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) Implement laws, policies, plans,
programs, rules and regulations of the
department or agencies in the regional
area;
(b) Administer and enforce internal revenue
laws, and rules and regulations,
including the assessment and collection
of all internal revenue taxes, charges
and fees;
(c) Issue Letters of authority for the
examination of taxpayers within the
region;
(d) Provide economical, efficient and
effective service to the people in the
area;
(e) Coordinate with regional offices or other
departments, bureaus and agencies in
the area;
(f) Coordinate with local government units
in the area;
(g) Exercise control and supervision over
the officers and employees within the
region; and
(h) 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 CREATE/ESTABLISH
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 non-
food 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.
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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.
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.
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.
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.
Let’s go to the question – can BIR rulings be given
retroactive applications?
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 government-
owned 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.”
5
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 and volume of incomes of taxpayers,
regarding the Cooperative Development Authority. production, receipts or and the names,
sales and gross addresses, and
(Castro) incomes of taxpayers, financial statements of
NIRC TRAIN and the names, corporations, mutual
SEC. 5 Power of the “Sec. 5. Power of the addresses, and fund companies,
Commissioner to Obtain Commissioner to Obtain financial statements of insurance companies,
Information, and to Information, and to corporations, mutual regional operating
Summon, Examine, and Summon, Examine, and fund companies, headquarters of
Take Testimony of Take Testimony of insurance companies, multinational
Persons - In ascertaining Persons.— In regional operating companies, joint
the correctness of any ascertaining the headquarters of accounts, associations,
return, or in making a correctness of any multinational joint ventures or
return when none has return, or in making a companies, joint consortia and
been made, or in return when none has accounts, associations, registered
determining the liability been made, or in joint ventures of partnerships, and their
of any person for any determining the liability consortia and members: Provided,
internal revenue tax, or of any person for any registered That the Cooperative
in collecting any such internal revenue tax, or partnerships, and their Development
liability, or in evaluating in collecting any such members; Authority shall submit
tax compliance, the liability, or in evaluating to the Bureau a tax
Commissioner is tax compliance, the (C) To summon the incentive report, which
authorized: Commissioner is person liable for tax or shall include
authorized: required to file a return, information on the
(A) To examine any or any officer or income tax, value-
book, paper, record, or “(A) x x x employee of such added tax, and other
other data which may person, or any person tax incentives availed
be relevant or material “(B) To obtain on a having possession, of by cooperatives
to such inquiry; regular basis from any custody, or care of the registered and enjoying
person other than the books of accounts and incentives under
(B) To obtain on a person whose internal other accounting Republic Act No. 6938,
regular basis from any revenue tax liability is records containing as amended: Provided,
person other than the subject to audit or entries relating to the further, That the
person whose internal investigation, or from business of the person information submitted
revenue tax liability is any office or officer of liable for tax, or any by the Cooperative
subject to audit or the national and local other person, to appear Development
investigation, or from governments, before the Authority to the
any office or officer of government agencies Commissioner or his Bureau shall be
the national and local and instrumentalities, duly authorized submitted to the
governments, including the Bangko representative at a time Department of Finance
government agencies Sentral ng Pilipinas and and place specified in and shall be included in
and instrumentalities, government-owned or the summons and to the database created
including the Bangko -controlled produce such books, under Republic Act No.
Sentral ng Pilipinas and corporations, any papers, records, or 10708, otherwise
government-owned or information such as, other data, and to give known as ‘The Tax
-controlled but not limited to, costs testimony; Incentives
corporations, any and volume of Management and
information such as, production, receipts or (D) To take such Transparency Act
but not limited to, costs sales and gross testimony of the person (TIMTA)’.

6
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, “x x x.” But we cannot do anything about it because the law
as may be relevant or says that cooperatives registered with the CDA are
material to such exempt from a lot of taxes. Si in order for the BIR to
inquiry; and assess later on or for the Department of Finance to
assess later on, kailangan ba natin ng tax. Should we
(E) To cause revenue make a recommendation to the Congress that these
officers and employees institutions, associations or cooperatives be taxed?
to make a canvass from That’s why this provision was inserted.
time to time of any
revenue district or This power to obtain information has something to do
region and inquire after with cross-matching. What is this cross-matching? For
and concerning all example, I am engaged in the selling of goods, of
persons therein who course the goods that I would sell will come from my
may be liable to pay any suppliers. So basically, my purchases of goods are
internal revenue tax, sales of some other persons. So dapat mag tugma
and all persons owning yan, kung ilan binenta ko yun dapat lang ang binili ko
or having the care, din. What if there is a discrepancy to the figures? You
management or would claim na ito ang tama and the seller will always
possession of any claim also na ito ang tama. So what will the BIR do?
object with respect to So someone of you is lying, we will make an
which a tax is imposed. assessment to the both of you. So lugi ka kung tikasan
imo ginapalitan.
The provisions of the
foregoing paragraphs In the end, the conclusion is that the BIR is not limited
notwithstanding, to the taxpayer’s record in itself. He can obtain
nothing in this Section information from third persons to determine the
shall be construed as veracity of correctness of the declarations of the
granting the taxpayer under investigation.
Commissioner the
authority to inquire into POWER TO SUMMON
bank deposits other - Power to summon person requires him to produce
than as provided for in books, records, and all other materials.
Section 6(F) of this (B) To summon the person liable for tax or
Code. required to file a return, or any officer or
employee of such person, or any person
What is changed here is that provision in the having possession, custody, or care of the
Cooperative Development Authority (CDA): books of accounts and other accounting
Provided, That the Cooperative Development records containing entries relating to the
Authority shall submit to the Bureau a tax business of the person liable for tax, or any
incentive report x x x other person, to appear before the
Commissioner or his duly authorized
This is to give information to the BIR how these CDAs representative at a time and place specified
are doing financially. in the summons and to produce such books,
papers, records, or other data, and to give
Kailangan ba natin tanggalin ang tax exemption nila? testimony;
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.

7
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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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.
(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.
The following PRINCIPLES were given by the court:
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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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
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.
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
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).
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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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
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 48-
hour notice (forgot the term) to explain or verify.
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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
(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.
And you also have,
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.
3.) If the taxpayer REMOVES his property from
Philippines or where it is situated.
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.
In these 4 instances, the BIR will close it, etc., file your
returns and you should pay the taxes. The BIR can do
it.
Then, the Commissioner to Prescribe Real Property
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:
What’s the new thing here under the Zonal Value?
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
These are the instances where the CIR is allowed to
look into the bank deposits of the taxpayer.
As a general rule: the BIR or CIR has no authority to
look into your bank accounts.
Except as follows:
1) A decedent to determine his gross estate;
and
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TAXATION 2- 3rd exam
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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
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.
(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.
(H) Authority of the Commissioner to Prescribe
Additional
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.
(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;
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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, self-
assessment 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.
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:
a) comply with audit and
investigation requirements to
present his books of accounts
and/or pertinent records; or
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;
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.
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.
Q: Who makes the assessment?
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: When should an assessment be made?
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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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
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.
So, it sounds complicated but to put it simply, the
prescriptive period for assessment of taxes is three
years from:
(1) the date of filing of the tax return; or
(2) the date of deadline set forth by the law,
whichever comes later.
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.
Q: How about if the taxpayer amends his ITR?
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
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)
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.
So kung under audit na siya, bawal na ang
amendment.
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.
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
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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.
(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.
What are these four instances under Sec. 222?
1. In case of filing of false return;
2. In case of filing of fraudulent return;
3. In case of failure to file return; and
4. In case of extended assessment.
Those are the only four instances wherein you will use
the extended period for assessment of taxes.
Let’s talk about false return first.
What do you mean by false return?
A return is false when the entries therein are not true
and correct either through mistake, carelessness, or
ignorance.
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.
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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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
In tax parlance, it is an act or omission which amounts
to intentional (?) with the intent of avoiding the taxes.
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:
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.
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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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
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.
Under this provision, the 3 year prescriptive period
may be extended upon the agreement of the
taxpayer and the BIR.
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.
Issue 1: Is the waiver valid
Issue 2: Is RCBC liable to pay the taxes
Ruling: The waiver is valid. RCBC here is already in
estoppel by paying a portion of the taxes. RCBC is
liable to pay.
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.
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.
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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. 05-
01 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 three-
year 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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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
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. When the CIR is prohibited from making the
assessment or beginning distraint or levy or
a proceeding in court and for 60 days
thereafter
2. 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. 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
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.
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, taga-
BIR mi, we’d like to look at your accounting records
kay mag assessment kami sainyo”, you as a taxpayer
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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
can actually refuse. You can validly refuse unless they
have a Letter of Authority.
When must the LOA be served? It must be served
within 30 days from the date of its issuance.
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.
CIR vs. SONY
G.R. No. 178697
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.
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,
because that LA is only for 1996-1997. (taken from
2018 TSN)
The BIR cannot use the current year’s records to
determine the liability of the taxpayer for the prior
years.
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.
Who issues the LOA? It’s the CIR or his duly
authorized representative.
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 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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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
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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FROM THE LECTURES OF ATTY. DONALVO 2018-2019
Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

Nagfile siya ng VAT return, But because there were In other words, the LoA is still essential when it
discrepancies found by the BIR in Medicard’s comes to the other tax agents. If you notice, techy
returns, BIR issued an LN requiring it to explain the na masyado ang BIR ngayon diba, they can actually
discrepancies. crossmatch the returns made by the taxpayers and
his suppliers. So at first instance, even if the BIR will
On the basis of that LN, because it was not satisfied not conduct an audit, there will be a finding of
with the explanation, the BIR issued a Preliminary discrepancies already. So, because of the
Notice of Assessment (PAN). Medicard then advancements in technology, if the BIR discovers
responded, but the BIR still was not satisfied, and any discrepancy, the BIR will issue an LN.
thus a Final Assessment Notice (FAN) was issued.
Medicard filed a protest to which the BIR issued a Now, this LN is similar to a Notice of Informal
Final Decision on Disputed Assessments (FDDA). Conference, notice lang jud na siya. What happens
if the taxpayer won’t explain the LN or when the
When the case went to the CTA, it said that the LN taxpayer explains the LN but the BIR is not
issued in lieu of the LoA, was already a substantial satisfied?
compliance and that Medicard is already estopped
in questioning the validity of the assessments on Under the revenue rules and regulations, if there
the ground of lack of LoA, because the assessments are discrepancies found in the LN and the
itself contains the facts and the law on which it is explanations given by the taxpayer is
based. unsatisfactory, there will be a recommendation for
the issuance of the LoA. Meaning, LN will later be
ISSUE: The main issue here is what happens when converted to LA.
the BIR makes an assessment without a LoA to
begin with, or simply, whether or not the absence Therefore, since the rules says that there must be
of LoA is fatal? a conversion, an LN can never be a substitute for a
RULING: The SC said, the absence of LoA is Fatal LoA. Then the court proceeded to distinguish LN
because it essentially violated Medicard’s right to and LA.
due process.
LETTER OF LETTER OF
Now, another issue that pops up here is the AUTHORITY NOTICE
taxpayer may be assessed of deficiency taxes on Purpose The LA is The LN is
the basis of the best evidence obtainable. and addressed to a actually not
Meaning, we don’t even need to look at the basis revenue officer found in the
accounting books of the taxpayer for the BIR to and is specially NIRC, but it is
discover whether or not there are tax deficiencies required in the only for the
involved. NIRC (Sec.6) purpose of
before an notifying the
The SC said, these are simply methods of examination is taxpayer that a
examining the taxpayer in order to arrive at the to be made. discrepancy is
correct amount of taxes. It has nothing to do with found based on
the authority given to the officer to audit or the BIR’s
investigate a taxpayer. It has nothing to do with the computerized
LoA. Therefore, unless undertaken by the CIR or his system.
authorized officer, any other tax agents may not Validity Valid only for 30 No validity date
validly conduct any of these kinds of examination days from its for LN
without prior authority. That means, the LoA must issue date
be present when we talk about other tax agents, Nature The LA gives the Ang LN, walang
other than the CIR and his duly authorized agents. revenue officer period pa rin.
only a period of

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FROM THE LECTURES OF ATTY. DONALVO 2018-2019
Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
120 days from
receipt of the LA
to investigate or
examine a amount of tax. The no-contact-audit
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 third-
party 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
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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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

in their tax and information returns, and

importations per taxpayers’ returns and per LETTER OF LETTER OF
records of the Bureau of Customs. AUTHORITY NOTICE
Discrepancies arising from the computerized Purpose The LoA is The LN is actually
matching are communicated to the taxpayer addressed to a not found in the
through the issuance of a letter notice (LN). revenue officer and NIRC, but it is
If the taxpayer is not able to reconcile the is specially required only for the
alleged discrepancies, such may be used as a in the NIRC (Sec.6) purpose of
basis for deficiency tax assessments. (Carlos before an notifying the
Hilario Mateo, Tax Director of PwC examination to the taxpayer that a
Philippines 12 Feb 2015) taxpayer is to be discrepancy is
made. found based on
How will the BIR notify? Through a letter notice. The the BIR’s
letter notice says that- taxpayer there is a discrepancy - Tama lang computerized
between your declaration of your purchases and the kasi ang system.
sales declared by your suppliers. Care to explain. LoA that
Ganun lang yan. authorizes
the
The Letter Notice is similar to a Notice of Informal revenue
Conference. A letter notice is issued to a person found officer.
utang (?) under your report, sales, or receipts
(inaudible) for data generated under the RELIEF Validity Valid only for 30 No validity date
system. It is in the “no contact audit approach” nila. days from its issue for LN
System generated yan lahat. Explain ka. date - Walang
*** The Notice of Informal Conference is a limit
written statement issued by the BIR Nature The LoA gives the Ang LN does not
informing the taxpayer of the discrepancies revenue officer contain
in the taxpayer’s tax payments for the only a period of 120 limitation
purpose of conducting an informal days from receipt because the LN
conference wherein the taxpayer will be of the LoA to just notify the
given an opportunity to present his side of conduct its taxpayer
the case. (Revenue Regulations No. 7-2018). examination with
the taxpayer.
The taxpayer is given 120 days to explain. Sulat ka sa Due process demands that after the LN
BIR or the taxpayer will just ignore. Wala koy labot has served or has been served its
ana. purpose, the revenue officer holding
the LN should properly secure a LoA
Is it okay? Okay lang walang problema. If the BIR will before proceeding to the further
determine that the explanation of the taxpayer is not examinations and assessments on the
enough or the taxpayer did not respond to the letter, taxpayer.
or did not bother to respond, then the Letter Notice
will be converted to a Letter Authority. Those are the 4 differences.
But here is an interesting argument of the BIR in the
In other words, for the existing violations, the law case, why would we need to issue a LoA on the part
requires that the Letter Notice should be converted of the taxpayer, when we did not even require
to Letter of Authority and serve it to the taxpayer. A MEDICARD to open its accounting books.
Letter Notice cannot be a substitute for LoA because
they are 2 different documents. What are the
differences?

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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 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 tax-
exempt 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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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
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:
[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.
> 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: Who issues the FAN?
A: Still the CIR ot its duly authorized representative.
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.
When we say final assessment notice, this is already a
demand for the payment of taxes
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.
WHEN FILED
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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
This is filed within 30 days from the date of
receipt of the FAN or the FLD.
*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.
So, take note, tandem yan sya ha. Pag mag
reinvestigation.
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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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

Otherwise, the taxpayer will always be at the mercy submitted. Otherwise, the taxpayer will always be at
of the BIR, which may require the production of the the mercy of the BIR, which may require the
documents, which the taxpayer cannot submit at production of the documents, which the taxpayer
all. 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 So, again the PRINCIPLES here are as follows:
a petition under the CTA.
a) The taxpayer has the choice to determine what
Pawnshop’s defense: are th relevant supporting documents for its protest;

It was not liable for the taxes because pawnshops b) The BIR cannot demand what are the documents
according to this case, are not lending investors who should the taxpayer submit to form part of this
are subject to VAT. relevant supporting documents.

Issues raised by the CIR: REQUEST FOR REINVESTIGATION VS REQUEST FOR

RECONSIDERATION (DISTINCTIONS)
The FAN is already final and executory because we ask
the pawnshop to submit some certain documents and (FROM 2018 TSN)
then they were not able to produce it. They opted for RECONSIDERATI REINVESTIGATI
a reinvestigation but they did not submit the relevant ON ON
and supporting documents. Apparently, what the Request for When
Suspension of
pawnshop did was it submitted its supporting recon does not GRANTED
prescriptive
documents along its protest. Giisa nya dun lahat ba. suspend the TOLLS the
period for tax
period for tax period to collect
collection
What the CIR did is it requested the pawnshop collection taxes.
to prsent proof of payment of the DST on the As to Does not apply. Required to
subscription. Nagrequest ang BIR ng document but submission of No need to submit.
then ang sbai ng pawnshop, we cannot produce you relevant submit.
such documents because we do not issue them, supporting
primarily, because we are not liable for DST. documents
60-day period Does not apply. Applies.
SUPREME COURT: to submit
relevant
The SC said in this case that the CIR was wrong supporting
in directing the taxpayer to produce these kinds of documents.
documents. The pawnshop already complied with
the requirements because it submitted such
documents together with its protest. There was
nothing more to submit.

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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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

Within 30 days whether wholly or partially, the Final Assessment

In case of after 180-day Notice and the Final Letter of Demand will be issued
INACTION: period. and served by the BIR. For the FAN/FLD, basically, the
Within 30 days FAN is issued by the BIR office or duly authorized
after the 180-day period representative.
Period to
expiration of the is reckoned
appeal to the
180-day period from the time of CONTENTS of a FAN:
CTA
within which the submission of 1 — the facts, law, rule, jurisprudence. Otherwise,
CIR decides on relevant the PAN is void
the protest from supporting 2 — it already contains a demand to pay taxes
the time of filing documents.
of the recon. Essentially, it is a notice requiring the taxpayer to
TO WHOM SHOULD THE PROTEST BE FILED: respond, but, this FAN/FLD, it is also a demand letter;
pay or else.
Under the existing Rvenue Regulations, there are 2
personalitites to which the taxpayer may file the What is the other effect of the FAN/FLD?
protest: This is the time the penalties or interests will begin to
1) TO THE REGIONAL DIRECTOR; OR run on the taxpayer. It’s not on the PAN, but on the
2) TO THE CIR “FAN”.
March 12, 2019 How is it served?
(Lagat) Basically, it’s served by the preliminary notice (PAN),
the service must be mailed at the taxpayer’s
First is the Notice of the Informal Conference (NIC). registered address…(meaning, yung address nya sa
BIR), before it may be served at the taxpayer’s
This would last for thirty (30) days. (dati kasi, tinggal known address.
na ito. But now, ibinalik sa TRAIN) You already know
the purpose of the NIC. Alternatively, the service of the PAN may also be
done simultaneously on the registered address and
After that, the settlement between the government the known address. Especially gani kanang dili
and the taxpayer modawat; uso man na.
The case will be remanded back to the BIR for
decision, and then, what would be issued would be Now, if the FAN is properly served, it enjoys a prima
the Preliminary Assessment. facie presumption of correctness. This would mean
that the taxpayer has the burden of proof that the
What are the contents of the PAN? assessment is void. That the assessment is infirm;
that it is insufficient in form and substance.
Preliminary Assessment Notice (PAN) will contain the
facts, law, rule, jurisprudence. Otherwise, the PAN is In the case if CIR v Pascor Realty, there was a criminal
void. case filed against the corporation and its officers.
Thereafter, the corporation filed a request for
(Watch out ha.) reconsideration/reinvestigation disputing the tax
assessment and the tax liability.
The policy of PAN;
the taxpayer may What the BIR did was deny the request because
1) Ignore or according to it, there was no formal assessment as of
2) File a response (within 15 days from receipt) yet. Walang assessment, it’s just that there was a
criminal case filed against the corporation and the
If the BIR will believed the taxpayer, then, fine. If it is officers. But when the case was elevated to the CTA,
not satisfied with the response of the taxpayer, the BIR filed a motion to dismiss, and yet, the CTA

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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
denied the motion to dismiss. Premature pa; wala
pang assessment. That’s the position of the BIR.
The issue here was WON the CTA correctly dismissed
the case.
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.
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.
When the BIR has come up with a naked assessment;
meaning, it has no foundation at all, the
determination of the tax due is without basis and
whatever issued is considered as void.
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.
Ano nangyari dito? What will be done? What will be
done is file a protest.
What is a protest?
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
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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

Reinvestigation reconsideration existing rules on protests, pwede ka dumaan diretso

sa Manila or dito sa baba.
period to 60 days from filing of 30 days from Q: Which is better?
file the protest receipt
A: It really depends on what the clients want. If the
Essential to submit existing client would want to settle it with the BIR, then it is
relevant supporting documents only better that the protest be filed with the RD first.
documents

suspends the period to does not

collect taxes suspend
REGIONAL DIRECTOR
period to Within 30 days after Within 30 days
appeal to 180-day period. after 180-day
Q: How long is the time given to the RD to decide a
the CTA period within*
which the CIR protest?
decides on the A: 180 days to decide reckoned depending:
protest. a. If what is filed is a request for
—from the time of reconsideration – from the date of filing of
counting submission of relevant said reconsideration.
of the supporting documents. ** from the
b. If what is availed of is reinvestigation- from
180-day submission of
the filing of the time the relevant supporting documents
protest. is filed with the RD.

Two-ways that can happen in the RD when there is an

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
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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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

the CIR to decide the appeal? 180 takbo. It’s either mag-appeal siya deretso or mag-
days. administrative appeal siya.
d. If the CIR will render a decision, a
And the other option for him is to go directly to the
direct denial wholly or partially
CTA. For how long? Still 30 days. 30 days from the
then the taxpayer will have to lapse of the 180 day period.
appeal to the CTA in Division. The
appeal with the CTA Divison must Again, pag-indirect denial (No decision):
be filed within 30 days.
e. If there is an indirect denial, the 1. Wait it out for the decision and then follow
taxpayer will wait for it. If lagpas na the steps; or
2. You can go directly to the CTA.
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. Follow the
Decision procedure (refer
to Illustration 1)
(Olamit)
Regional
PROCEDURE BEFORE THE RD
Director
(Regional Director)
(RD)
No Decision
(Note: Please refer to attachment for complete /Inaction CTA
illustrations )

Balik muna tayo sa decision. Sabi natin administrative. Q: ‘Pag indirect ang decision, can I go to
But another avenue of the taxpayer of this decision of administrative appeal?
the RD is to go directly to the CTA.
A: The Rules does not provide. So ‘pag indirect denial,
you do not go to the CIR. It’s either you wait for the
Regional decision or, within 30 days, you go to the CTA.
CTA
Director
(RD) Now, from the CTA, this is what you call the JUDICIAL
Now, in this case, balik na tayo ha. So again, pag may REMEDIES already. (From the RD to the CIR, merely
decision, dalawa ang option: administrative.)

1. Go directly to the CTA; or Q: What do you call the decision of the CIR?
2. You go for administrative appeal.
A: You call it as a final decision on disputed
assessment or FDDA.
CIR
Now, in the CTA, to make an appeal, you file a petition
Regional Decision for review. After that, if the decision rendered is
Director adverse, the taxpayer may file an MR (motion for
(RD) CTA reconsideration).

Now, ‘pag indirect, it’s either wait it out for the Then after that, if the taxpayer is still not contented
decision. ‘Pag meron ng decision, same lang ang 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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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

petition for review (Rule 43) and this is for 15 days.

MR is still 15 days.
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.
If inaction, two options:
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 In CTA En Supreme

Follow the
Division Banc Court Decision procedure (refer
(Petition for (Petition for (Certiorari to Illustration 2)
under Rule 65)
Review) Review/
Rule 43)
CIR
The Supreme Court is already the final arbiter. So So that’s the entire process under the CIR.
If adverse, If adverse, No Decision
that’s the entire flow if filed before the RD. CTA
Now, going back on/Inaction
file an MR file an MR the remedies, I have a bit of a
problem with respect to the remedies that are issued
PROCEDURE BEFORE THE CIR by the BIR. There is a problem with the entire process
(Commission on Internal Revenue) because of the CTA Law.

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
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
CIR rendered by the RD? Is it allowed to begin with?

No Decision Well another way of looking at it, I just realized

/Inaction recently, relates to what are the functions of the CIR
which may be delegated.

If there will be a decision, the next step is CTA in So which is which? How are you going to go about it if
division and then CTA en banc. Practically the same you try to practice tax law later on?
period. And finally, we have the SC.
For me, I would like to opt to file it with the RD and go
through the long process.
CTA In CTA En Supreme
Division Banc Court Malay mo, pag magdali-dali ako dito, punta agad ako
(Petition for (Petition for (Certiorari
under Rule 65) sa CTA tapos decision pala ng RD, what if the BIR will
Review) Review/ say that the CTA has no jurisdiction? Patay ka, how
Rule 43)
will you explain to your client.
If adverse, If adverse,
file an MR file an MR

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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
And besides, there is the doctrine of exhaustion of
administrative remedies.
Now, you all know the result if the protest availed by
the taxpayer, the FAN/FLD will become final and
executory.
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?
This is the case of CIR vs LIQUID GAS.
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
liable because the FDDA is void. As such, nobody can
collect from it because the assessment is also void.
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.
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.
What is now the effect if the FDDA is considered void?
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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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
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.
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
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. 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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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
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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FROM THE LECTURES OF ATTY. DONALVO 2018-2019
Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
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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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
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
Who has the burden of proving that the investigation
was granted? Since this involves prescription, the
burden is on the part of the BIR.
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
national internal revenue tax, fee or charge imposed
by this Code.
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.
Requirements for injunction before the CTA:
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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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
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.
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.
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).
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.
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.
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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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
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. The taxpayer is intending to hide or conceal
his property;
5. 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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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
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 of
Internal Revenue
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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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
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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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
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
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.
The personal property may be released prior to the
sale according to Section 210 NIRC.
How do you release?
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.
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.
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.
In the end if there are no bidders.
When will this happen on the purchase on the part of
the government?
(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
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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.
51
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
52
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.
53
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.
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, joint-
account (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.
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)
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.
54
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, - The purpose of assessment is different from the
you have to look at the JURISDICTION. purpose of filing a criminal case against the erring
taxpayer
Where will the government file the civil or criminal
cases? 3. A criminal action may be instituted along with
other modes of collection;
FOR CIVIL CASES
- There is no hierarchy of remedies when it comes to
The CTA has original jurisdiction on CIVIL TAX collection of taxes. The state may avail any or all,
CASES where the principal amount of taxes and fees successively or simultaneously, remedies available to
excluding penalties and surcharges is AT LEAST 1 it.
MILLION PESOS.
4. An acquittal does not necessarily mean
So, 1 million and above the COLLECTION CASE exoneration from tax.
should be filed with the BIR.

For Civil Tax Cases Below 1 Million (Lagat)

Acquittal does not mean exoneration from tax
We go back to our GENERAL JURISDICTION. liability.

Depende sa amount, it’s either RTC OR MTC. Subsequent payment of the tax does not extinguish
the taxpayer’s liability.
FOR CRIMINAL CASES

The JURISIDCTIONAL AMOUNT IS THE But later you find out that criminal cases may be
SAME. subjected to a compromise so long as 1) it is not yet
filed in court and 2) it does not involve tax fraud cases.
One Million and ABOVE
COMPROMISE AND ABATEMENT
Jurisdiction: CTA
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) A reasonable doubt as to the validity of the claim
against the taxpayer exists; or
1. Tax assessment is not a pre-requisite in filing the
criminal case; (2) The financial position of the taxpayer
demonstrates a clear inability to pay the assessed tax.
- What are considered are the OVERT ACTS
constituting the crime 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;

55
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.
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
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 pinapa-
compromise 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.
(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
56
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.
57
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 30-
2000) 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 Q: Can compromise and abatement go together?
the basic assess tax (without penalties, A: I think yes, it is possible depende sa grounds. If
surcharges, and interest) reasonable doubt siya, then the taxpayer was able to
2. All others - 40% prove the application. The BIR can abate.
TAX REFUNDS AND TAX CREDITS
It can still go lower but now subject to the consent It is a quite different topic which is why it is on the last
and approval of the National Evaluation Board. part of the course outline.

Q: Who approves the compromise? (Olamit)

A: REGIONAL EVALUATION BOARD - involving basic TAX REFUND

deficiency taxes of P500,000 or less and for minor
Now, define a tax refund.
criminal violations discovered by the Regional and
District Offices.

58
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.
Tax Refund Tax Credit
Effect It involves the return of money
Manner 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.
59
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: What is the legal basis for tax refunds and credits?
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 carry-
over 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
3. Be credited or refunded of the tax paid.
Q: Who has the choice to avail of these options?
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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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

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?
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;

A: Then it can be subject to disciplinary action and (e) Neglecting or by design permitting the violation
may be prosecuted for criminal offenses under Sec. of the law by any other person;
269 of the NIRC.
(f) Making or signing any false entry or entries in
SEC. 269. Violations Committed by Government any book, or making or signing any false certificate
Enforcement Officers. - Every official, agent, or or return;
employee of the Bureau of Internal Revenue or any
other agency of the Government charged with the
(g) Allowing or conspiring or colluding with another
enforcement of the provisions of this Code, who is
to allow the unauthorized retrieval, withdrawal or
guilty of any of the offenses herein below specified
recall of any return, statement or declaration after
shall, upon conviction for each act or omission, be
the same has been officially received by the Bureau
punished by a fine of not less than Fifty thousand
of Internal Revenue;
pesos (P50,000) but not more than One hundred
thousand pesos (P100,000) and suffer
(h) Having knowledge or information of any
imprisonment of not less than ten (10) years but
violation of this Code or of any fraud committed on
not more than fifteen (15) years and shall likewise
the revenues collectible by the Bureau of Internal
suffer an additional penalty of perpetual
Revenue, failure to report such knowledge or
disqualification to hold public office, to vote, and
information to their superior officer, or failure to
to participate in any public election
report as otherwise required by law;
(a) Extortion or willful oppression through the use
(i) Without the authority of law, demanding or
of his office or willful oppression and harassment
accepting or attempting to collect, directly or
of a taxpayer who refused, declined, turned down
indirectly, as payment or otherwise any sum of
or rejected any of his offers specified in paragraph
money or other thing of value for the compromise,
(d) hereof;
adjustment or settlement of any charge or
complaint for any violation or alleged violation of
(b) Knowingly demanding or receiving any fee,
this Code; and
other or greater sums that are authorized by law
or receiving any fee, compensation or reward,
(j) Deliberate failure to act on the application for
except as by law prescribed, for the performance
refunds within prescribed period provided under
of any duty;
Section 112 of this Act.
(c) Willfully neglecting to give receipts, as by law
Provided, That the provisions of the foregoing
required, for any sum collected in the performance
of duty or willfully neglecting to perform any other paragraph notwithstanding, any internal revenue
officer for which a prima facie case of grave
duties enjoined by law;
misconduct has been established shall, after due
notice and hearing of the administrative case and
(d) Offering or undertaking to accomplish, file or
subject to Civil Service Laws, be dismissed from the
submit a report or assessment on a taxpayer
revenue service: Provided, further, That the term
without the appropriate examination of the books
'grave misconduct', as defined in Civil Service Law,
of accounts or tax liability, or offering or
shall include the issuance of fake letters of

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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
authority and receipts, forgery of signature,
usurpation of authority and habitual issuance of
unreasonable assessments.
3. The THIRD is Sec. 204 (C). You have to read this in
conjunction with Sec. 229 of the NIRC.
(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
exercised and that the Government is not unduly
deprived of revenues.
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.
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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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
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?
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:
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.
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. The written claim was filed within the two-
year prescriptive period in the NIRC;
2. The income on which the taxes were to be
withheld were included in the return of the
recipient; and
3. 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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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
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.
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 two-
year period. Otherwise, the claim for refund will
prescribe.
That is Sec. 229. The law is clear.
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 2-
year period.
Can the 2-year prescriptive period for the credit or
refund be suspended?
Yes. There are two instances:
1. If there is an agreement between the BIR and
the taxpayer;
2. 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. 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 2-
year period.
2. 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.
3. And then after receiving the order then a
petition for review may be filed before the
CTA en banc within 15 days.
4. If the decision is adverse, then file another
MR.
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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario
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. –
(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.
What is a Tax Credit Certificate (TCC)?
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
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. 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 VAT-
registered 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:
1. Payment or remittance for any kind of
withholding tax.
2. Payment arising from the availment of tax
amnesty declared under a legislative
enactment.
3. Payment of deposits on withdrawal of
excisable articles.
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Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

4. Payment of taxes not administered or

collected by the BIR.
5. 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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