G.R. No. 197117, April 10, 2013
FIRST LEPANTO TAISHO INSURANCE CORPORATION (now FLT Prime Insurance Corporation), Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent.

FACTS

Petitioner, a non-life insurance corporation classified as a Large Taxpayer, received deficiency tax assessments from the Commissioner of Internal Revenue (CIR) for the taxable year 1997, covering income, withholding, expanded withholding, final withholding, value-added, and documentary stamp taxes. Petitioner protested the assessments. During the proceedings before the Court of Tax Appeals (CTA) Second Division, petitioner availed of a tax amnesty for some assessments, leading to a partial withdrawal of its petition. The CTA Second Division partially granted the petition, ordering petitioner to pay a reduced deficiency tax liability of ₱1,994,390.86 for withholding tax on compensation, expanded withholding tax, and final tax. Petitioner’s motion for reconsideration was denied. On appeal, the CTA En Banc affirmed the CTA Second Division’s decision. Petitioner contended it was not liable for: (1) withholding tax on compensation for directors’ bonuses, arguing directors were not employees and the bonuses were already subject to expanded withholding tax; (2) deficiency expanded withholding taxes on various expenses (transportation, subsistence and lodging, representation, commissions, direct loss, occupancy costs, and service/contractor purchases), claiming insufficient evidence or proper withholding; (3) deficiency final withholding taxes on dividend payments and computerization expenses to foreign entities, alleging remittance; and (4) delinquency interest. The CTA En Banc rejected these arguments, prompting this petition.

ISSUE

Whether the CTA En Banc erred in holding petitioner liable for:
a. Deficiency withholding taxes on compensation for directors’ bonuses;
b. Deficiency expanded withholding taxes on specified expenses;
c. Deficiency final withholding taxes on payments to foreign entities; and
d. Delinquency interest under Section 249(c)(3) of the 1997 National Internal Revenue Code.

RULING

The Supreme Court DENIED the petition and AFFIRMED the CTA En Banc decision. The Court held:
1. On directors’ bonuses: For taxation purposes, a director is considered an employee under Section 5 of Revenue Regulation No. 12-86, regardless of being listed in the company’s Alpha List. The nature of the work performed determines the imposition of withholding tax on compensation. Revenue Regulation No. 2-98, which petitioner cited, could not be applied retroactively to the 1997 taxable year.
2. On expanded withholding taxes: Petitioner failed to substantiate its claims. For transportation, subsistence, lodging, and representation expenses, it did not provide supporting documents like receipts to prove these were reimbursements for actual expenses. For commission expenses, it presented no evidence, such as reinsurance contracts, to show these were from reinsurance activities exempt from withholding tax. For occupancy costs, it failed to compute the correct taxable amount. For service/contractor purchases, stipulations between parties cannot override the State’s right to collect correct taxes.
3. On final withholding taxes: Petitioner failed to present proof of remittance for the final tax on dividends paid and payments for services to the foreign entity, Matsui Marine & Fire Insurance Co. Ltd.
4. On delinquency interest: The imposition was proper under Section 249(c)(3) of the 1997 NIRC, as petitioner failed to pay the deficiency taxes within 30 days from receipt of the demand letter.
The Court emphasized that tax statutes are not liberally construed and that findings of the CTA, a specialized court, are accorded great respect absent clear reversible error.