Tax Remedies: Remedies of the Government

IMPORTANCE OF TAX REMEDIES

to enhance the governments tax collection efforts

to safeguard against arbitrary action

NON-INJUNCTION OF TAX STATUTES

Sec. 218, NIRC: No court shall have the authority to grant injunction to restrain the collection of any national internal revenue tax, fee or charge
imposed by this Code.

EXCEPTION: a decision of the CIR appealed to the CTA does not suspend payment, levy or distraint of taxpayers property; but if the CTA finds that
collection may jeopardize the interest of the taxpayer or the government, then CTA may suspend or restrain the collection of tax and require the
taxpayer to either deposit the amount claimed or to file a surety bond for more than double the amount with the court

Q: During pendency of the appeal in the CTA, the BIR files a civil action for collection of tax in the RTC, what is the remedy of the
taxpayer?
A: The taxpayer may file a motion to dismiss in the RTC on the ground that the collection of tax has no basis where the assessment thereof is still
under dispute with CTA.

REMEDIES OF THE GOVERNMENT

- these remedies may be pursued singly or simultaneously
1. Tax Lien
- from the moment the tax is due, not from the service of the warrant of distraint
- not valid against a mortgage purchaser or judgment creditor until NOTICE has been filed by CIR with the RD of the province or city where property
is located (the tax lien shall be annotated on the title)
2. Compromise
- allowed when:
1.
2.

a reasonable doubt as to validity of the claim against the taxpayer exists

financial position of the taxpayer demonstrates a clear inability to pay the assessed tax (minimum compromise rate equivalent to 10% of
the basic assessed tax and the taxpayer must waive in writing his privilege under the Banking Secrecy Law, such waiver constituting
authority of the CIR to inquire into his bank deposits)

Compromise v. ABATEMENT:

As Effect C: reduce tax liability; A: cancel the entire tax liability

As to when proper C: when there is reasonable doubt as to validity of tax assessment or the taxpayer is financially incapacitated to pay;
A: when there is unjust assessment (excessive) or when administration and collection cost do not justify the amount of tax due

GR: compromise of criminal violations is allowed, EXCEPT:

1.
2.

those already filed in court

those involving fraud

GR: power to compromise is a non-delegable power of CIR, EXCEPT that regional evaluation board may compromise:
1.
2.

basic taxes less than P500,000

minor criminal violations

NOTA BENE: A compromise penalty is in lieu of a criminal prosecution. If the taxpayer fails to abide by the compromise arrangement, the
government has two options:
1.
2.

collect the compromised sum; or

disregard the compromise and collect the original tax due.

ADDENDUM: But if the taxpayer does not agree to the compromise, a collection action by the government for the compromise penalty does not lie.
This is because, by its nature, a compromise is entered into by mutual agreement between parties and the proposed compromise penalty is neither
tax nor an administrative penalty for tax delinquency.
Q: May a case still be compromised after final judgment?
A: No, because by virtue of the final judgment, the government had already acquired a vested right.
Q: Can withholding tax be compromised?
A: No. Taxpayer constituted as withholding agent who deducted and withheld at source the tax on income payment made by him holds the taxes as
trust funds for the government. He is obligated to remit them to the BIR. His subsequent inability to pay or remit the tax withheld is not a ground for
compromise because the withholding tax is not a tax upon the withholding agent but is only a procedure for collection of tax.

3. Distraint and Levy

- summary, extra-judicial or administrative enforcement remedies
DISTRAINT v. LEVY: distraint is to personal property while levy is to real property

KINDS OF DISTRAINT:
1.
2.

Actual when delinquency of the payment sets in; there is actual seizure and distraint
Constructive no actual delinquency ; the owner is prohibited from disposing of his property; preventive remedy to forestall a possible
dissipation of the taxpayers assets when delinquency takes place

CONSTRUCTIVE DISTRAINT PROPER IF:

1.
2.
3.
4.

taxpayer is retiring from any business subject to tax

he intends to leave the Philippines
he removes his property therefrom
he performs any act tending to obstruct the proceedings for collecting the tax due or which may be due from him

PROCEDURE:

Actual Distraint Procedure

1.
2.

commencement of distraint proceedings by CIR (P1M+) or RDO (P1M or less)

service of warrant of distraint

3.
4.

notice of sale of distrained property to the owner or possessor not less than 20 days from date of sale, and osting in not less than 2 public
places in municipality or city where distraint is made
sale of property distrained by public auction, highest bidder for cash, or with approval of CIR through duly licensed commodity or stock
exchange

EQUITY OF REDEMPTION: payment of all proper charges any time prior to sale

NOTA BENE: A person in possession or having control of property under actual distraint (or levy) may be penalized if upon demand he fails or
refuses to surrender the goods, EXCEPT in case of judicial attachment or execution.

Constructive Distraint Procedure

1.
2.
3.

commencement of distraint proceedings

service of warrant of constructive distraint
taxpayer is required to sign a receipt covering the property distrained and obligate himself to preserve the same; if taxpayer refuses to sign
the receipt, the revenue officer shall prepare a list of property distrained and in the presence of two witnesses leave a copy thereof in the
premises

Procedure on Levy of Real Property

1.
2.

service of warrant of levy after the expiration of time required to pay the delinquent tax
duly authenticated certificate showing the name of the taxpayer and the amounts of the tax and penalty due from him (operate with the
force of a legal execution)
written notice of levy to the Register of Deeds and the delinquent taxpayer, his agent or manager (if TP is absent), occupant of the property
(if no agent/manager); in case government first effected distraint and it is not enough to cover the tax, then CIR shall, within 30d after
execution of the distraint, proceed with levy
advertisement of the sale within 20d after levy for a period of at least 30d at the main entrance of the municipal building and other public,
conspicuous places and publication once a week for 3wks in a newspaper of general circulation
public sale of the property under levy at main entrance of the municipal building or on the premises to be sold
return of sale within 5d after sale
issue certificate of sale; taxpayer is entitled to any residue
in case of no bidder, the property shall be declared forfeited to the government

3.
4.
5.
6.
7.
8.

EQUITY OF REDEMPTION: any time prior to sale

RIGHT OF REDEMPTION: within 1yr from date of sale or forfeiture

4. Civil Action
WHEN:
1.
2.

when a tax is assessed and the assessment becomes final and unappealable (because TP failed to file administrative protest with BIR
within 30d from receipt of assessment)
when an administrative protest is denied or is not acted upon within 180d from submission of documents and TP fails to appeal to the CTA

WHERE: regular courts, with approval of CIR except if express delegation to Regional Director; motion to dismiss the complaint should also be filed
in the regular courts
HOW: the complaint must be brought in the name of the Government and conducted by a legal officer of the BIR
5. Criminal Action

WHEN: before lapse of 5 years (prescription period)

WHERE: DOJ
HOW: complaint approved by CIR brought in the name of the Government and conducted by a legal officer of the BIR
GROUND: prima facie showing of failure to file a required tax return or a willful attempt to evade taxes; no need for assessment
6. Other Remedies Available

Forfeiture
Suspension of Business Operations
Enforcement of Administrative Sanctions

Tax Remedies: Remedies of the Taxpayer

REMEDIES OF THE TAXPAYER

BEFORE PAYMENT
1.
2.
3.
4.

administrative protest
request for reconsideration
request for reinvestigation
judicial protest

AFTER PAYMENT
1.
2.

claim for tax refund

claim for tax credit

1. Administrative Protest (Protest against Assessment)

WHEN: within 30 days from receipt of final assessment notice (FAN)
WHERE: BIR
HOW: written protest, stating facts, applicable law, rules and regulations or jurisprudence o which his protest is based; if only portions of FAN are
disputed, must pay the deficiency tax on undisputed portion

PROCEDURE:
1.
2.
3.
4.
5.

protest against pre-assessment notice (PAN) within 15 days from receipt

protest against FAN within 30 days from receipt
submit relevant documents within 60 days from filing of protest
CIR has 180 days to decide
in case of denial or lapse of 180-day period, taxpayer has 30 days to bring his protest to the CTA en division

WHEN PAN IS NOT REQUIRED:

1.
2.
3.
4.
5.

finding for any deficiency tax is the result of mathematical error in computation of tax as appearing on face of return
a discrepancy has been determined between the tax withheld and the amount actually remitted
taxpayer who opted to claim a refund or credit of excess creditable withholding tax for at taxable period was determined to have carried
over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter/s for the succeeding
taxable year/s
excise tax due on excisable articles have not been paid
article locally purchased or imported by an exempt person

2. Request for Reconsideration a plea for re-evaluation of an assessment on the basis of EXISTING RECORDS without need of additional
evidence (question of law or fact or both)
3. Request for Reinvestigation a plea for reinvestigation of an assessment on the basis of NEWLY-DISCOVERED EVIDENCE that a taxpayer
intends to present in the reinvestigation (question of law or fact or both)
- in either case, the request must be accompanied by a WAIVER of the statute of limitations in favor of the government
4. Judicial Protest
PROCEDURE
1.
2.
3.
4.

within 30 days from denial of protest by CIR or from lapse of 180-day period, appeal to CTA division
if CTA division denies, motion for reconsideration within 15 days from receipt
within 15 days from denial of motion, appeal to CTA en banc
appeal to SC within 15 days by petition for review (Rule 45)

5. Refund/Credit
- based on the legal principle of quasi-contract or solutio indebiti
- in the nature of an exemption, which cannot be allowed unless granted in the most explicit and categorical language
- strictly construed against the claimant (proof of claim must be established)
- partial payment of a tax cannot be the basis for a tax refund
- interest on taxes refunded may not be paid by the Government to the taxpayer, UNLESS: (a) the CIR acted with patent arbitrariness (inexcusable
or obstinate disregard for legal provision); and (b) in the case of income taxes withheld on the wages of employees, which must be refunded within 3
mos from April 15
Tax Refund vs. Tax Credit

R: takes place when there is actually a reimbursement of the tax

C: the Government issues a tax certificate or tax credit memo covering the amount determined to be reimbursable, which can be applied
after proper verification against any sum that may be due and collectible from the taxpayer

Requisites for Recovery

1.
2.
3.

there was an actual collection and receipt by the Government of the tax sought to be recovered (factual proof)
legal basis for the granting of refund or credit, including verification of compliance with the statutory requirements relative to the filing of
claims within the reglementary 2-yr period
in case of corporations, must signify whether to avail of tax refund or tax credit in the corporate income tax return

Q: Are income tax returns actionable documents which must be specifically denied by the Government, otherwise it would constitute an
admission to the allegation that payment has in fact already been made and therefore the taxpayer no longer has to submit proof of claim

of refund?
A: Income tax returns are not actionable documents because the action is not based on the income tax returns but on the entitlement of the taxpayer
to tax refund. Therefore, his claim for refund must be supported by proof.

NOTA BENE: If proof of claim for refund is established, the BIR should refund without any unreasonable delay
Q: Is tax deficiency assessment a bar to tax refund or credit claim?
A: Yes. The deficiency assessment creates a doubt as to the truth and accuracy of the return. Said return cannot therefore be the basis of refund or
credit.
Statutory Requirements for Refund/Credit Claims
1.
2.
3.

written claim for refund or tax credit must be filed by the taxpayer with the CIR
the claim must be a categorical demand for reimbursement
both administrative and judicial claims for refund/credit must be filed within 2 years from date of payment regardless of any supervening
cause (in case of corporations, the 2-year period is counted from the date final adjusted return was filed at end of taxable year)

Q: Suppose A filed his claim for tax refund with the BIR within the 2-yr reglementary period but it is only after two years have lapsed
before BIR rendered a decision and it is one of denial. A now files an appeal of the BIRs decision with the CTA within the 30-day period to
appeal. Will As action prosper?
A: No, As action will not prosper. Although A filed his claim for refund with the BIR within the 2-yr prescriptive period, he failed to file the same within
the same period with the CTA. The rule is that the taxpayer need wait for the action of CIR on his claim for refund before he can take his claim to the
CTA. The 2-yr period must be complied with in both the BIR and CTA, regardless of any supervening cause.
WHEN 2-YR PRESCRIPTIVE PERIOD SUSPENDED
1.
2.

there is a pending litigation between the two parties

the CIR in that litigated case agreed to abide by the decision of the SC

WHY WRITTEN CLAIM IS NECESSARY:

1.
2.

to afford CIR an opportunity to correct action of subordinates

to notify Government that taxes sought to be refunded are under question and that, therefore, such notice should be borne in mind in
estimating the revenue available for expenditure

GR: Government is not liable for interest on tax refund, UNLESS:

CIR acted with patent arbitrariness

int eh case of income taxes withheld on wages of employees, which must be refunded within 3 months from April 15

PRINCIPLE OF EQUITABLE RECOUPMENT allows a taxpayer whose claim for a refund has been barred due to prescription (lapse of more than
2yrs counted from date of payment) to recover said tax by setting off the prescribed refund against a tax that may be due and collectible from him;
NOT ALLOWED in the Philippines because it puts a premium on the taxpayers neglect to enforce or assert his rights under the law