BIR Ruling

October 15, 1997 MEMORANDUM FOR: The Commissioner We have before us for resolution the protested internal revenue tax case of SURICON RESOURCES CORPORATION formerly known as SURIGAO CONSOLIDATED MINING CO., INC. (SURICON) involving assessments of various amounts representing alleged deficiency withholding tax for taxable years 1987, 1988 and 1989. aisadc It appears from the records that on January 5, 1994, a demand was made on SURICON by the Bureau for the payment of the following deficiency withholding tax assessments, to wit: A . DEFICIENCY WITHHOLDING TAX ON COMPENSATION (Page 394; Docket) I. Under withholding On Director's Fees 1988 1989 Basic Deficiency Tax Due P119,635.00 P78,105.00 (p. 301; Docket) Add: Penalties Surcharge 29,908.75 19,526.25 Interest 148,806.27 77,623.53 Compromise 28,000.00 20,100.00 Total Amount Due P326,350.02 P195,354.78 II. Late Remittance 1988 1989 Basic P6,620.03 P20,069.48 Add: Penalties Interest 7,401.90 16,782.09 Compromise Penalty 2,800.00 5,000.00 Total P16,821.93 P41,851.57 III. Late Filing 1988 Basic Tax Due P3,327.20 Add: Interest 3,715.44 Compromise 1,400.00 Total P8,442.64 GRAND TOTAL P351,614.59 P237,206.35 ========= ========= B. DEFICIENCY EXPANDED WITHHOLDING TAX (Page 394; Docket) I. Late Remittance 1988 1989 Basic Tax Due P14,869.20 P17,968.54 Add: Penalties Interest 16,406.31 15,028.28 Compromise Penalty 4,200.00 4,000.00 Total P35,475.51 P36,996.82 II. Late Filing 1988 Basic Tax Due P7,065.96 Add: Penalties Interest 7,867.65 Compromise 2,200.00 Total P17,133.61 GRAND TOTAL P52,609.12 P36,996.82 ======== ========= C . DEFICIENCY FINAL WITHHOLDING TAX (Page 396; Docket) 1. On Interest On FCDU Loans 1987 1988 1989 FCDU Interest Paid P12,225,795.19 P19,625,449.38 P10,679,917.61 (Page 265; Docket) Final Tax Rate 10% 10% 10% Tax Due P1,222,579.52 P1,962,544.94 P1,067,991.76 Add: Penalties Surcharge 50% 611,289.76 981,272.47 533,995.88 Surcharge 25% 305,644.88 490,636.23 266,997.94 Interest 2,556,865.96 3,419,398.50 1,486,995.65 Sec. 251 1,222,579.52 1,962,544.94 1,067,991.76 Total Amount Due P5,918,959.64 P8,816,397.08 P4,423,972.99 2. On Royalty Payments 1987 1988 1989 Royalty Per P12,938,149.87 P1,261,765.89 P1,795,814.27 Investigation (Page 264; Docket) Final Tax Rate 20% 20% 20% Tax Due P2,587,629.97 P252,353.18 P359,162.85 Add: Penalties Surcharge 50% 1,293,814.99 126,176.59 179,581.43 Surcharge 25% 646,907.49 63,088.29 89,790.71 Interest 5,411,691.33 439,682.20 500,072.77 Sec. 251 2,587,629.97 252,353.18 359,162.85 Total Amount Due P12,527,673.75 P1,133,653.44 P1,487,770.61 3. On Consultancy Fees (Page 267; Docket) 1987 1988 1989 Per Book: General and P1,012,132.85 P946,219.67 P1,337,759.72 Administrative Expenses Less: Per Return 44,000.00 44,000.00 328,000.00 Consultancy 10% Consultancy 5% 481,110.00 900,000.00 Difference P968,132.85 P421,109.67 P109,759.72 Final Tax Rate 30% 30% 30% Basic Tax Due P290,439.86 P126,332.90 P32,927.92 Add: Penalties Surcharge 50% 145,219.93 63,166.45 16,463.96 Surcharge 25% 72,609.96 31,583.23 8,231.98 Interest 607,417.16 220,113.45 45,846.49 Sec. 251 290,439.86 126,332.90 32,927,92 Total Amount Due P1,406,126.77 P567,528.93 P136,398.27 4. On Cash Dividends 1987 1988 1989 Amount Per F/S P16,010,837.00 Amount Per Return 1,839,847.79 Difference P14,170,989.21 Basic Tax Due P226,296.59 Add: Penalties Surcharge 25% 56,574.15 Interest 281,630.76 Compromise 16,000.00 Sec. 251 226,296.59 Total Amount Due P806,798.09 5. Penalty for Late Remittance 1987 1988 1989 March P4,795.75 April 2,189.05 June 5,602.15 Total P12,586.95 Less: Payment 10,051.87 Deficiency P2,535.08 Add: Interest 2,835.23 Compromise 1,300.00 Total Amount Due P6,670.31 GRAND TOTAL P19,852,760.16 P11,331,047.85 P6,048,141.87 ============ ============ =========== We discuss hereunder our position on the merits as well as the demerits of the above tax assessments. LexLib A. DEFICIENCY WITHHOLDING TAX ON COMPENSATION 1988 1989 1. Underwithholding On Director's Fees P326,350.02 P195,354.78 We will resolve the two assessments together, the issues involved on the same being identical, if not, interrelated. Both assessments were based on the contention that the following payments made by herein taxpayer as director's fees to the following persons were not subjected to the required withholding tax on compensation, to wit: GROSS Basic Tax Due Tax Withheld Basic COMPENSATION Expanded Deficiency INCOME W/holding Tax Tax 1988 BROWN, WALTER P358,500.00 P81,140.00 P34,600.00 P46,540.00 BRIMO, GERALD 241,000.00 47,515.00 23,100.00 24,415.00 ORTIGAS, FRANCISO 111 287,500.00 60,550.00 27,500.00 33,050.00 TORRES, CARLOS 126,000.00 19,915.00 12,100.00 7,815.00 RAMOS, ALBERTO 126,000.00 19,915.00 12,100.00 7,815.00 TOTAL P1,139,000.00 P229,035.00 P109,400.00 P119,635.00 1989 BROWN, WALTER P90,000.00 P11,775.00 P9,000.00 P2,775.00 BRIMO, GERARD 313,000.00 67,945.00 31,300.00 36,645.00 DE LEON MANUEL 68,000.00 7,595.00 6,800.00 795.00 ORTIGAS, F. III 313,000.00 67,945.00 31,300.00 36,645.00 SUNICO, AUGUSTO 73,000,00 8,545.00 7,300.00 1,245.00 'TOTAL P857,000.00 163,805.00 85,700.00 P78,105.00 From the foregoing presentation, it can be easily observed that the aforesaid payments were already subjected to expanded withholding tax but not to withholding tax on compensation. This may be attributed to the fact that in the past, corporate taxpayers had been consistently adopting the theory that such payments were in the nature of management fees subject to expanded withholding tax. This legal controversy has already been settled when the BIR issued Rulings holding to the effect that such payments are not subject to expanded withholding tax, the same being not among those specified under Revenue Regulations No. 6-85, otherwise known as Revised and Consolidated Expanded Withholding Tax Regulations. Going back to the issue as to whether or not the above-referred payments are subject to the required withholding tax on compensation, we rule in the AFFIRMATIVE. In assailing the validity of this instant assessment, taxpayer adduced the argument that the recipient directors were not regular employees of the corporation and therefore, the fees received by them as director's fees were not compensation income subject to withholding tax. We find the above argument totally devoid of merit. In arriving at this conclusion, we leaned heavily on the following: a) Taxpayer failed to submit concrete and convincing evidence showing that the director's fees paid were received by the above named payees not for and in their own behalf but for and in behalf of the corporation which designated them to sit as members of the Board of Directors of SURICON (BIR Ruling Nos. 229-87 and 239-87); b) The withholding tax on compensation as provided for under Revenue Regulations No. 6-82 applies to all employed individuals deriving income from compensation. Section 7 thereof clearly provides that every employer or any person who pays or controls the payment of compensation to an employee must withhold therefrom the appropriate amount of withholding tax. It is equally provided under Section 14 thereof that a person who is required to deduct and withhold the tax from the compensation of an employee, and fails to do so, will be held liable for the payment not only of the tax required to be withheld but also the penalties imposed for such violation; c) For purposes of withholding tax, under Section 2 of Rev. Regs. No. 6-82, the term "compensation income" is defined as all remuneration for services performed by an employee for his employer except those specifically excepted by express provision of the Tax Code. The term includes salaries, wages, emoluments and honoraria, bonuses, allowances, fringe benefits, fees, including directors fees , taxable pensions and retirement pay, and other income of a similar nature; and d) Finally, under Section 5 of the same Revenue Regulations, an individual, performing services for a corporation, whether as an officer and director, or merely as a (director whose duties are confined to attendance at and participation in the meetings of the Board of Directors, is an employee. From the foregoing, it is evidently clear that under Revenue Regulations No. 6-82, the abovenamed directors are considered as employees of SURICON, and the fees received by them as director's fees, are compensation income subject to withholding tax. 1988 1989 2. Late Remittance P16,821.93 P41,851.57 TO BE SUSTAINED not controverted by herein protestant-taxpayer. 1988 3. Late Filing P8,442.64 TO BE SUSTAINED uncontested by the taxpayer. B. DEFICIENCY EXPANDED WITHHOLDING TAX The following deficiency expanded withholding tax assessments were never disputed by herein protestant-taxpayer, and therefore, they have to be SUSTAINED, viz: cdll 1988 1989 I. Late Remittance P35,475.51 P36,996.82 II. Late Filing 17,133.61 GRAND TOTAL P52,609.12 P36,996.82 ========= ========= C. DEFICIENCY FINAL WITHHOLDING TAX 1. On Interest On FCDU Loans Section (a) (6) (B) of the Tax Code, as amended, provides that interest income from foreign currency loans granted by depository banks under the Expanded Foreign Currency Deposit System shall be subject to the 10% income tax. Under Section 50 (a) of the same Code, the tax imposed under the aforecited Section of the Tax Code shall be withheld by the payor-borrower corporation. Such payor-borrower corporation is constituted by law as the withholding agent charged with the obligation of deducting, withholding and remitting to the BIR the income tax due on the said interest income within the period prescribed by law (Revenue Regulations No. 10-76). For its alleged failure to deduct the required 10% final withholding tax on its interest payments on FCDU loans, herein taxpayer was assessed of the following deficiency final withholding tax, viz: For taxable year 1987 P5,918,959.64 For taxable year 1988 P8,816,397.08 For taxable year 1989 P4,423,972.99 Herein taxpayer protested the assessment by interposing the argument that the amounts used as tax base in the computation of the aforesaid assessments were not entirely accurate. llcd During the conference-hearing conducted, taxpayer through its authorized representative, was able to substantiate the above claim. Taxpayer submitted testimonial as well as documentary evidence, to the satisfaction of this Office, clearly and convincingly showing that, indeed, the amounts from where the 10% deficiency final withholding tax assessments were based were not entirely composed of interest payments. These amounts, as a matter of fact, were substantially composed of other items which, under existing laws or regulations, are not subject to the 10% final withholding tax, i.e. past due charges-which are interest charge to regular interest on past due accounts; default charges-which are charges imposed on non-payment of principal and interest on given due dates; foreign exchange commission; peso loans; etc. This Office finds merit in the contention of herein protestant-taxpayer that if the above-referred items would be considered, the same would materially affect the outcome of the instant assessments. Shown as follows: To reflect the true liability of herein taxpayer and in conformity with the dictates of justice and equity, this Office has recomputed the subject assessments taking into account the above verified adjustments, and the following are the results, viz: DEFICIENCY FINAL WITHHOLDING TAX ON INTEREST ON FCDU LOANS 1987 1988 1989 FCDU Interest Allegedly P12,225,795.19 P19,625,449.38 P10,679,917.61 Paid Less: Adjustments 7,369,031.49 17,786,722.47 10,352,194.70 FCDU Interest Payments P4,856,763.70 P1,838,726.91 P327,722.91 Multiplied By Final Tax Rate 10% 10% 10% Tax Due P485,676.37 P183,872.69 P32,772.29 Add: Surcharge 25% 121,419.09 45,968.17 8,193.07 Interest 1,153,481.37 390,729.46 61,448.04 Compromise Penalty 20,000.00 16,000.00 9,000.00 TOTAL TAX DUE P1,780,576.83 P636,570.32 P111,413.40 Note: Accumulated Interest is computed up to October 15, 1997 the date of this memo-decision 1987 1988 1989 2. On Royalty Payments P12,527,673.75 P1,133,653.44 P1,487,770.61 The assessments were substantially based on the contention that royalty payments made by herein claimant during the period from 1987 to 1989 were not subjected to the required final withholding tax on royalty payments. In contesting the assessments, taxpayer argued in the main that the royalty payments referred to by our Revenue Officers were in fact management fees paid by SURICON to their General Managers who were hired to develop their mining properties. In relation thereto, taxpayer submitted again, to the satisfaction of this Office, Management Contracts clearly establishing that, indeed, the above-referred payments were in reality management fees. The appropriate withholding tax rate, therefore, is the 5% expanded withholding tax and not the 20% final withholding tax on royalty payments. In addition, taxpayer submitted other documents clearly showing that part of the amounts referred to be royalty payments by our Revenue Officers were in fact reconciling items which when considered would in no small way affect the withholding tax liabilities of herein taxpayer. Predicated on the above findings, herein taxpayer may be held liable for the payment of the following deficiency expanded withholding tax assessments, to wit: 1987 Expanded Withholding Tax Assessment Management Fee Considered As P12,938,149.87 Royalty Payments Tax Rate 5% Tax Due Before Reconciling Items P646,907.49 Less: Reconciling Items Advances To Claim Owners P174,000.00 Management Fee Already Subjected to 5% EWT (p. 212; Docket) 509,791.50 Total P683,791.50 Multiplied by EWT Rate x 5% 34,189.58 Tax Due P612,717.91 Add: Surcharge 25% late payment 153,179.48 Interest 20% (1 year) 153,179.48 Total Tax Due P919,076.87 Less: Payment Per Investigation 1988 561,764.22 Balance P357,312.65 Add: Interest 20% (9.5 years) 678,894.05 EXPANDED WITHHOLDING TAX STILL DUE P1,036,206.70 ========== For 1988 deficiency final withholding on royalty payments in the amount of P1,133,653.44, the same is recommended to be withdrawn for lack of merit, shown to wit: Management Fee Considered As Royalty Payments P5,345,537.01 EWT Rate 5% Tax Due before reconciling item P267,276.85 Less: Reconciling Item Cancelled Cash Voucher No. 30290 P250,000.00 EWT Rate 5% 12,500.00 Tax Due P254,776.85 Less: Payment Per Investigation 254,776.85 P x x x For 1989 deficiency final tax on royalty payments in the amount of P1,795,814.27, the same is also recommended to be withdrawn for lack of merit. Investigation conducted by this Office resulted also in the finding that the amounts referred to as royalty payments were in fact management fees and the same were already subjected to the proper expanded withholding tax (Please refer to pp. 231 and 264; Docket). 1987 1988 1989 3. On Consultancy Fees P1,406,126.77 P567,528.93 P136,398.27 Again, the assessments were issued based on the simple allegation that the tax required by law to be withheld on such payments were not withheld. During the hearing on this instant case, herein taxpayer endeavored to lessen the impact of the instant assessments by submitting documentary evidence sufficient enough to reduce its liability for final withholding tax for the taxable years mentioned above, as follows: 1987 Deficiency Final Withholding Tax on Consultancy Fees Consultancy Fees P1,012,132.85 Less: Consultancy at 10% tax remitted per Return 44,000.00 Consultancy Expenses not subject to tax 297,574.35 Consultancy Fee Paid To Foreign Individuals P670,558.50 Multiplied by Tax Rate 30% Tax Due P201,167.55 Add: Surcharge 25% 50,291.89 Interest 20% (9.5 years) 477,772.94 Compromise Penalty 16,000.00 FINAL WITHHOLDING TAX STILL DUE P745,232.38 ========= 1988 Deficiency Final Withholding Tax on Consultancy Fees Consultancy Fees Per Investigation P946,219.67 Less: Discrepancy Amount of Consultancy Fees Per Investigation/ Consultancy Per Records 51,000.00 Correct Amount of Consultancy Fees P895,219.67 Less: Consultancy at 10% Tax Already Paid 44,000.00 at 5% Tax Already Paid 481,110.00 Consultancy Expenses not subject to tax 48,196.64 Consultancy Fees Paid To Foreign Individuals P321,913.03 Multiplied by Tax Rate 30% Tax Due P96,573.91 Add: Surcharge 25% 24,143.48 Interest 20% (8.5 years) 205,219.56 Compromise Penalty 12,000.00 FINAL WITHHOLDING TAX STILL DUE P337,936.95 ========= Note : Accumulated Interest is computed up to October 15, 1997. For 1989 deficiency final withholding tax on consultancy fees in the amount of P136,398.27, the same is hereby cancelled for lack of merit, shown to wit: cdpr Consultancy Fees P1,337,759.72 Less: Consultancy Fees Where Taxes Were Already Paid at 10% 328,000.00 at 5% 900,000.00 Consultancy Expenses Not Subject To Tax 109,759.72 CONSULTANCY FEES SUBJECT TO FINAL TAX P x x x ======== 4. On Cash Dividends 1988 P806,798.09 The BIR, through its Revenue Officers, justified the issuance of the above assessment on the same ground that herein taxpayer failed to withhold the tax required to be withheld on such dividend payments. Resolution : We find for the taxpayer. Documentary evidence submitted by the taxpayer in support of its protest clearly showed that the payments made were actually dividends paid to corporate stockholders. Under Section 24 (e) (4) of the Tax Code, as amended, dividends received by a domestic corporation from another domestic corporation shall not be subject to income tax. 5. On Penalty For Late Remittance 1988 P6,670.31 For failure of the taxpayer, to contest the assessment, the same is hereby SUSTAINED. OBSERVATION It can be easily noted that the 50% fraud penalty imposed under Section 248 of the Tax Code, as amended, as well as the 100% additional penalty imposed under Section 251 thereof, had been consistently included by our Revenue Officers in the computation of herein taxpayer's alleged 1987 to 1989 final withholding tax liabilities in addition to the 25% regular surcharge imposed for its alleged failure to withhold. It is submitted after evaluating thoroughly the records of the case that the same is bereft not only of factual but also of legal merit. It is in this Office conclusion that our Revenue Officers who were assigned to investigate the withholding tax liabilities of SURICON were still "uninformed" in the correct and proper imposition of the 50% fraud penalty. The fundamental requirement on the proper imposition of the 50% fraud penalty is embodied on the aforecited Section 248 of the Tax Code, particularly paragraph (b) thereof, which in essence states that: prcd "If the withholding agent fails to deduct and withhold the tax required by law to be withheld, he shall be liable to pay in addition to the tax required to be deducted and withheld, a surcharge of 50% if the failure is due to the willful neglect or with intent to defraud the government." The Supreme Court has been consistent in its judicial pronouncements that to justify the imposition of the 50% fraud penalty, it must be proved by clear and convincing evidence that the withholding agent willfully or fraudulently failed to withhold the tax to the prejudice of the government. In this present case, we believe that the above-desired evidence is wantonly lacking. To our mind, mere failure to withhold the tax required to be withheld does not by itself justify the imposition of the 50% fraud penalty. Section 248 (b) speaks of willful or fraudulent failure to withhold. Willful failure to withhold, when used in the context of fraud, must be proved to exist by clear and sufficient evidence amounting to more than mere preponderance and cannot be justified by mere speculation. Again, no such evidence is shown by the record of this instant case. Moreover, it may be well to note that our Revenue Officers, in their Investigation Report, did not even bother to impute fraud against herein taxpayer. The imposition of the additional penalty of 100% is also unwarranted. Section 251 of the Tax Code provides that any person required to collect, account for and remit any tax imposed by the Tax Code who willfully fails to collect such tax, or account for and remit such tax or willfully assists in any manner to evade any such tax or the payment thereof, shall, in addition to other penalties provided for in Title X, Chapter I of the Tax Code, be liable to a penalty equal to the amount of the tax not collected, or not accounted for and remitted. A careful scrutiny of the provision above-quoted would at once reveal that the imposition of the above-referred additional penalty is conditioned on the finding that the non-remittance or non-withholding is willful or fraudulent. As we have already held, the failure of herein taxpayer to withhold the tax is not tempered with willful or fraudulent intent. There is therefore, no legal justification for us to impose the additional penalty provided for under Section 251 of the Tax Code, as amended. Finally, it is this Office's stand that at no instance shall the 50% fraud penalty be added to the 25% surcharge and the total of 75% be imposed on a taxpayer. Section 248 clearly provides that if the violation is not due to willful neglect, the 25% surcharge shall be imposed. If the failure to withhold is due to willful neglect or with intent to defraud the government, the 50% fraud penalty will be imposed. It is then clear that the imposable surcharge is either the 25% ordinary surcharge or the 50% fraud penalty. This is so because nowhere in the Tax Code is it provided that in case of willful neglect to withhold or in case of fraud, the 50% fraud penalty shall be added to the 25% ordinary surcharge. In the absence of any such proviso, it could be said that the imposition of 75% (50% + 25%) surcharge on the taxpayer has no basis in law. cdtech CONCLUSION Predicated in all the foregoing discussions of facts and law, the Legal Service, through its Appellate Division, respectfully submits the following recommendation, to wit: 1. For failure of the taxpayer to contest and/or overcome the assessments, the following are hereby recommended to be SUSTAINED, viz: A. DEFICIENCY WITHHOLDING TAX ON COMPENSATION a. Underwithholding On Director's Fees 1988 1989 Basic Tax P119,635.00 P78,105.00 Surcharge 25% 29,908.75 19,526.25 Interest 20% up to 10/15/97 254,224.37 146,446.87 Compromise Penalty 28,000.00 20,100.00 Total Amount Due P431,768.12 P264,178.12 b. Late Remittance 1988 1989 Basic Tax P6,620.03 P20,069.48 Add: Penalties Interest up to 10/15/97 11,254.05 30,104.22 Compromise Penalty 2,800.00 5,000.00 Total Amount Due P20,674.08 P55,173.70 c. Late Filing 1988 1989 Basic Tax P3,327.20 P3,327.20 Add: Penalties Interest up to 10/15/97 5,656.24 4,990.80 Compromise Penalty 1,400.00 1,400.00 Total Amount Due P10,383.44 P9,718.00 GRAND TOTAL P462,825.64 P329,069.82 ========= ========== B. DEFICIENCY EXPANDED WITHHOLDING TAX a. Late Remittance 1988 1989 Basic Tax P14,869.20 P17,968.54 Add: Penalties Interest up to 10/15/97 25,277.64 26,952.81 Compromise Penalty 4,200.00 4,000.00 Total Amount Due P44,346.84 P48,921.35 c. Late Filing 1988 Basic Tax Due P7,065.96 Add: Penalties Interest up to 10/15/97 12,012.13 Compromise Penalty 2,200.00 Total Amount Due P21,278.09 GRAND TOTAL P65,624.93 P48,921.35 ========= ========= C. DEFICIENCY FINAL WITHHOLDING TAX Penalty For Late Remittance 1988 Basic Tax P2,535.08 Add: Penalties Interest up to 10/15/97 4,309.64 Compromise Penalty 1,300.00 Total Amount Due P8,144.72 ======== 2. For want of merit, the following original assessments are hereby recommended to be withdrawn and cancelled, to wit: cdll DEFICIENCY FINAL WITHHOLDING TAX 1988 1989 a. On Royalty Payments P1,133,653.44 P1,487,770.61 b. On Consultancy Fees P136,398.27 c. On Cash Dividends P806,798.09 3. The original deficiency final withholding tax assessments for taxable years 1987 to 1989 involving the respective amounts of P5,918,959.64; P8,816,397.08; and P4,423,972.99 are hereby recommended to be modified and the following assessments be instead issued against herein protestant-taxpayer, viz: DEFICIENCY FINAL WITHHOLDING TAX ON INTEREST ON FCDU LOANS 1987 1988 1989 FCDU Interest Allegedly P12,225,795.19 P19,625,449.38 P10,679,917.61 Paid Less: Adjustments 7,369,031.49 17,786,722.47 10,352,194.70 FCDU Interest Payments P4,856,763.70 P1,838,726.91 P327,722.91 Multiplied By Final Tax Rate 10% 10% 10% Tax Due P485,676.37 P183,872.69 P32,772.29 Add: Surcharge 25% 121,419.09 45,968.17 8,193.07 Interest 1,153,481.37 390,729.46 61,448.04 Compromise Penalty 20,000.00 16,000.00 9,000.00 TOTAL TAX DUE P1,780,576.83 P636,570.32 P111,413.40 4. The 1987 original deficiency final withholding assessment on royalty payments involving the amount of P12,527,673.75 is hereby recommended to be withdrawn and cancelled and the following 5% deficiency expanded withholding tax on management fees be instead issued, to wit: 1987 Expanded Withholding Tax Assessment Management Fee Considered As P12,938,149.87 Royalty Payments Tax Rate 5% Tax Due Before Reconciling Items P646,907.49 Less: Reconciling Items Advances To Claim-Owners P174,000.00 Management Fee Already Subjected to 5% EWT (p. 212; Docket) 509,791.50 Total P683,791.50 Multiplied by EWT Rate x 5% 34,189.58 Tax Due P612,717.91 Add: Surcharge 25% late payment 153,179.48 Interest 20% (1 year) 153,179.48 Total Tax Due P919,076.87 Less: Payment Per Investigation 1988 561,764.22 Balance P357,312.65 Add: Interest 20% (9.5 years) 678,894.05 EXPANDED WITHHOLDING TAX STILL DUE P1,036,206.70 ========== 5. The original 1987 and 1988 deficiency final withholding tax assessments on consultancy fees are hereby recommended to be modified and the following assessments be instead issued against the taxpayer, viz: 1987 Deficiency Final Withholding Tax on Consultancy Fees Consultancy Fees P1,012,132.85 Less: Consultancy at 10% tax remitted per Return 44,000.00 Consultancy Expenses not subject to tax 297,574.35 Consultancy Fee Paid To Foreign Individuals P670,558.50 Multiplied by Tax Rate 30% Tax Due P201,167.55 Add: Surcharge 25% 50,291.89 Interest 20% (9.5 years) 477,772.94 Compromise Penalty 16,000,00 FINAL WITHHOLDING TAX STILL DUE P745,232.38 1988 Deficiency Final Withholding Tax on Consultancy Fees Consultancy Fees P895,219.67 Less: Consultancy at 10% Tax Already Paid 44,000.00 at 5% Tax Already Paid 481,110.00 Consultancy Expenses not subject to tax 48,196.64 Consultancy Fees Paid To Foreign Individuals P321,913.03 Multiplied by Tax Rate 30% Tax Due P96,573.91 Add: Surcharge 25% 24,143.48 Interest 20% (8.5 years) 205,219.56 Compromise Penalty 12,000.00 FINAL WITHHOLDING TAX STILL DUE P337,936.95 ========== 6. Finally, upon payment of the assessed amounts by SURICON RESOURCES CORPORATION it is hereby recommended that its tax case be CLOSED AND TERMINATED, and all warrants issued to enforce collection thereof lifted and considered of no force and effect, viz: cdta a. 1988 Deficiency Withholding Tax On Compensation P462,825.64 b. 1989 Deficiency Withholding Tax On Compensation 329,069.82 c. 1988 Deficiency Expanded Withholding Tax 65,624.93 d. 1989 Deficiency Expanded Withholding Tax 48,921.35 e. 1988 Deficiency Final Tax 8,144.72 f. Deficiency Final Withholding Tax: 1987 On Interest On FCDU Loans 1,780,576.83 1988 On Interest On FCDU Loans 636,570.32 1989 On Interest On FCDU Loans 111,413.40 g. 1987 Deficiency Expanded Withholding Tax On Management Fees 1,036,206.70 h. Deficiency Final Withholding Tax: 1987 On Consultancy Fees 745,232.38 1988 On Consultancy Fees 337,936.95 TOTAL AMOUNT TO BE PAID P5,562,523.04 ========== Respectfully submitted: (SGD . ) RODULFO L . SALAZAR Chie f , Appellate Division I CONCUR: (SGD.) SIXTO S. ESQUIVIAS IV Assistant Commissioner Legal Service Recommendation-APPROVED: (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue