[TAX TREATY, ENTERED INTO BY THE PHILIPPINES WITH A FOREIGN COUNTRY, MUST BE TAKEN INTO CONSIDERATION WHEN DETERMINING THE PROPER TAX RATE OF A TAXABLE TRANSACTION] [INCOME OF ANY KIND, TO THE EXTENT REQUIRED BY ANY TREATY OBLIGATION BINDING UPON THE GOVERNMENT OF THE PHILIPPINES, SHALL BE EXEMPT FROM INCOME TAX] [APPLICATION OF THE PROVISIONS OF THE TAX CODES MUST BE SUBJECT TO THE PROVISIONS OF TAX TREATIES ENTERED INTO BY THE PHILIPPINES WITH FOREIGN COUNTRIES]

Petitioner Health Products and Services B.V. filed a Petition for Review seeking a refund of Capital Gains Tax (CGT), allegedly paid erroneously, in relation to the sale of shares of stock in Carestream Health Philippines Inc. (CHPI) to Quantum Healthcare Pty Ltd (QHPL) pursuant to the Philippines-Netherlands Tax Treaty. The Petitioner argued that, under the Principle of Solutio Indebiti, the government should not be unjustly enriched by taxes paid by mistake and must return the amount. It asserted that it complied with all tax refund requisites and claimed that the sale's capital gains are exempt from tax under the Philippines-Netherlands Tax Treaty and applicable provisions of the Tax Code. On the other hand, the Respondent Commissioner of Internal Revenue (CIR) contended that the refund claim must first undergo administrative investigation, and no refund can be granted while this process is ongoing. He insisted that taxpayers must exhaust all administrative remedies before seeking court intervention, except in specific cases. Additionally, tax refunds are to be strictly interpreted against the taxpayer and in favor of the government. In ruling, the Court found that both the administrative and judicial claims for refund were filed within the mandatory two-year period. Therefore, the judicial claim is valid and cannot be dismissed for failure to exhaust administrative remedies. Also, under the Philippines-Netherlands Tax Treaty, particularly Article 13(4), the capital gains from the sale of shares are taxable only in the country where the seller is a resident. Since the Petitioner was proven to be a tax resident of the Netherlands and not the Philippines, as evidenced by the apostilled Certificate of Residence, the income from the sale is exempt from Philippine tax. As such, the amount of CGT paid by the Petitioner in connection with the subject transaction should be deemed as an erroneous or wrongful payment, since no CGT was legally due. Thus, the Court ordered the Respondent to REFUND the Petitioner for the erroneously paid CGT. [HEALTH PRODUCTS & SERVICES B.V. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 10968, JULY 28, 2025]

IN CASES WHERE APPLICATIONS OR CLAIMS FOR A VAT REFUND ARE FILED WITH THE RDO, THE APPEALABLE DECISION IS THAT OF THE REGIONAL DIRECTOR, NOT THE ONE ISSUED BY THE REVENUE DISTRICT OFFICER

Petitioner Sankyu-ATS Consortium-B filed a Petition for Review seeking a judgment directing the Respondent Commissioner of Internal Revenue (CIR) to refund or issue a Tax Credit Certificate (TCC) for its alleged excess and unutilized input Value-Added Tax (VAT) on zero-rated sales for the fourth (4^th) quarter of TY 2019. Petitioner contends that the Court has jurisdiction over the case, that it is entitled to a VAT refund or TCC attributable to its zero-rated sales, and that the denial of its administrative claim lacks legal basis. Further, the additional requirements under BIR issuances violate Section 4 of the Tax Code, and denying a buyer-taxpayer’s claim due to erroneous invoices issued by the seller is unjust. Meanwhile, Respondent argues that the Petitioner is not entitled to a refund of the alleged excess input VAT. First, it claims the Court lacks jurisdiction since the refund application was not accepted due to incomplete supporting documents, leaving no appealable decision. Second, even assuming jurisdiction, the Petitioner allegedly has no cause of action, as no legal right accrued from an unaccepted claim. Third, it contends that the Petitioner failed to substantiate its entitlement to the refund. Lastly, it maintains that tax refunds are strictly construed in favor of the government, with the burden of proof resting on the taxpayer. In ruling, the Court held that jurisdiction over the subject matter is conferred only by law and cannot be acquired through consent, silence, or acquiescence. The CTA, being a court of special jurisdiction, may only review decisions, rulings, or inactions of the CIR or authorized officials, and in accordance with the manner and period prescribed by law. Under Section 112(C) of the Tax Code, the CIR has 90 days from the submission of complete documents to act on a VAT refund claim, and any denial may be appealed to the CTA within 30 days. Authority to decide VAT refund claims may be delegated, and per Revenue Memorandum Circular (RMC) No. 17-2018, for claims within a BIR Region, the Regional Director—not the Revenue District Officer (RDO)—has the power to approve or deny such claims. In this case, the Petitioner’s claim was denied by an RDO, not the Regional Director. Since only a decision of the Regional Director is appealable to the CTA, there was no proper appealable decision. Consequently, the Petition was DISMISSED for lack of jurisdiction. [SANKYU-ATS CONSORTIUM-B VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 10768, JULY 11, 2025]

PREMATURE ISSUANCE OF FORMAL LETTER OF DEMAND OR FINAL ASSESSMENT NOTICE PRIOR TO THE LAPSE OF THE FIFTEEN-DAY PERIOD TO RESPOND TO THE PAN, CLEARLY CONSTITUTES DENIAL OF DUE PROCESS

Petitioner Pampanga Rural Electric Service Cooperative, Inc. filed a Petition for Review seeking the cancellation of the assessment issued by the Respondent Commissioner of Internal Revenue. Petitioner contends that the 2013 income tax assessment is void due to the absence of a valid Letter of Authority (LOA) on the part of the examiner, the violation of its right to due process, and its claim of exemption from income tax by virtue of its franchise, warranting immediate cancellation of the assessment. On the other hand, the Respondent argues that the assessment is valid, asserting it was conducted by a duly authorized Revenue Officer (RO) under a valid LOA, that the right to collect taxes has not prescribed, and that Petitioner is not exempt from income tax. In ruling, the subject tax assessments are void due to the violation of Petitioner's right to administrative due process. Under Section 228 of the Tax Code and Revenue Regulations (RR) No. 12-99, as amended by RR No. 18-2013, a taxpayer is given fifteen (15) days from receipt of the Preliminary Assessment Notice (PAN) to file a protest or response before a Formal Letter of Demand (FLD) or Final Assessment Notice (FAN) may be issued. In the case at bar, the FLD/FAN was issued on June 7, 2016, before the expiration of the prescribed 15-day period, depriving the Petitioner of the opportunity to respond to the PAN and present supporting evidence. Although the Petitioner submitted a letter dated June 6, 2016, it merely requested an extension and did not constitute a valid response to the PAN. The premature issuance of the FLD/FAN deprived the Petitioner of the opportunity to be heard and to present evidence, violating its right to due process. As such, the FLD/FAN and the Final Decision on Disputed Assessment (FDDA) are VOID and UNENFORCEABLE. [PAMPANGA RURAL ELECTRIC SERVICE COOPERATIVE, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 10996, JULY 7, 2025]