National Internal Revenue Code; assessment; letter of authority; scope.

Under the National Internal Revenue Code (Tax Code), a letter of authority ( !") is the authority #iven to the appropriate revenue officer assi#ned to perform assessment functions. It empo$ers or ena%les said revenue officer to examine the %oo&s of account and other accountin# records of a taxpayer for the purpose of collectin# the correct amount of tax. There must %e a #rant of authority %efore any revenue officer can conduct an examination or assessment. The revenue officer so authori'ed must not #o %eyond the authority #iven. In the a%sence of such an authority, the assessment or examination is a nullity. !" ()*+, covered -the period ()* and unverified prior years.. Thus, the Commissioner of Internal Revenue (CIR) actin# throu#h its revenue officers $ent %eyond the scope of their authority %ecause the deficiency value/added tax assessment they arrived at $as %ased on records from 0anuary to 1arch ()2 or usin# the fiscal year $hich ended in 1arch +(, ())2. The CIR &ne$ $hich period should %e covered %y the investi#ation. If the CIR $anted to or intended the investi#ation to include the year ())2, it should have done so %y includin# it in the !" or issuin# another !". 1oreover, the covera#e of !" ()*+,, particularly the phrase -and unverified prior years,. violated section C of Revenue 1emorandum !rder No. ,+/)3 dated 4eptem%er 53, ())3, $hich provides that a !" should cover a taxa%le period not exceedin# one taxa%le year. Commissioner of Internal Revenue vs. Sony Philippines, Inc., G.R. No. 1786 7, Novem!er 17, "#1#.

46C!N7 7I8I4I!N
C!11I44I!N6R !9 INT6RN" R686NU6, Petitioner, :.R. No. (*2;)* Present: CARPIO, J., Chairperson, LEONARDO-DE CASTRO,* PERALTA, ABAD, and MENDO A, JJ.

- versus -

4!N< =>I I==IN64, INC., Res!ondent.

Pro"u#$ated: Nove"%er &', ()&)

* ---------------------------------------------------------------------------------------*

76CI4I!N
16N7!?", $.@
T+is !etition ,or revie- on certiorari see.s to set aside t+e Ma/ &', ())' De0ision and t+e 1u#/ 2, ())' Reso#ution o, t+e Court o, Ta3 A!!ea#s 4 En Ban05&6 (CTA-EB), in C.T.A. EB No. 7), a,,ir"in$ t+e O0to%er (8, ())9 De0ision o, t+e CTA-:irst Division5(6 -+i0+, in turn, !artia##/ $ranted t+e !etition ,or revie- o, res!ondent Son/ P+i#i!!ines, In0. (Sony). T+e CTA:irst Division de0ision 0an0e##ed t+e de,i0ien0/ assess"ent issued %/ !etitioner Co""issioner o, Interna# Revenue (CIR) a$ainst Son/ ,or ;a#ue Added Ta3 (VAT) %ut u!+e#d t+e de,i0ien0/ assess"ent ,or e3!anded -it++o#din$ ta3 (EWT) in t+e a"ount o, P&,)<2,='7.') and t+e !ena#ties ,or #ate re"ittan0e o, interna# revenue ta3es in t+e a"ount o, P&,(87, 27<.7).5<6 T>6 9"CT4: On Nove"%er (9, &77=, t+e CIR issued Letter o, Aut+orit/ No. ))))&7'<9 (LOA !"#$) aut+ori>in$ 0ertain revenue o,,i0ers to e3a"ine Son/?s %oo.s o, a00ounts and ot+er a00ountin$ re0ords re$ardin$ revenue ta3es ,or -the period ())* and unverified prior years.. On De0e"%er 8, &777, a !re#i"inar/ assess"ent ,or &77' de,i0ien0/ ta3es and !ena#ties -as issued %/ t+e CIR -+i0+ Son/ !rotested. T+erea,ter, a0tin$ on t+e !rotest, t+e CIR issued ,ina# assess"ent noti0es, t+e ,or"a# #etter o, de"and and t+e detai#s o, dis0re!an0ies. 596 Said detai#s o, t+e de,i0ien0/ ta3es and !ena#ties ,or #ate re"ittan0e o, interna# revenue ta3es are as ,o##o-s:

In ())2, the CIR issued a etter of "uthority to the revenue certain revenue officers to examine the %oo&s of accounts and other accountin# records of Respondent 4ony for the period of ())* and unverified prior years. In ())), CIR issued the preliminary assessment for ())* deficiency taxes and penalties of 4ony, $hich it filed its protest. "ctin# on said protest, CIR issued the final assessment notices and formal demand letter.
769ICI6NC< 8" U6 /"7767 T"A (8"T) ("ssessment No. 4T/8"T/)*/3(5,/5333) Basi0 Ta3 Due Add: Pena#ties Interest u! to <-<&-())) Co"!ro"ise De,i0ien0/ ;AT Due 769ICI6NC< 6A="N767 BIT>>! 7IN: T"A (6BT) ("ssessment No. 4T/6BT/)*/3(5C/5333) Basi0 Ta3 Due Add: Pena#ties Interest u! to <-<&-())) Co"!ro"ise De,i0ien0/ E@T Due P 22),9=2.=( (2,))).)) P 2'2,9=2.=( &,77(,98(.'( P &,9&8,7'8.7) P <,&2',<&9.9& (2,))).)) P <,&=(,<&9.9& &&,&9&,)&9.9& P ',72=,')).))

769ICI6NC< !9 8"T !N R!<" T< ="<16NT4 ("ssessment No. 4T/ R(/)*/3(5;/5333) Basi0 Ta3 Due Add: Pena#ties Sur0+ar$e Interest u! to <-<&-())) Co"!ro"ise P <27,&''.=) =',2=).<9 &8,))).)) 98(,'2=.&9 P

Pena#ties Due "T6 R61ITT"NC6 !9 9IN" BIT>>! 7IN: T"A ("ssessment No. 4T/ R5/)*/3(5*/5333) Basi0 Ta3 Due Add: Pena#ties Sur0+ar$e Interest u! to <-<&-())) Co"!ro"ise Pena#ties Due P

98(,'2=.&9

&,'(7,87).'& 2)=,'=<.)' 2),))).)) P (,(==,9'<.'= (,(==,9'<.'=

"T6 R61ITT"NC6 !9 INC!16 ="<16NT4 ("ssessment No. 4T/ R+/)*/3(52/5333) Basi0 Ta3 Due Add: Pena#ties (2 A Sur0+ar$e Interest u! to <-<&-())) Co"!ro"ise Pena#ties Due P =,=82.<9 2=.(7 (,))).)) P &),7(<.8) &),7(<.8) P

:R"N7 T!T"

(C,2)C,;+5.;C526

Son/ sou$+t re-eva#uation o, t+e a,ore"entioned assess"ent %/ ,i#in$ a !rotest on :e%ruar/ (, ())). Son/ su%"itted re#evant do0u"ents in su!!ort o, its !rotest on t+e &8t+ o, t+at sa"e "ont+.586 4ony sou#ht for re/evaluation of the assessment. Bithin +3 days after the lapse of (23 days from su%mission of the said supportin#

documents to the CIR, 4ony filed a petition for revie$ %efore the CT", $hich partly #ranted their petition. The CT"/9irst 7ivision partly #ranted 4onyDs petition %y cancellin# the deficiency 8"T assessment %ut upheld a modified deficiency 6BT assessment as $ell as the penalties On O0to%er (9, ())), -it+in <) da/s a,ter t+e #a!se o, &=) da/s ,ro" su%"ission o, t+e said su!!ortin$ do0u"ents to t+e CIR, Son/ ,i#ed a !etition ,or revie- %e,ore t+e CTA. 5'6 A,ter tria#, t+e CTA-:irst Division disa##o-ed t+e de,i0ien0/ ;AT assess"ent %e0ause t+e su%sidi>ed advertisin$ e3!ense !aid %/ Son/ -+i0+ -as du#/ 0overed %/ a ;AT invoi0e resu#ted in an in!ut ;AT 0redit. The CT" disallo$ed the deficiency 8"T "ssessment %ecause the su%sidi'ed advertisin# expense paid %y 4ony $hich $as duly covered %y a 8"T invoice resulted in an input 8"T credit. It maintained the deficiency 6BT on 4onyDs motor vehicles %ut disallo$ed the 6BT assessment on the rental expense since the total rental deposit $as incurred from 0anuary to 1arch ())2 $hich $as a#ain %eyond the covera#e of !" ()*+,. 9or these, the CIR filed its petition for revie$ %efore the 4C. As re$ards t+e E@T, t+e CTA-:irst Division "aintained t+e de,i0ien0/ E@T assess"ent on Son/?s "otor ve+i0#es and on !ro,essiona# ,ees !aid to $enera# !ro,essiona# !artners+i!s. It a#so assessed t+e a"ounts !aid to sa#es a$ents as 0o""issions -it+ ,ive !er0ent B2AC E@T !ursuant to Se0tion &B$C o, Revenue Re$u#ations No. 8-=2. T+e CTA-:irst Division, +o-ever, disa##o-ed t+e E@T assess"ent on renta# e3!ense sin0e it ,ound t+at t+e tota# renta# de!osit o, P&),2(<,=(&.77 -as in0urred ,ro" 1anuar/ to Mar0+ &77= -+i0+ -as a$ain %e/ond t+e 0overa$e o, LOA &7'<9. E30e!t ,or t+e 0o"!ro"ise !ena#ties, t+e CTA-:irst Division a#so u!+e#d t+e !ena#ties ,or t+e #ate !a/"ent o, ;AT on ro/a#ties, ,or #ate re"ittan0e o, ,ina# -it++o#din$ ta3 on ro/a#t/ as o, De0e"%er &77' and ,or t+e #ate

re"ittan0e o, E@T %/ so"e o, Son/?s %ran0+es. 5=6 In su", t+e CTA-:irst Division !art#/ $ranted Son/?s !etition %/ 0an0e##in$ t+e de,i0ien0/ ;AT assess"ent %ut u!+e#d a "odi,ied de,i0ien0/ E@T assess"ent as -e## as t+e !ena#ties. T+us, t+e dis!ositive !ortion reads:
@DERE:ORE, t+e !etition ,or revie- is +ere%/ PARTIALLE FRANTED. Res!ondent is ORDERED to CANCEL and @ITDDRA@ t+e de,i0ien0/ assess"ent ,or va#ue-added ta3 ,or &77' ,or #a0. o, "erit. Do-ever, t+e de,i0ien0/ assess"ents ,or e3!anded -it++o#din$ ta3 and !ena#ties ,or #ate re"ittan0e o, interna# revenue ta3es are GPDELD. A00ordin$#/, !etitioner is DIRECTED to PAE t+e res!ondent t+e de,i0ien0/ e3!anded -it++o#din$ ta3 in t+e a"ount o,P&,)<2,='7.') and t+e ,o##o-in$ !ena#ties ,or #ate re"ittan0e o, interna# revenue ta3es in t+e su" o, P&,(87,27<.7): &. ;AT on Ro/a#t/ (. @it++o#din$ Ta3 on Ro/a#t/ <. E@T o, Petitioner?s Bran0+es Tota# P P 9(7,(9(.)' =<&,9(=.() =,7(<.8< &,(87,27<.7)

P#us ()A de#inHuen0/ interest ,ro" 1anuar/ &', ())) unti# ,u##/ !aid !ursuant to Se0tion (97BCCB<C o, t+e &77' Ta3 Code. SO ORDERED.576

T+e CIR sou$+t a re0onsideration o, t+e a%ove de0ision and su%"itted t+e ,o##o-in$ $rounds in su!!ort t+ereo,:
A. T+e Donora%#e Court 0o""itted reversi%#e error in +o#din$ t+at !etitioner is not #ia%#e ,or t+e de,i0ien0/ ;AT in t+e a"ount o, P&&,&9&,)&9.9&I B. T+e Donora%#e 0ourt 0o""itted reversi%#e error in +o#din$ t+at t+e 0o""ission e3!ense in t+e a"ount o, P(,=79,'7'.)) s+ou#d %e su%Je0ted to 2A -it++o#din$ ta3 instead o, t+e &)A ta3 rateI C. T+e Donora%#e Court 0o""itted a reversi%#e error in +o#din$ t+at t+e -it++o#din$ ta3 assess"ent -it+ res!e0t to t+e 2A -it++o#din$ ta3 on renta# de!osit in t+e a"ount o, P&),2(<,=(&.77 s+ou#d %e 0an0e##edI and

D. T+e Donora%#e Court 0o""itted reversi%#e error in +o#din$ t+at t+e

re"ittan0e o, ,ina# -it++o#din$ ta3 on ro/a#ties 0overin$ t+e !eriod 1anuar/ to Mar0+ &77= -as ,i#ed on ti"e.5&)6

On A!ri# (=, ())2, t+e CTA-:irst Division denied t+e "otion ,or re0onsideration. Gn,a>ed, t+e CIR ,i#ed a !etition ,or revie- -it+ t+e CTAEB raisin$ identi0a# issues:
&. @+et+er or not res!ondent BSon/C is #ia%#e ,or t+e de,i0ien0/ ;AT in t+e a"ount o, P&&,&9&,)&9.9&I

(. @+et+er or not t+e 0o""ission e3!ense in t+e a"ount o, P(,=79,'7'.)) s+ou#d %e su%Je0ted to &)A -it++o#din$ ta3 instead o, t+e 2A ta3 rateI <. @+et+er or not t+e -it++o#din$ assess"ent -it+ res!e0t to t+e 2A -it++o#din$ ta3 on renta# de!osit in t+e a"ount o,P&),2(<,=(&.77 is !ro!erI and

9. @+et+er or not t+e re"ittan0e o, ,ina# -it++o#din$ ta3 on ro/a#ties

0overin$ t+e !eriod 1anuar/ to Mar0+ &77= -as ,i#ed outside o, ti"e. 5&&6

:indin$ no 0o$ent reason to reverse t+e de0ision o, t+e CTA-:irst Division, t+e CTA-EB dis"issed CIR?s !etition on Ma/ &', ())'. CIR?s "otion ,or re0onsideration -as denied %/ t+e CTA-EB on 1u#/ 2, ())'. T+e CIR is no- %e,ore t+is Court via t+is !etition ,or revie- re#/in$ on t+e ver/ sa"e $rounds it raised %e,ore t+e CTA-:irst Division and t+e CTAEB. T+e said $rounds are re!rodu0ed %e#o-:
:R!UN74 9!R T>6 " I T>6 CT" 6N E"NC 6RR67 IN RU IN: T>"T R64=!N76NT I4 N!T I"E 6 9!R 769ICI6NC< 8"T IN T>6 "1!UNT !9 =>=((,(,(,3(,.,(. II "4 T! R64=!N76NTD4 769ICI6NC< 6A="N767 BIT>>! 7IN: T"A IN T>6 "1!UNT !9 =>=(,))5,,;5.*5@ ". T>6 CT" 6N E"NC 6RR67 IN RU IN: T>"T T>6 C!11I44I!N 6A=6N46 IN T>6 "1!UNT !9 =>=5,2),,*)*.33 4>!U 7 E6 !B"NC6 !9 T>6 =6TITI!N

4UE06CT67 T! " BIT>>! 7IN: T"A !9 CF IN4T6"7 !9 T>6 (3F T"A R"T6. E. T>6 CT" 6N E"NC 6RR67 IN RU IN: T>"T T>6 "4464416NT BIT> R64=6CT T! T>6 CF BIT>>! 7IN: T"A !N R6NT" 76=!4IT IN T>6 "1!UNT !9 =>=(3,C5+,25(.)) I4 N!T =R!=6R. III T>6 CT" 6N E"NC 6RR67 IN RU IN: T>"T T>6 9IN" BIT>>! 7IN: T"A !N R!<" TI64 C!86RIN: T>6 =6RI!7 0"NU"R< T! 1"RC> ())2 B"4 9I 67 !N TI16. G(5H

G!on ,i#in$ o, Son/?s 0o""ent, t+e Court ordered t+e CIR to ,i#e its re!#/ t+ereto. T+e CIR su%seHuent#/ ,i#ed a "ani,estation in,or"in$ t+e Court t+at it -ou#d no #on$er ,i#e a re!#/. T+us, on De0e"%er <, ())=, t+e Court reso#ved to $ive due 0ourse to t+e !etition and to de0ide t+e 0ase on t+e %asis o, t+e !#eadin$s ,i#ed.5&<6 T+e Court ,inds no "erit in t+e !etition. I44U6@ B!N the tax assessments should %e disallo$ed on the #round that the 6xaminers exercised their authority %eyond the etter of "uthority issued %y the CIR. >6 7@ <es. The CIR insists that !" ()*+,, althou#h it states -the period ())* and unverified prior years,. should %e understood to mean the fiscal year endin# in 1arch +(, ())2.G(,H The Court cannot a#ree. Eased on 4ection (+ of the Tax Code, a etter of "uthority or !" is the authority #iven to the appropriate revenue officer assi#ned to perform assessment functions. It empo$ers or ena%les said revenue officer to examine the %oo&s of account and other accountin# records of a taxpayer for the purpose of collectin# the correct amount of tax.G(CH The very provision of the Tax Code that the

CIR relies on is uneIuivocal $ith re#ard to its po$er to #rant authority to examine and assess a taxpayer.
SEC. 8. =o$er of the Commissioner to 1a&e "ssessments and =rescri%e "dditional ReIuirements for Tax "dministration and 6nforcement. J BACE3a"ination o, Returns and Deter"ination o, ta3 Due. 4 A,ter a return +as %een ,i#ed as reHuired under t+e !rovisions o, t+is Code, t+e Co""issioner or +is du#/ aut+ori>ed re!resentative may authori'e the examination of any taxpayer and the assessment of the correct amount of tax@ %ro&i'e', ho(e&er, T+at ,ai#ure to ,i#e a return s+a## not !revent t+e Co""issioner ,ro" authori'in# the examination of any taxpayer. 3 3 3 5E"!+ases su!!#ied6

C#ear#/, t+ere "ust %e a $rant o, aut+orit/ %e,ore an/ revenue o,,i0er 0an 0ondu0t an e3a"ination or assess"ent. 6Iually important is that the revenue officer so authori'ed must not #o %eyond the authority #iven. In the a%sence of such an authority, the assessment or examination is a nullity. As ear#ier stated, !" ()*+, covered -the period ())* and unverified prior years.. 9or said reason, the CIR actin# throu#h its revenue officers $ent %eyond the scope of their authority %ecause the deficiency 8"T assessment they arrived at $as %ased on records from 0anuary to 1arch ())2 or usin# the fiscal year $hich ended in 1arch +(, ())2. "s pointed out %y the CT"/9irst 7ivision in its "pril 52, 533C Resolution, the CIR &ne$ $hich period should %e covered %y the investi#ation. Thus, if CIR $anted or intended the investi#ation to include the year ())2, it should have done so %y includin# it in the !" or issuin# another !". G!on revie-, t+e CTA-EB even added t+at t+e 0overa$e o, LOA &7'<9, !arti0u#ar#/ t+e !+rase Kand unveri,ied !rior /ears,L vio#ated Se0tion C o, Revenue Me"orandu" Order No. 9<-7) dated Se!te"%er (), &77), t+e !ertinent !ortion o, -+i0+ reads:
+. " etter of "uthority should cover a taxa%le period not exceedin# one taxa%le year. The practice of issuin# K"s coverin#

audit of -unverified prior years is here%y prohi%ited. If the audit of a taxpayer shall include more than one taxa%le period, the other periods or years shall %e specifically indicated in the K". G(;H 5E"!+asis su!!#ied6

On t+is !oint a#one, t+e de,i0ien0/ ;AT assess"ent s+ou#d +ave %een disa##o-ed. Be t+at as it "a/, t+e CIR?s ar$u"ent, t+at Son/?s advertisin$ e3!ense 0ou#d not %e 0onsidered as an in!ut ;AT 0redit %e0ause t+e sa"e -as eventua##/ rei"%ursed %/ Son/ Internationa# Sin$a!ore (SIS), is a#so erroneous. T+e CIR 0ontends t+at sin0e Son/?s advertisin$ e3!ense -as rei"%ursed %/ SIS, t+e ,or"er never in0urred an/ advertisin$ e3!ense. As a resu#t, Son/ is not entit#ed to a ta3 0redit. At "ost, t+e CIR 0ontinues, t+e said advertisin$ e3!ense s+ou#d %e ,or t+e a00ount o, SIS, and not Son/. 5&'6 T+e Court is not !ersuaded. As a!t#/ ,ound %/ t+e CTA-:irst Division and #ater a,,ir"ed %/ t+e CTA-EB, Son/?s de,i0ien0/ ;AT assess"ent ste""ed ,ro" t+e CIR?s disa##o-an0e o, t+e in!ut ;AT 0redits t+at s+ou#d +ave %een rea#i>ed ,ro" t+e advertisin$ e3!ense o, t+e #atter. 5&=6 It is evident under Se0tion &&)5&76 o, t+e &77' Ta3 Code t+at an advertisin$ e3!ense du#/ 0overed %/ a ;AT invoi0e is a #e$iti"ate %usiness e3!ense. T+is is 0on,ir"ed %/ no #ess t+an CIR?s o-n -itness, Revenue O,,i0er Antonio A#uHuin.5()6 T+ere is a#so no den/in$ t+at Son/ in0urred advertisin$ e3!ense. A#uHuin testi,ied t+at advertisin$ 0o"!anies issued invoi0es in t+e na"e o, Son/ and t+e #atter !aid ,or t+e sa"e. 5(&6 Indu%ita%#/, Son/ in0urred and !aid ,or advertisin$ e3!enseM servi0es. @+ere t+e "one/ 0a"e ,ro" is anot+er "atter a## to$et+er %ut -i## de,inite#/ not 0+an$e said ,a0t. T+e CIR ,urt+er ar$ues t+at Son/ itse#, ad"itted t+at t+e rei"%urse"ent ,ro" SIS -as in0o"e and, t+us, ta3a%#e. In su!!ort o, t+is, t+e CIR 0ited a !ortion o, Son/?s !rotest ,i#ed %e,ore it:
T+e ,a0t t+at due to adverse e0ono"i0 0onditions, Son/-Sin$a!ore +as $ranted to our 0#ient a su%sid/ eHuiva#ent to t+e #atter?s advertisin$ e3!enses -i## not a,,e0t t+e va#idit/ o, t+e in!ut ta3es ,ro" su0+ e3!enses. T+us, at t+e "ost, t+is is an additiona# in0o"e o, our 0#ient su%Je0t to

in0o"e ta3. @e su%"it ,urt+er t+at our 0#ient is not su%Je0t to ;AT on t+e su%sid/ in0o"e as t+is -as not derived ,ro" t+e sa#e o, $oods or servi0es.
5((6

Inso,ar as t+e a%ove-"entioned su%sid/ "a/ %e 0onsidered as in0o"e and, t+ere,ore, su%Je0t to in0o"e ta3, t+e Court a$rees. Do-ever, t+e Court does not a$ree t+at t+e sa"e su%sid/ s+ou#d %e su%Je0t to t+e &)A ;AT. To %e$in -it+, t+e said su%sid/ ter"ed %/ t+e CIR as rei"%urse"ent -as not even e30#usive#/ ear"ar.ed ,or Son/?s advertisin$ e3!ense ,or it -as %ut an assistan0e or aid in vie- o, Son/?s dire or adverse e0ono"i0 0onditions, and -as on#/ KeHuiva#ent to t+e #atter?s BSon/?sC advertisin$ e3!enses.L Se0tion &)8 o, t+e Ta3 Code e3!#ains -+en ;AT "a/ %e i"!osed or e3a0ted. T+us:
SEC. &)8. 8alue/added Tax on 4ale of :oods or =roperties. J BAC Rate and Base o, Ta3. 4 T+ere s+a## %e #evied, assessed and 0o##e0ted on ever/ sa#e, %arter or e30+an$e o, $oods or !ro!erties, va#ueadded ta3 eHuiva#ent to ten !er0ent B&)AC o, t+e $ross se##in$ !ri0e or $ross va#ue in "one/ o, t+e $oods or !ro!erties so#d, %artered or e30+an$ed, su0+ ta3 to %e !aid %/ t+e se##er or trans,eror.

T+us, t+ere "ust %e a sa#e, %arter or e30+an$e o, $oods or !ro!erties %e,ore an/ ;AT "a/ %e #evied. Certain#/, t+ere -as no su0+ sa#e, %arter or e30+an$e in t+e su%sid/ $iven %/ SIS to Son/. It -as %ut a do#e out %/ SIS and not in !a/"ent ,or $oods or !ro!erties so#d, %artered or e30+an$ed %/ Son/. In t+e 0ase o, CIR &. Co)rt o* Appea+s (CA),5(<6 t+e Court +ad t+e o00asion to ru#e t+at servi0es rendered ,or a ,ee even on rei"%urse"enton-0ost %asis on#/ and -it+out rea#i>in$ !ro,it are a#so su%Je0t to ;AT. T+e 0ase, +o-ever, is not a!!#i0a%#e to t+e !resent 0ase. In t+at 0ase, COMASERCO rendered servi0e to its a,,i#iates and, in turn, t+e a,,i#iates !aid t+e ,or"er rei"%urse"ent-on-0ost -+i0+ "eans t+at it -as !aid t+e 0ost or e3!ense t+at it in0urred a#t+ou$+ -it+out !ro,it. T+is is not true in t+e !resent 0ase. Son/ did not render an/ servi0e to SIS at a##. T+e

servi0es rendered %/ t+e advertisin$ 0o"!anies, !aid ,or %/ Son/ usin$ SIS do#e-out, -ere ,or Son/ and not SIS. SIS Just $ave assistan0e to Son/ in t+e a"ount eHuiva#ent to t+e #atter?s advertisin$ e3!ense %ut never re0eived an/ $oods, !ro!erties or servi0e ,ro" Son/. Re$ardin$ t+e de,i0ien0/ E@T assess"ent, "ore !arti0u#ar#/ Son/?s 0o""ission e3!ense, t+e CIR insists t+at said de,i0ien0/ E@T assess"ent is su%Je0t to t+e ten !er0ent B&)AC rate instead o, t+e ,ive !er0ent B2AC 0itin$ Revenue Re$u#ation No. (-7= dated A!ri# &', &77=. 5(96 T+e said revenue re$u#ation !rovides t+at t+e &)A rate is a!!#ied -+en t+e re0i!ient o, t+e 0o""ission in0o"e is a natura# !erson. A00ordin$ to t+e CIR, Son/?s s0+edu#e o, Se##in$, Fenera# and Ad"inistrative e3!enses s+o-s t+e 0o""ission e3!ense as K0o""issionMdea#er sa#es"an in0entive,L e"!+asi>in$ t+e -ord sa#es"an. On t+e ot+er +and, t+e a!!#i0ation o, t+e ,ive !er0ent B2AC rate %/ t+e CTA-:irst Division is %ased on Se0tion &B$C o, Revenue Re$u#ations No. 8-=2 -+i0+ !rovides:
B$C A"ounts !aid to 0ertain Bro.ers and A$ents. 4 On $ross !a/"ents to 0usto"s, insuran0e, rea# estate and 0o""er0ia# %ro.ers and a$ents o, !ro,essiona# entertainers 4 ,ive !er 0entu" B2AC. 5(26

In den/in$ t+e ver/ sa"e ar$u"ent o, t+e CIR in its "otion ,or re0onsideration, t+e CTA-:irst Division, +e#d:
3 3 3, 0o""ission e3!ense is indeed su%Je0t to &)A -it++o#din$ ta3 %ut !a/"ents "ade to %ro.er is su%Je0t to 2A -it++o#din$ ta3 !ursuant to Se0tion &B$C o, Revenue Re$u#ations No. 8-=2. @+i#e t+e 0o""ission e3!ense in t+e s0+edu#e o, Se##in$, Fenera# and Ad"inistrative e3!enses su%"itted %/ !etitioner BSPIC to t+e BIR is 0a!tioned as K0o""issionMdea#er sa#es"an in0entiveL t+e sa"e does not Justi,/ t+e auto"ati0 i"!osition o, ,#at &)A rate. As ite"i>ed %/ !etitioner, su0+ e3!ense is 0o"!osed o, KCo""ission E3!enseL in t+e a"ount o, P&),()).)) and NBro.er Dea#er? o, P(,=79,'7'.)). 5(86

T+e Court a$rees -it+ t+e CTA-EB -+en it a,,ir"ed t+e CTA-:irst Division de0ision. Indeed, t+e a!!#i0a%#e ru#e is Revenue Re$u#ations No. 8-=2, as a"ended %/ Revenue Re$u#ations No. &(-

79, -+i0+ -as t+e a!!#i0a%#e ru#e durin$ t+e su%Je0t !eriod o, e3a"ination and assess"ent as s!e0i,ied in t+e LOA. Revenue Re$u#ations No. (-7=, 0ited %/ t+e CIR, -as on#/ ado!ted in A!ri# &77= and, t+ere,ore, 0annot %e a!!#ied in t+e !resent 0ase. Besides, t+e -it++o#din$ ta3 on %ro.ers and a$ents -as on#/ in0reased to &)A "u0+ #ater or %/ t+e end o, 1u#/ ())& under Revenue Re$u#ations No. 8-())&.5('6 Gnti# t+en, t+e rate -as on#/ 2A. T+e Court a#so a,,ir"s t+e ,indin$s o, %ot+ t+e CTA-:irst Division and t+e CTA-EB on t+e de,i0ien0/ E@T assess"ent on t+e renta# de!osit. A00ordin$ to t+eir ,indin$s, Son/ in0urred t+e su%Je0t renta# de!osit in t+e a"ount o, P&),2(<,=(&.77 on#/ ,ro" 1anuar/ to Mar0+ &77=. As stated ear#ier, in t+e a%sen0e o, t+e a!!ro!riate LOA s!e0i,/in$ t+e 0overa$e, t+e CIR?s de,i0ien0/ E@T assess"ent ,ro" 1anuar/ to Mar0+ &77=, is not va#id and "ust %e disa##o-ed. :ina##/, t+e Court no- !ro0eeds to t+e t+ird $round re#ied u!on %/ t+e CIR. T+e CIR initia##/ assessed Son/ to %e #ia%#e ,or !ena#ties ,or %e#ated re"ittan0e o, its :@T on ro/a#ties BiC as o, De0e"%er &77'I and BiiC ,or t+e !eriod ,ro" 1anuar/ to Mar0+ &77=. A$ain, t+e Court a$rees -it+ t+e CTA:irst Division -+en it u!+e#d t+e CIR -it+ res!e0t to t+e ro/a#ties ,or De0e"%er &77' %ut 0an0e##ed t+at ,ro" 1anuar/ to Mar0+ &77=. T+e CIR insists t+at under Se0tion < 5(=6 o, Revenue Re$u#ations No. 2-=( and Se0tions (.2'.9 and (.2=BACB(CBaC 5(76 o, Revenue Re$u#ations No. (-7=, Son/ s+ou#d a#so %e "ade #ia%#e ,or t+e :@T on ro/a#ties ,ro" 1anuar/ to Mar0+ o, &77=. At t+e sa"e ti"e, it do-n!#a/s t+e re#evan0e o, t+e Manu,a0turin$ Li0ense A$ree"ent BMLAC %et-een Son/ and Son/-1a!an, !arti0u#ar#/ in t+e !a/"ent o, ro/a#ties. T+e a%ove revenue re$u#ations !rovide t+e "anner o, -it++o#din$ re"ittan0e as -e## as t+e !a/"ent o, ,ina# ta3 on ro/a#t/. Based on t+e sa"e, Son/ is reHuired to dedu0t and -it++o#d ,ina# ta3es on ro/a#t/ !a/"ents -+en t+e ro/a#t/ is !aid or is !a/a%#e. A,ter -+i0+, t+e 0orres!ondin$ return and re"ittan0e "ust %e "ade -it+in &) da/s a,ter t+e

end o, ea0+ "ont+. T+e Huestion no- is -+en does t+e ro/a#t/ %e0o"e !a/a%#eO Gnder Arti0#e *B2C o, t+e MLA %et-een Son/ and Son/-1a!an, t+e ,o##o-in$ ter"s o, ro/a#t/ !a/"ents -ere a$reed u!on:
B2C@it+in t-o B(C "ont+s ,o##o-in$ ea0+ se"i-annua# !eriod endin$ 1une <) and De0e"%er <&, t+e LICENSEE s+a## ,urnis+ to t+e LICENSOR a state"ent, 0erti,ied %/ an o,,i0er o, t+e LICENSEE, s+o-in$ Huantities o, t+e MODELS so#d, #eased or ot+er-ise dis!osed o, %/ t+e LICENSEE durin$ su0+ res!e0tive se"i-annua# !eriod and a"ount o, ro/a#t/ due !ursuant t+is ARTICLE * t+ere,ore, and t+e LICENSEE s+a## !a/ t+e ro/a#t/ +ereunder to t+e LICENSOR 0on0urrent#/ -it+ t+e ,urnis+in$ o, t+e a%ove state"ent.5<)6

@it+a#, Son/ -as to !a/ Son/-1a!an ro/a#t/ -it+in t-o B(C "ont+s a,ter ever/ se"i-annua# !eriod -+i0+ ends in 1une <) and De0e"%er <&. Do-ever, t+e CTA-:irst Division ,ound t+at t+ere -as a00rua# o, ro/a#t/ %/ t+e end o, De0e"%er &77' as -e## as %/ t+e end o, 1une &77=. Fiven t+is, t+e :@Ts s+ou#d +ave %een !aid or re"itted %/ Son/ to t+e CIR on 1anuar/ &), &77= and 1u#/ &), &77=. T+us, it -as 0orre0t ,or t+e CTA-:irst Division and t+e CTA-EB in ru#in$ t+at t+e :@T ,or t+e ro/a#t/ ,ro" 1anuar/ to Mar0+ &77= -as seasona%#/ ,i#ed. A#t+ou$+ t+e ro/a#t/ ,ro" 1anuar/ to Mar0+ &77= -as -e## -it+in t+e se"i-annua# !eriod endin$ 1une <), -+i0+ "eant t+at t+e ro/a#t/ "a/ %e !a/a%#e unti# Au$ust &77= !ursuant to t+e MLA, t+e :@T ,or said ro/a#t/ +ad to %e !aid on or %e,ore 1u#/ &), &77= or &) da/s ,ro" its a00rua# at t+e end o, 1une &77=. T+us, -+en Son/ re"itted t+e sa"e on 1u#/ =, &77=, it -as not /et #ate. In vie- o, t+e ,ore$oin$, t+e Court ,inds no reason to distur% t+e ,indin$s o, t+e CTA-EB. B>6R69!R6, t+e !etition is 76NI67. 4! !R76R67.

0!46 C"TR" 16N7!?" Asso0iate 1usti0e B6 C!NCUR@

"NT!NI! T. C"R=I! Asso0iate 1usti0e C+air!erson

T6R64IT" 0. 6!N"R7!/76 C"4TR! Asso0iate 1usti0e

7I!47"7! 1. =6R" T" Asso0iate 1usti0e

R!E6RT! ". "E"7 Asso0iate 1usti0e

"TT64T"TI!N
I attest t+at t+e 0on0#usions in t+e a%ove De0ision +ad %een rea0+ed in 0onsu#tation %e,ore t+e 0ase -as assi$ned to t+e -riter o, t+e o!inion o, t+e Court?s Division.

"NT!NI! T. C"R=I! Asso0iate 1usti0e C+air!erson, Se0ond Division

C6RTI9IC"TI!N

Pursuant to Se0tion &<, Arti0#e ;III o, t+e Constitution and t+e Division C+air!erson?s Attestation, I 0erti,/ t+at t+e 0on0#usions in t+e a%ove De0ision +ad %een rea0+ed in 0onsu#tation %e,ore t+e 0ase -as assi$ned to t+e -riter o, t+e o!inion o, t+e Court?s Division.

R6N"T! C. C!R!N" C+ie, 1usti0e

*

Desi$nated as additiona# "e"%er in #ieu o, 1usti0e Antonio Eduardo B. Na0+ura !er ra,,#e dated A!ri# &9, ()&). 5&6 Penned %/ Asso0iate 1usti0e Love## R. Bautista -it+ Presidin$ 1usti0e Ernesto D. A0osta and Asso0iate 1usti0es 1uanito C. CastaPeda, Er#inda P. G/, Caesar A. Casanova and O#$a Pa#an0a-EnriHue>, 0on0urrin$. 5(6 Penned %/ Presidin$ 1usti0e Ernesto D. A0osta -it+ Asso0iate Love## R. Bautista, 0on0urrin$. 5<6 Ro++o, !!. 7-&). 596 Id. at 8)-8&. 526 Id.