Appellate tax court grants 3M Philippines’ refund

THE Court of Tax Appeals (CTA) has granted the appeal of 3M Philippines, Inc. to cancel P37.29 million of its deficiency taxes for the year 2014 and to refund P13.4 million from the same assessment it had paid in 2018.

In a 26-page decision dated Sept. 19, the CTA Special First Division said the firm was not liable to pay the taxes since the revenue officers who conducted the audit were not authorized through a letter of authority (LoA).

The officers were only assigned to assess 3M Philippines’ books of accounting through memorandums of assignment, which the tribunal said could not replace an LoA.

“Ergo, the absence thereof (of an LoA) taints the whole examination process and resultant tax assessments issued against petitioner (3M Philippines) covering said year (2014) with invalidity,” CTA Associate Justice Marian Ivy F. Reyes-Fajardo said in the ruling.

The commissioner of internal revenue (CIR) argued that the tax assessment had a legal basis and was discussed in depth in the assessment notices and letters of demand issued to the firm.

Under the Tax Code, only the CIR or his duly authorized representative may authorize an examination of a taxpayer’s tax liabilities. Revenue officers can only perform audits and assessments through a letter of authority issued by the CIR.

The tax court ordered the CIR to refund the P13.4 million, which was paid by the firm on April 20, 2018, since the taxes were illegally collected and were not appropriately audited.

The Bureau of Internal Revenue (BIR) and its agents were also barred from collecting 3M Philippines’ taxes for 2014.

The law defines illegally collected taxes as those collected without “statutory authority, or upon property not subject to taxation or by some officer [who] have no authority to levy the tax.”

The 2014 assessment covered the firm’s deficiency income tax, expanded withholding tax, withholding tax, final value-added tax, and accompanying penalties.

3M Philippines is the Philippine branch of an American multinational conglomerate engaged in the manufacturing and distribution of industrial products.

“Therefore, we declare the deficiency tax assessments covering the taxable year 2014 as void, for being a product of illegal audit and examination by respondent’s tax agents,” the tribunal said. — John Victor D. Ordoñez