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1
Tax Remedies in Internal Revenue Taxation
under the NIRC.
Tax remedies in internal revenue taxation takes place when
there is a dispute between the taxpayer and the BIR relative to the:
4
ASSESSMENT
Generally, an assessment is a finding by the taxing
agency that the taxpayer has not paid his correct taxes.
5
ASSESSMENT
Specifically, for internal revenue taxation,
assessment means the determination by the BIR, after
examination of the tax returns filed by the taxpayer, that
additional taxes are still due because the taxpayer has
not paid the correct taxes.
6
An assessment contains not only a
computation of tax liabilities but also a demand for
payment within a prescribed period. It also signals the
time when penalties and interests begin to accrue
against the taxpayer. To enable the taxpayer to
determine his remedies thereon, due process requires
that it must be served on and received by taxpayer.
(CIR v. Pascor, 309 SCRA 402)
7
WHAT IS AN ASSESSMENT NOTICE?
An assessment notice is a statement coming from
the appropriate tax authorities that a review of the
taxpayer’s return indicates that there is need to pay
additional taxes.
8
BIR EXAMINERS’ AFFIDAVIT-REPORT NOT
CONSIDERED AN ASSESSMENT
An affidavit-report of BIR examiners containing a
computation of tax liabilities, and recommending the
issuance of a notice of assessment, is NOT an assessment
itself which is the subject of a motion for
reconsideration/investigation or protest by the taxpayer.
This is so, because it was not sent to the taxpayer, and does
not demand payment of the tax within a certain period of
time. An assessment is deemed made only when the BIR
releases, mails or sends such notice to the taxpayer.
9
SELF-ASSESSED TAX
A tax that the taxpayer himself assesses or computes and
pays to the taxing authority.
16
Question: Is assessment necessary before a taxpayer may be prosecuted for
willfully attempting in any manner to evade or defeat any tax imposed by the
Internal Revenue Code?
Suggested Answer: No, because of the following reasons which
distinguish a criminal charge from an assessment:
19
JEOPARDY ASSESSMENT
A tax assessment which was assessed without the
benefit of complete or partial audit by an authorized
revenue officer who has reason to believe that the
assessment and collection of a deficiency tax will be
jeopardized by delay because of the taxpayer’s failure to
comply with the audit and investigation requirements to
present his books of accounts and/or pertinent records,
or to substantiate all or any of the deductions,
exemptions, or credits claimed in his return.
20
ALTERNATIVE STATEMENT OF GROUNDS FOR
ISSUANCE OF A JEOPARDY ASSESSMENT
21
Jeopardy assessment may be the subject of a
compromise. Reason: There is reasonable doubt as to
the validity of the assessment.
22
PRESCRIPTIVE PERIOD FOR ASSESSMENT
In general, the period of limitation for making assessments for
all kinds of internal revenue taxes is anytime within three (3) years
1. after the last day prescribed by law for the filing of the
return, or
3. where the return was filed before the last day prescribed by
law for the filing thereof, it shall be considered as filed on such last
day. 23
ALTERNATIVE STATEMENT OF PERIOD TO ASSESS AND
TO COLLECT ALL KINDS OF INTERNAL REVENUE TAXES
The BIR has three (3) years, counted from the date of
actual filing of the return or from the last date prescribed by
law for the filing of such return, whichever comes later, to
assess a national internal revenue tax or to begin a court
proceeding for the collection thereof without an assessment.
27
EXCEPTIONS OR INSTANCES WHEN THE THREE (3)
YEAR PRESCRIPTIVE PERIOD DOES NOT APPLY
1. In the case of false or fraudulent return to evade the
payment of a tax. At anytime within ten (10) years
after the discovery of the falsity or fraud.
2. In case of failure to file a return. At anytime within ten
(10) years after the discovery of the omission to file a
return.
3. If before the expiration of the three (3) year period for
the assessment of the tax, there is an agreement in
writing between the taxpayer and the BIR
Commissioner. 28
EXTENDED ASSESSMENT
The period agreed upon which may be extended by
subsequent written agreements made before the period
previously agreed upon. The assessment issued in this
instance is known as an “extended assessment”.
29
WHAT CONSTITUTES PRIMA FACIE EVIDENCE OF A FALSE
OR FRAUDULENT RETURN TO JUSTIFY THE IMPOSITION
OF A 50% SURCHARGE ON THE DEFICIENCY TAX DUE
FROM A TAXPAYER?
30
b. Failure to report sales, receipts, or income in an
amount exceeding thirty percent (30%) of that
declared per tax return constitutes substantial
underdeclaration of sales, receipts, or income.
31
d. There is prima facie evidence of a false or fraudulent
return when the taxpayer has willfully and knowingly
filed it with the intent to evade a part or all of the tax
legally due from him.
32
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
36
REQUISITES FOR AGREEMENT WAIVING
THE THREE YEAR PERIOD
1. Entered before the expiration of the 3 year period for the
assessment of the tax.
2. In writing
3. Signed by both the taxpayer and the BIR Commissioner
4. The waiver must be for a definite period beyond the
ordinary prescriptive periods for assessment and
collection. The period agreed upon can still be extended by
a subsequent written agreement, provided that it is
executed prior to the expiration of the first period agreed
upon.
37
CIVIL PENALTIES, ADDITIONS TO THE TAX
Civil penalties. These are the pecuniary penalties
imposed for violation of the NIRC of 1997.
38
INTEREST
Interest, defined. Interest is the penalty imposed for
detention of tax money which the government could have
utilized productively if paid timely.
39
RATES OF INTEREST, IN GENERAL
There shall be assessed and collected on any
unpaid amount of tax, interest at the rate of double the
legal interest rate for loans or forbearance of any money
in the absence of an express stipulation as set by the
Bangko Sentral ng Pilipinas from the date prescribed for
payment until the amount is fully paid. Provided, That in
no case shall the deficiency and the delinquency interest
prescribed under Subsections (B) and (C) hereof, be
imposed simultaneously.
40
RATES OF INTEREST, IN GENERAL
TRAIN
Additional proviso:
Deficieny and delinquency interest shall in no case be
imposed simultaneously.
41
WHAT IS A “DEFICIENCY INTEREST” FOR
PURPOSES OF THE INCOME TAX?
42
WHAT IS A “DEFICIENCY INTEREST” FOR
PURPOSES OF THE INCOME TAX?
Effective 1 January 2018, the “deficiency interest”
has been amended by the TRAIN as follows: “Deficiency
interest. – Any deficiency in the tax due, as the term is
defined in this Code, shall be subject to the interest
prescribed in Subsection (A) hereof, which interest shall
be assessed and collected from the date prescribed for
its payment until the full payment thereof, or upon
issuance of a notice and demand by the Commissioner of
Internal Revenue, whichever comes earlier. [NIRC of 1997,
Sec. 249 (B), as amended by the TRAIN] 43
DEFICIENCY INTEREST
TRAIN
44
PURPOSE OF IMPOSING DEFICIENCY INTEREST
45
COMPUTATION OF DEFICIENCY INTEREST
46
LATE PAYMENT OF A DEFICIENCY TAX
ASSESSED
47
WHAT IS A “DELINQUENCY INTEREST” FOR PURPOSES
OF INCOME TAX?
“Delinquency interest” is the interest that is required to be paid in
case of failure on the part of the taxpayer to pay:
48
WHAT IS A “DELINQUENCY INTEREST” FOR PURPOSES
OF INCOME TAX?
The delinquency interest to be collected is at the rate of
double the legal interest rate for loans or forbearance of any money
in the absence of an express stipulation as set by the Bangko
Sentral ng Pilipinas from the date prescribed for payment until the
amount is fully paid: Provided, That in no case shall the deficiency
and the delinquency interest be imposed simultaneously.
Illustration: The NIRC of 1997 requires that the donor shall file a donor’s tax
return within 30 days after the gift is made and the tax due thereon shall be
paid at the time of filing.
If the donor’s tax return was filed on February 15, 2018, then the
donor’s tax should be paid on that date. Failure to do so would subject the
donor to delinquency interest. 49
WHEN IS A REVENUE TAX CONSIDERED DELINQUENT?
50
SURCHARGE OR SURTAX
Surtax is the amount imposed in addition to the tax
required. They are in the nature of penalties and shall be
collected at the same time, in the same manner and as
part of tax.
51
NATURE OF SURCHARGES IMPOSED
AS PENALTIES
52
WHEN INTEREST AND SURCHARGE ARE NOT DUE
1. Where the deficiency assessment appears to be
controversial, the taxpayer should be held liable only
for the principal amount.
2. Good faith negates imposition of surcharges and
interest. The Supreme Court once said that “good
faith and honest belief that one is not subject to tax
on the basis of previous interpretation of government
agencies tasked to implement the tax law, are
sufficient justification to delete the imposition of
surcharges and interest.
53
THE 25% LATE FILING, WRONG FILING, OR LATE
PAYMENT SURTAX OR SURCHARGE
There shall be imposed, in addition to the tax required to be
paid, a penalty equivalent to twenty-five (25%) of the amount due, in
the following cases:
1. Failure to file any return and pay the tax due thereon as
required under the provisions of the NIRC of 1997 or rules and
regulations on the date prescribed; or
56
COMPROMISE PENALTY
57
NO COMPROMISE PENALTY WHERE
THERE IS GOOD FAITH
The “imposition of surcharges and interest under
Sections 248 and 249 of the 1997 NIRC were deleted on
the basis of good faith and honest belief on the part of
SLMC that it is not subject to tax. Thus, following the
ruling of the Court in the said case, SLMC is not liable to
pay compromise penalty under Section 248(A) of the
1997 NIRC. (CIR v. St. Luke’s Medical Center, Inc.), 695
Phil. 867, (2012) cited in CIR v. St. Luke’s Medical
Center, GR No. 203514, Feb. 13, 2017)
58
ASSESSMENT PROCESS AND
REGLEMENTARY PERIODS
59
OUTLINE OF TAXPAYER’S
AND GOVERNMENT’S
ADMINISTRATIVE AND JUDICIAL
REMEDIES RELATIVE TO
ASSESSMENTS OF INTERNAL
REVENUE TAXES
60
DISPUTED ASSESSMENT
1. Revenue District Officer (RDO) or a higher BIR authorized
officer. Issues a Letter of Authority (LA) authorizing the
examiner to inspect the taxpayer’s books of accounts, other
accounting records, and documents that may be pertinent in
determining whether the taxpayer has paid the correct taxes
and has complied with all the requirements for recording
financial transactions, keeping books of accounting, and others
promulgated by the BIR to ensure determination of the correct
taxes due from the taxpayer.
a. Does not do anything within thirty (30) days from receipt of the
FLD/FAN
1. the assessment becomes final, executory, demandable and
not appealable to the Court of Tax Appeals; and
2. the BIR could avail of its administrative or judicial remedies
to collect the tax.
70
DISPUTED ASSESSMENT
2. If the taxpayer does not seasonably interpose an
appeal, the decision of the BIR Commissioner denying his
administrative protest (whether request for reinvestigation or
request for reconsideration), or dispute, the assessment
becomes final, executory, demandable and not anymore
appealable to the CTA. The BIR could then avail of its
administrative or judicial remedies to collect the tax.
73
DISPUTED ASSESSMENT
Otherwise, the assessment shall become final,
executory, and demandable and not appealable to the
CTA. The BIR could then avail of its administrative or
judicial remedies to collect the tax.
77
DISPUTED ASSESSMENT
d. The party adversely affected by the decision of a
Division of the CTA may file one motion for
reconsideration or new trial with the same division. A
denial of the motion for reconsideration or new trial
may be the subject of a petition for review filed with
the CTA, en banc.
The petition shall be filed and served, and with full payment of
the docket and other lawful fees and the deposit for costs within
fifteen (15) days from receipt of the adverse judgment. Before
the expiration of the reglementary period, the Supreme Court may
for justifiable reasons grant an extension of thirty (30) days only
within which to file the petition.
80
DISPUTED ASSESSMENT
8. The Supreme Court
84
UNDISPUTED ASSESSMENT
b. Regional Trial Court. If the basic amount of the
tax to be collected (except interests, and surcharges)
is more than ₱300,000.00 but less than ₱1,000,000.00,
the case should be filed before the proper Regional
Trial Court outside of Metropolitan Manila or if the
court is in Metropolitan Manila area, then the
jurisdictional amount is ₱400,000.00 or more but less
than ₱1,000,000.00.
85
UNDISPUTED ASSESSMENT
1. The decision of the RTC shall be the subject of one
motion for reconsideration or new trial, thence of a
petition for review directed to a CTA division.
86
UNDISPUTED ASSESSMENT
3. The resolution of the CTA division on the subject of
a motion of reconsideration or new trial is the subject
of a petition for review directed to the CTA en banc
after which the matter is elevated to the Supreme
Court on a pure question of law on a petition for
review on certiorari under Rule 45.
87
LETTER OF AUTHORITY
The authority of revenue officers to examine the books
and records of any person is cognizable by the CTA. “It
must be stressed that the assessment of internal revenue
taxes is one of the duties of the BIR” as stated under
Section 2 of the NIRC, the Powers and Duties of the BIR.
“In connection therewith, the CIR may authorize the
examination of any taxpayer and correspondingly make
an assessment whenever necessary.
88
LETTER OF AUTHORITY
Thus, to give more teeth to such power of the CIR, to
make an assessment, the NIRC authorizes the CIR to
examine any book, paper, record, or data of any person.
“The powers granted by law to the CIR are intended,
among other things, to determine the liability of any
person for any national internal revenue tax.”
89
LETTER OF AUTHORITY (LOA)
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 accounts and other accounting records of a
taxpayer for the purpose of collecting the correct amount of
tax.
92
A valid LOA does not necessarily clothe validity to an
assessment issued on it, as when the revenue officers
designated in the LOA act in excess or outside of the authority
granted them under said LOA. “The audit process normally
commences with the issuance by the CIR of a Letter of
Authority. The LOA gives notice to the taxpayer that it is under
investigation for possible deficiency tax assessment; at the
same time it authorizes or empowers a designated revenue
officer to examine, verify, and scrutinize a taxpayer’s books
and records, in relation to internal revenue tax liabilities for a
particular period.” (CIR v. Lancaster Phils., Inc. GR No. 183408,
July 12, 2017)
93
TAX AUDIT
This is the examination of the taxpayer’s tax records
such as books of accounts, original documents in the
form of invoices, purchase orders, vouchers, etc. for
comparison with the returns that are filed.
94
GENERAL RULE: ONCE A YEAR EXAMINATION, EXCEPTIONS
The books of accounts and accounting 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, except in the following cases:
96
Some of the specific methods under the “Constructive Methods of Income
Determination” (also known as the “Indirect Methods of Income Determination”), or
the “Best Evidence Obtainable Rules” may include the following:
The above methods are not exclusive in character because there may be such
methods used which in the opinion of the BIR Commissioner clearly reflects the
income.
97
CONSTRUCTIVE METHODS OF
INCOME DETERMINATION
The constructive methods of income determination
refers to the instances when the BIR Commission does
not trust the veracity of the contents of a tax return, (such
as in the cases of false or fraudulent returns), no tax
returns were filed or where there is doubt as to the true
income of the taxpayer.
99
ISSUANCE OF PRE-ASSESSMENT NOTICE OR
PRELIMINARY ASSESSMENT NOTICE (PAN)
1. 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 filed by the
taxpayer; or
2. When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent; or
3. When a taxpayer who has 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
4. When the excise tax due on excisable articles has not been paid; or
5. When an 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.
102
WHO ISSUES THE FORMAL LETTER OF DEMAND
(FLD) AND FINAL ASSESSMENT NOTICE (FAN)
103
INSTANCES WHEN FLD/FAN ARE ISSUED:
1. If there is no need to issue a preliminary assessment
notice, because the circumstances show that it fall
within the exceptions for the issuance of a preliminary
assessment;
2. If the taxpayer is in default for failure to respond to
the preliminary assessment notice with a period of 15
days from receipt of the PAN; or
3. If the Commissioner or his duly authorized
representative does not agree with the justifications
stated by the taxpayer in his reply to the PAN.
104
CONTENTS OF FLD/FAN
The FLD/FAN calling for payment of the taxpayer’s deficiency
tax or taxes shall state the
1. facts,
2. the law,
3. rules and regulations
4. or jurisprudence
a. on which the assessment is based;
b. otherwise the assessment shall be VOID,
5. a computation of tax liabilities,
6. but also a demand for payment within a prescribed period.
106
REQUISITES BEFORE A TAXPAYER MAY BE
REQUIRED TO PAY THE ASSESSED TAX
1. There must be an assessment that has become final, executory
and collectible.
2. The amount being collected must be part of the government’s
accounts receivable.
3. The amount being collected must not have been written-off or
cancelled.
4. The right of the government to collect has not yet prescribed.
5. The proper procedure for collection whether administrative or
judicial are followed.
6. The taxpayer can still be located.
7. The government is not enjoined from collecting the tax.
107
PREREQUISITE BEFORE THE GOVERNMENT MAY AVAIL
OF ADMINISTRATIVE OR JUDICIAL REMEDIES TO
COLLECT TAXES
1. The taxes must be part of the Accounts Receivable or
Delinquent Account (AR/DA) before the government may
collect taxes through its administrative and judicial
remedies.
2. The AR/DA must not have been written-off or cancelled.
3. The amounts being collected must not have been the
subject of Authority to Cancel Assessment (ATCA).
4. The ARs/DA are not closed.
5. The amounts collected are not part of suspense ARs/DAs.
108
PRESCRIPTIVE PERIODS FOR COLLECTION OF THE TAX
1. In the case of a false or fraudulent return with intent to
evade tax or failure to file a return, 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 become final and executory, the fact
of fraud shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof. (NIRC OF 1997,
Sec. 222 (a)
3. Any internal revenue tax, which has been assessed within the
period agreed upon by the parties, may be collected by
distraint or levy or by a proceeding in court within the period
upon in writing before the expiration of the 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. (Section 222 (d) 110
PRESCRIPTIVE PERIODS FOR COLLECTION OF THE TAX
111
PRESCRIPTIVE PERIODS FOR COLLECTION OF
INTERNAL REVENUE TAXES
1. Within five (5) years from the issuance of an assessment
notice where there was a return filed, the return is not false
and fraudulent, and the assessment is not an extended one
which is issued after an agreement between the taxpayer
and the BIR to suspend the running of the prescriptive
period. (RMO No. 11-2014)
2. Where the internal revenue tax has been assessed within
the period of ten (10) years after the discovery of falsity,
fraud or omission in the filing of the tax return the
prescriptive period for collection is within five (5) years
following the assessment of the tax. [Sec. 222 (c)]
112
PRESCRIPTIVE PERIODS FOR COLLECTION OF
INTERNAL REVENUE TAXES
113
WHEN AN ASSESSMENT IS CONSIDERED
AS HAVING BEEN MADE
The date when the notice is released, mailed or sent to
the taxpayer is the day when it is made or issued, and not the
date of the notice.
114
MAY THE COLLECTION OF TAXES BE
BARRED BY PRESCRIPTION?
Answer: Yes. The collection of taxes may be barred
by prescription.
116
NOTE:
The prescriptive run despite the supervening event
of filing the protest with the BIR and the petition for
review with the CTA because an assessment notice that
has attained a state of finality could not anymore be re-
opened. This is so because this would prejudice tax
collection.
117
EVENTS THAT INTERRUPT THE PRESCRIPTIVE PERIOD
TO COLLECT TAX
The beginning of distraint or levy, a proceeding in
court for collection, in respect of any deficiency, shall be
suspended for the period
121
INSTANCE WHERE THE COMMISSIONER OF INTERNAL
REVENUE IS PROHIBITED FROM MAKING THE
ASSESSMENT, OR COLLECTING OR INSTITUTING A
PROCEEDING IN COURT
123
NATURE OF REQUEST FOR REINVESTIGATION WHICH, IF
GRANTED, SUSPENDS THE STATUTE OF LIMITATIONS
124
REQUEST FOR RECONSIDERATION OR REINVESTIGATION MUST
CONTAIN A VALID WAIVER AND MUST BE GRANTED BY THE
COMMISSIONER OTHERWISE THE PRESCRIPTIVE PERIOD TO ASSESS
AND COLLECT IS NOT SUSPENDED
127
STATUTORY PERIODS FOR COLLECTION REFER ONLY TO
COURT ACTION AND NOT TO THE SUMMARY
PROCEDURES FOR COLLECTION
In the above cases, the BIR did not file any collection
128
STATUTORY PERIODS FOR COLLECTION REFER ONLY TO
COURT ACTION AND NOT TO THE SUMMARY
PROCEDURES FOR COLLECTION
129
UNDER SEC. 223 (C) OF 1977, AS AMENDED [NOW SEC.
222 (C) OF THE NIRC OF 1997, AS AMENDED] THE
WARRANT OF DISTRAINT AND/OR LEVY NEED NOT BE
FULLY EXECUTED TO SUSPEND THE PRESCRIPTIVE
PERIOD FOR COLLECTION OF THE TAX.
133
NIRC of 1997, SEC. 222 (C)
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 become final and executory, the fact of fraud
shall be judicially taken cognizance of in the civil or
criminal action fro the collection thereof.
134
TAXPAYER’S
REMEDIES
135
PROTESTING AN ASSESSMENT
Protest, defined. As used in internal revenue taxation, protest
is the act by the taxpayer of questioning the validity of the imposition
of the corresponding delinquency increments for internal revenue
taxes as shown in the formal letter of demand and final assessment
notice. (FLD/FAN)
137
PROTEST UNDER THE NIRC OF 1997 DISTINGUISHED
FROM PROTEST UNDER THE OTHER TAX LAWS
Protests under the NIRC of 1997 For real property taxation, the
should be filed within thirty (30) protest is to be filed at the time
days from receipt of the of the payment of the tax being
assessment notice. protested.
146
PERIOD TO FILE PROTEST
147
COMPUTATION OF THE 30 DAY PERIOD WITHIN WHICH
TO DISPUTE ASSESSMENT
150
WHAT ARE THE DIFFERENCES BETWEEN A REQUEST FOR RECONSIDERATION
AND A REQUEST FOR REINVESTIGATION AS A MODE OF PROTEST?
1. reconsideration
2. or reinvestigation.
152
TWO KINDS OF PROTEST TO AN ASSESSMENT
154
CONTENT AND VALIDITY OF PROTEST
The taxpayer shall state in his protest:
156
SUMMARY OF REQUIREMENTS FOR AN ADMINISTRATIVE
PROTEST OR DISPUTE
d. If the protest is in the form of a request for reinvestigation
then the relevant supporting documents must be submitted
within sixty (60) days from date of filing of his letter of
protest.
e. There must be a waiver of the prescriptive period for
collection of the tax. (in BPI v. CIR, GR No. 139736, Oct. 17,
2005 citing various cases that, a request for
reconsideration or reinvestigation by the taxpayer, without
a valid waiver of the prescriptive periods for the
assessment and collection of tax, as required by the Tax
Code and implementing rules, will not suspend the running
thereof. 157
EFFECT OF FAILURE TO STATE THE FACTS, THE
APPLICABLE LAW, RULES AND REGULATIONS OR
JURISPRUDENCE IF THERE ARE SEVERAL ISSUES
INVOLVED IN THE DISPUTED ASSESSMENT.
159
EXCEPTIONS:
1. If there are several issues involved in the FLD/FAN but
the taxpayer only disputes or protests against the
validity of some of the issues raised, the assessment
attributable to the undisputed issue or issues shall
become final, executory and demandable; and the
taxpayer shall be required to pay the deficiency tax or
taxes attributable thereto, in which case, a collection
letter shall be issued to the taxpayer calling for
payment for the said deficiency tax or taxes, inclusive
of the applicable surcharge and/or interest.
160
EXCEPTIONS:
2. If there are several issues involved in the disputed
assessment and the taxpayer fails to state the facts, the
applicable law, rules and regulations, or jurisprudence in
support of his protest against some of the several issues
on which the assessment is based, the same shall be
considered undisputed issue or issues, in which case, the
taxpayer shall be required to pay the corresponding
deficiency tax or taxes attributable thereto and a collection
letter shall be issued to the taxpayer calling for payment of
the said deficiency tax, inclusive of the applicable
surcharge and/or interest. 161
REQUESTS FOR REINVESTIGATION REQUIRES
SUBMISSION OF COMPLETE SUPPORTING DOCUMENTS
171
TAXPAYER’S REMEDIES IN CASE THE COMMISSIONER
DENIES THE PROTEST
178
COMPROMISE IS A MODE OF ESCAPE
FROM TAXATION
Compromise is one way of escaping the burden of
taxation only in those instances where the law specifically
provides for it.
179
EFFECT OF COMPROMISE
When given judicial approval, a compromise
agreement becomes more than a contract binding upon
the parties. Having been sanctioned by the court, it is
entered as a determination of a controversy and has the
force and effect of a judgment. It is immediately
executory and not appealable, except for vices of consent
or forgery. The non-fulfillment of its terms and conditions
justifies the issuance of a writ of execution; in such an
instance, execution becomes a ministerial duty of the
court.
180
COMPROMISE REQUIRES MUTUAL AGREEMENT
BETWEEN THE BIR AND THE TAXPAYER
A compromise penalty could not be imposed by the
BIR, if the taxpayer did not agree. A compromising being,
by its nature, mutual in essence requires agreement. The
payment made under protest could only signify that there
was no agreement that had effectively been reached
between the parties.
184
AUTHORITY OF COMMISSIONER OF INTERNAL
REVENUE TO COMPROMISE
185
THE POWER TO COMPROMISE TAXES IS
DISCRETIONARY IN CHARACTER SUBJECT
TO JUDICIAL REVIEW
186
THE POWER TO COMPROMISE TAXES IS
DISCRETIONARY IN CHARACTER SUBJECT
TO JUDICIAL REVIEW
It is generally true that purely administrative and
discretionary functions may not be interfered with by the
courts; but when the exercise of such functions by the
administrative officer is tainted by a failure to abide by the
command of the law, then it is incumbent on the courts to set
matters right, with the Supreme Court having the last say on the
matter. The discretionary power of the BIR Commissioner to
enter into compromises cannot be superior over the power of
judicial review by the courts.
187
BIR COMPROMISE STRICTLY CONSTRUED
188
WHEN COMPROMISE SUBJECT TO THE APPROVAL
OF THE NATIONAL EVALUATION BOARD (NEB)
194
EXTENT OF BIR COMMISSIONER’S AUTHORITY
TO ENTER INTO A COMPROMISE
196
ABATEMENT
197
DISTINGUISH COMPROMISE
FROM ABATEMENT OF TAXES
COMPROMISE ABATEMENT
Limitation as While the Commissioner of Internal Revenue has the There is no limitation with
to authority authority to enter into a compromise and abate taxes, regard to the absolute
the authority of the Commissioner to compromise is amount or percentages to
limited only if the basic tax involved does not exceed be abated.
One million pesos (P1,000,000.00), and the settlement
offered is not less than the prescribed percentages
Grounds The grounds for compromise are either doubt as to the The grounds for abatement
validity of the claim against the taxpayer or the financial are the tax or any portion
position of the taxpayer demonstrates a clear inability to thereof appears to be
pay. unjustly or excessively
assessed; or the
administration and
collection costs involved do
not justify the collection of
the amount due.
198
DISTINGUISH COMPROMISE
FROM ABATEMENT OF TAXES
COMPROMISE ABATEMENT
199
NATURE OF ERRONEOUSLY PAID TAX
ILLEGALLY ASSESSED AND COLLECTED
200
TAX CREDIT, DEFINED
An amount subtracted from an individual’s or entity’s tax
liability to arrive at the total tax liability. A tax credit reduces
the taxpayer’s liability dollar for dollar, compared to a
deduction which reduces taxable income upon which the tax
liability is calculated. (Black’s Law Dictionary, 6th ed.)
204
REFUND OF INTERNAL REVENUE TAXES, DEFINED
205
TAX CREDIT CERTIFICATE, DEFINED
A certification, duly issued to the taxpayer named therein,
by the BIR Commissioner or his duly authorized representative,
reduced in a BIR Accountable Form in accordance with the
prescribed formalities, acknowledging that the grantee-
taxpayer named therein is legally entitled to a tax credit, the
money value of which may be used in payment or in
satisfaction of any of his internal revenue 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 Revenue Regulations.
206
THE GROUNDS FOR FILING A CLAIM FOR
REFUND OR TAX CREDIT ARE:
a. The tax has been erroneously or illegally assessed or
collected. The term “erroneous or illegal tax” is one
levied without statutory authority.
b. The penalty have been collected without authority.
c. The tax has been excessively or in any manner
wrongfully collected.
d. The tax was paid by mistake. (Solutio indebiti) Under
the principle of solutio indebiti, the government has to
restore the sums representing erroneous payment of
taxes.
207
THE GROUNDS FOR FILING A CLAIM FOR
REFUND OR TAX CREDIT ARE:
208
There is no requirement to present the Income Tax
Return (ITR) or Final Adjustment Return (FAR) of the
succeeding year in requesting a tax refund.
209
No automatic crediting of excess estimated quarterly
income tax liabilities for the succeeding taxable year
under Sec. 69 (now Sec. 76) of the Tax Code.
210
THREE (3) OPTIONS OF TAXPAYER IF THE SUM
OF ITS QUARTERLY TAX PAYMENTS DURING THE
TAXABLE YEAR IS NOT EQUAL TO THE TOTAL
TAX DUE FOR THAT YEAR:
211
OPTIONS OF TAXPAYER WHOSE QUARTERLY
PAYMENTS EXCEED ITS INCOME TAX DUE
212
HOW THE TAXPAYER MAKES HIS CHOICE OF
REFUND OR TAX CREDIT
213
FAILURE TO MAKE APPROPRIATE MARKINGS IN
THE FAR DOES NOT DEPRIVE THE TAXPAYER OF
A RIGHT TO REFUND.
With the failure of the taxpayer to make the
appropriate marking, the filing of the written claim for
refund effectively serves as an expression of the choice
to request for a tax refund, instead of a tax credit. The
Tax Code allows the refund of taxes to a taxpayer that
claims it in writing within two years after payment of the
taxes erroneously received by the BIR.
214
EXCESS TO BE CREDITED FOR THE SUCCEEDING
TAXABLE YEAR ONLY.
215
TAXPAYER IS ENTITLED TO A TAX REFUND EVEN
BEYOND THE TAXABLE YEAR FOLLOWING THAT
IN WHICH THE TAX CREDIT ARISES.
If the excess income tax paid in a given taxable year have
not been entirely used by a taxable corporation against its
quarterly income tax liabilities for the next taxable year, the
unused amount of the excess may still be refunded, provided
that the claim for such a refund is made within two years after
payment of the tax.
217
REQUISITES OR CONDITIONS FOR A
REFUND OF TAXES, IN GENERAL:
1. A written claim of refund is filed by the taxpayer with
the Commissioner of Internal Revenue.
2. The claim for refund must be a categorical demand
for reimbursement.
3. The claim for refund or tax credit must be filed with
the Commissioner, or the suit or proceeding therefor
must be commenced in court within two (2) years
from date of payment of the tax or penalty regardless
of any supervening cause.
218
STATUTORY BASIS FOR TAX REFUND OR CREDIT OF
TAXES UNDER THE TAX CODE
The Commissioner of Internal Revenue may:
222
PROPER PARTY TO CLAIM FOR REFUND
OR TAX CREDIT
While the withholding agent has the right to recover
the taxes erroneously or illegally collected, he
nevertheless has the obligation to remit the same to
the principal taxpayer.
1. administrative, and
2. judicial remedies
a. Criminal proceedings through criminal
actions
b. Civil proceedings through civil actions
224
OUTLINE OF VARIOUS STAGES
OF GOVERNMENT REMEDIES
1. Administrative remedies
a. Assessment
b. Collection
c. Refund
225
OUTLINE OF VARIOUS STAGES
OF GOVERNMENT REMEDIES
2. Judicial Remedies
a. Civil proceedings through civil actions
1. Assessment
2. Collection
3. Refund
1. Collection
226
ADMINISTRATIVE REMEDIES FOR
INTERNAL REVENUE TAXATION
1. Enforcement of tax lien.
2. Distraint of personal property, either actual or
constructive.
3. Levy on real estate, and its sale.
4. Further distraint and levy.
5. Enforcement of forfeiture of real and personal
properties.
6. Suspension of business operations.
7. Non-availability of injunction to restrain collection of
tax. 227
OTHER ADMINISTRATIVE REMEDIES
8. Non-issuance of clearances for travel. Under PD No.
1183, the BIR furnishes the DFA with a list of
delinquent taxpayers who are not allowed to travel.
9. The power of the Commissioner of Internal Revenue
to compromise.
10. The giving of rewards to informers who give
information as to violations of tax laws.
11. Deportation of aliens who violate any tax legislation of
the Philippines.
12. Filing of performance bond to assure compliance with
228
OTHER ADMINISTRATIVE REMEDIES
certain tax laws or regulations.
13. Surcharges or penalties for the payment of tax.
14. Authority of the Commissioner of Internal Revenue to
effect arrests in certain cases.
15. Power of the Commissioner of Internal Revenue to
obtain information, examine, summon and take
testimony from government officers or agencies and
other persons.
16. Authority of tax officers to examine and inspect books
of accounts and other accounting records of the
taxpayer. 229
NO HIERARCHY OF ADMINISTRATIVE
REMEDIES
230
TAX LIEN
- a legal claim or charge on property, either real or
personal, as security for the tax obligation.
231
NATURE OF TAX LIEN
The unpaid tax constitutes as a burden upon all property and
property rights belonging to the delinquent taxpayer. The lien is a
warning to all potential buyers of that property that any proceeds of
the sale should first be applied to the tax delinquency.
233
WORKER PREFERENCE IN CASE OF
BANKRUPTCY
Article 110 of the Labor Code which provides that “in the
event of bankruptcy or liquidation of an employer’s business,
his workers shall enjoy first preference during the period prior
to the bankruptcy or liquidation, any of the provision of the law
in the contrary notwithstanding” applies only in case of
bankruptcy or judicial liquidation of employer.
Disposition of the The personal property is merely held as The personal property is taken to be
personal property security to answer for any future tax sold at public auction in order to
delinquencies. satisfy the tax delinquencies.
Purpose Its purpose is protection of government The deficiency taxes are already
revenues and ensure that there are properties determined.
of the taxpayer which the government could
proceed against after a determination of the
amount of deficiency taxes.
237
DISTRAINT
238
OUTLINE CLASSIFICATION OF DISTRAINT
2. Classification as to purpose:
a. Constructive distraint as a mode for the protection
of government revenues
b. Actual distraint as a mode for collecting delinquent
taxes.
239
OUTLINE CLASSIFICATION OF DISTRAINT
240
ACTUAL DISTRAINT
– the physical taking of the taxpayer’s personal
property to be sold at public auction. The sales proceeds
shall then be applied to answer for the tax deficiency.
246
DISTRAINT AS TO WHO ISSUES:
247
DISTINCTIONS BETWEEN A WARRANT OF DISTRAINT,
WARRANT OF LEVY, AND WARRANT OF GARNISHMENT
DISTRAINT LEVY GARNISHMENT
249
LEVY
The act of collecting a tax by means of seizing real
property in order to be sold at public auction, the
proceeds applied to satisfy a tax delinquency.
250
EFFECT OF SERVICE OF WARRANT OF
DISTRAINT AND LEVY ON PRESCRIPTIVE
PERIODS
The timely service of a warrant of distraint or levy
SUSPENDS the running of the period to collect the tax
deficiency in the sense that the disposition of the
attached properties might well take time to accomplish
extending even after the lapse of the statutory period for
collections.
251
EFFECT OF SERVICE OF WARRANT OF
DISTRAINT AND LEVY ON PRESCRIPTIVE
PERIODS
Thus, the enforcement of tax collection through
summary proceedings may be carried out beyond the
statutory period. The statutory period for collection
applies only where a court suit is availed of for tax
collection.
252
TIME WHEN LEVY IS MADE
After expiration of the time required to pay the
delinquent taxes or delinquent revenue before,
simultaneously or after the distraint of personal property
belonging to the delinquent taxpayer.
254
FORFEITURE
255
WHEN REAL PROPERTY FORFEITED TO THE
GOVERNMENT FOR WANT OF BIDDER
257
POWER OF THE COMMISSIONER TO SUSPEND
THE BUSINESS OPERATIONS OF A TAXPAYER
The Commissioner or his authorized representative
is hereby empowered to suspend the business
establishment of any person for any of the following
violations:
259
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 under this Code. (NIRC of 1997, Sec. 218)
262
WHEN TO FILE THE MOTION TO SUSPEND
COLLECTION OF A TAX
263
GROUNDS FOR FILING A MOTION FOR
SUSPENSION OF COLLECTION OF INTERNAL
REVENUE TAX
264
CONDITIONS FOR ISSUANCE BY THE COURT OF
TAX APPEALS OF AN ORDER SUSPENDING THE
COLLECTION OF A TAX
265
COURTS CLOTHED WITH AUTHORITY WHETHER
TO DISPENSE WITH BOND REQUIREMENT
266