Tax-2_3rd-exam-partial-no-local-govt-tax.docx

TAXATION 2- 3rd exam FROM THE LECTURES OF ATTY. DONALVO 2018-2019 Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

February 28, 2019 (Tan)

ORGANIZATION AND FUNCTION OF THE BUREAU OF INTERNAL REVENUE

SEC. 2. Powers and Duties of the Bureau of Internal Revenue. - The Bureau of Internal Revenue shall be under the supervision and control of the Department of Finance and its powers and duties shall comprehend the assessment and collection of all national internal revenue taxes, fees, and charges, and the enforcement of all forfeitures, penalties, and fines connected therewith, including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts. The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this Code or other laws. The BUREAU OF INTERNAL REVENUE is a part and parcel of the total revenue operations of the government particularly of the Department of Finance. The task of BIR is not the enforcement of all tax laws, but BIR is just one of the income regulating agency of the government. It does not cover all types of taxes such as those: 1. Covered by the BOC on imports and exports duties; 2. Covered by the SEC with respect to corporations; 3. Other tax regulating agencies of Municipalities; 4. Covered by LTO with respect to motor vehicle registrations fees which fees are used for the building and maintenance of roads and highways; Under the NIRC, the BIR is under the supervision and control of the Department of Finance. POWERS AND DUTIES OF THE BIR (1) Assessment and collection of all national internal revenue taxes, fees, and charges. Note that it only covers national internal revenue taxes such as income tax, business tax which is

composed of VAT, OPT, excise tax, estate and donor’s tax, and DST. (2) Enforcement of all forfeitures, penalties, and fines connected therewith. This also includes the execution of judgments in case the taxpayer will not pay. It also includes the fines and penalties in case the taxpayer will not pay or if the taxpayer will not follow the rules and regulations in paying the taxes such as form, venue, wrong filing etc. (3) Execution of judgments in all cases decided in its favor. If there is a case decided by the Court of Tax Appeals and the ordinary courts which is final and executory, it is the BIR which will execute these judgments so that the judgments will not be rendered nugatory. (4) Has the exclusive and original jurisdiction to interpret the provisions of the NIRC and other tax laws. The decision of the BIR is subject to review by the Secretary of Finance. (5) To decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties. As a whole, when you talk about the enforcement of the entirety of the NIRC, you go to the BIR because it has the enforcement powers as guaranteed by the NIRC and other special laws. Again, BIR is just under the DOF which supervises and controls the BIR. BIR OFFICERS IN GENERAL SEC. 3. Chief Officials of the Bureau of Internal Revenue. - The Bureau of Internal Revenue shall have a chief to be known as Commissioner of Internal Revenue, hereinafter referred to as the Commissioner, and four (4) assistant chiefs to be known as Deputy Commissioners. Dati the COMMISSIONER OF INTERNAL REVENUE is called the COLLECTOR.

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TAXATION 2- 3rd exam FROM THE LECTURES OF ATTY. DONALVO 2018-2019 Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

(Viola)

(From 2017 TSN) All the offices of the Commissioners are in Manila and all of them are presidential appointees. SEC. 10. Revenue Regional Director. - Under rules and regulations, policies and standards formulated by the Commissioner, with the approval of the Secretary of Finance, the Revenue Regional director shall, within the region and district offices under his jurisdiction, among others: (a)

(b)

(c)

(d)

(e)

(f) (g)

(h)

Implement laws, policies, plans, programs, rules and regulations of the department or agencies in the regional area; Administer and enforce internal revenue laws, and rules and regulations, including the assessment and collection of all internal revenue taxes, charges and fees; Issue Letters of authority for the examination of taxpayers within the region; Provide economical, efficient and effective service to the people in the area; Coordinate with regional offices or other departments, bureaus and agencies in the area; Coordinate with local government units in the area; Exercise control and supervision over the officers and employees within the region; and Perform such other functions as may be provided by law and as may be delegated by the Commissioner.

Listed under Section 10 are the powers and duties of the Revenue Regional Director. SEC. 11. Duties of Revenue District Officers and Other Internal Revenue Officers. - It shall be the duty of every Revenue District Officer or other internal revenue officers and employees to ensure that all laws, and rules and regulations affecting national internal revenue are faithfully executed

and complied with, and to aid in the prevention, detection and punishment of frauds of delinquencies in connection therewith. It shall be the duty of every Revenue District Officer to examine the efficiency of all officers and employees of the Bureau of Internal Revenue under his supervision, and to report in writing to the Commissioner, through the Regional Director, any neglect of duty, incompetency, delinquency, or malfeasance in office of any internal revenue officer of which he may obtain knowledge, with a statement of all the facts and any evidence sustaining each case. BIR OFFICERS 1. Commissioner of Internal Revenue (chief officer) 2. Deputy Commissioners (4 assistant chiefs) 3. Revenue Regional director 4. Revenue District Officer 5. Other internal revenue officers and employees SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance. The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals. MAIN POWERS OF THE BIR 1. The power to interpret the provisions of the NIRC and other tax laws; 2. The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties

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TAXATION 2- 3rd exam FROM THE LECTURES OF ATTY. DONALVO 2018-2019 Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

BIR INTERPRETATION OF TAX LAWS BIR TAX RULINGS usually happens when the taxpayer is not sure on the taxability of a certain transaction. It is issued to answer written questions of individuals and juridical entities regarding their status as taxpayers and the effects of their transaction for tax purposes. For example, there are two lots sold to two different persons. One lot has a commercial building while in the other stood a residential house. However, it was found later than there was wrong registration of the two lots because baliktad dapat sila. So what the parties did is to execute a deed of conveyance. What is the tax implication of that deed of conveyance? It’s actually a barter because it merely involves an exchange of thing or property. Under the NIRC, capital gains tax (CGT) includes sale, barter or exchange of properties. Take note, however, that in CGT there is presumed gain. Here, there is no gain because they will simply exchange titles kasi nga nagkamali. Because you are unsure on how to treat the particular transaction, you may go to the BIR and ask for a tax ruling involving the tax treatment of such particular transaction. TAX RULINGS are the official positions of the BIR of inquiries of the taxpayers who request clarifications of certain provisions of the NIRC, tax laws or other revenue regulations mainly for the purpose of seeking tax exemptions. The rulings are based on particular facts under the circumstances presented and are interpretation of the law at a specific point in time. KINDS OF BIR RULINGS (1) BIR RULING OF FIRST IMPRESSIONS. These are rulings based on facts and circumstances, without established precedents. These are rulings for the first time. These rulings shall not be valid unless reviewed and approved by the Secretary of Finance. The ruling must not be against the law and must be issued only by the CIR (2) RULINGS WHICH PRECEDENTS.

(Campaner)

Principles to be followed when it comes to BIR Rulings: 1. the interpretation by officers of laws which are under their administration is entitled to GREAT RESPECT – which means that it has the presumption of regularity in its favor. 2.

BIR Rulings has the force and effect of law – it’s not a law in itself but it has the force and effect of one; such that if the BIR issues a tax ruling, the BIR cannot go against it.

3.

The BIR rulings cannot be made or cited as precedent of a taxpayer but it can be used as an information on a particular matter which has been decided before – there is no stare decisis (unlike that of SC decisions). But they can provide information on how the bureau may treat similar transactions, you may cite it but you cannot claim rights over it.

4.

The CIR, in issuing its rulings, is not bound by its predecessor. MISAMIS ORIENTAL ASSOCIATION vs. DOF G.R. No. 108524 This has something to do with the definition of copra. In a previous ruling, it was stated that “copra is an agri nonfood product and is exempt from VAT.” When a new CIR was appointed, he made a new ruling classifying copra. “exempt from VAT only if the sale is made by a primary producer.” Can the CIR do that? Yes, the CIR can reverse the ruling of its predecessor. He is not bound by the ruling of his predecessors. To the contrary, the overruling of decisions is inherent in the interpretation of laws.

CREATE/ESTABLISH

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TAXATION 2- 3rd exam FROM THE LECTURES OF ATTY. DONALVO 2018-2019 Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

5.

While the rulings of the BIR are entitled to great respect, the courts are not bound by it if the interpretation given is inconsistent with the basic law – again, the SC is the final arbiter of any tax-related matter.

REVENUE MEMORANDUM CIRCULARS are issuances that publish pertinent and applicable portions, as well as amplifications, of laws, rules, regulations and precedents issued by the BIR and other agencies/offices.

Another way of interpreting Tax Rules is through Revenue Regulations. Kung merong IRR ang Labor Code, when it comes to the BIR, we call them as Revenue Regulations.

Let’s go to the question – can BIR rulings be given retroactive applications?

Who promulgates them? It’s the Secretary of Finance upon the recommendation of the CIR. The issuance of an RR is authorized by law and as such has the force and effect of law. In case there is a conflict between a law and RR, of course the law will prevail. Case in point is the: CIR vs. FORTUNE TOBACCO G.R. Nos. 167274-75 Yung meron silang Revenue Regulation setting a floor on the value of the excise tax to be paid by the tobacco manufacturers, producers and company owners. However, the ceiling is not found in the NIRC. Administrative regulations must always be in harmony with the provisions of the law because any resulting discrepancy between the two will always be resolved in favor of the basic law. REVENUE REGULATIONS are issuances signed by the Secretary of Finance, upon recommendation of the CIR that specify, prescribe or define rules and regulations for the effective enforcement of the provisions of the NIRC and related statutes. Take note also of the definition of: REVENUE MEMORANDUM ORDERS are issuances that provide directives or instructions; prescribe guidelines; and outline processes, operations, activities, workflows, methods and procedures necessary in the implementation of stated policies, goals, objectives, plans and programs of the Bureau in all areas of operations, except auditing.

SEC. 246. Non- Retroactivity of Rulings. - Any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with the preceding sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers, except in the following cases: (a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue; (b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or Where the taxpayer acted in bad faith. If you follow the provision, the General Rule is that rulings and regulations are not retroactive they are prospective in application. Any revocation, modification or reversal of rules and regulations shall not be given any retroactive effect or application if it will be prejudicial to the taxpayer. What are the EXCEPTIONS? (provided in the codal above) 1. Deliberate misstatement or omission of material facts – namakak ang taxpayer 2. Facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based – meaning the taxpayer was subjected to a ?? then the taxpayer presented the tax ruling, then the BIR found out that the facts provided are materially different from the facts made on that ruling 3. Where the taxpayer acted in bad faith.

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TAXATION 2- 3rd exam FROM THE LECTURES OF ATTY. DONALVO 2018-2019 Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

SEC. 5. Power of the Commissioner to Obtain Information, and to Summon, Examine, and Take Testimony of Persons. - In ascertaining the correctness of any return, or in making a return when none has been made, or in determining the liability of any person for any internal revenue tax, or in collecting any such liability, or in evaluating tax compliance, the Commissioner is authorized: (A) To examine any book, paper, record, or other data which may be relevant or material to such inquiry; (B) To obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation, or from any office or officer of the national and local governments, government agencies and instrumentalities, including the Bangko Sentral ng Pilipinas and governmentowned or -controlled corporations, any information such as, but not limited to, costs and volume of production, receipts or sales and gross incomes of taxpayers, and the names, addresses, and financial statements of corporations, mutual fund companies, insurance companies, regional operating headquarters of multinational companies, joint accounts, associations, joint ventures of consortia and registered partnerships, and their members; (C) To summon the person liable for tax or required to file a return, or any officer or employee of such person, or any person having possession, custody, or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax, or any other person, to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books, papers, records, or other data, and to give testimony;

(D) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry; and (E) To cause revenue officers and employees to make a canvass from time to time of any revenue district or region and inquire after and concerning all persons therein who may be liable to pay any internal revenue tax, and all persons owning or having the care, management or possession of any object with respect to which a tax is imposed. The provisions of the foregoing paragraphs notwithstanding, nothing in this Section shall be construed as granting the Commissioner the authority to inquire into bank deposits other than as provided for in Section 6(F) of this Code. There are several powers enumerated here. First is letter A - To examine any book, paper, record, or other data which may be relevant or material to such inquiry; The BIR has the authority to look at the accounting books and records of the taxpayer to determine whether or not the taxpayer has indeed made the correct declaration for tax purposes. Please take note that the BIR is given this power mainly because we are applying the self-assessment system. It is a form of counterchecking whether or not the taxpayer has been honest in making his declarations. Is the examination limited to the books and records of the taxpayer concerned only? “tingnan ko kasali yang books nang supplier mo.” Under Sec. 5 (B), the BIR has the power “To obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation, or from any office or officer of the national and local governments, government agencies and instrumentalities, including the Bangko Sentral ng Pilipinas and government-owned or controlled corporations xxx.”

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TAXATION 2- 3rd exam FROM THE LECTURES OF ATTY. DONALVO 2018-2019 Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

What is changed here (by the TRAIN) is the provision regarding the Cooperative Development Authority. (Castro)

NIRC SEC. 5 Power of the Commissioner to Obtain Information, and to Summon, Examine, and Take Testimony of Persons - In ascertaining the correctness of any return, or in making a return when none has been made, or in determining the liability of any person for any internal revenue tax, or in collecting any such liability, or in evaluating tax compliance, the Commissioner is authorized: (A) To examine any book, paper, record, or other data which may be relevant or material to such inquiry; (B) To obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation, or from any office or officer of the national and local governments, government agencies and instrumentalities, including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations, any information such as, but not limited to, costs

TRAIN “Sec. 5. Power of the Commissioner to Obtain Information, and to Summon, Examine, and Take Testimony of Persons.— In ascertaining the correctness of any return, or in making a return when none has been made, or in determining the liability of any person for any internal revenue tax, or in collecting any such liability, or in evaluating tax compliance, the Commissioner is authorized: “(A) x x x “(B) To obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation, or from any office or officer of the national and local governments, government agencies and instrumentalities, including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations, any information such as, but not limited to, costs and volume of production, receipts or sales and gross

and volume of production, receipts or sales and gross incomes of taxpayers, and the names, addresses, and financial statements of corporations, mutual fund companies, insurance companies, regional operating headquarters of multinational companies, joint accounts, associations, joint ventures of consortia and registered partnerships, and their members; (C) To summon the person liable for tax or required to file a return, or any officer or employee of such person, or any person having possession, custody, or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax, or any other person, to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books, papers, records, or other data, and to give testimony; (D) To take such testimony of the person

incomes of taxpayers, and the names, addresses, and financial statements of corporations, mutual fund companies, insurance companies, regional operating headquarters of multinational companies, joint accounts, associations, joint ventures or consortia and registered partnerships, and their members: Provided, That the Cooperative Development Authority shall submit to the Bureau a tax incentive report, which shall include information on the income tax, valueadded tax, and other tax incentives availed of by cooperatives registered and enjoying incentives under Republic Act No. 6938, as amended: Provided, further, That the information submitted by the Cooperative Development Authority to the Bureau shall be submitted to the Department of Finance and shall be included in the database created under Republic Act No. 10708, otherwise known as ‘The Tax Incentives Management and Transparency Act (TIMTA)’.

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TAXATION 2- 3rd exam FROM THE LECTURES OF ATTY. DONALVO 2018-2019 Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

concerned, under oath, as may be relevant or material to such inquiry; and

“x x x.”

(E) To cause revenue officers and employees to make a canvass from time to time of any revenue district or region and inquire after and concerning all persons therein who may be liable to pay any internal revenue tax, and all persons owning or having the care, management or possession of any object with respect to which a tax is imposed. The provisions of the foregoing paragraphs notwithstanding, nothing in this Section shall be construed as granting the Commissioner the authority to inquire into bank deposits other than as provided for in Section 6(F) of this Code. What is changed here is that provision in the Cooperative Development Authority (CDA): Provided, That the Cooperative Development Authority shall submit to the Bureau a tax incentive report x x x This is to give information to the BIR how these CDAs are doing financially. Kailangan ba natin tanggalin ang tax exemption nila? The Department of Finance in their study, they wanted to remove the tax exemption in the cooperatives because mind you pag COOP walang tax daghan kaayo na sila ug kwarta.

But we cannot do anything about it because the law says that cooperatives registered with the CDA are exempt from a lot of taxes. Si in order for the BIR to assess later on or for the Department of Finance to assess later on, kailangan ba natin ng tax. Should we make a recommendation to the Congress that these institutions, associations or cooperatives be taxed? That’s why this provision was inserted. This power to obtain information has something to do with cross-matching. What is this cross-matching? For example, I am engaged in the selling of goods, of course the goods that I would sell will come from my suppliers. So basically, my purchases of goods are sales of some other persons. So dapat mag tugma yan, kung ilan binenta ko yun dapat lang ang binili ko din. What if there is a discrepancy to the figures? You would claim na ito ang tama and the seller will always claim also na ito ang tama. So what will the BIR do? So someone of you is lying, we will make an assessment to the both of you. So lugi ka kung tikasan imo ginapalitan. In the end, the conclusion is that the BIR is not limited to the taxpayer’s record in itself. He can obtain information from third persons to determine the veracity of correctness of the declarations of the taxpayer under investigation. POWER TO SUMMON - Power to summon person requires him to produce books, records, and all other materials. (B) To summon the person liable for tax or required to file a return, or any officer or employee of such person, or any person having possession, custody, or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax, or any other person, to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books, papers, records, or other data, and to give testimony;

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TAXATION 2- 3rd exam FROM THE LECTURES OF ATTY. DONALVO 2018-2019 Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

POWER TO TAKE SUCH TESTIMONY OF THE PERSON CONCERNED, UNDER OATH, AS MAY BE RELEVANT OR MATERIAL TO SUCH INQUIRY Sec. 5 (D) POWER TO CAUSE REVENUE OFFICERS AND EMPLOYEES TO MAKE A CANVASS FROM TIME TO TIME OF ANY REVENUE DISTRICT OR REGION AND INQUIRE AFTER AND CONCERNING ALL PERSONS THEREIN WHO MAY BE LIABLE TO PAY ANY INTERNAL REVENUE TAX, AND ALL PERSONS OWNING OR HAVING THE CARE, MANAGEMENT OR POSSESSION OF ANY OBJECT WITH RESPECT TO WHICH A TAX IS IMPOSED. Sec. 5 (E). So naga canvassing sila. I don’t know if they refer to the tax mapping. I think this is an exercise of police power. CASES CIR vs. GONZALES G.R. No. 177279 (October 13, 2010) Supposing the BIR intends to get the information from third persons in connection to an auditing conducted to a taxpayer. Is it necessary for the BIR to inform the taxpayer first? Huy, taxpayer mananghid sa ko ha, tan-awon nako ang libro sa imohang suppliers ha kung tama ba gyud ni imong gisulti. In this case, the BIR is peculiar. What happened here is that the BIR conducted an audit against a corporation. But the corporation did not want to present its books. The BIR said we have to investigate your book because somebody said, there is an informant, that you have been under declaring your income, so we want to read and look at your books. But the corporation did not want to produce its books, so nag issue ng subpoena. And then a criminal complaint was filed eventually. The corporation’s interesting argument here is that the information can’t be used against them because it has not been shown that the informant was qualified under the informer’s reward. And second, the fact that the corporation, the taxpayer, is not informed of such move, that is already a violation of due process.

According to the SC: We have held that the lack of consent of the taxpayer under investigation does not imply that the BIR obtained the information from third parties illegally or that the information received is false or malicious. Nor does the lack of consent preclude the BIR from assessing deficiency taxes on the taxpayer based on the documents. So okay lang yan. The BIR has the power to look at other matters, other persons, other documents in order for the BIR to determine whether or not the declaration of the taxpayer is correct. We don’t need to make paalam to you. FITNESS BY DESIGN, INC. vs CIR G.R. No. 177982 (October 17, 2008) The next question is, what if the BIR happened to know that the taxpayer has been under declaring his income because of his own information? Gikawat ang information, gikawat nako ang records. The accountant in this corporation stole the accounting records of this corporation and he gave it to the BIR. So probably nag away yung may-ari and the accountant. In those documents, the BIR found anomalies in the corporation and so nag make ng tax assessment. This corporation challenged the BIR that why would they use such information, you are not allowed to use that, when in fact it was stolen from them to begin with. You should have acquired our consent first. The SC said: petitioner impugns the manner in which the documents in question reached the BIR, Sablan having allegedly submitted them to the BIR without its (petitioners) consent. Petitioners lack of consent does not, however, imply that the BIR obtained them illegally or that the information received is false or malicious. Nor does the lack of consent preclude the BIR from assessing deficiency taxes on petitioner based on the documents. And Section 5 thus allows the BIR access to all relevant or material records and data in the person of the taxpayer, and the BIR can accept documents which cannot be admitted in a judicial proceeding where the Rules of Court are strictly observed. To

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TAXATION 2- 3rd exam FROM THE LECTURES OF ATTY. DONALVO 2018-2019 Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

require the consent of the taxpayer would defeat the intent of the law to help the BIR assess and collect the correct amount of taxes. It would have been a different thing if the BIR STOLE THE RECORDS. It just so happened that some other person stole it and naging informant siya. Sabi ng Court, wala akong pakialam kung ang third party source niyan kinuha niya yan illegally. But because there is this information from that third person which would determine your tax deficiency that is alright. We can make assessment on your tax deficiency. As you can see, the BIR is really a powerful entity, it can do a lot of things. It can even used illegally acquired documents for it to assess the correct taxes. To determine whether or not the taxpayer has made the correct taxes. Why is that the BIR is given that kind of power that sometimes would destroy the taxpayer and it would close the business just because the taxpayer is not paying its taxes correctly? Why? It is because of our mantra, the taxes are the lifeblood of the State without it cannot survive or endure. March 5, 2019 (Gido)

The CIR and its duly authorized representatives has the power to make assessments. The purpose of that is to determine the tax due and payable to the government by the taxpayer. Even if the Philippines has a self-assessment system (meaning taxpayers themselves compute their taxes), the government is not precluded in determining whether or not the declaration of the taxpayers are correct and ultimately, whether or not the taxpayer has paid the correct taxes. It really doesn’t matter if the taxpayer does not file an income tax return or whatever internal revenue return - the failure of the taxpayer to file any tax return will not preclude or affect the authority of the BIR to assess the proper taxes. The BIR still has the power to assess the taxpayer for any unpaid taxes, compute the taxes. Mind you, when it comes to the computation of taxes the BIR can compute using the “best evidence obtainable” rule if there is no tax return or if the taxpayer files it wrong or the taxpayer has no accounting record at all. Also the BIR can compute the taxes on basis of estimates only or the constructive method of determining how

much should be a taxpayer be paying to the government (ex: The BIR can compare the net worth of the taxpayer from the previous year and the current year in cases where BIR find underdeclaration of income on the tax return of the taxpayer.) Under the TRAIN LAW: SEC. 6. Power of the Commission to Make Assessment and Prescribe Additional Requirements for Tax Administration and Enforcement A. Examination of Returns and Determination of Tax Due - After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any tax payer and the assessment of the correct amount of tax, notwithstanding any law requiring the prior authorization of any government agency or instrumentality: Provided, however, That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. > When you read the last part you will see that even if the taxpayer will not file a tax return - it is immaterial. The tax return is not a condition precedent for the BIR to assess and demand the payment of the correct taxes. The taxpayer is allowed to amend his income tax return. This is allowed only when there is no notice of investigation for such return served to the taxpayer. transcriber's note: [SECTION 6(A) Par. 2 unchanged by TRAIN law] to wit: Any return, statement of declaration filed in any office authorized to receive the same shall not be withdrawn: Provided, That within three (3) years from the date of such filing, the same may be modified, changed, or amended: Provided, further, That no notice for audit or investigation of such return, statement or declaration has in the meantime been actually served upon the taxpayer. Lets us now go to. . . SEC. 6 (B) Failure to Submit Required Returns, Statements, Reports and other Documents. - When a

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TAXATION 2- 3rd exam FROM THE LECTURES OF ATTY. DONALVO 2018-2019 Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable. In case a person fails to file a required return or other document at the time prescribed by law, or willfully or otherwise files a false or fraudulent return or other document, the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all legal purposes. > This is the legal basis why the BIR is allowed to make an amendment on the return of the taxpayer filed before the BIR Q: When can the BIR assess the taxpayer based on the “best evidence obtainable” rule? A: 1.

Report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations  Meaning no income tax return was filed by the taxpayer. 2. When there is reason to believe that any such report is false, incomplete or erroneous.  That means you filed an income tax return and what you placed there are imaginary figures. Q: what does “best evidence obtainable” mean? A: CIR versus HANTEX (GR.136975) Facts: Hantex is engaged in the sale of plastics. One of its most basic material is synthetic resins. The BIR now received a confidential information that Hantex has been underdeclaring their imports of synthetic resins

What are their (BIR from their informant) evidences? Photocopy of the import documents called “consumption entries”. Note that said informat got the same documents from another person. So on the basis of this the BIR investigated on Hantex. subpoena duces tecumhas been issued, but then Hantex refuses to comply with the subpoena. Then the BIR issued an assessment on the basis of the documents they were able to acquire from the informant. Hantex protested and claimed that the BIR failed to present the original or the authenticated original copies of the import documents. Ruling: [transcriber’s note: from full text] petitioner based her finding that the 1987 importation of the respondent was underdeclared on the worthless machine copies of the Consumption Entries. Aside from such copies, the petitioner has no other evidence to prove that the respondent imported goods costing P105,761,527.00. The petitioner cannot find solace on the certifications of Tomas and Danganan because they did not authenticate the machine copies of the Consumption Entries, and merely indicated therein the entry numbers of Consumption Entries and the dates when the Bureau of Customs released the same. The certifications of Tomas and Danganan do not even contain the landed costs and the advance sales taxes paid by the importer, if any. As gleaned from the certifications of Tomas and Danganan, the goods covered by the Consumption Entries were released by the Bureau of Customs, from which it can be presumed that the respondent must have paid the taxes due on the said importation. The petitioner did not adduce any documentary evidence to prove otherwise. Thus, the computations of the EIIB and the BIR on the quantity and costs of the importations of the respondent have no factual basis, hence, arbitrary and capricious. The petitioner cannot rely on the presumption that she and the other employees of the BIR had regularly performed their duties. As the Court held in Collector of Internal Revenue v. Benipayo in order to stand judicial scrutiny, the assessment must be based on facts. The presumption of the correctness of an assessment, being a mere

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presumption, cannot be made to rest on another presumption.

The following PRINCIPLES were given by the court:

(Isidor)

(FROM 2018 TSN) CIR vs. HANTEX G.R. No. 136975 | March 31, 2005 FACTS: The respondent is a corporation duly organized and existing under the laws of the Philippines. Being engaged in the sale of plastic products, it imports synthetic resin and other chemicals for the manufacture of its products. For this purpose, it is required to file a Consumption Entry with the Bureau of Customs. Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of Counter-Intelligence Division of the Economic Intelligence and Investigation Bureau (EIIB), received confidential information that the respondent had imported synthetic resin amounting to P115,599,018.00 but only declared P45,538,694.57. According to the informer, based on photocopies of 77 Consumption Entries furnished by another informer, the 1987 importations of the respondent were understated in its accounting records. So BIR sent an assessment notice based on the photocopies. Hantex contends that the alleged bases of the tax computations were anchored on mere presumptions and not on actual facts. The alleged undeclared purchases for 1987 were based on mere photocopies of alleged import entry documents, not the original ones, and which had never been duly certified by the public officer charged with the custody of such records in the Bureau of Customs. ISSUE: Can the BIR use the photocopies as the basis of their assessment? RULING: While the EIIB tried to secure certified copies of the said entries from the Bureau of Customs, it was unable to do so because the said entries were allegedly eaten by termites. The Court can only surmise why the EIIB or the BIR, for that matter, failed to secure certified copies of the said entries from the Tariff and Customs Commission or from the National Statistics Office which also had copies thereof.

1.

The law allows the BIR access to all relevant or material records and data in the person of the taxpayer.

2.

It places no limit or condition on the type or form of the medium by which the record subject to the order of the BIR is kept.

The standard is not the form of the record but where it might shed light on the accuracy of the taxpayers return. It appears that the photocopies were seemingly allowed as one of the information or records that the BIR can use to determine the tax liability. 3.

The Commissioner of Internal Revenue has the duty to investigate any circumstance which led him to believe that the taxpayer had taxable income larger than reported.

Necessarily, this inquiry would have to be outside of the books because they supported the return as filed. He may take the sworn testimony of the taxpayer; he may take the testimony of third parties; he may examine and subpoena, if necessary, traders and brokers accounts and books and the taxpayers book accounts. This emphasizes that the BIR has the authority to determine the tax liability on the basis of records in the possession of a third person. 4.

The best evidence obtainable may consist of hearsay evidence, such as the testimony of third parties or accounts or other records of other taxpayers similarly circumstanced as the taxpayer subject of the investigation.

The BIR can insist through the records to determine the tax liability of the taxpayer if not found in (technical?) evidence. Naestablish mo na lahat and then gideny pa rin ng judge because of the BEST EVIDENCE RULE. So, what happened was that, PROTEST, and then after the BIR does not want to believe, kasi sabi ng BIR, simple lang: “BEST EVIDENCE OBTAINABLE RULE”.

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We can compute the correct taxes using the Best Evidence Available, eto yung available mo na evidence eh. So, basically the BIR denied the protest and the case was elevated to the CTA,then the CTA denied the appeal. But in the Court Of Appeals ( CTA en banc is not yet existing at that time), it reversed the CTA’s decision saying that the tax deficiency assessments were unlawful because the evidenceof law were not really authenticated based on hearsay evidence. What evidence? There were just mere photocopies, etc. You did not even bother to authenticate that. Question: Ma-authenticate mo ba ang photocopy? Ano ang sabi ng BIR? BIR: The Court should accept these even if they are just mere photocopies because the original copies were nowhere to be found. You know why? Because they were already eaten by termites.

from whomthe subject taxpayer received any income; and 4. Record, data, document, and information secured from government offices or agencies, such as the SEC, the BSP, the Bureau of Customs and the Tariff and Customs Commission. d) FORM is IMMATERIAL: It places no limit or condition on the type or form of the medium by which the record subject to the order of the BIR is kept. - The purpose of the law is to enable the BIR to get at the taxpayers records in whatever form may be kept. Such records include computer tapes of the said records prepared by the taxpayer in the course of business. - The standard is not the form of the record but where it might shed light on the accuracy of the taxpayers return. Comment: So basically if you think about it, okay lang photocopies db? Kasi whatever form man daw. The Supreme Court said(Refer to letter e).

SC: It ruled in favor of Hantex. SEVERAL PRINCIPLES DISCUSSED IN THIS CASE: a) The law allows the BIR to access all relevant or materials records and data in the person of the taxpayer; b) The BIR may adhere to the Best Evidence or other information availale to determine the tax liability of the taxpayer; c)This Best Evidence Obtainable may be obtained not only on the basis of the right of the taxpayer but also involves the right of some other persons. It inlcudes: 1. Corporate and accounting records of the taxpayer whos is subject of the assessment process; 2. The accounting records of other taxpayers engaged in the same line of business, including their gross profit and net profit sales. 3. Data, record, paper, document or any evidence gathered by internal revenue officers from other taxpayers who had personal transactions or

e) The CIR has the duty to investigate any circumstance which led him to believe that the taxpayer had taxable income larger than reported. INQUIRY: This inquiry would have to be outside of the books because they supported the return as filed.



The CIR may: 1. Take the sworn testimony of the taxpayer; 2. Take the the testimony of third parties; 3. Examine and subpoena, if necessary, traders and brokers accounts and books and the taxpayers book accounts. Comment: So, that’s why the CIR has subpoena powers. f) The best evidence obtainable may consist of hearsay evidence, such as: 1. The testimony of third parties or accounts or other records of other taxpayers similarly

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circumstanced as the taxpayer subject of the investigation. Comment: The BIR is not bound by the technical rules of evidence.

g) Hearsay is okay but the best evidence obtainable under Section 16, does not include mere photocopies which are not authenticated. Comment: Meaning photocopies are allowed so long as it is properly authenticated in court. Because if you present mere photocopy without authenticating it, it bears NO PROBATIVE WEIGHT. h) In the absence of the taxpayer’s accounting records, his tax liability may be determined by estimation. - Approximation in the calculation of the taxes due is justified. To hold otherwise would be tantamount to holding that skillful concelament is an invincible barrier to proof. However, the rules does not apply where the estimation is arrived at arbitrarily and capriciously. SC: Even if the copies of the Customs officials were eaten by termites, the copy of such records can be obtained from other government offices or agencies. Comment: Importation gud yan, naturally if there’s an importation, with respect to the excise tax, if the BIR has a copy then the Customs also has one. They should have gone to the latter to verify. SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement.— (C) Authority to Conduct Inventory-taking, surveillance and to Prescribe Presumptive Gross Sales and Receipts - The Commissioner may, at any time during the taxable year, order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities, or may place the business operations of any person, natural or

juridical, under observation or surveillance if there is reason to believe that such person is not declaring his correct income, sales or receipts for internal revenue tax purposes. The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct. When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of this Code, or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code, the Commissioner, after taking into account the sales, receipts, income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts, sales and taxable base, and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person. This power under Section 6 (c): In this power the BIR will operate the “OPLAN KANDADO”. This mainly related to VAT. The BIR is authorized to conduct a surveillance, kanang magpretend sila na customr sila. This is to determine whether or not kung tama ba ang declaration nila, ilang customers ang nagapasok sa isang araw. Para malaman talaga nila how much is the establishment’s gross receipts or gross sales for VAT purposes. If as per surveillance, there’s a huge discrepancy,they will send a 48 hour notice to explain or verify. (Lagat)

If, as per surveillance nila, for purposes of determining the grosses, there’s a huge discrepancy, then, under the (inaudible) ..rule, they will send a 48hour notice (forgot the term) to explain or verify.

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(verify notice to explain, parang ganyan), so, the tax payer will have to respond to the query. The BIR will not be satisfied, it will send 5-day compliance notice. It’s either the taxpayer will pay the taxes, the tax discrepancy, or comply with other requirements. Otherwise, the BIR will close the establishment. Yan ang nangyari sa Henan, yung sa Bohol.

Values. This is modified under the TRAIN Law. Medyo mahaba ito, but, in a gist: (Note that there is a high increase in the zona value dito sa Davao.) The changes introduced are follows:

And you also have, What’s the new thing here under the Zonal Value? AUTHORITY TO TERMINATE THE TAXABLE PERIOD Taxable period means the period the taxpayer will be subject to tax. For example, Income Tax is an annual tax. The taxable period nya is one year. Kung VAT or general OPT, the period is quarterly. In this specific instances, even if the 1-year period for the income tax to run is not done, the BIR has the authority to terminate it in order to protect the interests of the government for the collection of taxes. What are the instances where the BIR may terminate the taxable period: 1) When the taxpayer is RETIRING from the business subject to tax So, pag-closure nya, sabi natin one year yan. From January 1 to December 31, and in the middle of the year, June 1, ayaw niya na magbusiness dahil kapoy na. So, terminated ang tax year mo in the middle of the year. 2.) if the taxpayer is LEAVING the Philippines.

1) There must be a mandatory consultation with the appraisers from the public and private sectors. 2) There must be a prior notice to the affected taxpayers. This is usually in the form of publication. 3) The Zonal Values determined under this provision are subject to automatic adjustment once every years. 4) The publication requirement The adjustment in the zonal valuation must first be published in a newspaper of general circulation, or if there is none, posted in the provincial or city or municipal hall in two or more conspicuous public places. There is this publication requirement so that the increase in the changes of the zonal value will become effective.

AUTHORITY TO INQUIRE BANK DEPOSITS

3.) If the taxpayer REMOVES his property from Philippines or where it is situated.

These are the instances where the CIR is allowed to look into the bank deposits of the taxpayer.

4.) The taxpayer is performing any act that OBSTRUCTS the proceeding for the collection of the tax for the past or current quarter or year.

As a general rule: the BIR or CIR has no authority to look into your bank accounts. Except as follows:

In these 4 instances, the BIR will close it, etc., file your returns and you should pay the taxes. The BIR can do it.

1) A decedent to determine his gross estate; and

Then, the Commissioner to Prescribe Real Property

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2) Any taxpayer who has filed an application for compromise of his tax liability …by reason of financial incapacity to pay his tax liability. 3) A specific taxpayer or taxpayers subject of a request for the supply of tax information from a foreign tax authority pursuant to an international convention or agreement on tax matters to which the Philippines is a signatory or a party of: Provided, That the information obtained from the banks and other financial institutions may be used by the Bureau of Internal Revenue for tax assessment, verification, audit and enforcement purposes.

Procedural or Documentary Requirements. – The Commissioner may prescribe the manner of compliance with any documentary or procedural requirement in connection with the submission or preparation of financial statements accompanying the tax returns.

Prescribe additional requirements… diri gahaman ang BIR. Have you tried processing a title? The first stop is with BIR talaga. And you have to get a lot of things from BIR: 1) tax verifications, and you have to fill up forms; 2) they will require you to present the original title talaga; kulit sila, and magpadala pa sila nung bluecopy ng title. And then, they will require you an acknowledgement receipt.

(G) Authority to Accredit and Register Tax Agents. The Commissioner shall accredit and register, based on their professional competence, integrity and moral fitness, individuals and general professional partnerships and theirrepresentatives who prepare and file tax returns, statements, reports, protests, and other papers with or who appear before, the Bureau for taxpayers. Within one hundred twenty (120) days from January 1, 1998, the Commissioner shall create national and regional accreditation boards, the members of which shall serve for three (3) years, and shall designate from among the senior officials of the Bureau, one (1) chairman and two (2) members for each board, subject to such rules and regulations as the Secretary of Finance shall promulgate upon the recommendation of the Commissioner. Individuals, general professional partnerships, and their representatives who are denied accreditation by the Commissioner and/or the national and regional accreditation boards may appeal such denial to the Secretary of Finance, who shall rule on the appeal within sixty (60) days from receipt of such appeal. Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant.

(Lim)

I, the seller, have received this amount from the buyer as consideration from the seller under a deed of sale. Why would the BIR require the acknowledgement receipt when nakalagay naman sa deed of sale? Wala rin naman sa NIRC. But, probably this topic is the reason. SEC. 7. Authority of the Commissioner to Delegate Power. - The Commissioner may delegate the powers vested in him under the pertinent provisions of this Code to any or such subordinate officials with the rank equivalent to a division chief or higher, subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance, upon recommendation of the Commissioner: Provided, However, That the following powers of the Commissioner shall not be delegated: (a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance; (b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau;

(H) Authority of the Commissioner to Prescribe Additional

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(c) The power to compromise or abate, under Section 204 (A) and (B) of this Code, any tax liability: Provided, however, That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500,000) or less, and minor criminal violations, as may be determined by rules and regulations to be promulgated by the Secretary of finance, upon recommendation of the Commissioner, discovered by regional and district officials, may be compromised by a regional evaluation board which shall be composed of the Regional Director as Chairman, the Assistant Regional Director, the heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members; and (d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept. CIR has the power to delegate, except the powers that he cannot delegate to his or her subordinates. GR: Powers of the CIR can be delegated. Ex: The powers stated in revenue regulations, BIR rulings, the power to compromise, and the power to assign or reassign internal revenue officers.

TAX REMEDIES Q: What do we mean by tax remedies? A: TAX REMEDIES are procedural steps that may be undertaken by a taxpayer or the government for the resolution of disputes concerning the levy or imposition of assessments, collections and refunds of taxes. Remedies available not only to the tax payer, but also remedies available to the government. It works both ways. It provides for what are the remedies of the tax

payer in case the BIR would like to collect the wrong taxes or what is the remedy of the government in case he or she does not pay the correct taxes. This is an important topic in taxation because this part provides for your protection as a taxpayer should the government want to collect the wrongful taxes against you. Q: How do we classify remedies? A: For one, we can classify remedies depending on who is claiming that remedy as to whether it is the taxpayer or the government. You can also classify into the remedies availed of as to whether it is judicial or administrative.

OVERVIEW OF THE TAXPAYER’S REMEDY First: The taxpayer will have to file his ITR. Magbayad siya ng taxes niya and as we know, selfassessment siya. But it does not preclude the BIR from determining as to whether or not the declarations of the taxpayer is correct. Second: After filing the ITR, the BIR may conduct its investigation as to whether or not the taxpayer has correctly filed his ITR. The BIR officer will go to the place of business and present certain documents and authority. That is the time that the BIR can look into the records of the taxpayer’s business. The BIR officer will determine as to whether or not there is a tax deficiency. Third: After auditing and determination of deficiency, if wala naman talagang deficiency then the BIR will dismiss. But if there is a finding na may deficiency, the BIR will issue a notice of an informal conference. In the said conference, the BIR will tell the taxpayer as to the deficiency as per auditing and discussion. If there will be compromise and settlement then good. If none, then a case would be filed in the assessment

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division of the BIR. It will be reviewed again and if there is cause then that will be the time that the PAN (Preliminary Assessment Notice) will be issued against the taxpayer. Fourth: From the issuance of the PAN, the taxpayer has the following options: 1. The taxpayer will pay the taxes; 2. The taxpayer will not pay and will ignore the PAN; 3. The taxpayer will write a response within 15 days from the issuance of the PAN. 4. The taxpayer will not issue a response then the BIR will issue a FINAL ASSESSMENT NOTICE. a. Once the FAN is issued, the taxpayer can no longer ignore it because it will become final and executory and it will be the time that the BIR can avail of its own remedies for taxes. Fifth: From the FAN, the taxpayer will file his protest. There are two ways of protesting: 1. Protest for reinvestigation 2. Request for Reconsideration Q: Where do you file the protest? A: it may be filed before the Regional Director or with the CIR. If it is filed with the RD, he will have a certain period to decide either direct denial wholly or partially or indirect denial meaning within the 180 days provided by law, the RD will not do anything. If the RD directly denies wholly or partially, the remedy would be to directly appeal before the Court of Tax Appeals or elevate the matter through administrative appeal to the CIR. If indirect denial, wherein the RD will not do anything within the 180 day period, the taxpayer has two options: to go directly to the CTA or go to administrative appeals via CIR to CTA Division then En Banc to Supreme Court. (Olamit)

Taxpayer’s Remedies muna tayo. Wala pa tayo sa government. So this means that the government will call the attention of the taxpayer because the taxpayer allegedly did not pay the correct taxes or did not pay the taxes at all. So in case the BIR will call the attention of the taxpayer, there is something wrong with that. And then he may avail of the tax remedies. Q: How does the BIR call the attention of the taxpayer? A: It is in the form of an assessment. If you remember in the Tax Law, we have two possible concepts: 1. Figure – the amount ____(*inaudible) by the taxpayer 2. Document issued by the BIR – It is a document which essentially notifies the taxpayer of his or her tax deficiencies or delinquencies as the case may be. What is an ASSESSMENT? So, generally, assessment is a statement that the amount therein stated is due from a taxpayer as a tax. Another definition of an assessment is it is a finding that the taxpayer did not pay the correct assessment. Q: What are the KINDS OF TAX ASSESSMENT in the PH? 1. SELF - ASSESSMENT – We all know what self-assessment is. 2. DEFICIENCY ASSESSMENT – This is an assessment by the tax authority where the correct amount of tax is determined after examination or investigation has been conducted. This means that after the BIR conducted an audit, the BIR has already determined that

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there is discrepancy between the declarations of the taxpayer appertaining to his tax returns and the amount as determined by the BIR during its audit. 3. JEOPARDY ASSESSMENT – Usually this happens if the taxpayer is not willing to cooperate.

3. It shall state all the facts, the law, rules and regulations or jurisprudence on which the assessment was made, otherwise it is void; and 4. The taxpayer must have received the assessment.

This is an assessment made by the authorized revenue officer without the benefit of complete or partial audit in light of the revenue officer’s belief that the assessment and collection of a deficiency tax will be jeopardized by delay caused by the taxpayer’s failure to:

Absent one of those requirements, then you will have a void assessment. The service of such void assessment will not toll the prescriptive period to assess the collection of taxes.

a) comply with audit and investigation requirements to present his books of accounts and/or pertinent records; or

It is issued by the CIR. Normally, it is within the power of the CIR but it may be delegated. It’s the CIR or it’s duly authorized representatives.

Q: Who makes the assessment?

Q: When should an assessment be made? b) substantiate all or any of the deductions, exemptions or credits claimed in his return. This is usually issued when the statutory prescriptive period for the assessment or collection of taxes are about to lapse should principally to the taxpayer’s fault. So ang mangyayari, mag-susubmit ng jeopardy assessment without the benefit of full or partial audit because the taxpayer is not willing to cooperate. And the prescriptive period for the assessment of taxes is already forthcoming. Q: What are the REQUIREMENTS OF A VALID ASSESSMENT? An assessment to be valid must comply with the following requirements: 1. It must be issued within the prescriptive period; 2. It may be issued after a PAN (Preliminary Assessment Notice) duly served to the taxpayer as determined under the Rule;

It is only needed if there is a discrepancy between the declarations of the taxpayer in his tax return and the findings of the BIR on its audit. But strictly speaking, when we are talking about “when?”, we are talking about the prescriptive period for assessment of taxes. Take note, we are not talking about collection here. Hindi pa tayo naga-kolekta. You have to be precise. We’re not talking about a collection yet. Because a collection will only happen if there is FAN (Final Assessment Notice). There are two prescriptive periods: 1. Ordinary 2. Extraordinary Let’s discuss first the Ordinary found under Sec. 203 of the NIRC. SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such

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taxes shall be begun after the expiration of such period: Provided, That in a case where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return was filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day.

long as you do it within the prescriptive period. Bakit ka man mag-amend kung lampas kana sa prescriptive period, diba? Wala ng ma-kokolekta ang government sa iyo. But the taxpayer is allowed. Please take note of the instances wherein the amendment of tax return is no longer allowable. (Singanon)

So, it sounds complicated but to put it simply, the prescriptive period for assessment of taxes is three years from:

The taxpayer is no longer allowed to amend his tax return if he has already received a notice from the BIR for audit or investigation of such tax return.

(1) the date of filing of the tax return; or (2) the date of deadline set forth by the law, whichever comes later.

So kung under audit na siya, bawal na ang amendment.

Now, because generally speaking, if you do not have a provision of law which provides for a prescriptive period for collection and assessment of taxes, taxes are imprescriptible because of the Lifeblood Theory. The reason behind that is because: 1. The prescriptive period regulates the government. Because it would somehow compel the government to act promptly. Otherwise, kung dili sila mulihok, dili sila ka kwarta. 2. The prescriptive period also benefits the taxpayer because it secures the taxpayer from unreasonable examination, investigation and assessment done by the BIR. Q: How should we interpret provisions on prescriptive period of assessment and collection of taxes? In the case of BPI vs. CIR, the statute of limitations on assessment or collection of taxes is for the protection of taxpayers and should be construed liberally in favor of the taxpayer and strictly against the government.

In relation to the prescriptive period, when do you reckon the three-year period when the tax return is amended by the taxpayer? 

If the return is amended substantially, then the three-year period shall be reckoned from the filing of the amended return.

How do you determine if there is substantial amendment? The amendment is substantial when the amended return is filed declaring more losses which can be done by either reducing the gross income or increasing the items in the deduction. In other words, the amendment reduces the income earned. If there’s reduction in income of course there’s a corresponding decrease in the income tax to paid. So may refund pa. If that happens, that’s a substantial amendment. Otherwise, the amendment is merely minimal. Let’s go to the EXCEPTIONS to the 3-year prescriptive period.

Q: How about if the taxpayer amends his ITR?

SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. -

We have learned before, under Sec. 6, 2nd para. (NIRC), you are allowed to amend. So okay lang, wala tayong problema pag amendment of tax return as

(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court for

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the collection of such tax may be filed without assessment, at any time within ten (10) years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof.

Those are the only four instances wherein you will use the extended period for assessment of taxes.

(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon.

A return is false when the entries therein are not true and correct either through mistake, carelessness, or ignorance.

(c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in paragraph (a) hereof may be collected by distraint or levy or by a proceeding in court within five (5) years following the assessment of the tax. (d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in paragraph (b) hereinabove, may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the expiration of the five (5) -year period. The period so agreed upon may be extended by subsequent written agreements made before the expiration of the period previously agreed upon. (e) Provided, however, That nothing in the immediately preceding and paragraph (a) hereof shall be construed to authorize the examination and investigation or inquiry into any tax return filed in accordance with the provisions of any tax amnesty law or decree.

Let’s talk about false return first.

What do you mean by false return?

This was decided in the case of CIR vs BF Goodrich. But I have a problem because if you read this case, the mistake is due to carelessness or ignorance and there must be intent to mislead the government. Falsity must mean that there must be a design to mislead the government or that the mistake is due to carelessness or ignorance. So meaning there must be an intent to mislead the government that is why there is a false return. But in the case of CIR vs Asalus GR No 15910 February 22, 2017, the SC said that: A false return is different from a fraudulent return. While a false return merely implies deviation from the truth, whether intentional or not, a fraudulent return implies intentional or deceitful entry with intent to evade the taxes due. Thus, a mere showing that the returns filed by the taxpayer were false, notwithstanding the absence of intent to defraud, is sufficient to warrant the application of the ten (10) year prescriptive period under Section 222 of the NIRC. Next is the fraudulent returns.

What are these four instances under Sec. 222? 1. 2. 3. 4.

In case of filing of false return; In case of filing of fraudulent return; In case of failure to file return; and In case of extended assessment.

Fraud comprises anything calculated to deceive including acts, omissions, and concealment involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in damage to another, or by which an undue and unconscientious advantage is taken of another.

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In tax parlance, it is an act or omission which amounts to intentional (?) with the intent of avoiding the taxes.

1.

Substantial Underdeclaration of taxable sales, receipts or income. Kulang, you omitted something which you have received. If you will underdeclare, it will necessarily result to a lesser tax liability.

2.

Substantial Overstatement of deductions meaning you bloat up your expenses malaki ang binawas mo sa income, more than what should have been deducted sa income. This would mean a lesser tax base, which would ultimately result to a lesser tax paid to the government.

So how do you prove fraud? How do you prove a state of mind? To prove fraud, a preponderance of evidence is not enough. You need clear and convincing evidence to prove fraud. (Tan)

How do you prove fraud? There must be an intent to defraud. What is the degree of proof required? It is clear and convincing evidence of fraud. Normally the taxpayer enjoys a presumption of good faith, but the law provides for a prima facie evidence of fraud found in Section 248 (b) of the NIRC. But actually if you read that provision, it does not only establish a prima facie evidence of fraud, but it also establishes a prima facie falsity of the tax return filed. SEC. 248. Civil Penalties. (B) In case of willful neglect to file the return within the period prescribed by this Code or by rules and regulations, or in case a false or fraudulent return is willfully made, the penalty to be imposed shall be 50% of the tax or of the deficiency tax, in case any payment has been made on the basis of such return before the discovery of the falsity or fraud. Provided, That a substantial underdeclaration of taxable sales, deductions, as determined by the Commissioner pursuant to the rules and regulations to be promulgated by the Secretary of Finance, shall constitute prima facie evidence of a false or fraudulent return: Provided, further, That failure to report sales, receipts or income in an amount exceeding 30% of that declared per return, and a claim of deductions in an amount exceeding 30% of actual deductions, shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income or for overstatement of deductions, as mentioned herein. There are 2 instances to constitutes a prima facie evidence of a false or fraudulent return:

When is there a SUBSTANTIAL underdeclaration of sales, receipts or income? Provided, further, That failure to report sales, receipts or income in an amount exceeding 30% of that declared per return, and a claim of deductions in an amount exceeding 30% of actual deductions, shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income or for overstatement of deductions, as mentioned herein. Meaning, if the underdeclared EXCEEDS 30% of that declared in the return, then there is already a prima facie evidence of fraud or falsity. Pretty much the same when we talk about over declaration of expenses, exceeds 30% of the actual. So let us just call this the 30% RULE, once the 30% benchmark has exceeded, then there is a presumption of falsity or fraud. This is the case of CIR vs. Asalus Corporation, G.R. No. 221590, February 22, 2017. CIR vs. ASALUS CORPORATION G.R. No. 221590 | February 22, 2017 FACTS: The tax involved here is VAT deficiencies of the corporation way back in 2007. Sometime in 2010, the BIR sent a notice of conference (NIC) to the corporation. Way back in 2013 kasi, before a PAN is issued, meron tayong NIC, it is another chance on the part of the taxpayer to explain his side. Under the NIRC, the NIC is not required, but

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the revenue regulations in effect that time require it. When the BIR now issued the PAN, it still stated na there is a false or fraudulent item that transpired. The corporation explained, but still the BIR did not believe, thus FAN was issued. But in the FAN, it did not mention anymore that there is fraud in the VAT returns made by the tax payer. Now, how much ba ang VAT deficiencies? In the NIC, it was around 430 Million. Sa FAN it is more or less 106 Million. The amount is still big. The CTA Division ruled that the assessment has already prescribed. Kailan yung VAT, it was 2007. Kailan yung FAN, sobra na ng 3 years. So the CTA Division said it has already prescribed. In the CTA EN Banc, the point of the CIR is this, when we issued the PAN they were already informed that there was fraud or falsity in the VAT, therefore because of substantial compliance of such being informed, the 10 year prescriptive period already applies. Asalus said, PAN is not the assessment that the law talks about. The applicable prescriptive period must have been mentioned also in the FAN, because that is the final notice. Since you did not indicate it in the FAN, you have violated our right to due process to be informed of the law and the facts in which the assessment was made. Still, the CTA En Banc denied the CIR. ISSUE: Whether or not Asalus filed a false return warranting the application of the 10 year prescriptive period. RULING: The SC ruled in favor of the CIR. The CTA was wrong in ruling that the assessment has already prescribed. We have the GR of 3 years, and one exception is 10 years for filing a false or fraudulent return. Then the SC differentiated false return and fraudulent return. It does not mean that if it is false, it is already fraudulent. But necessarily, fraudulent implies falsity. A false return implies a deviation from the truth, whether intentional or not.

Pagsinabi mong fraudulent return, it implies an intentional deceitful entry with intent to evade the taxes. Therefore in false returns, a mere showing that the returns filed by the taxpayer were false notwithstanding the absence of intent to defraud is sufficient to warrant the application of the 10 year prescriptive period. Even if there is nothing fraudulent shown for that matter. But in this case, one of the contention of Asalus is this, during the hearing before the CTA in Division, the BIR did not present anything about the falsity of the VAT returns. Take note that since this is falsity, the BIR should be able to convincingly prove that the VAT returns filed were actually false. What did the BIR say for that matter? The BIR said, that do we even have to prove that the returns were false. During the hearing, we were already able to prove that there is a 30% substantial underdeclaration of the receipts. What did the SC say, the BIR is correct in this case. All that the BIR has to do is to show that there is a substantial or more than 30% underdeclarations of receipts or overstatement of deductions for the presumption of fraud or falsity to operate. Therefore, Asalus is wrong. If the BIR is able to establish the more than 30% rule, then it is up to the taxpayer that all the tax returns it has filed is actually true and accurate. Baliktad na kasi, meron ng presumption eh. Read the full text (Viola) 4. Extended assessment What if the 3 year period is already forthcoming and you open your books yet the BIR isn’t done yet and the BIR still issues a quarterly assessment? It’s ok. But one option here is, the BIR will request an extension and this is entirely possible. Section 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. (b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in

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writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon.

Issue 2: Is RCBC liable to pay the taxes

Under this provision, the 3 year prescriptive period may be extended upon the agreement of the taxpayer and the BIR.

RCBC, through its partial payment of the revised assessments issued within the extended period as provided for in the questioned waivers, impliedly admitted the validity of those waivers. Had petitioner truly believed that the waivers were invalid and that the assessments were issued beyond the prescriptive period, then it should not have paid the reduced amount of taxes in the revised assessment. RCBCs subsequent action effectively belies its insistence that the waivers are invalid.

Requirements for extended assessment (IRR): 1. The agreement must be in writing; 2. It must be signed by both the taxpayer and the BIR; 3. It must be entered before the expiration of the 3 year prescriptive period; 4. The waiver must be for a definite period for how long the extended assessment will be. Can you have a second extension? Yes. Provided that the subsequent agreement is executed prior to the first extension agreed upon. RCBC v CIR The waiver here was not signed by the CIR. When the assessment came, RCBC paid under protest alleging that they already had an agreement. RCBC assails the validity of the waivers of the statute of limitations on the ground that the said waivers were merely attested to by Sixto Esquivias, then Coordinator for the CIR, and that he failed to indicate acceptance or agreement of the CIR, as required under Section 223 (b) of the 1977 Tax Code.[28] RCBC further argues that the principle of estoppel cannot be applied against it because its payment of the other tax assessments does not signify a clear intention on its part to give up its right to question the validity of the waivers The CTA-En Banc, ruled that by receiving, accepting and paying portions of the reduced assessment, RCBC bound itself to the new assessment, implying that it recognized the validity of the waivers. RCBC could not assail the validity of the waivers after it had received and accepted certain benefits as a result of the execution of the said waivers.

Ruling: The waiver is valid. RCBC here is already in estoppel by paying a portion of the taxes. RCBC is liable to pay.

RCBC is estopped from questioning the validity of the waivers. To hold otherwise and allow a party to gainsay its own act or deny rights which it had previously recognized would run counter to the principle of equity which this institution holds dear. CIR v Standard Chartered Bank Same with RCBC, they also paid under protest. But the SC here sustained the position of Standard. Ruling: A waiver of the Statute of Limitations is nothing more than "an agreement between the taxpayer and the Bureau of Internal Revenue (BIR) that the period to issue an assessment and collect the taxes due is extended to a date certain." It is a bilateral agreement, thus necessitating the very signatures of both the CIR and the taxpayer to give birth to a valid agreement. Furthermore, indicating in the waiver the date of acceptance by the BIR is necessary in order to determine whether the parties (the taxpayer and the government) had entered into a waiver "before the expiration of the time prescribed in Section 203 (the three-year prescriptive period) for the assessment of the tax." When the period of prescription has expired, there will be no more need to execute a waiver as there will be nothing more to extend. Hence, no implied consent . can be presumed, nor can it be contended that the concurrence to such waiver is a mere formality.

Issue 1: Is the waiver valid

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In delineation of the same sense about the waiver of the Statute of Limitations, RMO No. 20-90 and Revenue Delegation Authority Order (RDAO) No. 0501 were issued on 4 April 1990 and 2 August 2001, respectively. The said revenue orders outline the procedure for the proper execution of a waiver, viz.:16 1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase "but not after __ 19 _", which indicates the expiry date of the period agreed upon to assess/collect the tax after the regular threeyear period of prescription, should be filled up. 2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a representative, such delegation should be in writing and duly notarized. 3. The waiver should be duly notarized. 4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver, the CIR. or the revenue official authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and executed by the taxpayer or his duly authorized representative. 5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed. 6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection of the agreement. (Emphases supplied) The provisions of the RMO and RDAO explicitly show their mandatory nature, requiring strict compliance. Hence, failure to comply with any of the requisites renders a waiver defective and ineffectual. The NIRC, under Sections 203 and 222, provides for a statute of limitations on the assessment and collection of internal revenue taxes in order to safeguard the interest of the taxpayer against

unreasonable investigation. Unreasonable investigation contemplates cases where the period of assessment extends indefinitely because this deprives the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time x x x It must be remembered that the execution of a Waiver of Statute of Limitations may be beneficial to the taxpayer or to the BIR, or to both. Considering however, that it results to a derogation of some of the rights of the taxpayer, the same must be executed in accordance with pre-set guidelines and procedural requirements. Otherwise, it does not serve its purpose, and the taxpayer has all the right to invoke its nullity. For that reason, this Court cannot turn blind on the importance of the Statute of Limitations upon the assessment and collection of internal revenue taxes provided for under the NIRC. The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to act properly in the making of the assessment, and to citizens because after the lapse of the period of prescription, citizens would have a feeling of security against unscrupulous tax agents who may find an excuse to inspect the books of taxpayers, not to determine the latter's real liability, but to take advantage of every opportunity to molest peaceful, law-abiding citizens. Without such a legal defense, taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommends the approval of the law. Which case do we follow? We follow the Standard case. There’s something wrong with the RCBC case, the SC did not consider that the rules on prescription should be interpreted in favor of the taxpayer. (Campaner)

Also, diba it’s alright to have alternative defenses.

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representative, or a member of his household with sufficient discretion, and no property could be located.

SUSPENSION OF THE PRESCRIPTIVE PERIOD SEC. 223. Suspension of Running of Statute of Limitations. – The running of the Statute of Limitations provided in Sections 203 and 222 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for 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 a taxpayer informs the Commissioner of any change in address, the running of the Statute of Limitations will not be suspended; when the warrant of distraint or levy 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. What are those instances wherein the 3-year prescriptive period for assessment of taxes may be suspended? 1.

2.

When the CIR is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for 60 days thereafter When the taxpayer requests for and is granted a reinvestigation by the CIR. Take note, a request for reinvestigation is not enough; the request for reinvestigation should have been granted.

3.

4.

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 When the warrant of distraint or levy is duly served upon the taxpayer, his authorized

5.

When the taxpayer is out of the country.

In those 5 instances, there is suspension of the prescriptive period to assess taxes.

TAX ASSESSMENT PROCESS First and foremost, there must be a Tax Audit of the taxpayer by the BIR What is the document required before the BIR may audit the records of the taxpayer? Letter of Authority (LOA). This LOA is the the authority given to the appropriate revenue officer assigned to perform assessment functions and empowers the said revenue officer to examine the books and records of the taxpayer for the purpose of collection of the correct amount of taxes. This is under CIR vs. Sony, G.R. No. 178657, September 10, 2010. What is the basis of this LOA? Sec. 6 (A) SEC. 6 Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement. (A) Examination of Returns and Determination of Tax Due. – After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax: Provided, however, That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. Xxx Sir, what if magpunta ang BIR saamin – “ayoo, tagaBIR mi, we’d like to look at your accounting records kay mag assessment kami sainyo”, you as a taxpayer

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can actually refuse. You can validly refuse unless they have a Letter of Authority.

because that LA is only for 1996-1997. (taken from 2018 TSN)

When must the LOA be served? It must be served within 30 days from the date of its issuance.

The BIR cannot use the current year’s records to determine the liability of the taxpayer for the prior years.

LOA is actually just a letter authorizing a certain person. Ex. “Atty. Donalvo is a revenue officer of the BIR and he is hereby authorized to blah blah blah. In connection thereof, please provide the officer a copy of the following records: 1, 2, 3…” Then there is a control number. What if the BIR comes and serves a LOA which is has been issued for more than 30 days? You can refuse. It is already stale. On the part of the revenue officer, he can go back to the BIR and have the LOA revalidated. From then, the BIR is given 120/180 days (sir is not sure, says he will get back to us with the correct info) within which to conduct his audit with the taxpayer What if the letter of authority (LOA) is for a certain taxable year? Ex. For the year 2017 only, but then the BIR issued an assessment for the year 2018. Is that possible? Is it possible for the BIR to give LOA to conduct audits for the years 2017 and undetermined prior years? That is what happened in the case of CIR vs Sony.

From the FT: Clearly, there must be a grant of authority before any revenue officer can conduct an examination or assessment. Equally important is that the revenue officer so authorized must not go beyond the authority given. In the absence of such an authority, the assessment or examination is a nullity. As earlier stated, LOA 19734 covered the period 1997 and unverified prior years. For said reason, the CIR acting through its revenue officers went beyond the scope of their authority because the deficiency VAT assessment they arrived at was based on records from January to March 1998 or using the fiscal year which ended in March 31, 1998. As pointed out by the CTA-First Division in its April 28, 2005 Resolution, the CIR knew which period should be covered by the investigation. Thus, if CIR wanted or intended the investigation to include the year 1998, it should have done so by including it in the LOA or issuing another LOA.

CIR vs. SONY G.R. No. 178697

Who issues the LOA? It’s the CIR or his duly authorized representative.

The SC held that there must be a grant of authority before any revenue officer can conduct an examination or assessment. Without such, the examination or assessment is a nullity.

Are there any cases where the BIR investigated without the LoA? Under the current BIR regulations, Yes, if the case involves: 1. Tax Fraud Cases 2. Policy cases under audit by special teams in the national office.

But what happened in this case actually is, there was a LoA. The LoA is for a specific period, 1996 and 1997 ata. But the assessment that was issued by the BIR as a result of the investigation was for a tax liability for the year 1998. Sabi ng SC, wala kang authority to investigate the 1998 taxpayer, the effect of that is there is no LoA, then, all the assessment made during that taxpayer is void. That LoA is invalid for the year 1998,

But I doubt the above-mentioned enumeration, because the law says, “before an authorized representative may conduct an audit, he must be duly authorized by the CIR.” What if the BIR proceeded to audit the taxpayer and issued an assessment without the LOA? What is the effect? This is the case of Medicard vs CIR, GR No. 222743, April 5, 2017.

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Medicard vs CIR GR No. 222743 What happened here is simple, basically, Medicard is an HMO. (Castro)

MEDICARD PHILIPPINES, INC. vs. CIR G.R. No. 222743 | April 5, 2017 MEDICARD is a Health Maintenance Organization (HMO) that provides prepaid health and medical insurance. MEDICARD filed its tax returns and upon paying its return. BIR issued a letter notice. Iba yang letter of notice and yang LoA (Letter of Authority). Letter of notice is usually issued by the BIR case. It’s a relief program meaning cross-matching sa mga tax records ng mga taxpayers, suppliers, customers, if there is discrepancy. On the basis of that letter notice, the BIR issued a preliminary assessment notice for the tax deficiencies. Tapos walang nangyari. And then the BIR issued again a final assessment notice, then wala nangyari again. File a protest. The CIR issued a final decision on the disputed assessment. Decision niya on the protest. And it denied the protest. When the case went to the CTA, ang sabi ng CTA is when the letter notice was issued in lieu of LoA (Letter of Authority) somehow there is already a substantial compliance on the part of the BIR. MEDICARD is now estopped from challenging the assessment of the BIR on the ground of the lack of LoA since the assessment was obtained on the facts and the law on which it was based. ISSUE: Whether the absence of the LoA is fatal to the assessment made by the BIR SC: The absence of a LoA violated MEDICARD's right to due process and renders the entire assessment process and the assessment void. Human tanan. That is how important the letter of authority is.

A LoA is the authority given to the appropriate revenue officer assigned to perform assessment functions. It empowers or enables said revenue officer to examine the books of account and other accounting records of a taxpayer for the purpose of collecting the correct amount of tax. A LoA is premised on the fact that the examination of a taxpayer who has already filed his tax returns is a power that statutorily belongs only to the CIR himself or his duly authorized representatives. Under the law (Section 6 NIRC): SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement. – (A) Examination of Return and Determination of Tax Due.After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax: Provided, however, That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. It is only the CIR himself or his duly authorized representative that are authorized to examine the taxpayer. The basis of this is Section 6. That’s why because of this provision, unless authorized by the CIR himself or his duly authorized representative through a letter of authority an examination of the taxpayer cannot be ordinarily taken. Hindi ka pwede mag examine ng mga libro of the taxpayer for the assessment of that taxpayer if you are not armed with the LoA. From 2017 TSN MEDICARD vs. CIR FACTS: What is the business of Medicard here? It is an HMO, a retail in health and medical insurance.

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Nagfile siya ng VAT return, But because there were discrepancies found by the BIR in Medicard’s returns, BIR issued an LN requiring it to explain the discrepancies. On the basis of that LN, because it was not satisfied with the explanation, the BIR issued a Preliminary Notice of Assessment (PAN). Medicard then responded, but the BIR still was not satisfied, and thus a Final Assessment Notice (FAN) was issued. Medicard filed a protest to which the BIR issued a Final Decision on Disputed Assessments (FDDA). When the case went to the CTA, it said that the LN issued in lieu of the LoA, was already a substantial compliance and that Medicard is already estopped in questioning the validity of the assessments on the ground of lack of LoA, because the assessments itself contains the facts and the law on which it is based. ISSUE: The main issue here is what happens when the BIR makes an assessment without a LoA to begin with, or simply, whether or not the absence of LoA is fatal? RULING: The SC said, the absence of LoA is Fatal because it essentially violated Medicard’s right to due process. Now, another issue that pops up here is the taxpayer may be assessed of deficiency taxes on the basis of the best evidence obtainable. Meaning, we don’t even need to look at the accounting books of the taxpayer for the BIR to discover whether or not there are tax deficiencies involved. The SC said, these are simply methods of examining the taxpayer in order to arrive at the correct amount of taxes. It has nothing to do with the authority given to the officer to audit or investigate a taxpayer. It has nothing to do with the LoA. Therefore, unless undertaken by the CIR or his authorized officer, any other tax agents may not validly conduct any of these kinds of examination without prior authority. That means, the LoA must be present when we talk about other tax agents, other than the CIR and his duly authorized agents.

In other words, the LoA is still essential when it comes to the other tax agents. If you notice, techy na masyado ang BIR ngayon diba, they can actually crossmatch the returns made by the taxpayers and his suppliers. So at first instance, even if the BIR will not conduct an audit, there will be a finding of discrepancies already. So, because of the advancements in technology, if the BIR discovers any discrepancy, the BIR will issue an LN. Now, this LN is similar to a Notice of Informal Conference, notice lang jud na siya. What happens if the taxpayer won’t explain the LN or when the taxpayer explains the LN but the BIR is not satisfied? Under the revenue rules and regulations, if there are discrepancies found in the LN and the explanations given by the taxpayer is unsatisfactory, there will be a recommendation for the issuance of the LoA. Meaning, LN will later be converted to LA. Therefore, since the rules says that there must be a conversion, an LN can never be a substitute for a LoA. Then the court proceeded to distinguish LN and LA.

Purpose and basis

Validity

Nature

LETTER OF AUTHORITY The LA is addressed to a revenue officer and is specially required in the NIRC (Sec.6) before an examination is to be made.

Valid only for 30 days from its issue date The LA gives the revenue officer only a period of

LETTER OF NOTICE The LN is actually not found in the NIRC, but it is only for the purpose of notifying the taxpayer that a discrepancy is found based on the BIR’s computerized system. No validity date for LN Ang LN, walang period pa rin.

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120 days from receipt of the LA to investigate or examine a particular taxpayer Due process demands that after the LN has served its purpose, the revenue officer holding the LN should secure an LA before the examinations and assessments on the taxpayer. Lastly, if the assessment is made without the LA, it is void for violation of due process. Here’s the problem now, because of technology. Sometimes we don’t even have to look at the books of the taxpayer if there is a discrepancy. Tingnan lang naman natin yung mga submission ng mga taxpayer kung kumpleto ka and cross-matching ang tawag niyan. System generated yan lahat. Under the RELIEF Tax System or the Reconciliation of Listing for Enforcement System. “No-contact audit approach” na siya. So tanawon na nila ang record and they will inform the taxpayer if there is a discrepancy found with the supplier and the taxpayer that can be subjected to that, you will be notified. *** With the advances in information and communication technology, the Bureau of Internal Revenue (BIR) promulgated RMO No. 30-2003 to lay down the policies and guidelines once its then incipient centralized Data Warehouse (DW) becomes fully operational in conjunction with its Reconciliation of Listing for Enforcement System (RELIEF System). This system can detect tax leaks by matching the data available under the BIR's Integrated Tax System (ITS) with data gathered from thirdparty sources. Through the consolidation and cross-referencing of third-party information, discrepancy reports on sales and purchases can be generated to uncover under declared income and over claimed purchases of Goods and services. RMO No. 30-2003 was supplemented by RMO No. 42-2003, which laid down the "no-

contact-audit approach" in the CIR's exercise of its ·power to authorize any examination of taxpayer arid the assessment of the correct amount of tax. The no-contact-audit approach includes the process of computerized matching of sales and purchases data contained in the Schedules of Sales and Domestic Purchases and Schedule of Importation submitted by VAT taxpayers under the RELIEF System. This may also include the matching of data from other information or returns filed by the taxpayers with the BIR. Under this policy, even without conducting a detailed examination of taxpayer's books and records, if the computerized/manual matching of sales and purchases/expenses appears to reveal discrepancies, the same shall be communicated to the concerned taxpayer through the issuance of LN. The LN shall serve as a discrepancy notice to taxpayer similar to a Notice for Informal Conference to the concerned taxpayer. Thus, under the RELIEF System, a revenue officer may begin an examination of the taxpayer even prior to the issuance of an LN or even in the absence of a LOA with the aid of a computerized/manual matching of taxpayers': documents/records. Accordingly, under the RELIEF System, the presumption that the tax returns are in accordance with law and are presumed correct since these are filed under the penalty of perjury are easily rebutted and the taxpayer becomes instantly burdened to explain a purported discrepancy. As provided in the RMO No. 42-2003, the LN is merely similar to a Notice for Informal Conference. However, for a Notice of Informal Conference, which generally precedes the issuance of an assessment notice to be valid, the same presupposes that the revenue officer who issued the same is properly authorized in the first place. (MEDICARD case) *** “no-contact audit approach” involves the computerized matching of sales and purchases as reported by sellers and buyers

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in their tax and information returns, and importations per taxpayers’ returns and per records of the Bureau of Customs. Discrepancies arising from the computerized matching are communicated to the taxpayer through the issuance of a letter notice (LN). If the taxpayer is not able to reconcile the alleged discrepancies, such may be used as a basis for deficiency tax assessments. (Carlos Hilario Mateo, Tax Director of PwC Philippines 12 Feb 2015)

Purpose

How will the BIR notify? Through a letter notice. The letter notice says that- taxpayer there is a discrepancy between your declaration of your purchases and the sales declared by your suppliers. Care to explain. Ganun lang yan. The Letter Notice is similar to a Notice of Informal Conference. A letter notice is issued to a person found utang (?) under your report, sales, or receipts (inaudible) for data generated under the RELIEF system. It is in the “no contact audit approach” nila. System generated yan lahat. Explain ka. *** The Notice of Informal Conference is a written statement issued by the BIR informing the taxpayer of the discrepancies in the taxpayer’s tax payments for the purpose of conducting an informal conference wherein the taxpayer will be given an opportunity to present his side of the case. (Revenue Regulations No. 7-2018). The taxpayer is given 120 days to explain. Sulat ka sa BIR or the taxpayer will just ignore. Wala koy labot ana. Is it okay? Okay lang walang problema. If the BIR will determine that the explanation of the taxpayer is not enough or the taxpayer did not respond to the letter, or did not bother to respond, then the Letter Notice will be converted to a Letter Authority. In other words, for the existing violations, the law requires that the Letter Notice should be converted to Letter of Authority and serve it to the taxpayer. A Letter Notice cannot be a substitute for LoA because they are 2 different documents. What are the differences?

LETTER OF AUTHORITY The LoA is addressed to a revenue officer and is specially required in the NIRC (Sec.6) before an examination to the taxpayer is to be made. -

Tama lang kasi ang LoA that authorizes the revenue officer.

LETTER OF NOTICE The LN is actually not found in the NIRC, but it is only for the purpose of notifying the taxpayer that a discrepancy is found based on the BIR’s computerized system.

Validity

Valid only for 30 days from its issue date

No validity date for LN - Walang limit Ang LN does not contain limitation because the LN just notify the taxpayer

Nature

The LoA gives the revenue officer only a period of 120 days from receipt of the LoA to conduct its examination with the taxpayer. Due process demands that after the LN has served or has been served its purpose, the revenue officer holding the LN should properly secure a LoA before proceeding to the further examinations and assessments on the taxpayer.

Those are the 4 differences. But here is an interesting argument of the BIR in the case, why would we need to issue a LoA on the part of the taxpayer, when we did not even require MEDICARD to open its accounting books.

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If you take a look at our assessment, the assessment here just carries on the Relief Tax System, they did not bother to explain that’s why we need an assessment. The SC said, okay yes the BIR has the authority to examine the book, but still the LoA cannot be dispensed with just because the MEDICARD or one of the MEDICARD’s books or records has been opened or examined. For examination of the taxpayer for purposes of assessment, the NIRC requires authority from the CIR or from his duly authorized representative before an examination to a taxpayer maybe made. The requirement of authorization is not dependent on whether the taxpayer may be required to physically open his books and financial records but only on whether a taxpayer is being subject to examination. Words of the SC: Contrary to the ruling of the CTA en banc, a LOA cannot be dispensed with just because none of the financial books or records being physically kept by MEDICARD was examined. To begin with, Section 6 of the NIRC requires an authority from the CIR or from his duly authorized representatives before an examination "of a taxpayer" may be made. The requirement of authorization is therefore not dependent on whether the taxpayer may be required to physically open his books and financial records but only on whether a taxpayer is being subject to examination. Please take note that the trust of the LoA is on the act of examining the taxpayer for examination purposes and not an authority on the part of the revenue officer to take a look at the accounting records. It is not something about the books. It is something about the authority on the part of the BIR to conduct an examination. The EFFECT if the assessment is made without LoA: the assessment is VOID for it violates the taxpayer’s right to due process. How about if the taxpayer is subjected to a tax investigation? Section 235 SEC. 235. Preservation of Books and Accounts and Other Accounting Records. - All the books of accounts, including the subsidiary books and other

accounting records of corporations, partnerships, or persons, shall be preserved by them for a period beginning from the last entry in each book until the last day prescribed by Section 203 (so meaning keep the records for 3 years) within which the Commissioner is authorized to make an assessment. The said books and records shall be subject to examination and inspection by internal revenue officers: Provided, That for income tax purposes, such examination and inspection shall be made only once in a taxable year (GENERAL RULE), except (EXCEPTIONS) in the following cases: (a) Fraud, irregularity or mistakes, as determined by the Commissioner; (b) The taxpayer requests reinvestigation; (c) Verification of compliance with withholding tax laws and regulations; (d) Verification of capital gains tax liabilities; and (e) In the exercise of the Commissioner's power under Section 5(B) to obtain information from other persons in which case, another or separate examination and inspection may be made. Examination and inspection of books of accounts and other accounting records shall be done in the taxpayer's office or place of business or in the office of the Bureau of Internal Revenue. All corporations, partnerships or persons that retire from business shall, within ten (10) days from the date of retirement or within such period of time as may be allowed by the Commissioner in special cases, submit their books of accounts, including the subsidiary books and other accounting records to the Commissioner or any of his deputies for examination, after which they shall be returned. Corporations and partnerships contemplating dissolution must notify the Commissioner and shall not be dissolved until cleared of any tax liability.

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Any provision of existing general or special law to the contrary notwithstanding, the books of accounts and other pertinent records of taxexempt organizations or grantees of tax incentives shall be subject to examination by the Bureau of Internal Revenue for purposes of ascertaining compliance with the conditions under which they have been granted tax exemptions or tax incentives, and their tax liability, if any. General Rule: The said books and records shall be subject to examination and inspection by internal revenue officers: Provided that for income tax purposes, such examination and inspection shall be made only once in a taxable year. Exceptions: 1. Fraud, irregularity or mistakes, as determined by the Commissioner; 2. The taxpayer requests reinvestigation; 3. Verification of compliance with withholding tax laws and regulations; 4. Verification of capital gains tax liabilities; and 5. In the exercise of the Commissioner's power under Section 5(B) to obtain information from other persons in which case, another or separate examination and inspection may be made. So these are the INSTANCES wherein the BIR may look on the taxpayer’s books: (Gido)

a) Fraud, irregularity or mistakes, as determined by the Commissioner; (b) The taxpayer requests reinvestigation; (c) Verification of compliance with withholding tax laws and regulations; (d) Verification of capital gains tax liabilities; and (e) In the exercise of the Commissioner's power under Section 5(B) to obtain information from other persons in which case, another or separate examination and inspection may be made. . . . those are the instances wherein the BIR may look again on the books and accounts of the taxpayer.

After the letter of authority, the BIR will conduct its audit, if they determine any problem, if the taxpayer will not pay then the revenue officer will go back to the BIR and then if the BIR will find cause, it shall issue a notice for informal conference [transcriber’s note: RR 7-2018, Sec. 3.1.1 Notice for Informal Conference - The Revenue Officer who audited the Taxpayer’s records shall, among others, state in his report whether or not the taxpayer agrees with his findings that the taxpayer is liable for deficiency tax or taxes. If the taxpayer is not amenable, based on the said Officer’s submitted report of investigation, the taxpayer shall be informed, in writing, by the Revenue District Officer or by the Special Investigation Division, as the case may be (in the case of Revenue Regional Offices) or by the Chief of Division concerned (in the case of Revenue Regional Offices) or by the Chief Division concerned (in the case of the BIR National Office) of the discrepancy or discrepancies in the taxpayer's payment of his internal revenue taxes, for the purpose of “informal conference” in order to afford the taxpayer with an opportunity to present his side of the case. ] > Sometimes in this informal conference the taxpayer and the BIR will come to an agreement. Q: How long would this take? A: I will take around 30 days from receipt of notice for informal conference. As for revenue regulation it cannot be extended. If there will be no agreement entered into by the taxpayer and the BIR within this period, then the BIR will indorese this to the assessment division to determine the veracity of the assessment, and if the assessment division will find merit to the case then the BIR now will issue an assessment notice. A pre-assessment notice (PAN) is a communication issued by the BIR informing the taxpayer who has been audited of the findings of the Revenue Officer, following the review of these findings. It is in writing and shall show the facts, law, rules and regulations to which the proposed assessment is based.  This is again another love letter from the BIR but this time this is already informing preliminarily the taxpayer that he or she has a tax deficiency based on findings of the BIR.

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There are several things that may happen here: 1. The taxpayer will pay and the case is done; 2. The taxpayer possibly would not do anything and ignore this; 3. The taxpayer is given 15 days from the receipt within which to submit or file a response. There are instances wherein preliminary assessment is not required:

A: Still the CIR ot its duly authorized representative.

[Transcriber’s Note:] SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a pre-assessment notice shall not be required in the following cases: (a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return; or (b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or (c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or (d) When the excise tax due on excisable articles has not been paid; or (e) When the article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.

When we say final assessment notice, this is already a demand for the payment of taxes

> in case the taxpayer does not file a response or the BIR does not believe the contention of the taxpayer, the BIR now will serve you a Final Assessment Notice (FAN).

Q: what should a FAN contain? A: The FAN should contain two things” 1. A demand for payment of taxes within the prescribed period; 2. It shall state the facts, law, rules and regulations or jurisprudence to which the assessment is based. Otherwise, the assessment is void.

Q: How is PAN served? A: service must first be made at the taxpayer’s registered address before the same be served on the taxpayer’s known address. if the pan had been duly served it enjoys prima facie evidence of correctness. The taxpayer should not ignore the FAN, because once this final assessment has been ignored, that is already the time the government can exercise its remedies to collect the taxes from the taxpayer. The remedy of the taxpayer now is to file a protest. Q: when should a protest be filed? A: It should be filed within 30 days from receipt of the FAN. (Isidor) PROTEST What is protest in the concept of tax remedies? PROTEST is an act of the taxpayer questioning the validity of the imposition of the corresponding delinquency increments for internal revenue taxes as shown in the FAN or the FLD. This is the administrative way of challenging the validity and the intricacies of the FAN issued by the BIR.

Q: Who issues the FAN? WHEN FILED

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This is filed within 30 days from the date of receipt of the FAN or the FLD.

So, take note, tandem yan sya ha. Pag mag reinvestigation.

*If the protest is not filed on time: The FAN or FLD becomes FINAL AND EXECUTORY.

KINDS OF PROTEST So, what are the kinds of protest? So, dalawa yan. It’s either you file a request for reconsideration or request for reinvestigation. 1. REQUEST FOR RECONSIDERATION Reconsideration refers to a plea for a reevaluation of the assessment on the basis of the existing records without any additional documents. 2. REQUEST FOR REINVESTIGATION Reinvestigation refers to a plea of the reevaluation of the assessment on the basis of newly discovered or additional evidence that the taxpayer intends to present in the reinvestigation. Reconsideration - based on existing records Reinvestigation - based on newly discovered or additional evidence DISCUSSION: That’s why while the taxpayer opts for a reinvestigation he should submit relevant and supporting documents. When should the taxpayer submit these? He should submit these within 60 days from filing of the protest. Situation: I requested for a reinvestigation and yet I did not file supporting documents. What will happen? Effect: Then the FAN will become final and executory.

SUPPORTING DOCUMENTS What do these documents mean? This refers to documents necessary to support the legal and factual basis in disputing the taxpayer’s assessment. Who determines the relevance of these supporting documents? It is determined by the taxpayer. That is in the case of CIR vs First Express Pawnshop. (FROM 2018 TSN) CIR vs. FIRST EXPRESS PAWNSHOP FACTS: The pawnshop was claiming that it is not subject to DST. They filed a protest. And opted for reinvestigation but they just submitted a copy of the NIRC and other related laws about their tax exemption. BIR required the pawnshop to submit certain documents. The pawnshop said that it cannot submit these documents because it doesn’t issue them. RULING: The CIR is wrong. The pawnshop already complied with the requirements because it submitted such documents together with its protest. There was nothing more to submit. The CIR cannot insist on the submission of additional documents because such documents do not exist. The term "relevant supporting documents" should be understood as those documents necessary to support the legal bases disputing the assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit additional evidence. The BIR cannot demand on what type of document should be submitted.

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Otherwise, the taxpayer will always be at the mercy of the BIR, which may require the production of the documents, which the taxpayer cannot submit at all. So, basically, in this case, the BIR issued the VAT, income tax and DST assessments against the pawnshop. The pawnshop protested on the assessment. The BIR did not act on the protest.It filed a petition under the CTA. Pawnshop’s defense: It was not liable for the taxes because pawnshops according to this case, are not lending investors who are subject to VAT. Issues raised by the CIR: The FAN is already final and executory because we ask the pawnshop to submit some certain documents and then they were not able to produce it. They opted for a reinvestigation but they did not submit the relevant and supporting documents. Apparently, what the pawnshop did was it submitted its supporting documents along its protest. Giisa nya dun lahat ba. What the CIR did is it requested the pawnshop to prsent proof of payment of the DST on the subscription. Nagrequest ang BIR ng document but then ang sbai ng pawnshop, we cannot produce you such documents because we do not issue them, primarily, because we are not liable for DST. SUPREME COURT: The SC said in this case that the CIR was wrong in directing the taxpayer to produce these kinds of documents. The pawnshop already complied with the requirements because it submitted such documents together with its protest. There was nothing more to submit.

submitted. Otherwise, the taxpayer will always be at the mercy of the BIR, which may require the production of the documents, which the taxpayer cannot submit at all.

So, again the PRINCIPLES here are as follows: a) The taxpayer has the choice to determine what are th relevant supporting documents for its protest; b) The BIR cannot demand what are the documents should the taxpayer submit to form part of this relevant supporting documents. REQUEST FOR REINVESTIGATION VS REQUEST FOR RECONSIDERATION (DISTINCTIONS) (FROM 2018 TSN)

Suspension of prescriptive period for tax collection As to submission of relevant supporting documents 60-day period to submit relevant supporting documents.

RECONSIDERATI ON Request for recon does not suspend the period for tax collection Does not apply. No need to submit.

REINVESTIGATI ON When GRANTED TOLLS the period to collect taxes. Required to submit.

Does not apply.

Applies.

The term “relevant supporting documents” should be understood as those documents necessary to support the legal bases disputing the assessment as determined by the BIR. The BIR can only inform the taxpayer to submit additional evidence. The BIR cannot demand on what type of document should be

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Within 30 days In case of after 180-day INACTION: period. Within 30 days after the 180-day period Period to expiration of the is reckoned appeal to the 180-day period from the time of CTA within which the submission of CIR decides on relevant the protest from supporting the time of filing documents. of the recon. TO WHOM SHOULD THE PROTEST BE FILED: Under the existing Rvenue Regulations, there are 2 personalitites to which the taxpayer may file the protest: 1) TO THE REGIONAL DIRECTOR; OR 2) TO THE CIR March 12, 2019 (Lagat) First is the Notice of the Informal Conference (NIC). This would last for thirty (30) days. (dati kasi, tinggal na ito. But now, ibinalik sa TRAIN) You already know the purpose of the NIC. After that, the settlement between the government and the taxpayer The case will be remanded back to the BIR for decision, and then, what would be issued would be the Preliminary Assessment. What are the contents of the PAN? Preliminary Assessment Notice (PAN) will contain the facts, law, rule, jurisprudence. Otherwise, the PAN is void. (Watch out ha.) The policy of PAN; the taxpayer may 1) Ignore or 2) File a response (within 15 days from receipt) If the BIR will believed the taxpayer, then, fine. If it is not satisfied with the response of the taxpayer,

whether wholly or partially, the Final Assessment Notice and the Final Letter of Demand will be issued and served by the BIR. For the FAN/FLD, basically, the FAN is issued by the BIR office or duly authorized representative. CONTENTS of a FAN: 1 — the facts, law, rule, jurisprudence. Otherwise, the PAN is void 2 — it already contains a demand to pay taxes Essentially, it is a notice requiring the taxpayer to respond, but, this FAN/FLD, it is also a demand letter; pay or else. What is the other effect of the FAN/FLD? This is the time the penalties or interests will begin to run on the taxpayer. It’s not on the PAN, but on the “FAN”. How is it served? Basically, it’s served by the preliminary notice (PAN), the service must be mailed at the taxpayer’s registered address…(meaning, yung address nya sa BIR), before it may be served at the taxpayer’s known address. Alternatively, the service of the PAN may also be done simultaneously on the registered address and the known address. Especially gani kanang dili modawat; uso man na. Now, if the FAN is properly served, it enjoys a prima facie presumption of correctness. This would mean that the taxpayer has the burden of proof that the assessment is void. That the assessment is infirm; that it is insufficient in form and substance. In the case if CIR v Pascor Realty, there was a criminal case filed against the corporation and its officers. Thereafter, the corporation filed a request for reconsideration/reinvestigation disputing the tax assessment and the tax liability. What the BIR did was deny the request because according to it, there was no formal assessment as of yet. Walang assessment, it’s just that there was a criminal case filed against the corporation and the officers. But when the case was elevated to the CTA, the BIR filed a motion to dismiss, and yet, the CTA

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denied the motion to dismiss. Premature pa; wala pang assessment. That’s the position of the BIR.

determination of the tax due is without basis and whatever issued is considered as void.

The issue here was WON the CTA correctly dismissed the case.

Now, what is the taxpayer’s remedy in case there is a final assessment notice issued? Because by this time, if there will be a FAN, the taxpayer cannot ignore this. Once the taxpayer will fail to avail of its tax remedy, this FAN will become final and executory and the government will avail its own remedies to collect the taxes under the assessment.

In this case, the Supreme Court said that, not all documents coming from the BIR containing the computation of a liability is an assessment. If you follow the definition of an ‘assessment’ — means not only the computation of the tax liabilities but also for the demand for the payment within the prescribed period. It signals the time for the penalties and protests begin to accrue against the taxpayer.

Ano nangyari dito? What will be done? What will be done is file a protest. What is a protest?

What is present here is just an affidavit of complaint. There was an affidavit of complaint probably for tax evasion, prepared by the BIR officials and this was filed with the DOJ. If you notice, the purpose of the filing of the assessment is for the collection of taxes, while the purpose of the filing of the affidavit of complaint is the prosecution of the tax offense committed by the taxpayer. Sa purpose pa lang, mali na. In other words, not all documents coming from the BIR containing the computation of taxes are considered an assessments. Tandaan niyo lang, ang assessment: there’s a computation, facts, rules, jurisprudence and there is a demand for the payment of tax. In CIR v HANTEX, the general rule is that tax assessment is presumed correct and made in good faith. But please take note: the prima facie correctness of the tax assessment could only operate if by its face complete (facts, jurisprudence, rules and regulations; there is a sufficient legal foundation on that assessment). The prima facie correctness of tax assessment does not apply upon proof that the assessment is utterly without foundation; meaning, it is arbitrary and capricious to begin with.

It is the act of the taxpayer questioning the validity of the imposition of the corresponding delinquency increments for the internal revenue taxes as shown in the FAN/FLD. In other words, this is the administrative way of challenging the tax assessment issued by the CIR or his authorized representative. When should a protest be made? A protest should be made within 30 days from receipt. You have 30days from within which to file your protest. What are the 2 kinds of protest? 1) Request for RECONSIDERATION 2) Request for REINVESTIGATION When it comes to reinvestigation, it is essential to submit relevant supporting documents. We kinda discussed this somehow last time. You already know the definition of the relevant supporting documents when it comes to reinvestigation. For how long? 60 days, from the filing of the protest

When the BIR has come up with a naked assessment; meaning, it has no foundation at all, the

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Reinvestigation

reconsideration

period to 60 days from filing of 30 days from file the protest receipt Essential to submit existing relevant supporting documents only documents suspends the period to does collect taxes suspend

existing rules on protests, pwede ka dumaan diretso sa Manila or dito sa baba. Q: Which is better? A: It really depends on what the clients want. If the client would want to settle it with the BIR, then it is better that the protest be filed with the RD first.

not

period to Within 30 days after Within 30 days appeal to 180-day period. after 180-day the CTA period within* which the CIR decides on the protest. —from the time of counting submission of relevant of the supporting documents. ** from the 180-day submission of the filing of protest. CIR v Express Pawnshop Is it possible for the taxpayer to submit the reinvestigation and along with it, the relevant supporting documents? (Lim)

Q: Is it possible for the taxpayer to submit to reinvestigation and along with it the relevant supporting documents? A: It’s alright basta you have 60 days to submit such documents. Q: To whom should the protest be filed? A: there are two personalities wherein the protest can be filed: 1. Filed before the authorized representative of the CIR as the RD (Regional Director); 2. Filed before the CIR itself. In the existing memorandum issued by Kim Henares, the CIR requests that all protest on tax assessments must be filed with the regional director. But under

REGIONAL DIRECTOR Q: How long is the time given to the RD to decide a protest? A: 180 days to decide reckoned depending: a. If what is filed is a request for reconsideration – from the date of filing of said reconsideration. b. If what is availed of is reinvestigation- from the time the relevant supporting documents is filed with the RD. Two-ways that can happen in the RD when there is an adverse decision kasi kung grant naman wala tayong problema. Let’s presume na adverse ang decision. 1. The RD will render an adverse decision called as a direct denial. 2. There RD will not do anything within the 180 days meaning there is indirect denial. From here on, when there is an adverse decision and the taxpayer would want to fight it out, there are two ways to do it: 1. The taxpayer will go to the CIR by way of administrative appeal. He is given 30 days to appeal from receipt of the decision. a. How? The taxpayer will file for a request for reconsideration. b. Request for reinvestigation is no longer available. c. In the CIR, it’s either: he will render a decision or that there will be indirect denial. How long is given to

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d.

e.

the CIR to decide the appeal? 180 days. If the CIR will render a decision, a direct denial wholly or partially then the taxpayer will have to appeal to the CTA in Division. The appeal with the CTA Divison must be filed within 30 days. If there is an indirect denial, the taxpayer will wait for it. If lagpas na 180 days possible na hintayin, hintayin niya pa rin ang decision then merong decision or wala. Kapag may decision pangit or mali, go to the CA.

(Olamit)

(Note: Please refer to attachment for complete illustrations ) Balik muna tayo sa decision. Sabi natin administrative. But another avenue of the taxpayer of this decision of the RD is to go directly to the CTA.

Again, pag-indirect denial (No decision): 1. Wait it out for the decision and then follow the steps; or 2. You can go directly to the CTA.

Decision

Follow the procedure (refer to Illustration 1)

No Decision /Inaction

CTA

Q: ‘Pag indirect ang decision, can I go to administrative appeal? A: The Rules does not provide. So ‘pag indirect denial, you do not go to the CIR. It’s either you wait for the decision or, within 30 days, you go to the CTA.

CTA

Now, in this case, balik na tayo ha. So again, pag may decision, dalawa ang option: 1. Go directly to the CTA; or 2. You go for administrative appeal.

Now, from the CTA, this is what you call the JUDICIAL REMEDIES already. (From the RD to the CIR, merely administrative.) Q: What do you call the decision of the CIR?

CIR Regional Director (RD)

And the other option for him is to go directly to the CTA. For how long? Still 30 days. 30 days from the lapse of the 180 day period.

Regional Director (RD)

PROCEDURE BEFORE THE RD (Regional Director)

Regional Director (RD)

takbo. It’s either mag-appeal siya deretso or magadministrative appeal siya.

Decision

CTA

Now, ‘pag indirect, it’s either wait it out for the decision. ‘Pag meron ng decision, same lang ang

A: You call it as a final decision on disputed assessment or FDDA. Now, in the CTA, to make an appeal, you file a petition for review. After that, if the decision rendered is adverse, the taxpayer may file an MR (motion for reconsideration). Then after that, if the taxpayer is still not contented with the decision, he will now go and file an appeal again, this time a petition to the CTA En Banc. File a

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petition for review (Rule 43) and this is for 15 days. MR is still 15 days. If inaction, two options: If the decision is still adverse, he may file an MR and the next step is to go the Supreme Court. This is a petition for review on certiorari under Rule 65 within a 15 day period.

CTA In Division (Petition for Review)

CTA En Banc (Petition for Review/ Rule 43)

Supreme Court

file an MR

Q: What if the taxpayer files before the CIR? A: It’s pretty much the same with the RD. If the case is filed with the CIR, there will be a decision or there will be an inaction/indirect denial. Still 180 days to decide.

Decision

So that’s the entire process under the CIR.

No Decision CTA Now, going back on/Inaction the remedies, I have a bit of a problem with respect to the remedies that are issued by the BIR. There is a problem with the entire process because of the CTA Law. Under the CTA Law, the jurisdiction of the CTA are decisions or inactions of the CIR. (Singanon) So basically if you follow the letter of the law, for the CTA to acquire jurisdiction over the tax case, it should be from the inaction or decision of the CIR. Jurisdiction is a matter of law. So why is it under the rules, the taxpayer is allowed to go directly to the CTA when the decision is just rendered by the RD? Is it allowed to begin with?

CIR

Well another way of looking at it, I just realized recently, relates to what are the functions of the CIR which may be delegated.

No Decision /Inaction If there will be a decision, the next step is CTA in division and then CTA en banc. Practically the same period. And finally, we have the SC.

If adverse, file an MR

Follow the procedure (refer to Illustration 2)

CIR

PROCEDURE BEFORE THE CIR (Commission on Internal Revenue)

CTA In Division (Petition for Review)

Decision

(Certiorari under Rule 65)

The Supreme Court is already the final arbiter. So If adverse, If adverse, that’s the entire flow if filed before the RD.

file an MR

1. Wait for the decision and follow the process; or 2. Go directly to the CTA within 30 days from receipt or from lapse of 180 days.

CTA En Banc (Petition for Review/ Rule 43)

Supreme Court (Certiorari under Rule 65)

So which is which? How are you going to go about it if you try to practice tax law later on? For me, I would like to opt to file it with the RD and go through the long process. Malay mo, pag magdali-dali ako dito, punta agad ako sa CTA tapos decision pala ng RD, what if the BIR will say that the CTA has no jurisdiction? Patay ka, how will you explain to your client.

If adverse, file an MR

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And besides, there is the doctrine of exhaustion of administrative remedies.

liable because the FDDA is void. As such, nobody can collect from it because the assessment is also void.

Now, you all know the result if the protest availed by the taxpayer, the FAN/FLD will become final and executory.

The BIR appealed because essentially it wants to collect everything. It has been explained in the PAN and the FAN. What is at issue here is the FDDA. It does not necessarily affect the FDDA. That is the position of the BIR.

We also mentioned earlier that the decision of the CIR is called the Final Decision on Disputed Assessment (FDDA).

What are the contents of the FDDA? The contents are: 1. Facts, law, rules and regulations, and jurisprudence on which the FDDA is based, otherwise the FDDA is void; and 2. That the CIR’s decision is his final decision. In practice, the FDDA is somewhat skirted. The CIR will no longer explain they will just send you a demand letter again. So treat it as if it’s already the FDDA of the CIR. Wala tayong problema when it comes to the PAN and the FAN/FLD lacking the law, facts, rules and regulations, or jurisprudence on which the assessment is based because the PAN or the FAN/FLD will become void. Now what if the FDDA is without legal or factual foundation? Is it void? If the FDDA is void, does it mean that the PAN or the FAN is also void?

How did the SC rule in this case? First things first, the assessment and the FDDA are two different animals. When you say assessment, yes it’s true that the assessment and the FDDA must contain the facts and the law on which the assessment is based and lacking any legal and factual basis on that assessment or FDDA, it renders the document void. But it does not necessarily mean that if the FDDA is void for lack of legal and factual foundation, it does not automatically follow that the assessment is also void. Again, those two things are two different animals. What is being issued by the BIR is an assessment. If the taxpayer will file a protest, it becomes a disputed assessment. From that disputed assessment, the CIR or his authorized representative is required to make a decision. It’s either a direct denial or an indirect denial. The moment that it is denied, you already call that as an FDDA. That’s why the SC said, because they are two different documents with two different purposes, once the FDDA is declared void, it does not necessarily follow that the FAN or the assessment is also void.

This is the case of CIR vs LIQUID GAS. What is now the effect if the FDDA is considered void? There was a Letter of Authority. Liquid Gas fought it out. Meron inissue na PAN and subsequently a FAN and then eventually it filed a protest. Now when it filed a protest, the BIR issued a FDDA. The problem is that on some of the tax assessments, it did not contain any factual basis. The contentions of the parties were simple. On the part of Liquid Gas, it claims that it should not be held

Here’s the interesting portion of the SC decision. The SC said: It is as if there was no decision rendered by the CIR. This is tantamount to a denial by inaction by the CIR which may still be appealed before the CTA and the assessment evaluated on the basis of the available evidence and documents.

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That’s why the SC remanded the case to the CTA again for the determination of those tax assessments affected by the void FDDA. But here’s the thing, I think there’s a problem with that SC decision, as to its declaration insofar as it is considered as a denial by inaction. It has something to do with the period. How long is given to the taxpayer in case there is denial by inaction or an indirect denial? Before siya magpunta ng CTA, how long? Diba 30 days? So gaano kayo kahaba magtakbo ang kaso niyan. Probably in a legal sense, oo maganda siya pakinggan. But how do you apply it in a practical sense? Diba, it’s kinda weird. How are you supposed to apply this? Kelan magstart ang 30-day period mo? Will it begin immediately or will it begin at the time the case was filed? So we already know the judicial remedies. Supposing, the FDDA has become final and executory, or probably any of the decisions of the CTA in division, en banc, or the SC has already become final and executory, we said that that is the time when the BIR will already avail of its remedies to collect taxes. When the assessment becomes final and executory and demandable, the BIR may now avail of its remedies. It is the time when the tax is now considered as delinquent, or the taxpayer is already considered as a delinquent taxpayer. You did not pay the proper tax in the proper time and therefore you are already a delinquent taxpayer.

ASSESMENT OF TAXES There are two types: 1. Ordinary Prescriptive Period which is reckoned 3 years from the date of filing or date of deadline for the filing of the return whichever comes later ; and 2. Extraordinary Prescriptive Period which is reckoned 10 years from the time of discovery.

PRESCRIPTIVE PERIOD FOR THE COLLECTION There are 2 schools of thought: 1. 3-year period to assess and 3-years to collect (old law): SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided, That in a case where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return was filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day. Casasola and Domondon advocates the 3 year prescriptive period. 2.

At this point there is still no problem, there is still an assessment, you are still a tax deficient taxpayer. But by the time that the decision has already become final and executory, you are already considered as tax delinquent taxpayer.

(Tan) PRESCRIPTIVE PERIOD FOR THE

5-year period under Section 222:

SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. – (a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (10) years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which has

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become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof. (b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon. (c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in paragraph (a) hereof may be collected by distraint or levy or by a proceeding in court within five (5) years following the assessment of the tax. (d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in paragraph (b) hereinabove, may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the expiration of the five (5) -year period. The period so agreed upon may be extended by subsequent written agreements made before the expiration of the period previously agreed upon. (e) Provided, however, That nothing in the immediately preceding and paragraph (a) hereof shall be construed to authorize the examination and investigation or inquiry into any tax return filed in accordance with the provisions of any tax amnesty law or decree. According to Dean, follow the 5-year period to collect (under Sec. 222) because that is stated under the NIRC. These provisions specifically for the collection of taxes should be amended for clarity’s sake. Sadly, the TRAIN Law did not provide for a prescriptive period for the collection of taxes. I have researched a few cases: BPI vs. CIR G.R. No. 174972, March 7, 2008

The law applicable at this time of the case was the NIRC of 1977, an old NIRC but the text of the law on the prescriptive period is essentialy the same with the 1997 NIRC. RULING: The statute of limitations on assessment and collection of national internal revenue taxes was shortened from five (5) years to three (3) years by B.P. Blg. 700. Thus, CIR has three (3) years from the date of actual filing of the tax return to assess a national internal revenue tax or to commence court proceedings for the collection thereof without an assessment. CIR vs. Systems Technology Institute, Inc. G.R. No. 220835, July 26, 2017 The Waivers of Statute of Limitations, being defective and invalid, did not extend the CIR's period to issue the subject assessments. Thus, the right of the government to assess or collect the alleged deficiency taxes is already barred by prescription. Section 203 of the NIRC of 1997, as amended, limits the CIR's periodto assess and collect internal revenue taxes to three (3) years counted from the last day prescribed by law for the filing of the return or from the day the return was filed, whichever comes later. Thus, assessments issued after the expiration of such period are no longer valid and effective. When should you start counting the period? SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. – xxx (c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in paragraph (a) hereof may be collected by distraint or levy or by a proceeding in court within five (5) years following the assessment of the tax. “Assessment” for purpose of running the period to collect refers upon receipt of the taxpayer of the assessment

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What if there is no prior assessment made? As a rule, judicial proceedings must be made within 3 years. It shall be reckoned from the date of filing of the return or the date of deadline of the filing of the return, whichever comes later. When can the prescriptive period be interrupted? That is Section 223 of the NIRC. SEC. 223. Suspension of Running of Statute of Limitations. - The running of the Statute of Limitations provided in Sections 203 and 222 on the making of assessment and the beginning of distraint or levy a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a 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 will not be suspended; when the warrant of distraint or levy 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.

March 14, 2019 ((Viola) Section 223. Suspension of Running of Statute of Limitations. - The running of the Statute of Limitations provided in Sections 203 and 222 on the making of assessment and the beginning of distraint or levy a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a 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 will not be suspended; when the warrant of distraint or levy 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.

These are the instances when the statute of limitation will be suspended: 1. When the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty (60) days thereafter. -There is probably an injunction issued by the court. 2. When the taxpayer requests for a reinvestigation which is granted by the Commissioner BPI v CIR GR 139736 Ruling: To reiterate, Section 224 of the Tax Code of 1977, as amended, identifies specific circumstances when the statute of limitations on assessment and collection may be interrupted or suspended, among which is a request for reinvestigation that is granted by the BIR Commissioner. The act of filing a request for reinvestigation alone does not suspend the period; such request must be granted. The grant need not be express, but may be implied from the acts of the BIR Commissioner or authorized BIR officials in response to the request for reinvestigation. The statute of limitations on collection may only be interrupted or suspended by a valid waiver executed in accordance with paragraph (d) of Section 223 of the Tax Code of 1977, as amended, and the existence of the circumstances enumerated in Section 224 of the same Code, which include a request for reinvestigation granted by the BIR Commissioner.

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Even when the request for reconsideration or reinvestigation is not accompanied by a valid waiver or there is no request for reinvestigation that had been granted by the BIR Commissioner, the taxpayer may still be held in estoppel and be prevented from setting up the defense of prescription of the statute of limitations on collection when, by his own repeated requests or positive acts, the Government had been, for good reasons, persuaded to postpone collection to make the taxpayer feel that the demand is not unreasonable or that no harassment or injustice is meant by the Government

national internal revenue tax, fee or charge imposed by this Code.

Who has the burden of proving that the investigation was granted? Since this involves prescription, the burden is on the part of the BIR.

Requirements for injunction before the CTA:

3. 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 will not be suspended. - This is a situation where the taxpayer has absconded. 4. When the warrant of distraint or levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be located. Suppose that the government levy has been made, and during the auction sale, the proceeds are not enough to cover the entire tax liability and we have to consider the 3 year prescriptive period. In the PDIC case, the SC said that it is not essential that the warrant is made to be fully executed before it can have the effect of suspension. It is just enough that the proceedings have already begun by the service of the warrant and not the full execution thereof. Once the warrant is received by the taxpayer, the proceedings have begun already. Section 218. Injunction not Available to Restrain Collection of Tax. - No court shall have the authority to grant an injunction to restrain the collection of any

Basically, the general rule is when it comes to collection of taxes is not allowed, the exception is found in the TRAIN Law wherein it states that the CTA has the power to grant an injunction to restrain the collection of any internal revenue charge. Apart from the CTA, the SC also has the authority to grant the injunction being the final arbiter of tax cases.

1. There is an appeal filed with the CTA; 2. That the collection of taxes may jeopardize the interest of the government and/or the tax payer; 3. The taxpayer has deposited the amount or files a surety bond not double the amount sought to be collected. Case: Tridhama Marketing Corporation v CTA The BIR issued several tax assessment for various internal revenue taxes against the corporation. The protest of the corporation was denied and on appeal it filed an application for injunction. The CTA would grant the injunction subject to the condition that a bond must be posted equivalent to 150% of the total amount to be collected which amounted to 6 billion pesos. Issue: WON the grant of injunction was done with grave abuse of discretion. SC: This is a peculiar case. The law says that the surety bond to be filed is not more than double the amount. (Ruling on the next part of the transcription) (Campaner)

This is peculiar. Why? Because the law says “the amount ?? for surety bond of not more than double the amount”. Magkano pala order nang CTA dito, diba 150% lang, so it is within the parameters.

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The power to tax is sometimes called the power to destroy, hence it must be exercised with great caution to minimize the propriety rights(?) of the taxpayer. Then, you have the golden egg doctrine.

The judgment in the criminal case shall not only impose the penalty but shall also order payment of the taxes subject of the criminal case as finally decided by the Commissioner.

If you look at it, it violates the second ground. The purpose of an injunction is to prevent any injury on the part of the taxpayer, right? But ano ang nangyari? By requiring the 150% bond, which is way more than the net worth of that company, that does not in any way serve the purpose of an injunction.

The Bureau of Internal Revenue shall advance the amounts needed to defray costs of collection by means of civil or criminal action, including the preservation or transportation of personal property distrained and the advertisement and sale thereof, as well as of real property and improvements thereon.

What should the CTA have done in that situation? It should have considered other factors. Like whether the assessment would jeopardize the interest of the taxpayer, or whether the base adopted by the BIR to determine the liability was valid. So, it’s not a hard and fast rule; it’s just a guideline, but if the facts would warrant the reduction of the bond in order to give justice and fairness to the taxpayer, then the CTA must afford that remedy to the taxpayer. TAX COLLECTION Section 205. Remedies for the Collection of Delinquent Taxes. – The civil remedies for the collection of internal revenue taxes, fees or charges, and any increment thereto resulting from delinquency shall be: a)

By distraint of goods, chattels, or effects, and other personal property of whatever character, including stocks and other securities, debts, credits, bank accounts, and interest in and rights to personal property, and by levy upon real property and interest in or rights to real property; and b) By civil or criminal action. Either of these remedies or both simultaneously may be pursued in the discretion of the authorities charged with the collection of such taxes: Provided, however, That the remedies of distraint and levy shall not be availed of where the amount of tax involve is not more than One hundred pesos (PhP100).

A revenue tax is considered delinquent if it is unpaid after the last day prescribed by law for its payment. If you are not able to pay on the deadline. If the FAN is already final and executory and the taxpayer did not dispute the assessment of the BIR, the State can already avail of the remedy of collection. Under the above provision, there are four remedies available to the government: 1. Distraint of personal property 2. Levy of real properties 3. Civil action 4. Criminal action The first two are the summary remedies for tax collection. They are found in Sec. 207 of the NIRC. DISTRAINT This is pretty much the same with your Civil Procedure on Rule 39 (Execution). Pag distrain it is personal property. Distraint is a remedy where a personal property of a delinquent taxpayer is taken and sold to a public auction and the proceeds thereof will be applied to the tax liabilities of the taxpayer. What are the types of distraint? 1. Constructive distraint 2. Actual distraint Constructive Distrain

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SEC. 206. Constructive Distraint of the Property of A Taxpayer. - To safeguard the interest of the Government, the Commissioner may place under constructive distraint the property of a delinquent taxpayer or any taxpayer who, in his opinion, is retiring from any business subject to tax, or is intending to leave the Philippines or to remove his property therefrom or to hide or conceal his property or to perform any act tending to obstruct the proceedings for collecting the tax due or which may be due from him. The constructive distraint of personal property shall be affected by requiring the taxpayer or any person having possession or control of such property to sign a receipt covering the property distrained and obligate himself to preserve the same intact and unaltered and not to dispose of the same; in any manner whatever, without the express authority of the Commissioner. In case the taxpayer or the person having the possession and control of the property sought to be placed under constructive distraint refuses or fails to sign the receipt herein referred to, the revenue officer effecting the constructive distraint shall proceed to prepare a list of such property and, in the presence of two (2) witnesses, leave a copy thereof in the premises where the property distrained is located, after which the said property shall be deemed to have been placed under constructive distraint. The other term for constructive distraint is preventive embargo. When the taxpayer’s personal property is subjected to a constructive distraint, it’s basically a prohibition on the taxpayer or person in possession of the property to dispose the property sought to be distrained. “Ayaw na ibaligya, or else.” There is no actual taking of the property, mere serving of the notice is enough. What are the grounds for constructive distraint? 1. The taxpayer is retiring from any business subject to tax; 2. The taxpayer is intending to leave the Philippines (abscond); 3. The taxpayer would remove his property;

4. 5.

The taxpayer is intending to hide or conceal his property; The taxpayer is intending to perform any act tending to obstruct the proceedings for collecting the tax due or which may be due from him.

How shall the distraint be effected? The constructive distraint of personal property shall be affected by requiring the taxpayer or any person having possession or control of such property to sign a receipt covering the property distrained and obligate himself to preserve the same intact and unaltered and not to dispose of the same; in any manner whatever, without the express authority of the Commissioner. The taxpayer or the person in possession of the property are mandated to do two things: 1. Do not sell/dispose the property 2. Preserve the property When serving notice, the taxpayer would only sign. But usually, people are afraid to sign. We would always equate our signature as some sort of creation of an obligation on our part. Somewhat, ideny natin “wala akong sinabi, walang tayong label.” Uso daw sa lawschool. (Chuchu puro chismisss.) (Castro) WHAT IF THE TAXPAYER WOULD NOT SIGN THE RECEIPT OR THE NOTICE? What the BIR guy or the person serving notice will do is that he will prepare an independent ___ property (inaudible on the blank portion) in front of 2 witnesses and iiwan lang niya doon. That is already an effective service of notice. ACTUAL DISTRAINT There is an actual seizure of the property involved to be solved at a public auction and the proceeds thereof will be applied to the tax liabilities of the taxpayer including surcharges and penalties. Including in the actual distraint is GARNISHMENT. In truth ang garnishment parang walang actual seizure yan siya ha, pero somehow you can imagine that it is seized- effectively removed from the control of the taxpayer. It

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is not mere disposal but there is some sort of transfer of that property. Ano ba yang garnishment? Primary example under Civil Procedure are bank accounts. It is not merely to preserve the money in the banks but to turn over the funds. That’s why garnishment is part in actual distraint. It is found in Section 207 (A) of the NIRC Section 207. Summary Remedies. (A) Distraint of Personal Property. - Upon the failure of the person owing any delinquent tax or delinquent revenue to pay the same at the time required, the Commissioner or his duly authorized representative, if the amount involved is in excess of One million pesos (P1,000,000), or the Revenue District Officer, if the amount involved is One million pesos (P1,000,000) or less, shall seize and distraint any goods, chattels or effects, and the personal property, including stocks and other securities, debts, credits, bank accounts, and interests in and rights to personal property of such persons ;in sufficient quantity to satisfy the tax, or charge, together with any increment thereto incident to delinquency, and the expenses of the distraint and the cost of the subsequent sale. A report on the distraint shall, within ten (10) days from receipt of the warrant, be submitted by the distraining officer to the Revenue District Officer, and to the Revenue Regional Director: Provided, That the Commissioner or his duly authorized representative shall, subject to rules and regulations promulgated by the Secretary of Finance, upon recommendation of the Commissioner, have the power to lift such order of distraint: Provided, further, That a consolidated report by the Revenue Regional Director may be required by the Commissioner as often as necessary. No amendments under TRAIN as to this Section. WHO EXERCISES DISTRAINT? There are 2 persons involved and depending on the amount. More than 1 million

Commissioner Internal Revenue

of

1 million or below

RDO

HOW IS IT DONE? Actual seizure of the property. And then there will be a notice and then report by the RDO to the Revenue District. CAN YOU ORDER DISTRAINT TO BE LIFTED? Yes, it is entirely possible that the taxpayer can ask the CIR. Because the CIR can lift the order of distraint but he is required to post a bond. WHAT IS THE PROCEDURE FOR THE DISTRAINT? Section 208. Procedure for Distraint and Garnishment. - The officer serving the warrant of distraint shall make or cause to be made an account of the goods, chattels, effects or other personal property distrained, a copy of which, signed by himself, shall be left either with the owner or person from whose possession such goods, chattels, or effects or other personal property were taken, or at the dwelling or place of business of such person and with someone of suitable age and discretion, to which list shall be added a statement of the sum demanded and note of the time and place of sale. Stocks and other securities shall be distrained by serving a copy of the warrant of distraint upon the taxpayer and upon the president, manager, treasurer or other responsible officer of the corporation, company or association, which issued the said stocks or securities. Debts and credits shall be distrained by leaving with the person owing the debts or having in his possession or under his control such credits, or with his agent, a copy of the warrant of distraint. The warrant of distraint shall be sufficient authority to the person owning the debts or having in his possession or under his control any credits belonging to the taxpayer to pay to the Commissioner the amount of such debts or credits. Bank accounts shall be garnished by serving a warrant of garnishment upon the taxpayer and upon the president, manager, treasurer or other responsible officer of the bank. Upon receipt of the

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warrant of garnishment, the bank shall tun over to the Commissioner so much of the bank accounts as may be sufficient to satisfy the claim of the Government. No amendments under TRAIN as to this Section If you can see the provision, there are 4 properties involved that can be subject to distraint: 1. Personal properties in general- movables (cars, paintings) 2. Stocks and securities- that’s intangible properties 3. Debts and credits 4. Bank accounts PERSONAL PROPERTY In this type of personal property, a warrant of distraint shall be issued by the BIR and as per rules this is in a form of a Warrant of Distraint and Levy (WDL). This will be given to the seizure who will execute the seizure. This SEIZURE AGENT parang student assistant (SA) will serve the warrant distraint and will make a list of the goods that will be subject to distraint and will sign it and leave a copy thereof to the taxpayer. So basically, it’s just a listing of all the properties that will be taken by the BIR. STOCKS AND SECURITIES For the stocks and securities very simple kasi walang actual na pagkuha ng gamit. Usually when it comes to distraint of personal property medjo mas masakit kasi yan (kwento of Sir about his case in re attachment remedy). DEBTS AND SECURITIES Debts and credits shall be distrained by leaving with the person owing the debts or having in his possession or under his control such credits, or with his agent. So notice pa lang din. WHAT IS THE EFFECT? The warrant of distraint shall be SUFFICIENT AUTHORITY to the person owning the debts or having in his possession or under his control any credits belonging to the taxpayer

to pay to the Commissioner the amount of such debts or credits. Instead ibayad ko siya sa taxpayer, ibayad ko na lang sa BIR and that would apply to the tax liability of the taxpayer involved. BANK ACCOUNTS Bank accounts shall be garnished by serving a warrant of garnishment upon the taxpayer and upon the president, manager, treasurer or other responsible officer of the bank. Upon receipt of the warrant of garnishment, the bank shall tun over to the Commissioner so much of the bank accounts as may be sufficient to satisfy the claim of the Government. AFTER the garnishment of personal property and seizure there will be a public auction. The procedure is found in Section 209 of NIRC. Section 209. Sale of Property Distrained and Disposition of Proceeds. - The Revenue District Officer or his duly authorized representative, other than the officer referred to in Section 208 of this Code shall, according to rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner, forthwith cause a notification to be exhibited in not less than two (2) public places in the municipality or city where the distraint is made, specifying; the time and place of sale and the articles distrained. The time of sale shall not be less than twenty (20) days after notice. One place for the posting of such notice shall be at the Office of the Mayor of the city or municipality in which the property is distrained. At the time and place fixed in such notice, the said revenue officer shall sell the goods, chattels, or effects, or other personal property, including stocks and other securities so distrained, at public auction, to the highest bidder for cash, or with the approval of the Commissioner, through duly licensed commodity or stock exchanges. In the case of Stocks and other securities, the officer making the sale shall execute a bill of sale which he shall deliver to the buyer, and a copy thereof furnished the corporation, company or association which issued the stocks or other securities. Upon receipt of the copy of the bill of

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sale, the corporation, company or association shall make the corresponding entry in its books, transfer the stocks or other securities sold in the name of the buyer, and issue, if required to do so, the corresponding certificates of stock or other securities. Any residue over and above what is required to pay the entire claim, including expenses, shall be returned to the owner of the property sold. The expenses chargeable upon each seizure and sale shall embrace only the actual expenses of seizure and preservation of the property pending ;the sale, and no charge shall be imposed for the services of the local internal revenue officer or his deputy. Posting of Notice WHERE IS THE POSTING BE MADE? It will be made in not less than 2 public places in municipality or city where the distraint is made. But it is NECESSARY that one of the places is the office of the BIR. WHAT ARE THE CONTENTS OF THE NOTICE? Time of sale Place of sale Articles distrained or sought to be sold at a public auction

WHAT IF THE PROPERTY WILL NOT BE RELEASED? Then the auction will proceed and the properties will be sold the highest bidder for cash. Stocks and other securities In the case of Stocks and other securities, the officer making the sale shall execute a bill of sale which he shall deliver to the buyer, and a copy thereof furnished the corporation, company or association which issued the stocks or other securities. What happens to the proceeds? It will be for penalties and interests. WHAT IF THERE ARE NO BIDDERS? IS THAT POSSIBLE? YES, it is possible. What if basura na yung truck? Fully decapitated na yung truck? You cannot sell that. Look at Section 212 NIRC Section 212. Purchase by Government at Sale Upon Distraint. - When the amount bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of the articles offered for sale, the Commissioner or his deputy may purchase the same in behalf of the national Government for the amount of taxes, penalties and costs due thereon.

WHEN SHOULD THE SALE HAPPEN? It should not be less than 20 days after notice. So there must be posting of notice first and the sale will occur after 20 days.

Property so purchased may be resold by the Commissioner or his deputy, subject to the rules and regulations prescribed by the Secretary of Finance, the net proceeds therefrom shall be remitted to the National Treasury and accounted for as internal revenue.

The personal property may be released prior to the sale according to Section 210 NIRC. How do you release?

In the end if there are no bidders. When will this happen on the purchase on the part of the government?

Section 210. Release of Distrained Property Upon Payment Prior to Sale. - If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the sale, the goods or effects distrained shall be restored to the owner. So basically, by paying the tax and discharges, including in the expenses of setting up the auction sale.

(Gido)

This is like forfeiture; strictly speaking when we say forfeiture it applies to real properties, but technically this one pertains forfeiture of personal properties. When the amount paid for a property is not same on the amount taxed. The CIR can ask for authority to sell the properties and the proceeds shall be remitted to the government.

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TAXATION 2- 3rd exam FROM THE LECTURES OF ATTY. DONALVO 2018-2019 Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

LEVY > levy is the amount collect in seizing real property in order to be sold at public auction to satisfy the tax delinquency. Transcriber’s note: Basis of Atty. Donalvo’s Reading SEC. 207 (B) Levy on Real Property.- After the expiration of the time required to pay the delinquent tax or delinquent revenue as prescribed in this Section, real property may be levied upon, before simultaneously or after the distraint of personal property belonging to the delinquent. To this end, any internal revenue officer designated by the Commissioner or his duly authorized representative shall prepare a duly authenticated certificate showing the name of the taxpayer and the amounts of the tax and penalty due from him. Said certificate shall operate with the force of a legal execution throughout the Philippines. Levy shall be affected by writing upon said certificate a description of the property upon which levy is made. At the same time, written notice of the levy shall be mailed to or served upon the Register of Deeds for the province or city where the property is located and upon the delinquent taxpayer, or if he be absent from the Philippines, to his agent or the manager of the business in respect to which the liability arose, or if there be none, to the occupant of the property in question. In case the warrant of levy on real property is not issued before or simultaneously with the warrant of distraint on personal property, and the personal property of the taxpayer is not sufficient to satisfy his tax delinquency, the Commissioner or his duly authorized representative shall, within thirty (30) days after execution of the distraint, proceed with the levy on the taxpayer's real property. Within ten (10) days after receipt of the warrant, a report on any levy shall be submitted by the levying officer to the Commissioner or his duly authorized representative: Provided, however, That a consolidated report by the Revenue Regional Director may be required by the Commissioner as often as necessary: Provided, further, That the Commissioner

or his duly authorized representative, subject to rules and regulations promulgated by the Secretary of Finance, upon recommendation of the Commissioner, shall have the authority to lift warrants of levy issued in accordance with the provisions hereof. > There is no hierarchy of remedies on the part of the government when it comes to collection of taxes. The government may avail of the remedies either successively or simultaneously. One their is a FAN the BIR can exercise all these powers. The first thing that would happen is the BIR will issue a duly authenticated certificate, it contains - (1) name of the taxpayer (2) amounts of the tax and penalty due from him (3) the description of the property. Said certificate shall operate with the force of a legal execution throughout the Philippines. This certificate will basically be served to the taxpayer himself and to the register of deeds where the levied property is located. After that the government may now proceed with the sale of the property distrained and subsequently the disposition of the proceeds of the subject property. Let us go first with… SEC. 213. Advertisement and Sale. - Within twenty (20) days after levy, the officer conducting the proceedings shall proceed to advertise the property or a usable portion thereof as may be necessary to satisfy the claim and cost of sale; and such advertisement shall cover a period of a least thirty (30) days. It shall be effectuated by posting a notice at the main entrance of the municipal building or city hall and in public and conspicuous place in the barrio or district in which the real estate lies and ;by publication once a week for three (3) weeks in a newspaper of general circulation in the municipality or city where the property is located. The advertisement shall contain a statement of the amount of taxes and penalties so due and the time and place of sale, the name of the taxpayer against whom taxes are levied, and a short description of the property to be sold. At any time before the day fixed for the sale, the taxpayer may discontinue all proceedings by paying the taxes, penalties and interest.

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TAXATION 2- 3rd exam FROM THE LECTURES OF ATTY. DONALVO 2018-2019 Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

If he does not do so, the sale shall proceed and shall be held either at the main entrance of the municipal building or city hall, or on the premises to be sold, as the officer conducting the proceedings shall determine and as the notice of sale shall specify. Within five (5) days after the sale, a return by the distraining or levying officer of the proceedings shall be entered upon the records of the Revenue Collection Officer, the Revenue District officer and the Revenue Regional Director. The Revenue Collection Officer, in consultation with the Revenue district Officer, shall then make out and deliver to the purchaser a certificate from his records, showing the proceedings of the sale, describing the property sold stating the name of the purchaser and setting out the exact amount of all taxes, penalties and interest: Provided, however, That in case the proceeds of the sale exceeds the claim and cost of sale, the excess shall be turned over to the owner of the property. > This means that after the sale and within 5 days, the BIR shall issue a certificate of sale. The certificate of sale shall be given to the winning bidder. On top of that, the sale must be registered with the registry of deeds. That is very important because that is the reckoning point of the redemption period, should the taxpayer wishes to redeem the property. The Revenue Collection Officer, upon approval by the Revenue District Officer may, out of his collection, advance an amount sufficient to defray the costs of collection by means of the summary remedies provided for in this Code, including ;the preservation or transportation in case of personal property, and the advertisement and subsequent sale, both in cases of personal and real property including improvements found on the latter. In his monthly collection reports, such advances shall be reflected and supported by receipts. Right of Redemption SEC. 214. Redemption of Property Sold. - Within one (1) year from the date of sale, the delinquent taxpayer, or any one for him, shall have the right of paying to the Revenue District Officer the amount of the public taxes, penalties, and interest thereon from the date of delinquency to the date of sale, together

with interest on said purchase price at the rate of fifteen percent (15%) per annum from the date of purchase to the date of redemption, and such payment shall entitle the person paying to the delivery of the certificate issued to the purchaser and a certificate from the said Revenue District Officer that he has thus redeemed the property, and the Revenue District Officer shall forthwith pay over to the purchaser the amount by which such property has thus been redeemed, and said property thereafter shall be free form the lien of such taxes and penalties. Cralaw The owner shall not, however, be deprived of the possession of the said property and shall be entitled to the rents and other income thereof until the expiration of the time allowed for its redemption. > when it comes to purchase of a property in auction sale, the purchaser only has an inchoate right , it will become full upon the expiration of the redemption period and it has not been redeemed by the proper redemptioner. If the redemptioner redeems the property, he is: 1. Entitled to the delivery of the certificate issued to the purchaser; 2. A certificate from the Revenue District Officer that he has thus redeemed the property. (Isidor)

PROPERTY WHEN NOT REDEEMED SEC. 202. FINAL DEED TO PURCHASER. – In case the taxpayer shall not redeem the property as herein provided, the Revenue District Officer shall, as grantor, execute a deed conveying to the purchaser so much of the property as has been sold, free from all liens of any kind whatsoever, and the deed shall succinctly recite all the proceedings upon which the validity of the sale depends. What will happen if the property is not redeemed within the 1 year period? Then the RDO will execute a deed of sale conveying to the purchaser so much of the property

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TAXATION 2- 3rd exam FROM THE LECTURES OF ATTY. DONALVO 2018-2019 Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

as has been sold, free from any liens of any kind whatsoever. So, practically it’s probably the same with your Rule 39 of the Revised Rules of Court (Execution). NO BIDDER/S SEC. 215. FORFEITURE TO GOVERNMENT FOR WANT OF BIDDER. – In case there is no bidder for real property exposed for sale as herein above provided or if the highest bid is for an amount insufficient to pay the taxes, penalties and costs, the Internal Revenue Officer conducting the sale shall declare the property forfeited to the Government in satisfaction of the claim in question and within two (2) days thereafter, shall make a return of his proceedings and the forfeiture which shall be spread upon the records of his office. It shall be the duty of the Register of Deeds concerned, upon registration with his office of any such declaration of forfeiture, to transfer the title of the property forfeited to the Government without the necessity of an order from a competent court. Within one (1) year from the date of such forfeiture, the taxpayer, or any one for him, may redeem said property by paying to the Commissioner or the latter's Revenue Collection Officer the full amount of the taxes and penalties, together with interest thereon and the costs of sale, but if the property be not thus redeemed, the forfeiture shall become absolute. Forfeiture In Favor Of the Government Now, when will there be a forfeiture in favor of the government? 1. No Bidder; 2. The amount of the bid is not enough to cover the taxes,penalties,surcharges and interests. How is it effected? The BIR officer conducting the sale shall declare the property forfeited.

So, there is a declaration within 2 days after the sale. It will make a return of all the proceeding and will also be recorded in the Registry of Deeds. Recording The recording is important because of the 1 year redemption period. Even if the property is already forfeited by the government, the taxpayer is still entitled to redeem the property within that 1 year period. Now, if the property is not redeemed, the forfeiture should become ABSOLUTE. Then, within that time, the goverment is now allowed to sell the proeprty that was forfeited.

GOVERNMENT ACTION SEC. 216. RESALE OF REAL ESTATE TAKEN FOR TAXES. – The Commissioner shall have charge of any real estate obtained by the Government of the Philippines in payment or satisfaction of taxes, penalties or costs arising under this Code or in compromise or adjustment of any claim therefore; and said Commissioner may, upon the giving of not less than twenty (20) days notice, sell and dispose of the same of public auction or with prior approval of the Secretary of Finance, dispose of the same at private sale. In either case, the proceeds of the sale shall be deposited with the National Treasury, and an accounting of the same shall rendered to the Chairman of the Commission on Audit. What will the government do? 1.The BIR may sell it again at a public auction; or 2.With prior approval of the Secretary of Finance may dispose the same at a private sale. So, Under the Revenue Regulations (not specified by sir which rev reg), I think the BIR is required that the property be sold first through a public auction before they are allowed to sell it privately or to direct selling.

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TAXATION 2- 3rd exam FROM THE LECTURES OF ATTY. DONALVO 2018-2019 Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

SEC. 217. FURTHER DISTRAINT OR LEVY. – The remedy by distraint of personal property and levy on realty may be repeated if necessary until the full amount due, including all expenses, is collected.

So, if the value fo the property is not enought to cover the taxes, penalties, surcharges and interests of the taxpayer then SUCCESSIVE LEVY MAY ALSO BE DONE.

But, if you notice, when you to the Civil Code, the Internal Rvenue tax does not always enjoy the preference. The preference is dependent on the nature of the obligation which pertains on the property. And if also if you look at the Labor Code there is a workmen’s preference in case of contract proceeding(?). So the workers enjoy the first preference. From 2018 TSN (Not discussed)

The government is not limited to one levy only, it can repeat the proceedings as many times as possible until the tax obligation of the taxpayer including the surcharges, penalties, and interests has been paid. SEC. 219. NATURE AND EXTENT OF TAX LIEN. – If any person, corporation, partnership, jointaccount (cuentas en participacion), association or insurance company liable to pay an internal revenue tax, neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the Government of the Philippines from the time when the assessment was made by the Commissioner until paid, with interests, penalties, and costs that may accrue in addition thereto upon all property and rights to property belonging to the taxpayer: Provided, That this lien shall not be valid against any mortgagee, purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the office of the Register of Deeds of the province or city where the property of the taxpayer is situated or located. And then you have also the Tax Lien. So, basically, what this provision says is that properties of the taxpayer, there is a corresponding tax rate on them for the payment of whatever internal revenue taxes in favor of the government. It will follow wherever the property will go. But we all know that these properties may also be encumbered by the taxpayer. So that the government will have a preference over that property, it is necessary for the BIR to register that tax lien before the ROD without that registration the tax lien of the government will be inferior to any mortgagor or mortgagee.

TAX LIEN. It is a legal claim or charge to the property whether real or personal as a security for a tax obligation. Nature of Tax Lien. It constitutes as a burden upon all property or property rights belonging to the delinquent tax payer. This also serves as a warning to all potential buyers of the property of that person that any proceeds of such sale should be applied first to the tax deficiency. Coverage of Tax Lien. It covers both personal and real properties. SEC. 220. FORM AND MODE OF PROCEEDING IN ACTIONS ARISING UNDER THIS CODE. – Civil and criminal actions and proceedings instituted in behalf of the Government under the authority of this Code or other law enforced by the Bureau of Internal Revenue shall be brought in the name of the Government of the Philippines and shall be conducted by legal officers of the Bureau of Internal Revenue but no civil or criminal action for the recovery of taxes or the enforcement of any fine, penalty or forfeiture under this Code shall be filed in court without the approval of the Commissioner. What is important in Sec 220 is that no criminal for the recovery of taxes of the enforcement of any fine, penalty or forfeiture under this code shall be filed without the approval of the Commissioner. So, whenever there’s a criminal or civil case that you file, there must be an approval on the part of the BIR or the CIR.

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TAXATION 2- 3rd exam FROM THE LECTURES OF ATTY. DONALVO 2018-2019 Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

So, when it comes to civil and criminal actions, you have to look at the JURISDICTION. Where will the government file the civil or criminal cases?

- The purpose of assessment is different from the purpose of filing a criminal case against the erring taxpayer 3. A criminal action may be instituted along with other modes of collection;

FOR CIVIL CASES The CTA has original jurisdiction on CIVIL TAX CASES where the principal amount of taxes and fees excluding penalties and surcharges is AT LEAST 1 MILLION PESOS. So, 1 million and above the COLLECTION CASE should be filed with the BIR. For Civil Tax Cases Below 1 Million We go back to our GENERAL JURISDICTION. Depende sa amount, it’s either RTC OR MTC.

- There is no hierarchy of remedies when it comes to collection of taxes. The state may avail any or all, successively or simultaneously, remedies available to it. 4. An acquittal does not exoneration from tax.

necessarily

mean

(Lagat)

Acquittal does not mean exoneration from tax liability. Subsequent payment of the tax does not extinguish the taxpayer’s liability.

FOR CRIMINAL CASES The JURISIDCTIONAL AMOUNT IS THE SAME. One Million and ABOVE Jurisdiction: CTA

But later you find out that criminal cases may be subjected to a compromise so long as 1) it is not yet filed in court and 2) it does not involve tax fraud cases. COMPROMISE AND ABATEMENT Compromise is found in Section 204 (A), NIRC.

Below 1 Million Jurisdiction: General Jurisdictional Amount applied

The Commissioner may -

PRINCIPLES

(A) Compromise the payment of any internal revenue tax, when:

In criminal actions, you have to take note of the following principles: 1. Tax assessment is not a pre-requisite in filing the criminal case; - What are considered are the OVERT ACTS constituting the crime

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. The compromise settlement of any tax liability shall be subject to the following minimum amounts:

2. A criminal action filed before the appropriate court is not an assessment;

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TAXATION 2- 3rd exam FROM THE LECTURES OF ATTY. DONALVO 2018-2019 Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

For cases of financial incapacity, a minimum compromise rate equivalent to ten percent (10%) of the basic assessed tax; and For other cases, a minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax. Where the basic tax involved exceeds One million pesos (P1,000.000) or where the settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners.

Now, the definition of compromise in the Civil Code is practically the same with that of the NIRC. That would be the standard for the purpose of the NIRC. A compromise is a contract whereby the parties through mutual agreement by making reciprocal concessions, avoid a litigation or put an end to one already commenced.

taxpayer is agreeable to such decision by signing the required agreement form for the purpose. meaning, there is already an agreement beforehand 6. Cases which become final and executory after final judgment of a court, where compromise is requested on the ground of doubtful validity of the assessment; 7. Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer. TAX CASES THAT MAY BE SUBJECT TO COMPROMISE: 1.

Delinquent accounts

2.

Technical Cases filed after issuance of the FAN;

3.

Civil tax cases filed in courts

4.

Collection cases already filed in court

5.

Criminal violations, other than those already filed in court or those involving criminal tax fraud. - in practice, criminal cases pinapacompromise yan nila in order to settle the civil aspect of this case. Tsaka, ang ginagawa ng court, they would still call the case, but it would be dismissed because there are no witnesses who appeared; some use depositions.

It’s allowed by law. In fact, it is encouraged by the BIR because it is a voluntary agreement ba; compromise na lang tayo beh or instead of paying the full amount ito na lang bayaran mo. It’s also recognized in our jurisprudence that compromise is encouraged. Pugson man gani usahay; ang judge mangasaba pa gani usahay, so that people will just compromise. The problem is, there are case where one party asks too much or the other is just offering too little. Tax cases that are NOT subject to compromise: 1. Withholding Tax cases; 2. Criminal Tax Fraud cases; 3. Criminal violations already filed in court to any compromise; 4. Delinquent accounts with duly approved schedule of instalment cases; 5. Cases where final reports of reinvestigation or reconsideration have been issued resulting to reduction in the original assessment and the

(Lim)

GROUNDS FOR COMPROMISE Q: What are the grounds for a compromise? A: There are two grounds: 1. Reasonable doubt as to the validity of the assessment Basically, you are faulting the BIR. You have an assessment which is doubtful 2. Financial position of the taxpayer demonstrates inability to pay, or financial incapacity of the taxpayer. Financial distress

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TAXATION 2- 3rd exam FROM THE LECTURES OF ATTY. DONALVO 2018-2019 Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

Q: When is there reasonable doubt as to the validity of the assessment? A: Revenue Regulations provide for several instances. The offer to compromise on the ground of reasonable doubt as to the validity of the assessment may be accepted when it is shown that: 1. The delinquent account or disputed assessment is one resulting from a jeopardy assessment. -

Meaning the taxpayer does not want to cooperate and the period for assessment is already forthcoming.

2.

The assessment seems to be arbitrary in nature, appearing to be based on presumptions and there is reason to believe that it is lacking in legal and/or factual basis.

Instances where assessments has become final and executory but there is reason to believe that the assessment is lacking in legal and/or factual basis: 3.

The taxpayer failed to file an administrative protest on account of the alleged failure to receive notice of assessment and there is reason to believe that the assessment is lacking in legal and/or factual basis  violation of due process .

4.

The taxpayer failed to file a request for reinvestigation/ reconsideration within 30 days from receipt of final assessment notice and there is reason to believe that the assessment is lacking in legal and/or factual basis.

5.

The taxpayer failed to elevate to the Court of Tax Appeals (CTA) an adverse decision of the Commissioner, or his authorized representative, in some cases, within 30 days from receipt thereof and there is reason to believe that the assessment is lacking in legal and/or factual basis.

6.

The assessments were issued on or after January 1, 1998, where the demand notice

allegedly failed to comply with the formalities prescribed under Sec. 228 of the National Internal Revenue Code of 1997. 7.

Assessments made based on the “Best Evidence Obtainable Rule” and there is reason to believe that the same can be disputed by sufficient and competent evidence.

8.

The assessment was issued within the prescriptive period for assessment as extended by the taxpayer’s execution of Waiver of the Statute of Limitations the validity or authenticity of which is being questioned or at issue and there is strong reason to believe and evidence to prove that it is not authentic  There is an invalid or defective waiver entered by the taxpayer.

Q: What do we mean by financial incapacity? A: The financial position of the taxpayer demonstrates clear inability to pay the assessed taxes. Under revenue regulations, the offer to compromise based on financial incapacity may be accepted upon showing the following grounds: 1. The corporation ceased operation or is already dissolved. 2. Accounting records. The balance sheet of the taxpayer shows that the taxpayer is suffering from surplus or earnings deficit resulting to impairment in the original capital by at least 50% and the taxpayer has no sufficient liquid asset to satisfy the tax liability. Meaning, the taxpayer is suffering from a net worth deficit (total liabilities exceed total assets). 3. The taxpayer is a compensation income earner with no other source of income and the family’s gross monthly compensation income does not exceed the levels of compensation income provided, and it appears that the taxpayer possesses no other liveable or distrainable assets, other than his family home.  P10,500 – single  P21,000 per month – married 4. The taxpayer has been declared as bankrupt or insolvent.

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TAXATION 2- 3rd exam FROM THE LECTURES OF ATTY. DONALVO 2018-2019 Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

GROUNDS FOR DENIAL OF COMPROMISE (under existing revenue regulations): 1. The taxpayer has an existing tax credit certificate. 2. The taxpayer has a pending claim for tax refund with the BIR or the court. 3. The taxpayer has an existing finalized agreement or prospect of future agreement with any party that could result to an increase in the offer for compromise at a definite future time. a. Meaning there are future agreements that could increase the net worth of the taxpayer. 4. The presence of circumstances that would place the taxpayer in an ability to pay his accounts. a. Example: In bankrupt ka now, then kinabukasan nanalo ka sa lotto.

NATIONAL EVALUATION BOARD - basic deficiency taxes exceeds P500,000. Q: Does it mean that the minimum amount must always be paid? A: No. It really depends kasi mostly, revenue offices would not follow the 40% as the case may be. ABATEMENT It refers to the act of diminution, eliminating or nullifying the tax. Abatement has the following grounds : 1. Tax or any portion thereof appears to be excessively assessed; 2. The abatement and collection of costs do not justify the collection of the amount said. Distinctions of COMPROMISE vs. ABATEMENT (From 2018 TSN)

MINIMUM COMPROMISE AMOUNT From 2018 TSN: PRESCRIBED MINIMUM PERCENTAGES OF COMPROMISE SETTLEMENT (Section 4, RR 302000) The compromise settlement of the internal revenue tax liabilities of taxpayers, reckoned on a per tax type assessment basis, shall be subject to the following minimum rates based on the basic assessed tax: 1. For cases of “financial incapacity”- 10% of the basic assess tax (without penalties, surcharges, and interest) 2. All others - 40% It can still go lower but now subject to the consent and approval of the National Evaluation Board. Q: Who approves the compromise? A: REGIONAL EVALUATION BOARD - involving basic deficiency taxes of P500,000 or less and for minor criminal violations discovered by the Regional and District Offices.

Q: Can compromise and abatement go together? A: I think yes, it is possible depende sa grounds. If reasonable doubt siya, then the taxpayer was able to prove the application. The BIR can abate. TAX REFUNDS AND TAX CREDITS It is a quite different topic which is why it is on the last part of the course outline. (Olamit)

TAX REFUND Now, define a tax refund.

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TAXATION 2- 3rd exam FROM THE LECTURES OF ATTY. DONALVO 2018-2019 Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

A tax refund, in the context of the NIRC, is the return of the taxpayer’s taxes he has paid erroneously because: 1. He is exempted by law; 2. He has erroneously paid the same on the belief that he is subject to tax; 3. There was a collection by the BIR on the belief that there is a law which authorizes the collection; and 4. The BIR collected more than that which is allowed by law. Q: Is a tax refund the same with a tax credit? A: As to the effect, they are essentially the same. Because, essentially, it involves the return of money. But as to the manner, it differs. When we say tax refund, there is actual return of the money involved. I-uli jud siya. But when it comes to a tax credit, what is involve here is just the issuance of tax credit certificate which the taxpayer would utilize for the payment of any other important revenue taxes.

Effect Manner

Tax Refund Tax Credit It involves the return of money Actual return of Issuance of a the money tax credit certificate

This is provided under 2nd para. of Sec. 204(C) of the NIRC: A Tax Credit Certificate validly issued under the provisions of this Code may be applied against any internal revenue tax, excluding withholding taxes, for which the taxpayer is directly liable. Any request for conversion into refund of unutilized tax credits may be allowed, subject to the provisions of Section 230 of this Code: Provided, That the original copy of the Tax Credit Certificate showing a creditable balance is surrendered to the appropriate revenue officer for verification and cancellation: Provided, further, That in no case shall a tax refund be given resulting from availment of incentives granted pursuant to special laws for which no actual payment was made.

Q: What is the nature of tax refunds? A: As the law conceives, tax refunds are in the nature of tax exemptions. So essentially, all the principles in the tax exemptions apply here in the tax refund. In Philippine Phosphate Fertilizer Corp. vs. CIR, GR 141973, the general rule is that claimants of tax refunds bear the burden of proving the factual basis of their claims. This is because tax refunds are in the nature of tax exemptions, the statutes of which are construed strictly against the taxpayer and liberally in favor of the taxing authority. But this principle has been repealed (?; inaudible) by the CIR vs. Fortune Tobacco case. Do you remember that case? The BIR issued a regulation wherein there was a “floor”. It is not allowed because that is an ultra vires act. The law does not provide for that kind of tax. Why would you put up a floor on the value of the cigarettes when the law does not provide for such. And in effect, the tax refund is on the basis of lack of any statutory authority to impose such tax in the first place. Q: So what is the principle involved? A: It’s not about tax refund as if it’s a tax exemption. You apply the general rule on taxation. If there is no tax law, then you do not impose any taxes. In the words of the Supreme Court, the rule on strict interpretation against the taxpayer is not applicable in this case because the ground for a tax refund is lack of a tax condition imposing such tax. Was based was void because it added something which is not found So in essence, the SC here said that if the ground of tax refund is the lack of law imposing such tax, the applicable rule is the strict interpretation of tax laws. But if the basis is a provision of law providing for tax exemption, then apply the rule on strict interpretation against the taxpayer.

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TAXATION 2- 3rd exam FROM THE LECTURES OF ATTY. DONALVO 2018-2019 Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

3. Be credited or refunded of the tax paid. Q: What is the legal basis for tax refunds and credits? Q: Who has the choice to avail of these options? A: Actually, na-agihan na nato ni siya. Some of these we have already discussed. 1. The first is Sec. 76 of the NIRC. This refers to the Carry-over. Corporate Tax Liabilities carried over. SEC. 76. - Final Adjustment Return. - Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either: (A) Pay the balance of tax still due; or (B) Carry-over the excess credit; or (C) Be credited or refunded with the excess amount paid, as the case may be. In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the suceeding taxable years. Once the option to carryover and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefor. So, as a review, the corporation files this income tax return quarterly. And then its cumulative in nature. And then on the fourth taxable quarter, whether calendar or fiscal year, the taxpayer is required to file a Final Assessment Return. Now, if some of the corporate returns is not equal to the final tax due upon filing the tax return, the corporation has THREE OPTIONS depending upon the situation: 1. Pay the balance if there is any 2. Carry over the excess tax

The corporate taxpayer has the choice. It’s not actually the BIR. In case the corporation is entitled to a tax refund/credit and it chooses the carry over option, such option shall be irrevocable for that taxable period. What if the corporation was not allowed to carry over the entire amount of tax appurtenant to the taxable year? Can the corporation subsequently claim for a tax refund? This is not allowed anymore. Because under the law, no application for cash refund or issuance of the tax credit certificate shall be allowed for the tax payment which were subject to the carry over. The exception for that is when the corporation decides to cease its operation, dissolve and liquidate. 2. The next provision of tax refund is about the VAT. Normally, it’s just carry over. The general rule is carry over of the VAT input taxes against the VAT output tax. But if the taxpayer is a zero-rated taxpayer, he can avail of a tax refund or the VAT refund. Paano yan i-refund ang VAT ngayon? Diba, there is an application to be filed with the BIR. Submission of all receipts and all other supporting documents for the refund and the taxpayer is supposed to file the application within two years from the close of the taxable quarter where the VAT-able sales were made. After the filing of the application, the CIR is required to render a decision within the 90-day period. If there is no decision within the 90-day period, its alright. The taxpayer has to wait. Dati kasi the rule is 120 days to decide. And if there is no decision after the lapse of the 120 days, you have 30 days to appeal. That 120 days and 30 days are

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mandatory before filing the petition/ claim for refund before the CTA. But wala na ‘yan ngayon. Q: What if the BIR Official fails to act within 90 days? A: Then it can be subject to disciplinary action and may be prosecuted for criminal offenses under Sec. 269 of the NIRC. SEC. 269. Violations Committed by Government Enforcement Officers. - Every official, agent, or employee of the Bureau of Internal Revenue or any other agency of the Government charged with the enforcement of the provisions of this Code, who is guilty of any of the offenses herein below specified shall, upon conviction for each act or omission, be punished by a fine of not less than Fifty thousand pesos (P50,000) but not more than One hundred thousand pesos (P100,000) and suffer imprisonment of not less than ten (10) years but not more than fifteen (15) years and shall likewise suffer an additional penalty of perpetual disqualification to hold public office, to vote, and to participate in any public election (a) Extortion or willful oppression through the use of his office or willful oppression and harassment of a taxpayer who refused, declined, turned down or rejected any of his offers specified in paragraph (d) hereof; (b) Knowingly demanding or receiving any fee, other or greater sums that are authorized by law or receiving any fee, compensation or reward, except as by law prescribed, for the performance of any duty; (c) Willfully neglecting to give receipts, as by law required, for any sum collected in the performance of duty or willfully neglecting to perform any other duties enjoined by law; (d) Offering or undertaking to accomplish, file or submit a report or assessment on a taxpayer without the appropriate examination of the books of accounts or tax liability, or offering or

undertaking to submit a report or assessment less than the amount due the Government for any consideration or compensation, or conspiring or colluding with another or others to defraud the revenues or otherwise violate the provisions of this Code; (e) Neglecting or by design permitting the violation of the law by any other person; (f) Making or signing any false entry or entries in any book, or making or signing any false certificate or return; (g) Allowing or conspiring or colluding with another to allow the unauthorized retrieval, withdrawal or recall of any return, statement or declaration after the same has been officially received by the Bureau of Internal Revenue; (h) Having knowledge or information of any violation of this Code or of any fraud committed on the revenues collectible by the Bureau of Internal Revenue, failure to report such knowledge or information to their superior officer, or failure to report as otherwise required by law; (i) Without the authority of law, demanding or accepting or attempting to collect, directly or indirectly, as payment or otherwise any sum of money or other thing of value for the compromise, adjustment or settlement of any charge or complaint for any violation or alleged violation of this Code; and (j) Deliberate failure to act on the application for refunds within prescribed period provided under Section 112 of this Act. Provided, That the provisions of the foregoing paragraph notwithstanding, any internal revenue officer for which a prima facie case of grave misconduct has been established shall, after due notice and hearing of the administrative case and subject to Civil Service Laws, be dismissed from the revenue service: Provided, further, That the term 'grave misconduct', as defined in Civil Service Law, shall include the issuance of fake letters of

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authority and receipts, forgery of signature, usurpation of authority and habitual issuance of unreasonable assessments.

exercised and that the Government is not unduly deprived of revenues.

3. The THIRD is Sec. 204 (C). You have to read this in conjunction with Sec. 229 of the NIRC.

SEC. 229. Recovery of Tax Erroneously or Illegally Collected.- no suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund. A Tax Credit Certificate validly issued under the provisions of this Code may be applied against any internal revenue tax, excluding withholding taxes, for which the taxpayer is directly liable. Any request for conversion into refund of unutilized tax credits may be allowed, subject to the provisions of Section 230 of this Code: Provided, That the original copy of the Tax Credit Certificate showing a creditable balance is surrendered to the appropriate revenue officer for verification and cancellation: Provided, further, That in no case shall a tax refund be given resulting from availment of incentives granted pursuant to special laws for which no actual payment was made. The Commissioner shall submit to the Chairmen of the Committee on Ways and Means of both the Senate and House of Representatives, every six (6) months, a report on the exercise of his powers under this Section, stating therein the following facts and information, among others: names and addresses of taxpayers whose cases have been the subject of abatement or compromise; amount involved; amount compromised or abated; and reasons for the exercise of power: Provided, That the said report shall be presented to the Oversight Committee in Congress that shall be constituted to determine that said powers are reasonably

Let us just simplify the provisions. Q: What are the GROUNDS for refund or credit under Sec. 204 (C) and Sec. 229? The grounds are as follows: 1. Taxes erroneously or illegally received 2. Penalties imposed without authority 3. Sum of money alleged to have been excessively or in any manner wrongfully collected 4. Refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion. – Yung mga DST, meron man yang mga stamps. Pag-dilapidated, you can return it to the BIR and the BIR

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will refund you of the corresponding value of that DST. 5. Redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. Q: What are the CONDITIONS that must be complied before a refund on this provision be allowed?

Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. Q: Who may claim the tax refund? A: The general rule is that it is the statutory taxpayer.

There are basically two conditions. 1. There must be evidence. Evidence to show that the taxpayer is entitled for the refund. 2. There must be a written application for refund/tax credit to be filed to the CIR within a period of 2 years from the time the erroneous tax payments has been made. Q: Now, what are the instances wherein a tax is considered as erroneously or illegaly collected? A: It is considered as erroneously or illegally collected when it is levied without any statutory authority. Prime example is what happened on CIR vs. Fortune Tobacco. Q: Now, the written application for a refund is very essential. Is there a form required? A: As a rule, there must be a letter request. You must be able to file by written application. The form, nakalimutan ko. But you just indicate in there (tax return) that there is a negative income or negative tax. The return showing overpayment shall be considered a written claim for refund or tax credit. So, meaning, indicating in your ITR or tax return that there is an overpayment of taxes is good enough as a claim for a tax refund. Q: Is there an instance where the BIR may refund or credit the taxes even without a written claim? A: Yes, there is as provided under Sec. 229, last paragraph:

But in case the statutory taxpayer does not file a claim for refund, the Supreme Court has held that a withholding tax agent may file for an application for tax refund in behalf of his or her principal. While the withholding tax agent has the right to recover the taxes, he is nevertheless required or has the obligation to remit the same to his principal. In one case, the SC held that the taxpayer as defined in the NIRC as a person subject to tax. The withholding agent is considered the taxpayer within the meaning of the tax law because if the taxpayer will not remit the tax as withheld, the taxpayer will be held liable for surcharges, penalties, and interest. So with respect to the money withheld, he (withholding agent) is considered as a taxpayer. (Singanon)

What are the requirements in order that the claim for refund of withholding taxes may be granted? The requirements are: 1. 2.

3.

The written claim was filed within the twoyear prescriptive period in the NIRC; The income on which the taxes were to be withheld were included in the return of the recipient; and The fact of withholding is established by a copy of the statement duly issued by the payor or by the withholding ageng showing the amount paid and the amount of tax refund therefrom.

When should the taxpayer file his claim for refund? The magic number is 2 years.

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That is Sec. 229. The law is clear. Sec. 204 (C) of the NIRC No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund. Where should the claim be filed? First, there must be administrative filing with the CIR. This is mandatory. The taxpayer shall first make a written application before the CIR. What if the taxes are paid by installments? When will the 2-year period be reckoned from? The 2-year period will be reckoned from the date the last installment was paid. Foreign corporations, because they are mandated to pay quarterly, the 2-year period will be reckoned from the time of the filing of the adjustment return.

xxx In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. It is different from VAT. So take note again, the administrative claim and the judicial claim for refund must be filed within the 2year period. Can the 2-year prescriptive period for the credit or refund be suspended? Yes. There are two instances: 1.

After filing the written claim for tax refund before the CIR, the taxpayer must have to wait for a decision. If there will be a decision rendered by the CIR against the resident taxpayer, the taxpayer is to appeal that decision by the CIR to the Court of Tax Appeals. Supposing the taxpayer has already filed a claim for refund before the CIR and the 2 years is about to lapse. When it comes to refund, if the CIR does not render a decision within 2 years, the taxpayer should not let the entire 2-year period be consumed. The taxpayer must file the judicial claim for refund before the CTA before the expiration of the 2-year period. Meaning, both the administrative claim and the judicial claim for refund must be filed within the twoyear period. Otherwise, the claim for refund will prescribe.

2.

If there is an agreement between the BIR and the taxpayer; If the taxpayer was made to believe by the CIR that the overpayment would be credited for other tax liabilities.

What are the remedies? 1.

2.

3.

4.

Make an administrative claim for refund within 2 years from the date of payment of the tax; both the administrative and judicial claim for refund must be filed within the 2year period. After that, after filing the judicial claim for refund with the CTA and the decision is adverse, you can file a Motion for Reconsideration within 15 days from receipt of the decision. And then after receiving the order then a petition for review may be filed before the CTA en banc within 15 days. If the decision is adverse, then file another MR.

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5.

And then after the MR, then file a petition for certiorari before the Supreme Court under Rule 45.

Sec. 230 is Forfeiture of Cash Refund and Tax Credit. Meron order ng refund, daog naka. But you neglected on your right, and then it would expire. SEC. 230. Forfeiture of Cash Refund and of Tax Credit. –

money value of which may be used in the payment or in satisfaction of any of his tax liability (except those excluded), or may be converted as a cash refund, or may otherwise be disposed of in the manner and in accordance with the limitations, if any, as may be prescribed by the provisions of the Revenue Regulations. (Sec. 1, RR No. 5-2000 issued on August 15, 2000) What are the sources of tax credits? 1.

(A) Forfeiture of Refund. - A refund check or warrant issued in accordance with the pertinent provisions of this Code, which shall remain unclaimed or uncashed within five (5) years from the date the said warrant or check was mailed or delivered, shall be forfeited in favor of the Government and the amount thereof shall revert to the general fund. (B) Forfeiture of Tax Credit. - A tax credit certificate issued in accordance with the pertinent provisions of this Code, which shall remain unutilized after five (5) years from the date of issue, shall, unless revalidated, be considered invalid, and shall not be allowed as payment for internal revenue tax liabilities of the taxpayer, and the amount covered by the certificate shall revert to the general fund. (C)Transitory Provision. - For purposes of the preceding Subsection, a tax credit certificate issued by the Commissioner or his duly authorized representative prior to January 1, 1998, which remains unutilized or has a creditable balance as of said date, shall be presented for revalidation with the Commissioner or his duly authorized representative or on before June 30, 1998. For forfeiture of the tax refund, it is within 5 years from the date it was served.

At the option of the taxpayer, excess quarterly income taxes paid reflected in the FAR; 2. At the option of the taxpayer, overwithholding at source of income taxes to the extent that the amount of such overpayment was not deducted or applied against income tax due; 3. Input taxes attributed to: a. Zero-rated sales made by VATregistered taxpayer, includeing export sales by a VAT-registered exporter; b. Effectively zero-rated sales made by VAT-registered taxpayer; 4. Unused input taxes resulting from cancellation of VAT registration due to retirement from or cessation of business, or due to changes in or cessation of status as a VAT taxable taxpayer ; 5. Excise taxes; 6. Taxes erroneously or ilegally paid or penalties imposed without authority. Essentially, these tax credits may be used by the grantee or his assignee in the payment of his direct internal revenue tax liability, such as income tax, documentary stamp tax, excise tax, VAT, percentage tax and other internal revenue taxes. Except for the following:

What is a Tax Credit Certificate (TCC)?

1.

A Tax Credit Certificate (TCC) is a certification duly issued to the taxpayer by the BIR or his authorized representative in accordance with the prescribed form acknowledging that the grantee-taxpayer named therein is legally entitled to a tax-credit, the

2.

3.

Payment or remittance for any kind of withholding tax. Payment arising from the availment of tax amnesty declared under a legislative enactment. Payment of deposits on withdrawal of excisable articles.

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4. 5.

Payment of taxes not administered or collected by the BIR. Payment of compromise penalty.

So you cannot use the TCC for the payment of the above-mentioned. The Revalidation of the TCC may be done prior to the expiration of its validity. Of course what is there to revalidate if there is nothing else. Can a TCC be assigned to another person? Under the NIRC there is no prohibition but under the Revenue Regulations, a TCC cannot be transferred from one person to another. The person whose name appears in the TCC is the only person allowed to use the TCC and claim the tax refund stated therein.

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