G.R. No. 178697 November 17, 2010 COMMISSIONER OF INTERNAL REVENUE, e!"!"o#er, $ ver%&% $ SON' (ILI INES, INC.

, Re%)o#*e#!. X ---------------------------------------------------------------------------------------X

+ECISION
This petition for review on certiorari seeks to set aside the May 17, 2007 Decision and the July , 2007 !esolution of the "ourt of Ta# $ppeals % &n 'anc(1) (CTA-EB), in "*T*$* &' +o* ,0, affir-in. the /cto0er 21, 2002 Decision of the "T$-3irst Division(2) which, in turn, partially .ranted the petition for review of respondent 4ony 5hilippines, 6nc*(Sony)* The "T$-3irst Division decision cancelled the deficiency assess-ent issued 0y petitioner "o--issioner of 6nternal !evenue (CIR) a.ainst 4ony for 7alue $dded Ta# (VAT) 0ut upheld the deficiency assess-ent for e#panded withholdin. ta# (EWT) in the a-ount of 51,08 ,97,*70 and the penalties for late re-ittance of internal revenue ta#es in the a-ount of51,21,, ,8*,0*(8) T(E FACTS: /n +ove-0er 22, 1,,9, the "6! issued ;etter of $uthority +o* 00001,782 (LOA 19734) authori<in. certain revenue officers to e#a-ine 4ony=s 0ooks of accounts and other accountin. records re.ardin. revenue ta#es for ,!-e )er"o* 1997 .#* &#ver"/"e* )r"or 0e.r%.1 /n Dece-0er 1, 1,,,, a preli-inary assess-ent for 1,,7 deficiency ta#es and penalties was issued 0y the "6! which 4ony protested* Thereafter, actin. on the protest, the "6! issued final assess-ent notices, the for-al letter of de-and and the details of discrepancies* (2) 4aid details of the deficiency ta#es and penalties for late re-ittance of internal revenue ta#es are as follows:
DEFICIENCY VALUE -ADDED TAX (VAT) (Assessment No. ST-VAT-97-0124-2000) Basic Tax Due Add: Penalties Interest up to 3-3 -!000 #o$pro$ise De%icienc& 'AT Due DEFICIENCY EX ANDED !IT""#LDIN$ TAX (E!T) P 3, 57,3 "." !5,000.00 P 3, 8!,3 "." , " ,0 "." P 7,958,700.00

(Assessment No. ST-E!T-97-012%-2000) Basic Tax Due Add: Penalties Interest up to 3-3 -!000 #o$pro$ise De%icienc& )*T Due P 550,"85.8! !5,000.00 P 575,"85.8! ,99!,"(!.7! P ," (,97(.90

DEFICIENCY #F VAT #N &#YALTY AY'ENTS (Assessment No. ST-L&1-97-012(-2000) Basic Tax Due Add: Penalties +urc,ar-e Interest up to 3-3 -!000 #o$pro$ise Penalties Due LATE &E'ITTANCE #F FINAL !IT""#LDIN$ TAX (Assessment No. ST-L&2-97-0127-2000) Basic Tax Due Add: Penalties +urc,ar-e Interest up to 3-3 -!000 #o$pro$ise Penalties Due P ,7!9,(90.7 508,783.07 50,000.00 P !,!88,"73.78 !,!88,"73.78 P P 359, 77.80 87,580.3" (,000.00 P "(!,758. " "(!,758. " P

LATE &E'ITTANCE #F INC#'E AY'ENTS (Assessment No. ST-L&)-97-012*-2000) Basic Tax Due Add: Penalties !5 . +urc,ar-e Interest up to 3-3 -!000 #o$pro$ise Penalties Due P 8,8(5.3" 58.!9 !,000.00 P 0,9!3.(0 0,9!3.(0 P

$&AND T#TAL

1%+*9%+()2.(%/50

4ony sou.ht re-evaluation of the afore-entioned assess-ent 0y filin. a protest on 3e0ruary 2, 2000* 4ony su0-itted relevant docu-ents in support of its protest on the 11th of that sa-e -onth*(1) /n /cto0er 22, 2000, within 80 days after the lapse of 190 days frosu0-ission of the said supportin. docu-ents to the "6!, 4ony filed a petition for review 0efore the "T$*(7) $fter trial, the "T$-3irst Division disallowed the deficiency 7$T assess-ent 0ecause the su0sidi<ed advertisin. e#pense paid 0y 4ony which was duly covered 0y a 7$T invoice resulted in an input 7$T credit* $s re.ards the &>T, the "T$-3irst Division -aintained the deficiency &>T assess-ent on 4ony=s -otor vehicles and on professional fees paid to .eneral professional partnerships* 6t also assessed the a-ounts paid to sales a.ents as co--issions with five percent ? @A &>T pursuant to 4ection 1?.A of !evenue !e.ulations +o* 1-9 * The "T$-3irst Division, however, disallowed the &>T assess-ent on rental e#pense since it found that the total rental deposit of 510, 28,921*,, was incurred fro- January to March 1,,9 which was a.ain 0eyond the covera.e of ;/$ 1,782* &#cept for the co-pro-ise penalties, the "T$-3irst Division also upheld the penalties for the late pay-ent of 7$T on royalties, for late re-ittance of final withholdin. ta# on royalty as of Dece-0er 1,,7 and for the late re-ittance of &>T 0y so-e of 4ony=s 0ranches* (9) 6n su-, the "T$-3irst Division partly .ranted 4ony=s petition 0y cancellin. the deficiency 7$T assess-ent 0ut upheld a -odified deficiency &>T assess-ent as well as the penalties* Thus, the dispositive portion reads:
WHEREFORE, the petition for review is hereby PARTIALLY GRANTED Respon!ent is ORDERED to "AN"EL #n! WITHDRAW the !efi$ien$y #ssess%ent for v#&'e(#!!e! t#) for *++, for &#$- of %erit However, the !efi$ien$y #ssess%ents for e)p#n!e! withho&!in. t#) #n! pen#&ties for &#te re%itt#n$e of intern#& reven'e t#)es #re /PHELD A$$or!in.&y, petitioner is DIRE"TED to PAY the respon!ent the !efi$ien$y e)p#n!e! withho&!in. t#) in the #%o'nt of P*,012,3,+ ,0 #n! the fo&&owin. pen#&ties for &#te re%itt#n$e of intern#& reven'e t#)es in the s'% of P*,45+,2+1 +06 * 7AT on Roy#&ty P 84+,484 0,

4 1

Withho&!in. T#) on Roy#&ty EWT of Petitioner9s :r#n$hes Tot#&

31*,843 40 3,+41 51 *,45+,2+1 +0

P&'s 40; !e&in<'en$y interest fro% =#n'#ry *,, 4000 'nti& f'&&y p#i! p'rs'#nt to >e$tion 48+?"@?1@ of the *++, T#) "o!e >O ORDERED A+B

The "6! sou.ht a reconsideration of the a0ove decision and su0-itted the followin. .rounds in support thereof:
A The Honor#b&e "o'rt $o%%itte! reversib&e error in ho&!in. th#t petitioner is not &i#b&e for the !efi$ien$y 7AT in the #%o'nt of P**,*8*,0*8 8*C The Honor#b&e $o'rt $o%%itte! reversib&e error in ho&!in. th#t the $o%%ission e)pense in the #%o'nt of P4,3+8,,+, 00 sho'&! be s'bDe$te! to 2; withho&!in. t#) inste#! of the *0; t#) r#teC

" The Honor#b&e "o'rt $o%%itte! # reversib&e error in ho&!in. th#t the withho&!in. t#) #ssess%ent with respe$t to the 2; withho&!in. t#) on rent#& !eposit in the #%o'nt ofP*0,241,34* ++ sho'&! be $#n$e&&e!C #n!

D* The Honor#b&e "o'rt $o%%itte! reversib&e error in ho&!in. th#t

the re%itt#n$e of fin#& withho&!in. t#) on roy#&ties $overin. the perio! =#n'#ry to E#r$h *++3 w#s fi&e! on ti%e A*0B

/n $pril 29, 200 , the "T$-3irst Division denied the -otion for reconsideration* Bnfa<ed, the "6! filed a petition for review with the "T$-&' raisin. identical issues:
* 4 Whether or not respon!ent ?>ony@ is &i#b&e for the !efi$ien$y 7AT in the #%o'nt of P**,*8*,0*8 8*C Whether or not the $o%%ission e)pense in the #%o'nt of P4,3+8,,+, 00 sho'&! be s'bDe$te! to *0; withho&!in. t#) inste#! of the 2; t#) r#teC Whether or not the withho&!in. #ssess%ent with respe$t to the 2; withho&!in. t#) on rent#& !eposit in the #%o'nt of P*0,241,34* ++ is properC #n! $overin. the perio! =#n'#ry to E#r$h *++3 w#s fi&e! o'tsi!e of ti%e A**B

2* Whether or not the re%itt#n$e of fin#& withho&!in. t#) on roy#&ties

3indin. no co.ent reason to reverse the decision of the "T$-3irst Division, the "T$-&' dis-issed "6!=s petition on May 17, 2007* "6!=s -otion for reconsideration was denied 0y the "T$-&' on July , 2007* The "6! is now 0efore this "ourt via this petition for review relyin. on the very sa-e .rounds it raised 0efore the "T$-3irst Division and the "T$-&'* The said .rounds are reproduced 0elow:
GROUNDS FOR THE ALLOWANCE OF THE PETITION I T(E CTA EN 2ANC ERRE+ IN RULING T(AT RES ON+ENT IS NOT LIA2LE FOR +EFICIENC' VAT IN T(E AMOUNT OF ( 11,131,013.31. II AS TO RES ON+ENT4S +EFICIENC' E5 AN+E+ 6IT((OL+ING TA5 IN T(E AMOUNT OF ( 1,992,362.727 A. T(E CTA EN 2ANC ERRE+ IN RULING T(AT T(E COMMISSION E5 ENSE IN T(E AMOUNT OF ( 2,893,797.00 S(OUL+ 2E SU28ECTE+ TO A 6IT((OL+ING TA5 OF 9: INSTEA+ OF T(E 10: TA5 RATE. 2. T(E CTA EN 2ANC ERRE+ IN RULING T(AT T(E ASSESSMENT 6IT( RES ECT TO T(E 9: 6IT((OL+ING TA5 ON RENTAL +E OSIT IN T(E AMOUNT OF ( 10,92;,821.99 IS NOT RO ER. III T(E CTA EN 2ANC ERRE+ IN RULING T(AT T(E FINAL 6IT((OL+ING TA5 ON RO'ALTIES COVERING T(E ERIO+ 8ANUAR' TO MARC( 1998 6AS FILE+ ON TIME.<12=

Bpon filin. of 4ony=s co--ent, the "ourt ordered the "6! to file its reply thereto* The "6! su0seCuently filed a -anifestation infor-in. the "ourt that it would no lon.er file a reply* Thus, on Dece-0er 8, 2009, the "ourt resolved to .ive due course to the petition and to decide the case on the 0asis of the pleadin.s filed*(18) The "ourt finds no -erit in the petition* The "6! insists that ;/$ 1,782, althou.h it states Dthe period 1,,7 and unverified prior years,E should 0e understood to -ean the fiscal year endin. in March 81, 1,,9*(12) The "ourt cannot a.ree*

'ased on 4ection 18 of the Ta# "ode, a ;etter of $uthority or ;/$ is the authority .iven to the appropriate revenue officer assi.ned to perfor- assess-ent functions* 6t e-powers or ena0les said revenue officer to e#a-ine the 0ooks of account and other accountin. records of a ta#payer for the purpose of collectin. the correct a-ount of ta#*(1 ) The very provision of the Ta# "ode that the "6! relies on is uneCuivocal with re.ard to its power to .rant authority to e#a-ine and assess a ta#payer*
>E" 5 o>er o/ !-e Comm"%%"o#er !o M.?e A%%e%%me#!% .#* re%@r"be A**"!"o#.A ReB&"reme#!% /or T.C A*m"#"%!r.!"o# .#* E#/or@eme#!. ?A@E)#%in#tion of Ret'rns #n! Deter%in#tion of t#) D'e F After # ret'rn h#s been fi&e! #s re<'ire! 'n!er the provisions of this "o!e, the "o%%issioner or his !'&y #'thoriGe! represent#tive m.0 .&!-or"De !-e eC.m"#.!"o# o/ .#0 !.C).0er .#* !-e .%%e%%me#! o/ !-e @orre@! .mo&#! o/ !.C: Provided, however, Th#t f#i&'re to fi&e # ret'rn sh#&& not prevent the "o%%issioner fro% .&!-or"D"#E !-e eC.m"#.!"o# o/ .#0 !.C).0er . ) ) ) AE%ph#ses s'pp&ie!B

"learly, there -ust 0e a .rant of authority 0efore any revenue officer can conduct an e#a-ination or assess-ent* &Cually i-portant is that the revenue officer so authori<ed -ust not .o 0eyond the authority .iven* 6n the a0sence of such an authority, the assess-ent or e#a-ination is a nullity* $s earlier stated, ;/$ 1,782 covered Dthe period 1,,7 and unverified prior years*E 3or said reason, the "6! actin. throu.h its revenue officers went 0eyond the scope of their authority 0ecause the deficiency 7$T assess-ent they arrived at was 0ased on records fro- January to March 1,,9 or usin. the fiscal year which ended in March 81, 1,,9* $s pointed out 0y the "T$-3irst Division in its $pril 29, 200 !esolution, the "6! knew which period should 0e covered 0y the investi.ation* Thus, if "6! wanted or intended the investi.ation to include the year 1,,9, it should have done so 0y includin. it in the ;/$ or issuin. another ;/$* Bpon review, the "T$-&' even added that the covera.e of ;/$ 1,782, particularly the phrase Dand unverified prior years,E violated 4ection " of !evenue Me-orandu- /rder +o* 28-,0 dated 4epte-0er 20, 1,,0, the pertinent portion of which reads:
1 A Letter of A'thority sho'&! $over a !.C.bAe )er"o* #o! eC@ee*"#E o#e !.C.bAe 0e.r* The pr#$ti$e of iss'in. LHAs $overin. #'!it of I'nverifie! prior ye#rs is hereby prohibite! If the #'!it of # t#)p#yer sh#&& in$&'!e %ore th#n one t#)#b&e perio!, the other perio!s or ye#rs sh#&& be spe$ifi$#&&y in!i$#te! in the LHA A*5B AE%ph#sis s'pp&ie!B

/n this point alone, the deficiency 7$T assess-ent should have 0een disallowed* 'e that as it -ay, the "6!=s ar.u-ent, that 4ony=s advertisin. e#pense could not 0e considered as an input 7$T credit 0ecause the sa-e was eventually rei-0ursed 0y 4ony 6nternational 4in.apore (SIS), is also erroneous* The "6! contends that since 4ony=s advertisin. e#pense was rei-0ursed 0y 464, the for-er never incurred any advertisin. e#pense* $s a result, 4ony is not entitled to a ta# credit* $t -ost, the "6! continues, the said advertisin. e#pense should 0e for the account of 464, and not 4ony*(17) The "ourt is not persuaded* $s aptly found 0y the "T$-3irst Division and later affir-ed 0y the "T$-&', 4ony=s deficiency 7$T assess-ent ste--ed frothe "6!=s disallowance of the input 7$T credits that should have 0een reali<ed fro- the advertisin. e#pense of the latter*(19) 6t is evident under 4ection 110(1,) of the 1,,7 Ta# "ode that an advertisin. e#pense duly covered 0y a 7$T invoice is a le.iti-ate 0usiness e#pense* This is confir-ed 0y no less than "6!=s own witness, !evenue /fficer $ntonio $luCuin*(20) There is also no denyin. that 4ony incurred advertisin. e#pense* $luCuin testified that advertisin. co-panies issued invoices in the na-e of 4ony and the latter paid for the sa-e* (21)6ndu0ita0ly, 4ony incurred and paid for advertisin. e#penseF services* >here the -oney ca-e fro- is another -atter all to.ether 0ut will definitely not chan.e said fact* The "6! further ar.ues that 4ony itself ad-itted that the rei-0urse-ent fro- 464 was inco-e and, thus, ta#a0le* 6n support of this, the "6! cited a portion of 4ony=s protest filed 0efore it:
The f#$t th#t !'e to #!verse e$ono%i$ $on!itions, >ony(>in.#pore h#s .r#nte! to o'r $&ient # s'bsi!y e<'iv#&ent to the &#tter9s #!vertisin. e)penses wi&& not #ffe$t the v#&i!ity of the inp't t#)es fro% s'$h e)penses Th's, #t the %ost, this is #n #!!ition#& in$o%e of o'r $&ient s'bDe$t to in$o%e t#) We s'b%it f'rther th#t o'r $&ient is not s'bDe$t to 7AT on the s'bsi!y in$o%e #s this w#s not !erive! fro% the s#&e of .oo!s or servi$es
A44B

6nsofar as the a0ove--entioned su0sidy -ay 0e considered as inco-e and, therefore, su0Gect to inco-e ta#, the "ourt a.rees* However, the "ourt does not a.ree that the sa-e su0sidy should 0e su0Gect to the 10@ 7$T* To 0e.in with, the said su0sidy ter-ed 0y the "6! as rei-0urse-ent was not even e#clusively ear-arked for 4ony=s advertisin. e#pense for it was 0ut an assistance or aid in view of 4ony=s dire or adverse econo-ic conditions, and was only DeCuivalent to the latter=s ?4ony=sA advertisin. e#penses*E 4ection 101 of the Ta# "ode e#plains when 7$T -ay 0e i-posed or e#acted* Thus:

>E" *05 Value-added Tax on Sale o Good! o" P"o#e"$%e!. ?A@ R#te #n! :#se of T#) F There sh#&& be &evie!, #ssesse! #n! $o&&e$te! on every s#&e, b#rter or e)$h#n.e of .oo!s or properties, v#&'e( #!!e! t#) e<'iv#&ent to ten per$ent ?*0;@ of the .ross se&&in. pri$e or .ross v#&'e in %oney of the .oo!s or properties so&!, b#rtere! or e)$h#n.e!, s'$h t#) to be p#i! by the se&&er or tr#nsferor

Thus, there -ust 0e a sale, 0arter or e#chan.e of .oods or properties 0efore any 7$T -ay 0e levied* "ertainly, there was no such sale, 0arter or e#chan.e in the su0sidy .iven 0y 464 to 4ony* 6t was 0ut a dole out 0y 464 and not in pay-ent for .oods or properties sold, 0artered or e#chan.ed 0y 4ony* 6n the case of CIR ! Co"rt o# A$$ea%& (CA),(28) the "ourt had the occasion to rule that services rendered for a fee even on rei-0urse-ent-on-cost 0asis only and without reali<in. profit are also su0Gect to 7$T* The case, however, is not applica0le to the present case* 6n that case, "/M$4&!"/ rendered service to its affiliates and, in turn, the affiliates paid the for-er rei-0urse-ent-on-cost which -eans that it was paid the cost or e#pense that it incurred althou.h without profit* This is not true in the present case* 4ony did not render any service to 464 at all* The services rendered 0y the advertisin. co-panies, paid for 0y 4ony usin. 464 dole-out, were for 4ony and not 464* 464 Gust .ave assistance to 4ony in the a-ount eCuivalent to the latter=s advertisin. e#pense 0ut never received any .oods, properties or service fro- 4ony* !e.ardin. the deficiency &>T assess-ent, -ore particularly 4ony=s co--ission e#pense, the "6! insists that said deficiency &>T assess-ent is su0Gect to the ten percent ?10@A rate instead of the five percent ? @A citin. !evenue !e.ulation +o* 2-,9 dated $pril 17, 1,,9*(22) The said revenue re.ulation provides that the 10@ rate is applied when the recipient of the co--ission inco-e is a natural person* $ccordin. to the "6!, 4ony=s schedule of 4ellin., Ieneral and $d-inistrative e#penses shows the co--ission e#pense as Dco--issionFdealer sales-an incentive,E e-phasi<in. the word sales-an* /n the other hand, the application of the five percent ? @A rate 0y the "T$3irst Division is 0ased on 4ection 1?.A of !evenue !e.ulations +o* 1-9 which provides:
?.@ A%o'nts p#i! to $ert#in :ro-ers #n! A.ents F On .ross p#y%ents to $'sto%s, ins'r#n$e, re#& est#te #n! $o%%er$i#& bro-ers #n! #.ents of profession#& entert#iners F five per $ent'% ?2;@ A42B

6n denyin. the very sa-e ar.u-ent of the "6! in its -otion for reconsideration, the "T$-3irst Division, held:

) ) ), $o%%ission e)pense is in!ee! s'bDe$t to *0; withho&!in. t#) b't p#y%ents %#!e to bro-er is s'bDe$t to 2; withho&!in. t#) p'rs'#nt to >e$tion *?.@ of Reven'e Re.'&#tions No 5(32 Whi&e the $o%%ission e)pense in the s$he!'&e of >e&&in., Gener#& #n! A!%inistr#tive e)penses s'b%itte! by petitioner ?>PI@ to the :IR is $#ptione! #s I$o%%issionH!e#&er s#&es%#n in$entiveJ the s#%e !oes not D'stify the #'to%#ti$ i%position of f&#t *0; r#te As ite%iGe! by petitioner, s'$h e)pense is $o%pose! of I"o%%ission E)penseJ in the #%o'nt of P*0,400 00 #n! K:ro-er De#&er9 of P4,3+8,,+, 00 A45B

The "ourt a.rees with the "T$-&' when it affir-ed the "T$-3irst Division decision* 6ndeed, the applica0le rule is !evenue !e.ulations +o* 19 , as a-ended 0y !evenue !e.ulations +o* 12-,2, which was the applica0le rule durin. the su0Gect period of e#a-ination and assess-ent as specified in the ;/$* !evenue !e.ulations +o* 2-,9, cited 0y the "6!, was only adopted in $pril 1,,9 and, therefore, cannot 0e applied in the present case* 'esides, the withholdin. ta# on 0rokers and a.ents was only increased to 10@ -uch later or 0y the end of July 2001 under !evenue !e.ulations +o* 1-2001*(27) Bntil then, the rate was only @* The "ourt also affir-s the findin.s of 0oth the "T$-3irst Division and the "T$-&' on the deficiency &>T assess-ent on the rental deposit* $ccordin. to their findin.s, 4ony incurred the su0Gect rental deposit in the a-ount of 510, 28,921*,, only fro- January to March 1,,9* $s stated earlier, in the a0sence of the appropriate ;/$ specifyin. the covera.e, the "6!=s deficiency &>T assess-ent fro- January to March 1,,9, is not valid and -ust 0e disallowed* 3inally, the "ourt now proceeds to the third .round relied upon 0y the "6!* The "6! initially assessed 4ony to 0e lia0le for penalties for 0elated re-ittance of its 3>T on royalties ?iA as of Dece-0er 1,,7J and ?iiA for the period fro- January to March 1,,9* $.ain, the "ourt a.rees with the "T$-3irst Division when it upheld the "6! with respect to the royalties for Dece-0er 1,,7 0ut cancelled that fro- January to March 1,,9* The "6! insists that under 4ection 8 (29) of !evenue !e.ulations +o* (2,) 92 and 4ections 2* 7*2 and 2* 9?$A?2A?aA of !evenue !e.ulations +o* 2-,9, 4ony should also 0e -ade lia0le for the 3>T on royalties fro- January to March of 1,,9* $t the sa-e ti-e, it downplays the relevance of the Manufacturin. ;icense $.ree-ent ?M;$A 0etween 4ony and 4ony-Japan, particularly in the pay-ent of royalties* The a0ove revenue re.ulations provide the -anner of withholdin. re-ittance as well as the pay-ent of final ta# on royalty* 'ased on the sa-e, 4ony

is reCuired to deduct and withhold final ta#es on royalty pay-ents when the royalty is paid or is paya0le* $fter which, the correspondin. return and re-ittance -ust 0e -ade within 10 days after the end of each -onth* The Cuestion now is when does the royalty 0eco-e paya0leK Bnder $rticle X? A of the M;$ 0etween 4ony and 4ony-Japan, the followin. ter-s of royalty pay-ents were a.reed upon:
?2@Within two ?4@ %onths fo&&owin. e#$h se%i(#nn'#& perio! en!in. ='ne 10 #n! De$e%ber 1*, the LI"EN>EE sh#&& f'rnish to the LI"EN>OR # st#te%ent, $ertifie! by #n offi$er of the LI"EN>EE, showin. <'#ntities of the EODEL> so&!, &e#se! or otherwise !ispose! of by the LI"EN>EE !'rin. s'$h respe$tive se%i(#nn'#& perio! #n! #%o'nt of roy#&ty !'e p'rs'#nt this ARTI"LE L therefore, #n! the LI"EN>EE sh#&& p#y the roy#&ty here'n!er to the LI"EN>OR $on$'rrent&y with the f'rnishin. of the #bove st#te%ent A10B

>ithal, 4ony was to pay 4ony-Japan royalty within two ?2A -onths after every se-i-annual period which ends in June 80 and Dece-0er 81* However, the "T$-3irst Division found that there was accrual of royalty 0y the end of Dece-0er 1,,7 as well as 0y the end of June 1,,9* Iiven this, the 3>Ts should have 0een paid or re-itted 0y 4ony to the "6! on January 10, 1,,9 and July 10, 1,,9* Thus, it was correct for the "T$-3irst Division and the "T$-&' in rulin. that the 3>T for the royalty fro- January to March 1,,9 was seasona0ly filed* $lthou.h the royalty fro- January to March 1,,9 was well within the se-i-annual period endin. June 80, which -eant that the royalty -ay 0e paya0le until $u.ust 1,,9 pursuant to the M;$, the 3>T for said royalty had to 0e paid on or 0efore July 10, 1,,9 or 10 days fro- its accrual at the end of June 1,,9* Thus, when 4ony re-itted the sa-e on July 9, 1,,9, it was not yet late* 6n view of the fore.oin., the "ourt finds no reason to distur0 the findin.s of the "T$-&'* 6(EREFORE, the petition is +ENIE+. SO OR+ERE+*

8OSE CATRAL MEN+OFA $ssociate Justice

Desi.nated as additional -e-0er in lieu of Justice $ntonio &duardo '* +achura per raffle dated $pril 12, 2010* 5enned 0y $ssociate Justice ;ovell !* 'autista with 5residin. Justice &rnesto D* $costa and $ssociate Justices Juanito "* "astaLeda, &rlinda 5* By, "aesar $* "asanova and /l.a 5alanca-&nriCue<, concurrin.* (2) 5enned 0y 5residin. Justice &rnesto D* $costa with $ssociate ;ovell !* 'autista, concurrin.* (8) Ro%%o, pp* ,-10*
(1)

(2) ( ) (1)

6d* at 10-11* 6d* 6d* at 12* (7) 6d* (9) 6d* at 22* (,) 6d* at 98-92* (10) 6d* at 91* (11) 6d* at 28* (12) 6d* at 11-17* (18) 6d* at 2 8* (12) 6d* at 17-19* (1 ) +ational 6nternal !evenue "odeJ 4&"* 18* A&!-or"!0 o/ . Reve#&e O//"@er. G 4u0Gect to the rules and re.ulations to 0e prescri0ed 0y the 4ecretary of 3inance, upon reco--endation of the "o--issioner, a !evenue /fficer assi.ned to perfor- assess-ent functions in any district -ay, )&r%&.#! !o . Le!!er o/ A&!-or"!0 issued 0y the !evenue !e.ional Director, eC.m"#e !.C).0er% >"!-"# !-e H&r"%*"@!"o# o/ !-e *"%!r"@! "# or*er !o @oAAe@! !-e @orre@! .mo&#! o/ !.C, or !o re@omme#* !-e .%%e%%me#! o/ .#0 *e/"@"e#@0 !.C *&e in the sa-e -anner that the said acts could have 0een perfor-ed 0y the !evenue !e.ional Director hi-self* ?e-phasis suppliedA (11) !evenue Me-orandu- /rder +o* 28-,0 dated 4epte-0er 20, 1,,0, a-endin. !evenue Me-orandu- /rder +o* 87-,0 prescri0in. revised .uidelines for &#a-ination of !eturns and 6ssuance of ;etters of $uthority to $udit, ro%%o, p* 21* (17) 6d* at 21* (19) 6d* at 12* (1,) +ational 6nternal !evenue "odeJ 4&"* 110* T.C Cre*"!%. G $* ?1A "redita0le 6nput Ta#* % A#0 "#)&! !.C ev"*e#@e* b0 . VAT "#vo"@e or o//"@".A re@e")! "%%&e* "# .@@or*.#@e >"!- Se@!"o# 11; hereof on the followin. transactions shall 0e credita0le a.ainst the output ta#: 5urchase or i-portation of .oods:

?aA # # #* IbJ &r@-.%e o/ %erv"@e% o# >-"@- . v.A&e$.**e* !.C -.% bee# .@!&.AA0 )."*. # # #* The ter- M"#)&! !.C= -eans !-e v.A&e$.**e* !.C *&e /rom or )."* b0 . VAT$reE"%!ere* )er%o# "# !-e @o&r%e o/ -"% !r.*e or b&%"#e%% o# i-portation of .oods or local purchase of .oods or %erv"@e%, includin. lease or use of property, fro- a 7$T-re.istered person* 6t shall also include the transitional input ta# deter-ined in accordance with 4ection 111 of this "ode* # # #* ?e-phasis suppliedA
(20) (21)

Ro%%o, p* 11J T4+, 3e0ruary 27, 2008, pp* 88-82 and 81* 6d* at 19J T4+, 3e0ruary 27, 2008, pp* - 9* (22) 6d* at 22* (28) CIR ! CA, 89 5hil* 97 ?2000A* (22) Ro%%o, p* 22* (2 ) 6d* at 7 * (21) 6d* at 99* (27) 6d* at 2* (29) !evenue !e.ulations +o* -92 4ection 8* Ti-e of >ithholdin.* % The o0li.ations of the payor to deduct and withhold under these re.ulations arises at ti-e inco-e which su0Gect to withholdin. under 4ection 1 hereof is paya0le or paid* (2,) !evenue !e.ulations +o* 2-,9 4ection 2* 7*2* Ti-e of >ithholdin.* % The o0li.ation of the payor to deduct and withhold the ta# under 4ection 2* 7 of these re.ulations arises at the ti-e an inco-e is paid or paya0le, whichever co-es first* The ter- Dpaya0leE refers to the date of the o0li.ation 0eco-e due, de-anda0le or le.ally enforcea0le* 4ection 2* 9 !eturns and 5ay-ent of Ta#es >ithheld at 4ource* % ?$A Monthly return and pay-ent of ta#es withheld at source* ### ?2A >hen to 3ile % (80) Ro%%o, p* 91*