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CIR v. McDonald's: A Referral Memo Can't Replace a New LOA When Examiners Change

·5 mins
Case-Law Court Decisions BIR Compliance VAT Tax Compliance

In Commissioner of Internal Revenue v. McDonald’s Philippines Realty Corp. (G.R. No. 242670, May 10, 2021), the Supreme Court Third Division denied the CIR’s petition and affirmed cancellation of a ₱16,229,506.83 deficiency VAT assessment for calendar year 2006, holding that substituting a revenue officer mid-audit without issuing a new or amended Letter of Authority (LOA) violates due process, usurps the CIR’s statutory power to authorize examinations, and breaches Revenue Memorandum Order (RMO) No. 43-90. This post is part of the Day in Court series.

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Case details #

CourtSupreme Court of the Philippines, Third Division
Case No.G.R. No. 242670
Date decidedMay 10, 2021
PonenteJustice Jhosep Y. Lopez
ConcurJustices Leonen (Chairperson), Hernando, Inting, and Delos Santos
PartiesCommissioner of Internal Revenue (Petitioner) vs. McDonald’s Philippines Realty Corp. (Respondent)
CTA belowCTA Case No. 8655 (Division); CTA EB No. 1535 (En Banc)
Decision textLawPhil · Chan Robles · Supreme Court E-Library

What happened #

On August 31, 2007, the BIR Large Taxpayers Service issued LOA No. 00006717 authorizing revenue officers Eulema Demadura, Lover Loveres, Josa Gomez, and Emalyn dela Cruz to examine McDonald’s Philippines Realty Corp.’s books for all internal revenue taxes for January 1 to December 31, 2006.

Demadura was later transferred. On December 2, 2008, through a referral memorandum, Rona Marcellano was designated to continue the pending audit. No new LOA was issued in Marcellano’s name, and the August 31, 2007 LOA was not amended to add her.

The audit continued and produced a Formal Letter of Demand and assessment for deficiency VAT. McDonald’s contested the assessment before the CTA. The CTA Division invalidated the assessment for lack of proper authorization of the substitute examiner. The CTA En Banc affirmed. The CIR petitioned the Supreme Court, arguing that once an LOA exists, a later substitute officer may continue the audit without a new or amended LOA.

The issue before the court #

Whether a separate or amended LOA must be issued in the name of a substitute or replacement revenue officer when a revenue officer originally named in a previously issued LOA is reassigned or transferred.

The ruling #

The Supreme Court denied the CIR’s petition and affirmed the CTA En Banc, which had upheld invalidation of the ₱16,229,506.83 deficiency VAT assessment for CY 2006.

An LOA names specific officers — it is not a floating district badge #

The Court reiterated that under Sections 6(A) and 13 of the NIRC, examination authority flows from the CIR or a duly authorized representative through an LOA. The revenue officer so authorized must not go beyond that grant. Absent such authority, the examination and assessment are a nullity — a principle already stated in CIR v. Sony Philippines, Inc.

Referral memoranda do not cure a missing LOA #

Marcellano continued the audit under a referral memorandum only. That was not a new or amended LOA. The Court held the practice of reassigning or substituting revenue officers without a separate or amended LOA:

  1. Violates the taxpayer’s right to due process in a tax audit or investigation;
  2. Usurps the statutory power of the CIR or duly authorized representative to grant examination authority; and
  3. Does not comply with BIR rules, particularly RMO No. 43-90, which requires a new LOA if the originally authorized revenue officer resigns or is transferred.

Due process includes knowing who is authorized to examine you #

As part of due process, the taxpayer’s right to know that revenue officers are duly authorized includes the requirement that the LOA contain the names of those officers. An LOA is a special authority to particular officers, not a general warrant for whoever later picks up the file.

Our insights #

McDonald’s completes the LOA trilogy with Sony and later cases #

CIR v. Sony Philippines voids assessments that exceed the LOA’s period/scope. McDonald’s voids assessments continued by officers outside the LOA’s named personnel. Later rulings such as Republic v. Robiegie Corporation (G.R. No. 260261) reaffirm that reassignment requires a new LOA even under one-LOA-per-taxpayer practice. Different defects; same root: authority must be express.

Practitioner commentary treats this as ending a “disturbing trend” #

Abogado.com.ph reported the Court as putting an end to audits continued by unnamed officers under the pretext of district-level reassignment, retirement, or resignation. DivinaLaw’s “No authority, no examination” note and ASG Law Partners’ case analysis both stress the three-part holding (due process, usurpation of CIR power, RMO No. 43-90 noncompliance) and the practical audit checklist: verify the LOA names the person actually examining your books.

Memorandum of Assignment culture remains a live CTA theme #

BusinessWorld’s December 2025 LOA roundup notes multiple 2025 CTA decisions still cancelling assessments where revenue officers relied on Memoranda of Assignment without a proper LOA — the same institutional habit McDonald’s addressed at the Supreme Court level in 2021.

What this means for taxpayers #

If you receive a BIR LOA or see examiners change mid-audit:

  • Compare the names on the LOA to the officers actually requesting records, issuing findings, or signing referral/assignment papers.
  • If a new officer appears, ask for a new or amended LOA in that officer’s name — a referral memorandum or Memorandum of Assignment is not a substitute under McDonald’s.
  • Raise the defect in any protest; do not assume later cooperation cures a void examination.
  • Keep copies of every LOA, referral memo, and Notice of Discrepancy/PAN/FAN in the audit file so the timeline of who held authority is clear.

Summary #

CIR v. McDonald’s Philippines Realty holds that when the BIR swaps the revenue officer mid-audit, it must issue a new or amended LOA naming the substitute. Continuing under a referral memorandum alone voids the examination and the resulting assessment. The decision sits beside Sony’s LOA-scope doctrine as a second, independent LOA gate: right period and right named officers.

Sources #

Primary sources

Secondary sources