PHILIPPINE NATIONAL OIL COMPANY vs CA

G.R. No. 109976

April 26, 2005
Facts:
Savellanos sworn statement informed the BIR that PNB had failed to withhold the 15% final tax
on interest earnings and/or yields from the money placements of PNOC with the said bank, in
violation of Presidential Decree (P.D.) No. 1931. P.D. No. 1931 withdrew all tax exemptions of
government-owned and controlled corporations.
In a 1986 letter, the BIR requested PNOC to settle its liability for taxes on the interests earned by
its money placements with PNB and which PNB did not withhold. PNOC proposed to set-off its
tax liability against a claim for tax refund/credit of the National Power Corporation then pending
with the BIR, in the amount of P335,259,450.21. This was not accepted by the BIR.
PNOC made another offer to the BIR to settle its tax liability. This time, however, PNOC
proposed a compromise by paying P91,003,129.89, representing 30% of the P303,343,766.29
basic tax, in accordance with the provisions of Executive Order No. 44. Executive Order No. 44,
on which the compromise agreement was predicated, set the parameters for the grant of tax
amnesty.
The BIR Commissioner in a letter, accepted the compromise.
Private respondent Savellano, through four installments, was paid the informer's reward in the
total amount of P14,093,321.89, representing 15% of the P93,955,479.12 tax collected by the
BIR from PNOC and PNB. He received the last installment on 01 December 1987.
Savellano, through his legal counsel, wrote the BIR to demand payment of the balance of his
informer's reward. Savellano also questioned the legality of the compromise agreement entered
into by the BIR and PNOC and claimed that the tax liability should have been collected in full.
The CTA later on declared the compromise agreement entered into between the BIR and PNOC
as without any force and effect and that upon payment by PNOC, Savellano was entitled to the
balance of his informers reward
Issues:
1. Whether or not the compromise agreement between the BIR and PNOC valid?
2. Whether or not the CTA finding that the deficiency withholding tax assessment against
PNB was already final and unappealable and unenforceable valid?
3. Whether or not Savellano is entitled to his additional informers reward
Held:

1. NO. The compromise agreement between PNOC and BIR is void for being contrary to
law and public policy. PNOC could not apply for a compromise under E.O. 44 because its
tax liability was not a delinquent account or a disputed assessment. PNOCs tax liability
could not be considered a delinquent account because it was not self-assessed as the BIR
conducted an investigation after receiving information from Savellano. Nor is there a
deficiency assessment present. Neither PNOC or PNB conducted self-assessment, and
neither was there any tax assessment issued by the BIR. PNOC and PNB were both silent
about their tax liabilities until they were assessed thereon. Any attempt by PNOC and
PNB to assess and declare by themselves their tax liabilities had already been overtaken
by the BIR's conduct of its audit and investigation and subsequent issuance of the
assessments, against PNOC and PNB, respectively. Evidently, E.O. No. 44 applies only to
'disputed assessment or delinquent account pending as of December 31, 1985. This is not
an executive issuance meant to give blanket authority on the Commissioner of Internal
Revenue to compromise away tax liabilities. In fact, the 'cut-off period stipulated in the
executive order refers to a date nine months prior to the date of the promulgation of the
issuance, 4 September 1986.
2. YES. The withholding tax assessment against PNB had become final and unappealable.
The CTA and the CA declared as final and unappealable the assessment against PNB
since PNB failed to protest it within the 30-day prescribed period.
3. YES. Savellano is entitled to be paid the remainder of his informers reward. Savellano is
entitled to additional informers award since the BIR had already collected the full
amount of the tax assessment against PNB.