G.R. No. 191856, December 07, 2016
Republic of the Philippines, represented by the Bureau of Internal Revenue (BIR), Petitioner, v. GMCC United Development Corporation, Jose C. Go, and Xu Xian Chun, Respondents.

FACTS

On March 28, 2003, the BIR issued a Letter of Authority to examine the books of accounts of GMCC United Development Corporation (GMCC) for taxable years 1998 and 1999. GMCC failed to respond to this and subsequent requests, including a Subpoena Duces Tecum issued to its president, Jose C. Go. The BIR proceeded to investigate using third-party information. The investigation revealed that in 1998, GMCC, through Go, executed two dacion en pago agreements to pay for the obligations of its sister companies to a bank, which the BIR alleged GMCC failed to declare as income and as a donation subject to donor’s tax. It also discovered a 1999 sale of condominium units that was not declared in GMCC’s 1999 Audited Financial Statements. The BIR issued assessment notices, which GMCC protested on November 23, 2004, arguing prescription. On October 7, 2005, the BIR filed a criminal complaint for tax evasion (violations of Sections 254, 255, and 267 of the National Internal Revenue Code) with the Department of Justice (DOJ) against GMCC and its officers. The DOJ dismissed the complaint, finding no probable cause and ruling the period to assess had prescribed. The Court of Appeals affirmed the DOJ’s dismissal. The BIR appealed, insisting the ten-year prescriptive period under Section 222 of the NIRC applied, not the three-year period.

ISSUE

1. Whether the Court of Appeals erred in affirming the DOJ’s finding of no probable cause to file the tax evasion case.
2. Whether the applicable prescriptive period for the tax assessment is the ten-year period or the three-year period.

RULING

The Supreme Court denied the petition. On the first issue, it found no reversible error in the appellate court’s affirmation of the DOJ’s finding of no probable cause. The Court agreed there was no clear showing of deliberate intent to evade taxes, noting that if there was such intent, the assailed transactions would have been omitted from all financial statements, not just from one year’s statement but reflected in another’s (e.g., the 2000 Financial Statement). On the second issue, the Court ruled that the three-year prescriptive period under Section 203 of the NIRC applied. For the ten-year period under Section 222 to apply, the BIR must prove that GMCC filed a false or fraudulent return with intent to evade tax, or that no return was filed. The BIR failed to substantiate these conditions. The returns for 1998 and 1999 were not presented as evidence, and the BIR’s allegation of fraud was based merely on GMCC’s non-declaration of the transactions in its 1998 and 1999 financial statements, which was insufficient to constitute fraud warranting the extended period. Since the BIR’s assessment was issued beyond the three-year period from the filing of the returns (presumed to have been filed on April 15, 1999, and April 15, 2000), the right to assess had prescribed. Consequently, no proceeding in court based on the prescribed assessment could be filed.