Court drops P172-M tax assessment vs. Red Ribbon

MANILA – The Court of Tax Appeals (CTA) has ruled in favor of local food firm Red Ribbon Bakeshop Inc. in a case for disputed tax assessment dating back to 2009 for lack of sufficient authority of the revenue personnel who audited the firm.

In a 17-page decision dated Jan. 7 and made public Friday, the court’s Third Division canceled a tax assessment for income tax and value-added tax deficiency in July 2015 on the firm for PHP172.23 million.

The court noted that revenue officers who conducted the audit investigation are not authorized through a letter of authority (LOA) and “thus, the resulting assessment is void.”

It clarified that a mere memorandum of authority may be treated as an equivalent of an LOA provided that it is compliant with the elements of an LOA and was issued by the Commissioner on Internal Revenue or his authorized representative, who is either the revenue regional director or large taxpayer division assistant commissioner/head revenue executive assistants.

The memorandum of authority issued on the case, the tax court said, was signed by an official who was not among those considered authorized to issue an LOA.

“Clearly, there must be a grant of authority before any revenue officer can conduct an examination or assessment. Equally important is that the revenue officer so authorized must not go beyond the authority given. In the absence of such an authority, the assessment or examination is a nullity,” the court said.