PNOC vs.

CA
G.R. No. 109976; April 26, 2005

FACTS: Savellano submitted a sworn statement with the BIR informing it that PNB had failed
to withhold the 15% final tax on interest earnings and/or yields from the money placements of
PNOC with the said bank, [in violation of P.D. No. 1931. P.D. No. 1931, withdrew all tax exemptions of GOCCs].

In 1986, the BIR requested PNOC to settle its liability for taxes on the interests earned by its
money placements with PNB and which PNB did not withhold. PNOC proposed to set-off its
tax liability against a claim for tax refund/credit of the (NAPOCOR), then pending with the BIR.
The amount of the claim for tax refund/credit was supposedly a receivable account of PNOC
from NAPOCOR.

The BIR denied the proposal for set-off explaining that the same was premature since
NAPOCOR's claim was still under process. PNOC made another offer to the BIR to settle its tax
liability. This time, however, PNOC proposed a compromise by paying 30% of the basic tax.
The CIR accepted the compromise.

Savellano, through four installments, was paid the informer's reward representing 15% of the tax
collected by the BIR from PNOC and PNB. Later, Savellano, demanded payment of the balance
of his informer's reward. The CIR replied saying that they had already fully paid the informer's
reward equivalent to 15% of the amount of tax actually collected by the BIR pursuant to its
compromise agreement with PNOC.

Savellano sought reconsideration of the CIR’s decision to compromise the tax liability of PNOC.
He likewise questioned the legality of the said compromise agreement. While said Motion for
Reconsideration is pending, Savellano filed a Petition for Review with the CTA claiming that the
CIR acted "with grave abuse of discretion in entering into a compromise agreement that resulted
in a gross diminution of his reward. Savellano, thus, prayed for the enforcement and collection
of the total tax assessment against taxpayer PNOC and/or PNB.

The CTA rendered a decision declaring the compromise agreement without force and effect and
consequently ordered the CIR to enforce the assessment of January 16, 1991 against PNB. This
decision was affirmed by the CA.

On appeal with the SC, PNOC asserts that the compromise agreement was in accordance with
E.O. No. 44, and its implementing rules and regulations, and should be binding upon the parties
thereto.

ISSUE: W/N the compromise agreement is valid.

RULING: No.

E.O. No. 44 granted the BIR Commissioner or his duly authorized representatives the power to
compromise any disputed assessment or delinquent account pending as of 31 December 1985,
upon the payment of an amount equal to 30% of the basic tax assessed.

PNOC's tax liability could not be considered a delinquent account since (1) it was not self-
assessed, because the BIR conducted an investigation and assessment of PNOC and PNB after
obtaining information regarding the non-withholding of tax from private respondent Savellano;
and (2) the demand letter, issued against it on 08 August 1986, could not have been a deficiency
assessment that became final and executory by 31 December 1985.

Neither PNOC nor PNB, the taxpayer and the withholding agent, respectively, conducted self-
assessment in this case. There is no showing that in the absence of the tax assessment issued by
the BIR against them, that PNOC and/or PNB would have voluntarily admitted their tax
liabilities. In fact, both PNOC and PNB were conspicuously silent about their tax liabilities until
they were assessed thereon.