Unnumbered BIR Ruling

April 29, 1998 Philippine Dairy Products Corporation 710 Aurora Blvd., Quezon City Attention: Mr . Nazario L . Avendano Comptroller Gentlemen : This refers to your administrative appeal for reconsideration of the assessment requiring your company to pay the amount of P7,115,131.26 and P1,869,775.30 representing deficiency income and withholding taxes for taxable year 1986, inclusive of increments covered respectively by BIR Assessment Nos. FAS-86-90-001023 and FAS-1-86-90-001024, both dated May 15, 1990. After a thorough review of the facts of the case as well as the law and jurisprudence pertinent thereto, this Office finds your protest devoid of factual and legal merit. A. ON DEFICIENCY INCOME TAX P7,115,131 . 26 This assessment was based on the allegation that Philippine Dairy Products Corporation was doubly benefited by deducting twice the amount of P10,276,505.00 representing advance sales tax paid during the taxable year 1986, first, as part of your operating expenses and second, as part of your cost of goods sold. In assailing the validity of the instant assessment, you denied that there was double deduction of advance sales tax, claiming that while it is true that the said advance sales tax formed part of the goods sold, the cost of goods sold was reduced by an amount equivalent to the advance sales tax thru an adjusting entry. While we find your arguments to be legally plausible, it is submitted that the same would hold water only if complemented with competent relevant evidence. Our records show that inspite of the length of time that had elapsed, you failed to substantiate your administrative protest with anything that would qualify as your supporting documentary evidence. It is basic in taxation that the burden of proof lies on the taxpayer to present evidence showing that the assessment was not validly issued. Mere allegation in the protest that the assessment is baseless, both in fact and in law, without being substantiated is not enough. Satisfactory proofs must be presented and failure to do so is fatal considering that the assessment of the Commissioner of Internal Revenue is presumed to be prima facie correct, unless controverted (CIR vs. Bohol Land Transportation, 107 Phil. 965). Based on this judicial pronouncement plus your seeming lack of interest in the resolution of this case, we have no other recourse but uphold the findings of our Revenue Officers that you are liable to pay the above subject deficiency tax assessment. B. DEFICIENCY WITHHOLDING TAX P1,869,775 . 30 The deficiency withholding tax came as a result of your failure to withhold 5% withholding tax for management fees paid by your office to San Miguel Corporation for management services rendered by the latter. In disputing the validity of the above assessment, you claimed that the payments for services rendered were merely "reimbursements" for the actual cost or value of services rendered, and therefore, not subject to withholding tax. It is submitted that this legal controversy has already been settled in CTA Case No. 4824 entitled "PHILIPPINE DAIRY PRODUCTS CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE", the facts of which are similar to those in the present case. In the above-referred case, the Court of Tax Appeals categorically stated that the services rendered by San Miguel Corporation to your office are management services subject to the 5% expanded withholding tax. Based on this judicial pronouncement, your protest is hereby DENIED. In view of all the foregoing, you are requested to pay the aggregate amount of P8,984,906.56 as deficiency income and withholding taxes for taxable year 1986, plus increments that have accrued thereon, to the Revenue District Officer, Revenue District Office No. 40, Cubao, Quezon City, within fifteen (15) days from receipt hereof, otherwise, collection will be enforced by means of the summary remedies prescribed by law. cdtech This constitutes the FINAL decision of this Office on the matter. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue