Tax Rights And Remedies-2010

TAX RIGHTS AND REMEDIES Atty. Vic C. Mamalateo June 26, 2010 ASIAN INSTITUTE OF TAXATION

SCOPE OF PRESENTATION • • • • • •

Part I: Part II: Part III: Part IV: Part V:

Introduction Assessment of deficiency taxes Collection of deficiency taxes Remedies of taxpayers New administrative issuances on tax audit

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INTRODUCTION •

TAXATION IS THE DESTRUCTIVE POWER WHICH INTERFERES WITH THE PERSONAL AND PROPERTY RIGHTS OF THE PEOPLE AND TAKES FROM THEM A PORTION OF THEIR PROPERTY FOR THE SUPPORT OF THE GOVERNMENT. »

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Paseo Realty & Dev. Corp. vs. Court of Appeals

TAXATION SHOULD BE EXERCISED WITH CAUTION TO MINIMIZE THE INJURY TO THE PROPRIETARY RIGHTS OF A TAXPAYER. IT MUST BE EXERCISED FAIRLY, EQUALLY, AND UNIFORMLY, LEST THE TAX COLLECTOR KILL THE ‘HEN THAT LAYS THE GOLDEN EGGS.’ IN ORDER TO MAINTAIN THE GENERAL PUBLIC’S TRUST AND CONFIDENCE IN THE GOVERNMENT, THIS POWER MUST BE USED JUSTLY AND NOT TREACHEROUSLY. –

Roxas y Cia vs. CTA, 23 SCRA 276

BIR ORGANIZATIONAL STRUCTURE • NATIONAL OFFICE – COMMISSIONER OF INTERNAL REVENUE • DEPUTY COMMISSIONERS – ASSISTANT COMMISSIONERS (LARGE TAXPAYERS SERVICE, ENFORCEMENT SERVICE, LEGAL SERVICE, COLLECTION SERVICE) » DIVISION CHIEFS (LTAID I - VI, LTDO, NATIONAL INVESTIGATION DIVISION)

• REGIONAL OFFICES – REGIONAL DIRECTORS • ASST. REGIONAL DIRECTORS – DIVISION CHIEFS (ASSESSMENT, COLLECTION, LEGAL) » REVENUE DISTRICT OFFICERS and SID

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DUTIES OF BIR • DUTIES OF BIR – To assess and collect taxes – To enforce forfeitures, fines and penalties – To execute judgments in all cases decided in its favor by the tax court and ordinary courts – To administer supervisory and police powers conferred upon it by law

• POWERS OF CIR – To interpret tax laws and regulations – To decide disputed assessments and refunds/credits – To examine books and records of taxpayers and to assess correct taxes. When a report required by law is not forthcoming within the time fixed by law or rules, or there is reason to believe that such report is false, incomplete or erroneous, CIR shall assess proper tax based on best evidence obtainable

• PART I: • ASSESSMENT OF DEFICIENCY TAXES

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ASSESSMENT CYCLE • • • • • • • •

Filing of tax return Tax audit by BIR Informal Conference Preliminary Assessment Notice (PAN) Reply to PAN Final Assessment Notice (FAN) Protest to FAN Supplemental Protest

• Law prescribes due date • 120 days + 120 days

• 15 days from receipt • 3 years or 10 years • 30 days from receipt • 60 days from filing of protest

ASSESSMENT CYCLE • BIR ACTION – Cancell assessment – Deny protest – Revise assessment

• BIR INACTION • Appeal to CTA

• Appeal to CTA en banc • Appeal to Supreme Court

• 180 days from filing of protest, or supplemental protest, if any • 30 days from date of receipt of denial of protest or lapse of 180 days • 15 days from date of receipt; additional 15 days may be granted by CTA after payment of docket fee.

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DEADLINES FOR FILING OF TAX RETURNS AND PAYMENT OF TAX •

INCOME TAX – Quarterly Return -- RCIT: 60 days after end of quarter – -- Self-employed: Apr 15 and 45 days after EOQ – Annual Return -- 15th day of fourth month of following year – Capital gains tax return -- 30 days from date of sale

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WITHHOLDING TAX – Creditable WT return – Final WT return

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TRANSFER TAXES

-- 10 days after end of month, except for December, Jan 15 of following year

-- 6 months from date of death (estate tax) -- 30 days from date of donation (donor’s tax)

VAT – Monthly Declaration – Quarterly Return

-- 20th day of following month -- 25th day following close of quarter

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OTHER PERCENTAGE TAX

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DST

– Monthly return – DST return

-- 20th day of following month -- 5th day of following month

KINDS OF TAXES • TAXES WHICH DO NOT REQUIRE ASSESSMENT TO ESTABLISH TAX LIABILITY – Self-assessing tax (Tupaz vs Ulep, 316 SCRA 118) – Tax paid is lower than tax due per return filed

• TAXES WHICH REQUIRE ASSESSMENT – Deficiency tax liability – Tax period is terminated – Tax lien – Dissolving corporation (Sec. 52( c), NIRC)

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TAX AUDIT • AUDIT NOTICES – Letter of Authority (LA) – Tax Verification Notice (TVN) – Letter Notice (LN)

• CONTENTS OF LA – Name, address and TIN of taxpayer – Name and designation of revenue officer(s) authorized to conduct tax audit – Scope of examination • Kinds of taxes • Period

– Approving official – Telephone number(s) of BIR office

AUDIT NOTICES • REQUIREMENTS OF LA AND AUDIT – ITR attached to LA – No erasures on LA – LA shall cover only one year; 2008 and unverified prior years is not allowed – Audit must be completed within 120 days, unless revalidated for another 120 days – Only revenue officers named in LA are authorized to look at books and records – Audit must be done in taxpayer’s place of business

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INFORMAL CONFERENCE • Revenue officers – Will present in an informal manner their findings to the taxpayer or his representative – Will verbally explain the source of information and the bases of their findings – May sign their findings

• Taxpayer may – Listen passively to the revenue officers – Explain his position or comment on the revenue officers’ findings and submit documentary evidence – Ask for another informal conference to give a more detailed explanation to their findings

PAN • 5-Day Letter – Signed by the Revenue District Officer – Gives taxpayer the opportunity to explain in writing his position on the findings of revenue officers; otherwise, findings will be considered as correct and report will be forwarded to Chief, Assessment Division

• 15-Day Letter – Signed by the Chief, Assessment Division or Regional Director – Gives taxpayer the opportunity to explain in writing his position on the findings of revenue officers; otherwise, findings will be considered as correct and FAN will be issued

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REPLY TO PAN •

WHEN TO FILE REPLY? – Within 15 days from date of receipt of PAN – Extension may be requested from BIR

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CONTENT OF REPLY? – Explanation to every item of income or deduction or other matter questioned by revenue officer – Factual and/or legal bases, including applicable jurisprudence – Prays for total or partial cancellation of PAN

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QUESTION OF FACT OR LAW – Question of fact: Truth or falsity? – Question of law: Law on certain set of facts?

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DUE PROCESS OF LAW – Issuance of FAN and Demand Letter is tantamount to denial of Reply to PAN. Essential elements of due process are notice and opportunity to present one’s side (Phil. Health Care Providers vs. CIR)

PRE-ASSESSMENT NOTICE • GENERAL RULE: PAN must be issued by BIR • EXCEPTIONS: – Deficiency tax is the result of mathematical error – Discrepancy is between amount withheld and amount of withholding tax remitted – Taxpayer who opted to claim refund/tax credit also carried over and applied the same against tax of next taxable quarter – Excise tax due has not been paid – Constructive importation (Sec. 228, NIRC)

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FINAL ASSESSMENT NOTICE • ESSENTIAL REQUIREMENTS – FAN (BIR FORM 17.08) contains name, address, and TIN; kind of tax; period covered; basic tax and penalties; date tax must be paid – Must state facts, law, or jurisprudence; otherwise, assessment is void • Taxpayer was fairly informed since it was able to categorically explain how assessment came about (Toledo Power Co. vs. CIR) • PAN has audit sheet but did not explain how assessment was arrived. Demand letter did not contain the information on law and facts (HPCO Agridev Corp vs. CIR)

– Signed by Commissioner or his authorized representative – Issued within the prescriptive period under the law or the extended period agreed upon between the parties – Served by personal delivery or by registered mail

FINAL ASSESSMENT NOTICE •

FORMS OF ASSESSMENT 1. Formal assessment notice (FAN) 2. Letter demanding payment of erroneously refunded amount (Guagua Electric Co v. CIR), or amount paid by bouncing check (Republic v. Limaco & de Guzman)

3. Follow-up or collection letter duly received by taxpayer

within the prescriptive period

(TAXPAYER DENIED RECEIPT OF ORIGINAL DEMAND LETTER AND ASS. NOTICE) (Republic v. Nielson & Co)

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CASES NOT CONSIDERED ASSESSMENT – Letter from revenue officer granting opportunity to disprove findings (SHOW-CAUSE LETTER) is NOT an assessment – Letter that did not provide reason why deficiency tax is being collected from taxpayer – Pre-assessment Notice – Affidavit in support of criminal complaint

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FINAL ASSESSMENT NOTICE •

FAN AND DEMAND LETTER MUST GO TOGETHER

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TAXPAYER OR HIS AUTHORIZED REPRESENTATIVE MUST RECEIVE ASSESSMENT NOTICE – Actual receipt – Constructive receipt

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ADDRESS OF TAXPAYER – Change of address must be communicated in writing to BIR – Effect if no written notice is given to BIR?

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DATE OF RECEIPT OF FAN – Stamp date on envelope and face of FAN and Demand Letter

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ASSESSMENT ISSUED WITHOUT VALID AUTHORITY IS A NULLITY

FINAL ASSESSMENT NOTICE • WHEN ASSESSMENT MUST BE ISSUED? – TAX RETURN FILED • Not false or fraudulent (3 years from date of filing of return) – Each kind of tax has separate filing due date

• False or fraudulent (10 years from date of discovery)

– NO TAX RETURN FILED

• WHEN ASSESSMENT IS MADE OR DEEMED MADE? – ISSUE DATE – DATE OF SERVICE OR MAILING • Mere notation of mailing cannot suffice • Presumption in the course of mail

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– DATE OF RECEIPT IF ASSESSMENT DUE DATE FALLS ON SATURDAY, GOVERNMENT HAS NEXT BUSINESS DAY WITHIN WHICH TO ASSESS (CIR v. Western Pacific Corp)

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PROTEST LETTER •

PROTEST LETTER MUST BE FILED WITHIN 30 DAYS FROM DATE OF RECEIPT OF ASSESSMENT – NATURE OF PROTEST • Request for reconsideration • Request for reinvestigation

– DATE OF RECEIPT OF ASSESSMENT – CONTENTS OF PROTEST LETTER – FINDINGS TO WHICH TAXPAYER AGREES • No action on protest until admitted tax is paid

– FINDINGS TO WHICH TAXPAYER DOES NOT AGREE AND STATEMENT OF FACTS AND/OR LAW – WAIVER OF STATUTE OF LIMITATIONS

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ABSENCE OF VALID AND TIMELY PROTEST MAKES ASSESSMENT RECEIVED BY TAXPAYER AS FINAL AND EXECUTORY – Request for change of revenue officers – Change of venue for settlement of tax case

CIR v. Enron Subic Power Corp •

FACTS

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Enron is a domestic corporation registered with SBMA as freeport enterprise. It filed ITR for 1996 showing net loss of P7,684,948. BIR, thru preliminary 5-day letter, informed Enron of deficiency income tax assessment of P2,880,817. Enron disputed the proposed assessment in first protest letter. May 26, 1999, Enron received FAN from CIR and it protested the same on June 14, 1999. Due to non-resolution of protest within 180-day period, Enron filed petition for review in CTA. It argued the deficiency assessment disregarded Sec. 228 of Tax Code and Sec. 3.1.4 of RR 12-99, by not providing the legal and factual bases of assessment. It also questioned the substantive validity of the assessment.

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CIR v. Enron Subic Power Corp • • • •

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Sept 12, 2001 - CTA granted Enron’s petition and ordered the cancellation of assessment which is void. Nov. 12, 2001 – Motion for Reconsideration (MR) of CIR was denied. CIR appealed to Court of Appeals (CA). CA affirmed decision of CTA. It held audit working did not substantially comply with Sec. 228 and RR 12-99 because they failed to show the applicability of cited law to the facts of the assessment. MR filed by CIR was deemed abandoned when he filed motion for extension to file a petition for review with SC.

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ISSUE

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Whether or not Enron was informed of legal and factual bases of the deficiency tax assessment.

CIR v. Enron Subic Power Corp •

SC RULING

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Sec. 228 of the 1997 Tax Code provides that taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment is void. To implement such provisions, RR 12-99 provides that the letter of demand shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based; otherwise, the formal letter of demand and assessment notice shall be void. The use of the word “shall” in the above legal provisions indicates the mandatory nature of the requirements laid down therein. In the issuance of FAN, the revenue officers did not provide Enron with written bases of the law and facts on which assessment is based. CIR did not bother to explain how it arrived at such assessment. He failed to mention the specific provision of the Tax Code or rules and regulations not complied with by Enron.

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CIR v. Enron Subic Power Corp •

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BIR disallowed certain itemized deductions and considered some cost items as subject to 5% final tax on gross income earned, without indicating factual and legal bases. During the preliminary stage, BIR informed taxpayer thru preliminary 5-day letter and furnished copy of audit working paper. SC ruled above documents were not valid substitutes for mandatory notice in writing of legal and factual bases of assessment. These steps were mere perfunctory discharge of CIR’s duties in correctly assessing a taxpayer. The requirement for issuing a preliminary or final assessment, informing a taxpayer of the existence of deficiency tax assessment is markedly different from the requirement of what such notice must contain. Just because CIR issued an advice, preliminary letter and final notice does not necessarily mean that taxpayer was informed of the law and facts on which the assessment was made.

CIR v. Enron Subic Power Corp •

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Law requires that they be stated in the Demand Letter and Final Assessment Notice. Otherwise, the express provisions of Art. 228 of NIRC and RR 12-99 would be rendered nugatory. The alleged “factual bases” in the advice, preliminary letter and audit working papers did not suffice. Moreover, due to the absence of a fair opportunity to be informed of legal and factual bases of assessment, the assessment is void. Old law (1977 Tax Code) merely required taxpayer to be notified of assessment. This was changed (by 1997 Tax Code) in 1998 and the taxpayer must now be informed not only of the law but also of the facts on which the assessment is made. Such amendment is in keeping with the constitutional principle that no person shall be deprived of property without due process (CIR vs. Enron Subic Power Corp, GR No. 166387, Jan. 19, 2009).

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CIR v. REYES • • • • • •

May 19, 1998 - the heirs of Tancinco received FAN and DL for deficiency estate tax of P14.91 M, inclusive of penalties. June 1, 1998 - protest was filed on ground that decedent had sold property in 1990. CIR issued collection letter, followed by Final Notice Before Seizure dated Dec 4, 1998. WDL was served upon estate. Heirs protested WDL and offered compromise by paying 50% of basic estate tax. CIR denied offer and demanded P18.03 M; otherwise, property would be sold. April 11, 2000 - Reyes proposed to pay 100% of basic tax. As tax was not paid on April 15, 2000, BIR notified Reyes on June 6, 2000 that property would be sold at public auction in August, 2000. June 13, 2000 - Reyes filed protest with BIR Appellate Div and offered to pay estate tax without penalties. Without acting on protest and offer, CIR instructed CED to proceed with auction sale.

CIR v. REYES • • • •

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Reyes filed petition for review with CTA and BIR filed Motion to Dismiss on ground that CTA has no jurisdiction; assessment was already final and petition was filed out of time. CTA denied motion. In meantime, BIR issued RR 6-2000 and RMO 42-2000, offering taxpayers with disputed assessments to compromise cases. Nov 25, 2000 - Reyes filed application for compromise and paid P1.06 M. While waiting for approval by BIR NEB, Reyes filed with CTA a motion to declare application as perfected compromise, which CTA denied since NEB approval is needed. Reyes filed for judgment on the pleadings, which was granted. CTA denied the petition. Reyes filed appeal to CA, which granted petition, saying FAN and DL should have stated the facts and law on which assessment was based.

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CIR v. REYES • •

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Since FAN and DL did not state facts and law, assessment was void and proceedings emanating from them were also void, and any order emanating from them could never attain finality. BIR appealed to SC, which ruled that Sec. 228 of Tax Code is clear and mandatory – taxpayer shall be informed in writing of the law and facts on which assessment is based; otherwise, it is void. Reyes was only notified of the findings by the CIR, who merely relied on provisions of former Sec. 229 prior to its amendment by RA 8424. General rule is that laws apply prospectively. However, statutes that are remedial, or that do not create new or take away vested rights, do not fall under the general rule. Since Sec. 228 of Tax Code, as amended by RA 8424, does not state that pending actions are excepted from the operation of Sec. 228, or that applying it to pending proceedings would impair vested rights, said law may be applied retroactively (CIR vs. Reyes, and Reyes vs. CIR, GR Nos. 159694 and 163581, Jan. 27, 2006)

CIR v. BPI •

FACTUAL BACKGROUND: – Oct 28, 1988 – CIR assessed petitioner for def. percentage tax and DST for 1986 – Dec 10, 1988, BPI replied stating “Your def assessments are no assessments at all… As soon as this is explained and clarified in a proper letter of assessment, we shall inform you of the taxpayer’s decision on whether to pay or protest the assessment.” – June 27, 1991, BPI received letter from BIR, stating “.. Your letter failed to qualify as a protest under RR 12-85… still we obliged to explain the basis of the assessments.” – July 6, 1991, BPI requested a reconsideration of assessments. – Dec 12, 1991, BIR denied protest, which was received on Jan 21, 1992. – Feb 18, 1992, BPI filed petition for review in CTA. – Nov 16, 1995, CTA dismissed petition for lack of jurisdiction; assessments had become final and unappealable. – May 27, 1996, CTA denied reconsideration.

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CIR v. BPI •

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On appeal, CA reversed CTA’s decision. It ruled Oct 28, 1988 notices were not valid assessments because they did not inform the taxpayer of the legal and factual bases therefor. It declared the proper assessments were those in May 8, 1991 letter which provided the reasons for claimed deficiencies. CIR elevated case to SC. CIR did not inform BPI in writing of the law and facts on which assessments were made. He merely notified BPI of his findings, consisting of the computation of the tax liabilities and a demand for payment within 30 days from receipt. He relied on former Sec. 270, NIRC, prior to its amendment by RA 8424. In CIR vs.Reyes, GR 159694, Jan 27, 2006, the only requirement was for the CIR to “notify” or inform the taxpayer of his “findings.” Nothing in the old law required a written statement to the taxpayer of the law and the facts. The Court cannot read into the law what obviously was not intended by Congress. That would be judicial legislation. Jurisprudence simply required that assessments contain a computation of tax liabilities, the amount to be paid plus a demand for payment within a prescribed period.

CIR v. BPI •

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The sentence “the taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void.” was not in old Sec. 270, but was only inserted in Sec. 228 in 1997 (R.A. 8424). The inserted sentence was not an affirmation of what the law required; the amendment by RA 8424 was an innovation and could not be reasonably inferred from the old law. The Oct 28, 1998 notices were valid assessments, which BPI should have protested within 30 days from receipt. The Dec 10, 1988 reply it sent to BIR did not qualify as a protest, since the letter itself stated “… we shall inform you of the taxpayer’s decision on whether to pay or protest the assessment.” BPI’s failure to protest the assessment made it final and executory. The assessment is presumed to be correct (CIR vs BPI, GR 134062, Apr 17, 2007).

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SUPPLEMENTAL PROTEST • Supplemental Protest – Filing of supplemental protest is directory – New or additional documentary evidence, jurisprudence, and legal defenses – Analyses of items questioned by revenue officers – Submitted within 60 days from date of filing of protest letter – No request for extension is necessary

START OF 180-DAY PERIOD • Since the petitioner did not submit any document in support of his protest within sixty days from the filing of its protest, the counting of the 180-day period was from the filing of the protest. Accordingly, when respondent failed to render his decision within 180 days from the filing of his protest, petitioner has 30 days therefrom to file an appeal to CTA (Oceanic Wireless Network vs. CIR, CTA Case No. 6111, Nov. 3, 2004)

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ADMINISTRATIVE APPEAL • DECISION OF REGIONAL DIRECTOR IS NOT FINAL AND MAY BE APPEALED TO THE COMMISSIONER (Rev. Regs. No. 12-99) • PRIOR EXHAUSTION OF ADMINISTRATIVE REMEDIES GIVES ADMINISTRATIVE AUTHORITIES THE OPPORTUNITY TO DECIDE CONTROVERSIES WITHIN THEIR COMPETENCE (Aguinaldo Industries Corp. v. CIR)

DENIAL OF PROTEST • FORM OF DENIAL OF PROTEST – DIRECT DENIAL • Revenue Regulations No. 12-99 • CIR v. Advertising Associates • CIR v. Union Shipping

– INDIRECT DENIAL • • • • •

Final Notice Before Seizure (Isabela Cultural Corp vs CIR) Warrant of Distraint and Levy Filing of civil action by BIR Referral to SOLGEN of case Inaction of Commissioner – Lascona Land Co. vs. CIR (2000)

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INACTION IS DEEMED DENIAL OF PROTEST • If the Commissioner or his duly authorized representative fails to act on the taxpayer’s protest within one hundred eighty (180) days from date of submission by the taxpayer of the required documents in support of his protest, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the lapse of the said 180-day period; otherwise, the assessment shall become final, executory and demandable (Sec. 228, NIRC). • The inaction of the Commissioner during the 180-day period, where a definite period is required by law to be made, shall be construed as a denial of the protest (R.A. 9282, Apr 25, 2004).

INACTION IS DEEMED DENIAL OF PROTEST • Since the petitioner did not submit any additional document (in a supplemental protest) in support of his protest within sixty (60) days from the filing of its protest, the counting of the 180-day period was from the filing of the (original) protest. • Accordingly, when respondent (CIR) failed to render his decision within 180 days from the filing of the taxpayer’s protest, petitioner has 30 days after the lapse of the 180-day period to file an appeal to CTA (Oceanic Wireless Network vs. CIR, CTA Case No. 6111, Nov. 3, 2004)

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INACTION IS DEEMED DENIAL OF PROTEST • After filing the protest against FAN, taxpayer has two options: – Wait for the final decision of the Commissioner on the disputed assessment and file the appeal to the CTA within 30 days from date of receipt of the denial of protest; or – File appeal to the CTA within 30 days from lapse of the 180-day period (Lascona Land Corp vs. CIR) • Decision of the CTA on Lascona case was appealed by BIR to CA under RA 1125. Said CTA decision was reversed by the Court of Appeals (CA). The CA ruling was appealed to the Supreme Court, where it is still pending.

PETITION FOR REVIEW • Petitioner maintains that its counsel’s neglect in not filing petition for review within reglementary period (due to error of counsel’s secretary) was excusable. • The 30-day period to appeal is jurisdictional and failure to comply would bar the appeal and deprive the CTA of its jurisdiction. Such period is mandatory, and it is beyond the power of the courts to extend the same (Chan Kian vs CTA, 105 Phil 906 (1959).

• The options granted to the taxpayer in case of inaction by the CIR is mutually exclusive and resort to one bars the application of the other. Petition for review was filed out of time (more than 30 days after lapse of 180 days), and petitioner did not file MR or appeal; hence, disputed assessment became final and executory.

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PETITION FOR REVIEW • After availing of the first option (filing petition for review with CTA), petitioner cannot successfully resort to the second option (awaiting final decision of CIR) on the pretext that there is yet no final decision on the disputed assessment because of CIR’s inaction. • Assessments are presumed to be correct, unless otherwise proven (RCBC vs CIR, GR No. 168498, Apr 24, 2007).

APPEALS • JUDICIAL APPEAL – FINAL DECISION OF COMMISSIONER MAY BE APPEALED TO COURT OF TAX APPEALS

• Where a taxpayer filed a valid protest within 30 days from date of receipt of assessment and on same day also filed with CTA a petition for review, there is yet no final decision of CIR on the protest that is appealable to CTA (Moog Controls Corp vs. CIR, CTA Case No. 6700, Oct 18, 2004)

– CTA DIVISION DECISION IS APPEALED TO CTA EN BANC (RA 9282) – COURT OF APPEALS EN BANC DECISION APPEALED TO SUPREME COURT

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PRESCRIPTION •

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PERIOD TO ASSESS DEFICIENCY TAX – RETURN WAS FILED • Not false or fraudulent – 3 years from filing of return • False or fraudulent – 10 years from date of discovery of false or fraudulent return – NO RETURN WAS FILED PERIOD TO COLLECT ASSESSED TAX – 5 years from the date of assessment PERIOD TO FILE CRIMINAL ACTION – Prescription shall begin to run from the day of the commission of the violation of the law, and if the same be not known at the time, from the discovery thereof and the institution of judicial proceedings for its investigation and punishment.

PRESCRIPTION •

TAXABLE YEAR – Normal year (365 days) – Leap year (366 days)

• If there is a leap year within the prescriptive period to assess (3

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years from filing of return), a year shall be deemed to have 365 days only (NAMARCO v. Tecson, 29 SCRA 70). Thus, assessment issued on April 15 of the third year from filing of return (which is the 1,096th day) shall be treated as invalid due to prescription. EO 292 (Administrative Code of 1987), being the more recent law than Civil Code, governs the computation of legal period. Accordingly, a year shall be understood to be 12 calendar months; a month of 30 days, unless it refers to a specific calendar month (CIR vs. Primetown Property Group, GR No. 162155, Aug 22, 2007).

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PRESCRIPTION • Internal revenue taxes may be assessed or collected after the ordinary prescriptive period, if before its expiration, both the Commissioner and the taxpayer have agreed in writing to its assessment and/or collection after said period. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon. • The running of the prescriptive periods for assessment and collection of taxes is suspended when the taxpayer requests for the reinvestigation which is granted by the Commissioner (Sec. 223, NIRC)

BPI v. CIR •

FACTS

• • •

BPI, surviving bank after its merger with FEBTC, is a domestic corp. Nov 26, 1986 - Revenue Service Chief issued PAN to BPI. Nov 29, 1986 - BPI requested for details of amounts mentioned in PAN. Apr 7, 1989 – FAN issued for deficiency WTAS (swap transactions) and DST for 1982 to 1986. Apr 20, 1989 – BPI filed protest and on May 8, 1989, filed supplemental protest. Mar 12, 1993 – BPI requested for opportunity to submit additional documents on swap transactions. June 17, 1994 – BPI submitted Swap Contracts with the BIR. BPI executed several Waivers of Statute of Limitations, the last of which was effective until Dec 31, 1994.

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BPI v. CIR • • • • • • •

Aug 8, 2002 – BIR withdrew deficiency WT assessment, but reiterated def. DST assessment and ordered BPI to pay within 30 days from receipt. BPI received copy of decision on Jan 15, 2003. Jan 24, 2003 - BPI filed petition for review with CTA. Aug 31, 2004 – CTA denied petition for review and ordered BPI to pay deficiency DST. Sept 21, 2004 – MR filed which was denied for lack of merit in Resolution dated Feb 14, 2005. Mar 9, 2005 – BPI filed with CTA en banc Motion for Extension of Time to file petition for review. Mar 28, 2005 – Petition for review filed. Aug 15, 2006 – CTA ruled that BPI is liable for DST on its cabled instructions to its foreign correspondent bank and that prescription had not yet set in against the government.

BPI v. CIR •

ISSUES – Whether the collection of deficiency DST is barred by prescription – Whether BPI is liable for DST on its swap loan transactions

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SC RULING

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Supreme Court grants petition of BPI. The CIR had 3 years from date of assessment (Apr 7, 1989) or until Apr 6, 1992 within which to collect the deficiency tax. However, it was only on Aug 9, 2002 that CIR ordered BPI to pay. Sec. 320 of the Tax Code suspends the running of the Statute of Limitations when the taxpayer requests for a reinvestigation which is granted by the Commissioner. In BPI v. CIR, GR No. 139736, Oct 17, 2005, SC emphasized the rule that the CIR must first grant the request for reinvestigation as a requirement for the suspension of the statute of limitations.

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BPI v. CIR • In Republic v. Gancayco, the Court stated that the act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in order to effect suspension. • The burden of proof that the request for reinvestigation had been actually granted shall be on the CIR. Such grant may be expressed in its communications with the taxpayer or implied from the action of the CIR or his authorized representative in response to the request for reinvestigation.

BPI v. CIR • There is nothing in the records of the case which indicates, expressly or impliedly, that CIR had granted the request for reinvestigation filed by BPI. It was only thru the CIR, thru the OSG, argued for the first time that he had granted the request for reinvestigation. • The Court differentiated this case from Wyeth Suaco and found the latter case inapplicable. In Wyeth, taxpayer sent letters seeking reinvestigation or reconsideration of assessment, as a result of which, BIR conducted review and reinvestigation of assessment. Finance manager knew of ongoing review and communicated its inability to settle tax liability.

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BPI v. CIR • Neither did the Waiver of the Statute of Limitations signed by BPI effective until Dec 31, 1994 suspend the prescriptive period. The CIR himself contends that the Waiver is void as it shows no date of acceptance in violation of RMO 20-90. • Given the prescription of the government’s claim, the Court no longer deem it necessary to pass upon the validity of the assessment.

• PART II: • COLLECTION OF DEFICIENCY TAXES

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COLLECTION PROCESS • ADMINISTRATIVE REMEDIES – WDL is summary in nature – WDL may be resorted to simultaneously

• JUDICIAL REMEDIES – Civil action – Criminal action

ADMINISTRATIVE REMEDIES • • • • • •

TAX LIEN COMPROMISE AND ABATEMENT DISTRAINT AND/OR LEVY FORFEITURE SALE PENALTIES AND FINES – Surcharge, interest, and compromise penalty

• TAX CLEARANCE • No distribution of assets before payment of tax liabilities • Unpaid subscription receivable of stockholders

• CLOSURE OF BUSINESS ESTABLISHMENT – Operation “Kandado”

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TAX LIEN • Lien attaches from time of assessment (not only from service of WDL) until paid • Lien on real property is not valid against mortgagee, purchaser, or judgment creditor until it is filed with Register of Deeds (Sec. 219, NIRC)

• Tax due on goods imported tax free is a lien on goods, superior to all charges, regardless of the possessor (Sec. 131(A), NIRC)

COMPROMISE • GROUNDS FOR COMPROMISE – Reasonable doubt of assessment • 40% of basic tax assessed

– Financial position of taxpayer demonstrates clear inability to pay assessed tax • 10% of basic tax assessed • Taxpayer waives in writing his bank secrecy privilege under RA 1405

• ALL CRIMINAL VIOLATIONS MAY BE COMPROMISED, EXCEPT THOSE ALREADY FILED IN COURT OR INVOLVING FRAUD (Sec. 204(A), NIRC)

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COMPROMISE • Fine was imposed on the original appraisement of certain jewelry. It was questioned by taxpayer in CTA, but BOC won. Decision became final for failure of taxpayer to appeal. BOC with approval of DOF subsequently reappraised article and then entered into compromise. • Power to compromise is not absolute. BOC Commissioner is not authorized to accept anything less than what is adjudicated by the court in favor of government in a decision that has become final and executory (Rovero v. Amparo, 91 Phil 228)

ABATEMENT • ABATEMENT MEANS ENTIRE TAX LIABILITY IS CANCELLED – Tax is unjustly or excessively assessed – Administrative and collection costs do not justify collection of the amount due

• POWER TO COMPROMISE OR ABATE SHALL NOT BE DELEGATED BY CIR, EXCEPT: – Regional assessments – P500T or less – Minor criminal violations (Sec. 204(B)& Sec. 7, NIRC)

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DISTRAINT, LEVY OR GARNISHMENT • DISTRAINT – PERSONAL PROPERTY – Actual distraint: Delinquency sets in – Constructive distraint • Preventive remedy to forestall possible dissipation of assets when delinquency takes place • Tax liability has preferential lien over constructive distraint to answer for judgment lien in favor of employees of company for unpaid wages

• LEVY – REAL PROPERTY • GARNISHMENT – BANK DEPOSITS

DISTRAINT, LEVY OR GARNISHMENT • WDL must be effected within five years from date of assessment (CIR v. Avelino) • WDL may be issued as a step preliminary to collection by judicial action (Alhambra Cigar v. CIR). • It is not essential that the warrant be fully executed so that it can suspend the running of the statute of limitations on collection of tax. Distraint proceedings are validly begun by the issuance of the warrant and service thereof to taxpayer (BPI vs. CIR, GR No. 139736, Oct 17, 2005). • WDL may be repeated until full amount due is collected (Sec. 217, NIRC)

• “Satisfaction” of tax due means discharge pro tanto (Castro v. CIR)

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FORFEITURE • No bidder in public auction sale or amount of highest bid is insufficient to pay for taxes, penalties and costs (Sec. 215, NIRC) • Forfeiture becomes absolute after of one year from date of forfeiture and no redemption of property was made. NOTE: Under the General Banking Act, redemption period of foreclosed property by banks is 3 months. • Discharge of tax liability is pro tanto

CLOSURE OF BUSINESS • VAT-REGISTERED TAXPAYER – Failure to issue receipts or invoices – Failure to file VAT returns – Understatement of sales by 30% or more

• NON-VAT PERSON – Failure to register

• TEMPORARY CLOSURE – Not less than five (5) days – Lifted only upon compliance with requirements (Sec. 115, NIRC)

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PENALTIES AND FINES • COMPROMISE PENALTY – Amount which taxpayer pays to compromise tax violation that may be the subject of criminal prosecution – Mutual agreement between the parties; it may not be imposed by BIR, if taxpayer does not agree thereto (CIR v. Fireman’s Fund Insurance Co.)

– If taxpayer has expressed willingness to pay compromise penalty in an appeal to CTA, amount may be collected as part of judgment (CIR v. Guerrero)

JUDICIAL REMEDIES • Judicial actions – Civil action – Criminal action

• Case to be filed in the name of the Government of the Philippines (Sec. 220, NIRC) • No civil or criminal action may be filed without the approval of the Commissioner of Internal Revenue • Civil action is resorted to when tax liability becomes collectible

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CIVIL ACTION • COLLECTIBILITY OF DELINQUENT TAX – Final assessment is not protested within 30 days from date of receipt (Marcos II v. CIR, 273 SCRA 47), or timely protested but BIR conditions for request for reinvestigation are not complied with by taxpayer (Dayrit v. Cruz; Republic v. Ledesma) – Self-assessed tax shown in the return is not paid within the date prescribed by law (e.g., 2nd installment) – Protest against assessment is denied by BIR (Basa v. Republic), or 180-day period lapses and taxpayer failed to appeal to CTA within 30 days from date of receipt of denial of protest or from lapse of 180-day period (Lascona Land Co. v. CIR)

CIVIL ACTION • WHO APPROVES? – CIR, Regional Director (Arches v. Bellosillo),

Division

or Chief, Legal

(Republic v. Hizon)

– Solicitor General, or BIR special attorneys outside Metro Manila, affirmed by SolGen (Republic v. Domecillo)

• WHERE FILED? – RTC (less than P1 M), or – CTA (P1 M or more)

• HOW CIVIL ACTION BEGUN? – File complaint with RTC(for amount less than P1 M); and – File Answer in CTA to taxpayer’s petition for review and pray for payment of tax; hence, even if no RTC case was filed, right to collect has not prescribed (Mambulao Lumber v. Republic)

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CIVIL ACTION • WHEN TO GO TO RTC or CTA? – PRO FORMA PROTEST FILED • BIR is not required to rule first on taxpayer’s request for reinvestigation before initiation of judicial action to collect; decision of CIR may be inferred from his referral of case to the Solicitor General (Republic v. Lim Tian Teng Sons & Co)

– VALID PROTEST FILED • BIR has to rule first on taxpayer’s protest so as not to deprive him of right to appeal to CTA (San Juan v. Velasquez)

CRIMINAL ACTION •

ORDINARY CRIMINAL CASES – The civil liability is incurred by reason of the offender’s criminal act. – Every person criminally liable for a felony is also civilly liable (Art. 100, RPC)

•

TAX EVASION CASES – The civil liability to pay taxes arises not because of any felony but upon the taxpayer’s failure to pay taxes. Criminal liability in taxation arises as a result of one’s failure to pay his tax liabilities. – Sec. 73 of the old Tax Code has provided the imposition of penalty of imprisonment or fine, or both, for refusal or neglect to pay income tax or to make a return thereof, but it failed to provide the collection of said tax in criminal proceedings. The only remedies provided for collection of taxes are distraint of goods, etc. or by judicial action, which remedies are generally exclusive, in the absence of a contrary intent from the legislator (Republic vs. Patanao, 20 SCRA 712).

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CRIMINAL ACTION • Sec. 220, 2005 NIRC: 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 BIR shall be brought in the name of the Government of the Philippines and shall be conducted by legal officers of the BIR. – 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.

CRIMINAL ACTION •

•

According to the OSG, “[t]he primary responsibility to conduct civil and criminal actions lies with the legal officers of the BIR such that it is no longer necessary for BIR legal officers to be deputized by the OSG or the Secretary of Justice before they can commence any action under the 1997 Tax Code.” The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which “shall be conducted by legal officers of the BIR” is not in dispute. An appeal from such court, is not a matter of right. Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic. This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings (Resolution in CIR vs. La Suerte Cigar & Cigarette Factory, G.R. No. 144942, July 4, 2002).

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CRIMINAL ACTION • Sec. 7(b), RA 8292: Jurisdiction of CTA over Cases involving Criminal Offenses – Any provision of law or the Rules of Court to the contrary notwithstanding, the criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with, and jointly determined in the same proceeding by the CTA, the criminal action being deemed to necessarily carry with it the filing of the civil action, and no right to reserve the filing of such civil action separately from the criminal action will be recognized.

CRIMINAL ACTION • Sec. 205, 2005 NIRC: Remedies for the Collection of Delinquent Taxes – 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.

• Sec. 253(a), 2005 NIRC: General Provisions – Any person convicted of a crime penalized under this Code shall, in addition to being liable for the payment of the tax, be subject to the penalties imposed herein: Provided, That payment of the tax due after apprehension shall not constitute a valid defense in any prosecution for violation of any provision of this Code or in any action for the forfeiture of untaxed articles.

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CRIMINAL ACTION •

FILING OF CRIMINAL ACTION DURING PENDENCY OF PROTEST – Assessment is not necessary to criminal prosecution for willful attempt to evade tax. – Crime is complete when violator has knowingly and willfully filed fraudulent return with intent to evade tax – What is involved here is not collection of taxes where assessment may be reviewed by RTC, but criminal prosecution for violation of Tax Code – There is no precise computation and assessment of tax before there can be criminal prosecution – There can be no civil action to enforce collection before assessment procedures have been followed [Ungab v. Cusi (1980)]

CRIMINAL ACTION • CRIMINAL CHARGE WITHOUT ASSESSMENT – Assessment is not necessary before criminal charge (for non-filing of return) is filed – Criminal charge need only be proved by prima facie showing of failure to file required return and such fact need not be proved by an assessment – Issuance of assessment is different from filing of complaint for criminal prosecution [CIR v. Pascor Realty & Dev Corp (1999)]

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CRIMINAL ACTION • For criminal prosecution to proceed before assessment, prima facie showing of willful attempt to evade tax must exist [CIR v. Fortune Tobacco (1997)] • Fortune Tobacco’s situation is factually apart from Ungab – Registered whole price approved by BIR is presumed the actual price – Not fraudulent, unless BIR has final determination of what is the correct tax – Preliminary investigation may be enjoined under exceptional circumstances

• PART III: • REMEDIES OF TAXPAYERS

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REMEDIES OF TAXPAYERS • ADMINISTRATIVE REMEDY – BEFORE PAYMENT OF TAX • PROTEST OF ASSESSMENT

– AFTER PAYMENT OF TAX • TAX CREDIT, OR • REFUND

• JUDICIAL REMEDY – APPEAL TO COURT OF TAX APPEALS

TIPS IN HANDLING TAX AUDIT • BEFORE TAX AUDIT – File tax returns not later than the last day prescribed by law for its filing at proper venue – Pay in full the tax shown in the return as the return is filed – Reconcile figures per returns, financial statements, attachments to returns, alpha lists, and inventory – File final audited financial statements and amend tax returns, if necessary, before the service of audit notice by the BIR and within 3 years from date of filing of original returns

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TIPS IN HANDLING TAX AUDIT • DURING TAX AUDIT – Assign a room where the revenue officers can do the audit of books and accounting records – Designate particular persons who will talk to revenue officers on certain matters and who will release books and documents relating to tax audit – Make sure that records about bank deposits are not given or accessed by revenue officers; these are confidential records under RA 1405 – Only revenue officers whose names are stated in the audit notice should be allowed to examine the books and records of the taxpayer – The scope of the tax audit is generally limited only to one year. Give books and records pertaining only to the period and kinds of taxes covered in the audit notice.

TIPS IN HANDLING TAX AUDIT • DURING TAX AUDIT – The audit is expected to be completed within 120 days; otherwise, the audit notice must be revalidated for another 120 days. – For a second audit notice, usually made by the NID or SID and served upon the same taxpayer already audited by the district office or Large Taxpayers Service, try to limit the scope of the second tax audit to the areas covered by the confidential information that became the basis for the issuance of the second audit notice approved by the Commissioner. – Get a copy of the agreement form and payment form (BIR Form 0605) for the deficiency taxes paid from the tax office head that conducted the audit. If possible, the Termination Letter signed by the Regional Director should be requested from the BIR. – Attend to written demands for the production of books and records by the revenue officers to avoid issuance of subpoena.

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TIPS IN HANDLING TAX AUDIT • FINAL ASSESSMENT NOTICE – File a protest letter against the FAN in all cases, even if exactly the same findings and computations as in the PAN are made by revenue officers in the FAN. – Explain all the specific defenses (factual and legal) and arguments that you have against the deficiency assessments in the protest. – Don’t request for an extension to file the protest against the FAN. The law gives the taxpayer additional 60 days from the date of filing of protest within which to file the supplemental protest, where additional evidence and legal arguments may be submitted in support of the protest. – If instead of a FAN, a collection letter was received from the BIR, the 30-day period to file the protest starts only from the date of receipt of the collection letter.

COMMON TAX ISSUES IN AUDIT • UNDECLARED OR UNDER-DECLARED INCOME – Variance between gross sales or receipts per books and revenue per income tax return • Adjustments to net income

– Variance between income tax return and VAT returns • Sales of goods or properties • Sales of services

– Variance between audited financial statements and tax returns – Variance between SLS and SLP and tax returns and audited financial statements – Variance between tax returns, audited financial statements and alpha list of compensation income – Formula to determine collection of receivables and amount of sales

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COMMON TAX ISSUES IN AUDIT • UNEXPLAINED ASSETS, LIABILITIES, OR DISALLOWED EXPENSES – Discrepancy between inventory per books, audited financial statement and inventory filed with BIR – Unusual receipt or disbursement of funds – Interest imputed on loans of related parties or advances of stockholders to the corporation or viceversa – Tax arbitrage for banks and non-banks; limitation with respect to deductible interest expense for the year – NOLCO carried over succeeding years – Excessive contributions or contributions to nonqualified donees or beneficiaries

COMMON TAX ISSUES IN AUDIT • NO WITHHOLDING, OR UNDER- OR OVERWITHHOLDING OF TAX – Variance between withholding tax paid and deduction claimed in tax return or figure in audited financial statements – Tax and expenses on transaction were assumed by the buyer in the instrument of sale – Accrual of expense was made during the year but expense was paid in the succeeding year – Top 10,000 or 20,000 Corporations or Top 5,000 Individuals – Tax base of withholding tax – income tax and withholding tax • EWT base of security agencies vs. employment and janitorial agencies

– Failure of withholding agent to remit withheld tax to BIR – Proof of withholding tax (BIR Form 2307 and secondary evidence)

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COMMON TAX ISSUES IN AUDIT • NON-BUSINESS-RELATED AND UNSUPPORTED EXPENSES OR NON-PRESENTATION OF DOCUMENTS – Personal trip or mixed personal and business trip with wife and/or children – Representation expenses – Charitable contributions – Casualty losses (flood, storm, fire, etc) • • • •

Evidenced by closed and completed transaction Insurance proceeds Loss of inventory vs. loss of fixed assets used in business Declaration of Loss filed within 45 days from date of loss

– Allocation of rental and electricity expenses between related taxpayers

COMMON TAX ISSUES IN AUDIT • ORDINARY EXPENSE OR CAPITAL EXPENDITURE – – – – – – –

Advertising expense Major repairs Organization expenses Expenses for listing of shares Lawyer’s fees for the defense of title to property Depreciation on appraisal value of property Depreciation on improvements on real property

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COMMON TAX ISSUES IN AUDIT • OUT-OF-PERIOD TAX CREDITS AND EXPENSES – Accrual of expense in current year and payment in succeeding year • Productivity incentive paid in following year after the filing of income tax return

– Reporting of income in current year and claiming of tax credit in succeeding year – Claiming of tax credit without supporting BIR Form 2307 (Certificate of Tax Withheld); use of secondary evidence like Journal Voucher – Prior period expenses claimed in current year

COMMON TAX ISSUES IN AUDIT • ACCOUNTING METHODS – Cash method – Accrual method • All events test

– Installment sale method – Percentage of completion method – Crop year method

• Change of accounting method and period • Filing of short-period return • “Open cases”

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COMMON TAX ISSUES IN AUDIT •

TAX BASE – Sale of goods or properties (Gross Selling Price or Fair Market Value) • Sale of real property on installment – Sale of services (Gross Receipts) • Domestic common carrier by land vs. by air or water • International carrier by air or water • Shipping agent • Limousine services by a five-star hotel • Reimbursement expenses of brokers, forwarders, and professionals

•

DOCUMENTS TO PROVE INPUT TAX – VAT sales invoice • VAT invoice for exempt transaction

– VAT official receipt – Other documents (invoice, acknowledgment receipt, delivery receipt, etc.) – BIR Certificate of Registration

COMMON TAX ISSUES IN AUDIT • SALE OF GOODS OR SERVICES – Sale of foods by restaurant – Sale of shares of stocks by dealer in securities – Sale of construction materials and labor by a contractor of house – Sale of books and school supplies

• TAX APPLICABLE ON TRANSACTION – VAT or other percentage tax or no business tax • Sales of medicines by hospital to in-patients and out-patients • Sales of vegetables by farmer, dealer or retailer

– Thresholds for sale or lease of real property

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PRESCRIPTION • Sec. 203, 2005 NIRC: Period of Limitation upon Assessment and Collection – Except as otherwise provided in Sec. 222, taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return. – No proceeding in court without assessment for the collection of taxes shall be begun after the expiration of prescriptive period.

• Sec. 222(a), 2005 NIRC: Exceptions as to Period of Limitation of Assessment and Collection of Taxes – In 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.

PRESCRIPTION • Sec. 281, 2005 NIRC: Prescription for Violations of any Provision of this Code – All violations of any provision of this Code shall prescribe after five (5) years. – Prescription shall begin to run from the day of the commission of the violation of the law, and if the same be not known at the time, from the discovery thereof and the institution of judicial proceedings for its investigation and punishment. – Prescription shall be interrupted when proceedings are instituted against the guilty persons and shall begin to run again if the proceedings are dismissed for reasons not constituting jeopardy. – The term of prescription shall not run when the offender is absent from the Philippines.

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PRESCRIPTION • The 3-year period within which to assess any deficiency tax commences after the last day prescribed by law for the filing of the income tax return. • For VAT, each taxable quarter shall have its own prescriptive period. VAT return is filed quarterly and a final return is not required at the end of the year. • In case of creditable withholding taxes, the 3-year period shall be counted shall be counted from the last day required by law for filing monthly remittance return. Each monthly return is already a complete return. The annual information return submitted to BIR is just an annual report of income payments and taxes withheld and is not in the nature of a final adjustment return (HPCO Agridev Corp. vs. CIR, CTA Case No. 6355, July 18, 2002)

EXTENSION OF STATUTE OF LIMITATIONS • • • • • • • •

Waiver must be in the form identified in RMO 20-90. Expiry date of period agreed upon is indicated in the waiver. Waiver form requires statement of the kind of tax and amount of tax due; if not indicated in the waiver, there is no agreement. Waiver is signed by taxpayer or his authorized representative. In case of corporation, waiver is signed by any responsible official. CIR or his authorized representative shall sign waiver indicating that BIR has accepted and agreed to the waiver. Date of acceptance by BIR is indicated. Date of execution and acceptance by BIR should be before expiration of prescriptive period. Waiver is executed in 3 copies; second copy is for taxpayer. Fact of receipt by the taxpayer should be indicated in the original copy (Pfizer, Inc. vs. CIR, CTA Case No. 6135, Apr. 21, 2003; FMF Dev. Corp. vs. CIR, CTA Case No. 6153, Mar. 20, 2003)

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EXTENSION OF STATUTE OF LIMITATIONS • Waiver must indicate definite expiration date agreed upon by CIR and taxpayer • Waiver should state date of acceptance by BIR. Without the date, it cannot be determined whether waiver was accepted before expiration of 3-year period. • Taxpayer must be furnished copy of accepted waiver. Under RMO 20-90, second copy of waiver is for taxpayer. Fact of receipt by taxpayer of his copy should be indicated in the original copy (Phil. Journalists vs. CIR).

SUSPENSION OF STATUTE OF LIMITATIONS • RUNNING OF STATUTE OF LIMITATIONS ON MAKING OF ASSESSMENT, AND BEGINNING OF DISTRAINT OR LEVY OR PROCEEDING IN COURT FOR COLLECTION IS SUSPENDED – During which CIR is prohibited from making assessment or beginning distraint or levy or proceeding in court and for 60 days thereafter – When taxpayer requests for reinvestigation which is granted by CIR – When taxpayer cannot be located in the address given by him in the return filed, unless he informs CIR of change of address – When WDL is duly served upon taxpayer or his representative and no property could be located; and – When taxpayer is out of the Philippines (Sec. 223, NIRC)

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SUBPOENA DUCES TECUM • Legal basis: Sec. 266, NIRC • RAMO 3-82 provides guidelines in issuance of subpoena duces tecum • Remedies to enforce compliance – Filing of criminal case for violation of Sec. 72 (suit to recover tax based on false or fraudulent return) and Sec. 265 (offenses relating to DST) – Initiate proceedings for indirect contempt under Rule 71 of the Revised Rules of Court

INQUIRY ON BANK DEPOSITS • GENERAL RULE: – CIR may not examine bank deposits of taxpayers nor can he inquire into bank deposits (RA 1405)

• EXCEPTIONS: – To determine gross estate of a decedent – The application for compromise based on financial incapacity of a taxpayer shall not be considered, unless and until he waives in writing his privilege. Such waiver constitutes the authority of CIR to inquire into the bank deposits of the taxpayer.

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REFUND/TAX CREDIT • INCOME TAX – Taxpayer filed a written claim for refund or tax credit, stating the factual and/or legal bases – Claim was filed with BIR within the prescriptive period – Taxpayer erroneously or illegally paid the tax to the government, which is evidenced by a return filed and official receipt issued – Petition for review was filed with the CTA within the prescriptive period – There is no deficiency tax against the taxpayer

• PART IV: • NEW ADMINISTRATIVE ISSUANCES ON TAX AUDITS

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ADMINISTRATIVE ISSUANCES • RMO 13-2009, April 28, 2009 – To address the low compliance of taxpayers falling under the small- and medium-business categories, the Office Audit Section of the Assessment Division has been empowered to conduct audit covering 2007 tax returns not selected for issuance of LA or TVN and TAMP, except those whose principal place of business is in island districts under the jurisdiction of the Regional Office. – Office audit shall be conducted without field investigation and only within the premises of the Assessment Division. – They shall be covered by OA-LA, which will be mailed to taxpayers, to distinguish them from LA-RDO and shall cover all internal revenue taxes for one year.

ADMINISTRATIVE ISSUANCES • RMO 2-2008, Jan. 8, 2008 – Additional BIR officials are authorized to issue subpoena duces tecum – In the national office: • Aside from ACIR, Legal Service, the HREA of Legal Service and LTS • Chief, LTAID or LTDO may be authorized in writing by the CIR

– In the regional offices: • Aside from the Regional Director or his Assistant RD, the Chief, Legal Division or the RDO, as may be authorized by the Regional Director thru a Regional Delegation Order.

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ADMINISTRATIVE ISSUANCES • RMC 23-2009, April 16, 2009 – Pursuant to RAMO 3-82 and RMO 35-90, only the books, records and specific documents necessary for the inspection but not yet provided by the taxpayer should be mentioned in the memo of the revenue officer recommending the issuance of SDT. – Documents submitted as partial compliance to earlier request should no longer be mentioned in the memo.

ADMINISTRATIVE ISSUANCES • RMO 12-2009, April 28, 2009 – Every failure by a taxpayer who is required to submit the SLS and/or SLP in the prescribed format for a particular period, or a taxpayer who submits erroneous, incomplete, falsified information in SLS and/or SLP, shall be considered as a ground for the issuance of subpoena duces tecum by the BIR. – Upon submission of the SLS and/or SLP, the concerned shall also be required to pay the compromise penalty in the amount of P10,000 for each non-submission of the SLS and/or SLP. – If taxpayer continues to fail to submit SLS and/or SLP, nonsubmission shall be construed as failure to supply correct and accurate information under Sec. 255 of the Tax Code.

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ADMINISTRATIVE ISSUANCES • RMO 23-2009, July 8, 2009 – The NID shall have authority, subject to the approval of the CIR, to conduct audit on inter-related companies and conglomerates, including related individual taxpayers from certain industries. – Various schemes shall be identified, such as the use of tax-exempt entities or those with special tax privileges, inter-related company loans and advances, cost sharing and the supply of goods and services. – Transfer pricing among related parties shall be considered.

ADMINISTRATIVE ISSUANCES • RMO 24-2008, May 9, 2008 – To qualify under the RATE Program, a case must conform to the following conditions: • Cases representing violations under any of Secs. 254, 255, 257 and 258 of the Tax Code, including one-time transactions; • High-profile taxpayers or taxpayers well-known within the community, industry or sector to which the taxpayer belongs; and • Estimated basic tax deficiency is at least P1 million per year and tax type, but priority should be given to tax cases where the aggregate basic tax deficiencies for all tax types per year is P50 million or more.

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