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Paguio, Dumayas & Associates, CPAs Certified Public Accountants and Management Consultants

QUALITY ASSURANCE BULLETIN I August 2018 Edition 1

www.paguiodumayasassoc.com



RECENT BUREAU OF INTERNAL REVENUE ISSUANCES

1. REVENUE REGULATIONS NO. 18-2018 - Amending Specific Provisions of Revenue Regulations No.

8-2016 Particularly Certain Guidelines on the Processing of Applications for Tax Clearance for Bidding

Purposes

2. REVENUE REGULATIONS NO. 19-2018 - Amends Revenue Regulations (RR) No. 13-2018

Particularly on the Use of Invoices I Receipts of Previously Registered VAT Taxpayers who are now

Non-VAT Taxpayers Pursuant to Section 84 of Republic Act (RA) No. 10963, or the "Tax Reform for

Acceleration and Inclusion (TRAIN Law)"

TAX ADVISORIES

1. Tax Clearance Advisory 1

2. Tax Clearance Advisory 1

3. Tax Advisory regarding eFPS

RECENT COURT OF TAX APPEALS CASES

1. SONOMA SERVICES, INC. VS. COMMISSIONER OF INTERNAL REVENUE

2. ORIENT OVERSEAS CONTAINER LINE LTD. Represented by OOCL (Philippines), Inc. VS.

COMMISSIONER OF INTERNAL REVENUE

3. ERWIN CASACLANG VS. COMMISSIONER OF INTERNAL REVENUE

4. MIFFI LOGISTICS CO., INC. VS. COMMISSIONER OF INTERNAL REVENUE

5. UPSI PROPERTY HOLDINGS, INC. VS. COMMISSIONER OF INTERNAL REVENUE

6. PROCESS MACHINERY CO., INC. VS. COMMISSIONER OF INTERNAL REVENUE

7. MEGABUCKS MERCHANDISING CORP.VS. COMMISSIONER OF INTERNAL REVENUE

SECURITIES AND EXCHANGE COMMISSION ISSUANCE

1. OFFICE OF THE GENERAL COUNSEL: SEC OGC-Opinion 18-15

Re: Cold storage, cold logistics and distribution as Public Utility; Ownership of a Land.

OTHER RELEVANT ISSUANCES

1. Davao Regional Trial Court Ruled In Favor Of Group of CPAs That Their Accreditation Required By

The SEC Is Not Allowed Under The Law. (Source: Philippine Daily Inquirer 24 Aug 2018-DAXIM L.

LUCAS—DORIS DUMLAO ABADILLA—)

TABLE OF CONTENTS



REVENUE REGULATIONS NO. 18-2018

Amending Specific Provisions of Revenue

Regulations No. 8-2016 Particularly Certain

Guidelines on the Processing of Applications for

Tax Clearance for Bidding Purposes

Pursuant to Sections 7(a) and 244 of the

National Internal Revenue Code of 1997, as

amended, these regulations are hereby

promulgated for the purpose of amending certain

provisions of Revenue Regulations (RR) No.

8-2016, by changing certain guidelines and

policies in the processing and issuance of Tax

Clearance for bidding purposes.

This is in line with the Bureau's objective

of extending utmost and unequivocal service to

its stakeholders pursuant to its commitment to

the mechanisms of "Ease of Doing Business" in

this country to enable the taxpayers cope with the

ever changing dynamics and demands of the

business community for the benefit of the Bureau

and the taxpayers.

SEC. 2. AMENDMENT. - Items 4.4.1 and

4.4.2 (c) of RR No. 8-2016 shall be amended to

read, respectively, as follows:

"4.4.1 All applications for the issuance of

Tax Clearance in accordance with the

requirements under RA No. 9184 and EO No.

398 shall be manually filed with the Collection

Division of the Revenue Regional Office where

the taxpayer or partnership/corporation is

currently and duly registered or with the

concerned office under the Large Taxpayers

service if the taxpayer is classified as Large

taxpayer, until such time that an on-line

application for this purpose has been made

available for use of prospective bidders."

c. For those with previously issued Tax Clearance

for bidding purposes. the requested Tax

Clearance shall only be issued if they are found

to be regular eFPS users from the time of

enrollment up to the time of filing of application.

The regular usage of eFPS shall not apply to new

applicants. The submission of the new applicant's

latest income tax and business tax returns not

filed and paid through the Bureau's eFPS shall

suffice. " ··

REVENUE REGULATIONS NO. 19-2018

Amends Revenue Regulations (RR) No. 13-2018

Particularly on the Use of Invoices I Receipts of

Previously Registered VAT Taxpayers who are

now Non-VAT Taxpayers Pursuant to Section 84

of Republic Act (RA) No. 10963, or the "Tax

Reform for Acceleration and Inclusion (TRAIN

Law)"

Pursuant to the provisions of Sections

244 and 245 of the National Internal Revenue

Code of 1997 (Tax Code), as amended, these

Regulations are hereby promulgated to amend

the transitory provisions of RR No. 13-2018 on

the use of invoices/receipts which were stamped

"Non-VAT registered as of (date of filing an

application for update of registration). Not valid

for claim of input tax."

AMENDMENT. - Section 13 of RR No. 13

-201 8 is hereby amended by providing deadline

on the use of stamped Non-VAT invoices/

receipts to read as follows:

"SECTION 13. TRANSITORY PROVISIONS.

A number of unused invoices/receipts, as

determined by the taxpayer with the approval of

the appropriate BIR Office, may be allowed for

use, provided the phrase "Non-VAT registered

as of (date of filing an application for update

of registration). Not valid for claim of input tax.''

shall be stamped on the face of each and every

copy thereof, until new registered non-VAT

invoices or receipts have been printed and

received by the taxpayer or until August 31,

2018, whichever comes first. Upon receipt of

newly-printed registered non-VAT invoices or

receipts, the taxpayer shall submit, on the same

day, a new inventory list of, and surrender for

cancellation, all unused previously-stamped

invoices/receipts."



TAX CLEARANCE ADVISORY

1

In compliance with Revenue Regulations

(RR) No.18-2018, dated June 5, 2018 amending

certain provisions of RR No. 8-2016, all

applications for the issuance of Tax Clearance for

Bidding Purposes in accordance with the

requirements under Republic Act No. 9184 and

Executive Order No. 398 shall be manually filed

with the Collection Division of the Revenue

Regional Office where the taxpayer or

partnership/corporation is currently and duly

registered or with the concerned office under the

Large Taxpayers Service if the taxpayer is

classified as Large Taxpayer, until such time that

an on-line application for this purpose has been

made available for use of prospective bidders.

This is in line with the Bureau's objective

of extending utmost and unequivocal service to its

stakeholders pursuant to its commitment to the

mechanisms of "Ease of Doing Business" in this

country to enable the taxpayers cope with the

ever changing dynamics and demands of the

business community for the benefit of the Bureau

and the taxpayers.

Considering that RR 18-2018 was

published in the Manila Bulletin on August 6,

2018, its implementation shall take effect on

August 22, 2018 pursuant to Section 4 of RR

18-2018.

In this regard, all concerned taxpayers are

hereby advised to visit the BIR website

www.bir.gov.ph for more information regarding

this Tax Clearance Advisory.

TAX CLEARANCE ADVISORY

2

To ensure smooth transition in the

implementation of the decentralization of the

processing of application for Tax Clearance for

Bidding Purposes pursuant to Revenue

Regulations No. 18-2018 the Accounts

Receivable Monitoring Division may still accept

and process the applications for tax clearance

for bidding purposes of those who had already

secured the Tax Compliance Verification

Certificate and Delinquency Verification

Certificate from the concerned offices until their

expiry dates. However, the concerned Revenue

Offices are authorized to receive applications for

renewals and for new applicants.

TAX ADVISORY

BIR Form Nos. 0619-E and 0619-F are

not yet available in Electronic Filing and

Payment System (eFPS) and in order for the

eFPS taxpayers to remit the withholding taxes

for the first two (2) months of the calendar

quarter, they shall use BIR Form No.0605 per

BIR Tax Advisory dated January 31, 2018.

However, there have been numerous

inquiries from the eFPS taxpayers regarding

what form to use if there is no remittance for the

month since BIR Form No. 0605 can only be

used if there is payment. In view of this, eFPS

taxpayers are hereby advised not to file BIR

Form No. 0605 if there is no remittance to be

made and no penalties shall be imposed for this.

Once BIR Form Nos. 0619-E and 0619-F are

already available in the eFPS, then they are

required to file the applicable form with or

without remittance to be made.



SONOMA SERVICES, INC. VS.

COMMISSIONER OF INTERNAL REVENUE CTA Case No. 9249

This is a petition for review filed by Sonama

Services Inc. to seek the refund or issuance of tax

credit certificate allegedly representing its excess

and unutilized creditable withholding tax (CWT).

Petitioner filed its Annual Income Tax

Return (AITR) through Electronic Filing and

Payments System (eFPS). It indicated therein its

choice to claim the refund. Consequently, petitioner

did not carry over its excess and unutilized CWT to

the succeeding taxable year. However, respondent

has been inactive on its administrative claim for

refund.

Petitioner anchors its claim on Sections 58

(D) and 76 of the National Internal Revenue Code

(NIRC) of 1997, as amended, which provide:

“SEC. 58(D) Income of Recipient - Income

upon which any creditable tax is required to be

withheld under Section 57 shall be included in the

return of its recipient but the excess of the amount

of tax so withheld over the tax due on his return

shall be refunded to him subject to the provisions

of Section 204;”

“SEC. 76. Final Adjustment Return - Every

corporation liable to tax under Section 27 shall file

a final adjustment return covering the total taxable

income for the preceding calendar or fiscal year. If

the sum of the quarterly tax payments made during

the said taxable year is not equal to the total tax

due on the entire taxable income of that year, the

corporation shall either: (A) Pay the balance of tax

still due; or (B) Carry over the excess credit; or (C)

Be credited or refunded with the excess amount

paid, as the case may be.”

However, in addition to the requisites

provided under Section 76, the claim for refund

must be filed within the two-year prescriptive

period as provided under Sections 204(C) and

229 of the Tax Code, as amended.

In the present case, both the administrative and the judicial claims were filed within the two-year prescriptive period. And petitioner complied with all other requisites. In sum, petitioner has sufficiently proven its entitlement to a cash refund. WHEREFORE, the present Petition for Review is GRANTED. Accordingly, respondent is hereby ORDERED TO REFUND OR TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner, representing its excess and unutilized CWT.

ORIENT OVERSEAS CONTAINER LINE LTD. Represented by OOCL (Philippines), Inc.

VS. COMMISSIONER OF INTERNAL REVENUE

CTA Case No.9179

This involve the Petition for Review and the Supplement thereof, filed by petitioner Orient Overseas Container Line Ltd., as represented by OOCL (Philippines), Inc. Petitioner prays for the nullification and cancellation of respondent Commissioner of Internal Revenue's Final Decision on Disputed Assessment (FDDA) imposing deficiency Income Tax, Percentage Tax, Expanded Withholding Tax, and Compromise Penalties. After careful evaluation of the case records, more particularly the evidence duly presented by the parties, the Court finds the deficiency tax assessments issued by respondent against the petitioner to be intrinsically void. The invalidity of such deficiency tax assessments springs from the absence of authority on the part of the revenue officers who conducted the examination of petitioner's books of accounts and other accounting records. “1997 NIRC SEC. 13. Authority of a Revenue Officer. -Subject to the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner, a Revenue Officer assigned to perform assessment functions in any district may, pursuant to a Letter of Authority issued by the Revenue Regional Director, examine taxpayers within the jurisdiction of the district in order to collect the correct amount of tax, or to recommend the assessment of any deficiency tax due in the same manner that the said acts could have been performed by the Revenue Regional Director himself.”



In relation to the foregoing provisions,

Revenue Memorandum Order (RMO) No. 43-90

issued by the CIR identifies those officials who

are authorized to issue and sign Letter of

Authority (LOA).

“(D)(4) For the proper monitoring and

coordination of the issuance of LOA, the only BIR

officials authorized to issue and sign LOA are the

Regional Directors, the Deputy Commissioners

and the Commissioner. For the exigencies of the

service, other officials may be authorized to issue

and sign LOA but only upon prior authorization by

the Commissioner himself.”

In the present case, the revenue officers

named under LOA were different from those who

actually examined petitioner's books of accounts

and other accounting records.

In the case of Commissioner of Internal

Revenue v. Sony Philippines, Inc., the Supreme

Court held that absent of any prior authority on

the part of the revenue officers who conducted

the audit/examination of taxpayer's books of

accounts and other accounting records, the

deficiency tax assessment arising therefrom is

a nullity.

WHEREFORE, the present Petition for

Review is GRANTED. Accordingly, the deficiency

income tax, percentage tax, expanded withholding

tax, and compromise penalties as found in

respondent's Final Decision on Disputed

Assessment are CANCELLED and SET ASIDE.

ERWIN CASACLANG

VS.


CTA Case No. 9091

The case involves a Petition for Review

filed by Erwin Casaclang, praying for the refund of

his alleged erroneously paid and illegally

collected income tax for calendar year 2012.

Petitioner Erwin Casaclang an employee

of the Asian Development Bank ("ADB").

Petitioner anchors his claim that he is

exempted from income tax on the provisions of

Revenue Memorandum Order No. 31-2013 which

provides those employed by organizations

covered by separate international agreements or

specific provision of law.

Section 45(b), Article XII of the agreement

between ADB and the Government of the

Republic of the Philippines regarding the

headquarters of the ADB provides:

“Officers and staff of the Bank, including

for the purposes of this Article experts and

consultants performing missions for the Bank,

shall enjoy the following privileges and

immunities…(b) Exemption from taxation on or in

respect of the salaries and emoluments paid by

the Bank subject to the power of the Government

to tax its nationals…From the above, only officers

and staff of the ADB who are not Philippine

nationals shall be exempt from Philippine

income tax.”

The claim of the Petitioner that he is

exempt from the payment of income tax has no

legal basis. Under the above-cited revenue

issuance, it is clear that the exemption is still

subject to the power of the Government to tax its

nationals, including the herein Petitioner.

Sections 23(A) and 24(A)(1)(a) of the

NIRC of 1997, as amended, leave no room for

doubt that resident citizens are subject to tax on

income derived from all sources within and

without the Philippines, to wit:

“SEC. 23. General Principles of Income Taxation

in the Philippines. -Except when otherwise

provided in this Code: (a) Citizen of the

Philippines residing therein is taxable on all

income derived from sources within and without

the Philippines.”



“SEC. 24. Income Tax Rates.- (A)(1)(a) On

the taxable income defined in Section 31 of this

Code, other than income subject to tax under

Subsections (B), (C) and (D) of this Section,

derived for each taxable year from all sources

within and without the Philippines by every

individual citizen of the Philippines residing

therein;”

With the Philippines' reservation in the ADB

Charter to the effect that it maintains the right to

subject to income tax the compensation of resident

citizens employed by the ADB, the rule then is that

resident citizens employed by foreign governments

and/or international organizations, such as ADB,

are subject to the graduated income tax rates

under Section 24(A) of the NIRC of 1997, as

amended.

However, considering RMC No 31-13 was

issued in calendar year 2013, the same should be

made to apply prospectively in the interest of

justice and equity. Hence, compensation income of

resident citizens employed by foreign governments

and/or international organizations shall only be

subject to income tax beginning calendar year

2013.

WHEREFORE, premises considered, the

instant Petition for Review is GRANTED.

Respondent Commissioner of Internal Revenue is

hereby ORDERED to refund in favor of Petitioner

Erwin Casaclang representing his erroneously and

illegally collected income tax on compensation

income from the Asian Development Bank for

calendar year 2012.

MIFFI LOGISTICS CO., INC.

VS.


CTA Case No. 9122

This involves a Petition for Review filed

on August 20, 2015 by MIFFI Logistics, Co., Inc.

as petitioner, against the Commissioner of

Internal Revenue, as respondent, before the

Court in Division.

Petitioner seeks the quashal of the

Warrant of Distraint and/or Levy issued by

respondent and the cancellation and withdrawal

of the deficiency income tax and compromise

penalty for fiscal year (FY) 2006.

The issues presented by both parties to

the court involve but not limited to the following:

(1) prescription of the respondent’s right to

assess deficiency; (2) nullity of the respondent’s

assessment; (3) accounts not subjected to

income tax and withholding taxes; and (4)

validity of the Warrant of Distraint and/or Levy.

To discuss further, petitioner challenges

the respondent’s right to assess its alleged

income tax liabilities due to prescription citing

Section 203 of the 1997 National Internal

Revenue Code (1997 NIRC) which provides for

a three (3) year prescriptive period to assess.

Petitioner further asserts that there are no

allegations of fraud or falsity on the ITR that

would justify the application of ten (10)-year

prescriptive period to assess deficiency income

taxes.

Moreover, Petitioner insists that the

assessment is null and void as it violates its right

to due process. The income tax assessment did

not contain the law and the facts on which the

assessment is made as mandated by Section

228 of the 1997 NIRC, the FAN was prepared

even before the period allowed by law to

respond to the PAN has not yet prescribed, and

the audit investigation was conducted with an

invalid Letter of Authority (LOA).

Respondent belittles the reliance of

petitioner on the case of Philippine Journalists,

Inc. us. Commissioner of Internal Revenue

because the phrase "other matters...

Continuation...



...(mentioned in Republic Act (RA) 1125, as

amended by RA 9282) which was ruled upon by

the Supreme Court, refers to challenging the

collection procedure itself "post-assessment".

Respondent maintains that the collection procedure

may be challenged before the Court but the

assessment remains valid and final.

The court responds citing Section 228 of

the 1997 NIRC which provides that the taxpayer

shall be informed in writing of the law and the facts

on which the assessment is made. Otherwise, the

assessment is void. Moreover, the pleadings filed

by respondent in Court do not even contain any

allegations of fraud nor of any other circumstance

that would justify the application of the exceptional

period of ten (10) years to assess the income tax

liabilities of petitioner. Therefore, the three-year

period to assess the income tax liabilities applies

and thus, the FAN issued falls outside the

prescriptive period making such assessment void

and without any effect.

Having concluded that the subject income

tax assessment for is void together with the WDL,

this Court finds that the discussion on the other

issues becomes unnecessary.

WHEREFORE, the instant Petition for

Review filed by MIFFI Logistics Co., Inc. is hereby

GRANTED.

Accordingly, the FAN/FLD issued by

respondent for alleged deficiency income taxes for

FY 2006 as well as the WDL issued against

petitioner as a result thereof are hereby

CANCELLED and SET ASIDE.

UPSI PROPERTY HOLDINGS, INC.

VS.


CTA Case No. 8860

A Petition for Review was filed by UPSI

Property Holdings, Inc. against the Commissioner

of Internal Revenue, as respondent, before the

Court in Division.

Petitioner seeks for the cancellation and

withdrawal of the deficiency income tax and

fringe benefit tax (FBT) assessment issued

against it.

The issue on this case is the jurisdiction

of the Court of Tax Appeals to entertain the

Instant Petition for Review.

Petitioner affirms the jurisdiction of the

Court over the petition because it is an appeal

from the Final Decision on Disputed Assessment

(FDDA) issued by the Respondent on its protest.

With the FDDA as a reference, petitioner asserts

that the Petition for Review was timely filed

because it was lodged with the court thirty (30)

days from its receipt of the said FDDA.

On the substantive aspect of the tax

assessments, petitioner challenges the factual

and legal bases of the FBT, which according to

the respondent were erroneously treated by

petitioner as representation expenses but the

receipts showed that they were issued in the

name of one of its employees, thus the requisites

under RMO No. 10-20 for the deductibility of the

following are not met.

In respondent’s view that the Court has

no jurisdiction over the subject matter of this

Petition is because the FLD/FANs issued to

petitioner have become final, executory and

demandable due to its failure to file a timely

protest, thus there was no “disputed assessment”

that can be appealed to the Court.

It must be noted that, under Section 228:

Protesting of Assessment “ …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…”

Continuation...



– which the Petitioner failed to comply since the

protest for FAN was filed beyond the prescribed

period.

Meanwhile Section 3.1.5- Disputed

Assessment- “The taxpayer or his duly authorized

representative may protest administratively against

the aforesaid formal letter of demand and

assessment notice within thirty (30) days from the

receipt thereof.

xxx xxx xxx

If the taxpayer fails to file a valid protest

against the formal letter of demand and

assessment notice within thirty days (30) from the

receipt thereof, the assessment shall become final,

executory and demandable.”

It is important to stress the well-entrenched

rule that the Court of Tax Appeals is a court of

special jurisdiction and it can take cognizance only

of such matters that are clearly within its

jurisdiction.

Section 7(1) of RA 9282 provides that:

“Decisions of the Commissioner of Internal

Revenue in Cases involving disputed assessments,

refunds of internal revenue taxes, fees or other

charges, penalties in relation thereto, or other

matters arising under the NIRC or other laws

administered by the BIR.”

In the instant case, there is no disputed

assessment appealable to this Court because the

FLD/FANs have already attained finality long

before the FDDA was issued by the respondent.

Furthermore, the FDDA did not superseded

the FAN because it was issued after the FAN has

already become final and executory.

The FDDA is not equivalent to a FAN to

have the effect of superseding the latter. An FDDA

is a decision of the CIR on a disputed assessment

and clearly differs from the assessment itself.

Wherefore, in view of the foregoing, the

Petition for Review is hereby DENIED for lack of

jurisdiction.

PROCESS MACHINERY CO., INC.

VS.


CTA Case No. 9217

A petition for review was filed by Process

Machinery Co. Inc. that seeking the reversal and

setting aside of the Final Decision on Disputed

Assessment (FDDA) for alleged Value-Added Tax

deficiency.

Based on the Joint Stipulation of Facts

and Issues (JSFI), the BIR held PMCI liable for

alleged undeclared sales based on the issued

official receipts. Which, upon respondent’s

verification it was disclosed that petitioner issued

official receipts to cover transactions wherein,

respondent believes that the issued VATable

documents should be subject to VAT under

Section 108 of the NIRC, as amended.

Petitioner, insists that these alleged

undeclared sales had, in fact, been fully declared

in the VAT returns and for which the correct taxes

were paid. Further, in affirming the validity of the

examiner’s assessment in the FDDA, respondent

required the petitioner to declare the very same

transactions twice: first in the VAT sales invoice

and then in the VAT official receipts and, in effect,

compel it to pay VAT on the same transactions

twice.

It must be noted that Section 113(A) of the

NIRC, as amended prescribes the use or

issuance of VAT invoices and receipts. It reads

that for every sale of goods, a VAT invoice should

be issued and for every sale of service, a VAT

official receipt should be issued.

In essence, PMCI is engaged in the sale

of goods, hence, respondent’s basis for the

assessment should properly be the VAT invoices

issued by the taxpayer and not it’s VAT Official

Receipts.

Petitioner’s accountant explained

procedure followed by PMCI for the issuance of

both VAT invoices and official receipts covering

the same transactions. The pertinent portion of

the Amended Judicial Affidavit reads:

Continuation...



“Question: What is the relationship between the

official receipts issued by Process and the sales

invoice?

Answer: Maam, the official receipts are issued

when the sales invoice has been paid. The official

receipts indicates the sales invoice number. The

invoice and receipt refer to the same transaction.”

Nowhere in Section 113(D) does the law

allow the respondent to impose the 12% VAT on

the same transaction as a consequence to the

taxpayer who issues both VAT invoice and official

receipt to cover the same. Furthermore, the

provision is clearly inapplicable to PMCI since, as

shown by its VAT invoices, it is a VAT-registered

taxpayer and its sales of processing equipment are

not VAT-exempt.

To reiterate, the Court was able to

independently verify and is, thus, convinced that

PMCI’s alleged undeclared sales were

substantiated with VAT invoices and were correctly

reported in its VAT returns.

Accordingly, to allow this item of

assessment to prosper would be to sanction the

respondent in collecting anew VAT on transactions

for which taxes were proven to have already been

declared and paid. That would be tantamount to

unjust enrichment which is not permitted by law.

Wherefore, premises considered, the Instant

Petition for Review is GRANTED. The VAT

assessment issued by respondent is hereby

CANCELLED.

MEGABUCKS MERCHANDISING CORP.

VS.


CTA Case No. 9345

A petition for review was filed by

Megabucks Merchandising Corp that seeks for

the nullification of the Audit Result/Assessment

assessing petitioner for the deficiency income

tax, value-added tax, expanded withholding tax,

withholding tax on compensation, and

documentary stamp tax with accessory

penalties.

The petitioner executed several Waivers

of the Defense of Prescription under the Statute

of Limitations of the NIRC. Section 203 of the

NIRC, as amended mandates that internal

revenue taxes must be assessed within three

years reckoned from the period fixed by law for

filing of the tax return or the actual date of filing,

whichever comes later.

In the case of the petitioner, the FLD and

the Assessment Notices were issued beyond the

three-year prescriptive period to assess, thus, to

authorize the extension of the prescribed period

an execution of a valid waiver may stipulate to

extend the period of assessment by a written

agreement created prior to the lapse of the

period as stated in Section 222(b) of the NIRC of

1997.

In relation thereto, Revenue

Memorandum Order (RMO) No. 20-90 provides

that both the date of execution by the taxpayer

and date of acceptance by the BIR should be

before the expiration of the period of

prescription.

From the foregoing, the petitioner

executed four (4) waivers, the First Waiver was

executed after the expiration of the period, and

thus, respondent’s right to assess was already

barred by prescription. The Second Waiver

executed, also, lapsed the prescribed period,

while the Third Waiver, however, was duly

executed by the Petitioner but the said waiver

does not indicate the fact of receipt by the

Petitioner of its file copy which violates the RMO

No. 20-90 which requires that “the fact of

receipt ...

Continuation...



by the taxpayer of his file copy must be indicated in

the original copy to show that the taxpayer was

notified of the acceptance of the BIR and the

perfection of the agreement,” further, makes the

Third Waiver to be defective.

Since the waivers executed are invalid and

without force, the period to assess was not

extended.

Petitioner, also argues the lack of due date

for the date of payment on the FANs issued makes

the FAN not valid because the failure to indicate a

definite due date negates respondent from the

demand of payment and renders the assessment

void.

It must be noted that the issuance of a valid

formal assessment is a prerequisite for collection of

taxes.

Wherefore, premises considered, the

instant Petition for review is GRANTED.

Accordingly, the Audit Result/Assessment is

hereby CANCELLED.

OFFICE OF THE GENERAL COUNSEL

SEC OGC-Opinion 18-15

Re: Cold storage, cold logistics and distribution as

Public Utility; Ownership of a Land.

This is a response for a request for an

opinion on whether, Igloo Supply Chain Philippines,

Inc. is considered engaged in a partially

nationalized activity.

In the attached Articles of Incorporation,

the primary purpose is stated as follows:

“to engage in the business of the operation

of cold storage facilities, cold logistics and

distribution of services, value added cold

processing and related services”

It was likewise asked if the owning of lands

and warehouses is considered as engaged in

nationalized or partially nationalized activity.

The Constitution however, does not

provide a definition of a public utility. In view of

the foregoing, the Supreme Court, in JG Summit

Holdings, Inc. v. Court of Appeals et. al., defined

public utility as follows:

“A public utility is a business or service

engaged in regularly supplying the public with

some commodity or service of public

consequence and telegraph service. The

principal determinative characteristic of a public

utility is that of service to or readiness to serve,

an indefinite public or portion of the public as

such which has a legal right to demand and

receive its services or commodities.”

The classification of ice plants and cold

storage services as a public utility is however,

qualified by its use and service to the public.

Igloo Philippines can be classified as an

ice-refrigeration plant as it provides cold

storage and refrigeration facilities. Philippine

laws and jurisprudence provide that ice

refrigeration plants are considered public utilities

if their enterprise is devoted to the public or their

services are sold to the public for compensation.

The Commission had previously opined

that if the enumerated activities in the primary

purpose of a corporation are too broad and

encompassing making possible the undertaking

of mass media or public utility, then such is

deemed as nationalized or partially nationalized.

Therefore, considering its general and

unqualified business purpose clause, Igloo

Philippines is allowed to indiscriminately offer its

services to the public for compensation, and

should be considered as a public utility. As such,

Igloo Philippines is considered engaged in

partially nationalized activity and should comply

with the afore-said requirements of the

Constitution and the Public Service Act.

Equally important, Igloo Philippines,

being an owner of a land, should be considered

as a partially nationalized corporation, Section 2

-A of the Anti-Dummy Law provides that a

corporation having in its name and under its

control a property, the enjoyment of which is

reserved by the Constitution or the laws of the

Philippines to Filipinos, is in effect nationalized.

Continuation...



THE REGIONAL TRIAL COURT OF DAVAO

RULED IN FAVOR OF A GROUP OF CPAs THAT

THEIR ACCREDITATION REQUIRED BY THE

SEC IS NOT ALLOWED UNDER THE LAW

A few years ago, the former leadership of

the Securities and Exchange Commission issued a

rule “Paragraph 3 Rule 68 of the Amended

Implementing Rules and Regulations (IRR) to the

Securities Regulation Code (SRC), Securities and

Exchange Commission (SEC) Memorandum

Circular No. 13-2009) requiring the mandatory

accreditation of auditing firms and regulators before

they could conduct audits on the books and

financial statements of locally registered

companies.

The rationale was simple: the corporate

regulator wanted to ensure that audits done on

Philippine corporations, large or small, would

comply with certain baseline standards. The goal

was to ensure that would be investors and

stakeholders would be able to rest easy that the

financial statements of any particular company

would adhere to a certain quality.

There was only one problem though: many

players in the local auditing industry felt that the

rule was discriminatory against smaller auditing

firms or even individual certified public accountants

who catered to firms that couldn’t afford the

services of a large audit firm.

So a party-list firm—called 1Accountants

Party-List Inc.—sued the SEC before the courts to

stop the implementation of this rule. The case

didn’t look like it would prosper, initially, with the

court denying the party-list group’s petition to issue

an injunction against the corporate regulator’s

order.

But that was two years ago. After evaluating

all the evidence and arguments presented by both

sides, a regional trial court in Davao City declared

the SEC rule null and void for running counter to

the Philippine Accountancy Act of 2004. That’s

because that law specified that local accountants

are regulated by the Philippine Regulatory Board of

Accountancy (PRBOA), chaired by Joel Tan

Torres. In addition to being subject to PRBOA’s

rules, they are, first and foremost, required to pass

their basic regulatory tests to become accredited

CPAs.

Further, it was stated in Section 13 of

R.A. No. 9298 that the only accreditation

required for them to the practice of public

accountancy is that of PRC and PRBOA only,

hence, there is no basis for the SEC to impose

on them additional accreditation.

As such, the Davao RTC ruled that

imposing another layer of regulation would be

against the law.

More importantly, the court also ruled

that the SEC overstepped its mandate when

ordering a separate accreditation scheme for

accountants and auditors, saying the

ill-conceived regulation was “unconstitutional”

and “issued without authority.”

“An administrative order issued by the

SEC must be in harmony with the law,”

“Regulations are not supposed to be a substitute

for the general policy-making that Congress

enacts in the form of public law. Although,

administrative regulations are entitled to respect,

the authority to prescribe rules and regulations is

not an independent source of power to make

laws.” presiding judge Mario Duaves said in his

decision that was handed down a few weeks

ago. “Accordingly, the SEC is directed to refrain

from enforcing or implementing the assailed

mandatory accreditation requirement of external

auditors and auditing firms before they can

conduct statutory audit of financial statements on

covered entities.”

It took a while, but the small guys won

this round. Now, it bears watching whether the

new SEC leadership will hew closely to the

philosophy of the past or chart its own regulatory

path. We’ll know soon enough.

SOURCE: (Philippine Daily Inquirer 24 Aug 2018-DAXIM L. LUCAS—

DORIS DUMLAO ABADILLA—)



EDITORIAL BOARD

Unit 3207 Cityland Pasong Tamo

Condominium, Pasong Tamo St.,

Barangay Pio del Pilar, Makati City

We are a team of Certified Public Accountants, who aim to be the

accounting firm of choice for business entities in terms of:

Audit and Assurance

Taxation

Business Process Outsourcing

Management Consultancy

This bulletin is a compilation of relevant

issuances, rulings and memoranda

from various government agencies to

enhance the technical skills of the

professional staff of Paguio, Dumayas

and Associates, CPAs and is not

intended to replace the original

issuances of the related government

agencies.

FLOYD C. PAGUIO

Managing Partner

AIRA IZA G. GALLEGOS

Tax Specialist

AILEEN P. MELCHOR

Senior Tax Specialist

KEN JOHN B. ASADON

Tax Supervisor

[email protected]

[email protected]

[email protected]

[email protected]

Contact us at: 950-9853/950-9854

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