CASE DIGEST: CHINA BANKING CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE GR. No. 172509. February 4, 2015

FACTS: 

CBC is a universal bank duly organized and existing under the laws of the Philippines. For the taxable years 1982 to 1986, CBC was engaged in the transaction involving sales of foreign exchange to the Central Bank of the Philippines, now Bangko Sentral ng Pilipinas, commonly known as SWAP transactions. Petitioner did not file tax returns or pay tax on the SWAP transactions for those taxable years.

In 1989, CBC received an assessment from BIR finding CBC liable for deficiency on the sales of foreign bills of exchange to the Central Bank. In the same year, CBC, through its vice president sent a letter of protest to the BIR raising their defenses and requested a reinvestigation so as to substantiate it's assertions. 

In 2001, more than 12 yrs after the filing of protest, the CIR rendered a decision reitering the deficiency Documentary Stamp Tax (DST) assessment and ordered payment thereof plus increments. 

TAXPAYER'S ARGUMENTS : 

CBC via Rule 45 petition comes to the court invoking for the first time the argument of prescription. CBC states that the government has 3 years from 1989, the date the CBC received the assessment of the CIR, to collect the tax. That within that time frame, however, neither a warrant of distraint nor levy was issued and no collection case filed in the court.

GOVERNMENT'S ARGUMENTS : 

 

CIR argues that the prescription issue cannot be raised for the first time on appeal. The CIR further alleges that even assuming that the issue of prescription can be raised, the protest letter interrupted the prescriptive period to collect the assessed DST. 

ISSUE : 

Whether BIR's right to collect the assessed DST may be barred by prescription. 

RULING: 

BIR's right to collect the assessed DST is barred by the statute of limitations. 

When BIR issued the assessment for deficiency DST in 1989, the applicable rule was Sec. 319(c) of the NIRC, as amended which provides 3 years time limit for the government to collect the assessed tax, to be reckoned from the date when the BIR mails / releases / sends the assessment notice to the taxpayer. Further, it also provides that the assessed tax must be collected by distraint or levy and/or court proceedings within the three year period. The record of this case shows that neither levy nor distraint was issued to the taxpayer. BIR only demanded taxpayers almost 13 years from the date from which the prescriptive period is to be reckoned. The BIR's demand/ answer in the case filed before the CTA is not the one that is qualified as a collection case as required by law. Under the rule prevailing at that time, the BIR's answer must be filed not with CTA, But with the regular courts because the latter has jurisdiction over judicial action for collection of internal revenue taxes. 

The request by the taxpayer for reinvestigation of the assessment will not suspend the running of the statute of limitations on that act alone, this must be granted by the CIR. In this case, however, there is no showing that CIR ever granted CBC's request. 

PERSONAL END NOTE: 

Section 319 of the 1977 tax code, as amended provides a 3 year time limit from the receipt by the taxpayer of it's assessment to file an action to collect, to serve a warrant of distraint or to levy taxes, otherwise the right to collect taxes by the BIR will be barred by prescription.

This case clarifies also that prior to April 23, 2004, or when RA 9282 took effect, the rule prevailing is that the filing of collection cases is in the regular courts because prior to the enactment of RA 9282, CTA had not yet acquired jurisdiction over actions for collection of internal revenue taxes. 

This case also listed down requirements when the fling of protest by the taxpayer suspend the running prescriptive period. First, there must be a protest or request for reinvestigation, and second, there must be an action on the part of the BIR that they granted such reinvestigation request.