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OF INTERNAL REPUBLIC OF THE PHILIPPINES Mahusay na Serbisyo. inNaAdd BUREAU O DEPARTMENT OF FINANCE Ramdam na Pagbabago. BUREAU OF INTERNAL REVENUE PHILIPPINES PANANAW 2

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OF INTERNAL REPUBLIC OF THE PHILIPPINES Mahusay na Serbisyo. inNaAdd BUREAU O DEPARTMENT OF FINANCE Ramdam na Pagbabago. BUREAU OF INTERNAL REVENUE PHILIPPINES PANANAW 2 20 Revenue Region No. 7B - East NCR PRELIMINARY ASSESSMENT NOTICE DEC 16 2020 (Part 1) The President Annapolis St., Greenhills 1502 San Juan City TIN: Sir/Madam: Please be informed that after investigation, in relation to Revenue Memorandum Order No. 32-2018, as amended, there has been found due from you deficiency Income Tax, Value-Added Tax and Expanded Withholding Tax for the taxable year 2017, to wit: I. INCOME TAX Taxable Income per Income Tax Return (ITR) P (214,514.00) Add Adjustments per Investigation Additional Taxable Income from Undeclared Revenues/Receipts (Schedule 1) P 877,783.50 Additional Taxable Income from Undeclared Purchases (Schedule 2) 97,787.39 Disallowed Cost and Expenses due to Non-Withholding Tax (Schedule 3) 3,401,574.00 Disallowed Representation and Entertainment Expenses (Schedule 4) 35,231.84 4,412,376.73 Total Taxable Income P 4,197,862.73 Add: Net Operating Loss Carry-Over (NOLCO) 214,514.00 Adjusted Taxable Income per Investigation P 4,412,376.73 Income Tax Due (30%) P 1,323,713.02 Less: Allowed Tax Credits / Payments Prior Years Excess Credits 194,066.00 Creditable Tax Withheld 44,335.00 Total P 238,401.00 Less: Excess of Minimum Corporate Income Tax (MCIT) over Normal Income Tax (NIT) carried forward to succeeding period P 44,107.00 Excess tax credits carried forward to the succeeding period 194,294.00 Unsupported Creditable Tax Withheld 44,335.00 282,736.00 (44,335.00) Deficiency Income Tax P 1,368,048.02 Add 12% Interest (04/16/2018 to 01/08/2021) 449,319.44 TOTAL AMOUNT DUE 1,817,367.46II. VALUE-ADDED TAX Vatable Revenues/Receipts per Value-Added Tax (VAT) Returi Add Adjustments per Investigation Revenue/Receipts not subjected to VAT (Schedule 5) P 9,683,516.00 Additional Taxable Income from Undeclared Revenues/Receipts (Schedule 1) 3,855,000.02 Additional Taxable Revenues/Receipts from Undeclared Purchases (Schedule 2) 429,457.12 13,967,973.14 Adjusted Vatable Revenues/Receipts P 13,967,973.14 Output Tax Due (12%) P 1,676,156.78 Less: Allowed Tax Credits / Payments Deficiency Value-Added Tax P 1,676,156.78 Add 25% Surcharge P 419,039.20 12% Interest (01/26/2018 to 01/08/2021) 594,599.40 1,013,638.60 TOTAL AMOUNT DUE P 2,689,795.38 III. EXPANDED WITHHOLDING TAX Basic Tax Due (Schedule 3) P 107,124.24 Add 25% Surcharge P 26,781.06 12% Interest (01/16/2018 to 01/08/2021) 38,353.41 65,134.47 TOTAL AMOUNT DUE 172,258.71 Please note that the interest and the total amount due shall be assessed and collected from the date prescribed herein for payment until the full payment thereof. The complete details covering the aforementioned discrepancies established during the investigation of this case are shown in the accompanying ANNEX-A of this letter. The twenty five percent (25%) surcharge has been imposed pursuant to the provisions of Section 248(A) of the National Internal Revenue Code (NIRC) of 1997, as amended, on Value-Added Tax and Expanded Withholding Tax (EWT), in view of your failure to file the return and pay the tax due as required under existing revenue laws, rules and regulations. The twelve percent (12%) interest per annum has been imposed pursuant to Republic Act (R.A.) No. 10963 known as the "Tax Reform for Acceleration and Inclusion (TRAIN) Law". Pursuant to the provisions of Section 228 of the National Internal Revenue Code (NIRC) of 1997, as amended, and its implementing Revenue Regulations (RR), you are hereby given fifteen (15) days from receipt hereof to pay the aforesaid deficiency tax liabilities in the duly authorized agent bank in which you are enrolled in using the electronic BIR Payment Form (eBIR Form 0605). Afterwards, submit proof of payment thereof to the Office of The Regional Director, this Region, located at 25th Floor, The Podium West Tower, ADB Ave., Ortigas Center, 1550 Mandaluyong City to update your records and for the cancellation of the herein PAN, if warranted.If we fail to hear from you within the said period, a Formal Letter of Demand and Final Assessment Notice shall be issued by this Office calling for the payment of your aforesaid deficiency taxes, including civil penalties and interest We hope that you will give this matter your preferential attention. Very truly yours, CAESAR R. DULAY Commissioner of Internal Revenue By: ROMULO L. AGUILA, JR. Regional DirectorOF INTERNAL 'Annex-A" REPUBLIC OF THE PHILIPPINES Mahusay na Serbisyo. BUREAU OF nNaAdd DEPARTMENT OF FINANCE Ramdam na Pagbabago. BUREAU OF INTERNAL REVENUE PANANAW 2 20 PHILIPPINES Revenue Region No. 7B - East NCR DEC 16 2020 The President Annapolis St., Greenhills 1502 San Juan City TIN: Sir/Madam: DETAILS OF DISCREPANCIES I. INCOME TAX Additional Taxable Income from Undeclared Revenue/Receipts, P877,783.50 - In the partial tally of the computerized matching conducted by this Bureau on the revenue/receipts/sales per the pre processed data of Third Party Information - Summary List of Purchases (TPI-SLP) submitted by your customers as against the amount declared in your submitted Reconciliation of Listing for Enforcement - Summary List Sales (RELIEF-SLS) shows an understatement of sales in the amount of P3,855,000.02, which is multiplied by the Gross Profit Rate (GPR) resulting to Additional Taxable Income of P877,783.50. The said income was then assessed in accordance with the provision of Section 32 of the National Internal Revenue Code (NIRC) of 1997, as amended. Schedule 1: **Line by line reconciliation: Sales per SLS against confirmation of TPI-SLP. Customer Name Per TPI-SLS Per RELIEF-SLS Discrepancy 2 TORRE LORENZO CONDOMINIUM CORP P 90,000.00 90,000.00 ALIW MANAGEMENT VENTURES INC 75,000.00 75,000.00 ALIW MANAGEMENT VENTURES MEYCAUAYA 60,000.00 60,000.00 CABANGON CENTRAL PROPERTIES INC 30,000.00 30,000.00 CITYSTATE CENTRE CONDOMINIUM CORPOR, 96,000.00 96,000.00 ESCA INCORPORATED 220,000.00 220,000.00 LANANG REALTY DEVELOPMENT CORPORAT 84,000.00 84,000.00 LAPANDAY PROPERTIES PHILIPPINES INC 46,500.00 46,500.00 PICAR DEVELOPMENT INCORPORATED 270,000.00 270,000.00 SBJ MARIKINA SHOE EXCHANGE CORPORATI( 60,000.00 60,000.00 SHOECAT INC 1,935,000.00 1,935,000.00 SM Development Corporation 282,000.00 282,000.00 SM Synergy Properties Holdings Corp 81,000.00 81,000.00 TAGAYTAY GRASSLAND COMPANY INC. 40,000.02 40,000.02 THREE FROGZ REALTY CORPORATION 60,000.00 60,000.00 TORRE LORENZO DEVELOPMENT CORPORAT 233,500.00 233,500.00 TORRE LORENZO HOLDINGS CORPORATION 78,000.00 78,000.00 TORRE LORENZO PROPERTY MANAGEMENT 114,000.00 114,000.00 Additional Taxable Revenue/Receipts P 3,855,000.02 Multiplied by: Gross Profit Rate (Schedule 1.1) 22.77% Additional Taxable Income from Undeclared Revenues/Receipts P 877,783.50 Schedule 1.1: GPR and Cost Ratio: Sales Revenue 0 602 516 noBUREAU OF INTERNAL REVENUE PANANAW 2 20 PHILIPPINES Revenue Region No. 7B - East NCR DEC 16 2020 The President Annapolis St., Greenhills 1502 San Juan City TIN: Sir/Madam: DETAILS OF DISCREPANCIES I. INCOME TAX Additional Taxable Income from Undeclared Revenue/Receipts, P877,783.50 - In the partial tally of the computerized matching conducted by this Bureau on the revenue/receipts/sales per the pre processed data of Third Party Information - Summary List of Purchases (TPI-SLP) submitted by your customers as against the amount declared in your submitted Reconciliation of Listing for Enforcement - Summary List Sales (RELIEF-SLS) shows an understatement of sales in the amount of P3,855,000.02, which is multiplied by the Gross Profit Rate (GPR) resulting to Additional Taxable Income of P877,783.50. The said income was then assessed in accordance with the provision of Section 32 of the National Internal Revenue Code (NIRC) of 1997, as amended. Schedule 1: *Line by line reconciliation: Sales per SLS against confirmation of TPI-SLP. Customer Name Per TPI-SLS Per RELIEF-SLS Discrepancy 2 TORRE LORENZO CONDOMINIUM CORP P 90,000.00 P P 90,000.00 ALIW MANAGEMENT VENTURES INC 75,000.00 75,000.00 ALIW MANAGEMENT VENTURES MEYCAUAYA 60,000.00 60,000.00 CABANGON CENTRAL PROPERTIES INC 30,000.00 30,000.00 CITYSTATE CENTRE CONDOMINIUM CORPOR, 96,000.00 96,000.00 ESCA INCORPORATED 220,000.00 220,000.00 LANANG REALTY DEVELOPMENT CORPORAT 84,000.00 84,000.00 LAPANDAY PROPERTIES PHILIPPINES INC 46,500.00 46,500.00 PICAR DEVELOPMENT INCORPORATED 270,000.00 270,000.00 SBJ MARIKINA SHOE EXCHANGE CORPORATI( 60,000.00 60,000.00 SHOECAT INC 1,935,000.00 1,935,000.00 SM Development Corporation 282,000.00 282,000.00 SM Synergy Properties Holdings Corp 81,000.00 81,000.00 TAGAYTAY GRASSLAND COMPANY INC. 40,000.02 40,000.02 THREE FROGZ REALTY CORPORATION 60,000.00 60,000.00 TORRE LORENZO DEVELOPMENT CORPORAT 233,500.00 233,500.00 TORRE LORENZO HOLDINGS CORPORATION 78,000.00 78,000.00 TORRE LORENZO PROPERTY MANAGEMENT ( 114,000.00 114,000.00 Additional Taxable Revenue/Receipt P 3,855,000.02 Multiplied by: Gross Profit Rate (Schedule 1.1) 22.77% Additional Taxable Income from Undeclared Revenues/Receipts 877,783.50 Schedule 1.1: *GPR and Cost Ratio: Sales Revenue P 9,683,516.00 100.00% Cost of Services 7,478,151.00 77.23% Gross Profit P 2,205,365.00 22.77%Additional Taxable Income from Undeclared Purchases, P97,787.39 - In the partial tally of the computerized matching conducted by this Bureau on the purchases per TPI-SLS as against the amount declared in your SLP shows an understatement of purchases in the amount of P331,669.73. This is then divided by the Cost Ratio resulting to Additional Taxable Revenues/Receipts of P429,457.12. This resulted to Additional Taxable Income amounting to P97,787.39 Hence, the said income is then assessed in accordance with the provision of Section 32 of the NIRC of 1997, as amended. Schedule 2: Per Per SUPPLIER TPI-SLS RELIEF-SLP Discrepancy AUTOMATIC APPLIANCES INC P 11,053.57 P P 11,053.57 ISUZU AUTOMOTIVE DEALERSHIP INC. 11,692.00 11,692.00 TIANGCO ERLINDA TIANGCO 308,924.16 308,924.16 Discrepancy P 331,669.73 Divide by Cost Ratio (Schedule 1.1) 77.23% Additional Taxable Revenues/Receipts from Undeclared Purchases P 429,457.12 Multiply by Gross Profit Ratio (Schedule 1.1) 22.77% Additional Taxable Income from Undeclared Purchases P 97,787.39 Disallowed Cost and Expenses due to Non-Withholding, P3,401,574.00 - Verification disclosed that you have not withheld the appropriate withholding tax due on several income payments enumerated hereunder. Section 34(K) of the NIRC of 1997, as amended, expressly provides that, ...any amount paid or payable which is otherwise deductible from, or taken into account in computing the gross income or for which depreciation or amortization maybe allowed under this Section, shall be allowed as a deduction only if it is shown that the tax required to be deducted and withheld therefrom has been paid to the Bureau of Internal Revenue in accordance with this Section of this Code. " Hence, the aforementioned amount has been disallowed as an expense. Schedule 3: Income Payments subject Per BIR Disallowed Cost and to Expanded Withholding Form Expenses due to Tax (EWT) Per ITR/AFS 1601-E Non-Withholding Rate EWT Purchase of Services/Contractors Outside Services P2,369,477.00 P P 2,369,477.00 2% P 47,389.54 Rent Rent-Cost of Services P 480,000.00 Rent-Operating Expenses 389,500.00 Subtotal P 869,500.00 869,500.00 5% 43,475.00 Professional fees P 162,597.00 162,597.00 10% 16,259.70 TOTAL P 3,401,574.00 P 107,124.24 Vote: Note: The above Disallowed Cost and Expenses due to Non-Withholding shall be allowed as deduction in computing your taxable income upon payment of the corresponding withholding tax due thereof pursuant to Section 2.58.5 of RR No. 2-98, in relation to RR No. 6-2018. Disallowed Representation and Entertainment Expense, P35,231.84 - Examination disclosed that the amount of representation and entertainment expense reported in your Income Tax Return (ITR) / Audited Financial Statements (AFS) exceeds the maximum allowance of one percent (1%) of net revenue as set forth under Section 34(A)(1)(a)(iv) of the NIRC of 1997, as amended, as implemented by RR No. 10-2002; hence, the amount in excess of the limitation has been disallowed as deduction from gross income.Schedule 4: Representation and Entertainment Expense per ITR P 132,067.00 Less: Allowable Representation and Entertainment Expense Net Revenues per ITR/AFS P 9,683,516.00 Multiply by Ceiling Rate (1% of Net Revenue) 1% 96,835.16 Disallowed Representation and Entertainment Expense 35,231.84 Unsupported Creditable Tax Withheld, P44,335.00 - Verification disclosed that your claimed creditable tax withheld per ITR amounting to P44,335.00 were not supported with copies of the Certificate of Creditable Tax Withheld at Source (BIR Form No. 2307); thus, disallowed pursuant to Section 2.58.3 (B) of RR No. 2-1998, as amended. 1. VALUE-ADDED TAX Revenue/Receipts not subjected to VAT, P9,683,516.00 - Comparison of the amount of revenues/receipts reported in your VAT returns as against the purported revenues/receipts declared in your ITR disclosed a discrepancy of P9,683,516.00, hence, assessed which is then subject to VAT under Title IV, Sections 105 and 108 of the NIRC of 1997, as amended. Section 105. Persons Liable. "Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to Value-Added Tax (VAT) imposed in Sections 106 and 108 of this Code." Section 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. (A) Rate of Tax - "There shall be levied, assessed and collected a VAT equivalent to ten percent (10%) (now twelve percent (12%) pursuant to R.A. No. 9337) of the gross receipts derived from the sale or exchange of services, including the use or lease of properties." Schedule 5: Gross Revenue/Receipts per ITR P 9,683,516.00 Less: Gross Revenue/Receipts per VAT Returns Revenue/Receipts not subjected to VAT P 9,683,516.00 Additional Taxable Revenues/Receipts from Undeclared Revenues/Receipts, P3,855,000.02 - As previously discussed above under income tax (refer to schedule 1), the undeclared revenues/receipts is also subject to VAT under Title IV, Sections 105 and 108 of the NIRC of 1997, as Additional Taxable Revenues/Receipts from Undeclared Purchases, P429,457.12 - As previously discussed above under income tax (refer to schedule 2), the additional taxable revenues/receipts is also subject to VAT under Title IV, Sections 105 and 108 of the NIRC of 1997, as amended. II. EXPANDED WITHHOLDING TAX Basic Tax Due, P107,124.24 - Since you have failed to withhold/remit the corresponding withholding tax due on income payments previously disallowed as deduction in computing your taxable income (refer to Schedule 3), you are still liable to pay the deficiency EWT due thereon pursuant to Section 2.57.2 of RR No. 2-1998, as amended.FTERIOD 0F PRESCRIPTION The running of the three-year statute of limitation as provided under Section 203 of the NIRC of 1997, as amended, is not applicable with respect to your VAT and EWT liability but rather to the ten (10) year prescriptive period pursuant to Section 222(a) of the same Code which states that: \"In the case of a false or fraudulent return with intent to evade tax or of failure to le a return. the tax may be assessed, or a proceeding in court for the collection of such tax may be led without assessment, at any time within ten (10) years after the discovery of the falsity, fraud or omission.-." it is requested that your aforesaid deciency taxes be paid within fteen (15) days upon receipt hereof, inclusive of applicable penalties, otherwise. Formal Letter of Demand and Final Assessment Notice shall be issued. Very truly yours, CAESAR R. DULAV Commissioner of Internal Revenue 03 ROMULO L. AGUILA, JR. Regional Director 39: OF INTERNAL REPUBLIC OF THE PHILIPPINES Mahusay na Serbisyo. BUREAU OF DEPARTMENT OF FINANCE Ramdam na Pagbabago. BUREAU OF INTERNAL REVENUE PANANAW 2 20 PHILIPPINES Revenue Region No. 7B - East NCR DEC 16 2020 PRELIMINARY ASSESSMENT NOTICE (Part II) The President Annapolis St., Greenhills 1502 San Juan City TIN: Sir/Madam: Please be informed that after the investigation of your internal revenue tax liabilities for the taxable year 2017, it was disclosed that you failed to comply with the enumerated provisions on time or times as required by existing revenue laws, rules and regulations as stated hereunder, in relation to Section 255 of the NIRC of 1997, as amended by R.A. 8424, which states that: Section 255 - Failure to File Return, Supply Correct and Accurate Information, Pay Tax, Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation - Any person required under this Code or by rules and regulations promulgated thereunder to pay any tax, make a return, keep any record, or supply correct and accurate information, who wilfully fails to pay such tax, make such return, keep such record, or supply such correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times required by law or rules and regulations shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine of not less than ten thousand pesos (P10,000.00) and suffer imprisonment of not less than one (1) year but not more than ten (10) years." However, in lieu of instituting criminal action, this Office is amenable to settle the same extrajudicially, subject to the condition that you shall pay compromise penalty in the amount of P55,000.00 for the violations enumerated hereunder pursuant to the schedule of suggested compromise penalties prescribed under Revenue Memorandum Order (RMO) No. 1-1990, as amended by RMO No. 7-2015, in relation to Sections 7(C) and 204(B) of the NIRC of 1997, as amended Nature of Violation Violated Provisions Amount Failure to file and pay VAT returns at the time Sec. 114 of NIRC of 1997, P 40,000.00 or times required by law or regulation as amended Failure to file and pay EWT returns at the time Sec. 57 (B) of NIRC of 1997, 15,000.00 or times required by law or regulation TOTAL AMOUNT DUE P 55,000.00If you are amenable, please pay the above suggested compromise amount within fifteen (15) days from receipt hereof using the eBIR Payment Form No. 0605, through the duly authorized agent bank in which your company is enrolled in and where it pays its internal revenue taxes. Afterwards, submit proof of payment thereof to the Office of the Regional Director, this Region, located at 25th Floor, The Podium West Tower, ADB Ave., Ortigas Center, 1550 Mandaluyong City. Otherwise, this case shall be referred to the Legal Division of this Region for the institution of criminal action, pursuant to Paragraph III (5) of RMO No. 1-1990, as amended. Very truly yours, CAESAR R. DULAY Commissioner of Internal Revenue By: ROMULO L. AGUILA, JR. Regional DirectorRequirements Assume that it is a Final Assessment Notice (FAN) and you are to prepare a valid protest. In each finding, state the possible defenses available to the taxpayer. Kindly indicate which part has the possible error. Explain thoroughly Thank you. Subject: Strategic Tax Management

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