MANILA - The Supreme Court has ruled that the extraordinary 10-year tax assessment period applies only to false tax returns that contain deliberate misstatements, abandoning its previous ruling in the 1974 case of Aznar vs. Court of Tax Appeals.

In the en banc decision promulgated on August 8, 2023, the petition for certioriari of McDonald’s Philippine Realty Corporation against the Bureau of Internal Revenue was granted and the ruling of the Court of Tax Appeals was reversed.

In 2019, the CTA ordered that MPRC should pay P9.206 million deficiency Value Added Tax.

“Accordingly, the deficiency value-added tax assessment against petitioner for calendar year 2007 is hereby cancelled and set aside on the ground of prescription,” the Supreme Court en banc said in the decision penned by Associate Justice Henri Jean Paul Inting.

The case started in 2008 when the BIR audited MDPRC’s book of accounts for 2007 and the company was found liable for deficiency income tax and documentary stamp tax in the aggregate amount of P33.432 million.

In 2012, the BIR deleted the income and documentary tax assessments and assessed MPRC for deficiency VAT only.

The CTA held that the BIR’s right to assess had not yet prescribed as the tax returns filed by MPRC were false returns.

The Supreme Court noted the exception to the three-year period for assessment, that in case of a false or fraudulent return, the period of assessment may be extended up to 10 years from discovery.

The Supreme Court however declared that it found no proof of willful intent on the part of MPRC.

It further declared that the BIR incorrectly applied the extended 10-year assessment period.

“That a misstatement has been sizeable, cannot, on its own, be regarded as sufficient proof of an intention to evade tax,” the Supreme Court said.