The Court of Tax Appeals (CTA) has whittled down the P89.82-million tax bill of a Lucio Tan tobacco company to just P199,415.80 plus interest.
In a 36-page decision, the tax court’s Third Division partially granted the petition of Northern Tobacco Redrying Co. Inc. (NTRCI) questioning the Bureau of Internal Revenue’s assessment made through a Dec. 16, 2013 formal letter of demand.
Bulk of the disallowed tax arose from NTRCI’s Feb. 25, 2010 deed of transfer, in which it swapped some of its land in Ilocos Norte in exchange for 5,722 common shares (a 0.6-percent stake) in Fortune Landequities and Resources Inc., another Tan company.
The court agreed with NTRCI that the property-share swap was a tax-free transaction. It rejected the government’s claim that the firm should have secured first a BIR ruling certifying that it could enjoy the benefit of nonrecognition of gain under or loss under Section 40(c)(2) of the National Internal Revenue Code.
“There is nothing explicitly requiring a party, in exchanging property for shares of stocks, to first secure a BIR confirmatory certification or tax ruling before it can avail itself of tax exemption,” the decision read.
Since the swap was declared tax-free, this meant the cancellation of P10.55-million value-added tax and P61.6-million improperly accumulated earnings tax.
The decision also greatly reduced the assessments of P14.91-million income tax to only P157,663.18 due on miscellaneous expenses and disallowed untaxed salaries.
The withholding tax on compensation and expanded withholding tax on various employee benefits amounting to P368,726.10 was reduced to P1,869.46, because the assessment of most of the tax was not made within the required three-year period.
All in all, this meant NTRCI only has to pay a liability of P199,415.80 inclusive of a 25-percent surcharge. The firm is also liable for 20-percent deficiency interest on the basic tax excluding the surcharge and 20-percent delinquency interest on the total imposition./rga
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