REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

THIRD DIVISION

IP CONTACT CENTER
OUTSOURCING, INC., CTA CASE NO. 8605
Petitioner,
Members:

-versus- BAUTISTA, Chairperson

FABON-VICTORINO, and
RINGPIS-LIBAN, JJ.
HON. COMMISSIONER KIM S.
JACINTO-HENARES, HON.
NESTOR S. VALEROSO, Promulgated:
Regional Director, Revenue
Region No. 8, APR 1 8 2016
r_ ,_, . - '2 ~ Y5 /'· - •
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

Fabon-Victorino, J.:

This Petition for Review assails the inaction on the

protest filed by petitioner IP Contact Center Outsourcing,
Inc. against the Formal Assessment Notice (FAN) dated April
11, 2012 issued by respondent Kim S. Jacinto-Henares,
finding it liable for deficiency Income Tax (IT), Value-Added
Tax (VAT), and Expanded Withholding Tax (EWT) in the
aggregate amount of P1,969,274.69, inclusive of interest for
taxable year 2008.

Petitioner is a domestic corporation, with office address

at 34th Floor Tower II Plaza, Ayala Avenue, Makati City.

Respondent Kim 5. Jacinto-Henares is the

Commissioner of Internal Revenue (CIR) with office address /
at the BIR National Office Building, Agham Road, Diliman, ~
Quezon City.
 DECISION
CTA Case No. 8605
Page 2 of 21

The other respondent Nestor S. Valeroso is the

Regional Director of Revenue Region No. 8, with office
address at the Bureau of Internal Revenue (BIR) Regional
Office Building at 313 Sen. Gil Puyat Avenue, Makati City. 1

A Preliminary Assessment Notice (PAN) 2 dated March

21, 2012, with Details of Discrepancies, was sent to
petitioner assessing it of deficiency IT, VAT, and EWT for
taxable year 2008. Thereafter, petitioner received a FAN 3
dated April 11, 2012, with Details of Discrepancies4 ,
Assessment Notice No. IT-LA12555-08-12-0406 5 ,
Assessment Notice No. VT -LA12555-08-12-0406 6 , and
Assessment Notice No. WE-LA12555-08-12-0406 7 , for
deficiency IT, VAT, and EWT in the total amount of One
Million Nine Hundred Sixty-Nine Thousand Two Hundred
Seventy-Four and 69/100 (P1,969,274.69), inclusive of
interest for taxable year 2008, broken down as follows:

Deficiency Basic Interest Total

Tax
Income Tax p 118,007.58 p 72,679.74 p 190,687.32
Value-Added
Tax 130,361.51 86,002.88 216,364.39
Expanded
Withholding
Tax 938,156.28 624,066.70 1,562,222.98
P1,186,525.37 P782,749.32 P1,969,274.69

On May 11, 2012, petitioner filed its Protest Letter8 to

the FAN with the Assessment Division of BIR Revenue
Region No. 8-Makati.

In a letter dated May 30, 2012, received on June 5,

2012, petitioner was informed by Revenue Region No. 8
that the entire docket of its case together with its Protest
Letter against the 2008 FAN was indorsed to Revenue
District Office (RDO) No. 50. 9

1
Par. 2, Stipulation of Facts, JSFSI, docket, p. 280.
2
Exhibit "R-3", BIR Records, pp. 386-389.
3
Exhibits "P-4" and "P-4-a", BIR Records, pp. 396-397.
4
Exhibit "P-5", BIR Records, pp. 394-395.
5
Exhibit "P-1", BIR Records, p. 404.
6
Exhibit "P-2", BIR Records, p. 399.
7
Exhibit "P-3", BIR Records, p. 398.
8
Exhibits "P-6" to "P-6-h", BIR Records, pp. 412-420.
9
Par. 4, Stipulation of Facts, JSFSI, docket, p. 280.
DEOSION
CfA Case No. 8605
Page 3 of 21

In letter dated July 10, 2012 10 , petitioner informed

respondent Valeroso of its submission of supporting
documents.

On February 5, 2013, petitioner filed the instant

Petition for Review. 11

In their Answer 12 , respondents states that petitioner is

engaged in the business of providing services and should be
taxed based on gross receipts pursuant to Section 108 of the
NIRC. A comparison of receipts appearing in petitioner's
books and those in its VAT Returns shows receipts not
subjected to IT. Further comparison of receipts subject to
VAT per audit and receipts per VAT returns shows receipts
not subjected to VAT. Also, a portion of petitioner's rent
expense was not explained or accounted for in its Financial
Statement/Income Tax Return (ITR). The said amount was
considered as petitioner's undeclared source of income. In
addition, petitioner failed to pay appropriate EWT due on
their various income payments in violation of Section 2.57.2
of Revenue Regulations No. 2-98, as amended by Revenue
Regulation No. 17-2003. Finally, the burden is on petitioner
to prove the invalidity of the assessment which is presumed
to be correct.

After the parties filed their Joint Stipulation of Facts

and Simplification of Issues, 13 the Pre-Trial Conference was
deemed terminated on January 3, 2014 14 •

Petitioner presented its lone witness, Mary lenelle

Palma who executed four (4) Judicial Affidavits marked as
Exhibits P-14 to P-14-1, P-15 to P-15-h, P-16 to P-16-a, and
P-17 to P-17-a. However, the said Judicial Affidavits were
denied admission, with finality 15 , for failure to comply with
the attestation clause required under Section 3(b) of
Administrative Matter No. 12-8-8-SC, also known as the
Judicial Affidavit Rule.

10
Exhibits "P-8", "P-8-a", and "P-8-b", BIR Records, pp. 487-489.
11
Docket, pp. 7-23.
12
Answer dated April 4, 2013, docket pp. 77-79.
13
Docket, pp. 279-285.
14
Pre-Trial Order, docket, pp. 298-304.
15
Resolution dated January 30, 2015, docket, pp. 544-549.
DECISION
CTA Case No. 8605
Page 4 of 21

Respondent, for her part, presented Revenue Officer

(RO) Jocelyn A. De Guzman, who declared in her Judicial
Affidavit 16 that she continued the investigation of petitioner's
internal revenue tax liabilities for taxable year 2008
pursuant to Memorandum dated January 28, 2010, and
Letter of Authority (LOA) No. 00012555 dated May 22,
2009. After petitioner was served with a Notice of Informal
Conference dated September 15, 2011, she prepared a
Memorandum Report showing petitioner's deficiency IT, VAT
and EWT. On March 21, 2012, the PAN of even date with
Details of Discrepancies was served to petitioner. The
service of FAN dated April 11, 2012, with Details of
Discrepancies followed, showing petitioner's deficiency IT of
P190,687.32, deficiency VAT of P216,364.39, and deficiency
EWT of P1,562,222.98.

After formal offer 17 of her evidence, respondent rested

and the case was deemed for decision on April 22, 2015. 18

THE ISSUES 19

The parties stipulated the following issues for the

resolution of the Court:

a. Whether the petitioner is liable for deficiency IT

in the amount of One Hundred Ninety Thousand
Six Hundred Eighty Seven and 32/100 Pesos
(P190,687.32) until 11 May 2012;

b. Whether the petitioner is liable for deficiency

VAT in the amount of Two Hundred Sixteen
Thousand Three Hundred Sixty Four and
39/100 Pesos (P216,364.39) until 11 May
2012; and

c. Whether the petitioner is liable for deficiency

EWT in the amount of One Million Five Hundred
Sixty Two Thousand Two Hundred and Twenty

16
Exhibit "R-5", docket, pp. 453-456.
17
Docket, pp. 450-452.
18
Docket, p. 583.
19
JSFSI, docket, p. 300.
DECISION
CTA case No. 8605
Page 5 of 21

Two and 98/100 Pesos (P1,562,222.98) until

11 May 2012.

THE RULING OF THE COURT

On the timeliness of the filing

of the Petition for Review

Section 228 of the National Internal Revenue Code

(NIRC) of 1997, as amended, pertinently provides:

SEC. 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: x x x

XXX XXX XXX

The taxpayers shall be informed in writing of the law

and the facts on which the assessment is made; otherwise,
the assessment shall be void.

Within a period to be prescribed by implementing

rules and regulations, the taxpayer shall be required to
respond to said notice. If the taxpayer fails to respond,
the Commissioner or his duly authorized representative
shall issue an assessment based on his findings.

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
implementing rules and regulations. Within sixty (60)
days from filing of the protest, all relevant supporting
documents shall have been submitted; otherwise, the
assessment shall become final.

If the protest is denied in whole or in part, or is not

acted upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely affected
by the decision or inaction may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the said
decision, or from the lapse of the one hundred eighty
(180)-day period; otherwise, the decision shall become
final, executory and demandable.
DECISION
CTA case No. 8605
Page 6 of 21

Corollary to the foregoing prov1s1on is Section 3.1. 5 of

Revenue Regulations (RR) No. 12-99 20 , which reads, as
follows:
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 date of receipt thereof. If there are several issues
involved in the formal letter of demand and assessment
notice but the taxpayer only disputes or protests against
the validity of some of the issues raised, the taxpayer shall
be required to pay the deficiency tax or taxes attributable
to the undisputed issues, in which case, a collection letter
shall be issued to the taxpayer calling for payment of the
said deficiency tax, inclusive of the applicable surcharge
and/or interest. No action shall be taken on the taxpayer's
disputed issues until the taxpayer has paid the deficiency
tax or taxes attributable to the said undisputed issues. The
prescriptive period for assessment or collection of the tax
or taxes attributable to the disputed issues shall be
suspended.

The taxpayer shall state the facts, the applicable law,

rules and regulations, or jurisprudence on which his
protest is based, otherwise, his protest shall be considered
void and without force and effect. If there are several
issues involved in the disputed assessment and the
taxpayer fails to state the facts, the applicable law, rules
and regulations, or jurisprudence in support of his protest
against some of the several issues on which the
assessment is based, the same shall be considered
undisputed issue or issues, in which case, the taxpayer
shall be required to pay the corresponding deficiency tax
or taxes attributable thereto.

The taxpayer shall submit the required documents in

support of his protest within sixty (60) days from date of
filing of his letter of protest, otherwise, the assessment
shall become final, executory and demandable. The phrase
"submit the required documents" includes submission or
presentation of the pertinent documents for scrutiny and
evaluation by the Revenue Officer conducting the audit.
The said Revenue Officer shall state this fact in his report
of investigation.

If the taxpayer fails to file a valid protest against the

formal letter of demand and assessment notice within

2
° Certain Sections of RR No. 12-99, in relation to the due process requirement in the
issuance of a Deficiency Tax Assessment, have been amended by virtue of RR No. 18-13.
Section 3.1.5 of RR No. 12-99 was renumbered as Section 3.1.4.
DECISION
erA case No. 8605
Page 7 of 21

thirty (30) days from date of receipt thereof, the

assessment shall become final, executory and
demandable.

If the protest is denied, in whole or in part, by the

Commissioner, the taxpayer may appeal to the Court of
Tax Appeals within thirty (30) days from date of receipt of
the said decision, otherwise, the assessment shall become
final, executory and demandable.

In general, 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 assessment shall become
final, executory and demandable: Provided, however, that
if the taxpayer elevates his protest to the Commissioner
within thirty (30) days from date of receipt of the final
decision of the Commissioner's duly authorized
representative, the latter's decision shall not be considered
final, executory and demandable, in which case, the
protest shall be decided by the Commissioner.

If the Commissioner or his duly authorized

representative fails to act on the taxpayer's protest within
one hundred eighty (180) days from date of submission,
by the taxpayer, of the required documents in support of
his protest, the taxpayer may appeal to the Court of Tax
Appeals within thirty (30) days from the lapse of the said
180-day period, otherwise, the assessment shall become
final, executory and demandable.

As provided in the above provision, respondent CIR has

180 days from the submission of supporting documents by
the taxpayer to act on the protest. Within 30 days from
receipt of an adverse decision, or from the lapse of the 180-
day period without action on the protest, the taxpayer can
appeal to this Court. 21

Petitioner filed its Protest Letter22 to the FAN with the

Assessment Division of BIR Revenue Region No. 8-Makati on
May 11, 2012. Within sixty (60) days from the filing of such
Protest Letter, petitioner sent another letter dated July 10,
2012 23 , advising respondent of its submission of documents

21
Philippine Amusement and Gaming Corporation vs. Bureau of Internal Revenue, eta!., G.R.
No. 208731, January 27, 2016.
22
Exhibits "P-6" to "P-6-h", BIR Records, pp. 412-420.
23
Exhibits "P-8", "P-8-a", and "P-8-b", BIR Records, pp. 487-489.
 DECISION
erA case No. 8605
Page 8 of 21

in support of the protest to the FAN. From the date of

submission of supporting documents on July 10, 2012, the
CIR had 180 days or until January 6, 2013, within which to
act on the protest.

As there was no action on the protest within the 180-

day period, petitioner seasonably filed this Petition for
Review on February 5, 2013, or within the 30-day period to
appeal.

On the alleged deficiencies:

A. Income Tax CP190,687.32l

Based on the FAN 24 , petitioner was assessed for

deficiency income tax pursuant to Section 32 of the NIRC of
1997, computed as follows:

Taxable Income (Loss) per Return P29,696,587 .42

Add: Adjustments
Receipts not subjected to
Income tax 2,360,151.84
Total P32,056, 739.26

Tax Due (5°/o GIT) p 1,602,836. 96

Less: Allowable Tax Credits
Payments to Other
Agencies 25 P890,897.63
Payments per Return 26 593,931.75 1,484,829.38
Basic Tax Due p 118,007.58
Add: Interest (04.16.09 to
05.14.12) 72,679.74
TOTAL AMOUNT DUE p 190,687.32

According to respondent, the deficiency IT assessment

arose from the receipts that were not subjected to IT in the
amount of P2,360,151.84. The said amount was determined
by comparing petitioner's receipts per VAT returns and
receipts per Books 27 , to wit:

24
Exhibit "P-4", BIR Records, p. 397.
25
Payments to Other Agencies per Return actually amounts to P593,931.75, Line 26, Income
Tax Return (ITR), BIR Records, p. 46.
26
Payments per Return actually amounts to P890,897.63, Line 29, ITR, BIR Records, p. 46.
27
Exhibit "P-5", BIR Records, p. 395.
 DECISION
CTA case No. 8605
Page 9 of 21

Receipts per VAT Returns P105, 171,969.86

Receipts per Books 102,811,818.02
Receipts not subjected to P2,360,151.84
income tax

But per petitioner, there were adjusting journal entries

for the year 2008 which were not considered in respondent's
computation. Further, the adjusted items should not be
included in the computation of IT as they were already
included in the adjusting entries at the end of the taxable
year to reflect and correct the entries in the general ledger.
Allegedly, the adjusting journal entries 28 as appearing in the
Petition for Review are as follows:

Debit Credit
Reversal of remaining receivables from Local.com
Services Fees
1,470,185.93
Telecommunications Cost
14,474.04
Miscellaneous Expense
6,140.70
Other Receivables
20,614.74
Account Receivables - Trade 1,470, 185.93

Reversal of receivable from Watchguard - .Jan 2008 Billing

Other Receivables
10,327.81
Telecommunication Cost
10,327.81

To write-off LI-001 (leasehold improvements for the RCBC

Office)
Advances from Customers
609,835.00
Account Receivables - Trade
609,835.00

To record last year CA.JE

Account Receivables- Trade
252,247.19

28
Docket, p. 17.
DECISION
erA case No. 8605
Page 10 of 21

Services Fees
252,247.19

2,363,210.67 2,363,210.67

The assessment on deficiency IT must be sustained.

Aside from mere allegations in the petition, no other

evidence was presented to support petitioner's stance. Note
that the schedules of adjusting entries were denied
admission for failure of petitioner to present the originals for
comparison. Even if considered, the said documents are
insufficient to warrant the cancellation of the assessment.
Respondent's findings should be upheld on the ground that
the trail of transactions causing the adjustments, the source
documents, and ultimately, the link to the outcome of the
transaction, were not shown or substantiated.

Neither were the bases of adjustments shown nor the

time or period when the adjusting entries were effected.
Petitioner failed to overturn the principle that tax
assessments by tax examiners are presumed correct and
made in good faith, and all presumptions are in favor of the
correctness of a tax assessment unless proven otherwise. 29
Bare allegations which are not supported by any evidence,
documentary or otherwise, sufficient to support a claim, fall
short to satisfy the degree of proof needed. 3 Failure to °
present proof of error in the assessment will justify the
judicial affirmance of said assessment. 31

On account of the foregoing finding, the deficiency

income tax assessment is upheld.

B. Value-Added Tax CP216,364.39l

Respondent computed the deficiency VAT assessment

in the FAN in the amount of P216,364.39 as follows: 32

29
Commissioner of Internal Revenue vs. Hon. Raul M. Gonzales, et al., G.R. No. 177279, /
October 13, 2010.
30
LNS International Manpower Services vs. Armando C. Padua, Jr., G.R. No. 179792, March 5,
2010.
31
Marcos II vs. Court of Appeals, et al., G.R. No. 120880, June 5, 1997.
32
Exhibit "P-4", BIR Records, p. 397.
 DECISION
CTA Case No. 8605
Page 11 of 21

Vatable Sales per Return P12,055,830.51

Add: Receipts not subjected to VAT P731,213.95
Unaccounted Rent 355,131.95 1,086,345. 90
Total Income subject to VAT P13,142,176.41

Output Tax p 1,577,061.17

Less: Input Tax Carried Over from
Previous
Period 52,465.42
VAT Payable p 1,524,595. 75
Less: Pa_ymentsper Returns 1,394,234.24
Basic Tax Due p 130,361.51
Add: Interest (1.26.09 to 05.14.12) 86,002.88
TOTAL AMOUNT DUE p 216,364.39

The cited deficiency arose from the (i) receipts not

subjected to VAT and (ii) unaccounted rent expense.

8.1. Receipts not subjected to VAT (P731,213.95)

The amount of P731,213.95/ 3 allegedly representing

petitioner's receipts not subjected to 12°/o VAT was arrived
at by comparing receipts per audit and receipts per VAT
returns, to wit:

Receipts subject to VAT per

audit P12, 787,044.46
ReceiQts per VAT returns 12,055,830.51
Receipts not subjected to
VAT p 731,213.95

Petitioner claims that the amount under "Receipts

subject to VAT per Audit" cannot be traced from either the
sales receipts in its Audited Financial Statement (AFS) or in
its VAT returns. Thus, respondent's failure to explain how it
arrived at such assessment violates the clear mandate of
Section 228 of the NIRC of 1997, as implemented by Section
3.1.4 of RR No. 12-99 34 providing that taxpayers must be

33
Exhibit "P-5", BIR Records, p. 395. /
34
3.1.4 Formal Letter of Demand and Assessment Notice. -The formal letter of demand and v
assessment notice shall be issued by the Commissioner or his duly authorized
representative. The letter of demand calling for payment of the taxpayer's deficiency tax or
taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the
assessment is based, otherwise, the formal letter of demand and assessment notice shall
DECISION
CTA Case No. 8605
Page 12 of 21

informed of the law and the facts on which the assessment

is made.

It is evident that from the filing of its Protest Letter on

May 11, 2012, petitioner had consistently requested the
details of the "Receipts subject to VAT per Audit" amounting
to P12, 787,044.46, but such was left unheeded by
respondent. Plain from the record that the factual basis and
the composition of "Receipts subject to VAT per Audit" were
not disclosed in the FAN and in the Details of Discrepancies.

Considering that the basis of assessment is the

comparison of the receipts per VAT returns and receipts per
audit conducted by respondent, the working computation or
the details of the receipts per audit should have been
presented to show how the amount was computed.
However, no evidence was adduced to allow petitioner to
effectively and intelligently refute the alleged discrepancy.
Sans any vital documents from which the Court may verify
its correctness, the assessment for deficiency VAT should be
cancelled.

Let it be stressed that the requirement of informing the

taxpayer of the law and facts upon which the assessment is
made, is mandatory as required explicitly in Section 228 of
the NIRC of 1997. Non-compliance with this requirement
renders the assessment void. And a void assessment bears
no valid fruit. 35 To stand judicial scrutiny, the assessment
must be based on facts. The presumption of the correctness
of an assessment, being a mere presumption, cannot be
made to rest on another presumption. 36

Thus, the deficiency VAT assessment on receipts not

subject to VAT is cancelled for failure of respondent to
comply with the provisions of Section 228 of the NIRC of
1997.

8.2. Unaccounted rent expense (P355,131.95)

be void xxx. The same shall be sent to the taxpayer only by registered mail or by personal
delivery. xxx /
35
Samar-! Electric Cooperative vs. Commissioner of Internal Revenue, G.R. No. 193100,
December 10, 2014, citing Commissioner of Internal Revenue vs. Reyes, 516 Phil. 176,
189-190 (2006).
36
Commission of Internal Revenue vs. Hantex Trading Co. Inc., G.R. No. 136975, March 31,
2005.
DECISION
CTA case No. 8605
Page 13 of 21

Per respondent, a portion of petitioner's rent expense is

unexplained or unaccounted for in petitioner's AFS and ITR
for taxable year 2008. Respondent treated the unaccounted
rent expense as undeclared source of income following the
ruling in the case of Perez vs. Court of Tax Appeals, eta/. 37 ,
wherein it was held that unreflected sources of funds not
accounted for in the taxpayer's returns led to the inference
that part of his income has not been reported, hence, shall
be subject to VAT pursuant to Sections 105 and 108 of the
NIRC of 1997, in relation to Section 4.105-3 of RR No. 16-
2005.

The alleged unaccounted rent expense is computed as

follows: 38

Unaccounted Rent expense

Per Al~halist Per FS/ITR Unaccounted
Rent p 5,814,356.36 p 5,459,244.41 p 355,111.95

Since the amount per alphalist is higher than the rent

expense reflected in the ITR/FS, respondent simply inferred
that petitioner had undeclared income.

Petitioner claims that some of the expenses, as

enumerated in the protest, were already re-classified under
the "Other Items" in the Financial Statement and properly
subjected to 5°/o EWT; thus, should not have been subjected
to VAT.

The Court rules for petitioner.

The concept known as matching principle, where

revenues are matched with expenditures, finds application in
this matter. This matching principle is a method of handling
expense deductions where the expense in a given year is
matched with the associated tax benefit. 39 Costs directly
associated with the revenue of a particular taxable period
are properly allocable to that period. 40 Guided by this
principle, even if the expenses per alphalist were to be
considered as income subject to output VAT, the same shall
37
G.R. No. L-10507, May 30, 1958.
/
38
Exhibit "P-5", BIR Records, p. 395.
39
According to Blacks' Law Dictionary, (Eighth Edition) p. 998, Matching Principle is defined
as "a method of handling expense deductions, by which the depreciation in a given year is
matched by the associated tax benefit".
40
Merten's The Law of Federal Income Taxation, Section 12A.101, Volume 2, (1995).
 DECISION
CTA Case No. 8605
Page 14 of 21

be offset by treating the equivalent payments as purchases

for which input tax credits may be claimed. Thus, even if
these alleged unaccounted expenses are to be considered as
income, they may be offset by recording the equivalent
payments as expenses.

As held in several cases 41 before the Court, when the

only basis of assessment was the finding that the income
payments per alphalist were greater than the expense per
AFS and ITR, and no other proof was presented to show that
the difference brought about by the mathematical
comparison was an actual source of taxable income, the
assessment must be cancelled.

In this instance, the basis of assessment is a mere

conjecture which is not valid to support the finding of a
transaction subject to VAT. It must be reiterated that an
assessment must be based on facts to stand judicial
scrutiny. The presumption of the correctness of an
assessment, being a mere presumption, cannot be made to
rest on another presumption. 42

For lack of factual basis, the deficiency VAT assessment

corresponding to the alleged unaccounted rent expense
should as well be cancelled.

C. Expanded Withholding Tax CP1,562,222.98l

As shown in Schedule 4 of Details of Discrepancies43 ,

respondent computed the basic deficiency EWT in the
amount of P938,156.28 as follows:

Income
Payment Per FS/ Audit Per Alphalist Difference Rate Tax Due
A. Management
Fees p 8 220 000.00 p - p 8,220,000.00 10% p 822 000.00
B. Professional
Fees 1,775 209.00 1 000,833.78 774,375.22 15% 116 156.28
TOTAL P9,995,209.00 P1,000,833. 78 P8,994,375.22 P938,156.28

41
East Asia Power Resources Corp. vs. Commissioner of Internal Revenue, CTA Case No.
8182, Resolution dated April 14, 2014; Shinko Electric Industries Co., Ltd. vs.
Commissioner of Internal Revenue, CTA Case No. 8213, February 10, 2014; Philippine
Aerospace Development Corporation vs. Commissioner of Internal Revenue, CTA Case No. /
7830, December 11, 2012. ·
42
Commission of Internal Revenue vs. Hantex Trading Co., Inc., G.R. No. 136975, March 31,
2005.
43
Exhibit "P-5", BIR Records, p. 394.
DECISION
CTA Case No. 8605
Page 15 of 21

Respondent maintains that petitioner failed to pay the

appropriate EWT due on the above income payments, in
violation of Section 2.57.2 of RR No. 2-98, as amended.

C.l. Management fees

Per Note 15.2 of the Notes to AFS 44 , the management

fee in the amount of P8,220,000.00 was classified as
Purchase of Goods and Services from related parties. The
said amount was specifically paid to IPVG pursuant to a
Management Agreement entered into between petitioner and
IPVG. The agreement covers the services provided by IPVG
including, but not limited to, general management, business
development, legal, human resources, finance and
accounting, office maintenance and support.

The management contract between petitioner and IPVG

falls under Section 2.57.2(B) of RR No. 2-98, as amended.
Respondent correctly subjected the management fees paid
to IPVG to EWT since these fees were not reported in the
Alphalist of Payees subject to Withholding Tax. 45

Petitioner failed to offer any explanation or to provide

supporting documents to justify the non-withholding. That
being the case, the management fees amounting to
P8,220,000.00 should be subjected to EWT, but at the rate
of 15°/o EWT, instead of 10°/o used by respondent, as
prescribed in Section 2.57.2(B) of RR No. 2-98, as amended
by RR No. 30-03, to wit:

Sec. 2.57 .2 Income payments subject to creditable

withholding tax and rates prescribed thereon. -

XXX XXX XXX

(A) Professional fees, talent fees, etc., for services

rendered by individuals. - On the gross professional,
promotional and talent fees or any other form of
remuneration for the services of the following individuals -
Fifteen per cent (15°/o), if the gross income for the
current year exceeds P720,000; and Ten percent
(10°/o), if otherwise;

XXX XXX XXX

44
Note 15.2 Purchases of Goods and Services, Audited Financial Statements for year ended
December 31, 2008, BIR Records, p. 10.
45
BIR Records, pp. 282-291.
DECISION
CTA case No. 8605
Page 16 of 21

(6) Management and technical consultants;

XXX XXX XXX

(B) Professional fees, talent fees, etc., for services of

taxable juridical persons. - On the gross professional,
promotional and talent fees, or any other form of
remuneration enumerated in the preceding subparagraph
for the services of taxable juridical persons - Fifteen per
cent (15°/o), if the gross income for the current year
exceeds P720,000; and Ten percent (10°/o), if
otherwise; (Emphasis supplied)

Considering that the payment of management fees

exceeded the P720,000.00 threshold as provided in the
above-mentioned rule, petitioner is liable to pay the basic
deficiency EWT on management fee in the amount of
P1,233,000.00 (P8,220,000 x 15°/o).

C.2. Professional fees

As regards the professional fees reported in the AFS

amounting to P1, 775,209.00, petitioner claims that not all
entries in the AFS should be subjected to EWT such as the
payments to general professional partnerships (GPPs) in the
light of the CTA decision in Metro, Inc. vs. Commissioner of
Internal Revenue46 , which provides that "income payments
made to a general professional partnership as a juridical
person is exempt from IT, and consequently, EWT. It is the
partners who are liable in their individual capacity for the
payment of IT pursuant to Section 23 of the Tax Code of
1977, as amended".

Petitioner provided a breakdown of professional fees

not subjected to EWT for payments to GPPs. Also provided
was a breakdown of payments subjected to EWT: 47

Professional fees: P1,775,207 .90

A. Not subject to Withholding
Punongbayan & Araullo -Audit
Fees 315,417.00
Arreza & Associates - Legal
Fees 90,000.00

46
CTA Case No. 6356, June 9, 2009.
47
Docket, p. 20.
 DECISION
CTA Case No. 8605
Page 17 of 21

Sub-total 405,417.00

B. Subjected to Withholding
EC Human 50,000.00
Global Executive 274,560.00
Infosoft 31,000.00
IP Converge 124,468.00
Ong Bangay, Villamor &
Fabiosa 26,960.00
lTC Consultants 522,553.83
MG House of Management 5,000.00
Q Interaction 333,249.07
Rodolfo Espina 2,000.00
Sub-total 1,369,790.90

Grand Total P1,775,207.90

A revisit of the record 48 shows that the income payment

to Arreza & Associates amounting to P90,000.00 was
subjected to 15°/o EWT and was included in petitioner's
Alphalist of Payees subject to EWT as of December 31,
2008, 49 contrary to petitioner's claim that the same was
made to a GPP. Also, petitioner failed to prove that the
income payment amounting to P315,417.00 was indeed paid
to a GPP, Punongbayan & Araullo. For lack of supporting
documents, the nature of the alleged payment cannot be
ascertained. Consequently, the deficiency EWT assessment
on the payment amounting to P315,417.00 must be
sustained.

As to the remammg amount of P1,369,790.90,

petitioner claims that it was properly subjected to EWT. But
upon verification, only the following income payments were
indeed subjected to EWT at 10°/o:

Income Tax
Subjected to EWT Rate
Payments Withheld
EC Human Resource p p
50,000.00 10°/o 5,000.00
Solutions 50
Infosoft International
18,000.00 10°/o
Solutions 51 1,800.00

48
BIR Records, p. 290.
49
Ibid.
50
BIR Records, p. 240 and p. 288.
 DECISION
CTA Case No. 8605
Page 18 of 21

IP Converge Data Center

89,906.25 10°/o
Inc. 52 8,990.62
lTC Consultants 53 697,553.84 10°/o
69,755.38
MG House of Management
40,000.00 10°/o 4,000.00
Consultation 54
Rodolfo Espina 55 2,000.00 10°/o
200.00
White Marketing and
13,373.53 10°/o
Development Corp. 56 1,337.35
Total P910,833.62 P91,083.35

Consequently, the deficiency EWT assessment on the

remaining income payments amounting to P458,957.28
(P1,369,790.90 less P910,833.62) is upheld. Also,
considering that the above income payments were subjected
to only 10°/o EWT, petitioner is liable to the additional five
percent (5°/o) or in the amount of P45,541.68. Accordingly,
petitioner is liable to pay deficiency EWT of P161,697 .82 on
professional fees, computed as follows:

Income
Payments EWT
Income Payments not subjected
to EWT

(P315,417 .OO+P458,957 .28) P774,374.28 p 116,156.14

Add: 5°/o EWT (in addition to
10°/o) 910,833.62 45,541.68
Basic deficiency EWT on professional fees P161,697 .82

In sum, petitioner is liable to pay basic deficiency EWT

of P1,394,697.82, as computed below:

Deficiency
Income Payment
EWT
A. Management Fees p 1,233,000.00

B. Professional Fees
161,697.82

51
BIR Records, p. 252 and p. 256.
52
BIR Records, p. 247.
53
BIR Records, pp. 235-291.
54
BIR Records, p. 279.
55
BIR Records, p. 243.
56
BIR Records, p. 240.
 DECISION
erA case No. 8605
Page 19 of 21

!TOTAL P1,394,697 .82 I

WHEREFORE, the Petition for Review dated February

5, 2013 of IP Contact Center Outsourcing, Inc. is hereby
PARTIALLY GRANTED.

Consequently, Assessment Notice No. VT -LA12555-08-

12-0406 for deficiency VAT in the amount of P216,364.39
for taxable year 2008 is hereby CANCELLED.

The Assessment Notice No. IT-LA12555-08-12-0406 for

deficiency Income Tax and Assessment Notice No. WE-
LA12555-08-12-0406 for deficiency Expanded Withholding
Tax for taxable year 2008 are AFFIRMED WITH
MODIFICATIONS. Accordingly, petitioner IP Contact
Center Outsourcing, Inc. is ORDERED TO PAY ONE
MILLION EIGHT HUNDRED NINETY THOUSAND EIGHT
HUNDRED EIGHTY-ONE PESOS and 76/100
(P1,890,881.76) for taxable year 2008, inclusive of the
twenty-five percent (25°/o) surcharge imposed under Section
248(A)(3) of the NIRC of 1997, as amended, computed as
follows:

Deficiency Tax Basic Surcharge Total

Income Tax p 118,007.58 p 29,501.90 p 147,509.48
Expanded Withholding
1,394,697.82 348,674.46 1, 743,372.28
Tax
Total P1,512,705.40 P378,176.36 P1,890,881.76

In addition, petitioner is ORDERED TO PAY:

(a) Deficiency interest at the rate of twenty percent

(20°/o) per annum on the basic deficiency Income Tax and
Expanded Withholding Tax computed from the dates
indicated below until full payment thereof, pursuant to
Section 249(B) of the NIRC of 1997, as amended:

Deficiency interest
Tax Type Basic Tax
computed from
Deficiency IT p 118,007.58 April 15, 2009
Deficiency EWT January 11, 2009
P1,394 697.82

(b) Delinquency interest at the rate of 20°/o per annum

on the total amount of P1,890,881.76 and on the 20°/o
DECISION
CTA Case No. 8605
Page 20 of 21

deficiency interest which have accrued as afore-stated in

(a) computed from May 11, 2012 until full payment thereof,
pursuant to Section 249(C) of the NIRC of 1997, as
amended.

SO ORDERED.

We concur:

LOVELL R. BAUTISTA
J ~.-,~
A I._ A '- .
MA. BELEN M. RINGPIS-LIBAN
Associate Justice Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were

reached in consultation before the case was assigned to the
writer of the opinion of the Court's Division.

LOVELL R. ~ISTA
Chairperson
DECISION
CTA Case No. 8605
Page 21 of 21

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution,

and the Division Chairperson's Attestation, it is hereby
certified that the conclusions in the above Decision were
reached in consultation before the case was assigned to the
writer of the opinion of the Court.

ROMAN G. DE[ ROSARIO

Presiding Justice