G.R. Nos. 225750-51, July 28, 2020
Kepco Philippines Corporation, Petitioner, vs. Commissioner of Internal Revenue, Respondent.
FACTS
Kepco Philippines Corporation (Kepco) received a Final Letter of Demand for deficiency taxes for taxable year 2006. It filed a protest and subsequently a petition before the Court of Tax Appeals (CTA) Division (CTA Case No. 8112). The CTA Division partly granted Kepco’s petition, cancelling the deficiency final withholding tax assessment but ordering payment of deficiency VAT. Both parties filed motions for reconsideration, which were denied. Kepco elevated the case to the CTA En Banc via a Petition for Review filed on May 5, 2014. The CTA En Banc, in a Decision dated November 26, 2015, dismissed Kepco’s petition for being filed out of time and granted the CIR’s petition, thereby upholding the assessments. Kepco’s motion for reconsideration was denied on July 11, 2016. Kepco then filed a Petition for Review before the Supreme Court on August 3, 2016. During the pendency of this petition, Kepco filed a Manifestation stating it had entered into a compromise agreement with the CIR on its tax assessments for 2006, 2007, and 2009. For 2006, Kepco paid P134,193,534.12 and attached a Certificate of Availment issued by the CIR on December 11, 2017, certifying the National Evaluation Board’s (NEB) approval. Kepco moved to declare the case closed. The Office of the Solicitor General (OSG) opposed, arguing the compromise was invalid for failing to allege grounds under revenue regulations, lacking “doubtful validity,” and for Kepco’s alleged failure to pay the full compromise amount upon application. The OSG also claimed a 5% success fee under R.A. No. 9417. The CIR filed a Reply supporting the compromise’s validity.
ISSUE
Whether the compromise agreement entered into between Kepco and the CIR is valid and renders the case closed and terminated.
RULING
Yes. The Supreme Court granted Kepco’s motion and ruled in favor of the compromise. The CIR has the explicit power under Section 204(A) of the National Internal Revenue Code to compromise assessments on grounds of doubtful validity or financial incapacity. Kepco’s case falls under the ground of “doubtful validity” as enumerated in Revenue Regulations No. 30-2002, as amended, specifically paragraph (e), which applies when a taxpayer fails to elevate an adverse decision (including a deemed denial due to CIR inaction) to the CTA within 30 days and there is reason to believe the assessment lacks legal/factual basis. Here, Kepco’s assessment became final due to its failure to timely appeal the CIR’s deemed denial to the CTA. The Court found the compromise procedurally sound: Kepco paid the required 40% minimum of the basic assessed tax for doubtful validity cases, its application was evaluated by the BIR’s Technical Working Group and Large Taxpayers Service-Evaluation Board, and was ultimately approved by the NEB, with the CIR issuing the Certificate of Availment. The OSG’s objections were overruled. The compromise, having been duly approved, has the effect of res judicata. Consequently, the deficiency tax assessment for 2006 is considered closed. The OSG’s claim for a 5% success fee was denied as the compromise was between Kepco and the CIR, and the OSG was not a party to it.
