CIR v. La Flor Dela Isabela, Inc.

73. Commissioner of Internal Revenue v.
La Flor Dela It is true that withholding tax is a method of collecting tax

Isabela, Inc. in advance and that a withholding tax on income
G.R. No. 211289 14 January 2019 necessarily implies that the amount of tax withheld comes
from the income earned by the
Doctrine: taxpayer/payee. Nonetheless, the Court does not agree
with the CIR that withholding tax assessments are merely
Withholding taxes are internal revenue taxes and an imposition of a penalty on the withholding agent, and
withholding tax assessments are not merely an imposition thus, outside the coverage of Section 203 of the NIRC.
of a penalty on the withholding agent, and thus, both are
covered by section 203 of the NIRC Thus, withholding tax assessments such as EWT and
WTC clearly contemplate deficiency internal revenue
Facts: taxes. Their aim is to collect unpaid income taxes and not
merely to impose a penalty on the withholding agent for
Respondent La Flor dela Isabela, Inc. (La Flor) is a domestic its failure to comply with its statutory duty. Further, a
corporation duly organized and existing under Philippine holistic reading of the Tax Code reveals that the CIR's
Law. It filed monthly returns for the Expanded Withholding interpretation of Section 203 is erroneous. Provisions of
Tax (EWT) and Withholding Tax on Compensation (WTC) the NIRC itself recognize that the tax assessment for
for calendar year 2005. withholding tax deficiency is different and independent
from possible penalties that may be imposed for the
failure of withholding agents to withhold and remit taxes.
On September 3, 2008, La Flor, through its president,
executed a Waiver of the Statute of Limitations in
It is clear to see that the "penalties" are amounts
connection with its internal revenue liabilities for the
collected on top of the deficiency tax assessments
calendar year ending December 31, 2005. On February 16,
including deficiency withholding tax assessments. Thus, it
2009, it executed another Waiver to extend the period of
was wrong for the CIR to restrict the EWT and WTC
assessment until December 31, 2009.
assessments against La Floras only for the purpose of
imposing penalties and not for the collection of internal
On January 7, 2010, La Flor received the Formal Letter of
revenue taxes.
Demand and Final Assessment Notices. On January 15,
2010, La Flor filed its Letter of Protest contesting the
assessment notices. On July 20, 2010, petitioner
2. Waivers extending the prescriptive period of tax
Commissioner of Internal Revenue issued the Final
assessments must be compliant with RMO No. 20-90
Decision on Disputed Assessment (FDDA) involving the
and must indicate the nature and amount of the tax
alleged deficiency withholding taxes in the aggregate
due.
amount of ₱6,835,994.76. Aggrieved, it filed a petition for
review before the CTA Division.
The CIR argued that even if Section 203 of the NIRC was
applicable, the assessments against La Flor had yet to
CTA: ruled in favor of La Flor and cancelled the deficiency
prescribe. It points out that La Flor had executed three
tax assessments against it.
Waivers to extend the statutory prescriptive period. It
adds that the requirements under RMO No. 20-90 are not
CTA En Banc: affirmed the decision of the CTA.
mandatory.
Issue:
In the present case, the September 3, 2008, February 16,
2009 and December 2, 2009 Waivers failed to indicate the
1. Whether or not the prescriptive period under section
specific tax involved and the exact amount of the tax to be
203 of the NIRC applies to EWT and WTC
assessed or collected. As above-mentioned, these details
assessments. – YES
are material as there can be no true and valid agreement
2. Whether or not La Flor's EWT and WTC assessments
between the taxpayer and the CIR absent these
for 2005 were barred by prescription. – YES
information. Clearly, the Waivers did not effectively extend
the prescriptive period under Section 203 on account of
Ratio:
their invalidity. The issue on whether the CTA was correct
in not admitting them as evidence becomes immaterial
1. The Court did not equate withholding tax
since even if they were properly offered or considered by
assessments to the imposition of civil penalties
the CTA, the same conclusion would be reached — the
imposed on tax deficiencies. The word "penalty" was
assessments had prescribed as there was no valid waiver.
used to underscore the dynamics in the withholding
tax system that it is the income of the payee being
By: Rolando M. Reubal
subjected to tax and not of the withholding agent. It
was never meant to mean that withholding taxes do
not fall within the definition of internal revenue taxes,
especially considering that income taxes are the ones
withheld by the withholding agent. Withholding taxes
do not cease to become income taxes just because it
is collected and paid by the withholding agent.

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73. Commissioner of Internal Revenue v.

La Flor Dela It is true that withholding tax is a method of collecting tax

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