From: Jan Kriezl M Catipay

Sent: Friday, July 21, 2017 1:21 PM

To: DECASTRO VILMA - NCFL
Cc: AOKI KENJI - NCFL; Josenilo G Mendoza; Thyrza F Marbas; Jasmine S Asuncion; Karla Kathrina D
Balita; Sarah Dawn M Pernes; Beverly Joy S Ching
Subject: RE: PERIOD OF PRESCRIPTION

Dear Ms. Vilma,

This is in reply to your query with regard to the period of prescription for the audit of all internal revenue taxes by the BIR.

We understand that the Company received a Letter of Authority (LOA) No. 116-2014-00000149 dated August 11, 2014 from the BIR to
examine the Company’s books of accounts and other accounting records for all internal revenue taxes including documentary stamp
taxes and other taxes for the taxable period April 1, 2012 to March 31, 2013. We further understand that the Company executed waivers
of defense of prescription under the Statute of Limitations for the taxable year ended March 31, 2013 on July 24, 2015 (i.e., First
Waiver), October 20, 2015 (i.e., Second Waiver) and March 2, 2016 (i.e., Third Waiver) which provided that the prescription period for
the assessment of all taxes shall be extended until December 31, 2016. Moreover, the Company also received a Preliminary
Assessment Notice (PAN) dated June 30, 2017 from the BIR last July 13, 2017 which provides that the prescription period is suspended
from the date of first execution up to December 31, 2016 for all internal revenue taxes except income tax, which is due to prescribe on
July 15, 2017.

In this regard, you would like to know whether income tax is an exception to the three (3) year prescriptive period and whether there is
any default on the part of the BIR.

We reply as follows:

In general, the prescriptive period for the BIR’s right to assess is 3 years from the filing of the relevant tax return or the last day for filing,
whichever is later. However, pursuant to Section 222 (B) of the Tax Code, internal revenue taxes may be assessed and collected after
the ordinary prescriptive period, if before the expiration, both the Commissioner and the taxpayer have agreed in writing to its
assessment and/or collection after the said period. Considering that the Company was able to execute a written agreement with the
Commissioner for the waiver of defense of prescription under the Statute of Limitations, the prescriptive period for the assessment of all
internal revenue taxes of the Company was extended until December 31, 2016. By executing the waiver, the Company foregoes its
defense against prescription until December 31, 2016.

Moreover, the Company does not fall under any of the grounds for suspension of running of the Statute of Limitations under Section 223
of the Tax Code. Under the said section, the running of the Statute of Limitations shall be suspended when:

· The Commissioner is prohibited from making assessment or beginning distraint or levy or proceeding in court and for sixty (60)
days thereafter;
· When the taxpayer requests for a reinvestigation which is granted by the Commissioner;
· When the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or
collected, provided that, if the taxpayer informs the Commissioner of any change in address, the running of the Statute of
Limitations shall not be suspended;
· When the warrant of distraint is duly served upon the taxpayer, his authorized representative, or a member of his household
with sufficient discretion, and no property could be located; and
· When the taxpayer is out of the Philippines

Currently, in practice, income tax is not ordinarily exempted in the prescription unless the taxpayer executes a valid waiver. However,
based on the copy of the executed waiver provided to us, it appears that all internal revenue taxes, including income tax should have
prescribed in December 31, 2016 and not on July 15, 2017. Thus, in ordinary circumstances, the BIR has already defaulted and its right
to assess the Company should have already lapsed for the above period covered in December 31, 2016.

Now, the BIR contests in its issued PAN that the prescription period of ten (10) years shall apply due to the allegation that the
Company’s substantial under-declaration of its taxable sales/receipts is a prima facie evidence of a false or fraudulent return (i.e., failure
to report sales, receipts or income in an amount exceeding thirty percent (30%) of that declared per return) pursuant to Section 248 (B)
in relation to Section 222 (A) of the Tax Code.

However, in CIR vs. Asalus Corporation (CTA En Banc Case No. 1191 dated July 30, 2015), the Court ruled against the BIR and held
that that falsity, like fraud, is also a question of fact, and thus, should never be lightly presumed. It was pointed out that the allegation
that the taxpayer filed false returns was mere speculation because the BIR did not present any witnesses or evidence to support such
falsity.

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Moreover, in another case, CIR vs. Ocean Star Realty, Inc. (CTA Case No. 7123 dated July 18, 2007), the Court held that in order to
render a return filed by a taxpayer a "false return," there must appear a design to mislead or deceive on the part of the taxpayer, or at
least culpable negligence. A mistake that is not culpable in respect of its value would not constitute a false return. Fraud must be actual
and not constructive. It must be proven by more convincing evidence amounting to more than mere preponderance.

Based on the above cases, the Company may argue that the BIR has no definite or actual basis to extend the prescription period to 10
years due to allegations of fraud.

We suggest that the Company still file a protest within 15 days from the receipt of the PAN disputing the alleged substantial under-
declaration of its sales/receipts constituting fraud on the part of the BIR and that the BIR’s right to access the Company’s books of
accounts and other accounting records for all internal revenue taxes should have been prescribed on the date indicated in the executed
waiver (i.e., December 31, 2016).

Should you wish for us to assist you in drafting the protest to PAN and subsequently, to FAN, please let us know so we can assist you on
that matter. I am copying Atty. Thyrza Marbas from our Business Tax Services (BTS) team who handles tax assessments so she can
better assist you on this matter.

We hope to have addressed your concerns. Should you have clarifications, please let us know.

Best Regards,

Jan
--
Jan Kriezl M Catipay | Associate Director | Global Compliance Reporting (GCR)

SGV & Co.

6760 Ayala Avenue, Makati City, Philippines
Office: 891 03 07 loc 6313 | jan.kriezl.m.catipay@ph.ey.com
Mobile No: 09498876762
Website: http://www.ey.com
In providing our comments in this communication, we have relied upon our understanding of current Philippine tax laws, regulations, rules, and issuances of the relevant tax
authorities as of this date. Should these laws, regulations, rules, and issuances change, some of the issues/conclusions discussed in this communication may change as well. We will
not be responsible for updating the information herein, unless we are specifically requested to do so.

This communication is solely for your needs and is not to be relied upon by any other person or entity (other than the tax authorities). Hence, if you wish to disclose copies of this
communication to any other person or entity, you must inform them that they may not rely upon our work for any purpose without our written consent.

Any U.S. tax advice contained in the body of the e-mail was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be
imposed under the Internal Revenue Code or applicable state or local tax law provisions.

From: DECASTRO VILMA - NCFL <vilma.decastro@nidec.com>

Date: July 19, 2017 at 8:14:46 PM GMT+8
To: Jan Kriezl M Catipay <Jan.Kriezl.M.Catipay@ph.ey.com>
Cc: Josenilo G Mendoza <Josenilo.G.Mendoza@ph.ey.com>, AOKI KENJI - NCFL <aoki.kenji@nidec.com>
Subject: PERIOD OF PRESCRIPTION

Hi Ms. Jan,

May I send you an inquiry related to period of prescription for the audit of All Internal Revenue Taxes. We had received
LOA to examine our books of accounts and other accounting records for All Internal Revenue Taxes including doc stamp tax,
other taxes for the period from Apr 1, 2012 to Mar 31, 2013. Had already provided documents request and received
preliminary assessment notice last July 13. Inclusive on the details of discrepancies is justification on the period of
prescription as follows. Just want to clarify if really Income tax is exception to the prescriptive period. Since the assessment
notice was received via mail last July 13, 2 days before July 15 and giving us 15 days to reply, is there any default on the part
of the BIR? Also on July 14, the officer visited in our office trying us to receive another letter which is already the formal
letter of demand which I did not received.

thank you,
vhie

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