6 September 2021
Yes, provided that such third-party information is verified or confirmed with the relevant customers or suppliers. In Commissioner of Internal Revenue v. Mercury Group of Companies, Inc. (CTA EB No. 2215 (CTA Case No. 9531), June 30, 2021), the Court of Tax Appeals En Banc (CTA En Banc) ruled that “[w]ithout conducting such confirmation or verification, the data gathered from the computerized/third party matching are left unsubstantiated, and the resulting assessment is void for lack of factual and legal basis.”
In this case, the Bureau of Internal Revenue (BIR) issued deficiency tax assessments (corresponding to alleged undeclared service income, undeclared purchases and unaccounted source of cash) based only on discrepancies arising from a comparison between taxpayer's Summary List of Sales (SLS) and Summary List of Purchases (SLP) vis-a-vis third-party SLS and SLP. The CTA En Banc noted that the BIR failed to verify the amounts reflected in the third-party SLS and SLP with the relevant customers and suppliers, and this “casts doubt as to the reliability and correctness of the findings of deficiency taxes assessed by [it].”
The CTA En Banc ruled that “[i]n order to stand the test of judicial scrutiny, the assessment must be based on actual facts. The presumption of the correctness of an assessment, being a mere presumption, cannot be made to rest on another presumption.”
SyCipLaw Tip: Under the BIR’s Reconciliation of Listings for Enforcement (RELIEF) System, the BIR may match taxpayer-provided information with externally sourced data in order to detect any underdeclaration of revenues or overdeclaration of costs and expenses. While this should encourage taxpayers to faithfully report their revenues and expenses in their returns, the BIR should still verify the amounts obtained from the RELIEF System and should not issue assessments based solely on the amounts generated under the RELIEF System.
A motion for reconsideration of the decision of the CTA En Banc is currently pending.
CTA decisions, while persuasive, do not form part of the law of the land, unlike decisions of the Supreme Court.
For further information, please contact:
Carina C. Laforteza, Tax Department Head,
SyCip Salazar Hernandez & Gatmaitan
cclaforteza@syciplaw.com
