By Jun Ramirez
The Court of Tax Appeals (CTA) has voided the P1.4-billion deficiency tax assessments imposed by the Bureau of Internal Revenue (BIR) against the owner of Medical City for its failure to promptly notify the hospital of its alleged liabilities.
In a 24-page decision, the court’s Second Division stated that the three-year prescriptive period had already elapsed when the BIR issued a Letter of Authority (LA) to investigate in 2012 so that it could collect deficiency income and value-added taxes from the Professional Services, Inc.(PSI)
The BIR argued that the 10-year prescriptive period should be applied under Section 222 of the Tax Code because PSI allegedly submitted false returns arising from the sale of its lot in Ortigas Center, Mandaluyong City in 2007 to Robinsons Land Corporation for P1 billion.
The BIR said PSI escaped from paying correct taxes by declaring the transaction as the sale of capital asset (not used in business), and paid only the lower capital gains and documentary taxes, instead as ordinary asset (used in business) subject to the higher income tax and VAT.
The BIR added that PSI leased the lot as an area for parking for two years before it was sold, making it an ordinary asset.
But PSI pointed out that the lot was sold as capital asset as it was not into parking but hospital business.
In siding with the petitioner, the court said it found no sufficient evidence to prove fraud to warrant the application of the 10-year prescription.
“Petitioner (PSI) literally laid its cards on the table for the BIR to examine its documents. It did not conceal the sale of the subject property, as well as the leasing prior to its sale,” the court added.
It said if the intention was to evade payment of taxes, PSI would not have reported the lease and sale.
Thus, the court said Section 203 of the Tax Code should be applied, limiting the investigation to only three years upon the submission of the return, and freeing the taxpayer from endless audit and possible harassment.
The court also noted that it took the BIR almost five years to issue the final assessment notice to PSI in 2016.
The huge assessments included the 50 percent surcharge, plus the 20 percent annual interest.
A BIR lawyer said they will appeal the adverse ruling.