COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. MCDONALD'S PHILIPPINES REALTY CORP., RESPONDENT. DECISION

COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. MCDONALD'S PHILIPPINES REALTY CORP., RESPONDENT. DECISION

The practice of reassigning or transferring revenue officers originally named in the Letter of Authority and substituting or replacing them with new revenue officers to continue the audit or investigation without a separate or amended Letter of Authority violates the taxpayer's right to due process in tax audit or investigation, usurps the statutory power of the Commissioner of Internal Revenue or his duly authorized representative to grant the power to examine the books of account of a taxpayer, and does not comply with existing Bureau of Internal Revenue rules and regulations on the requirement of a Letter of Authority in the grant of authority by the Commissioner of Internal Revenue or his duly authorized representative to examine the taxpayer's books of accounts.

This Petition for Review on Certiorari under Rule forty-five of the Rules of Court seeks to set aside the Decision dated January four, twenty eighteen, and the Resolution dated September twenty-seven, twenty eighteen of the Court of Tax Appeals En Banc in CTA EB Number fifteen thirty-five, which affirmed the CTA Division's Decision dated June one, twenty sixteen and the Resolution dated October three, twenty sixteen in CTA Case Number eight six five five, invalidating the sixteen million two hundred twenty-nine thousand five hundred six point eight three assessment of deficiency value-added tax for calendar year two thousand six against the respondent.

The Facts

The Commissioner of Internal Revenue, petitioner, is the duly appointed Commissioner of the Bureau of Internal Revenue, with the authority to carry out the functions, duties and responsibilities of the said office under the National Internal Revenue Code of nineteen ninety-seven, as amended, including the power to decide disputed assessments. The petitioner holds office at the Bureau of Internal Revenue National Office Building, Agham Road, Diliman, Quezon City.

McDonald's Philippines Realty Corporation, respondent, is a corporation organized and existing under the laws of Delaware, USA, and is licensed to do business in the Philippines through its branch office, with office address at seventeenth Floor, Citibank Center Building, Paseo de Roxas, Salcedo Village, Makati City.

Respondent established its branch office in the Philippines for the purpose of purchasing and leasing back two existing McDonald's Restaurants to Golden Arches Development

Corporation, and to engage in the development of new McDonald's restaurant sites, which would then be leased to McGeorge Foods, Incorporated.

On August thirty-one, two thousand seven, the Bureau of Internal Revenue Large Taxpayers Service issued Letter of Authority Number zero zero zero zero six seven one seven (August thirty-one, two thousand seven Letter of Authority) to the following revenue officers: Eulema Demadura, Lover Loveres, Josa Gomez, and Emalyn dela Cruz. The Letter of Authority authorized the said revenue officers to examine the books of accounts and other accounting records of the respondent for all internal revenue taxes for January one, two thousand six to December thirty-one, two thousand six.

On December two, two thousand eight, the Bureau of Internal Revenue transferred the assignment of Demadura and, pursuant to Referral Memorandum Number one two two dash Letter of Authority one two zero eight dash zero zero zero three nine, directed and designated Rona Marcellano to continue the audit of the respondent's books of accounts.

No new Letter of Authority was issued in the name of Marcellano to continue the conduct of audit of the respondent's books of accounts. Moreover, the August thirty-one, two thousand seven Letter of Authority was not amended or modified to include the name of Marcellano. The referral memorandum states that Marcellano will continue the pending audit of Demadura pursuant to the August thirty-one, two thousand seven Letter of Authority.

On January twenty-five, two thousand eleven, the petitioner issued a Formal Letter of Demand dated January eleven, two thousand eleven to the respondent. The Formal Letter of Demand demands payment of deficiency income tax and value-added tax liabilities for calendar year two thousand six in the aggregate amount of seventeen million four hundred eighty-six thousand two hundred twenty-four point three eight, inclusive of interest.

On February twenty-three, two thousand eleven, the respondent filed a protest letter with the petitioner, requesting the cancellation and withdrawal of the deficiency income tax and value-added tax assessments for calendar year two thousand six.

On April eighteen, two thousand thirteen, the petitioner issued the Final Decision on Disputed Assessment. The Final Decision on Disputed Assessment granted the respondent's request for cancellation of deficiency income tax assessments for calendar year two thousand six, and reiterated the petitioner's demand for payment of the respondent's deficiency value-added tax for calendar year two thousand six in the total amount of sixteen million two hundred twenty-nine thousand five hundred six point eight three.

On May twenty, two thousand thirteen, the respondent filed a petition for review with the Court of Tax Appeals Division. The Court of Tax Appeals Division declared the calendar year two thousand six assessment void on the ground that Marcellano was not authorized by way of a Letter of Authority to investigate the books of accounts of the respondent. The petitioner filed a motion for reconsideration with the Court of Tax Appeals Division. The Court of Tax Appeals Division denied the motion.

On November seven, two thousand sixteen, the petitioner filed a petition for review with the Court of Tax Appeals En Banc. The Court of Tax Appeals En Banc denied the petition for lack of merit.