The case of Asian Transmission Corporation vs. Commissioner of Internal Revenue, G.R. No. 24289/247397, November 8, 2023
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AT A GLANCE:
- A compromise penalty cannot be enforced if the taxpayer does not agree to the compromise because a compromise must be mutually agreed upon.
- Deficiency interest and delinquency interest can be simultaneously imposed.
Doctrines:
(1) The Court clarified that a compromise penalty cannot be enforced if the taxpayer does not agree to the compromise because a compromise must be mutually agreed upon. Additionally, the Court stated that compromise penalties are typically suggested as part of settling criminal tax liabilities. Therefore, if there are no criminal tax liabilities imposed, a compromise penalty should not be enforced or collected.
(2) The law is straightforward regarding the imposition of deficiency interest and delinquency interest. Based on the explicit provisions of the NIRC, both deficiency interest and delinquency interest are to be imposed simultaneously and in accordance with the rates and conditions stated in the law.
Facts of the Case:
The Commissioner of Internal Revenue (CIR), represented by the Office of the Solicitor General (OSG), is the appointed Commissioner with the authority to settle disputes regarding tax assessments, refunds, penalties, and other matters under the National Internal Revenue Code (NIRC) administered by the BIR. Asian Transmission Corporation (ATC), on the other hand, is a corporation based in Calamba City, Laguna.
This case began when ATC received a Letter of Authority (LOA) in June 2003, allowing BIR officers to examine its financial records for the year 2001.
Later, the BIR sent ATC a Preliminary Assessment Notice (PAN) and then a Formal Letter of Demand (FLO) on April 25, 2007. This letter included assessment notices for unpaid taxes, interests, and penalties. In response, on June 14, 2007, ATC contested the assessments and asked for them to be canceled. On July 15, 2008, ATC received a Final Decision on Disputed Assessment (FDDA) from the BIR, which stated that their protests were not valid. As stated in the FDDA, ATC’s tax liabilities are as follow:
On July 24, 2008, ATC paid PHP 1,751,201.23 for the alleged deficiency withholding tax for the year 2001, specifically for Expanded Withholding Tax.
Then, on August 14, 2008, ATC directly appealed the FDDA to the CIR. They asked for a reconsideration and/or cancellation of the deficiency withholding tax assessed against them for the year 2001.
However, on July 1, 2011, the CIR denied ATC’s request for reconsideration. They confirmed ATC’s payment for the deficiency withholding tax and considered their liability settled. The CIR upheld the assessment of deficiency withholding tax on compensation amounting to PHP 17,775,818.59.
In response, ATC filed a Petition for Review with the Court of Tax Appeals (CTA) on November 3, 2011.
Ruling of CTA First Division:
The Petition for Review is partially granted. ATC is ordered to pay respondent the amount of P3,999,957.67, representing basic deficiency withholding tax on compensation and the 25% surcharge imposed under Section 248(3) of the NIRC of 1997.
In addition, the petitioner is ordered to pay delinquency interest at the rate of twenty percent (20%) per annum on the said total amount of P3,999,957.67, computed from July 31, 2011, until full payment thereof pursuant to Section 249(C) of the NIRC of 1997.
Ruling of CTA En Banc:
The appeal of the CIR is partially granted. The unaccounted compensation of ATC
in the amount PHP 16,096,409.13 should be subjected to withholding tax on compensation based on the effective tax rate computed based on the total withholding tax on compensation paid by ATC divided by the total amount of taxable gross compensation reported during the taxable year 2001.
Furthermore, the CTA En Banc declared that the compromise penalty imposed by the CIR against ATC for the deficiency withholding tax in the amount of PHP 50,000.00 must be cancelled.
Both the CIR and ATC moved for partial reconsideration.
Amended Decision of the CTA En Banc:
Asian Transmission Corporation has been ordered Commissioner of Internal Revenue the amount of P3,999,957.67 representing basic deficiency Withholding Tax on Compensation and the 25% surcharge under Section 248(3) of the NIRC of 1997.
In addition, ATC is ordered to pay:
- Deficiency interest at the rate of 20% per annum on the basic deficiency withholding tax on compensation.
- Delinquency interest at the rate of 20% per annum in the total amount.
- Delinquency interest at the rate of 12% on the unpaid amount.
Both parties filed a Petition for Certiorari.
CIR’s Arguments
The CIR disagrees with the Court of Tax Appeals’ decision that ATC’s unaccounted compensation is only PHP 16,096,409.13, as they used a lower tax rate of 19.88% instead of the maximum rate of 32%. They also disagree with the cancellation of the compromise penalty amounting to PHP 50,000.00.
ATC’s Arguments
ATC argues that it should not be held responsible for deficiency interest on the alleged shortfall in expanded withholding tax on compensation. They claim that Section 249(b) of the NIRC, as amended, does not cover deficiency withholding tax, so they should not be subject to the 20% per annum deficiency interest on the basic deficiency. They believe that being charged both 20% deficiency interest and 20% delinquency interest per annum is unfair and excessive. ATC asserts that this simultaneous imposition effectively results in them being charged 40% interest per annum, on top of the 25% surcharge, which they consider confiscatory and unreasonable.
Issue:
- Is ATC liable for the compromise penalty in the amount of PhP50,000.00?
- Can deficiency interest and delinquency interest be simultaneously imposed?
Ruling of the Court:
Re: Compromise Penalty
The Court clarified that a compromise penalty cannot be enforced if the taxpayer does not agree to the compromise because a compromise must be mutually agreed upon. Additionally, the Court stated that compromise penalties are typically suggested as part of settling criminal tax liabilities. Therefore, if there are no criminal tax liabilities imposed, a compromise penalty should not be enforced or collected.
Here, the compromise penalty should not be imposed against ATC. There is no evidence indicating that ATC agreed to any compromise agreement. In fact, ATC contested the assessments made by the BIR and requested reconsideration or cancellation of the deficiency withholding tax on compensation. Additionally, upon receiving the CIR’s decision, ATC immediately filed a Petition for Review before the CTA First Division to challenge it. These actions suggest that no compromise was agreed upon. Moreover, there are no criminal tax liabilities involved in this case. Therefore, imposing a compromise penalty is inappropriate as this case does not concern the settlement of criminal tax liabilities through compromise.
Re: Simultaneous imposition of deficiency interest and delinquency interest
The Court has already settled the propriety of the simultaneous imposition of both deficiency and delinquency interests.
The law is straightforward regarding the imposition of deficiency interest and delinquency interest. According to the National Internal Revenue Code, deficiency interest is applied at a rate of 20% per annum on any shortfall in tax payment from the designated date until the full payment is made. Additionally, delinquency interest is imposed at the same rate on any unpaid deficiency tax, surcharge, or interest from its due date as stated in the notice and demand from the tax authority until the entire amount is settled. Failure to pay the assessed deficiency tax within the specified timeframe warrants the imposition of delinquency interest.
In statutory interpretation, when a law is clear and unambiguous, there is no need for further interpretation; it should be applied as written. This principle, known as the plain-meaning rule or verba legis, dictates that the literal meaning of the law should be followed without deviation. Therefore, based on the explicit provisions of the NIRC, both deficiency interest and delinquency interest are to be imposed simultaneously and in accordance with the rates and conditions stated in the law.
Source:
Related Article/s:
Tax Deficiency vs. Tax Delinquency
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