Cta 3D CV 08478 D 2016nov03 Ass

REPUBLIC OF THE PHILIPPINES
Court of Tax Appeals

QUEZON CITY
Third Division
HERBALIFE INTERNATIONAL CTA CASE NO. 8478

PHILIPPINES, INC.,
Petitioner, Members:
Bautista, Chairperson
versus - Fa bon-Victorino, and
Ringpis-Liban, Jl.
COMMISSIONER OF Promulgated:
INTERNAL REVENUE,
Respondent.
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DECISION
BAUTISTA, J:
The Case
Before the Court is a Petition for Reviewl filed by petitioner on

April 26, 2012, pursuant to Section 7(a)(2) 2 of Republic Act ("RA") No.
11253, as amended by RA No. 9282 4 and RA No. 95035, in relation to Rule
1 Records, CTA Case No. 8478, Vol. 1, Petition for Review, pp. 10-220, with annexes.
2 "Sec. 7. Jurisdiction.- The Court of Tax Appeals shall exercise:
(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:
(1) xxx; (2) Inaction by the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties
in relation thereto, or other matters arising under the National Internal Revenue Code or
other laws administered by the Bureau of Internal Revenue, where the National Internal
Revenue Code or other applicable law provides a specific period for action: Provided,
that in case of disputed assessments, the inaction of the Commissioner of Internal
Revenue within the one hundred eighty day-period under Section 228 of the National
Internal Revenue Code shall be deemed a denial; xxx"
3 An Act Creating the Court of Tax Appeals, as amended.
4 An Act Expanding the Jurisdiction of the Court of Tax Appeals (CTA), Elevating its Rank to the
Level of a Collegiate Court with Special Jurisdiction and Enlarging its Membership, Amending for
the Purpose Certain Sections of Republic Act No. 1125, as amended, Otherwise Known as the Law
Creating the Court of Tax Appeals, and for Other Purposes.
5 An Act Enlarging the Organizational Structure of the Court of Tax Appeals, Amending for the
Purpose Certain Sections of the Law Creating the Court of Tax Appeals, and for Other Purposes.
DECISION
CTA CASE NO. 8478
Page2 of 55
46 of the Revised Rules of the Court of Tax Appeals ('RRCTA")7, which

seeks for the Court to render judgment cancelling and withdrawing
the Formal Assessment Notice ("FAN") dated August 26, 2011 for
being invalid and without legal basis,8 covering alleged deficiency
Income Tax, Value-Added Tax ("VAT"), Expanded Withholding Tax
("EWT"), Withholding Tax on Compensation CWTC"), Final
Withholding Tax CFWT") of VAT, and Documentary Stamp Tax
("DST") for the calendar year ("CY") 2007, including increments for
late payment of WTC and Compromise Penalties. 9
The Parties
Petitioner Herbalife International Philippines, Inc. ("Herbalife")

a wholly-owned subsidiary of Herbalife International, Inc., USA,10 is
engaged in the business. of marketing and distributing nutrition,
weight management, and personal care products, mainly through
direct sellingn via its authorized Distributors.1 2 Its business address is
at G/F Goodland Bldg., 377 Gil Puyat Extension, Makati City.1 3
Respondent is the Commissioner of Internal Revenue ("CIR"),

with office address at the Bureau of Internal Revenue ("BIR") National
Office, Agham Road, Diliman, Quezon City.
The Facts
On April 14, 200814, petitioner filed its Annual Income Tax
6 "Rule 4. Jurisdiction of the Court xxx

Sec. 3. Cases within the jurisdiction of the Court in Division. - The Court in
Division shall exercise: (a) Exclusive original over or appellate jurisdiction to
review by appeal the following: (1) xxx; (2) Inaction by the Commissioner of
Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation thereto, or other matters
arising under the National Internal Revenue Code or other applicable law
provides a specific period for action: xxx"
7 A.M. No. 05-11-07-CTA, November 22,2005.
s Records, Vol. 1, Petition for Review, Prayer, p. 38.

9 Id., Pre- Trial Order, Statement of the Case, p. 466.
10 Records Box 1, Exhibit "I," Petitioner's Formal Offer of Evidence ("FOE").
11 Id., Exhibit "K-1," Judicial Affidavit of Margie B. Alabastro, Q&A 8, p. 2; Records, Vol. 2, Exhibit
"WWW," Judicial Affidavit of Lina E.Jacob, Q&A 6, p. 599.

12 Records, Vol. 2, Exhibit "WWW," Judicial Affidavit ofLina E. Jacob, Q&A 7, p. 599.
13 Records Box 1, Exhibit "B," Petitioner's FOE.

14 While the ITR has a stamp dated" APR 14 2007," this appears to be a mistake in the receipt of the
BIR and should instead read "APR 14 2008." Considering that the ITR for the year ending
December 31, 2007 is due to be filed on April15, 2008 and that the issue date of the Community
Tax Certificate ("CTC") in the 2007 ITR is on January 23, 2008, it is impossible for the ITR to be filed
on April14, 2007 with a postdated CTC. Moreover, it cannot be claimed that the 2007 ITR is the
DECISION
CTA CASE NO. 8478
Page 3 of 55
Retum1s (BIR Form No. 1702) for CY ended 2007.
On February 27, 2008, petitioner filed its Annual Information

Return of Creditable Income Taxes Withheld (Expanded)/Income
Payments Exempt from Withholding Tax1 6 (BIR Form No. 1604-E).
On June 4, 2008, respondent issued a Letter of Authority

("LOA") No. 2001 00069261 17 received by petitioner on June 5, 2008,
covering all internal revenue taxes from January 1, 2007.18
On January 4, 2010, petitioner received a Revalidation Notice

dated December 22, 2010, revalidating the LOA to replace the
previously-assigned Revenue Officer.19
On September 28,2010, petitioner received a Notice of Informal

Conference ("NIC") dated September 27, 2010.20
On December 23, 2010, respondent issued a Preliminary

Assessment Notice, ("PAN"),21 which was received22 by petitioner on
December 28,2010. 23 After asking for an extension,24 petitioner filed its
reply to the PAN on January 31,201125 and June 10, 2011 asking for a
reinvestigation of the assessment.26
On September 1, 2011, petitioner received the FAN27 dated

August 26, 2011,28 with the following details:
2006 ITR since petitioner already filed its 2006 ITR, that the 2007 ITR does not provide that it is an
amended one. Moreover, the 2007 ITR expressly provides that it is for the year ending December
2007, and a comparison of the 2006 and 2007 ITRs shows that the latter is preceded by the former
by referring to the amounts of NOLCO and Beginning/Ending Inventories. On top of this, a 2007
ITR was uncovered from the BIR Records showing a receiving stamp with "APR 15 2008" on the
2007 ITR, see BIR Records, pp. 1-33, with annex.
15 Records Box 1, Petitioner's FOE, Exhibit "I."
16 Id., Exhibits "!"and "J-1."
17 BIR Records, p. 44.
18 Records, Vol. 1, Joint Stipulation of Facts and Issues ("JSFI"), p. 284.
20 BIR Records, Exhibits "R-3," "R-3-a," "R-3-b," and "R-3-c," pp. 265-267.
21 Id., Exhibits "R-6," "R-6-a," and "R-6-b," pp. 358-363.

22 Id. at 370.
23 Records, Vol. 1, JSFI, p. 284.

2s Id. at 935-952.
27 Records Box 1, Petitioner's FOE, Exhibit "A;" BIR Records, Exhibit "R-1."
(
DECISION
CT A CASE NO. 8478
Page4of55
I. INCOME TAX ("IT")
Taxable Income per ITR [Php] 9,377,113.00

Add: Adjushnents/ disallowance per investigation
Disallowed Expenses due to Non-withholding
[Php] 83,987,344.32
(Schedule 1)
Unaccounted Expenses (Schedule 2) 3,769,289.73
Unsupported Expenses (Schedule 3) 10,105,563.00 [PhE] 97,862,197.05
Adjusted Taxable Income per investigation [PhE] 107,239,310.05
Basic Income Tax Due [Php] 37,533,758.52
Less: Allowable tax credits/payments
Prior Years' Minimum Corporate Income Tax [Php] 3,281,989.55
Creditable Tax Withheld at Source claimed per return 630,442.00
Total [Php] 3,912,431.55
Less: Excess Credits Carried Over to Succeeding Year 630,442.00 [PhE] 3,281,989.55
Deficiency Income Tax [Php] 34,251,768.97
Add: Interest (04.16.08 to 09.30.11) 23,685,332.85
TOTAL AMOUNT DUE [PhE] 57,937,101.82
II. VALUE ADDED TAX ("VAT")
Taxable Sales per VAT returns [Php] 316,188,408.80

Add: Undeclared Income from Unaccounted Expense (Schedule 2) 3,769,289.73
Taxable Sales per investigation ----"'-[P-=.h::.Lp.. _]_ _.: . . 31:. . :9. !. .,9:. . :5.: . . 7.!. .:,6.: . . 9.: . . 8.::.. .53=--
0utput Tax Due 38,394,923.83
Less: Claimed Input Tax 19,491,171.20
VAT Due [Php] 18,903,752.63
Less: Payments per BIR records (Integrated Tax System) 16,643,909.76
Deficiency Value-added Tax [Php] 2,259,842.87
Add: Interest (01.26.08 to 09.30.11) 1,662,996.70
TOTALAMOUNTDUE =[~P~h~p]b===~3~,9~22~,8~3~9.~57~
III. EXPANDED WITHHOLDING TAX29 ("EWT")
Basic Deficiency Withholding Tax (Schedule 4) [Php] 441,019.08

Add: Interest (01.16.08 to 09.30.11) 326,958.26
TOTALAMOUNTDUE ~[P~h&p]~==~%~7~,9~77~.M~
IV. WITHHOLDING TAX ON COMPENSATION ("WTC")
Basic Deficiency Withholding Tax (Schedule 5) [Php] 177,582.49

Add: Interest (01.16.08 to 09.30.11) 131,654.31
TOTALAMOUNTDUE =[bP=h~p]b===~3~09~,2~3~6.~80~
V. FINAL WITHHOLDING TAX ("FWT")
Basic Deficiency Withholding Tax (Schedule 1a) [Php] 18,255,820.35

Add: 50% Surcharge [Php] 9,127,910.18
Interest (01.16.08 to 09.30.11) 13,534,315.04 [PhE] 22,662,225.22
TOTAL AMOUNT DUE [Php] 40,918,045.57
VI. FINAL WITHHOLDING OF VAT ("FW-VAT")
Basic Deficiency Withholding Tax (Schedule 6) [Php] 3,822,424.68

Add: 50% Surcharge [Php] 1,911,212.34
Interest (01.11.08 to 09.30.11) 2,844,302.86 [PhE] 4,755,515.20
TOTAL AMOUNT DUE [Php] 8,577,939.88
VII. DOCUMENTARY STAMP TAX ("DST")

DECISION
CTA CASE NO. 8478
Page5of55
Basic Deficiency Tax (Schedule 7) [Php] 36,814.00

Add: 50% Surcharge [Php] 18,407.00
Interest (01.06.08 to 09.30.11) 27,494.52 [Php] 45,901.52
TOTAL AMOUNT DUE [Php] 82,715.52
On September 29, 2011, respondent received petitioner's Protest

Letter to the FAN30 dated September 28,2011, refuting the findings of
respondent. 31
On March 8, 2012, petitioner filed its Documentary Stamp Tax

Declaration/Return (BIR Form No. 2000) covering a lease transaction
dated February 8, 2007 with Goodland Company, Inc. as lessor.32
Due to the inaction of respondent on petitioner's protest, the

latter filed the instant Petition for Review with Motion for Suspension
of Collection of Tax33 on April26, 2012,34 which was initially raffled to
the First Division of the Court of Tax Appeals (" CTA").
On May 9, 2012, the Court issued Summons35 to respondent,

ordering her to file her Answer to the Petition for Review within fifteen
(15) days from receipt thereof. On the same date, the Court issued a
Notice of Hearing36 for the Motion for Suspension of Collection of Tax,
setting the hearing on May 15, 2012.
On the scheduled hearing, only counsel for petitioner

appeared.37 The Court denied the Motion for Suspension of Collection
of Tax for failure of petitioner to substantiate .the same with legal or
factual bases.38 This was confirmed through a Resolution39 dated May
29,2012.
On May 23, 2012, respondent filed by registered mail her Motion

for Extension of Time to File Answer4° praying for an additional period
30 Records Box 1, Petitioner's FOE, Exhibits "B" and "B-1."

32 Records Box 1, Petitioner's FOE, Exhibit "F," BIR Form No. 2000.
33 Records, Vol. 1, Petition for Review, pp. 10-220, with annexes.
34 Id., JSFI, p. 284.

35 Records, Vol. 1, Summons, p. 221.
36 Id. at 222-223.
37 Records, Vol. 1, Minutes of Hearing dated May 15, 2012, p. 224.
38 Id.
39 Id. at 226.
40 Records, Vol. 1, pp. 228-229.

I
DECISION
CT A CASE NO. 8478
Page6of55
of twenty (20) days within which to file an Answer; which was later on
granted by the Court in its June 5, 2012 Order41.
On June 13, 2012, respondent filed, by registered mail, her

Answer42 . Respondent claims that petitioner failed to submit the
required documents in support of its protest against the FAN and
Letter of Demand dated August 26, 2011 within the sixty (60) day
period from filing of its protest; that because of this, the assessed
deficiency IT, VAT, EWT, WTC, FWT, FWT - VAT, DST and
Compromise Penalty for CY 2007 has already become final, executory
and demandable, thus depriving the Court of jurisdiction to act on the
instant petition.43
Respondent also argues that assuming that the Court has

jurisdiction to act on the instant petition, petitioner failed to
substantiate or controvert by substantial evidence the BIR factual
findings, as shown under the Details of Discrepancies attached to the
FAN and Letter of Demand dated August 26, 2011, as well as the BIR
Letter dated August 26, 2011, bearing the assessed Compromise
Penalty for CY 2007. 44
Lastly, respondent asserts that she has fully complied with the
due process requirement mandated under Section 228 of the 1997
National Internal Revenue Code, as amended (u1997 NIRC"), as
implemented by Revenue Regulations ("RR") No. 12-99, when the
disputed PAN dated December 23, 2010 and FAN and Letter of
Demand dated August 26,2011 were issued; that records clearly show
that petitioner was duly afforded an opportunity to controvert the
factual findings of respondent on its deficiency taxes for CY 2007
through the issuance of a Notice for Informal Conference and PAN
dated August 26, 2011; it was also duly appraised of the factual and
legal bases of the deficiencies; and that all presumptions are in favor
of the correctness of tax assessments issued by respondent to herein
petitioner for CY 2007.45
41 Id. at 231.
42 Records, Vol. 1, Answer, pp. 232-238.
43 Id. at 233-235.
44 Id. at 235-236.
45 Id. at 236-237.
(
DECISION
CTA CASE NO. 8478
Page 7of55
On June 25, 2012, petitioner filed a Reply46. Thereafter, the Court

issued a Notice of Pre-trial Conference47 setting the Pre-Trial
Conference on July 20, 2012, which was rescheduled48 to August 3,
2012. Consequently, the parties filed their respective Pre-Trial Briefs
on July 31,201249 and August 2, 2012so.
On the scheduled Pre-trial Conferencesl, counsels for both

parties appeared, counsel for petitioner presented the Secretary
Certificate52 authorizing them to sign a Compromise Agreement of a
Pre-trial Order that may be issued, while counsel for respondent filed
his Special Power of Attorneys3 on August 10, 2012. The parties
likewise agreed to submit their Joint Stipulation of Facts and Issues
("JSFI") within fifteen (15)· days therefrom. 54
After asking for an extension of fifteen (15) days,ss on September

5, 2012, the parties, through their respective counsels, filed their JSFJ56,
which the Court approved in its Resolutions7 dated September 11,
2012.
On October 2, 2012, a Pre-trial Orderss was issued by the Court

terminating pre-trial and setting the date/ s for the presentation of
evidence by the parties.
On October 15, 2012, petitioner filed a Motion to Amend Pre-

Trial Order,s9 which was granted in open Court during the October 18,
2012 hearing without any objection from respondent, in order to reflect
the replacement of petitioner's witness; its reservation of the right to
avail modes of discovery; and the changes in the trial dates.6o This was
later confirmed in a Resolution61 dated November 13,2012.
46 Records, Vol. 1, Reply, pp. 240-247.

47 Id. at 248.
48 Id., at 249.
49 Records, Vol. 1, Petitioner's Pre-Trial Brief, pp. 250-260.
50 Id., Respondent's Pre-Trial Brief, pp. 261-263.
51 Id., Minutes of Hearing dated August 3, 2012, p. 264.

52 Id. at 265-266.
53 Id. at 267.
54 Id., Minutes of Hearing dated August 3, 2012, p. 264; see pp. 269-270.
55 Records, Vol. 1, pp. 271-276, with annex.

56 Id, JSFI, pp. 284-291.
57 Id. at 293-294.
ss Id., Pre-Trial Order ("PTO"), pp. 466-471.
59 Id. at 482-487.
60 Id., Minutes of Hearing dated October 18, 2012, pp. 488-489.
61 Records, Vol. 1, pp. 493-494.
I
DECISION
CTA CASE NO. 8478
Page 8 of 55
In view of CTA Administrative Circular No. 01-2013, the case was

transferred to the Third Division, through an Order62 dated April 4,
2013.
During trial, petitioner presented the following witnesses: (1)

Ms. Margie B. Alabastro ("Ms. Alabastro")63, Finance Manager and the
authorized representative of petitioner; (2) Ms. Mary Ann Capuchino
("Ms. Capuchino")64, the court-commissioned65 Independent Certified
Public Accountant ("ICPA"); and (3) Ms. Lina E. Jacob ("Ms. Jacob) 66,
petitioner's General Manager.
On May 30, 2013, petitioner filed a Motion for Leave to Take

Deposition67 of its witnesses who are based in Herbalife London,
namely, Mr. Mani Manivannan ("Mr. Manivannan") and Ms. Victoria
Palmer ("Ms. Palmer"), which was granted by the Court in its
Resolution68 dated July 1, 2013.
During the July 11, 201369 hearing, counsel for petitioner

manifested that they have no more witnesses to present other than the
witnesses subject of deposition. The Court granted respondent fifteen
(15) days or until July 26, 2013, to file a motion for reconsideration of
its Resolution dated July 1, 2013, while counsel for petitioner was
granted ten (10) days from receipt thereof to file its comment. 70 This
was confirmed in Resolution71 dated July 17, 2013.
On July 18, 2013, respondent filed her Motion for

Reconsiderationn, with petitioner filing a Comment/ Opposition with
Urgent Ex Parte Motion to Resolve (To Respondent's Motion for
Reconsideration Dated 19 July 2013)73 on July 31, 2013.
62 Records, Vol. 2, p. 707.
63 Records, Vol. 1, Judicial Affidavit ("JA") of Margie B. Alabastro, pp. 301-463, with annexes; Records,
Vol. 1, Minutes of Hearing dated September 25, 2012, p. 464.
64 Records, Vol. 2, JA of Ms. ManJ Ann C. Capuchino, pp. 503-597, with annexes; Records, Vol.1, Minutes
of Hearing dated October 18,2012, p. 488; Records, Vol. 2, Minutes of Hearing dated January 22,2013, pp.
684-686.
65 Records, Vol. 1, JA of Ms. ManJ Ann C. Capuchino, pp. 477-480, with annex; Records, Minutes of
Hearing dated October 18, 2012, pp. 488-489; see Records, Vol. 1, Oath of Commission dated October 18,
2012, p. 490.
66 Records, Vol. 2, Exhibits "WWW" and "WWW-1," JA of Ms. Lina E. Jacob, pp. 598-683, with annexes;
Minutes of Hearing dated January 22, 2013, pp. 684-686; Minutes of Hearing dated May 15, 2013, p. 796.
67 Id. at 797-803.
68 Id. at 806.
69 Id., Minutes of Hearing dated July 11, 2013, p. 807.
7o Id.
71 Id. at 816.
72 Records, Vol. 2, pp. 808-814.
73 Records, Vol. 2, pp. 833-844.

DECISION
CTA CASE NO. 8478
Page 9of55
On July 24, 2013, petitioner filed a Compliance (To Order Made

in Open Court on 11 July 2013)74, submitting a copy of questions
addressed to Mr. Manivannan and Ms. Palmer, which was noted75 by
the Court. In response thereto, respondent filed a
Comment/ Opposition (With Motion to Strike-Off the Record the
alleged Compliance filed by petitioner)76 on August 1, 2013.
On August 13, 2013, petitioner, through Ms. Alabastro, received

the Final Decision on Disputed Assessment ("FDDA") 77, which denied
petitioner's protest to the FAN due to its failure to present books and
other records, in violation of Section 3.1.5 of Revenue Regulations ('RR")
No. 12-1999.
On August 16, 2013, petitioner filed an Omnibus Motion to

Resolve and Urgent Ex-Parte Motion for the Issuance of an Amended
1 July 2013 Resolution Granting Leave to Take Deposition ("Omnibus
Motion")78, which was granted in a Resolution79 dated August 23,
2013.
During the August 29, 2013 hearing, counsel for respondent

manifested that he would file the appropriate pleading relative to the
Resolution of the Court dated August 23, 2013, insofar as the filing of
respondent's cross written interrogatories, which the Court noted. so As
regards petitioner's Omnibus Motion, the same was granted insofar as
the prayer therein to amend the July 1, 2013 Resolution to specifically
indicate that the petitioner was granted leave to take the testimony of
Mr. Manivannan and Ms. Palmer by Oral Deposition on September 3
and 4, 2013, at the Philippine Embassy in London, United Kingdom.Bl
These were confirmed in the Court's Resolution82 dated September 3,
2013.
On September 10,2013, petitioner's General Manager Ms. Jacob,

filed a letter to the BIR Revenue Region No. 8 Makati, informing it that
it already commenced judicial action.s3 This was reiterated by
74 Id. at 820-827.
75 Id. at 832.
76 Id. at 845-850.
77 BIR Records, Exhibit "R-14-c," pp. 1393-1398.
78 Records, Vol. 2, pp. 851-857.

79 Id. at 859-863.
8° Id., Minutes of Hearing dated August 29, 2013, p. 864.

81 Id.
82 Id. at 866-867.
83 BIR Records, Exhibit "R-1," pp. 1417-1418. (
DECISION
CT A CASE NO. 8478
Page 10of55
petitioner's counsel, through a letter84 dated September 12, 2013,

informing respondent that petitioner already instituted an appeal
before the Court.
On September 13, 2013, the Court issued a Resolutionss

amending the July 1, 2013 Resolution to specifically indicate that
petitioner was granted leave to take the testimony of its witnesses,
with the required additional details.
During the hearing on November 25, 2013, counsel for petitioner

manifested that they were able to depose their last two (2) witnesses
on September 3, 2013.86 However, they have not yet received the
consularized copy of the transcript from the Department of Foreign
Affairs ("DFA").s7
On March 10, 2014, the DFA- Office of Legal Affairs filed with
the Court its Endorsement88, with attached transcripts89 of the
depositions of Mr. Manivannan and Ms. Palmer taken on September 3
and 4, 2013, together with the requisite Certifications9o executed by
Consul Voltaire O.C. Mauricio of the Embassy of the Philippines in
London.
During the hearing on March 13, 2014, counsel for petitioner

moved for the admission of the Depositions of Mr. Manivannan and
Ms. Palmer that were transmitted by the DFA to the Court.91 Counsel
for respondent was granted fifteen (15) days to file her Comment,
while counsel for petitioner was granted ten (10) days from receipt
thereof to file a reply.92 Thereafter, the incident shall be deemed
submitted for resolution.93 Petitioner was also granted thirty (30) days
from receipt of the Resolution on the admission of the subject
Depositions to file its Formal Offer of Evidence ("FOE"), while counsel
for respondent was granted fifteen (15) days from receipt thereof to file
84 Id. at 1457-1460.
85 Records, Vol. 2, pp. 869-870
86 Id., Minutes of Hearing dated November 25, 2013, p. 873.
s7 Id.
88 Id. at 886.
89 Id. at 888-936 and 938-944.
90 Id., at 887 and 937.
91 Records, Vol. 2, Minutes of Hearing dated March 13, 2014, p. 947.
92 Id.
93 Id.
I
DECISION
CT A CASE NO. 8478
Page 11 o£55
a comment.94 This was later confirmed in a Resolution95 dated March

20, 2014.
On March 28, 2014, respondent filed by registered mail her

Comment/Opposition96 to the admission of the depositions of Mr.
Manivannan and Ms. Palmer; while petitioner filed its Reply (To
Respondent's Comment/Opposition Dated 28 March 2014)97 on April
7, 2014. The Court resolved to admit the Depositions of Mr.
Manivannan and Ms. Palmer in its Resolution98 dated April16, 2014.
After being granted an extension,99 on June 6, 2014, petitioner

filed its FOE1oo, offering Exhibits "A," "B," "B-1," "C," "D," "E," "F,"
"G," "H," "I," "J," "J-1," "K" to "K-11," "K-11-1," "L," "L-1," "M," "N"
to "N-1," and "0" to "XXX." This was resolved by the Court in its
Resolution101 dated July 14, 2014, admitting all except for Exhibits "C,"
"E," and "G," for failure to present the originals for comparison with
the machine copies.
On August 1, 2014, petitioner filed a Motion for Reconsideration

(To: Resolution dated 14 July 2014)102, praying for the Court to admit
Exhibits "C," "E," and "G" for having complied with the requirements
for the presentation of secondary evidence. The Court, in its
Resolution103 dated October 22, 2014, denied petitioner's Motion for
Reconsideration. ·
On August 11, 2014, respondent filed an Urgent Omnibus

Motion [a. To Reset Trial Hearing [("Motion to Reset")]; b. To Conduct
a Hearing before a Commissioner [("Motion to Conduct
Commissioner's Hearing")]; and c. To Issue a Subpoena Ad
Testificandum to Respondent's Witness [("Motion to Issue
Subpoena")].1°4 The Motion to Reset was considered moot, while the
Motion to Conduct Commissioner's Hearing was granted by the Court
in its Resolutionlos dated August 18, 2014. The Motion to Issue
94 Records, Vol. 2, Minutes of Hearing dated March 13, 2014, p. 947.

95 Id. at 952-953.
96 Id. at 962-967.
97 Id. at 955-961.
98 Id. at 970-973.
99 See Records, Vol. 2, pp. 974-978 and 980.
1oo Records, Vol. 2, Petitioner's FOE, pp. 981-1005.
101 Id. at 1008-1009.
102 Records, Vol. 3, pp. 1010-1022.
1o3 Id. at 1069-1076.
104 Id. at 1025-1026.
105 Records, Vol. 3, pp. 1031-1032. (
DECISION
CT A CASE NO. 8478
Page 12of55
Subpoena was granted in Resolutionl06 dated December 5, 2014,

thereafter, a Subpoena Ad Testificandum107 was issued for Revenue
Officer ("RO") Ms. Fatima B. Pre ("Ms. Pre").
Presentation of evidence for respondent ensued, wherein the

following witnesses were presented: (1) RO Ms. Pre,tos the RO who
handled the continuance of investigation and immediate report of the
internal revenue tax case of petitioner; and (2) RO Mr. Emilio 0.
Romero ("Mr. Romero")109, the RO who conducted a re-investigation
relative to the Letter Protest to the FAN.
During the hearing on July 7, 2015,110 counsel for respondent

manifested that they have no witnesses to present, thus, he was
granted fifteen (15) days to file an FOE, and petitioner was granted the
same period to file its comment. Thereafter, the incident shall be
deemed submitted for resolution of the Court.111 The Court also
granted both parties thirty (30) days within which they shall
simultaneously file their respective memoranda.1 12 These were
confirmed by the Court in its Resolution113 dated July 20, 2015.
After being granted an extension,114 on August 5, 2015,

respondent filed, by registered mail, her FOE115 offering Exhibits "R-1,"
"R-2 " "R-2-a " "R-3 " "R-3-a " "R-3-b " "R-3-c " "R-4 " "R-4-a " "R-5 "
I I I I I I I I I
"R-5-a," "R-5-b," "R-6," "R-6-a," "R-6-b," "R-7," "R-7-a," "R-7-b," "R-

7-c," "R-8," "R-8-a," "R-8-b," "R-8-c," "R-9," "R-9-a," "R-9-b," "R-10,"
"R-10-a," "R-11," "R-11-a," "R-11-b," "R-12," "R-12-a," R-13," "R-13-
a," "R-14," "R-14-a," "R-14-b," "R-14-c," "R-15," "R-15-a," "R-16," and
"R-16-a." The Court resolved to admit all Exhibits that were formally
offered by respondent through its Resolution116 dated September 4,
2015.
106 Id. at 1080.

107 Id.
1os Id., Exhibit "R-15" and "R-15-a," JA of Revenue Officer ("RO") Fatima B. Pre, pp. 1198-1207; Minutes
of Hearing dated April13, 2015, p. 1148.
109 Id., Exhibits "R-16" and "R-16-a," JA afRO Emilio 0. Romero, pp. 1210-1215.
11o Id., Minutes of Hearing dated July 7, 2015, p. 1175.
111 Records, Vol. 3, Minutes of Hearing dated July 7, 2015, p. 1175.
112 Id.
113 Id. at 1177-1178.
114 See Records, Vol. 3, pp. 1180-1184.
115 Records, Vol. 3, Respondents' FOE, pp. 1186-1196.
116 Id. at 1234-1235. (
DECISION
CTA CASE NO. 8478
Page 13of55
On October 7, 2015, petitioner filed a Motion for Extension to File

Petitioner's Memorandum,117 which was granted by the Court in its
Resolution11s on October 19, 2015.
On November 10, 2015, petitioner filed by registered mail a

Memorandum for the Petitioner Ad Cautelam119; while respondent
failed to file her memorandum per Records Verification Reports issued
by the Court's Judicial Records Division dated October 20, 2015120,
November 23, 2015121, and December 2, 2015122. Thereafter, the Court
resolved to submit the case for decision through its Resolution123 dated
December 4, 2015; hence, this Decision.
The Issues 124
The parties submit to the Court the following issues:
1. WHETHER THE COURT HAS JURISDICTION OVER

THE INSTANT CASE; AND
2. WHETHER THE ASSESSMENTS FOR PETITIONER'S

ALLEGED DEFICIENCY TAXES AMOUNTING TO ONE HUNDRED
TWELVE MILLION FIVE HUNDRED SIXTY-EIGHT THOUSAND
EIGHT HUNDRED FIFTY-SIX AND 50/100 PESOS
(PHP112,568,856.50) WERE ISSUED IN ACCORDANCE WITH LAW
AND REGULATIONS.
Petitioner's Arguments
Petitioner claims that respondent erred in disallowing expenses

due to non-withholding of taxes; that the discrepancy in the amount
stated under the heading of "professional and management fees"
represents payment made to a recruitment agency that was already
subjected to EWT per the Alphalist and the professional and
117 Records, Vol. 3, pp. 1236-1250, with annexes.

118 Id. at 1252.
119 Id., Memorandum for the Petitioner Ad Cautelam, pp. 1255-1296.
12o Id. at 1253.
121 Id. at 1254.
122 Id. at 1298.
123 Records, Vol. 3, p. 1300.
124 Records, Vol. 1, PTO, pp. 467-468.
r
DECISION
CTA CASE NO. 8478
Page 14of55
management fees paid to general professional partnerships ("GPP"),

which is not subject to withholding tax.
It further maintains that respondent failed to discharge the

burden of proving the taxability of the unaccounted expenses; that
under-declaration of an expense is not prohibited by law, what the law
prohibits is to claim a deduction beyond the amount authorized
therein; that respondent erred in computing its unsupported expenses;
that it was able to adduce sufficient proof to substantiate the
deductions claimed through the various official receipts ("OR"),
journal/ cash vouchers, and petty cash vouchers; that pursuant to BIR
Ruling DA 238-03, the absence of original receipts or records does not
prevent a taxpayer from proving, by other evidence, that the claimed
deduction was really paid or incurred; that respondent erred in
subjecting royalties and production bonuses paid to non-resident
distributors and interest expense to VAT; that pursuant to Section 4.114
ofRR No. 2-98, as amended by Section 7 ofRR No. 14-02, only payments
to non-residents for services rendered in the Philippines are subject to
Final Withholding of VAT; and that it kept and preserved its records
as required by law and regulations, thus negating the Php50,000.00
penalty assessed against it.
Respondent's Counter-Arguments
In her Answer, respondent argues that the Court has no

jurisdiction over the instant Petition for Review because it has become
final, executory and demandable for failure of petitioner to submit the
required documents in support of its protest, within the sixty (60) day
period from filing of its protest; that even assuming that the Court has
jurisdiction, petitioner failed to substantiate or controvert by
substantial evidence the BIR factual findings, as shown under the
Details of Discrepancies attached to the FAN and Letter of Demand
dated August 26, 2011; that she has fully complied with the due
process requirement mandated under Section 228 of the 1997 NIRC, as
amended and RR No. 12-99; that the assessments issued against
petitioner for deficiency IT, VAT, EWT, WTC, FWT, FWT - VAT, DST
and Compromise Penalty .for CY 2007 were made in accordance with
law and regulations; and that all presumptions are in favor of the
correctness of tax assessments.
(
DECISION
CTA CASE NO. 8478
Page 15of55
The Ruling of the Court
At the outset, the Court finds the need to determine whether it

has jurisdiction over the instant Petition for Review.
The Court has jurisdiction over

the Petition for Review.
Respondent claims that the Court has no jurisdiction over the

Petition for Review because the assessment has become final,
executory, and demandable for failure of petitioner to submit the
required documents within sixty (60) days after the filing of its protest.
The Court does not agree.
Section 228 of the 1997 NIRC is instructive, to wit:
Sec. 228. Protesting of Assessment. - When the

Commissioner or his[/her] duly authorized representative
finds that proper taxes should be assessed, he[/ she] shall first
notify the taxpayer of his[/her] findings: Provided, however,
That a pre-assessment notice shall not be required in the
following cases:
XXX XXX XXX
The taxpayers shall be informed in writing of the law and

the facts on which the assessment is made; otherwise, the
assessment shall be void.
Within a period to be prescribed by implementing rules

and regulations, the taxpayer shall be required to respond to
said notice. If the taxpayer fails to respond, the Commissioner
or his[/her] duly authorized representative shall issue an
assessment based on his findings.
Such assessment may be protested administratively by

filing a request for reconsideration or reinvestigation within
thirty (30) days from receipt of the assessment in such form and
manner as may be prescribed by implementing rules and
regulations. Within sixty (60) days from filing of the protest, all
relevant supporting documents shall have been submitted;
otherwise, the assessment shall become final.
(
DECISION
CT A CASE NO. 8478
Page16of55
If the protest is denied in whole or in part, or is not acted

upon within one hundred eighty (180) days from submission of
documents, the taxpayer adversely affected by th~ decision or
inaction may appeal to the Court of Tax Appeals within thirty
(30) days from receipt of said decision, or from the lapse of the
one hundred eighty (180)-day period; otherwise, the decision
shall become final, executory and demandable.125
Records disclose that petitioner received the FAN dated August

26, 2011 on September 1, 2011,126 On September 29, 2011, the
Assessment Division of BIR Revenue Region No. 8 received
petitioner's letter protest,127 together with the documentary evidence
attached to it. However, on account of respondent's inaction,
petitioner filed the instant Petition for Review on April26, 2012,128
Respondent argues that petitioner failed to submit documentary

evidence in support of its protest, petitioner on the other hand, insists
that it already filed the documents in support of its protest together
with its letter protest.
In CIR v. First Express Pawnshop Company, Inc.,129 the term

"relevant supporting documents" should be understood as those
documents necessary to support the legal basis in disputing a tax
assessment, as determined by the taxpayer. The BIR can only request
the taxpayer to submit additional documents but cannot demand what
type of supporting documents should be submitted. Otherwise, a
taxpayer will be at the mercy of the BIR, which may require the
production of documents that a taxpayer cannot submit.
Applying this to the instant case, petitioner already submitted

the documents it deems sufficient to support its claim when it filed its
protest to the FAN. Hence, the tax assessment cannot be considered as
final, executory and demandable.
\..
Furthermore, under Section 228 of the 1997 NIRC, if the protest is
not acted upon within one hundred eighty (180) days from submission
of supporting documents, the taxpayer adversely affected by the
inaction may appeal to the CTA within thirty (30) days from the lapse
125 Underscoring ours.

126 Records Box 1, Petitioner's FOE, Exhibit "A;" BIR Records, Exhibit "R-1;" Records, Vol. 1, JSFI, p. 284.
127 Records Box 1, Petitioner's FOE, Exhibits "B" and "B-1;" Records, Vol. 1, JSFI, p. 284.

129 G.R. Nos. 172045-46, June 16, 2009, 589 SCRA 253.
(
DECISION
CT A CASE NO. 8478
Page 17of55
of the one hundred eighty (180)-day period. Petitioner filed its

administrative protest on September 29, 2011130, together with the
documentary evidence attached to it, thus, respondent had until
March 27, 2012 to act on petitioner's administrative protest but it failed
to do so. Thus, due to the inaction of respondent, petitioner had thirty
(30) days from March 27,2012 or until April26, 2012 to file its judicial
protest. Consequently, the Court holds that the instant Petition for
Review filed on April 26, 2012 was timely filed.
The assessments relating to

petitioner's alleged deficiency
taxes were issued in accordance
with law and regulations.
The Court finds the need to emphasize that tax assessments by

tax examiners are presumed correct and made in good faith, and all
presumptions are in favor of the correctness of a tax assessment, unless
proven otherwise.131
In the case at bar, respondent assessed petitioner for alleged

deficiency taxes for CY 2007 in the total amount of Phpll2,586,856.50,
broken down as follows:
TAX TYPE AMOUNT

IT Php 57,937,101.82
VAT 3,922,839.57
EWT 767,977.34
WTC 309,236.80
FWT 40,918,045.57
FWT-VAT 8,577,939.88
DST 82,715.52
Compromise Penalty 53,000.00
TOTAL PHP 112,568,856.50
As shown in the table above, petitioner has alleged deficiencies

in IT, VAT, EWT, WTC, FWT, FWT-VAT, DST and Compromise
Penalty. The Court will now proceed to discuss in detail the merits of
the assessment for each type of tax.
130 Records Box 1, Petitioner's FOE, Exhibit "B-1."

131 Commissioner of Internal Revenue v. Hon. Raul M. Gonzalez, Secretary of Justice, et. al., G.R. No.
177279, October 13,2010,633 SCRA 139, citing Rizal Commercial Banking Corporation v. Commissioner
of Internal Revenue, G.R. No. 168498, April 24, 2007, 522 SCRA 144, citing Commissioner of Internal
Revenue v. Hantex Trading Co., Inc., G.R. No. 136975, March 31, 2005, 454 SCRA 301.
(
DECISION
CTA CASE NO. 8478
Page 18of55
I. DEFICIENCY INCOME TAX- Php57,937,101.82
In the FAN132 dated August 26, 2011, petitioner was assessed

deficiency IT for taxable year 2007 in the total amount of
Php57,937,101.82, inclusive of increments, computed as follows:
DETAILS AMOUNT
Taxable Income per ITR [Php] 9,377,113.00
Add: Adjustments/ disallowance per investigation
Disallowed Expenses due to Non-withholding (Schedule 1) [Php] 83,987,344.32
Unaccounted Expenses (Schedule 2) 3,769,289.73
Unsupported Expenses (Schedule 3) 10,105,563.00 [Ph£] 97,862,197.05
Adjusted Taxable Income per investigation [Phr] 107,239,310.05
Basic Income Tax Due [Php] 37,533,758.52
Less: Allowable tax credits/payments
Prior Years' Minimum Corporate Income Tax [Php] 3,281,989.55
Creditable Tax Withheld at Source claimed per return 630,442.00
Total [Php] 3,912,431.55
Less: Excess Credits Carried Over to Succeeding Year 630,442.00 [Ph£] 3,281,989.55
Deficiency Income Tax [Php] 34,251,768.97
Add: Interest (04.16.08 to 09.30.11) 23,685,332.85
TOTAL AMOUNT DUE [Ph_pJ 57,937,101.82
Section 34 of the 1997 NIRC allows taxpayers to deduct business

expenses from their gross income. Section 34 provides as follows:
Sec. 34. Deductions from Gross Income.- Except for

taxpayers earning compensation income arising from personal
services rendered under an employer-employee relationship
where no deductions shall be allowed under this Section other
than under subsection (M) hereof, in computing taxable income
subject to income tax under Sections 24(A); 25(A); 26; 27(A), (B)
and (C); and 28(A)(l), there shall be allowed the following
deductions from gross income;
(A) Expenses. - (1) Ordinary and Necessary Trade, Business

or Professional Expenses. -
(a) In General.- There shall be allowed as deduction from

gross income all the ordinary and necessary expenses paid or
incurred during the taxable year in carrying on or which are
directly attributable to, the development, management,
operation and/ or conduct of the trade, business or exercise of
a profession, including:
(i) A reasonable allowance for salaries,

wages, and other forms of compensation for
personal services actually rendered, including the
132 Records Box 1, Petitioner's FOE, Exhibit "A;" BIR Records, Exhibit "R-1." (
DECISION
CT A CASE NO. 8478
Page 19of55
grossed-up monetary value of fringe benefit

furnished or granted by the employer to the
employee: Provided, That the final tax imposed
under Section 33 hereof has been paid;
(ii) A reasonable allowance for travel

expenses, here and abroad, while away from home
in the pursuit of trade, business or profession;
(iii) A reasonable allowance for rentals

and/ or other payments which are required as a
condition for the continued use or possession, for
purposes of the trade, business or profession, of
property to which the taxpayer has not taken or is
not taking title or in which he has no equity other
than that of a lessee, user or possessor;
(iv) A reasonable allowance for

entertainment, amusement and recreation
expenses during the taxable year, that are directly
connected to the development, management and
operation of the trade, business or profession of
the taxpayer, or that are directly related to or in
furtherance of the conduct of his or its trade,
business or exercise of a profession not to exceed
such ceilings as the Secretary of Finance may, by
rules and regulations prescribe, upon
recommendation of the Commissioner, taking into
account the needs as well as the special
circumstances, nature and character of the
industry, trade, business, or profession of the
taxpayer: Provided, That any expense incurred for
entertainment, amusement or recreation that is
contrary to law, morals public policy or public
order shall in no case be allowed as a deduction.
Substantiation Requirements.- No deduction from

(b)
gross income shall be allowed under Subsection (A} hereof
unless the taxpayer shall substantiate with sufficient evidence,
such as official receipts or other adequate records: (i) the
amount of the expense being deducted, and (ii) the direct
connection or relation of the expense being deducted to the
development, management, operation and/ or conduct of the
trade, business or profession of the taxpayer.
Respondent disallowed certain expenses due to the following:

(1) non-withholding; (2) unaccounted expenses; and (3) unsupported
(
DECISION
CT A CASE NO. 8478
Page20of55
expenses. The Court will now delve into the reasons why these
expenses were disallowed.
A. Disallowed Expenses Due to Non-Withholding- Php83,987,344.32
Respondent disallowed133 the first type of expenses amounting

to Php83,987,344.32, for the following reasons:
DETAILS AMOUNT
1.) Expanded Withholding Tax (WE)

1.a) Professional and Management Fees [Php] 1,464,269.00
1.b) Payment to Contractors by Top 10K- Services 6,185,661.27
1.c) Payment by Top 10K- Goods 17,087,895.00
Sub-total [Php] 24,737,825.27
Less: Acquisition of Prop. & Eqpt. 17,087,895.00
Total [Ph£] 7,649,930.27
2.) Withholding Tax on Compensation (WTC)

2.a) Salaries and Wages [Ph£] 727,797.05
3.) Final Withholding Tax (FWT) [Ph£] 75,609,617.00

TOTAL [PHP] 83,987,344.32
l.a) Professional and Management Fees (PMF")- Php1,464,269.00
PMF represents fees paid to the search firm fees, audit fees, legal
fees, and discrepancy, which were allegedly not subjected to
withholding tax and are not supported with documents, hence,
disallowed by the respondent. The PMF is broken down as follows:
DETAILS AMOUNT
Search Firm Fee Php 1,100,000.00
Audit Fees 239,268.00
Legal Fees 125,000.00
Difference 1.00
TOTAL PHP 1,464,269.00
Petitioner alleges that payments made to the recruitment agency,

Kapient Philippines, Inc. ("KPI"), is the fee made for the placement of
Mr. Enrico Garcia ("Mr. Garcia") as its general manager. Petitioner
133 Records Box 1, Petitioner's FOE, Exhibit "A;" BIR Records, Exhibit "R-1."
r
DECISION
CTA CASE NO. 8478
Page 21 o£55
presented billing invoices, check vouchers (" CVs") and official

receipts134 ("ORs") to support this claim. It also alleges that payments
made to Manabat Sanagustin & Co. ("Manabat") and Britanico
Sarmiento Franco & Associates ("Britanico"), which are both general
professional partnerships ("GPP"), are not subject to EWT pursuant to
Section 2.57.5 of RR No. 2-98, as amended.
A perusal of the documentary evidence submitted to the Court

shows that payment to KPI was properly subjected t<? 2% withholding
tax as evidenced by BIR Form No. 1604-£135, Alphalist of Payees
Subject to EWT136, CVs137 and 0Rs138. Hence, respondent cannot
enforce the said assessment against petitioner.
On the other hand, payments made to Manabat and Britanico,

are exempt from withholding tax pursuant to Section 26 139 of the 1997
NIRC in relation to Section 2.57.5140 of RR No. 2-98141, as amended.
However, after a review of the documentary evidence submitted to the
Court, it was discovered that out of the amounts in question, only
Php168,000.00 and Php124,234.00 for Manabat and Britanico,
respectively, are supported by valid documents142.
134 Records, Vol. 3, Memorandum For the Petitioner Ad Cautelam, item no. 24, p. 1260.
135 Records Box 1, Petitioner's FOE, Exhibit "f."
136 Id., Exhibit "J-1," p. 38 of 39.
mId., Exhibit "S-78."
138 Id., Exhibit "S-79."
139 "SEC. 26. Tax Liabilih; of Members of General Professional Partnerships. - A general professional
partnership as such shall not be subject to the income tax imposed under this Chapter. Persons
engaging in business as partners in a general professional partnership shall be liable for
income tax only in their separate and individual capacities.
For purposes of computing the distributive share of the partners, the net income of the
partnership shall be computed in the same manner as a corporation.
Each partner shall report as gross income his distributive share, actually or
constructively received, in the net income of the partnership."
140 "SECTION 2.57.5. Exemption from Withholding. - The withholding of creditable withholding tax
prescribed in these Regulations shall not apply to income payments made to the
following: ·
(A) XXX
(B) Persons enjoying exemption from payment of income taxes pursuant to the
provisions of any law, general or special, such as but not limited to the
following:
(1) XXX
(4) General Professional Partnerships; xxx"
141 Implementing Republic Act No. 8424, An Act Amending the National Internal Revenue Code, as
Amended" Relative to the Withholding on Income Subject to the Expanded Withholding Tax
and Final Withholding Tax, Withholding of Income Tax on Compensation, Withholding of
Creditable Value-Added Tax and Other Percentage Taxes, effective January 1,1998.
142
Manabat Sanagustin & Co.
OR NO. OR AMOUNT OR DATE EXHIBIT
OR# 9670 Php 16,800.00 11/19/2007 S-70
OR# 9344 16,800.00 10/4/2007 S-67
OR# 9343 16,800.00 10/4/2007 S-64
OR# 9232 16,800.00 8/21/2007 S-61 (
DECISION
CT A CASE NO. 8478
Page 22of55
Thus the Court upholds the assessment on PMF but in the

reduced amounts of Php71,268.001 43 for Manabat and Php766.00144 for
Britanico.
l.b) Payment to Contractors by Top 10K (Services)- Php6,185,661.27
Based on the evaluation conducted by the ICPA of petitioner's

reconciliation schedule145 and the voluminous CVs, journal vouchers
("JVs") and ORs, it appears that respondent's assessment of
petitioner's income payments to contractors by the top 10,000
corporations for purchases of services can be accounted for as
follows:14 6
DETAILS AMOUNT
A. Advertising
1. Giveaways Php 2,299,318.08
2. Reimbursement to Employees 87,889.15
Sub-total Ph£ 2,387,207.23
B. Transportation and Travel
1. Intercompany Billings Php 151,931.09
Sub-total Ph£ 609,733.42
C. Communication Light and Water
D. Miscellaneous Expenses
1. Reimbursement to Employees Php 8,641.00
2. Local Taxes and Other Fees 67,820.00
Sub-total PhE 76,461.00
E. Warehousing Fees Lodged under Rentals PhE 913,590.76
F. Rentals Lodged under Miscellaneous Expenses PhE (231,715.51}
G. Payments to Various Insurance Companies
OR#9116 16,800.00 7/5/2007 S-58

OR#9115 16,800.00 7/5/2007 S-55
OR# 9001 16,800.00 5/31/2007 S-52
OR# 8674 16,800.00 3/30/2007 S-50
OR# 8651 16,800.00 3/8/2007 S-47
OR# 8508 16,800.00 1/26/2007 S-44
TOTAL PHP 168,000.00
Britanico Sanniento Franco & Assodates
OR# 0508 Php 8,848.00 10/19/2007 S-39
OR # 0402 21,840.00 3/30/2007 S-37
OR # 0273 93,546.00 1/22/2007 S-18
143 Php239,268.00 less Php168,000.00.

144 Php125,000.00 less Php124,234.00.
145 Records Box 1, Exhibit "U."
146 Records Box 4, Exhibit "UUU," ICPA Report p. 33
(
DECISION
CT A CASE NO. 8478
Page 23 of 55
1. Maxicare Healthcare Php 447,546.74

2. United Coconut Planters Life Assurance, Inc. 60,139.41
3. AON Philippines, Inc. 31,190.32
4. Erroneous Booking - Over 1,086.63
H. Employee Training Cost Ph£ 102,935.71
I. Staff Functions Ph£ 1,566,921.05
TOTAL PHP 6,185,661.26147
l.b.A.l) Advertising- Giveaways- Php2,299,318.08
Petitioner alleged that the giveaways were not purchased from

any local supplier but were instead inventory products of the company
given to its distributors.1 48 To support its claim, petitioner submitted
its General Journal ("GJ") Standard Journal Entry, Inventory
Adjustments Schedule, Reclassification Schedule149 and P & E Request
Form150.
The Court holds that the above are insufficient to refute the
assessment. Journal entries and schedules cannot stand alone to
invalidate the assessment. Likewise, P & E Request Form is not, in any
way, a relevant document to corroborate the schedules and journal
entries. Thus, the Court upholds the assessment for advertising
giveaways amounting to Php2,299,318.08.
l.b.A.2) Advertising- Reimbursement to Employees- Php87,889.15
Petitioner maintains that this payment pertains to

reimbursements to employees for production, photographic,
advertising, promotion and sample costs which were traceable to
specific employees; that being reimbursements, it is not in the nature
of income payments; and thus it is not subject to EWT.1 51
Records show that out of Php87,889.15152, only Php52,994.15 is

supported by valid documents, while Php34,895.00 should be
disallowed for the following reasons, to wit:
147 Rounding off difference of .01

148 Records, Vol. 3, Memorandum For the Petitioner Ad Cautelam, item no. 27, p. 1261.
149 Records Box 1, Exhibits "V-001" to "V-032."
1so Id., Exhibits "V-033" to "V-148."
1 51 Records, Vol. 3, Memorandum For the Petitioner Ad Cautelam, item no. 27, p. 1261.
152 Records Box 1, Petitioner's FOE, Exhibit "U-01." (

DECISION
CTA CASE NO. 8478
Page 24of55
DATE DESCRIPTION AMOUNT EXHIBIT REASON

11/29/2006 Toll Fees Php 167.00 W-03 Outside the period of Claim
12/1/2006 Toll Fees 167.00 W-03 Outside the period of Claim
Gasoline 1,100.00 W-04 Without Supporting Invoice/OR
11/30/2006 Gasoline 85.00 W-05 Outside the period of Claim
11/29/2006 Meals 312.00 W-06 Outside the period of Claim
11/29/2006 Meals 234.00 W-07 Outside the period of Claim
Meals 566.40 W-06 Tape Receipt not readable
2/22/2007 Production 5,000.00 W-10 Supported by Liquidation Form only
4/30/2007 Photographic 1,500.00 W-11 Supported by Journal Voucher only
7/31/2007 Production 4,095.00 W-33 Supported by Journal Voucher only
5/31/2007 Production 2,197.00 W-24 Supported by Journal Voucher only
6/30/2007 Awards/ Recognition 7,063.00 W-30 Supported by Journal Voucher only
11/30/2007 Promotion 5,400.00 W-37 Supported by Journal Voucher only
11/30/2007 Samples 5,429.80 W-40 Supported by Journal Voucher only
9/30/2007 Samples 688.80 W-44 Supported by Journal Voucher only
8/31/2007 Production 890.00 W-42 Supported by Journal Voucher only
TOTAL PHP 34,895.00
l.b.B.l) Transportation and Travel- Intercompany Billings- Php151,931.09
This item pertains to payments to affiliates on airfare, meals and

meeting expenses incurred particularly by the following:
NAME OF AFFILIATE AMOUNT EXHIBIT

Herbalife Australia PTY. Ltd. Php 65,356.44 "UUU," Annex D
Herbalife Taiwan 41,928.98 "UUU," Annex D
Herbalife International Singapore, Inc. 35,413.48 "UUU," Annex D
Herbalife International Communications, Inc. 9,232.19 "UUU," Annex D
-==-=-c''-=--:-::-::-
Scrutiny of the evidence shows that the amount of Php67,921.86

should be disallowed because it was only supported by billing
statements, to wit:
DATE AFFILIATE AMOUNT EXHIBIT REASON

8/31/2007 Herbalife International Singapore, Inc. Php 35,413.48 X-11 Supported by Billing Statement Only
9/30/2007 Herbalife Australia Pty. Ltd. 27,666.88 X-15 Supported by Billing Statement Only
7/31/2007 Herbalife Australia Pty. Ltd. 4,841.50 X-18 Supported by Billing Statement Only
TOTAL PHP 67,921.86
l.b.B.2) Transportation and Travel - Reimbursement to Employees -

Php457,802.33
The Court agrees with the findings of the ICPA that out of the
Php457,802.33153, only Php258,180.97154 is substantiated; while the
remaining amount of Php199,621.36155 is backed up by cash vouchers
153 Records Box 1, Petitioner's FOE, Exhibits "U-10" to "U-18."

154 Id., Exhibits "Y-001" to "Y-306." (
155 Id.
DECISION
CTA CASE NO. 8478
Page 25of55
and/ or petty cash vouchers ("PCV") only. Thus, the amount

Php199,621.36 should be disallowed for not being properly supported.
l.b.C.l) Communication, Light and Water - Intercompany Billings -

Php212,161.04
Based on the ICPA report, the amount Php212,161.04156 pertains

to reimbursement payments to Herbalife Australia PlY Ltd., on
telecommunication expenses.1 57 Petitioner submitted JVs and billing
statements, which are insufficient to support petitioner's claim. The
Court requires substantial evidence such as ORs and/ or invoices,
hence, the assessment amounting to Php212,161.04 is upheld.
l.b.C.2) Communication, Light and Water- Reimbursements to Employees-

Php8,403.46
This amount pertains to employee reimbursements for telephone

expenses.158 Out of the said amount, Php1,426.68 is supported by JVs
and CVs without ORs and/ or invoices,159 However, upon scrutiny of
the invoices and 0Rst6o supporting the amount Php6,976.7816t, they do
not contain relevant information such as the year when the
transactions took place, and/ or they were not in the name of the
petitioner. Moreover, the submitted OR/invoices do not pertain to
telephone expenses but to food items, grocery items, transportation,
etc. Therefore, these documents do not support petitioner's allegations.
Thus, the Court upholds in toto the assessment on this category

in the amount of Php8,403.43.
l.b.D.l) Miscellaneous Expenses - Reimbursement to Employees -

Php8,641.00
Miscellaneous expenses refer to donations, notarial, and postage

fees, 162 broken down as follows:
156 Id., Exhibit "U-20"

157 Records Box 4, ICPA Report, Exhibit "UUU."
158 Id.
159 Id. at 36.
160 Records Box 1, Petitioner's FOE, Exhibits "AA-01" to "AA-28."
161 Php8,403.46 less Php1,426.68.
162 Records Box 4, Petitioner's FOE, Exhibit "UUU." (
DECISION
CTA CASE NO. 8478
Page 26of55
DETAILS AMOUNT
Donations Php 4,000.00
Notarial Fees 1,725.00
Postage Fees 2,916.00
TOTAL PHP 8,641.00
As noted by the ICPA, the donations and notarial fees

amounting to Php4,000.00 and Php1,725.00, respectively, were
supported by JVs and/ or CVs only163, and should be disallowed. The
remaining Php2,916.00 pertaining to postage fees was supported by
acknowledgement receipts164, which is not a significant document,
thus, should also be denied. Thus, the Court upholds the assessment
amounting to Php8,641.00.
l.b.D.2) Miscellaneous Expenses - Local Taxes and Other Fees -

Php67,820.00
This pertains to payments to the Bureau of Food and Drugs

("BFAD"), City of Makati and City of Lucena for the renewal fees of
the company's products, community tax certificate (" CTC") and filing
fees.1 65
The ICPA notes that only Php62,120.00 is supported with ORs

while Php5,700.00 is supported only with CVs and/ or PCVs,166
However, upon further examination by the Court of the documents
presented, out of the Php62,120.00, only Php26,145.00 is actually
supported by valid documents, to wit:
PAYEE PARTICULARS AMOUNT EXHIBIT

City of Makati Community Tax Certificate Php 10,500.00 BB-35
City of Makati Certificate Fee 45.00 BB-38
City of Makati Filing Fee 100.00 BB-39
BFAD Renewal 8,000.00 BB-45
BFAD Renewal 6,000.00 BB-45
BFAD Transfer of location 1,000.00 BB-47
Brgy. San Lorenzo Clearance 500.00 BB-50
TOTAL PHP 26,145.00
163
164
Id. at 37.
Records Box 1, Petitioner's FOE, Exhibits "BB-31," "BB-43," and "BB-53."
r
165 Records Box 4, Petitioner's FOE, Exhibit "UUU," p. 37.
166 Id.
DECISION
CTA CASE NO. 8478
Page 27 o£55
As a result, the assessment on local taxes and other fees

amounting to Php41,675.00167 is sustained.
l.b.E) Warehousing Fees Lodged Under Rentals- Php913,590.76
Payments for warehousing fees lodged under rentals amounting

to Php913,590.76 pertain to payments to Lambert Williams Logistics,
Inc. ("LWLI") for warehousing freight and freight charges which were
lodged under "other rent- warehousing."168
An examination of the documents presented shows that

petitioner paid LWLI for warehousing services in the amount of
Php2,048,610.23169, while the amount subjected to 2% EWT for LWLI
based from the alphalist is Php2,908,922.501 70. Consequently, the Court
concludes that warehousing fees were all subjected to 2% EWT, hence,
this assessment is cancelled.
l.b.F) Rentals Lodged Under Miscellaneous Expenses- (Php231,715.51)
The ICPA was unable to determine the nature of the rentals (with
credit balance) lodged under miscellaneous expense amounting to
(Php231,715.51), which was considered by the BIR as a deduction from
the amount of non-deductible rental expense.1 71 Similarly, BIR did not
provide any basis for this finding. Therefore, this item is cancelled.
l.b.G) Payments to Various Insurance Companies- Php539,963.10
167 Php5,700 plus (Php62,120.00 less Php26,145.00)

16s Jd.
169
CUSTOMER OR NUMBER AMOUNT PER OR EXHIBIT
Lambert Williams Logistics, Inc. 7587 Php 180,335.64 CC-02
Lambert Williams Logistics, Inc. 7856 172,196.10 CC-07
Lambert Williams Logistics, Inc. 8171 1%,614.34 CC-24
Total Amount Per OR Php 2,048,610.23
Total Amount Subjected to EWT per BIR Form 1604-E 2,908,922.50
DIFFERENCE PHP (860,312.27)
170 Records Box 1, Petitioner's FOE, Exhibit "J-1," p. 38 of 39.

171 Records Box 4, Petitioner's FOE, Exhibit "UUU," p. 38. cJ
DECISION
CTA CASE NO. 8478
Page 28 of 55
Payments to various insurance companies such as Maxicare

Healthcare (Php447,546.74), United Coconut Planters Life Assurance,
Inc. (Php60,139.41) and AON Philippines, Inc. (Php31,190.32)
represent group personal accident and life insurance policies for its
employees. The ICPA noted that petitioner erroneously over-booked
the said account in the amount of Php1,086.63.
Careful examination of the documents presented shows that

petitioner was able to provide substantial and corroborating evidence
to refute respondent's assessment with regard to payment to insurance
companies, in the amount of Php538,876.471 72 .
l.b.H) Employee Training Cost- Php102,935.71
The ICPA noted that petitioner made an accrual in the amount

of Php220,000.00 for employee trainings and made a reversal at year-
end in the amount of Php117,064.29.1 73 In effect, actual expense for
employee trainings amounted to Php102,935.71174.
However, upon examination of the evidence submitted,

petitioner presented only JVs17S as supporting documents for the
actual expenses for employee training costs. Thus, the assessment in
the amount of Php102,935.71 is sustained.
l.b.I) Staff Functions- Php1,566,921.05
As noted by the ICPA176, the staff functions amounting to

Php1,566,921.05 represents other employee cost, as enumerated in the
table below:
172
NAME OF ISSUER ORNO. AMOUNT EXHIBIT
Maxicare Healthcare 022179v Php 389,436.00 DD-02
Maxicare Healthcare 022180v 27,527.74 DD-02
Cocolife 63661 60,139.41 DD-18
AON Philippines 15429 20,682.92 DD-23
AON Philippines 16674 10,507.40 DD-29
Total Php 538,876.47
Over-booked expense 1,086.63

174 Php220,000.00 less Php117,064.29.
175 Records Box 1, Exhibits "EE-01" to "EE-24."
(
DECISION
CTA CASE NO. 8478
Page29of55
ACCOUNT DESCRIPTION AMOUNT

1. Optical and Dental/Medical Allowance Php 200,198.24
2. Birthday and Meal Allowance 44,261.45
3. Uniform Allowance 98,796.18
4. Service Award 44,238.15
5. Marriage Benefits 9,000.00
6. Other Employee Reimbursements 132,813.71
7. Contribution to Retirement Fund 440,418.00
8. Accrued Employment Cost 605,687.50
Php 1,575,413.23
Less: Adjustments 8,492.18
TOTAL PHP 1,566,921.05
l.b.I.l) Optical and Dental/Medical Allowance- Php200,198.24
Findings of the ICPA reveal that out of Php200,198.24, only

Php199,116.09 is properly supported by JV, CVs and 0Rs.l 77 The
difference of Php1,082.15 is supported by CVs and PCVs only.
Upon further examination of the documents presented, the

Court finds that optical, dental and medical allowance amounting to
Php23,249.83 should likewise be denied for the following reasons:
CUSTOMER DATE AMOUNT EXHIBIT REASON

Mercury Drug Corp. - Php 65.20 FF-004 Undated Tape Receipt
Mercury Drug Corp. - 84.25 FF-005 Undated Tape Receipt
Farmacia Lily & Gen. Mdse. 2/12/2007 90.00 FF-006 Without Name of Payee
Farmacio San Lazaro 2/16/2007 65.37 FF-010 Without Name of Payee
Farmacia Lily & Gen. Mdse. 3/30/2007 80.25 FF-031 Without Name of Payee
Padova Pharmacy 2/23/2007 105.00 FF-052 Without Name of Payee
Sandy Cualing 3/26/2007 207.00 FF-055 Supported by PCV only
Cyrial Pharmacy 5/8/2007 170.00 FF-074 Without Name of Payee
Sandy Cualing 5/29/2007 1,082.00 FF-077 Supported by PCV only
R. Legaspi 3/12/2007 1,005.23 FF-111 Supported by PCV only
Winnie Pinpin 1/22/2007 324.00 FF-144 Supported by CV only
177 Records Box 4, Exhibit "UUU," p. 39.

I
DECISION
CTA CASE NO. 8478
Page 30of55
Winnie Pinpin 2/2/2007 7,792.70 FF-145 Supported by CV only

L. Vallijera 9/13/2007 286.50 FF-192 Supported by PCV only
M. Santiago 1/18/2007 4,344.00 FF-234 Supported by CV only
M. Santiago 3/12/2007 511.00 FF-239 Supported by PCV only
A. Vallejera 3/14/2007 116.00 FF-252 Supported by PCV only
A. Vallejera 3/28/2007 994.00 FF-257 Supported by CV only
A. Zapanta 2/28/2007 300.50 FF-277 Supported by PCV only
TOTAL PHP 23,249.83
1.b.I.2) Birthday and Meal Allowance- Php44,261.45
ICPA notes that out of the Php44,261.45lodged under birthday

and meal allowance, only Php38,295.95 is properly substantiated by
CVs, PCVs and 0Rs178 while Php5,965.501 79 is backed up by CVs and
PCVs only. Therefore, the amount of Php5,965.50 should be denied for
not being supported by proper documents.
1.b.I.3) Uniform Allowance- Php98,796.18
As noted by the ICPA1so, uniform allowance can be broken down

(as supported by proper documents, loan receipts and CVs/PCVs) to
Php89,165.68, Php2,483.62 and Php7,146.88, respectively.1B1 The Court
holds that loan receipts, CVs and PCVs are not proper documents,
thus, the amounts of Php2,483.62 and Php7,146.88 should be denied.
Upon further examination by the Court, it found that an

additional Php22,693.00 should be denied for the following reasons:
CUSTOMER DATE AMOUNT EXHIBIT REASON

Ferdinand Flores 1/17/2007 Php 15,000.00 HH-03 Supported by CV only
Rizhell Rivera 2/28/2007 2,666.75 HH-07 Supported by CVonly
Karen Rivera 5/15/2007 622.75 HH-21 Supported by PCV only
Maricar Santiago 1/29/2007 2,000.00 HH-37 Supported by CV only
Winnie Pinpin 4/2/2007 1,214.00 HH-43 Supported by CVonly
Winnie Pinpin 6/13/2007 1,189.50 HH-46 Supported by PCV only
TOTAL PHP 22,693.00
1.b.I.4) Service Award- Php44,238.15
178 Records Box 1, Exhibits "GG-01" to "GG-61."

180 Id. at 41.
1s1 Id.
(
DECISION
CTA CASE NO. 8478
Page 31 of 55
Service awards pertain to trip expenses (gasoline, hotel, meal

allowances) granted to employees for the length of service rendered in
the company _18 2 The Court agrees with the findings of the ICPA that
expenses amounting to Php149.60 are only supported by CVs and
PVCs, while the amount of Php44,088.55 is properly substantiated.JB3
l.b.I.S) Marriage Benefits- Php9,000.00
This pertains to fixed financial incentives given to a newly-wed

employees amounting to Php3,000.00 per employee.184 This was
awarded to three (3) employees, namely: Veronica Abuel, Karen
Rivera and Winnie Pinpin, as supported by Certificates of Marriage
and CVslss. Therefore, this assessment is cancelled.
1.b.I.6) Other Employee Reimbursements- Php132,813.71
This pertains to various expenses such as Christmas raffle prizes,

anniversary expenses, flowers for burial, etc.JB6 As noted by the ICPA,
only Php131,316.75 was supported by proper documents, while
Php1,496.96 was supported by CVs and PCVs only.J87
Further inspection of the evidence reveals that an additional

amount of Php10,105.71 should be denied for not being supported by
proper documents, broken down as follows:
CUSTOMER DATE AMOUNT EXHIBIT REASON FOR DISALLOWANCE

11
Johann Cainglet 12/7/2007 Php 7,625.71 "KK-05 Supported by Statement of Account
11
Pizzeria 9/17/2007 2,480.00 "KK-17 Supported by Delivery Receipt
TOTAL PHP 10,105.71
1.b.I.7) Contribution to Retirement Fund- Php440,418.00
This assessment is cancelled since substantial evidence, such as

CV, OR, and accrual schedulelss, was provided in order to refute the
assessment.
182 Records Box 4, Exhibit "UUU, p. 41.11
183 Records Box 1, Exhibits "II-01 to "II-34.

II II
184 Records Box 4, Exhibit "UUU, p. 41.II
185 Records Box 1, Exhibits "/J-1 to "JJ-6.

11 11
186 Records Box 4, Exhibit "UUU, p. 41.II
187 Id.
188 Records Box 1, Exhibits "LL-1 to "LL-3. 11
II
{
DECISION
CT A CASE NO. 8478
Page32of55
l.b.I.B) Accrued Employment Cost- Php605,687.50
This pertains to various accruals for possible employee costs

such as travel, gasoline and uniform,189 The Court agrees with the
finding of the ICPA that the said accrual may be disallowed as
deductions for income tax purposes due to non-withholding.
Thus, respondent's assessment on staff functions is sustained but

in the reduced amount of Php671,568.57, computed as follows:
ACCOUNT DESCRIPTION AMOUNT

1. Optical and Dental/ Medical Allowance Php 24,331.98
2. Birthday and Meal Allowance 5,965.50
3. Uniform Allowance 32,323.50
4. Service Award 149.60
5. Marriage Benefits 0.00
6. Other Employee Reimbursements 11,602.67
7. Contribution to Retirement Fund 0.00
8. Accrued Employment Cost 605,687.50
Php 680,060.75
Less: Adjustments 8,492.18
Based from the foregoing discussion, payments for services to

contractors by top lOk corporation amounting to Php3,650,227.71 is
disallowed, computed as follows:
DETAILS AMOUNT
A. Advertising
1. Giveaways Php 2,299,318.08
Sub-total Php 2,334,213.08
B. Transportation and Travel
Sub-total Php 267,543.22
C. Communication Light and Water
D. Miscellaneous Expenses
1. Reimbursement to Employees Php 8,641.00
2. Local Taxes and Other Fees 41,675.00
G. Payments to Various Insurance Companies
4. Erroneous Booking - Over Ph£ 1,086.63

(
DECISION
CTA CASE NO. 8478
Page33of55

H. Employee Training Cost Php 102,935.71
I. Staff Functions Php 671,568.57
TOTAL PHP 3,648,227.71
l.c) Payment by Top 10K- Goods- Php17,087,895.00
Respondent computed the above assessment as follows:
DETAILS AMOUNT
Per ITR/FS Php 141,469,518.00
Per 1601 E/C/F Alphalist 12,564,640.00
Discrepancy Per PAN Php 128,904,878.00
Adjustment Per Re-investigation 111,816,983.00
AMOUNT NOT SUBJECTED TO WITHHOLDING PHP 17,087,895.00
Upon re-investigation conducted by respondent,

importations/shipments from Herbalife Luxemburg in the amount of
Phplll,816,983.00 were re-considered in the computation of
deficiency taxes since the same was reflected in the VAT returns.1 90
The Court notes that the assessed amount of Phpl7,087,895.00 was
already included by respondent in the computation of disallowed
expenses due to non-withholding. Hence, the assessment for this
category is cancelled.
2.a) Salaries and Wages- Php727,797.05
The discrepancies found by the respondent are as follows:
DETAILS AMOUNT
1. Temporary Pay Php 141,313.95191
2. Insurance Retirement Fund 440,418.24192
3. Reconciling Item for Retirement Cost 146,065.00
TOTAL PHP 727,797.19193
2.a.1) Temporary Pay- Php141,313.95
190 Records Box 1, Formal Assessment Notice, Exhibit "A," Annex "A," par. d.
191 Records Box 4, Exhibit "UUU," Annex S.
192 Id., Annex T.
193 Rounding off difference of .14

(
DECISION
CTA CASE NO. 8478
Page 34of55
Temporary pay represents payments to Aljems Andrade, A.

Estacio, Louie Aguas, and Rex Tolentino, who are usually hired to do
clerical jobs and to fill-in regular workforce.J94
The ICPA noted that payments to Mr. Aljems Andrade ("Mr.

Andrade") amounting to Php103,074.40195 for contract labor have
exceeded the statutory minimum wage per year of Php60,000.00, and
should be subjected to withholding tax on compensation pursuant to
Section 2.79 (A) of RR No.2-98, as amended.J96
On the other hand, petitioner maintains197 that the applicable

wage order is Wage Order ('WO") No. NCR-12 from January 1 to
August 27, 2007 and WO No. NCR -13 from August 28 to December 31,
2007. The minimum wage rate per the afore-cited WOs are
Php350.00/ day and Php362.00/ day, respectively; that based on the
prevailing minimum wage rates, Mr. Andrade could have earned a
total minimum wage for the year 2007 in the amount of
Php110,448.00198; and that the actual compensation of Mr. Andrade
amounting to Php103,074.40 falls below the minimum statutory wage,
thus, not subject to tax.
The Court agrees with petitioner that for the year 2007, the
applicable wage orders are WO Nos. NCR-12 and 13. However, the
Court disagrees with the petitioner's computation of statutory
minimum wage. Records disclose that Mr. Andrade did not work for
26 days a month for 12 months for the year 2007. Based on the evidence
on record, Mr. Andrade worked for 220 days only for the entire 2007
and could have earned a statutory minimum wage of Php77,948.00,
computed below:
NO. OF
NAME OF
PERIOD AMOUNT DAYS EXHIBIT
EMPLOYEE
WORKED
Jan.1 to Aug. 27,2007 Aljems Andrade Php 1,300.00 4 "PP-01" to "PP- 04"
Jan.1 to Aug. 27, 2007 Aljems Andrade 1,894.10 5 "PP-05" to "PP- 08"
Jan.1 to Aug. 27, 2007 Aljems Andrade 2,259.80 5 "PP-13" to "PP-15"

195 Id., Annex S
196 Id. at49
197 Records, Vol. 3, Memorandum for Petitioner, p. 1267.

198
DETAILS AMOUNT
Statutory Minimum Wage Gan to Aug 2007)
Php350/day * 26 days/month • 8 months Php 72,800.00
Statutory Minimum Wage (Aug to Dec 2007)
Php362/ day • 26 days/ month • 4 months Php 37,648.00
(
DECISION
CTA CASE NO. 8478
Page 35of55
Jan.1 to Aug. 27,2007 Aljems Andrade 1,778.90 3 "PP-62" to "PP- 66"
Jan.1 to Aug. 27,2007 Aljems Andrade 2,112.50 4 "PP-119" to "PP-123"
TOTAL PHP 65,557.70 141
Minimum Wage @Php350.00 per Day for 141 Days Php 49,350.00
(Per Wage Order No. NCR-12)
Aug. 28 to Dec. 31, 2007 Aljems Andrade Php 2,087.10 4 "PP-124" to "PP-128"
Aug. 28 to Dec. 31, 2007 Aljems Andrade 2,672.60 5 "PP-129" to "PP-133"
Aug. 28 to Dec. 31,2007 Aljems Andrade 2,742.20 5 "PP-134" to "PP-138"
TOTAL PHP 37,512.70 79
Minimum Wage @Php362.00 per Day for 79 Days (Per Wage Order No. NCR-13) Php 28,598.00
Total Compensation received by A. Andrade Ph£ 103,070.40
SHOULD BE MINIMUM WAGE OF A. ANDRADE TO BE EXEMPT FROM WTC PHP 77,948.00
From the foregoing, the actual compensation of Mr. Andrade in

the amount of Php103,070.40 exceeded the minimum wage of
Php77,948.00. Thus, the Court upholds the assessment on temporary
pay in the reduced amount of Php103,070.40.
2.a.2) Insurance Retirement Fund- Php440,418.24
Insurance retirement fund pertains to petitioner's provision for

the contribution to its funded and non-contributory, defined benefit
pension plan,199 The Court agrees with the ICPA that it is the same item
lodged under the "Other Employment Cost" account, which pertains
r
DECISION
CT A CASE NO. 8478
Page36of55
to actual contribution to retirement fund supported by ORs and

vouchers which was claimed as deduction for income tax purposes. 2oo
Therefore, this item is cancelled.
2.a.3) Reconciling Item for Retirement Cost- Php146,065.00
This pertains to the additional deductible expense arising from

the difference between the retirement cost booked per accounting as
against the amount of deductible expense for tax purposes. 201
However, no evidence was presented to disprove respondent's
allegation, hence, said assessment is sustained.
In sum, the assessment on salaries and wages in the amount of

Php249,135.40 remains, computed as follows:
DETAILS ·AMOUNT
Temporary Pay Php 103,070.40
Reconciling Item for Retirement Cost 146,065.00
3.) Final Withholding Tax ('fFWT")- Php75,609,617.00
Based on the ICPA report202, payments made to non-resident and

resident individuals and ~orporations alleged by respondent as not
subjected to FWT amounting to Php75,609,617.00203 is comprised of the
following items:
DETAILS AMOUNT
a. Royalties - Resident Corporation Php 41,292,473.00
b. Royalties- Non-Resident Corporation 15,272,477.00
c. Production Bonus 12,116,340.00
d. Interest Expense 4,464,722.00
e. Management Fees 2,463,605.00
TOTAL PHP 75,609,617.00
Petitioner alleges that the above amounts are income payments

made to resident and. non-resident foreign individuals and
corporations per 2007 audited financial statements (" AFS") / income
2oo Jd.
2o1 Id. at 50.
2o2 Id. at 53.
203 Exhibit "A," FAN- Schedule la.
(
DECISION
CTA CASE NO. 8478
Page37of55
tax return ("ITR"); and that these are commission expenses and
interest payments which have been subjected to withholding tax.
Records show that the above accounts were reflected In

petitioner's 2007 AFS and annual ITR, as follows:
DETAILS AMOUNT EXHIBIT

Royalties Php 68,681,290.00 0-20
Production Bonus 32,719,766.00 0-20
Interest Expense 4,464,722.00 0-21
Management Fees 2,463,605.00 "I," Line 110
TOTAL PHP 108,329,383.00
Based on the examination conducted by the Court, the amounts

of royalties and production bonus reflected in the AFS in the amount
of Php68,681,290.00 and Php32,719,766.00, respectively, are higher
than the amount being assessed by the BIR; while the interest expense
and management fees are the same amount as indicated in the CY 2007
AFS/ITR against the assessed figures. It appears therefore, that the
assessed amounts were already included in the AFS of petitioner. As
far as taxable income is concerned, the assessed amount of
Php75,609,617.00 was properly recorded in the books of the petitioner,
thus, already subjected to the income tax due.
In sum, petitioner has disallowed expenses due to non-

withholding in the amount of Php3,971,397.11, broken down as
follows:
DETAILS AMOUNT
1.a) Professional and Management Fees Php 72,034.00
1.b) Payment to Contractors by Top 10K- Services 3,648,227.71
2.a) Salaries and Wages 249,135.40
TOTAL PHP 3,969,397.11
B. Unaccounted Expenses- Php3,769,289.73
After re-investigation of the PAN, respondent computed the

unaccounted commission expenses as follows:
(
DECISION
CTA CASE NO. 8478
Page38 of 55
DETAILS AMOUNT
Commission Expenses per BIR Forms 1601E Php 124,804,929.73204
Commission Expenses per ITR/ FS 15,897,829.00205
Unaccounted Commission Expenses Php 108,907,100.73
Less: Adjustments per Re-investigation
Production Bonus Php 32,719,766.00
Royalties 68,681,290.00
Direct Charges - Others 3,736,755.00 Php 105,137,811.00206
UNACCOUNTED COMMISSION
EXPENSES PER RE-INVESTIGATION PHP 3,769,289.73
As found by the ICPA,207 the unaccounted expenses pertain to

the following adjustments made in the company's books:
DESCRIPTION AMOUNT
a. Reversal of over accrued royalties Php
1,235,230.72
b. Reversal of aged royalty checks 121,405.54
c. Reversal of over accrued other bonus expense 1,709,836.00
d. Additional accrual of other bonus expense (169,245.00)
e. Brokerage Fees 887,021.00
TOTAL COMMISSIONS ACCOUNTED FOR PHP 3,784,248.26
A review of the documentary evidence submitted to the Court

reveals that petitioner was able to properly account for the commission
expenses lodged under reversal of over accrued royalties amounting
to Php1,235,230.722os, reversal of aged royalty checks amounting to
Php121,405.54209 and reversal of over accrued other bonus expense of
Php1,709,836.002Io.
However, documents submitted to support the additional

accrual of other bonus expense amounting to Php169,245.00211 pertains
to 2006 expenses, and is therefore outside the period of claim.
Petitioner likewise failed to submit supporting documents for
brokerage fees amounting to Php887,021.00, thus, it will be considered
unaccounted and should be included in the computation of deficiency
income tax.
204 Records Box 1, Exhibits "P-01" to "P-53," total per BIR Form 1601E is Php124,804,929.65, with
rounding off difference of 0.08.
2os Id., Exhibit "0-20."
206 Id., Exhibit "A," Schedule 2.
2os Id., Annex W, Exhibits "CCC-01" to "CCC-42."
2°9 Id., Exhibit "UUU," Annex X, Exhibits "DDD-1" to "DDD-5."
210 ld., Exhibit "UUU," Annex Y, Exhibits "EEE-1" to "EEE-4."
211 Id., Exhibit" UUU," Annex Z.

(
DECISION
CTA CASE NO. 8478
Page39of55
Based from the foregoing, petitioner has unaccounted

commission expenses not subjected to income tax amounting to
Php702,817.47, computed as follows:
DETAILS AMOUNT
Unaccounted Commission Expenses per Re-investigation Php 3,769,289.73
Less: Properly accounted commission expenses
Reversal of over accrued royalties Php 1,235,230.72
Reversal of aged royalty checks 121,405.54
Reversal of other bonus expense 1,709,836.00 Ph£ 3,066,472.26
UNACCOUNTED COMMISSION EXPENSES PHP 702,817.47
C. Unsupported Expenses- Php 10,105,563.00
Based on the ICPA Report2t2, respondent's assessment on

unsupported expenses amounting to Phpl0,105,563.00 is comprised of
the following transactions:
NATURE OF PAYMENTS AMOUNT REFERENCE

a. Credit Card Fee Php 3,974,175.% Exhibit "UUU," part 2, Annex AA
b. Payments to Affiliates
1. Herbalife Singapore Pte. Ltd. Php 2,463,604.82
2. Herbalife Europe Ltd. 33,479.67 Ph£ 2,497,084.49 Exhibit "UUU," part 2, Annex BB
c. Accrued Other Miscellaneous Expense 1,801,642.53 Exhibit "UUU," part 2, Annex CC
d. Payment for Local Taxes and Other Fees
1. City of Makati Php 1,559,382.95
2. City of Lucena 200.00
3. Barangay San Lazaro 800.00
4. Bureau of Internal Revenue 100.00
5. Bureau of Food and Drugs 56,075.00 Ph£ 1,616,557.95 Exhibit "UUU," part 2, Annex DD
e. Bank Charges 115,721.92 Exhibit "UUU," part 2, Annex EE
f. Employee Reimbursements 8,641.00 Exhibit "UUU," part 2, Annex FF
g. Donation and Contribution 6,500.00 Exhibit "UUU," part 2, Annex GG
h. Others 23,310.00 Exhibit "UUU," part 2, Annex HH
i. Cash Over/ (Under) (965.50) Exhibit "GGG"
j. Unaccounted Difference 62,894.65 Exhibit "GGG"
TOTAL MISCELLANEOUS EXPENSE PER FSjiTR PHP 10,105,563.00
1. Credit Card Fee- Php3,974,175.96
Credit card fee pertains to the service fee charged by credit card
companies for sales on account.2t3 The ICPA noted that only
Php700,287.97 was properly supported, while the remaining amount,
Php3,273,887.99 was backed only by JVs2t4.
However, the Court found that the documents identified by the

ICPA as proper supports for credit card service fees GVs and payment
212 Records Box 4, Exhibit "UUU," pp. 68-69.

213 Id. at 69.
214 Records Box 3, Exhibits "HHH-0001" to "HHH-0034."
(
DECISION
CTA CASE NO. 8478
Page40of55
advices215) are insufficient to refute the assessment. Thus, the Court

upholds the assessment for credit card fee amounting to
Php3,974,175.96.
2. Payments to Affiliates- Php2,497,084.49
Petitioner claims that it entered into agreements with Herbalife

Europe Limited and Herbalife Singapore. The former through a Non-
Resident Distributor Payment Agreement216 executed between
petitioner and Herbalife Europe Limited. Under the said agreement,
Herbalife Europe remains as an independent contractor as a settlement
agent for petitioner.217
Thus, with respect to payments made to Herbalife Europe Ltd.,

for management services rendered, the Court finds that petitioner was
able to provide sufficient proof to rebut the assessment. Petitioner
submitted JVs218, intercompany billings219 and invoices22o, to support
its claim, thus, the assessment in this regard is cancelled.
On the other hand, with respect to payments for management

services allegedly rendered by Herbalife Singapore Pte. Ltd., the Court
finds that petitioner failed to establish the direct correlation between
the expense being deducted and the development, management,
operation and/ or conduct of its business. The unsigned Service
Agreement that it submitted was denied admission by the Court for
being a mere photocopy. Further, the debit note22l and the bank
validated deposit slip as a proof of electronic fund transfer222 are
insufficient to support its claim and to refute respondent's findings.
Thus, the assessment by respondent in the amount of Php2,463,604.82
is sustained.
3. Accrued Other Miscellaneous Expense- Php1,801,642.53
21s Records Box 3, Exhibits "HHH-0035" to "HHH-0432."

216 Records Box 1, Exhibit "D."
217 Id. at 2.
21 B Records Box4, Exhibits "III-02," "III-04," "III-06," "III-08," "III-10," "III-12," "III-14," "III-16," "III-
11
18," "III-19," "III-21," "III-23," and "III-25.
11 11 11 11
219 Id., Exhibits "III-01, "III-03, "III-05," "III-07," "III-09, "III-11, "III-13," "III-15,
11 11 11
lll-17, "III-
20, "III-22, "III-24," and "III-26.
II II II
11 11 11
220 Id., Exhibits "III-28, "III-30, "III-32, "III-34," "III-36, "III-38, "III-40, "III-42, "III-44," "III-
11 11 11 11
46, "III-48," and "III-50.

II II
221 Id., Exhibit "AAA-1."

222 Id., Exhibit "AAA-3."
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DECISION
CT A CASE NO. 8478
Page41 of 55
This account was supported by JVs223 only, the Court finds these
documents insufficient to cancel the assessment. Thus, the assessment
is upheld amounting to Phpl,801,642.53.
4. Payments for Local Taxes and Other Fees- Php1,616,557.95
The Court agrees with the findings of the ICPA that petitioner
was able to provide sufficient proof such as ORs, CVs and PVCs224 up
to the amount of Phpl,610,857.95. As for the remaining Php5,700.00,
the Court finds that the same is supported only by CVs and PCVs225,
hence, only the assessment relating to the latter amount is sustained.
5. Bank Charges- Php115,721.92
These pertain to charges from various banks226. The Court finds

that the evidence presented, such as JVs and Metrobank application
for fund transfer form 227, do not prove nor support petitioner's
allegation that these are indeed bank charges; and that the JVs are
internally generated documents. In order to support petitioner's claim
that these are bank charges, the supporting documents for which the
JVs were based should have been presented. Thus, the Court upholds
the assessment amounting to Phpll5,721.92.
6. Employee Reimbursements - Php8,641.00
This amount represents payments for notarial fees, postage

stamps, service fees and donations.22s However, upon examination of
the documents submitted to the Court, only the OR229 amounting to
Php22.00 is valid, while the remaining amount of Php8,619.00 is
supported by CVs23o, PCVs231, acknowledgment receipt232 and ORs
223 Records Box 4, Exhibits "JJJ-1" to "JJJ-7. 11
224 Id., Exhibits "KKK-01 to "KKK-49.

11 11
225 Id., Exhibits "KKK-46 and "KKK-47.

11 11
226 Id., Exhibit "UUU, p. 70.

11
227 Id., Exhibits "LLL-01" to "LLL-69. II

228 Id.
229 Records Box 4, Exhibit "MMM-33. II

11
230 Id., Exhibits "MMM-01, "MMM-03, "MMM-06," "MMM-09, "MMM-12,
11 11 11 11
"MMM-15,
"MMM-18, "MMM-21, "MMM-24, and IIMMM-28.
11 11 11 11
11
231 Id., Exhibits "MMM-02,
11 11 11 11 11
"MMM-04, "MMM-07, "MMM-10, "MMM-13, "MMM-16,
"MMM-22," "MMM-25," "MMM-26, "MMM-29, "MMM-30, and "MMM-32.
11 11 11 11
232 Id., Exhibit "MMM-31.

11
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DECISION
CTA CASE NO. 8478
Page42of55
without petitioner's name and/or without ATP233. Thus, the

assessment amounting to Php8,619.00 is sustained.
7. Donation and Contribution- Php6,500.00
The Court agrees with the ICPA that only the amount of
Php2,500.00 was properly supported by 0Rs234, thus, the amount
Php4,000.00 remains unsubstantiated with proper documents.
8. Others- Php23,310.00
This amount represents payments for destruction charge lodged

under other miscellaneous expense, was properly supported by an
QR235, and is therefore cancelled.
9. Cash Overj(Under) - (Php965.50)
Cash Over/ (Under) amounting to (Php965.50) is cancelled for

being properly supported236.
10. Unaccounted Difference- Php62,894.65
The assessment for unaccounted difference is sustained for

petitioner's failure to account for the same.
In sum, out of the Phpl0,105,563.00 assessed by respondent as

unsupported miscellaneous expenses, petitioner was able to provide
documentary evidence up to Phpl,669,204.12 only. The remaining
Php8,436,358.88 is unsupported, hence, sustained for reasons
previously discussed and computed as follows:
NATURE OF PAYMENTS AMOUNT

a. Credit Card Fee Php 3,974,175.96
b. Payment to Affiliates - Herbalife Singapore 2,463,604.82
c. Accrued Other Miscellaneous Expense 1,801,642.53
d. Payment for Local Taxes and Other Fees 5,700.00
233 Records Box 4, Exhibits "MMM-05," "MMM-08," "MMM-11," "MMM-14," "MMM-17," "MMM-
20," "MMM-23," and "MMM-27."
234 Id., Exhibit "NNN-2."
235 Id., Exhibit "000-2."
236 Records Box 3, Exhibit "GGG-1."

(
DECISION
CT A CASE NO. 8478
Page43of55
e. Bank Charges 115,721.92

£. Employee Reimbursements 8,619.00
g. Donation and Contribution 4,000.00
j. Unaccounted Difference 62,894.65
TOTAL UNSUPPORTED MISCELLANEOUS EXPENSE PHP 8,436,358.88
D. Excess Credits Carried Over to Succeeding Year- Php630,442.00
Excess tax credit amounting to Php630,442.00 was disallowed by

respondent as a deduction from income tax due for the reason that it
was allegedly forwarded to the succeeding taxable year (2008), as
verified in the Integrated Tax System ("ITS").
However, upon examination of the BIR records, there was no

document proving respondent's contention, hence this assessment is
cancelled.
As discussed, petitioner has basic deficiency income tax due in

the amount of Php3,957,558.71, computed as follows:
DETAILS AMOUNT
Taxable Income per ITR Php 9,377,113.00
Add:
Disallowed Expenses due to non-withholding Php 3,969,397.11
Unaccounted Expenses 702,817.47
Unsupported Expenses 8,436,358.88 Phe 13,108,573.46
Adjusted Taxable Income Phe 22,485,686.46
Income Tax Due (35%) Php 7,869,990.26
Less:
Prior Year's MCIT Php 3,281,989.55
Creditable Tax Withheld 630,442.00 Phe 3,912,431.55
BASIC DEFICIENCY INCOME TAX PHP 3,957,558.71
II. DEFICIENCY VALUE ADDED TAX- Php3,922,839.57
Respondent computed the alleged deficiency VAT amounting

to Php3,922,839.57237, as follows:
DETAILS AMOUNT
Taxable Sales per VAT returns [Php] 316,188,408.80238
Add: Undeclared Income from Unaccounted Expense (Schedule 2) 3,769,289.73
Taxable Sales per investigation [Php] 319,957,698.53
237Records Box 1, FAN, Exhibit "A."

238 Records Box 4, Exhibits "PPP-01," line 15B + "PPP-09," line 15B + "PPP-19," line 15B + "PPP-28,"
line 15B.
(
DECISION
CTA CASE NO. 8478
Page44of55
Output Tax Due 38,394,923.83

VAT Due [Php] 18,903,752.63
Less: Payments per BIR records (Integrated Tax System) 16,643,909.76
Deficiency Value-added Tax [Php] 2,259,842.87
Add: Interest (01.26.08 to 09.30.11) 1,662,996.70
TOTAL AMOUNT DUE [PHP] 3,922,839.57
The Court agrees with the findings of the ICPA that petitioner's
VAT payments amounted to Php18,451,437.85 based on its Quarterly
VAT Return (BIR Form No. 2550Q), summarized as follows:
QUARTER AMOUNT EXHIBIT

1st Quarter Php 3,183,986.07 "PPP-01," line 25
2nd Quarter 3,062,929.37 "PPP-09," line 25
3rd Quarter 6,850,724.70 "PPP-19," line 25
4th Quarter 5,353,797.71 "PPP-28," line 25
TOTAL PHP 18,451,437.85
Based on the FAN, the deficiency VAT pertains to undeclared

income from unaccounted expenses amounting to Php3,769,289.73. As
previously discussed, petitioner was able to account the said expenses
but only to the extent of Php3,066,472.26, while the amount
Php702,817.47 remains unaccounted, to wit:
DETAILS AMOUNT
Unaccounted Commission Expenses per Re-investigation Php 3,769,289.73
Less: Properly accounted commission expenses
Reversal of over accrued royalties Php 1,235,230.72
Reversal of aged royalty checks 121,405.54
Reversal of other bonus expense 1,709,836.00 Ph£ 3,066,472.26
UNACCOUNTED COMMISSION EXPENSES PHP 702,817.47
From the foregoing, petitioner has a basic deficiency VAT arising

from unaccounted expenses of Php84,338.10, computed as follows:
DETAILS AMOUNT
Taxable Sales per VAT Returns Php 316,188,408.80
Add: Undeclared Income from Unaccounted Expenses 702,817.47
Taxable Sales per Investigation Php 316,891,226.27
Output Tax Due Php 38,026,947.15

VAT Due Php 18,535,775.95
239 Records Box 4, Exhibits "PPP-01," line 22 + "PPP-09," line 22 + "PPP-19," line 22 + "PPP-28," line
22.
(
DECISION
CTA CASE NO. 8478
Page45 of 55
Less: Payments per BIR Form No. 2550Q 18,451,437.85

BASIC DEFICIENCY VALUE ADDED TAX PHP 84,338.10
III. DEFICIENCY EXPANDED WITHHOLDING TAX

Php767977.34
Respondent assessed240 petitioner for failure to withhold and

remit the withholding tax on the following income payments in the
amount of Php767,977.34, to wit:
NATURE OF INCOME PAYMENT AMOUNT TAXRATE EWTDUE

a.) Professional and Management fees Php 1,464,269.00 10% Php 146,426.90
b.) Payment to Contractors by Top 10K Corp. -Services 6,185,661.27 2% 123,713.23
c.) Payment by Top 10K- Goods 17,087,895.00 1% 170,878.95
Deficiency Expanded Withholding Tax Php 441,019.08
Add: 20% Interest p.a. (04.16.08 to 09.30.11) 326,958.26
TOTAL AMOUNT DUE PHP 767,977.34
a.) Professional and Management Fees- Php146,426.90
Professional and management fees was already discussed241.
To reiterate, the Php1,100,000.00 pertains to payment to the

recruitment agency KPI, as fee for the placement of Mr. Enrico Garcia
as its general manager. Examination of the documents show that
payment to KPI was properly subjected to 2% withholding tax as
evidenced by BIR Form No. 1604-E242, Alphalist of Payees Subject to
EWT243, CVs244 and 0Rs245, hence, respondent cannot enforce the said
assessment against petitioner.
In addition, this account also includes expenses pertaining to

audit fees of Php239,268.00 and legal fees of Php125,000.00, payable to
Manabat Sanagustin & Co. and Britanico Sarmiento Franco &
Associates, respectively, which are general professional partnerships
not subject to EWT pursuant to Section 2.57.5 of RR No. 2-98, as
amended. However, out of the amounts in question, only the amounts
of Php168,000.00 and Php124,234.00 for Manabat and Britanico,
240 Records Box 1, FAN, Exhibit A.

11 11
241 Please see discussions under section l.a.

242 Records Box 1, Exhibit "J."
243 Id., Exhibit "J-1," p. 38 of 39.
244 Id., Exhibit "S-78."
245 Id., Exhibit 5-79."
11
(
DECISION
CTA CASE NO. 8478
Page46of55
respectively, were supported by valid documents, broken down as

follows:
Manabat Sanagustin & Co.

OR # 9670 Php 16,800.00 11/19/2007 S-70
OR # 9344 16,800.00 10/4/2007 S-67
OR # 9343 16,800.00 10/4/2007 S-64
OR # 9232 16,800.00 8/21/2007 S-61
OR # 9116 16,800.00 7/5/2007 S-58
OR # 9115 16,800.00 7/5/2007 S-55
OR # 9001 16,800.00 5/31/2007 S-52
OR # 8674 16,800.00 3/30/2007 S-50
OR # 8651 16,800.00 3/8/2007 S-47
OR # 8508 16,800.00 1/26/2007 S-44
Britanico Sanniento Franco & Associates
ORNO. ORAMOUNT ORDATE EXHIBIT
OR# 0508 Php 8,848.00 10/19/2007 S-39
OR# 0402 21,840.00 3/30/2007 S-37
OR# 0273 93,546.00 1/22/2007 S-18
As a result, only the amount Php72,034.00 was not subjected to

EWT. Thus, petitioner has deficiency EWT of Php7,203.40, computed
as follows:
GPP TAXBASE TAXRATE EWTDUE

Manabat Sanagustin & Co. Php 71,268.00 10% Php 7,126.80
Britanico Sarmiento Franco & Associates 766.00 10% 76.60
------
TOTAL PHP 72,034.00 PHP 7,203.40
b.) Payment to Contractor by Top 10k Corp.- Services- Php123,713.23
The Court agrees with the findings of the ICPA246 that payments
of services to contractors by top lOk corporations amounting to
Php1,251,069.94 were not subjected to EWT, thus, petitioner is liable
for deficiency EWT of Php25,021.40, broken down as follows:
DETAILS TAX BASE RATE TAX DUE EXHIBIT

Nature of Payments by Top 10k for purchases of services:
Payments to various insurance companies Php 539,963.11 2% Php 10,799.26 "UUU," Annex J
Employee Training Cost 102,935.71 2% 2,058.71 "UUU," Annex K
Employee Uniforms-Payments to Third Parties 2,483.62 2% 49.67 "UUU," Annex N
Accrued Employment Cost 605,687.50 2% 12,113.75 "UUU," Annex R
246 Records Box No.4, Exhibit "UUU," pp. 75-77.

r
DECISION
CTA CASE NO. 8478
Page47of55
TOTAL PHP 1,251,069.94 PHP 25,021.40
c.) Payments to Suppliers by Top 10k Corporations for purchases of Goods

- Php170,878.95
Similarly, the Court agrees with the findings of the ICPA that
purchases of goods (Additions to Plant, Property and Equipment)
amounting to Phpl,538,115.00 were not subjected to EWT, thus
petitioner is liable for deficiency EWT in the amount of Phpl5,381.15,
computed as follows:
DETAILS AMOUNT EXHIBIT

Amount of Payments by Top 10K Corp. for
Purchase of Goods per Company's Schedule of
Additions to Property, Plant and Equipment Php 17,087,895.52 "QQQ-1 to2"
Less: Payments Subjected to EWT per Alphalist
Leasehold Improvements Subjected to 15% EWT Php 380,000.00 "J-1," page 39
Leasehold Improvements Subjected to 10% EWT 410,500.00 "J-1," page 39
Leasehold Improvements Subjected to 2% EWT 10,667,439.68 "J-1," page3 8
Leasehold Improvements Subjected to 1% EWT 1,291,162.67 "J-1," pages 37 and 38
Furniture and Fixtures Subjected to 2% EWT 6,250.00 "J-1," page38
Furniture and Fixtures Subjected to 1% EWT 1,562,534.16 "J-1," pages 37 and 38
Office Equipment Subjected to 1% EWT 1,101,447.58 "J-1," pages 37 and 38
Computer Equipment Subjected to 2% EWT 56,607.14 "J-1," page 38
Computer Equipment Subjected to 1% EWT 73,839.29 PhE 15,549,780.52 "J-1," page 37
Payments not Subjected to EWT Php 1,538,115.00
EWTRate 1%
DEFICIENCY EWT PHP 15,381.15
From the foregoing discussion, petitioner is liable for deficiency

EWT in the amount of Php47,605.95, computed as follows:
NATURE OF INCOME PAYMENT AMOUNT TAXRATE EWTDUE

a.) Professional and Management fees Php 72,034.00 10% Php 7,203.40
b.) Payment to Contractors by Top 10K Corp.- Services 1,251,069.94 2% 25,021.40
c.) Payment by Top 10K- Goods 1,538,115.00 1% 15,381.15
DEFICIENCY EXPANDED WITHHOLDING TAX PHP 47,605.95
IV. DEFICIENCY WITHHOLDING TAX ON COMPENSATION-

Php309,236.80
As previously discussed, respondent's assessment on salaries

and wages amounting to Php249,135.40 is upheld for petitioner's
failure to subject it to WTC, thus, it is proper for the petitioner to be
held liable for deficiency WTC in the amount of Php60,789.04,
computed as follows:
DETAILS AMOUNTS
Amount Not Subjected to Withholding Php 249,135.40
(
DECISION
CT A CASE NO. 8478
Page48of55
Average Withholding Tax Rate:

Tax Due & Withheld Php 2,055,153.64 %247
24 40 0
Taxable Compensation 8,423,657.79 = ·
BASIC DEFICIENCY WITHHOLDING TAX ON COMPENSATION PHP 60,789.04
V. DEFICIENCY FINAL WITHHOLDING TAX- Php40,918,045.57
Respondent assessed petitioner for alleged deficiency FWT in

the amount of Php40,918,045.57248, computed as follows:
INCOME SHOULD BE TAX DEFICIENCY DISCREPANCY PER

DETAILS
PAYMENT TAX RATE IMPOSED TAX RATE RE-INVESTIGATION
Royalties - Res. Corp. Php 41,292,473.00 35% 10% 25% Php 10,323,118.25
Royalties- Non-Res. Corp. 15,272,477.00 35% 10% 25% 3,818,119.25
Production Bonus 12,116,340.00 35% 10% 25% 3,029,085.00
Interest Expense 4,464,722.00 20% 15% 5% 223,236.10
Management Fees 2,463,605.00 35% 0% 35% 862,261.75
Total Php 75,609,617.00 Php 18,255,820.35
Add:
50% Surcharge 9,127,910.18
Interest (01.16.08 to 09.30.11) 13,534,315.04
TOTAL AMOUNT DUE PHP 40,918,045.57
In the details of discrepancies, respondent stated that these

amounts were royalties and income payments made to non-resident
foreign corporations which the petitioner failed to subject to FWT
(with correct tax rate), in violation of Section 28(B)(1)249 and Section
28(B)(S)(a)2so of the 1997 NIRC.2s1
Petitioner claims that the royalty overrides and production

bonuses paid to its resident and non-resident distributors are not to be
247 Records, Box 1, Exhibit "A," Schedule 5.
us Id., Schedule 1a.
249 "Sec. 28. Rates of Income Tax on Foreign Corporations. - xxx
XXX XXX XXX

(B) Tax on Non-resident Foreign Corporation. - 1) In General.- Except as
otherwise provided in this Code, a foreign corporation not engaged in trade or
business in the Philippines shall pay a tax equal to thirty-five percent (35%) of the
gross income received during each taxable year from all sources within the
Philippines, such as interests, dividends, rents, royalties, salaries, premiums (except
reinsurance premiums), annuities, emoluments or other fixed or determinable
annual, periodic or casual gains, profits and income, and capital gains, except
capital gains subject to tax under subparagraph 5 ( c ): Provided, That effective
January 1, 2009, the rate of income tax shall be thirty percent (30% )."
250 "Sec. 28. Rates of Income Tax on Foreign Corporations. - xxx
XXX XXX XXX

(B) Tax on Non-resident Foreign Corporation. (1) xxx
XXX XXX XXX
(5) Tax on Certain Incomes Received by a Nonresident Foreign
Corporation. -(a) Interest on Foreign Loans. -A final withholding tax at the
rate of twenty percent (20%) is hereby imposed on the amount of interest
on foreign loans contracted on or after August 1, 1986; (b) xxx"
251 Records Box 1, Exhibit "A," Details of Discrepancies par. (j).
(
DECISION
CTA CASE NO. 8478
Page49of55
understood as the "royalties" under Section 42(A)(4)252 of the 1997

NIRC.
Ms. Jacob testified that royalty overrides and production

bonuses form part of the benefits given to distributors. Royalty
overrides is a payment to qualified Supervisors ranging from 5 to 15%
on the monthly volume of their three (3) levels of active downline
distributors. A production bonus is how petitioner denominates a
commission, which is a bonus of 2% to 7% on downline distributors'
collective volume earned by eligible distributors.253
The Court agrees with petitioner that income payments to

resident distributors are not royalties subject to FWT but in the nature
of commissions.
An examination of documents shows that royalty and

production bonuses paid to resident and non-resident corporations
with valid supporting documents are Php40,581,983.80 and
Php25,732,329.23, respectively, as shown below:
252 "Sec. 42. Income from Sources Within the Philippines.- (A) xxx (1) xxx;
4) Rentals and Royalties. Rentals and royalties from property located in the Philippines
or from any interest in such property, including rentals and royalties for-
a) The use of or the right or privilege to use in the Philippines any copyright,
patent, design or model, plan, secret formula or process, goodwill, trademark,
trade brand or other like property or right;
b) The use of, or the right to use in the Philippines any industrial, commercial or
scientific equipment;
c) The supply of scientific, technical, industrial or commercial knowledge or
information;
d) The supply of any assistance that is ancillary and subsidiary to, and is furnished
as a means of enabling the application or enjoyment of, any such property or
right as is mentioned in paragraph (a), any such equipment as is mentioned in
paragraph (b) or any such knowledge or information as is mentioned in
paragraph (c);
e) The supply of services by a non-resident person or his employee in connection
with the use of property rights belonging to, or the installation or operation of
any brand, machinery or other apparatus purchased from such nonresident
person;
f) Technical advice, assistance or services rendered in connection with technical
management or administration od any scientific, industrial or commercial
undertaking, venture, project or scheme; and
g) The use of or the right to use: (i) motion picture films; (ii) films or video tapes
for use in connection with television; and (iii) tapes for use in connection with
radio broadcasting."
253 Records, Vol. 2, JA of Lina E. Jacob, offered as testimony of Ms. Jacob during the May 15, 2013
hearing.
(
DECISION
CTA CASE NO. 8478
Page 50 of 55
AMOUNT PER WITH SUPPORTING

DETAILS DIFFERENCE
ASSESSMENT DOCUMENTS
Royalties/Commissions to Resident
Distributors Subjected to 10% EWT Php 41,292,473.00 Php 40,581,983.80254
.. Php 710,489.20
Royalties/Commissions to Non-Resident
Distributors Subjected to 25% & 35% 27,388,817.00 25,732,329.23255 1,656,487.77
TOTAL PHP 68,681,290.00 PHP 66,314,313.03 PHP 2,366,976.97
The Court likewise agrees with the findings of the ICPA that the
amount of Php710,489.20 should be subjected to 10% EWT for not
being properly supported with documents. Hence, the Court finds
petitioner liable for deficiency EWT amounting to Php71,048.92256.
Similarly, the income payment to non-resident distributors are not
royalties that should be subjected to FWT but it is a commission subject
to withholding tax, hence, the commission amounting to
Php1,656,487.77 without supporting documents should be subjected to
25% withholding tax or a deficiency of Php414,121.94.
On the other hand, the Court finds merit in respondent's

assessment that interest expense amounting to Php4,464,722.00 is
subject to 20% FWT. Records show that it was already subjected to a
15% FWT, thus, petitioner is accountable for a deficiency 5% FWT in
the amount of Php223,236.10.
Anent the assessment for management fee, as previously

discussed, petitioner failed to prove that the services were rendered
outside the Philippines. The Confirmation Letter of Ms. Ng Woei
Bin257, without any supporting documents, is at most self-serving and
should not be given any weight. It follows, therefore, that respondent's
assessment on management fees is sustained.
Thus, based on the foregoing discussion, petitioner is liable for

deficiency FWT /EWT in the amount of Php1,570,668.71, computed as
follows:
DETAILS AMOUNT TAX RATE TAX DUE

Royalties/Commission Resident Distributors Php 710,489.20 10% Php 71,048.92
Royalties/ Commission Non-Resident Distributors 1,656,487.77 25% 414,121.94
Interest Expense 4,464,722.00 5% 223,236.10
Management Fee 2,463,605.00 35% 862,261.75
TOTAL PHP 9,295,303.97 PHP 1,570,668.71
254 Records Box 4, Exhibit "UUU," Annex U, computed as Php93,646,823.00 divided by

Php92,035,511.03 multiplied by Php41,292,473.00.
25s Id., Exhibit "UUU," Annex V.
256 Php710,489.20 X 10%.
257 Records Box 4, Exhibit "BBB-5."
rv
DECISION
CT A CASE NO. 8478
Page 51 of 55
VI. DEFICIENCY FINAL WITHHOLDING- VAT- Php8,577,939.88
Respondent assessed the petitioner for alleged deficiency

withholding VAT of Php3,822,424.68, computed as follows:
DETAILS AMOUNT
Royalties 15,272,477.00
Interest Expense 4,464,722.00
Total Php 31,853,539.00
VAT Rate 12%
Basic Deficiency Withholding VAT Php 3,822,424.68
Add: 50% Surcharge 1,911,212.34
Interest (01.11.08 to 09.30.11) 2,844,302.86
TOTAL DEFICIENCY WITHHOLDING VAT PHP 8,577,939.88
The production bonus and royalties pertain to commissions paid

to Anthony Wing and Louisa Higgins, non-resident distributors, as
evidenced by their respective affidavits2ss. However, the originals of
the affidavits were not presented, to prove that the income they
received were derived from outside the Philippines. Without such
proof, respondent's assessment in the amount of Php3,286,658.04 is
upheld, computed as follows:
DETAILS AMOUNT
Royalties 15,272,477.00
Total Php 27,388,817.00
VAT Rate 12%
DEFICIENCY WITHHOLDING VAT PHP 3,286,658.04
On the other hand, assessment on interest expense for deficiency

withholding VAT in the amount of Php535,766.04259 is cancelled for
not being subject to withholding VAT under the 1997 NIRC.
VII. DEFICIENCY DOCUMENTARY STAMP TAX- Php82,715.52
Petitioner is allegedly liable for deficiency DST in the amount of

Php36,814.00, computed as follows:
258 Records Box 4, Exhibits "TTT-3" to "TTT-4."

259 Php4,464,722.00 X 12%.
(
DECISION
CfA CASE NO. 8478
Page52 of 55
DETAILS AMOUNT
A. Increase in Due from Related Parties per FS Php 2,042,244.00
Documentary Stamp Tax (Php1.00 for every Php200.00) Php 10,212.00
B. Monthly Rent per BIR Form 1601E 410,500.00
Term (60 months) 60.00
Escalation Rate 10%
Total Rental Fee/Tax Base
Year1 Php 4,926,000.00
Year2 5,418,600.00
Year3 5,418,600.00
Year4 5,418,600.00
YearS 5,418,600.00 Phe 26,600,400.00
Documentary Stamp Tax (Php3.00 plus Php1.00
for every Php1,000.00 in excess of Php2,000.00) 26,602.00
Basic Deficiency DST 36,814.00
Add: 50% Surcharge Php 18,407.00
Interest (01.06.08 to 09.30.11) 27,494.52 Ph£ 45,901.52
TOTAL DEFICIENCY DST PHP 82,715.52
An examination of petitioner's Statement of Cash Flows260

indicates a cash flow from a financing activity, showing an increase in
due to related parties amounting to Php2,042,244.00.
Related party transactions261 is defined as petitioner's

transactions with its parent company and other related parties, which
are, under the existing policies, subject to interest at a fixed rate of 0.5%
of outstanding payables exceeding ninety (90) days. These transactions
consist mainly of cash advances from related parties used for working
capital requirements and purchase of inventories.262
Petitioner failed to provide evidence to disprove the assessment.

Section 179263 of tlte 1997 NIRC states that a DST shall be collected on
every original issue of debt instruments of one peso (Phpl.OO) on each
two hundred pesos (Php200.00), or a fractional part thereof, of the
issue price of any such debt instrument. Thus, the Court upholds
respondent's assessment of deficiency DST liability amounting to
Php10,212.00.
260 Records Box 1, Exhibit "0-7."

261 !d., Exhibit "0-21," Note to FS No. 15.
262 !d.
263 "Sec. 179. Stamp Tax on All Debt Instruments. -On every original issue of debt instruments, there
shall be collected a documentary stamp tax of one peso (Php1.00) on each Two Hundred pesos
(Php200.00), or fractional part thereof, of the issue price of any such debt instruments: Provided,
that for such debt instruments with terms of less than one (1) year, the documentary stamp tax
to be collected shall be of a proportional amount in accordance with the ratio of its term in
number of days to three hundred sixty five (365) days; Provided, further, That only one
documentary stamp tax shall be imposed on either loan agreement, or promissory notes issued
to secure such loan."
(
DECISION
CTA CASE NO. 8478
Page 53 of 55
On the other hand, assessment on the DST on Rent in the amount

Php26,602.00 is cancelled since it was already paid, as evidenced by
BIR Form No. 2000264.
VIII. PENALTIES- Php53,000.00
Respondent's imposition of compromise penalty amounting to

PhpSO,OOO.OO cannot be sustained.
Under Revenue Memorandum Order ('RMO") No. 01-90265, as

amended by RMO No. 19-0726 6, compromise penalties are only amounts
suggested in settlement of criminal liability, and may not be imposed
or exacted on the taxpayer in the event that the taxpayer refuses to pay
the same. 267 RMO No. 19-07 further provides that compromise
penalties should not form part of the assessment notice that reflects
deficiency basic tax, surcharge and interest; and that it should appear
in a separate assessment notice/ demand letter as the amount
suggested to the taxpayer in lieu of criminal prosecution. Thus, absent
any clear showing that petitioner consented to the compromise
penalty, its imposition should be cancelled.
On the other hand, the Court upholds the Php3,000.00 penalty

imposed by the respondent for petitioner's failure to file Quarterly
Remittance Return of Final Income Taxes Withheld (BIR Form No.
1603) for the 2nd, 3rd and 4th quarters of 2007, pursuant to Section 250268
of the 1997 NIRC.
WHEREFORE, premises considered, the instant Petition for

Review is hereby PARTIALLY GRANTED. The assessment issued by
respondent for CY 2007 covering deficiency IT, VAT, EWT, WTC,
FWT, FWT-VAT, DST and penalties is hereby UPHELD WITH
MODIFICATIONS.
264 Records Box 1, Exhibit "F."

265 Amendments to the Provisions of a "Revised Schedule of Compromise Penalties" for Internal
Revenue Violations as Prescribed in RMO 26-86, November 28, 1989.
266 The Consolidated Revised Schedule of Compromise Penalties for Violations of the National
Internal Revenue Code, August 8, 2007.

267 RMO No. 19-07, par. 6.
268 "Sec. 250. Failure to File Certain Information Returns. - In the case of each failure to file an
information return, statement or list, or keep any record, or supply any information required by
this Code or by the Commissioner on the date prescribed therefor, unless it is shown that such
failure is due to reasonable cause and not to willful neglect, there shall, upon notice and demand
by the Commissioner, be paid by the person failing to file, keep or supply the same, One
thousand pesos (Php1,000.00) for each such failure: xxx"
(
DECISION
CTA CASE NO. 8478
Page 54 of 55
Accordingly, petitioner is hereby ORDERED TO PAY the total

amount of Eleven Million Two Hundred Seventy Five Thousand
Two Hundred Eighty-Eight and 19/100 Pesos (Php11,275,288.19),
inclusive of the 25% surcharge imposed under Section 248(A)(3) of the
1997 NIRC, as amended, broken down as follows:
TAX TYPE BASIC TAX 25% SURCHARGE TOTAL

Income Tax Php 3,957,558.71 Php 989,389.68 Php 4,946,948.39
Value Added Tax 84,338.10 21,084.53 105,422.63
Expanded Withholding Tax 47,605.95 11,901.49 59,507.44
Withholding Tax on Compensation 60,789.04 15,197.26 75,986.30
Final Withholding Tax 1,570,668.71 392,667.18 1,963,335.89
Final Withholding of VAT 3,286,658.04 821,664.51 4,108,322.55
Documentary Stamp Tax 10,212.00 2,553.00 12,765.00
Total Php 9,017,830.56 Php 2,254,457.64 Php 11,272,288.19
Penalty 3,000.00
GRAND TOTAL PHP 11,275,288.19
In addition, petitioner is also ORDERED TO PAY:
1. Deficiency interest at the rate of twenty percent (20%) per

annum on the basic deficiency IT, VAT, EWT, WTC, FWT, FWT-VAT,
DST, computed from dates indicated below until full payment thereof
pursuant to Section 249(B)269 of the 1997 NIRC, as amended:
DEFICIENCY INTEREST
TAX TYPE BASIC TAX
COMPUTED FROM
Income Tax Php 3,957,558.71 April16, 2008
Value Added Tax 84,338.10 January 26, 2008
Expanded Withholding Tax 47,605.95 January 16, 2008
Withholding Tax on Compensation 60,789.04 January 16, 2008
Final Withholding Tax 1,570,668.71 January 16, 2008
Final Withholding of VAT 3,286,658.04 January 11, 2008
Documentary Stamp Tax 10,212.00 January 06, 2008
2. Delinquency interest at the rate of twenty percent (20%) per

annum on the amount of Php11,272,288.19, representing the basic
deficiency IT, VAT, EWT, WTC, FWT, FWT-VAT, DST, and the
corresponding twenty five percent (25%) surcharge; and the twenty
percent (20%) deficiency interest which have accrued as aforestated in
Item (1), computed from August 27, 2011 until full payment thereof
pursuant to Section 249(C) 270 of the 1997 NIRC, as amended.
269 "SEC. 249. Interest. -(A) xxx

(B) Deficiency Interest. - Any deficiency in the tax due, as the term is defined in this Code, shall
be subject to the interest prescribed in Subsection (A) hereof, which interest shall be assessed
and collected from the date prescribed for its payment until the full payment thereof. xxx"
270 "SEC. 249. Interest. - (A) XXX (B) XXX
(C) Delinquency Interest. - In case of failure to pay:
(1) The amount of the tax due on any return to be filed, or (2) The amount of the tax due
for which no return is required, or (3) A deficiency tax, or any surcharge or interest thereon
on the due date appearing in the notice and demand of the Commissioner, there shall be
(
DECISION
CT A CASE NO. 8478
Page 55 of 55
SO ORDERED.
LOVELL (BAUTISTA
Associate Justice
WE CONCUR:
ON-VICTORINO MA. BELER~PIS-LIBAN

Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached

in consultation before the case was assigned to the writer of the
opinion of the Court's Division.
LOVELL(.BAUTISTA
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13 of Article VIII of the Constitution and the

Division Chairperson's Attestation, it is hereby certified that the
conclusions in the above Decision were reached in consultation before
the case was assigned to the writer of the opinion of the Court.
Presiding Justice
assessed and collected on the unpaid amount, interest at the rate prescribed in Subsection
(A) hereof until the amount is fully paid, which interest shall form part of the tax. xxx"

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REPUBLIC OF THE PHILIPPINES

Court of Tax Appeals

HERBALIFE INTERNATIONAL CTA CASE NO. 8478

Before the Court is a Petition for Reviewl filed by petitioner on

46 of the Revised Rules of the Court of Tax Appeals ('RRCTA")7, which

Petitioner Herbalife International Philippines, Inc. ("Herbalife")

Respondent is the Commissioner of Internal Revenue ("CIR"),

On April 14, 200814, petitioner filed its Annual Income Tax

6 "Rule 4. Jurisdiction of the Court xxx

s Records, Vol. 1, Petition for Review, Prayer, p. 38.

"WWW," Judicial Affidavit of Lina E.Jacob, Q&A 6, p. 599.

13 Records Box 1, Exhibit "B," Petitioner's FOE.

Retum1s (BIR Form No. 1702) for CY ended 2007.

On February 27, 2008, petitioner filed its Annual Information

On June 4, 2008, respondent issued a Letter of Authority

On January 4, 2010, petitioner received a Revalidation Notice

On September 28,2010, petitioner received a Notice of Informal

On December 23, 2010, respondent issued a Preliminary

On September 1, 2011, petitioner received the FAN27 dated

21 Id., Exhibits "R-6," "R-6-a," and "R-6-b," pp. 358-363.

23 Records, Vol. 1, JSFI, p. 284.

28 Records, Vol. 1, JSFI, p. 284.

I. INCOME TAX ("IT")

Taxable Income per ITR [Php] 9,377,113.00

II. VALUE ADDED TAX ("VAT")

Taxable Sales per VAT returns [Php] 316,188,408.80

III. EXPANDED WITHHOLDING TAX29 ("EWT")

Basic Deficiency Withholding Tax (Schedule 4) [Php] 441,019.08

IV. WITHHOLDING TAX ON COMPENSATION ("WTC")

Basic Deficiency Withholding Tax (Schedule 5) [Php] 177,582.49

V. FINAL WITHHOLDING TAX ("FWT")

Basic Deficiency Withholding Tax (Schedule 1a) [Php] 18,255,820.35

VI. FINAL WITHHOLDING OF VAT ("FW-VAT")

Basic Deficiency Withholding Tax (Schedule 6) [Php] 3,822,424.68

VII. DOCUMENTARY STAMP TAX ("DST")

29 BIR Records, p. 1303.

Basic Deficiency Tax (Schedule 7) [Php] 36,814.00

On September 29, 2011, respondent received petitioner's Protest

On March 8, 2012, petitioner filed its Documentary Stamp Tax

Due to the inaction of respondent on petitioner's protest, the

On May 9, 2012, the Court issued Summons35 to respondent,

On the scheduled hearing, only counsel for petitioner

On May 23, 2012, respondent filed by registered mail her Motion

30 Records Box 1, Petitioner's FOE, Exhibits "B" and "B-1."

34 Id., JSFI, p. 284.

40 Records, Vol. 1, pp. 228-229.

On June 13, 2012, respondent filed, by registered mail, her

Respondent also argues that assuming that the Court has

On June 25, 2012, petitioner filed a Reply46. Thereafter, the Court

On the scheduled Pre-trial Conferencesl, counsels for both

After asking for an extension of fifteen (15) days,ss on September

On October 2, 2012, a Pre-trial Orderss was issued by the Court

On October 15, 2012, petitioner filed a Motion to Amend Pre-

46 Records, Vol. 1, Reply, pp. 240-247.

50 Id., Respondent's Pre-Trial Brief, pp. 261-263.

51 Id., Minutes of Hearing dated August 3, 2012, p. 264.

55 Records, Vol. 1, pp. 271-276, with annex.

61 Records, Vol. 1, pp. 493-494.

In view of CTA Administrative Circular No. 01-2013, the case was

During trial, petitioner presented the following witnesses: (1)

On May 30, 2013, petitioner filed a Motion for Leave to Take

During the July 11, 201369 hearing, counsel for petitioner

On July 18, 2013, respondent filed her Motion for