Legal Q&A Flashcards
WHEN DOES A TAXPAYER HAS THE BURDEN TO PROVE WHETHER OR NOT ITS SUBMITTED RETURN IS FALSE OR FRAUDULENT?
Facts of the Case:
The Court of Tax Appeals (CTA) En Banc has ordered MELCOR Corporation to pay the amount of 2.5 million in basic deficiency Value-Added Tax (VAT) for calendar year (CY) 2022, among others. Such deficiency tax stemmed from the Corporation’s misdeclaration of its sales corresponding to 25% of the amount declared on its return.
In its ruling, the CTA argued that MELCOR Corporation has failed to overcome the prima facie evidence of falsity and fraud considering that the misdeclaration is so substantial as it corresponds to 25% of the declared amount on its return.
MELCOR Corporation on the other hand, argued that it is the obligation of the Commissioner of the Internal Revenue (CIR) to discharge the burden of proving whether or not its submitted return is false and fraudulent.
QUESTION: Is the Court of Tax Appeals (CTA) correct?
No, the Court of Tax Appeals (CTA) is not correct.
In the case of McDonald’s Philippines Realty Corporation vs CIR (2023), the Supreme Court held, reiterating Section 248(B) of the 1997 Tax Code, that a prima facie evidence of falsity or fraud will exist only if the misdeclaration of income exceeds 30% of the amount declared in the return. Any misdeclaration exceeding the 30% threshold is considered substantial which shifts the burden to the taxpayer to prove whether or not there was fraud or falsity on its submitted return.
In the case at bar, it is clear that the alleged misdeclaration of MELCOR Corporation corresponds only to 25% of the amount declared in its submitted return. This means that there is no prima facie evidence of falsity or fraud as the misdeclaration is less than the 30% threshold, hence not substantial. It is the burden of the Commissioner of the Internal Revenue (CIR), and not with MELCOR Corporation, to prove that there was indeed fraud or falsity in the submitted return.
Therefore, the Court of Tax Appeals (CTA) is not correct.
