.

  • CIR v. First Bicol Savings and Loan Association, Inc. (G.R. No. 143997, July 21, 2004): This case clarifies that lending investors are subject to VAT on their gross receipts from interest, commissions, and discounts. The crucial factor is the habitual engagement in money lending. If lending is merely an isolated or incidental act not in the ordinary course of business, the interest income derived therefrom may not be VATable.

QUESTION 15: Big Time Realty, Inc. (VAT & DST on Real Estate Sale)

Legal Provisions:

  • National Internal Revenue Code (NIRC) of 1997, as amended (Republic Act No. 8424, as amended by TRAIN Law RA 10963 and CREATE Law RA 11534):
    • Section 106(A)(1)(a). Value-Added Tax on Sale of Goods or Properties; Rate and Base of Tax.

“There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to twelve percent (12%) of the gross selling price or gross value in money of the goods or properties sold, bartered, exchanged or leased, or similar transactions expressly deemed a sale subject to the tax herein imposed.”

  • Section 109(1)(P). VAT Exempt Transactions. “Sale, importation, printing or publication of books and any newspaper, magazine, review, or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements; … “Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business, or real properties utilized for low-cost housing and socialized housing as defined by Republic Act No. 7279, otherwise known as the ‘Urban Development and Housing Act of 1992’, and other related laws, residential lot valued at Two million five hundred thousand pesos (P2,500,000) and below, and house and lot, and other residential dwellings valued at Four million two hundred thousand pesos (P4,200,000) and below: Provided, That beginning January 1, 2021, the VAT exemption shall only apply to sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business, residential lot valued at Two million five hundred thousand pesos (P2,500,000) and below, and house and lot, and other residential dwellings valued at Two million pesos (P2,000,000) and below: Provided, further, That beginning January 1, 2024, the VAT exemption shall only apply to sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business, residential lot valued at Three million five hundred thousand pesos (P3,500,000) and below, and house and lot, and other residential dwellings valued at Five million five hundred thousand pesos (P5,500,000) and below.” [Note: The specific thresholds are adjusted over time. For the problem’s date of Oct 15, 2024, the threshold mentioned in the question of P3,199,200.00 is relevant based on the source’s implied context, rather than the general NIRC text above that varies by year. The provided question itself cites the P3,199,200.00 zonal value threshold for the exemption.]
  • Section 196. Documentary Stamp Tax on Sales, Conveyances and Donations of Real Property. “On every sale, conveyance, donation, assignment, or transfer of real property, there shall be collected a documentary stamp tax, at the rate of Fifteen pesos (P15.00) on each Five hundred pesos (P500.00), or fractional part thereof, of the gross selling price or fair market value whichever is higher.”

Relevant Jurisprudence: The application of VAT and DST on real estate sales, including thresholds and foreclosure sales, has been subject to various rulings.

  • Commissioner of Internal Revenue v. CA, et al. (G.R. No. 125355, March 30, 2000): This case, while older, generally supports that the sale of real properties, whether by installment or cash, by a person in the course of trade or business, is subject to VAT.
  • Fort Bonifacio Development Corporation v. CIR (G.R. No. 173425, September 4, 2012): This case discusses the nature of real estate sales as an ordinary course of business for developers and their VAT implications.
  • For foreclosure sales by banks: BIR rulings and jurisprudence generally treat banks as engaged in the ordinary course of trade or business when they dispose of foreclosed properties, making such sales potentially subject to VAT if the bank is VAT-registered and the transaction meets the relevant thresholds.

QUESTION 16: Dr. Sanchez (Amended Income Tax Return & Deduction Method)

Legal Provisions:

  • National Internal Revenue Code (NIRC) of 1997, as amended (Republic Act No. 8424, as amended, particularly by the TRAIN Law, RA 10963):
    • Section 34(A)(1) (Deductions; Optional Standard Deduction): “In the case of individual taxpayers, optional standard deduction in an amount not exceeding forty percent (40%) of the gross sales or gross receipts shall be allowed as deduction. For this purpose, the gross sales or gross receipts shall mean the total sales or receipts from all sources during the taxable year. Provided, that the aforesaid option shall be irrevocable for the taxable year for which the return is made: Provided, further, that an individual taxpayer who availed of the optional standard deduction shall not be required to submit with his tax return such financial statements otherwise required under this Code: Provided, finally, that a general professional partnership and the partners comprising such partnership may avail of the optional standard deduction only once, either by the said partnership or the partners comprising the partnership.”

Relevant Jurisprudence:

  • CIR v. San Roque Power Corp. (G.R. No. 187485, February 12, 2013): This landmark case, along with its related rulings, clarified the mandatory and jurisdictional nature of the 120-day (or now 90-day) waiting period for the CIR to act on an administrative VAT refund claim before a judicial appeal can be filed with the Court of Tax Appeals (CTA). The Court held that failure to comply with this period renders the judicial claim premature and the CTA without jurisdiction. San Roque also introduced the “window period” exception (December 10, 2003, to October 6, 2010), during which taxpayers were excused from the 120-day waiting period due to reliance on an erroneous BIR ruling.

Relevant Jurisprudence: The irrevocability of the choice of deduction method (Optional Standard Deduction or Itemized Deductions) as stated in Section 34(A)(1) of the NIRC is a well-established principle in Philippine tax law. While no specific Supreme Court case is cited verbatim in the provided document for this particular question, the principle that “the aforesaid option [for OSD] shall be irrevocable for the taxable year for which the return is made” is strictly applied by the BIR and upheld by courts in various rulings interpreting this provision.

QUESTION 17: Company A (VAT Refund Claim – Period & Remedies)

Legal Provisions:

  • National Internal Revenue Code (NIRC) of 1997, as amended (Republic Act No. 8424, as amended by TRAIN Law, RA 10963, and CREATE Law, RA 11534):
    • Section 112(A) (Refunds or Tax Credits of Input Tax): “Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales: Provided, however, That for a VAT-registered person whose sales are zero-rated or effectively zero-rated and who is engaged in other activity subject to VAT, the input tax shall be allocated ratably between the zero-rated or effectively zero-rated sale and the taxable or exempt sales.”
    • Section 112(C) (Period for Claiming Refund of Input Tax): “In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within ninety (90) days from the date of submission of the official receipt or invoices and other documents in support of the application filed in accordance with Subsection (A) hereof, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the ninety-day period, appeal the decision or the unacted claim with the Court of Tax Appeals.”
      • (Note: The 90-day period for the CIR to decide was introduced by the TRAIN Law, effective January 1, 2018. Prior to this, for transactions in 2012 as in the problem, the period was 120 days. The answer mentions “60 days”, which is incorrect for either period.)

QUESTION 18: Extraordinary Prescription in Taxation

Legal Provisions:

  • National Internal Revenue Code (NIRC) of 1997, as amended (Republic Act No. 8424, as amended):
    • Section 203 (Period of Limitation Upon Assessment and Collection): “Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided, That in a case where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return was filed: Provided, further, That this Section shall not apply to cases already investigated by the Bureau of Internal Revenue as of the effectivity of this Code.”
    • Section 222(A) (Exceptions as to Period of Limitation of Assessment and Collection): “In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten (10) years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof.”
  • Relevant Jurisprudence: The concept of “extraordinary prescription” (or extended prescriptive period for assessment) in taxation, particularly the 10-year period in cases of false or fraudulent returns or failure to file a return, is firmly established in Philippine tax jurisprudence. Cases interpreting Section 222 of the NIRC (which provides for this 10-year period) typically focus on the burden of proof for fraud or the conditions under which a return is considered “false” or “fraudulent” to trigger this extended period.

QUESTION 19: Company B (Tax Assessment Finality – PAN/FAN)

Legal Provisions:

  • National Internal Revenue Code (NIRC) of 1997, as amended (Republic Act No. 8424, as amended):
    • Section 228 (Protesting of Assessment): “When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a Preliminary Assessment Notice (PAN) shall not be required in the following cases: … The aforesaid notice [referring to the assessment notice, i.e., FAN] shall be in writing and shall state the facts, the law, rules and regulations, or jurisprudence on which such assessment is made; otherwise, the assessment shall be void. Within a period to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner, the taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void.Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by the Secretary of Finance, upon recommendation of the Commissioner. Otherwise, the assessment shall become final and executory.If the protest is denied in whole or in part by the Commissioner or his duly authorized representative, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from date of receipt of the said decision, otherwise, the decision shall become final, executory and demandable.”
  • Revenue Regulations (RR) No. 12-99, as amended: These regulations detail the due process requirements in the issuance of a deficiency tax assessment. They specify that a PAN is a preliminary notice, and only failure to protest the FAN within 30 days makes the assessment final and executory.

Relevant Jurisprudence: The Supreme Court has consistently distinguished between a Preliminary Assessment Notice (PAN) and a Final Assessment Notice (FAN) and the effect of failing to protest each.

  • CIR v. Liquigaz Philippines Corporation (G.R. No. 215534, April 18, 2016): This case, and others, clarifies that a PAN is merely a notice of discrepancies, and failure to reply to it does not render the assessment final and executory. It is the failure to protest a FAN within the prescribed period (30 days from receipt) that makes the assessment final and unappealable.

QUESTION 20: Company C (Scope of LOA / One Audit Policy)

Legal Provisions:

  • National Internal Revenue Code (NIRC) of 1997, as amended (Republic Act No. 8424, as amended):
    • Section 6(A) (Power of the Commissioner to make assessments and prescribe additional requirements): “The Commissioner shall have the power, subject to the provisions of Section 5 hereof – (1) To examine any book, paper, record, or other data which may be relevant or material to such inquiry;” This power is exercised through an LOA.
    • Section 235 (Prescription of Period for Assessment and Collection of Taxes – related to audit period): This section, while not verbatim in the source, is related to the period of audit.
  • Revenue Memorandum Order (RMO) No. 10-2013 (One-Audit Policy): This RMO generally implements the “one-audit policy” of the BIR, which aims to prevent undue harassment of taxpayers by limiting examination of books of accounts to once a taxable year.
  • Exceptions to One-Audit Policy (from RMO No. 10-2013 and relevant jurisprudence): RMO No. 10-2013 itself lists exceptions to the one-audit policy, including cases where:
    • There is fraud, irregularities, or mistakes in the return as determined by the Commissioner.
    • The taxpayer requests for re-investigation or re-examination.
    • Other exceptional cases as may be determined by the Commissioner.
  • Relevant Jurisprudence (as cited in the comparison):
    • Medicard Philippines, Inc. v. Commissioner of Internal Revenue (G.R. No. 222743, 5 April 2017): “a Memorandum of Assignment, Referral Memorandum, or any other similar internal communication cannot substitute for an LOA.”
    • Republic of the Philippines, v. Robiegie Corporation (G.R. No. 260261, 03 October 2022); Himlayang Pilipino Plans, Inc. v. Commissioner of Internal Revenue (G.R. No. 241848, 14 May 2021); Commissioner of Internal Revenue v. McDonald’s Philippines Realty Corp. (G.R. No. 242670, 10 May 2021): These cases reinforce the indispensability of a valid LOA for an audit and the requirement for a new or amended LOA when revenue officers are reassigned, or if the issuing official lacks authority.

Relevant Jurisprudence: The indispensability of a valid Letter of Authority (LOA) for a tax audit and the exceptions to the “one-audit policy” have been clarified in numerous Supreme Court decisions:

  • Medicard Philippines, Inc. v. Commissioner of Internal Revenue (G.R. No. 222743, 5 April 2017): This case explicitly ruled that “a Memorandum of Assignment, Referral Memorandum, or any other similar internal communication cannot substitute for an LOA”. It underscores that only a properly issued LOA confers legal authority to revenue officers for an examination.
  • Republic of the Philippines, v. Robiegie Corporation (G.R. No. 260261, 03 October 2022): This recent case reaffirms the strict requirement for a valid LOA for any tax examination.
  • Himlayang Pilipino Plans, Inc. v. Commissioner of Internal Revenue (G.R. No. 241848, 14 May 2021): This case further reinforces the principle that reassigned or new revenue officers must be covered by a new or amended LOA.
  • Commissioner of Internal Revenue v. McDonald’s Philippines Realty Corp. (G.R. No. 242670, 10 May 2021): This ruling also reiterates the strict requirement for a valid LOA to ensure due process in tax audits.
  • CIR v. Sony Philippines, Inc. (G.R. No. 178697, November 17, 2010): While not explicitly in the provided text for this specific question, this case is often cited for the “one-audit policy” and its exceptions, particularly in cases of fraud or other exceptional circumstances that justify a re-investigation for the same taxable year.