Fluor Daniels Inc

Fluor Daniels Inc (FD) vs CIR (CTA Case) FACTS On April 2007, FD was assessed by the BIR for 2004 deficiency taxes consisting of Income, VAT, EWT with interest and compromise (P144m). The core issue of the case was the software maintenance service rendered by FII (a non-resident foreign corp) to FD and the SMS fees paid to FI which constituted the EWT (as 32% income services). FD filed a protest alleging that the FI has no tax liability considering its foreign character and by virtue of Tax Treaty between the US and Phil. BIR then issued a FDDA which changed FD’s EWT liability to FWT citing RMC 44-05, which treated the SMS fee as license generating royalty income subject to 15% preferred rate under the Tax Treaty. The total tax liability was then reduced. Insisting on its non-liability, FD appealed to the CTA. ISSUE: W/N the change of assessment from EWT to FWT is a new assessment. W/N the SMS fees is considered royalties pursuant to RMC 44-05. DECISION: Yes. CTA held that changing the assessment from EWT to FWT only in the issuance of the FDDA would certainly deprive petitioner of the reasonable opportunity to be heard and submit evidence in support of its defense, which is a clear violation of the due process requirements pursuant to the mandatory provisions of Section 228. Considering that the FDDA constitutes respondent's final decision on the matter, petitioner was therefore, not given the chance to refute within the administrative level the findings of respondent as to the applicability of RMC No. 44-05 to its case, which is a clear violation of Section 228 of the 1997 NIRC, as amended. No. The questioned assessment covers taxable year 2004, thus respondent could not possibly use the provisions of the said circular as her basis in changing her earlier assessment. In a long line of cases, the High Tribunal has consistently ruled that the rulings, circulars, rules and regulations promulgated by the Commissioner of Internal Revenue would have no retroactive application if to so apply them would be prejudicial to the taxpayers.