REMEDIES OF THE TAXPAYER

BEFORE PAYMENT

1. administrative protest
2. request for reconsideration
3. request for reinvestigation
4. judicial protest

AFTER PAYMENT

1. claim for tax refund

2. claim for tax credit

1. Administrative Protest (Protest against Assessment)

WHEN: within 30 days from receipt of final assessment notice (FAN)

WHERE: BIR

HOW: written protest, stating facts, applicable law, rules and regulations or
jurisprudence o which his protest is based; if only portions of FAN are disputed, must
pay the deficiency tax on undisputed portion

PROCEDURE:

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

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

WHEN PAN IS NOT REQUIRED:

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

2. Request for Reconsideration – a plea for re-evaluation of an assessment on the

basis of EXISTING RECORDS without need of additional evidence (question of law or
fact or both)

3. Request for Reinvestigation – a plea for reinvestigation of an assessment on the

basis of NEWLY-DISCOVERED EVIDENCE that a taxpayer intends to present in the
reinvestigation (question of law or fact or both)

- in either case, the request must be accompanied by a WAIVER of the statute of

limitations in favor of the government

4. Judicial Protest

PROCEDURE

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

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

Tax Refund vs. Tax Credit

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

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

Requisites for Recovery

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

Q: Are income tax returns actionable documents which must be specifically

denied by the Government, otherwise it would constitute an admission to the
allegation that payment has in fact already been made and therefore the taxpayer
no longer has to submit proof of claim of refund?
A: Income tax returns are not actionable documents because the action is not based on
the income tax returns but on the entitlement of the taxpayer to tax refund. Therefore,
his claim for refund must be supported by proof.

NOTA BENE: If proof of claim for refund is established, the BIR should refund without any unreasonable delay

Q: Is tax deficiency assessment a bar to tax refund or credit claim?

A: Yes. The deficiency assessment creates a doubt as to the truth and accuracy of the
return. Said return cannot therefore be the basis of refund or credit.

Statutory Requirements for Refund/Credit Claims

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

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

WHEN 2-YR PRESCRIPTIVE PERIOD SUSPENDED

1. there is a pending litigation between the two parties

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

WHY WRITTEN CLAIM IS NECESSARY:

1. to afford CIR an opportunity to correct action of subordinates

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

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

o CIR acted with patent arbitrariness

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

PRINCIPLE OF EQUITABLE RECOUPMENT – allows a taxpayer whose claim for a

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

REMEDIES OF THE GOVERNMENT

- these remedies may be pursued singly or simultaneously

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

2. Compromise
- allowed when:

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

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

Compromise v. ABATEMENT:

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

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

GR: compromise of criminal violations is allowed, EXCEPT:

1. those already filed in court

2. those involving fraud

GR: power to compromise is a non-delegable power of CIR, EXCEPT that regional

evaluation board may compromise:

1. basic taxes less than P500,000

2. minor criminal violations

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

1. collect the compromised sum; or

2. disregard the compromise and collect the original tax due.

ADDENDUM: But if the taxpayer does not agree to the compromise, a collection action by the government for the
compromise penalty does not lie. This is because, by its nature, a compromise is entered into by mutual agreement
between parties and the proposed compromise penalty is neither tax nor an administrative penalty for tax
delinquency.

Q: May a case still be compromised after final judgment?

A: No, because by virtue of the final judgment, the government had already acquired a
vested right.

Q: Can withholding tax be compromised?

A: No. Taxpayer constituted as withholding agent who deducted and withheld at source
the tax on income payment made by him holds the taxes as trust funds for the
government. He is obligated to remit them to the BIR. His subsequent inability to pay or
remit the tax withheld is not a ground for compromise because the withholding tax is not
a tax upon the withholding agent but is only a procedure for collection of tax.

3. Distraint and Levy

- summary, extra-judicial or administrative enforcement remedies

DISTRAINT v. LEVY: distraint is to personal property while levy is to real property

KINDS OF DISTRAINT:

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

CONSTRUCTIVE DISTRAINT PROPER IF:

1. taxpayer is retiring from any business subject to tax
2. he intends to leave the Philippines
3. he removes his property therefrom
4. he performs any act tending to obstruct the proceedings for collecting the tax due or which may
be due from him

PROCEDURE:

o Actual Distraint Procedure

1. commencement of distraint proceedings by CIR (P1M+) or RDO (P1M or less)
2. service of warrant of distraint
3. notice of sale of distrained property to the owner or possessor not less than 20 days from date of
sale, and osting in not less than 2 public places in municipality or city where distraint is made
4. sale of property distrained by public auction, highest bidder for cash, or with approval of CIR
through duly licensed commodity or stock exchange
EQUITY OF REDEMPTION: payment of all proper charges any time prior to sale

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

o Constructive Distraint Procedure

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

o Procedure on Levy of Real Property

1. service of warrant of levy after the expiration of time required to pay the delinquent tax
2. duly authenticated certificate showing the name of the taxpayer and the amounts of the tax and
penalty due from him (operate with the force of a legal execution)
3. written notice of levy to the Register of Deeds and the delinquent taxpayer, his agent or manager
(if TP is absent), occupant of the property (if no agent/manager); in case government first
effected distraint and it is not enough to cover the tax, then CIR shall, within 30d after execution
of the distraint, proceed with levy
4. advertisement of the sale within 20d after levy for a period of at least 30d at the main entrance of
the municipal building and other public, conspicuous places and publication once a week for
3wks in a newspaper of general circulation
5. public sale of the property under levy at main entrance of the municipal building or on the
premises to be sold
6. return of sale within 5d after sale
7. issue certificate of sale; taxpayer is entitled to any residue
8. in case of no bidder, the property shall be declared forfeited to the government
EQUITY OF REDEMPTION: any time prior to sale
RIGHT OF REDEMPTION: within 1yr from date of sale or forfeiture

4. Civil Action

WHEN:

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

WHERE: regular courts, with approval of CIR except if express delegation to Regional
Director; motion to dismiss the complaint should also be filed in the regular courts

HOW: the complaint must be brought in the name of the Government and conducted by
a legal officer of the BIR

5. Criminal Action

WHEN: before lapse of 5 years (prescription period)

WHERE: DOJ

HOW: complaint approved by CIR brought in the name of the Government and
conducted by a legal officer of the BIR

GROUND: prima facie showing of failure to file a required tax return or a willful attempt
to evade taxes; no need for assessment

6. Other Remedies Available

o Forfeiture
o Suspension of Business Operations
o Enforcement of Administrative Sanctions