THE COURT of Tax Appeals (CTA) has ruled in favor of Holcim Philippines Manufacturing Corp., canceling a P355.48-million deficiency capital gains tax (CGT) assessment previously levied by the Bureau of Internal Revenue (BIR), citing that the BIR’s right to assess the tax had expired.
The tax court’s Second Division, in a decision promulgated on Feb. 14, ruled that the formal letter of demand (FLD), issued on July 1, 2019, was void because it was released beyond the three-year prescriptive period.
“It cannot be denied that respondent (BIR) became aware of the subject transactions and the alleged tax deficiencies of [the] petitioner at that time. Counting ten (10) years from the issuance of the said BIR letter, [the] respondent had until April 12, 2012, to assess [the] petitioner,” the 22-page ruling penned by Associate Justice Ma. Belen M. Ringpis-Liban read.
“However, it was only on July 1, 2019, that the FLD was issued — more than seven years after the last day of the prescriptive period. Hence, the 10-year period to assess has also prescribed,” it added.
The tax court also noted that internal revenue taxes must be assessed within three years from the last day prescribed by law for filing the tax return or the actual filing date, whichever is later.
According to Section 203 of the National Internal Revenue Code of 1997, “internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return.”
In ruling in favor of the cement company, the tribunal also rejected the BIR’s argument for a ten-year assessment period, as it failed to provide convincing evidence that Holcim willfully filed a false return.
The CTA stated that to prove a misstatement was deliberate or willful, “clear and convincing evidence must be presented for the ten (10)-year prescriptive period to be invoked.”
It noted that the BIR was aware of the transactions and alleged tax deficiencies as early as April 12, 2002, when it requested an informal conference with Holcim.
Counting ten years from this date, the court determined that the “ten (10)-year period to assess has also prescribed.”
The case arose when Republic Cement Corp. (RCC) sought a Certificate Authorizing Registration (CAR) to transfer shares of Iligan Cement Corp. from Alsons Cement Corp. (ACC) — now Holcim Philippines Manufacturing Corporation — to RCC. This transfer involved shares of stock sold in December 2000 and January 2001.
The BIR initiated an investigation into the transaction, requesting documents in July 2001 and inviting ACC to an informal conference in April 2002 to discuss potential capital gains tax implications.
Holcim paid CGT on Jan. 8, 2001, and Feb. 19, 2001, amounting to P4,457,161.29 and P141,556,632.33, respectively.
After years of inactivity, Holcim requested a status report on the CAR issuance in April 2015. The BIR responded in May 2015, stating that the docket was under review and advising Holcim to reconstruct the documents and reapply for the CAR.
Holcim then submitted documents in January 2016 for the transactions that took place in December 2000 and January 2001.
The BIR issued a Notice of Informal Conference in March 2018, followed by a Preliminary Assessment Notice (PAN) in July 2018, alleging a deficiency in CGT. Holcim replied to the PAN in September 2018.
In July 2019, Holcim received an FLD and an Audit Result/Assessment Notice (FAN), reiterating the alleged deficiency taxes. Holcim protested the FAN and FLD in the same month.
The BIR denied Holcim’s request for reconsideration in a Final Decision on Disputed Assessment, which Holcim received on Nov. 10, 2020.
As a result, Holcim filed a Petition for Review with the CTA on Dec. 3, 2020, seeking the cancellation of the deficiency CGT assessments totaling P355,479,878.19. — Chloe Mari A. Hufana