Tax2-Donalvo-2018 Tsn-Third Exam-Part 1

TAXATION
2- 3rd exam
FROM THE LECTURES OF ATTY. DONALVO 2018-2019
Campaner, Castro, Gido, Isidor, Lagat, Lim, Olamit, Singanon, Tan, Viola – compiled by del Rosario

February 28, 2019 composed of VAT, OPT, excise tax, estate and donor’s
(Tan) tax, and DST.

ORGANIZATION AND FUNCTION OF THE BUREAU (2) Enforcement of all forfeitures, penalties, and
OF INTERNAL REVENUE fines connected therewith.

This also includes the execution of judgments in case
SEC. 2. Powers and Duties of the Bureau of Internal the taxpayer will not pay. It also includes the fines and
Revenue. - The Bureau of Internal Revenue shall be penalties in case the taxpayer will not pay or if the
under the supervision and control of the taxpayer will not follow the rules and regulations in
Department of Finance and its powers and duties paying the taxes such as form, venue, wrong filing etc.
shall comprehend the assessment and collection of
all national internal revenue taxes, fees, and (3) Execution of judgments in all cases decided in
charges, and the enforcement of all forfeitures, its favor.
penalties, and fines connected therewith,
including the execution of judgments in all cases If there is a case decided by the Court of Tax Appeals
decided in its favor by the Court of Tax Appeals and and the ordinary courts which is final and executory,
the ordinary courts. The Bureau shall give effect to it is the BIR which will execute these judgments so
and administer the supervisory and police powers that the judgments will not be rendered nugatory.
conferred to it by this Code or other laws.
(4) Has the exclusive and original jurisdiction to
The BUREAU OF INTERNAL REVENUE is a part and interpret the provisions of the NIRC and other tax
parcel of the total revenue operations of the laws.
government particularly of the Department of
Finance. The task of BIR is not the enforcement of all The decision of the BIR is subject to review by the
tax laws, but BIR is just one of the income regulating Secretary of Finance.
agency of the government. It does not cover all types
of taxes such as those: (5) To decide disputed assessments, refunds of
1. Covered by the BOC on imports and exports internal revenue taxes, fees or other charges,
duties; penalties.
2. Covered by the SEC with respect to
corporations; As a whole, when you talk about the enforcement of
3. Other tax regulating agencies of the entirety of the NIRC, you go to the BIR because it
Municipalities; has the enforcement powers as guaranteed by the
4. Covered by LTO with respect to motor NIRC and other special laws. Again, BIR is just under
vehicle registrations fees which fees are the DOF which supervises and controls the BIR.
used for the building and maintenance of
roads and highways; BIR OFFICERS IN GENERAL

Under the NIRC, the BIR is under the supervision and SEC. 3. Chief Officials of the Bureau of Internal
control of the Department of Finance. Revenue. - The Bureau of Internal Revenue shall
have a chief to be known as Commissioner of
POWERS AND DUTIES OF THE BIR Internal Revenue, hereinafter referred to as the
Commissioner, and four (4) assistant chiefs to be
(1) Assessment and collection of all national known as Deputy Commissioners.
internal revenue taxes, fees, and charges.
Dati the COMMISSIONER OF INTERNAL REVENUE is
Note that it only covers national internal revenue called the COLLECTOR.
taxes such as income tax, business tax which is
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TAXATION 2- 3rd exam

(Viola) his supervision, and to report in writing to the
The Commissioner is a presidential appointee upon Commissioner, through the Regional Director, any
recommendation of the Secretary of Finance. neglect of duty, incompetency, delinquency, or
malfeasance in office of any internal revenue officer
Regional Director of which he may obtain knowledge, with a statement
of all the facts and any evidence sustaining each case.
Section 10. Revenue Regional Director. - Under rules
and regulations, policies and standards formulated by Ultimately, the enforcement and implementation
the Commissioner, with the approval of the Secretary powers of the NIRC is granted to one person only and
of Finance, the Revenue Regional director shall, that is the CIR.
within the region and district offices under his
jurisdiction, among others: Section 4. Power of the Commissioner to Interpret Tax
(a) Implement laws, policies, plans, programs, rules Laws and to Decide Tax Cases. - The power to
and regulations of the department or agencies in the interpret the provisions of this Code and other tax
regional area; laws shall be under the exclusive and original
(b) Administer and enforce internal revenue laws, and jurisdiction of the Commissioner, subject to review by
rules and regulations, including the assessment and the Secretary of Finance.
collection of all internal revenue taxes, charges and The power to decide disputed assessments, refunds
fees. of internal revenue taxes, fees or other charges,
(c) Issue Letters of authority for the examination of penalties imposed in relation thereto, or other
taxpayers within the region; matters arising under this Code or other laws or
(d) Provide economical, efficient and effective service portions thereof administered by the Bureau of
to the people in the area; Internal Revenue is vested in the Commissioner,
(e) Coordinate with regional offices or other subject to the exclusive appellate jurisdiction of the
departments, bureaus and agencies in the area; Court of Tax Appeals.
(f) Coordinate with local government units in the

area; To put it simply, the CIR has to interpret tax laws in
(g) Exercise control and supervision over the officers order to decide tax cases.
and employees within the region; and
(h) Perform such other functions as may be provided
INTERPRETATION OF TAX LAWS
by law and as may be delegated by the Commissioner.
-It can be done through the issuance of tax rulings.
Basically, it is the enforcement and implementation of
the NIRC within its territorial jurisdiction. Tax rulings are official decisions of the BIR on
clarifications on the certain provisions in the NIRC,
Revenue District Officer other tax laws filed by the taxpayer who are usually
seeking for tax exemptions.
Section 11. Duties of Revenue District Officers and
Other Internal Revenue Officers. - It shall be the duty Rulings are based on the facts and circumstances
of every Revenue District Officer or other internal presented and these are applied with interpretations
revenue officers and employees to ensure that all of the law at specific point in time. The BIR also issues
laws, and rules and regulations affecting national rulings on written questions of individuals and
internal revenue are faithfully executed and complied juridical entities relative to their status as taxpayers
with, and to aid in the prevention, detection and and the effect of their transactions for taxation
punishment of frauds of delinquencies in connection purposes.
therewith.
It shall be the duty of every Revenue District Officer If you are not sure about the tax consequence of a
to examine the efficiency of all officers and transaction, you ask the BIR and ask for a ruling.
employees of the Bureau of Internal Revenue under
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Taxpayers can only ask for BIR rulings if they believe which has been decided before – there is no
that the transaction is a tax-exempt transaction. stare decisis (unlike that of SC decisions). But
Example, in barter or exchange of real property, there they can provide information on how the
is a taxable transaction which is ordinarily subject to bureau may treat similar transactions, you
income taxation or capital gains taxation. may cite it but you cannot claim rights over
it.
Assuming there was just an error in the title of a real
property setting forth the meets and the bounds of a 4. The CIR, in issuing its rulings, is not bound
certain property, so they wrote the BIR asking for a by its predecessor.
tax ruling on the matter to determine whether the
change in the description would be a taxable MISAMIS ORIENTAL ASSOCIATION vs.
transaction. DOF
G.R. No. 108524
Two kinds of BIR ruling
This has something to do with the
1. The ruling is of first impression, which means the definition of copra. In a previous ruling,
interpretations made by the Commissioner of Internal it was stated that “copra is an agri non-
Revenue is made for the first time on a particular set food product and is exempt from VAT.”
of facts, and one issued without established
precedents. When a new CIR was appointed, he
made a new ruling classifying copra.
This type of ruling shall not be valid unless reviewed “exempt from VAT only if the sale is
and approved by the Secretary of Finance and the made by a primary producer.”
rulings must only be issued by the Commissioner.
Can the CIR do that? Yes, the CIR can
2. Rulings, opinions and interpretations of the reverse the ruling of its predecessor. He
Commissioner with respect to the provisions of the is not bound by the ruling of his
Tax Code and other tax laws, as applied to a specific predecessors. To the contrary, the
set of facts, with established precedents, and which overruling of decisions is inherent in
the Commissioner may issue from time to time to the interpretation of laws.
inform taxpayers of the tax consequences on specific
situations. 5. While the rulings of the BIR are entitled to
great respect, the courts are not bound by it
Principles to be followed re: BIR Rulings if the interpretation given is inconsistent
with the basic law – again, the SC is the final
1. The interpretation of the officers of law arbiter of any tax-related matter.
which are entrusted to their administration
is entitled to great respect, this simply Another way of interpreting Tax Rules is through
means that it has the presumption of legality Revenue Regulations. Kung merong IRR ang Labor
on its favor. Code, when it comes to the BIR, we call them as
(Campaner) Revenue Regulations.
2. BIR Rulings has the force and effect of law
– it’s not a law in itself but it has the force Who promulgates them? It’s the Secretary of Finance
and effect of one; such that if the BIR issues upon the recommendation of the CIR. The issuance of
a tax ruling, the BIR cannot go against it. an RR is authorized by law and as such has the force
and effect of law.
3. The BIR rulings cannot be made or cited
as precedent of a taxpayer but it can be used In case there is a conflict between a law and RR, of
as an information on a particular matter course the law will prevail. Case in point is the:
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CIR vs. FORTUNE TOBACCO (a) Where the taxpayer deliberately
G.R. Nos. 167274-75 misstates or omits material facts from his
return or any document required of him
Yung meron silang Revenue Regulation setting a by the Bureau of Internal Revenue;
floor on the value of the excise tax to be paid by (b) Where the facts subsequently gathered
the tobacco manufacturers, producers and by the Bureau of Internal Revenue are
company owners. However, the ceiling is not found materially different from the facts on
in the NIRC. which the ruling is based; or
Where the taxpayer acted in bad faith.
Administrative regulations must always be in
harmony with the provisions of the law because If you follow the provision, the General Rule is that
any resulting discrepancy between the two will rulings and regulations are not retroactive they are
always be resolved in favor of the basic law. prospective in application. Any revocation,
modification or reversal of rules and regulations shall
REVENUE REGULATIONS are issuances signed by the not be given any retroactive effect or application if it
Secretary of Finance, upon recommendation of the will be prejudicial to the taxpayer.
CIR that specify, prescribe or define rules and
regulations for the effective enforcement of the What are the EXCEPTIONS? (provided in the codal
provisions of the NIRC and related statutes. above)
1. Deliberate misstatement or omission of
Take note also of the definition of: material facts – namakak ang taxpayer
2. Facts subsequently gathered by the Bureau
REVENUE MEMORANDUM ORDERS are issuances of Internal Revenue are materially different
that provide directives or instructions; prescribe from the facts on which the ruling is based –
guidelines; and outline processes, operations, meaning the taxpayer was subjected to a ??
activities, workflows, methods and procedures then the taxpayer presented the tax ruling,
necessary in the implementation of stated policies, then the BIR found out that the facts
goals, objectives, plans and programs of the Bureau in provided are materially different from the
all areas of operations, except auditing. facts made on that ruling
3. Where the taxpayer acted in bad faith.
REVENUE MEMORANDUM CIRCULARS are issuances
that publish pertinent and applicable portions, as well SEC. 5. Power of the Commissioner to Obtain
as amplifications, of laws, rules, regulations and Information, and to Summon, Examine, and Take
precedents issued by the BIR and other Testimony of Persons. - In ascertaining the
agencies/offices. correctness of any return, or in making a return
when none has been made, or in determining the
Let’s go to the question – can BIR rulings be given liability of any person for any internal revenue tax,
retroactive applications? or in collecting any such liability, or in evaluating
tax compliance, the Commissioner is authorized:
SEC. 246. Non- Retroactivity of Rulings. - Any
revocation, modification or reversal of any of the (A) To examine any book, paper, record, or
rules and regulations promulgated in accordance other data which may be relevant or
with the preceding sections or any of the rulings or material to such inquiry;
circulars promulgated by the Commissioner shall
not be given retroactive application if the (B) To obtain on a regular basis from any
revocation, modification or reversal will be person other than the person whose
prejudicial to the taxpayers, except in the following internal revenue tax liability is subject to
cases: audit or investigation, or from any office
or officer of the national and local
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governments, government agencies and There are several powers enumerated here. First is
instrumentalities, including the Bangko letter A - To examine any book, paper, record, or
Sentral ng Pilipinas and government- other data which may be relevant or material to such
owned or -controlled corporations, any inquiry;
information such as, but not limited to,
costs and volume of production, receipts The BIR has the authority to look at the accounting
or sales and gross incomes of taxpayers, books and records of the taxpayer to determine
and the names, addresses, and financial whether or not the taxpayer has indeed made the
statements of corporations, mutual fund correct declaration for tax purposes.
companies, insurance companies,
regional operating headquarters of Please take note that the BIR is given this power
multinational companies, joint accounts, mainly because we are applying the self-assessment
associations, joint ventures of consortia system. It is a form of counterchecking whether or not
and registered partnerships, and their the taxpayer has been honest in making his
members; declarations.

(C) To summon the person liable for tax or Is the examination limited to the books and records of
required to file a return, or any officer or the taxpayer concerned only? “tingnan ko kasali yang
employee of such person, or any person books nang supplier mo.”
having possession, custody, or care of the
books of accounts and other accounting Under Sec. 5 (B), the BIR has the power “To obtain on
records containing entries relating to the a regular basis from any person other than the
business of the person liable for tax, or person whose internal revenue tax liability is subject
any other person, to appear before the to audit or investigation, or from any office or officer
Commissioner or his duly authorized of the national and local governments, government
representative at a time and place agencies and instrumentalities, including the Bangko
specified in the summons and to produce Sentral ng Pilipinas and government-owned or -
such books, papers, records, or other controlled corporations xxx.”
data, and to give testimony;
(D) To take such testimony of the person What is changed here (by the TRAIN) is the provision
concerned, under oath, as may be regarding the Cooperative Development Authority.
relevant or material to such inquiry; and
(Castro)
(E) To cause revenue officers and employees NIRC TRAIN
to make a canvass from time to time of SEC. 5 Power of the “Sec. 5. Power of the
any revenue district or region and inquire Commissioner to Obtain Commissioner to Obtain
after and concerning all persons therein Information, and to Information, and to
who may be liable to pay any internal Summon, Examine, and Summon, Examine, and
revenue tax, and all persons owning or Take Testimony of Take Testimony of
having the care, management or Persons - In ascertaining Persons.— In
possession of any object with respect to the correctness of any ascertaining the
which a tax is imposed. return, or in making a correctness of any
return when none has return, or in making a
The provisions of the foregoing paragraphs been made, or in return when none has
notwithstanding, nothing in this Section shall be determining the liability been made, or in
construed as granting the Commissioner the of any person for any determining the liability
authority to inquire into bank deposits other than internal revenue tax, or of any person for any
as provided for in Section 6(F) of this Code. in collecting any such internal revenue tax, or
liability, or in evaluating in collecting any such
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tax compliance, the liability, or in evaluating to the Bureau a tax
Commissioner is tax compliance, the (C) To summon the incentive report, which
authorized: Commissioner is person liable for tax or shall include
authorized: required to file a return, information on the
(A) To examine any or any officer or income tax, value-
book, paper, record, or “(A) x x x employee of such added tax, and other
other data which may person, or any person tax incentives availed
be relevant or material “(B) To obtain on a having possession, of by cooperatives
to such inquiry; regular basis from any custody, or care of the registered and enjoying
person other than the books of accounts and incentives under
(B) To obtain on a person whose internal other accounting Republic Act No. 6938,
regular basis from any revenue tax liability is records containing as amended: Provided,
person other than the subject to audit or entries relating to the further, That the
person whose internal investigation, or from business of the person information submitted
revenue tax liability is any office or officer of liable for tax, or any by the Cooperative
subject to audit or the national and local other person, to appear Development
investigation, or from governments, before the Authority to the
any office or officer of government agencies Commissioner or his Bureau shall be
the national and local and instrumentalities, duly authorized submitted to the
governments, including the Bangko representative at a time Department of Finance
government agencies Sentral ng Pilipinas and and place specified in and shall be included in
and instrumentalities, government-owned or the summons and to the database created
including the Bangko -controlled produce such books, under Republic Act No.
Sentral ng Pilipinas and corporations, any papers, records, or 10708, otherwise
government-owned or information such as, other data, and to give known as ‘The Tax
-controlled but not limited to, costs testimony; Incentives
corporations, any and volume of Management and
information such as, production, receipts or (D) To take such Transparency Act
but not limited to, costs sales and gross testimony of the person (TIMTA)’.
and volume of incomes of taxpayers, concerned, under oath, “x x x.”
production, receipts or and the names, as may be relevant or
sales and gross addresses, and material to such
incomes of taxpayers, financial statements of inquiry; and
and the names, corporations, mutual
addresses, and fund companies, (E) To cause revenue
financial statements of insurance companies, officers and employees
corporations, mutual regional operating to make a canvass from
fund companies, headquarters of time to time of any
insurance companies, multinational revenue district or
regional operating companies, joint region and inquire after
headquarters of accounts, associations, and concerning all
multinational joint ventures or persons therein who
companies, joint consortia and may be liable to pay any
accounts, associations, registered internal revenue tax,
joint ventures of partnerships, and their and all persons owning
consortia and members: Provided, or having the care,
registered That the Cooperative management or
partnerships, and their Development possession of any
members; Authority shall submit
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object with respect to So someone of you is lying, we will make an
which a tax is imposed. assessment to the both of you. So lugi ka kung tikasan
imo ginapalitan.
The provisions of the
foregoing paragraphs In the end, the conclusion is that the BIR is not limited
notwithstanding, to the taxpayer’s record in itself. He can obtain
nothing in this Section information from third persons to determine the
shall be construed as veracity of correctness of the declarations of the
granting the taxpayer under investigation.
Commissioner the
authority to inquire into POWER TO SUMMON
bank deposits other - Power to summon person requires him to produce
than as provided for in books, records, and all other materials.
Section 6(F) of this (B) To summon the person liable for tax or
Code. required to file a return, or any officer or
employee of such person, or any person
What is changed here is that provision in the having possession, custody, or care of the
Cooperative Development Authority (CDA): books of accounts and other accounting
Provided, That the Cooperative Development records containing entries relating to the
Authority shall submit to the Bureau a tax business of the person liable for tax, or any
incentive report x x x other person, to appear before the
Commissioner or his duly authorized
This is to give information to the BIR how these CDAs representative at a time and place specified
are doing financially. in the summons and to produce such books,
papers, records, or other data, and to give
Kailangan ba natin tanggalin ang tax exemption nila? testimony;
The Department of Finance in their study, they
wanted to remove the tax exemption in the
cooperatives because mind you pag COOP walang tax POWER TO TAKE SUCH TESTIMONY OF THE PERSON
daghan kaayo na sila ug kwarta. CONCERNED, UNDER OATH, AS MAY BE RELEVANT
But we cannot do anything about it because the law OR MATERIAL TO SUCH INQUIRY
says that cooperatives registered with the CDA are - Sec. 5 (D)
exempt from a lot of taxes. Si in order for the BIR to
assess later on or for the Department of Finance to POWER TO CAUSE REVENUE OFFICERS AND
assess later on, kailangan ba natin ng tax. Should we EMPLOYEES TO MAKE A CANVASS FROM TIME TO
make a recommendation to the Congress that these TIME OF ANY REVENUE DISTRICT OR REGION AND
INQUIRE AFTER AND CONCERNING ALL PERSONS
institutions, associations or cooperatives be taxed?
That’s why this provision was inserted. THEREIN WHO MAY BE LIABLE TO PAY ANY
INTERNAL REVENUE TAX, AND ALL PERSONS
This power to obtain information has something to do OWNING OR HAVING THE CARE, MANAGEMENT OR
with cross-matching. What is this cross-matching? For POSSESSION OF ANY OBJECT WITH RESPECT TO
WHICH A TAX IS IMPOSED.
example, I am engaged in the selling of goods, of
course the goods that I would sell will come from my - Sec. 5 (E). So naga canvassing sila. I don’t
suppliers. So basically, my purchases of goods are know if they refer to the tax mapping. I think
sales of some other persons. So dapat mag tugma this is an exercise of police power.
yan, kung ilan binenta ko yun dapat lang ang binili ko

din. What if there is a discrepancy to the figures? You
would claim na ito ang tama and the seller will always
claim also na ito ang tama. So what will the BIR do?
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CASES The next question is, what if the BIR happened to
know that the taxpayer has been under declaring his
CIR vs. GONZALES G.R. No. 177279 (October 13, income because of his own information? Gikawat ang
2010) information, gikawat nako ang records.
Supposing the BIR intends to get the information from
third persons in connection to an auditing conducted The accountant in this corporation stole the
to a taxpayer. Is it necessary for the BIR to inform the accounting records of this corporation and he gave it
taxpayer first? Huy, taxpayer mananghid sa ko ha, to the BIR. So probably nag away yung may-ari and
tan-awon nako ang libro sa imohang suppliers ha the accountant. In those documents, the BIR found
kung tama ba gyud ni imong gisulti. anomalies in the corporation and so nag make ng tax
assessment. This corporation challenged the BIR that
In this case, the BIR is peculiar. What happened here why would they use such information, you are not
is that the BIR conducted an audit against a allowed to use that, when in fact it was stolen from
corporation. But the corporation did not want to them to begin with. You should have acquired our
present its books. The BIR said we have to investigate consent first.
your book because somebody said, there is an
informant, that you have been under declaring your The SC said: petitioner impugns the manner in which
income, so we want to read and look at your books. the documents in question reached the BIR, Sablan
having allegedly submitted them to the BIR without
But the corporation did not want to produce its its (petitioners) consent. Petitioners lack of consent
books, so nag issue ng subpoena. And then a criminal does not, however, imply that the BIR obtained them
complaint was filed eventually. illegally or that the information received is false or
malicious. Nor does the lack of consent preclude the
The corporation’s interesting argument here is that BIR from assessing deficiency taxes on petitioner
the information can’t be used against them because based on the documents.
it has not been shown that the informant was
qualified under the informer’s reward. And second, And Section 5 thus allows the BIR access to all
the fact that the corporation, the taxpayer, is not relevant or material records and data in the person of
informed of such move, that is already a violation of the taxpayer, and the BIR can accept documents
due process. which cannot be admitted in a judicial proceeding
where the Rules of Court are strictly observed. To
According to the SC: We have held that the lack of require the consent of the taxpayer would defeat the
consent of the taxpayer under investigation does not intent of the law to help the BIR assess and collect the
imply that the BIR obtained the information from correct amount of taxes.
third parties illegally or that the information
received is false or malicious. Nor does the lack of It would have been a different thing if the BIR STOLE
consent preclude the BIR from assessing deficiency THE RECORDS. It just so happened that some other
taxes on the taxpayer based on the documents. person stole it and naging informant siya. Sabi ng
Court, wala akong pakialam kung ang third party
So okay lang yan. The BIR has the power to look at source niyan kinuha niya yan illegally. But because
other matters, other persons, other documents in there is this information from that third person which
order for the BIR to determine whether or not the would determine your tax deficiency that is alright.
declaration of the taxpayer is correct. We don’t need We can make assessment on your tax deficiency.
to make paalam to you.
As you can see, the BIR is really a powerful entity, it
FITNESS BY DESIGN, INC. vs CIR G.R. No. 177982 can do a lot of things. It can even used illegally
(October 17, 2008) acquired documents for it to assess the correct taxes.
To determine whether or not the taxpayer has made
the correct taxes. Why is that the BIR is given that kind
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of power that sometimes would destroy the taxpayer agency or instrumentality: Provided, however, That
and it would close the business just because the failure to file a return shall not prevent the
taxpayer is not paying its taxes correctly? Why? It is Commissioner from authorizing the examination of
because of our mantra, the taxes are the lifeblood of any taxpayer.
the State without it cannot survive or endure.
> When you read the last part you will see that even
March 5, 2019 if the taxpayer will not file a tax return - it is
(Gido) immaterial. The tax return is not a condition
precedent for the BIR to assess and demand the
The CIR and its duly authorized representatives has payment of the correct taxes.
the power to make assessments. The purpose of that
is to determine the tax due and payable to the The taxpayer is allowed to amend his income tax
government by the taxpayer. Even if the Philippines return. This is allowed only when there is no notice of
has a self-assessment system (meaning taxpayers investigation for such return served to the taxpayer.
themselves compute their taxes), the government is
not precluded in determining whether or not the transcriber's note: [SECTION 6(A) Par. 2 unchanged
declaration of the taxpayers are correct and by TRAIN law] to wit:
ultimately, whether or not the taxpayer has paid the Any return, statement of declaration filed in any
correct taxes. It really doesn’t matter if the taxpayer office authorized to receive the same shall not
does not file an income tax return or whatever be withdrawn: Provided, That within three (3)
internal revenue return - the failure of the taxpayer to years from the date of such filing, the same may
file any tax return will not preclude or affect the be modified, changed, or amended: Provided,
authority of the BIR to assess the proper taxes. The further, That no notice for audit or investigation
BIR still has the power to assess the taxpayer for any of such return, statement or declaration has in
unpaid taxes, compute the taxes. Mind you, when it the meantime been actually served upon the
comes to the computation of taxes the BIR can taxpayer.
compute using the “best evidence obtainable” rule if
there is no tax return or if the taxpayer files it wrong Lets us now go to. . .
or the taxpayer has no accounting record at all. Also SEC. 6 (B) Failure to Submit Required Returns,
the BIR can compute the taxes on basis of estimates Statements, Reports and other Documents. - When a
only or the constructive method of determining how report required by law as a basis for the assessment
much should be a taxpayer be paying to the of any national internal revenue tax shall not be
government (ex: The BIR can compare the net worth forthcoming within the time fixed by laws or rules and
of the taxpayer from the previous year and the regulations or when there is reason to believe that any
current year in cases where BIR find underdeclaration such report is false, incomplete or erroneous, the
of income on the tax return of the taxpayer.) Commissioner shall assess the proper tax on the best
evidence obtainable.
Under the TRAIN LAW: In case a person fails to file a required return
or other document at the time prescribed by
SEC. 6. Power of the Commission to Make Assessment law, or willfully or otherwise files a false or
and Prescribe Additional Requirements for Tax fraudulent return or other document, the
Administration and Enforcement - Commissioner shall make or amend the return
from his own knowledge and from such
A. Examination of Returns and Determination information as he can obtain through
of Tax Due - After a return has been filed as required testimony or otherwise, which shall be prima
under the provisions of this Code, the Commissioner facie correct and sufficient for all legal
or his duly authorized representative may authorize purposes.
the examination of any tax payer and the assessment
of the correct amount of tax, notwithstanding any law
requiring the prior authorization of any government
9


> This is the legal basis why the BIR is allowed to make the worthless machine copies of the Consumption
an amendment on the return of the taxpayer filed Entries. Aside from such copies, the petitioner has no
before the BIR other evidence to prove that the respondent
imported goods costing P105,761,527.00. The
Q: When can the BIR assess the taxpayer based on the petitioner cannot find solace on the certifications of
“best evidence obtainable” rule? Tomas and Danganan because they did not
authenticate the machine copies of the Consumption
A: Entries, and merely indicated therein the entry
1. Report required by law as a basis for the numbers of Consumption Entries and the dates when
assessment of any national internal revenue the Bureau of Customs released the same. The
tax shall not be forthcoming within the time certifications of Tomas and Danganan do not even
fixed by laws or rules and regulations contain the landed costs and the advance sales taxes
• Meaning no income tax return was paid by the importer, if any. As gleaned from the
filed by the taxpayer. certifications of Tomas and Danganan, the goods
2. When there is reason to believe that any covered by the Consumption Entries were released by
such report is false, incomplete or erroneous. the Bureau of Customs, from which it can be
• That means you filed an income tax presumed that the respondent must have paid the
return and what you placed there taxes due on the said importation. The petitioner did
are imaginary figures. not adduce any documentary evidence to prove
otherwise.
Q: what does “best evidence obtainable” mean? Thus, the computations of the EIIB and the BIR on the
quantity and costs of the importations of the
A: respondent have no factual basis, hence, arbitrary
and capricious. The petitioner cannot rely on the
CIR versus HANTEX (GR.136975) presumption that she and the other employees of the
BIR had regularly performed their duties. As the Court
Facts: held in Collector of Internal Revenue v. Benipayo in
Hantex is engaged in the sale of plastics. One of its order to stand judicial scrutiny, the assessment must
most basic material is synthetic resins. The BIR now be based on facts. The presumption of the
received a confidential information that Hantex has correctness of an assessment, being a mere
been underdeclaring their imports of synthetic resins presumption, cannot be made to rest on another
presumption.
What are their (BIR from their informant) evidences?
Photocopy of the import documents called (Isidor)
“consumption entries”. Note that said informat got (FROM 2018 TSN)
the same documents from another person. So on the CIR vs. HANTEX
basis of this the BIR investigated on Hantex. subpoena G.R. No. 136975 | March 31, 2005
duces tecumhas been issued, but then Hantex refuses
to comply with the subpoena. Then the BIR issued an FACTS: The respondent is a corporation duly organized
assessment on the basis of the documents they were and existing under the laws of the Philippines. Being
able to acquire from the informant. engaged in the sale of plastic products, it imports
synthetic resin and other chemicals for the
Hantex protested and claimed that the BIR failed to manufacture of its products. For this purpose, it is
present the original or the authenticated original required to file a Consumption Entry with the Bureau of
copies of the import documents. Customs.

Ruling: [transcriber’s note: from full text] Sometime in October 1989, Lt. Vicente Amoto, Acting
petitioner based her finding that the 1987 Chief of Counter-Intelligence Division of the Economic
importation of the respondent was underdeclared on Intelligence and Investigation Bureau (EIIB), received
10


confidential information that the respondent had 3. The Commissioner of Internal Revenue has
imported synthetic resin amounting to the duty to investigate any circumstance
P115,599,018.00 but only declared P45,538,694.57. which led him to believe that the taxpayer
According to the informer, based on photocopies of 77 had taxable income larger than reported.
Consumption Entries furnished by another informer,
the 1987 importations of the respondent were Necessarily, this inquiry would have to be outside of the
understated in its accounting records. books because they supported the return as filed. He
may take the sworn testimony of the taxpayer; he may
So BIR sent an assessment notice based on the take the testimony of third parties; he may examine
photocopies. and subpoena, if necessary, traders and brokers
accounts and books and the taxpayers book accounts.
Hantex contends that the alleged bases of the tax This emphasizes that the BIR has the authority to
computations were anchored on mere presumptions determine the tax liability on the basis of records in the
and not on actual facts. The alleged undeclared possession of a third person.
purchases for 1987 were based on mere photocopies of
alleged import entry documents, not the original ones, 4. The best evidence obtainable may consist of
and which had never been duly certified by the public hearsay evidence, such as the testimony of
officer charged with the custody of such records in the third parties or accounts or other records of
Bureau of Customs. other taxpayers similarly circumstanced as
the taxpayer subject of the investigation.
ISSUE: Can the BIR use the photocopies as the basis of
their assessment? The BIR can insist through the records to determine the
tax liability of the taxpayer if not found in (technical?)
RULING: While the EIIB tried to secure certified copies evidence.
of the said entries from the Bureau of Customs, it was
unable to do so because the said entries were allegedly Naestablish mo na lahat and then gideny pa rin ng
eaten by termites. The Court can only surmise why the judge because of the BEST EVIDENCE RULE.
EIIB or the BIR, for that matter, failed to secure certified
copies of the said entries from the Tariff and Customs So, what happened was that, PROTEST, and then after
Commission or from the National Statistics Office which the BIR does not want to believe, kasi sabi ng BIR,
also had copies thereof. simple lang: “BEST EVIDENCE OBTAINABLE RULE”.

The following PRINCIPLES were given by the court: We can compute the correct taxes using the Best
Evidence Available, eto yung available mo na
1. The law allows the BIR access to all relevant evidence eh. So, basically the BIR denied the protest
or material records and data in the person of and the case was elevated to the CTA,then the CTA
the taxpayer. denied the appeal.

2. It places no limit or condition on the type or But in the Court Of Appeals ( CTA en banc is not yet
form of the medium by which the record existing at that time), it reversed the CTA’s decision
subject to the order of the BIR is kept. saying that the tax deficiency assessments were
unlawful because the evidenceof law were not really
The standard is not the form of the record but where it authenticated based on hearsay evidence.
might shed light on the accuracy of the taxpayers
return. It appears that the photocopies were seemingly What evidence? There were just mere photocopies,
allowed as one of the information or records that the etc. You did not even bother to authenticate that.
BIR can use to determine the tax liability.
Question: Ma-authenticate mo ba ang photocopy?

11


Ano ang sabi ng BIR? - The standard is not the form of the record but where
it might shed light on the accuracy of the taxpayers
BIR: The Court should accept these even if they are return.
just mere photocopies because the original copies
were nowhere to be found. You know why? Because Comment: So basically if you think about it, okay lang
they were already eaten by termites. photocopies db? Kasi whatever form man daw. The
Supreme Court said(Refer to letter e).
SC: It ruled in favor of Hantex.
e) The CIR has the duty to investigate any
SEVERAL PRINCIPLES DISCUSSED IN THIS CASE: circumstance which led him to believe that the
taxpayer had taxable income larger than reported.
a) The law allows the BIR to access all relevant or
materials records and data in the person of the INQUIRY: This inquiry would have to be outside of the
taxpayer; books because they supported the return as filed.

b) The BIR may adhere to the Best Evidence or other
information availale to determine the tax liability of l The CIR may:
the taxpayer; 1. Take the sworn testimony of the taxpayer;
2. Take the the testimony of third parties;
c)This Best Evidence Obtainable may be obtained 3. Examine and subpoena, if necessary, traders
not only on the basis of the right of the taxpayer but and brokers accounts and books and the taxpayers
also involves the right of some other persons. It book accounts.
inlcudes:
Comment: So, that’s why the CIR has subpoena
1. Corporate and accounting records of the powers.
taxpayer whos is subject of the assessment process;
2. The accounting records of other taxpayers f) The best evidence obtainable may consist of
engaged in the same line of business, including their hearsay evidence, such as:
gross profit and net profit sales.
3. Data, record, paper, document or any 1. The testimony of third parties or accounts or
evidence gathered by internal revenue officers from other records of other taxpayers similarly
other taxpayers who had personal transactions or circumstanced as the taxpayer subject of the
from whomthe subject taxpayer received any income; investigation.
and
4. Record, data, document, and information Comment: The BIR is not bound by the technical
secured from government offices or agencies, such as rules of evidence.
the SEC, the BSP, the Bureau of Customs and the Tariff
and Customs Commission.
g) Hearsay is okay but the best evidence obtainable
d) FORM is IMMATERIAL: It places no limit or under Section 16, does not include mere
condition on the type or form of the medium by which photocopies which are not authenticated.
the record subject to the order of the BIR is kept.
Comment: Meaning photocopies are allowed so long
- The purpose of the law is to enable the BIR to get at as it is properly authenticated in court.
the taxpayers records in whatever form may be kept.
Such records include computer tapes of the said Because if you present mere photocopy without
records prepared by the taxpayer in the course of authenticating it, it bears NO PROBATIVE WEIGHT.
business.

12


h) In the absence of the taxpayer’s accounting Code, the Commissioner, after taking into account
records, his tax liability may be determined by the sales, receipts, income or other taxable base of
estimation. other persons engaged in similar businesses under
similar situations or circumstances or after
- Approximation in the calculation of the taxes due is considering other relevant information may
justified. To hold otherwise would be tantamount to prescribe a minimum amount of such gross receipts,
holding that skillful concelament is an invincible sales and taxable base, and such amount so
barrier to proof. However, the rules does not apply prescribed shall be prima facie correct for purposes
where the estimation is arrived at arbitrarily and of determining the internal revenue tax liabilities of
capriciously. such person.

SC: Even if the copies of the Customs officials were This power under Section 6 (c):
eaten by termites, the copy of such records can be
obtained from other government offices or agencies. In this power the BIR will operate the “OPLAN
KANDADO”.
Comment: Importation gud yan, naturally if there’s
an importation, with respect to the excise tax, if the This mainly related to VAT. The BIR is authorized
BIR has a copy then the Customs also has one. They to conduct a surveillance, kanang magpretend sila na
should have gone to the latter to verify. customr sila. This is to determine whether or not kung
tama ba ang declaration nila, ilang customers ang
SEC. 6. Power of the Commissioner to Make nagapasok sa isang araw. Para malaman talaga nila
Assessments and Prescribe Additional how much is the establishment’s gross receipts or
Requirements for Tax Administration and gross sales for VAT purposes.
Enforcement.—
If as per surveillance, there’s a huge discrepancy,they
(C) Authority to Conduct Inventory-taking, will send a 48 hour notice to explain or verify.
surveillance and to Prescribe Presumptive Gross
Sales and Receipts - The Commissioner may, at any (Lagat)
time during the taxable year, order inventory-taking If, as per surveillance nila, for purposes of
of goods of any taxpayer as a basis for determining determining the grosses, there’s a huge discrepancy,
his internal revenue tax liabilities, or may place the then, under the (inaudible) ..rule, they will send a 48-
business operations of any person, natural or hour notice (forgot the term) to explain or verify.
juridical, under observation or surveillance if there (verify notice to explain, parang ganyan), so, the tax
is reason to believe that such person is not declaring payer will have to respond to the query. The BIR will
his correct income, sales or receipts for internal not be satisfied, it will send 5-day compliance notice.
revenue tax purposes. It’s either the taxpayer will pay the taxes, the tax
discrepancy, or comply with other requirements.
The findings may be used as the basis for assessing Otherwise, the BIR will close the establishment. Yan
the taxes for the other months or quarters of the ang nangyari sa Henan, yung sa Bohol.
same or different taxable years and such
assessment shall be deemed prima facie correct. And you also have,

When it is found that a person has failed to issue AUTHORITY TO TERMINATE THE TAXABLE PERIOD
receipts and invoices in violation of the
requirements of Sections 113 and 237 of this Code, Taxable period means the period the taxpayer will be
or when there is reason to believe that the books of subject to tax. For example, Income Tax is an annual
accounts or other records do not correctly reflect tax. The taxable period nya is one year. Kung VAT or
the declarations made or to be made in a return general OPT, the period is quarterly.
required to be filed under the provisions of this
13


In this specific instances, even if the 1-year period for This is usually in the form of publication.
the income tax to run is not done, the BIR has the
authority to terminate it in order to protect the 3) The Zonal Values determined under this
interests of the government for the collection of provision are subject to automatic
taxes. adjustment once every years.

What are the instances where the BIR may terminate 4) The publication requirement
the taxable period:
The adjustment in the zonal valuation must first be
1) When the taxpayer is RETIRING from the published in a newspaper of general circulation, or if
business subject to tax there is none, posted in the provincial or city or
municipal hall in two or more conspicuous public
So, pag-closure nya, sabi natin one year yan. From places.
January 1 to December 31, and in the middle of the There is this publication requirement so that the
year, June 1, ayaw niya na magbusiness dahil kapoy increase in the changes of the zonal value will become
na. So, terminated ang tax year mo in the middle of effective.
the year.

2.) if the taxpayer is LEAVING the Philippines. AUTHORITY TO INQUIRE BANK DEPOSITS

3.) If the taxpayer REMOVES his property from These are the instances where the CIR is allowed to
Philippines or where it is situated. look into the bank deposits of the taxpayer.

4.) The taxpayer is performing any act that As a general rule: the BIR or CIR has no authority to
OBSTRUCTS the proceeding for the collection of the look into your bank accounts.
tax for the past or current quarter or year.
Except as follows:
In these 4 instances, the BIR will close it, etc., file your
returns and you should pay the taxes. The BIR can do 1) A decedent to determine his gross estate;
it. and
2) Any taxpayer who has filed an application for
Then, the Commissioner to Prescribe Real Property compromise of his tax liability …by reason of
Values. financial incapacity to pay his tax liability.
3) A specific taxpayer or taxpayers subject of a
This is modified under the TRAIN Law. Medyo mahaba request for the supply of tax information
ito, but, in a gist: from a foreign tax authority pursuant to an
(Note that there is a high increase in the zona value international convention or agreement on
dito sa Davao.) tax matters to which the Philippines is a
signatory or a party of:
The changes introduced are follows: Provided, That the information obtained
from the banks and other financial
What’s the new thing here under the Zonal Value? institutions may be used by the Bureau of
Internal Revenue for tax assessment,
1) There must be a mandatory consultation verification, audit and enforcement
with the appraisers from the public and purposes.
private sectors.
2) There must be a prior notice to the affected
taxpayers.

14


(G) Authority to Accredit and Register Tax Agents. (Lim)
I, the seller, have received this amount from the buyer
The Commissioner shall accredit and register, based as consideration from the seller under a deed of sale.
on their professional competence, integrity and moral Why would the BIR require the acknowledgement
fitness, individuals and general professional receipt when nakalagay naman sa deed of sale? Wala
partnerships and theirrepresentatives who prepare rin naman sa NIRC. But, probably this topic is the
and file tax returns, statements, reports, protests,
reason.
and other papers with or who appear before, the
Bureau for taxpayers. Within one hundred twenty SEC. 7. Authority of the Commissioner to Delegate
(120) days from January 1, 1998, the Commissioner Power. - The Commissioner may delegate the
shall create powers vested in him under the pertinent
national and regional accreditation boards, the provisions of this Code to any or such subordinate
members of which shall serve for three (3) years, and officials with the rank equivalent to a division chief
shall designate from among the senior officials of the
or higher, subject to such limitations and
Bureau, one (1) chairman and two (2) members for
restrictions as may be imposed under rules and
each board, subject to such rules and regulations as
the Secretary of Finance shall promulgate upon the regulations to be promulgated by the Secretary of
recommendation of the Commissioner. finance, upon recommendation of the
Individuals, general professional partnerships, and Commissioner: Provided, However, That the
their representatives who are denied accreditation by following powers of the Commissioner shall not be
the Commissioner and/or the national and regional delegated: (a) The power to recommend the
accreditation boards may appeal such denial to the
promulgation of rules and regulations by the
Secretary of Finance, who shall rule on the appeal
within sixty (60) days from receipt of such appeal. Secretary of Finance;
Failure of the Secretary of Finance to rule on the (b) The power to issue rulings of first impression or
Appeal within the prescribed period shall be deemed to reverse, revoke or modify any existing ruling of
as approval of the application for accreditation of the the Bureau;
appellant. (c) The power to compromise or abate, under
Section 204 (A) and (B) of this Code, any tax

liability: Provided, however, That assessments
(H) Authority of the Commissioner to Prescribe
Additional issued by the regional offices involving basic
Procedural or Documentary Requirements. – deficiency taxes of Five hundred thousand pesos
The (P500,000) or less, and minor criminal violations,
Commissioner may prescribe the manner of as may be determined by rules and regulations to
compliance with any documentary or procedural be promulgated by the Secretary of finance, upon
requirement in connection with the submission or
recommendation of the Commissioner, discovered
preparation of financial statements accompanying
by regional and district officials, may be
the tax returns.
Prescribe additional requirements… diri compromised by a regional evaluation board which
gahaman ang BIR. Have you tried processing shall be composed of the Regional Director as
a title? The first stop is with BIR talaga. And Chairman, the Assistant Regional Director, the
you have to get a lot of things from BIR: 1) heads of the Legal, Assessment and Collection
tax verifications, and you have to fill up Divisions and the Revenue District Officer having
forms; 2) they will require you to present the jurisdiction over the taxpayer, as members; and
original title talaga; kulit sila, and magpadala
(d) The power to assign or reassign internal
pa sila nung bluecopy ng title. And then, they
will require you an acknowledgement revenue officers to establishments where articles
receipt. subject to excise tax are produced or kept.
15


CIR has the power to delegate, except the powers that determining as to whether or not the declarations of
he cannot delegate to his or her subordinates. the taxpayer is correct.

GR: Powers of the CIR can be delegated. Second: After filing the ITR, the BIR may conduct its
Ex: The powers stated in revenue regulations, BIR investigation as to whether or not the taxpayer has
rulings, the power to compromise, and the power to correctly filed his ITR.
assign or reassign internal revenue officers. The BIR officer will go to the place of business and
present certain documents and authority. That is the
time that the BIR can look into the records of the
taxpayer’s business. The BIR officer will determine as
TAX REMEDIES to whether or not there is a tax deficiency.

Q: What do we mean by tax remedies? Third: After auditing and determination of
A: TAX REMEDIES are procedural steps that may be deficiency, if wala naman talagang deficiency then
undertaken by a taxpayer or the government for the the BIR will dismiss. But if there is a finding na may
resolution of disputes concerning the levy or deficiency, the BIR will issue a notice of an informal
imposition of assessments, collections and refunds of conference.
taxes. In the said conference, the BIR will tell the taxpayer as
to the deficiency as per auditing and discussion. If
Remedies available not only to the tax payer, but also there will be compromise and settlement then good.
remedies available to the government. It works both If none, then a case would be filed in the assessment
ways. It provides for what are the remedies of the tax division of the BIR. It will be reviewed again and if
payer in case the BIR would like to collect the wrong there is cause then that will be the time that the PAN
taxes or what is the remedy of the government in case (Preliminary Assessment Notice) will be issued
he or she does not pay the correct taxes. against the taxpayer.
Fourth: From the issuance of the PAN, the taxpayer
This is an important topic in taxation because this part has the following options:
provides for your protection as a taxpayer should the 1. The taxpayer will pay the taxes;
government want to collect the wrongful taxes 2. The taxpayer will not pay and will ignore the
against you. PAN;
3. The taxpayer will write a response within 15
Q: How do we classify remedies? days from the issuance of the PAN.
A: For one, we can classify remedies depending on 4. The taxpayer will not issue a response then
who is claiming that remedy as to whether it is the the BIR will issue a FINAL ASSESSMENT
taxpayer or the government. You can also classify into NOTICE.
the remedies availed of as to whether it is judicial or a. Once the FAN is issued, the
administrative. taxpayer can no longer ignore it
because it will become final and
OVERVIEW OF THE TAXPAYER’S REMEDY executory and it will be the time
that the BIR can avail of its own
First: The taxpayer will have to file his ITR. remedies for taxes.
Magbayad siya ng taxes niya and as we know, self-
assessment siya. But it does not preclude the BIR from
16


Fifth: From the FAN, the taxpayer will file his protest. 2. Document issued by the BIR – It is a document
There are two ways of protesting: which essentially notifies the taxpayer of his or her tax
deficiencies or delinquencies as the case may be.
1. Protest for reinvestigation

2. Request for Reconsideration
What is an ASSESSMENT?
Q: Where do you file the protest?
So, generally, assessment is a statement that the
A: it may be filed before the Regional Director or with
amount therein stated is due from a taxpayer as a tax.
the CIR. If it is filed with the RD, he will have a certain
period to decide either direct denial wholly or Another definition of an assessment is it is a finding
partially or indirect denial meaning within the 180 that the taxpayer did not pay the correct assessment.
days provided by law, the RD will not do anything.
If the RD directly denies wholly or partially, the Q: What are the KINDS OF TAX ASSESSMENT in the
PH?
remedy would be to directly appeal before the Court

of Tax Appeals or elevate the matter through 1. SELF - ASSESSMENT – We all know what
administrative appeal to the CIR. self-assessment is.

If indirect denial, wherein the RD will not do anything 2. DEFICIENCY ASSESSMENT – This is an
within the 180 day period, the taxpayer has two assessment by the tax authority where the
options: to go directly to the CTA or go to correct amount of tax is determined after
examination or investigation has been
administrative appeals via CIR to CTA Division then En
conducted.
Banc to Supreme Court.
This means that after the BIR conducted an
(Olamit)
audit, the BIR has already determined that
Taxpayer’s Remedies muna tayo. Wala pa tayo sa
there is discrepancy between the
government.
declarations of the taxpayer appertaining to

his tax returns and the amount as
So this means that the government will call the
determined by the BIR during its audit.
attention of the taxpayer because the taxpayer

allegedly did not pay the correct taxes or did not pay
3. JEOPARDY ASSESSMENT – Usually this
the taxes at all.
happens if the taxpayer is not willing to

cooperate.
So in case the BIR will call the attention of the

taxpayer, there is something wrong with that. And
This is an assessment made by the
then he may avail of the tax remedies.
authorized revenue officer without the

benefit of complete or partial audit in light of
Q: How does the BIR call the attention of the
the revenue officer’s belief that the
taxpayer?
assessment and collection of a deficiency tax

will be jeopardized by delay caused by the
A: It is in the form of an assessment.
taxpayer’s failure to:

If you remember in the Tax Law, we have two possible
a) comply with audit and
concepts:
investigation requirements to

present his books of accounts
1. Figure – the amount ____(*inaudible) by the
and/or pertinent records; or
taxpayer

17


b) substantiate all or any of the It is only needed if there is a discrepancy between the
deductions, exemptions or credits declarations of the taxpayer in his tax return and the
claimed in his return. findings of the BIR on its audit. But strictly speaking,
when we are talking about “when?”, we are talking
This is usually issued when the statutory prescriptive about the prescriptive period for assessment of taxes.
period for the assessment or collection of taxes are
about to lapse should principally to the taxpayer’s Take note, we are not talking about collection here.
fault. Hindi pa tayo naga-kolekta. You have to be precise.
We’re not talking about a collection yet. Because a
So ang mangyayari, mag-susubmit ng jeopardy collection will only happen if there is FAN (Final
assessment without the benefit of full or partial audit Assessment Notice).
because the taxpayer is not willing to cooperate. And
the prescriptive period for the assessment of taxes is There are two prescriptive periods:
already forthcoming.
1. Ordinary
Q: What are the REQUIREMENTS OF A VALID 2. Extraordinary
ASSESSMENT?
Let’s discuss first the Ordinary found under Sec. 203
An assessment to be valid must comply with of the NIRC.
the following requirements:
SEC. 203. Period of Limitation Upon Assessment
1. It must be issued within the prescriptive and Collection. - Except as provided in Section 222,
period; internal revenue taxes shall be assessed within
three (3) years after the last day prescribed by law
2. It may be issued after a PAN (Preliminary for the filing of the return, and no proceeding in
Assessment Notice) duly served to the court without assessment for the collection of such
taxpayer as determined under the Rule; taxes shall be begun after the expiration of such
period: Provided, That in a case where a return is
3. It shall state all the facts, the law, rules and filed beyond the period prescribed by law, the
regulations or jurisprudence on which the three (3)-year period shall be counted from the day
assessment was made, otherwise it is void; the return was filed. For purposes of this Section, a
and return filed before the last day prescribed by law
for the filing thereof shall be considered as filed on
4. The taxpayer must have received the such last day.
assessment.
So, it sounds complicated but to put it simply, the
Absent one of those requirements, then you will have prescriptive period for assessment of taxes is three
a void assessment. The service of such void years from:
assessment will not toll the prescriptive period to
assess the collection of taxes. (1) the date of filing of the tax return; or
(2) the date of deadline set forth by the law,
whichever comes later.
Q: Who makes the assessment?
Now, because generally speaking, if you do not have
It is issued by the CIR. Normally, it is within the power a provision of law which provides for a prescriptive
of the CIR but it may be delegated. It’s the CIR or it’s period for collection and assessment of taxes, taxes
duly authorized representatives. are imprescriptible because of the Lifeblood Theory.

Q: When should an assessment be made? The reason behind that is because:
18


• If the return is amended substantially, then
1. The prescriptive period regulates the the three-year period shall be reckoned from
government. the filing of the amended return.

Because it would somehow compel How do you determine if there is substantial
the government to act promptly. amendment?
Otherwise, kung dili sila mulihok,
dili sila ka kwarta. The amendment is substantial when the amended
return is filed declaring more losses which can be
2. The prescriptive period also benefits the done by either reducing the gross income or
taxpayer because it secures the taxpayer increasing the items in the deduction.
from unreasonable examination,
investigation and assessment done by the In other words, the amendment reduces the income
BIR. earned. If there’s reduction in income of course
there’s a corresponding decrease in the income tax to
Q: How should we interpret provisions on paid. So may refund pa. If that happens, that’s a
prescriptive period of assessment and collection of substantial amendment.
taxes?
Otherwise, the amendment is merely minimal.
In the case of BPI vs. CIR, the statute of limitations on
assessment or collection of taxes is for the protection Let’s go to the EXCEPTIONS to the 3-year prescriptive
of taxpayers and should be construed liberally in favor period.
of the taxpayer and strictly against the government.
SEC. 222. Exceptions as to Period of Limitation of
Q: How about if the taxpayer amends his ITR? Assessment and Collection of Taxes. -

We have learned before, under Sec. 6, 2nd para. (a) In the case of a false or fraudulent return with
(NIRC), you are allowed to amend. So okay lang, wala intent to evade tax or of failure to file a return, the
tayong problema pag amendment of tax return as tax may be assessed, or a proceeding in court for
long as you do it within the prescriptive period. Bakit the collection of such tax may be filed without
ka man mag-amend kung lampas kana sa prescriptive assessment, at any time within ten (10) years after
period, diba? Wala ng ma-kokolekta ang government the discovery of the falsity, fraud or omission:
sa iyo. But the taxpayer is allowed. Provided, That in a fraud assessment which has
become final and executory, the fact of fraud shall
Please take note of the instances wherein the be judicially taken cognizance of in the civil or
amendment of tax return is no longer allowable. criminal action for the collection thereof.

(Singanon) (b) If before the expiration of the time prescribed
The taxpayer is no longer allowed to amend his tax in Section 203 for the assessment of the tax, both
return if he has already received a notice from the BIR the Commissioner and the taxpayer have agreed in
for audit or investigation of such tax return. writing to its assessment after such time, the tax
may be assessed within the period agreed upon.
So kung under audit na siya, bawal na ang The period so agreed upon may be extended by
amendment. subsequent written agreement made before the
expiration of the period previously agreed upon.
In relation to the prescriptive period, when do you
reckon the three-year period when the tax return is (c) Any internal revenue tax which has been
amended by the taxpayer? assessed within the period of limitation as
prescribed in paragraph (a) hereof may be
19


collected by distraint or levy or by a proceeding in So meaning there must be an intent to mislead the
court within five (5) years following the assessment government that is why there is a false return.
of the tax.
But in the case of CIR vs Asalus GR No 15910
(d) Any internal revenue tax, which has been February 22, 2017, the SC said that:
assessed within the period agreed upon as
provided in paragraph (b) hereinabove, may be A false return is different from a fraudulent return.
collected by distraint or levy or by a proceeding in While a false return merely implies deviation from the
court within the period agreed upon in writing truth, whether intentional or not, a fraudulent return
before the expiration of the five (5) -year period. implies intentional or deceitful entry with intent to
The period so agreed upon may be extended by evade the taxes due.
subsequent written agreements made before the
expiration of the period previously agreed upon. Thus, a mere showing that the returns filed by the
taxpayer were false, notwithstanding the absence of
(e) Provided, however, That nothing in the intent to defraud, is sufficient to warrant the
immediately preceding and paragraph (a) hereof application of the ten (10) year prescriptive period
shall be construed to authorize the examination under Section 222 of the NIRC.
and investigation or inquiry into any tax return
filed in accordance with the provisions of any tax Next is the fraudulent returns.
amnesty law or decree.
Fraud comprises anything calculated to deceive
What are these four instances under Sec. 222? including acts, omissions, and concealment involving
a breach of legal or equitable duty, trust or
1. In case of filing of false return; confidence justly reposed, resulting in damage to
2. In case of filing of fraudulent return; another, or by which an undue and unconscientious
3. In case of failure to file return; and advantage is taken of another.
4. In case of extended assessment.
In tax parlance, it is an act or omission which amounts
Those are the only four instances wherein you will use to intentional (?) with the intent of avoiding the taxes.
the extended period for assessment of taxes.
So how do you prove fraud? How do you prove a state
Let’s talk about false return first. of mind?

To prove fraud, a preponderance of evidence is not
What do you mean by false return? enough. You need clear and convincing evidence to
prove fraud.
A return is false when the entries therein are not true
and correct either through mistake, carelessness, or (Tan)
ignorance. How do you prove fraud?
There must be an intent to defraud.
This was decided in the case of CIR vs BF Goodrich.
What is the degree of proof required?
But I have a problem because if you read this case, the It is clear and convincing evidence of fraud.
mistake is due to carelessness or ignorance and there
must be intent to mislead the government. Normally the taxpayer enjoys a presumption of good
faith, but the law provides for a prima facie evidence
Falsity must mean that there must be a design to of fraud found in Section 248 (b) of the NIRC. But
mislead the government or that the mistake is due to actually if you read that provision, it does not only
carelessness or ignorance.
20


establish a prima facie evidence of fraud, but it also shall render the taxpayer liable for substantial
establishes a prima facie falsity of the tax return filed. underdeclaration of sales, receipts or income or for
overstatement of deductions, as mentioned
SEC. 248. Civil Penalties. herein.

(B) In case of willful neglect to file the return within Meaning, if the underdeclared EXCEEDS 30% of that
the period prescribed by this Code or by rules and declared in the return, then there is already a prima
regulations, or in case a false or fraudulent return facie evidence of fraud or falsity.
is willfully made, the penalty to be imposed shall
be 50% of the tax or of the deficiency tax, in case Pretty much the same when we talk about over
any payment has been made on the basis of such declaration of expenses, exceeds 30% of the actual.
return before the discovery of the falsity or fraud. So let us just call this the 30% RULE, once the 30%
Provided, That a substantial underdeclaration of benchmark has exceeded, then there is a
taxable sales, deductions, as determined by the presumption of falsity or fraud.
Commissioner pursuant to the rules and
regulations to be promulgated by the Secretary of This is the case of CIR vs. Asalus Corporation, G.R. No.
Finance, shall constitute prima facie evidence of a 221590, February 22, 2017.
false or fraudulent return: Provided, further, That
failure to report sales, receipts or income in an CIR vs. ASALUS CORPORATION
amount exceeding 30% of that declared per return, G.R. No. 221590 | February 22, 2017
and a claim of deductions in an amount exceeding
30% of actual deductions, shall render the taxpayer FACTS: The tax involved here is VAT deficiencies of
liable for substantial underdeclaration of sales, the corporation way back in 2007. Sometime in
receipts or income or for overstatement of 2010, the BIR sent a notice of conference (NIC) to
deductions, as mentioned herein. the corporation. Way back in 2013 kasi, before a
PAN is issued, meron tayong NIC, it is another
There are 2 instances to constitutes a prima facie chance on the part of the taxpayer to explain his
evidence of a false or fraudulent return: side. Under the NIRC, the NIC is not required, but
1. Substantial Underdeclaration of taxable the revenue regulations in effect that time require
sales, receipts or income. it.
Kulang, you omitted something which you
have received. If you will underdeclare, it When the BIR now issued the PAN, it still stated na
will necessarily result to a lesser tax liability. there is a false or fraudulent item that transpired.
The corporation explained, but still the BIR did not
2. Substantial Overstatement of deductions believe, thus FAN was issued. But in the FAN, it did
meaning you bloat up your expenses malaki not mention anymore that there is fraud in the VAT
ang binawas mo sa income, more than what returns made by the tax payer.
should have been deducted sa income. This
would mean a lesser tax base, which would Now, how much ba ang VAT deficiencies? In the
ultimately result to a lesser tax paid to the NIC, it was around 430 Million. Sa FAN it is more
government. or less 106 Million. The amount is still big. The CTA
Division ruled that the assessment has already
When is there a SUBSTANTIAL underdeclaration of prescribed. Kailan yung VAT, it was 2007. Kailan
sales, receipts or income? yung FAN, sobra na ng 3 years. So the CTA Division
said it has already prescribed.
Provided, further, That failure to report sales,
receipts or income in an amount exceeding 30% of In the CTA EN Banc, the point of the CIR is this,
that declared per return, and a claim of deductions when we issued the PAN they were already
in an amount exceeding 30% of actual deductions, informed that there was fraud or falsity in the VAT,
21


therefore because of substantial compliance of What did the SC say, the BIR is correct in this case.
such being informed, the 10 year prescriptive All that the BIR has to do is to show that there is a
period already applies. substantial or more than 30% underdeclarations of
receipts or overstatement of deductions for the
Asalus said, PAN is not the assessment that the law presumption of fraud or falsity to operate.
talks about. The applicable prescriptive period Therefore, Asalus is wrong. If the BIR is able to
must have been mentioned also in the FAN, establish the more than 30% rule, then it is up to
because that is the final notice. Since you did not the taxpayer that all the tax returns it has filed is
indicate it in the FAN, you have violated our right actually true and accurate. Baliktad na kasi, meron
to due process to be informed of the law and the ng presumption eh.
facts in which the assessment was made. Still, the
CTA En Banc denied the CIR. Read the full text

ISSUE: Whether or not Asalus filed a false return (Viola)
warranting the application of the 10 year 4. Extended assessment
prescriptive period.
What if the 3 year period is already forthcoming and
RULING: The SC ruled in favor of the CIR. The CTA you open your books yet the BIR isn’t done yet and
was wrong in ruling that the assessment has the BIR still issues a quarterly assessment? It’s ok.
already prescribed.
But one option here is, the BIR will request an
We have the GR of 3 years, and one exception is 10 extension and this is entirely possible.
years for filing a false or fraudulent return. Then
the SC differentiated false return and fraudulent Section 222. Exceptions as to Period of Limitation of
return. It does not mean that if it is false, it is Assessment and Collection of Taxes.
already fraudulent. But necessarily, fraudulent (b) If before the expiration of the time prescribed in
implies falsity. A false return implies a deviation Section 203 for the assessment of the tax, both the
from the truth, whether intentional or not. Commissioner and the taxpayer have agreed in
Pagsinabi mong fraudulent return, it implies an writing to its assessment after such time, the tax may
intentional deceitful entry with intent to evade the be assessed within the period agreed upon. The
taxes. Therefore in false returns, a mere showing period so agreed upon may be extended by
that the returns filed by the taxpayer were false subsequent written agreement made before the
notwithstanding the absence of intent to defraud expiration of the period previously agreed upon.
is sufficient to warrant the application of the 10
year prescriptive period. Even if there is nothing Under this provision, the 3 year prescriptive period
fraudulent shown for that matter. But in this case, may be extended upon the agreement of the
one of the contention of Asalus is this, during the taxpayer and the BIR.
hearing before the CTA in Division, the BIR did not
present anything about the falsity of the VAT Requirements for extended assessment (IRR):
returns. Take note that since this is falsity, the BIR 1. The agreement must be in writing;
should be able to convincingly prove that the VAT 2. It must be signed by both the taxpayer and the BIR;
returns filed were actually false. 3. It must be entered before the expiration of the 3
year prescriptive period;
What did the BIR say for that matter? 4. The waiver must be for a definite period for how
The BIR said, that do we even have to prove that long the extended assessment will be.
the returns were false. During the hearing, we
were already able to prove that there is a 30% Can you have a second extension? Yes. Provided
substantial underdeclaration of the receipts. that the subsequent agreement is executed prior to
the first extension agreed upon.
22


RCBC v CIR
CIR v Standard Chartered Bank
The waiver here was not signed by the CIR. When
the assessment came, RCBC paid under protest Same with RCBC, they also paid under protest. But
alleging that they already had an agreement. the SC here sustained the position of Standard.

RCBC assails the validity of the waivers of the statute Ruling: A waiver of the Statute of Limitations is
of limitations on the ground that the said waivers nothing more than "an agreement between the
were merely attested to by Sixto Esquivias, then taxpayer and the Bureau of Internal Revenue (BIR)
Coordinator for the CIR, and that he failed to indicate that the period to issue an assessment and collect the
acceptance or agreement of the CIR, as required taxes due is extended to a date certain." It is a
under Section 223 (b) of the 1977 Tax Code.[28] RCBC bilateral agreement, thus necessitating the very
further argues that the principle of estoppel cannot signatures of both the CIR and the taxpayer to give
be applied against it because its payment of the other birth to a valid agreement. Furthermore, indicating in
tax assessments does not signify a clear intention on the waiver the date of acceptance by the BIR is
its part to give up its right to question the validity of necessary in order to determine whether the parties
the waivers (the taxpayer and the government) had entered into
a waiver "before the expiration of the time prescribed
The CTA-En Banc, ruled that by receiving, accepting in Section 203 (the three-year prescriptive period) for
and paying portions of the reduced assessment, RCBC the assessment of the tax." When the period of
bound itself to the new assessment, implying that it prescription has expired, there will be no more need
recognized the validity of the waivers. RCBC could not to execute a waiver as there will be nothing more to
assail the validity of the waivers after it had received extend. Hence, no implied consent . can be presumed,
and accepted certain benefits as a result of the nor can it be contended that the concurrence to such
execution of the said waivers. waiver is a mere formality.

Issue 1: Is the waiver valid In delineation of the same sense about the waiver of
Issue 2: Is RCBC liable to pay the taxes the Statute of Limitations, RMO No. 20-90 and
Revenue Delegation Authority Order (RDAO) No. 05-
Ruling: The waiver is valid. RCBC here is already in 01 were issued on 4 April 1990 and 2 August 2001,
estoppel by paying a portion of the taxes. RCBC is respectively. The said revenue orders outline the
liable to pay. procedure for the proper execution of a waiver, viz.:16
1. The waiver must be in the proper form prescribed
RCBC, through its partial payment of the revised by RMO 20-90. The phrase "but not after __ 19 _",
assessments issued within the extended period as which indicates the expiry date of the period agreed
provided for in the questioned waivers, impliedly upon to assess/collect the tax after the regular three-
admitted the validity of those waivers. Had petitioner year period of prescription, should be filled up.
truly believed that the waivers were invalid and that 2. The waiver must be signed by the taxpayer himself
the assessments were issued beyond the prescriptive or his duly authorized representative. In the case of a
period, then it should not have paid the reduced corporation, the waiver must be signed by any of its
amount of taxes in the revised assessment. RCBCs responsible officials. In case the authority is delegated
subsequent action effectively belies its insistence that by the taxpayer to a representative, such delegation
the waivers are invalid. should be in writing and duly notarized.
3. The waiver should be duly notarized.
RCBC is estopped from questioning the validity of the 4. The CIR or the revenue official authorized by him
waivers. To hold otherwise and allow a party to must sign the waiver indicating that the BIR has
gainsay its own act or deny rights which it had accepted and agreed to the waiver. The date of such
previously recognized would run counter to the acceptance by the BIR should be indicated. However,
principle of equity which this institution holds dear. before signing the waiver, the CIR. or the revenue
23


official authorized by him must make sure that the because tax officers would be obliged to act properly
waiver is in the prescribed form, duly notarized, and in the making of the assessment, and to citizens
executed by the taxpayer or his duly authorized because after the lapse of the period of prescription,
representative. citizens would have a feeling of security against
5. Both the date of execution by the taxpayer and unscrupulous tax agents who may find an excuse to
date of acceptance by the Bureau should be before inspect the books of taxpayers, not to determine the
the expiration of the period of prescription or before latter's real liability, but to take advantage of every
the lapse of the period agreed upon in case a opportunity to molest peaceful, law-abiding citizens.
subsequent agreement is executed.
6. The waiver must be executed in three copies, the Without such a legal defense, taxpayers would
original copy to be attached to the docket of the case, furthermore be under obligation to always keep their
the second copy for the taxpayer and the third copy books and keep them open for inspection subject to
for the Office accepting the waiver. The fact of receipt harassment by unscrupulous tax agents. The law on
by the taxpayer of his/her file copy must be indicated prescription being a remedial measure should be
in the original copy to show that the taxpayer was interpreted in a way conducive to bringing about the
notified of the acceptance of the BIR and the beneficent purpose of affording protection to the
perfection of the agreement. (Emphases supplied) taxpayer within the contemplation of the Commission
The provisions of the RMO and RDAO explicitly show which recommends the approval of the law.
their mandatory nature, requiring strict compliance.
Hence, failure to comply with any of the requisites Which case do we follow? We follow the Standard
renders a waiver defective and ineffectual. case. There’s something wrong with the RCBC case,
the SC did not consider that the rules on prescription
The NIRC, under Sections 203 and 222, provides for a should be interpreted in favor of the taxpayer.
statute of limitations on the assessment and
collection of internal revenue taxes in order to (Campaner)
safeguard the interest of the taxpayer against Also, diba it’s alright to have alternative defenses.
unreasonable investigation. Unreasonable
investigation contemplates cases where the period of SUSPENSION OF THE PRESCRIPTIVE PERIOD
assessment extends indefinitely because this deprives
the taxpayer of the assurance that it will no longer be SEC. 223. Suspension of Running of Statute of
subjected to further investigation for taxes after the Limitations. – The running of the Statute of
expiration of a reasonable period of time x x x Limitations provided in Sections 203 and 222 on
the making of assessment and the beginning of
It must be remembered that the execution of a distraint or levy or a proceeding in court for
Waiver of Statute of Limitations may be beneficial to collection, in respect of any deficiency, shall be
the taxpayer or to the BIR, or to both. Considering suspended for the period during which the
however, that it results to a derogation of some of the Commissioner is prohibited from making the
rights of the taxpayer, the same must be executed in assessment or beginning distraint or levy or a
accordance with pre-set guidelines and procedural proceeding in court and for 60 days thereafter;
requirements. Otherwise, it does not serve its when the taxpayer requests for a reinvestigation
purpose, and the taxpayer has all the right to invoke which is granted by the Commissioner; when the
its nullity. For that reason, this Court cannot turn blind taxpayer cannot be located in the address given by
on the importance of the Statute of Limitations upon him in the return filed upon which a tax is being
the assessment and collection of internal revenue assessed or collected: Provided, That if a taxpayer
taxes provided for under the NIRC. informs the Commissioner of any change in
address, the running of the Statute of Limitations
The law prescribing a limitation of actions for the will not be suspended; when the warrant of
collection of the income tax is beneficial both to the distraint or levy is duly served upon the taxpayer,
Government and to its citizens; to the Government his authorized representative, or a member of his
24


household with sufficient discretion, and no the purpose of collection of the correct amount of
property could be located; and when the taxpayer taxes. This is under CIR vs. Sony, G.R. No. 178657,
is out of the Philippines. September 10, 2010.

What are those instances wherein the 3-year What is the basis of this LOA? Sec. 6 (A)
prescriptive period for assessment of taxes may be
suspended? SEC. 6 Power of the Commissioner to Make
Assessments and Prescribe Additional
1. When the CIR is prohibited from making the Requirements for Tax Administration and
assessment or beginning distraint or levy or Enforcement.
a proceeding in court and for 60 days
thereafter (A) Examination of Returns and Determination of
Tax Due. – After a return has been filed as required
2. When the taxpayer requests for and is under the provisions of this Code, the
granted a reinvestigation by the CIR. Commissioner or his duly authorized
representative may authorize the examination of
Take note, a request for reinvestigation any taxpayer and the assessment of the correct
is not enough; the request for amount of tax: Provided, however, That failure to
reinvestigation should have been file a return shall not prevent the Commissioner
granted. from authorizing the examination of any taxpayer.
Xxx
3. When the taxpayer cannot be located in the
address given by him in the return filed upon Sir, what if magpunta ang BIR saamin – “ayoo, taga-
which a tax is being assessed or collected BIR mi, we’d like to look at your accounting records
4. When the warrant of distraint or levy is duly kay mag assessment kami sainyo”, you as a taxpayer
served upon the taxpayer, his authorized can actually refuse. You can validly refuse unless they
representative, or a member of his have a Letter of Authority.
household with sufficient discretion, and no
property could be located. When must the LOA be served? It must be served
within 30 days from the date of its issuance.
5. When the taxpayer is out of the country.
LOA is actually just a letter authorizing a certain
In those 5 instances, there is suspension of the person. Ex. “Atty. Donalvo is a revenue officer of the
prescriptive period to assess taxes. BIR and he is hereby authorized to blah blah blah. In
connection thereof, please provide the officer a copy
of the following records: 1, 2, 3…” Then there is a
TAX ASSESSMENT PROCESS control number.

First and foremost, there must be a Tax Audit of the What if the BIR comes and serves a LOA which is has
taxpayer by the BIR been issued for more than 30 days? You can refuse. It
is already stale. On the part of the revenue officer, he
What is the document required before the BIR may can go back to the BIR and have the LOA revalidated.
audit the records of the taxpayer? Letter of Authority
(LOA). From then, the BIR is given 120/180 days (sir is not
sure, says he will get back to us with the correct info)
This LOA is the the authority given to the appropriate within which to conduct his audit with the taxpayer
revenue officer assigned to perform assessment
functions and empowers the said revenue officer to What if the letter of authority (LOA) is for a certain
examine the books and records of the taxpayer for taxable year? Ex. For the year 2017 only, but then the
25


BIR issued an assessment for the year 2018. Is that period should be covered by the investigation.
possible? Is it possible for the BIR to give LOA to Thus, if CIR wanted or intended the investigation to
conduct audits for the years 2017 and undetermined include the year 1998, it should have done so by
prior years? That is what happened in the case of CIR including it in the LOA or issuing another LOA.
vs Sony.
Who issues the LOA? It’s the CIR or his duly
CIR vs. SONY authorized representative.
G.R. No. 178697
Are there any cases where the BIR investigated
The SC held that there must be a grant of authority without the LoA? Under the current BIR regulations,
before any revenue officer can conduct an Yes, if the case involves:
examination or assessment. Without such, the 1. Tax Fraud Cases
examination or assessment is a nullity. 2. Policy cases under audit by special teams in
the national office.
But what happened in this case actually is, there
was a LoA. The LoA is for a specific period, 1996 But I doubt the above-mentioned enumeration,
and 1997 ata. But the assessment that was issued because the law says, “before an authorized
by the BIR as a result of the investigation was for a representative may conduct an audit, he must be duly
tax liability for the year 1998. authorized by the CIR.”

Sabi ng SC, wala kang authority to investigate the What if the BIR proceeded to audit the taxpayer and
1998 taxpayer, the effect of that is there is no LoA, issued an assessment without the LOA? What is the
then, all the assessment made during that taxpayer effect? This is the case of Medicard vs CIR, GR No.
is void. That LoA is invalid for the year 1998, 222743, April 5, 2017.
because that LA is only for 1996-1997. (taken from
2018 TSN) Medicard vs CIR
GR No. 222743
The BIR cannot use the current year’s records to
determine the liability of the taxpayer for the prior What happened here is simple, basically, Medicard
years. is an HMO.

From the FT: (Castro)
Clearly, there must be a grant of authority before MEDICARD PHILIPPINES, INC. vs. CIR
any revenue officer can conduct an examination or G.R. No. 222743 | April 5, 2017
assessment. Equally important is that the revenue MEDICARD is a Health Maintenance Organization
officer so authorized must not go beyond the (HMO) that provides prepaid health and medical
authority given. In the absence of such an insurance.
authority, the assessment or examination is a MEDICARD filed its tax returns and upon paying its
nullity. return. BIR issued a letter notice. Iba yang letter of
notice and yang LoA (Letter of Authority).
As earlier stated, LOA 19734 covered the period
1997 and unverified prior years. For said reason, Letter of notice is usually issued by the BIR case. It’s a
the CIR acting through its revenue officers went relief program meaning cross-matching sa mga tax
beyond the scope of their authority because the records ng mga taxpayers, suppliers, customers, if
deficiency VAT assessment they arrived at was there is discrepancy.
based on records from January to March 1998 or
using the fiscal year which ended in March 31, On the basis of that letter notice, the BIR issued a
1998. As pointed out by the CTA-First Division in its preliminary assessment notice for the tax
April 28, 2005 Resolution, the CIR knew which deficiencies. Tapos walang nangyari. And then the BIR
26


issued again a final assessment notice, then wala of the correct amount of tax:
nangyari again. File a protest. Provided, however, That
failure to file a return shall not
The CIR issued a final decision on the disputed prevent the Commissioner
assessment. Decision niya on the protest. And it from authorizing the
denied the protest.
examination of any taxpayer.

When the case went to the CTA, ang sabi ng CTA is It is only the CIR himself or his duly authorized
when the letter notice was issued in lieu of LoA (Letter representative that are authorized to examine the
of Authority) somehow there is already a substantial taxpayer. The basis of this is Section 6. That’s why
compliance on the part of the BIR. MEDICARD is now because of this provision, unless authorized by the CIR
estopped from challenging the assessment of the BIR himself or his duly authorized representative through
on the ground of the lack of LoA since the assessment a letter of authority an examination of the taxpayer
was obtained on the facts and the law on which it was cannot be ordinarily taken. Hindi ka pwede mag
based. examine ng mga libro of the taxpayer for the
assessment of that taxpayer if you are not armed with
ISSUE: Whether the absence of the LoA is fatal to the the LoA.
assessment made by the BIR
From 2017 TSN
SC: The absence of a LoA violated MEDICARD's right MEDICARD vs. CIR
to due process and renders the entire assessment
process and the assessment void. Human tanan. That FACTS: What is the business of Medicard here? It
is how important the letter of authority is. is an HMO, a retail in health and medical insurance.
Nagfile siya ng VAT return, But because there were
A LoA is the authority given to the appropriate discrepancies found by the BIR in Medicard’s
revenue officer assigned to perform assessment returns, BIR issued an LN requiring it to explain the
functions. It empowers or enables said revenue discrepancies.
officer to examine the books of account and other
accounting records of a taxpayer for the purpose of On the basis of that LN, because it was not satisfied
collecting the correct amount of tax. A LoA is with the explanation, the BIR issued a Preliminary
premised on the fact that the examination of a Notice of Assessment (PAN). Medicard then
taxpayer who has already filed his tax returns is a responded, but the BIR still was not satisfied, and
power that statutorily belongs only to the CIR himself thus a Final Assessment Notice (FAN) was issued.
or his duly authorized representatives. Medicard filed a protest to which the BIR issued a
Final Decision on Disputed Assessments (FDDA).
Under the law (Section 6 NIRC):
SEC. 6. Power of the Commissioner to Make When the case went to the CTA, it said that the LN
Assessments and Prescribe Additional issued in lieu of the LoA, was already a substantial
Requirements for Tax Administration and compliance and that Medicard is already estopped
Enforcement. – in questioning the validity of the assessments on
(A) Examination of Return and the ground of lack of LoA, because the assessments
Determination of Tax Due.- itself contains the facts and the law on which it is
After a return has been filed as based.
required under the provisions
of this Code, the Commissioner ISSUE: The main issue here is what happens when
or his duly authorized the BIR makes an assessment without a LoA to
representative may authorize begin with, or simply, whether or not the absence
of LoA is fatal?
the examination of any
taxpayer and the assessment
27


RULING: The SC said, the absence of LoA is Fatal LoA. Then the court proceeded to distinguish LN
because it essentially violated Medicard’s right to and LA.
due process.
LETTER OF LETTER OF
Now, another issue that pops up here is the AUTHORITY NOTICE
taxpayer may be assessed of deficiency taxes on Purpose The LA is The LN is
the basis of the best evidence obtainable. and addressed to a actually not
Meaning, we don’t even need to look at the basis revenue officer found in the
accounting books of the taxpayer for the BIR to and is specially NIRC, but it is
discover whether or not there are tax deficiencies required in the only for the
involved. NIRC (Sec.6) purpose of
before an notifying the
The SC said, these are simply methods of examination is taxpayer that a
examining the taxpayer in order to arrive at the to be made. discrepancy is
correct amount of taxes. It has nothing to do with found based on
the authority given to the officer to audit or the BIR’s
investigate a taxpayer. It has nothing to do with the computerized
LoA. Therefore, unless undertaken by the CIR or his system.
authorized officer, any other tax agents may not Validity Valid only for 30 No validity date
validly conduct any of these kinds of examination days from its for LN
without prior authority. That means, the LoA must issue date
be present when we talk about other tax agents, Nature The LA gives the Ang LN, walang
other than the CIR and his duly authorized agents. revenue officer period pa rin.
only a period of
In other words, the LoA is still essential when it 120 days from
comes to the other tax agents. If you notice, techy receipt of the LA
na masyado ang BIR ngayon diba, they can actually to investigate or
crossmatch the returns made by the taxpayers and examine a
his suppliers. So at first instance, even if the BIR will particular
not conduct an audit, there will be a finding of taxpayer
discrepancies already. So, because of the Due process demands that after the
advancements in technology, if the BIR discovers LN has served its purpose, the
any discrepancy, the BIR will issue an LN. revenue officer holding the LN
should secure an LA before the
Now, this LN is similar to a Notice of Informal examinations and assessments on
Conference, notice lang jud na siya. What happens the taxpayer.
if the taxpayer won’t explain the LN or when the Lastly, if the assessment is made
taxpayer explains the LN but the BIR is not without the LA, it is void for violation
satisfied? of due process.

Under the revenue rules and regulations, if there Here’s the problem now, because of technology.
are discrepancies found in the LN and the Sometimes we don’t even have to look at the books
explanations given by the taxpayer is of the taxpayer if there is a discrepancy. Tingnan lang
unsatisfactory, there will be a recommendation for naman natin yung mga submission ng mga taxpayer
the issuance of the LoA. Meaning, LN will later be kung kumpleto ka and cross-matching ang tawag
converted to LA. niyan. System generated yan lahat.

Therefore, since the rules says that there must be Under the RELIEF Tax System or the Reconciliation of
a conversion, an LN can never be a substitute for a Listing for Enforcement System. “No-contact audit
28


approach” na siya. So tanawon na nila ang record and even prior to the issuance of an LN or even
they will inform the taxpayer if there is a discrepancy in the absence of a LOA with the aid of a
found with the supplier and the taxpayer that can be computerized/manual matching of
subjected to that, you will be notified. taxpayers': documents/records. Accordingly,
*** With the advances in information and under the RELIEF System, the presumption
communication technology, the Bureau of that the tax returns are in accordance with
Internal Revenue (BIR) promulgated RMO law and are presumed correct since these
No. 30-2003 to lay down the policies and are filed under the penalty of perjury are
guidelines once its then incipient centralized easily rebutted and the taxpayer becomes
Data Warehouse (DW) becomes fully instantly burdened to explain a purported
operational in conjunction with its discrepancy.
Reconciliation of Listing for Enforcement As provided in the RMO No. 42-2003, the LN
System (RELIEF System). This system can is merely similar to a Notice for Informal
detect tax leaks by matching the data Conference. However, for a Notice of
available under the BIR's Integrated Tax Informal Conference, which generally
System (ITS) with data gathered from third- precedes the issuance of an assessment
party sources. Through the consolidation notice to be valid, the same presupposes
and cross-referencing of third-party that the revenue officer who issued the
information, discrepancy reports on sales same is properly authorized in the first place.
and purchases can be generated to uncover (MEDICARD case)
under declared income and over claimed ***
purchases of Goods and services. “no-contact audit approach” involves the
RMO No. 30-2003 was supplemented by computerized matching of sales and
RMO No. 42-2003, which laid down the "no- purchases as reported by sellers and buyers
contact-audit approach" in the CIR's exercise in their tax and information returns, and
of its ·power to authorize any examination of importations per taxpayers’ returns and per
taxpayer arid the assessment of the correct records of the Bureau of Customs.
amount of tax. The no-contact-audit Discrepancies arising from the computerized
approach includes the process of matching are communicated to the taxpayer
computerized matching of sales and through the issuance of a letter notice (LN).
purchases data contained in the Schedules of If the taxpayer is not able to reconcile the
Sales and Domestic Purchases and Schedule alleged discrepancies, such may be used as a
of Importation submitted by VAT taxpayers basis for deficiency tax assessments. (Carlos
under the RELIEF System. This may also Hilario Mateo, Tax Director of PwC
include the matching of data from other Philippines 12 Feb 2015)
information or returns filed by the taxpayers
with the BIR. How will the BIR notify? Through a letter notice. The
Under this policy, even without conducting a letter notice says that- taxpayer there is a discrepancy
detailed examination of taxpayer's books between your declaration of your purchases and the
and records, if the computerized/manual sales declared by your suppliers. Care to explain.
matching of sales and purchases/expenses Ganun lang yan.
appears to reveal discrepancies, the same
shall be communicated to the concerned The Letter Notice is similar to a Notice of Informal
taxpayer through the issuance of LN. The LN Conference. A letter notice is issued to a person found
shall serve as a discrepancy notice to utang (?) under your report, sales, or receipts
taxpayer similar to a Notice for Informal (inaudible) for data generated under the RELIEF
Conference to the concerned taxpayer. Thus, system. It is in the “no contact audit approach” nila.
under the RELIEF System, a revenue officer System generated yan lahat. Explain ka.
may begin an examination of the taxpayer
29


*** The Notice of Informal Conference is a - Walang
written statement issued by the BIR limit
informing the taxpayer of the discrepancies Nature The LoA gives the Ang LN does not
in the taxpayer’s tax payments for the revenue officer contain
purpose of conducting an informal only a period of 120 limitation
conference wherein the taxpayer will be days from receipt because the LN
given an opportunity to present his side of of the LoA to just notify the
the case. (Revenue Regulations No. 7-2018). conduct its taxpayer
examination with
The taxpayer is given 120 days to explain. Sulat ka sa the taxpayer.
BIR or the taxpayer will just ignore. Wala koy labot Due process demands that after the LN
ana. has served or has been served its
purpose, the revenue officer holding
Is it okay? Okay lang walang problema. If the BIR will the LN should properly secure a LoA
determine that the explanation of the taxpayer is not before proceeding to the further
enough or the taxpayer did not respond to the letter, examinations and assessments on the
or did not bother to respond, then the Letter Notice taxpayer.
will be converted to a Letter Authority.
Those are the 4 differences.
In other words, for the existing violations, the law But here is an interesting argument of the BIR in the
requires that the Letter Notice should be converted case, why would we need to issue a LoA on the part
to Letter of Authority and serve it to the taxpayer. A of the taxpayer, when we did not even require
Letter Notice cannot be a substitute for LoA because MEDICARD to open its accounting books.
they are 2 different documents. What are the
differences? If you take a look at our assessment, the assessment
here just carries on the Relief Tax System, they did not
LETTER OF LETTER OF bother to explain that’s why we need an assessment.
AUTHORITY NOTICE The SC said, okay yes the BIR has the authority to
Purpose The LoA is The LN is actually examine the book, but still the LoA cannot be
addressed to a not found in the dispensed with just because the MEDICARD or one of
revenue officer and NIRC, but it is the MEDICARD’s books or records has been opened
is specially required only for the or examined. For examination of the taxpayer for
in the NIRC (Sec.6) purpose of purposes of assessment, the NIRC requires authority
before an notifying the from the CIR or from his duly authorized
examination to the taxpayer that a representative before an examination to a taxpayer
taxpayer is to be discrepancy is maybe made. The requirement of authorization is not
made. found based on dependent on whether the taxpayer may be required
the BIR’s to physically open his books and financial records but
- Tama lang computerized only on whether a taxpayer is being subject to
kasi ang system. examination.
LoA that Words of the SC: Contrary to the ruling of the
authorizes CTA en banc, a LOA cannot be dispensed
the with just because none of the financial books
revenue or records being physically kept by
officer. MEDICARD was examined. To begin with,
Section 6 of the NIRC requires an authority
Validity Valid only for 30 No validity date from the CIR or from his duly authorized
days from its issue for LN representatives before an examination "of a
date taxpayer" may be made. The requirement of
30


authorization is therefore not dependent on (e) In the exercise of the Commissioner's power
whether the taxpayer may be required to under Section 5(B) to obtain information from
physically open his books and financial other persons in which case, another or separate
records but only on whether a taxpayer is examination and inspection may be made.
being subject to examination.
Examination and inspection of books of accounts
Please take note that the trust of the LoA is on the act and other accounting records shall be done in the
of examining the taxpayer for examination purposes taxpayer's office or place of business or in the
and not an authority on the part of the revenue office of the Bureau of Internal Revenue.
officer to take a look at the accounting records.
All corporations, partnerships or persons that
It is not something about the books. It is something retire from business shall, within ten (10) days
about the authority on the part of the BIR to conduct from the date of retirement or within such period
an examination. of time as may be allowed by the Commissioner in
special cases, submit their books of accounts,
The EFFECT if the assessment is made without LoA: including the subsidiary books and other
the assessment is VOID for it violates the taxpayer’s accounting records to the Commissioner or any of
right to due process. his deputies for examination, after which they shall
be returned.
How about if the taxpayer is subjected to a tax
investigation? Section 235 Corporations and partnerships contemplating
SEC. 235. Preservation of Books and Accounts and dissolution must notify the Commissioner and shall
Other Accounting Records. - All the books of not be dissolved until cleared of any tax liability.
accounts, including the subsidiary books and other
accounting records of corporations, partnerships, Any provision of existing general or special law to
or persons, shall be preserved by them for a period the contrary notwithstanding, the books of
beginning from the last entry in each book until the accounts and other pertinent records of tax-
last day prescribed by Section 203 (so meaning exempt organizations or grantees of tax incentives
keep the records for 3 years) within which the shall be subject to examination by the Bureau of
Commissioner is authorized to make an Internal Revenue for purposes of ascertaining
assessment. compliance with the conditions under which they
have been granted tax exemptions or tax
The said books and records shall be subject to incentives, and their tax liability, if any.
examination and inspection by internal revenue
officers: Provided, That for income tax purposes, General Rule: The said books and records shall be
such examination and inspection shall be made subject to examination and inspection by internal
only once in a taxable year (GENERAL RULE), revenue officers: Provided that for income tax
except (EXCEPTIONS) in the following cases: purposes, such examination and inspection shall be
made only once in a taxable year.
(a) Fraud, irregularity or mistakes, as determined
by the Commissioner; Exceptions:
1. Fraud, irregularity or mistakes, as
(b) The taxpayer requests reinvestigation; determined by the Commissioner;
2. The taxpayer requests reinvestigation;
(c) Verification of compliance with withholding tax 3. Verification of compliance with withholding
laws and regulations; tax laws and regulations;

4. Verification of capital gains tax liabilities; and
(d) Verification of capital gains tax liabilities; and
5. In the exercise of the Commissioner's power

under Section 5(B) to obtain information
31


from other persons in which case, another or Q: How long would this take?
separate examination and inspection may be
made. A: I will take around 30 days from receipt of notice for
informal conference. As for revenue regulation it
So these are the INSTANCES wherein the BIR may look cannot be extended. If there will be no agreement
on the taxpayer’s books: entered into by the taxpayer and the BIR within this
period, then the BIR will indorese this to the
(Gido) assessment division to determine the veracity of the
a) Fraud, irregularity or mistakes, as determined by assessment, and if the assessment division will find
the Commissioner; merit to the case then the BIR now will issue an
(b) The taxpayer requests reinvestigation; assessment notice.
(c) Verification of compliance with withholding tax
laws and regulations; A pre-assessment notice (PAN) is a communication
(d) Verification of capital gains tax liabilities; and issued by the BIR informing the taxpayer who has
(e) In the exercise of the Commissioner's power under been audited of the findings of the Revenue Officer,
Section 5(B) to obtain information from other persons following the review of these findings. It is in writing
in which case, another or separate examination and and shall show the facts, law, rules and regulations to
inspection may be made. which the proposed assessment is based.
• This is again another love letter from the BIR
. . . those are the instances wherein the BIR may look but this time this is already informing
again on the books and accounts of the taxpayer. preliminarily the taxpayer that he or she has
a tax deficiency based on findings of the BIR.
After the letter of authority, the BIR will conduct its There are several things that may happen
audit, if they determine any problem, if the taxpayer here:
will not pay then the revenue officer will go back to 1. The taxpayer will pay and the case
the BIR and then if the BIR will find cause, it shall issue is done;
a notice for informal conference [transcriber’s note: 2. The taxpayer possibly would not do
RR 7-2018, Sec. 3.1.1 Notice for Informal Conference anything and ignore this;
- The Revenue Officer who audited the Taxpayer’s 3. The taxpayer is given 15 days from
records shall, among others, state in his report the receipt within which to submit
whether or not the taxpayer agrees with his findings or file a response.
that the taxpayer is liable for deficiency tax or taxes. There are instances wherein preliminary assessment
If the taxpayer is not amenable, based on the said is not required:
Officer’s submitted report of investigation, the
taxpayer shall be informed, in writing, by the Revenue [Transcriber’s Note:]
District Officer or by the Special Investigation Division, SEC. 228. Protesting of Assessment. - When the
as the case may be (in the case of Revenue Regional Commissioner or his duly authorized representative
Offices) or by the Chief of Division concerned (in the finds that proper taxes should be assessed, he shall
case of Revenue Regional Offices) or by the Chief first notify the taxpayer of his findings: Provided,
Division concerned (in the case of the BIR National however, That a pre-assessment notice shall not be
Office) of the discrepancy or discrepancies in the required in the following cases:
taxpayer's payment of his internal revenue taxes, for (a) When the finding for any deficiency tax is the
the purpose of “informal conference” in order to result of mathematical error in the computation
afford the taxpayer with an opportunity to present his of the tax as appearing on the face of the return;
side of the case. ] or
(b) When a discrepancy has been determined
> Sometimes in this informal conference the taxpayer between the tax withheld and the amount
and the BIR will come to an agreement. actually remitted by the withholding agent; or

32


(c) When a taxpayer who opted to claim a The remedy of the taxpayer now is to file a protest.
refund or tax credit of excess creditable
withholding tax for a taxable period was Q: when should a protest be filed?
determined to have carried over and
automatically applied the same amount claimed A: It should be filed within 30 days from receipt of the
against the estimated tax liabilities for the FAN.
taxable quarter or quarters of the succeeding
taxable year; or (Isidor)
(d) When the excise tax due on excisable articles PROTEST
has not been paid; or
(e) When the article locally purchased or What is protest in the concept of tax remedies?
imported by an exempt person, such as, but not
limited to, vehicles, capital equipment, PROTEST is an act of the taxpayer questioning
machineries and spare parts, has been sold, the validity of the imposition of the corresponding
traded or transferred to non-exempt persons. delinquency increments for internal revenue taxes as
shown in the FAN or the FLD.
> in case the taxpayer does not file a response or the
BIR does not believe the contention of the taxpayer, This is the administrative way of challenging the
the BIR now will serve you a Final Assessment Notice validity and the intricacies of the FAN issued by the
(FAN). BIR.

Q: Who issues the FAN? WHEN FILED

A: Still the CIR ot its duly authorized representative. This is filed within 30 days from the date of
receipt of the FAN or the FLD.
Q: what should a FAN contain?
*If the protest is not filed on time: The FAN or FLD
A: The FAN should contain two things” becomes FINAL AND EXECUTORY.
1. A demand for payment of taxes within the
prescribed period;
2. It shall state the facts, law, rules and KINDS OF PROTEST
regulations or jurisprudence to which the
assessment is based. Otherwise, the So, what are the kinds of protest? So, dalawa
assessment is void. yan. It’s either you file a request for reconsideration
or request for reinvestigation.
When we say final assessment notice, this is already a
demand for the payment of taxes 1. REQUEST FOR RECONSIDERATION

Q: How is PAN served? Reconsideration refers to a plea for a
reevaluation of the assessment on the basis of the
A: service must first be made at the taxpayer’s existing records without any additional documents.
registered address before the same be served on the
taxpayer’s known address. if the pan had been duly 2. REQUEST FOR REINVESTIGATION
served it enjoys prima facie evidence of correctness.
Reinvestigation refers to a plea of the
The taxpayer should not ignore the FAN, because reevaluation of the assessment on the basis of newly
once this final assessment has been ignored, that is discovered or additional evidence that the taxpayer
already the time the government can exercise its intends to present in the reinvestigation.
remedies to collect the taxes from the taxpayer.
33


Reconsideration - based on existing records
Reinvestigation - based on newly discovered or RULING: The CIR is wrong. The pawnshop already
additional evidence complied with the requirements because it
submitted such documents together with its
DISCUSSION: protest. There was nothing more to submit. The CIR
That’s why while the taxpayer opts for a cannot insist on the submission of additional
reinvestigation he should submit relevant and documents because such documents do not exist.
supporting documents. The term "relevant supporting documents" should
be understood as those documents necessary to
When should the taxpayer submit these? support the legal bases disputing the assessment as
determined by the taxpayer.
He should submit these within 60 days from
filing of the protest. The BIR can only inform the taxpayer to submit
additional evidence. The BIR cannot demand on
Situation: what type of document should be submitted.
Otherwise, the taxpayer will always be at the mercy
I requested for a reinvestigation and yet I did not of the BIR, which may require the production of the
file supporting documents. What will happen? documents, which the taxpayer cannot submit at
all.
Effect: Then the FAN will become final and executory.
So, basically, in this case, the BIR issued the VAT,
So, take note, tandem yan sya ha. Pag mag income tax and DST assessments against the
reinvestigation. pawnshop. The pawnshop protested on the
assessment. The BIR did not act on the protest.It filed
SUPPORTING DOCUMENTS a petition under the CTA.

What do these documents mean? Pawnshop’s defense:

This refers to documents necessary to support the It was not liable for the taxes because pawnshops
legal and factual basis in disputing the taxpayer’s according to this case, are not lending investors who
assessment. are subject to VAT.

Who determines the relevance of these Issues raised by the CIR:
supporting documents?
The FAN is already final and executory because we ask
It is determined by the taxpayer. That is in the case of the pawnshop to submit some certain documents and
CIR vs First Express Pawnshop. then they were not able to produce it. They opted for
a reinvestigation but they did not submit the relevant
(FROM 2018 TSN) and supporting documents. Apparently, what the
CIR vs. FIRST EXPRESS PAWNSHOP pawnshop did was it submitted its supporting
documents along its protest. Giisa nya dun lahat ba.
FACTS: The pawnshop was claiming that it is not
subject to DST. They filed a protest. And opted for What the CIR did is it requested the pawnshop
reinvestigation but they just submitted a copy of to prsent proof of payment of the DST on the
the NIRC and other related laws about their tax subscription. Nagrequest ang BIR ng document but
exemption. BIR required the pawnshop to submit then ang sbai ng pawnshop, we cannot produce you
certain documents. The pawnshop said that it such documents because we do not issue them,
cannot submit these documents because it doesn’t primarily, because we are not liable for DST.
issue them.
34


SUPREME COURT: supporting
documents.
The SC said in this case that the CIR was wrong
in directing the taxpayer to produce these kinds of
documents. The pawnshop already complied with Within 30 days
the requirements because it submitted such In case of after 180-day
documents together with its protest. There was INACTION: period.
nothing more to submit. Within 30 days
after the 180-day period
Period to
The term “relevant supporting documents” should be expiration of the is reckoned
appeal to the
understood as those documents necessary to support 180-day period from the time of
CTA
the legal bases disputing the assessment as within which the submission of
determined by the BIR. The BIR can only inform the CIR decides on relevant
taxpayer to submit additional evidence. The BIR the protest from supporting
cannot demand on what type of document should be the time of filing documents.
submitted. Otherwise, the taxpayer will always be at of the recon.
the mercy of the BIR, which may require the
production of the documents, which the taxpayer TO WHOM SHOULD THE PROTEST BE FILED:
cannot submit at all.
Under the existing Rvenue Regulations, there are 2
So, again the PRINCIPLES here are as follows: personalitites to which the taxpayer may file the
protest:
a) The taxpayer has the choice to determine what 1) TO THE REGIONAL DIRECTOR; OR
are th relevant supporting documents for its protest; 2) TO THE CIR
March 12, 2019
b) The BIR cannot demand what are the documents (Lagat)
should the taxpayer submit to form part of this
relevant supporting documents. First is the Notice of the Informal Conference (NIC).

REQUEST FOR REINVESTIGATION VS REQUEST FOR This would last for thirty (30) days. (dati kasi, tinggal
RECONSIDERATION (DISTINCTIONS) na ito. But now, ibinalik sa TRAIN) You already know
the purpose of the NIC.
(FROM 2018 TSN)
RECONSIDERATI REINVESTIGATI After that, the settlement between the government
ON ON and the taxpayer
Request for When The case will be remanded back to the BIR for
Suspension of
recon does not GRANTED decision, and then, what would be issued would be
prescriptive
suspend the TOLLS the the Preliminary Assessment.
period for tax
period for tax period to collect
collection
collection taxes. What are the contents of the PAN?
As to Does not apply. Required to
submission of No need to submit. Preliminary Assessment Notice (PAN) will contain the
relevant submit. facts, law, rule, jurisprudence. Otherwise, the PAN is
supporting void.
documents
Does not apply. Applies. (Watch out ha.)
60-day period
to submit

relevant
35


The policy of PAN; What the BIR did was deny the request because
the taxpayer may according to it, there was no formal assessment as of
1) Ignore or yet. Walang assessment, it’s just that there was a
2) File a response (within 15 days from receipt) criminal case filed against the corporation and the
officers. But when the case was elevated to the CTA,
If the BIR will believed the taxpayer, then, fine. If it is the BIR filed a motion to dismiss, and yet, the CTA
not satisfied with the response of the taxpayer, denied the motion to dismiss. Premature pa; wala
whether wholly or partially, the Final Assessment pang assessment. That’s the position of the BIR.
Notice and the Final Letter of Demand will be issued
and served by the BIR. For the FAN/FLD, basically, the The issue here was WON the CTA correctly dismissed
FAN is issued by the BIR office or duly authorized the case.
representative.
In this case, the Supreme Court said that, not all
CONTENTS of a FAN: documents coming from the BIR containing the
1 — the facts, law, rule, jurisprudence. Otherwise, computation of a liability is an assessment. If you
the PAN is void follow the definition of an ‘assessment’ — means not
2 — it already contains a demand to pay taxes only the computation of the tax liabilities but also for
the demand for the payment within the prescribed
Essentially, it is a notice requiring the taxpayer to period. It signals the time for the penalties and
respond, but, this FAN/FLD, it is also a demand letter; protests begin to accrue against the taxpayer.
pay or else.
What is present here is just an affidavit of complaint.
What is the other effect of the FAN/FLD? There was an affidavit of complaint probably for tax
This is the time the penalties or interests will begin to evasion, prepared by the BIR officials and this was
run on the taxpayer. It’s not on the PAN, but on the filed with the DOJ. If you notice, the purpose of the
“FAN”. filing of the assessment is for the collection of taxes,
How is it served? while the purpose of the filing of the affidavit of
Basically, it’s served by the preliminary notice (PAN), complaint is the prosecution of the tax offense
the service must be mailed at the taxpayer’s committed by the taxpayer. Sa purpose pa lang, mali
registered address…(meaning, yung address nya sa na.
BIR), before it may be served at the taxpayer’s
known address. In other words, not all documents coming from the
BIR containing the computation of taxes are
Alternatively, the service of the PAN may also be considered an assessments. Tandaan niyo lang, ang
done simultaneously on the registered address and assessment: there’s a computation, facts, rules,
the known address. Especially gani kanang dili jurisprudence and there is a demand for the payment
modawat; uso man na. of tax.

Now, if the FAN is properly served, it enjoys a prima In CIR v HANTEX, the general rule is that tax
facie presumption of correctness. This would mean assessment is presumed correct and made in good
that the taxpayer has the burden of proof that the faith.
assessment is void. That the assessment is infirm;
that it is insufficient in form and substance. But please take note: the prima facie correctness of
the tax assessment could only operate if by its face
In the case if CIR v Pascor Realty, there was a criminal complete (facts, jurisprudence, rules and regulations;
case filed against the corporation and its officers. there is a sufficient legal foundation on that
Thereafter, the corporation filed a request for assessment).
reconsideration/reinvestigation disputing the tax
assessment and the tax liability.
36


The prima facie correctness of tax assessment does supporting documents when it comes to
not apply upon proof that the assessment is utterly reinvestigation.
without foundation; meaning, it is arbitrary and
capricious to begin with. For how long?
60 days, from the filing of the protest
When the BIR has come up with a naked assessment;
meaning, it has no foundation at all, the
determination of the tax due is without basis and Reinvestigation reconsideration
whatever issued is considered as void.
period to 60 days from filing of 30 days from
Now, what is the taxpayer’s remedy in case there is a file the protest receipt
final assessment notice issued? Because by this time,
if there will be a FAN, the taxpayer cannot ignore this. Essential to submit existing
Once the taxpayer will fail to avail of its tax remedy, relevant supporting documents only
this FAN will become final and executory and the documents
government will avail its own remedies to collect the suspends the period to does not
taxes under the assessment. collect taxes suspend

Ano nangyari dito? What will be done? What will be period to Within 30 days after Within 30 days
done is file a protest. appeal to 180-day period. after 180-day
the CTA period within*
What is a protest? which the CIR
decides on the
It is the act of the taxpayer questioning the protest.
validity of the imposition of the corresponding —from the time of
delinquency increments for the internal revenue counting submission of relevant
taxes as shown in the FAN/FLD. of the supporting documents. ** from the
180-day submission of
In other words, this is the administrative way of the filing of
challenging the tax assessment issued by the CIR or protest.
his authorized representative.
CIR v Express Pawnshop
When should a protest be made? Is it possible for the taxpayer to submit the
reinvestigation and along with it, the relevant
A protest should be made within 30 days supporting documents?
from receipt.
(Lim)
You have 30days from within which to file your Q: Is it possible for the taxpayer to submit to
protest. reinvestigation and along with it the relevant

What are the 2 kinds of protest? supporting documents?
A: It’s alright basta you have 60 days to submit such
1) Request for RECONSIDERATION documents.
2) Request for REINVESTIGATION
Q: To whom should the protest be filed?
When it comes to reinvestigation, it is essential to A: there are two personalities wherein the protest can
submit relevant supporting documents.
be filed:
We kinda discussed this somehow last time. You
already know the definition of the relevant
37


1. Filed before the authorized representative of c. In the CIR, it’s either: he will render
the CIR as the RD (Regional Director); a decision or that there will be
2. Filed before the CIR itself. indirect denial. How long is given to
the CIR to decide the appeal? 180
In the existing memorandum issued by Kim Henares,
days.
the CIR requests that all protest on tax assessments
d. If the CIR will render a decision, a
must be filed with the regional director. But under
direct denial wholly or partially
existing rules on protests, pwede ka dumaan diretso
then the taxpayer will have to
sa Manila or dito sa baba.
appeal to the CTA in Division. The
Q: Which is better?
appeal with the CTA Divison must
A: It really depends on what the clients want. If the
be filed within 30 days.
client would want to settle it with the BIR, then it is
e. If there is an indirect denial, the
better that the protest be filed with the RD first.
taxpayer will wait for it. If lagpas na

180 days possible na hintayin,
REGIONAL DIRECTOR
hintayin niya pa rin ang decision

then merong decision or wala.
Q: How long is the time given to the RD to decide a
Kapag may decision pangit or mali,
protest?
go to the CA.
A: 180 days to decide reckoned depending:
a. If what is filed is a request for (Olamit)
reconsideration – from the date of filing of PROCEDURE BEFORE THE RD
(Regional Director)
said reconsideration.

b. If what is availed of is reinvestigation- from
(Note: Please see attachment for complete
the time the relevant supporting documents illustrations J)
is filed with the RD.
Balik muna tayo sa decision. Sabi natin administrative.
Two-ways that can happen in the RD when there is an But another avenue of the taxpayer of this decision of
adverse decision kasi kung grant naman wala tayong the RD is to go directly to the CTA.
problema. Let’s presume na adverse ang decision.
1. The RD will render an adverse decision called
as a direct denial. Regional CTA
Director
2. There RD will not do anything within the 180

days meaning there is indirect denial.
Now, in this case, balik na tayo ha. So again, pag may
From here on, when there is an adverse decision and decision, dalawa ang option:

the taxpayer would want to fight it out, there are two
1. Go directly to the CTA; or
ways to do it: 2. You go for administrative appeal.
1. The taxpayer will go to the CIR by way of
administrative appeal. He is given 30 days
to appeal from receipt of the decision. CIR
a. How? The taxpayer will file for a
Regional Decision
request for reconsideration.
Director
b. Request for reinvestigation is no (RD) CTA
longer available.
38


Now, ‘pag indirect, it’s either wait it out for the Then after that, if the taxpayer is still not contented
decision. ‘Pag meron ng decision, same lang ang with the decision, he will now go and file an appeal
takbo. It’s either mag-appeal siya deretso or mag- again, this time a petition to the CTA En Banc. File a
administrative appeal siya. petition for review (Rule 43) and this is for 15 days.
MR is still 15 days.
And the other option for him is to go directly to the
CTA. For how long? Still 30 days. 30 days from the If the decision is still adverse, he may file an MR and
lapse of the 180 day period. the next step is to go the Supreme Court. This is a
petition for review on certiorari under Rule 65 within
Again, pag-indirect denial (No decision): a 15 day period.

1. Wait it out for the decision and then follow CTA In CTA En Supreme
the steps; or Division Banc Court
2. You can go directly to the CTA. (Petition for (Petition for (Certiorari
under Rule 65)
Review) Review/

Rule 43)
The Supreme Court is already the final arbiter. So
If adverse, If adverse,
that’s the entire flow if filed before the RD.
Follow the file an MR file an MR
Decision procedure (refer

to Illustration 1)
Regional PROCEDURE BEFORE THE CIR
(Commission on Internal Revenue)
Director

(RD)
No Decision Q: What if the taxpayer files before the CIR?
CTA
/Inaction
A: It’s pretty much the same with the RD. If the case
is filed with the CIR, there will be a decision or there
Q: ‘Pag indirect ang decision, can I go to will be an inaction/indirect denial. Still 180 days to
administrative appeal? decide.

A: The Rules does not provide. So ‘pag indirect denial, Decision
you do not go to the CIR. It’s either you wait for the
decision or, within 30 days, you go to the CTA.

Now, from the CTA, this is what you call the JUDICIAL CIR
REMEDIES already. (From the RD to the CIR, merely
administrative.) No Decision
/Inaction
Q: What do you call the decision of the CIR?

A: You call it as a final decision on disputed If there will be a decision, the next step is CTA in
assessment or FDDA. division and then CTA en banc. Practically the same
period. And finally, we have the SC.
Now, in the CTA, to make an appeal, you file a petition
for review. After that, if the decision rendered is
adverse, the taxpayer may file an MR (motion for CTA In CTA En Supreme
reconsideration). Division Banc Court
(Petition for (Petition for (Certiorari
under Rule 65)
Review) Review/

Rule 43)
If adverse, If adverse,
file an MR file an MR 39


If inaction, two options: And besides, there is the doctrine of exhaustion of
administrative remedies.
1. Wait for the decision and follow the process; or
2. Go directly to the CTA within 30 days from receipt Now, you all know the result if the protest availed by
or from lapse of 180 days. the taxpayer, the FAN/FLD will become final and
executory.

Follow the
Decision procedure (refer We also mentioned earlier that the decision of the CIR
to Illustration 2) is called the Final Decision on Disputed Assessment
(FDDA).
CIR

What are the contents of the FDDA?
No Decision
CTA
/Inaction The contents are:
1. Facts, law, rules and regulations, and
So that’s the entire process under the CIR. jurisprudence on which the FDDA is based,
otherwise the FDDA is void; and
Now, going back on the remedies, I have a bit of a 2. That the CIR’s decision is his final decision.
problem with respect to the remedies that are issued
by the BIR. There is a problem with the entire process In practice, the FDDA is somewhat skirted. The CIR will
because of the CTA Law. no longer explain they will just send you a demand
letter again. So treat it as if it’s already the FDDA of
Under the CTA Law, the jurisdiction of the CTA are the CIR.
decisions or inactions of the CIR.
Wala tayong problema when it comes to the PAN and
(Singanon) the FAN/FLD lacking the law, facts, rules and
So basically if you follow the letter of the law, for the regulations, or jurisprudence on which the
CTA to acquire jurisdiction over the tax case, it should assessment is based because the PAN or the FAN/FLD
be from the inaction or decision of the CIR. will become void.
Jurisdiction is a matter of law.
Now what if the FDDA is without legal or factual
So why is it under the rules, the taxpayer is allowed to foundation? Is it void? If the FDDA is void, does it
go directly to the CTA when the decision is just mean that the PAN or the FAN is also void?
rendered by the RD? Is it allowed to begin with?
This is the case of CIR vs LIQUID GAS.
Well another way of looking at it, I just realized
recently, relates to what are the functions of the CIR There was a Letter of Authority. Liquid Gas fought it
which may be delegated. out. Meron inissue na PAN and subsequently a FAN
and then eventually it filed a protest. Now when it
So which is which? How are you going to go about it if filed a protest, the BIR issued a FDDA. The problem is
you try to practice tax law later on? that on some of the tax assessments, it did not
contain any factual basis.
For me, I would like to opt to file it with the RD and go
through the long process. The contentions of the parties were simple. On the
part of Liquid Gas, it claims that it should not be held
Malay mo, pag magdali-dali ako dito, punta agad ako liable because the FDDA is void. As such, nobody can
sa CTA tapos decision pala ng RD, what if the BIR will collect from it because the assessment is also void.
say that the CTA has no jurisdiction? Patay ka, how
will you explain to your client.
40


The BIR appealed because essentially it wants to But here’s the thing, I think there’s a problem with
collect everything. It has been explained in the PAN that SC decision, as to its declaration insofar as it is
and the FAN. What is at issue here is the FDDA. It does considered as a denial by inaction.
not necessarily affect the FDDA. That is the position
of the BIR. It has something to do with the period. How long is
given to the taxpayer in case there is denial by
How did the SC rule in this case? inaction or an indirect denial? Before siya magpunta
ng CTA, how long?
First things first, the assessment and the FDDA are
two different animals. When you say assessment, yes Diba 30 days? So gaano kayo kahaba magtakbo ang
it’s true that the assessment and the FDDA must kaso niyan.
contain the facts and the law on which the Probably in a legal sense, oo maganda siya pakinggan.
assessment is based and lacking any legal and factual But how do you apply it in a practical sense? Diba, it’s
basis on that assessment or FDDA, it renders the kinda weird. How are you supposed to apply this?
document void. Kelan magstart ang 30-day period mo? Will it begin
immediately or will it begin at the time the case was
But it does not necessarily mean that if the FDDA is filed?
void for lack of legal and factual foundation, it does
not automatically follow that the assessment is also So we already know the judicial remedies.
void. Again, those two things are two different
animals. Supposing, the FDDA has become final and executory,
or probably any of the decisions of the CTA in division,
What is being issued by the BIR is an assessment. If en banc, or the SC has already become final and
the taxpayer will file a protest, it becomes a disputed executory, we said that that is the time when the BIR
assessment. From that disputed assessment, the CIR will already avail of its remedies to collect taxes.
or his authorized representative is required to make a
decision. It’s either a direct denial or an indirect When the assessment becomes final and executory
denial. The moment that it is denied, you already call and demandable, the BIR may now avail of its
that as an FDDA. remedies. It is the time when the tax is now
considered as delinquent, or the taxpayer is already
That’s why the SC said, because they are two different considered as a delinquent taxpayer.
documents with two different purposes, once the
FDDA is declared void, it does not necessarily follow You did not pay the proper tax in the proper time and
that the FAN or the assessment is also void. therefore you are already a delinquent taxpayer.

What is now the effect if the FDDA is considered void? At this point there is still no problem, there is still an
assessment, you are still a tax deficient taxpayer.
Here’s the interesting portion of the SC decision. The
SC said: But by the time that the decision has already become
final and executory, you are already considered as tax
It is as if there was no decision rendered by the CIR. delinquent taxpayer.
This is tantamount to a denial by inaction by the CIR
which may still be appealed before the CTA and the (Tan)
assessment evaluated on the basis of the available PRESCRIPTIVE PERIOD FOR THE
evidence and documents. ASSESMENT OF TAXES

That’s why the SC remanded the case to the CTA again There are two types:
for the determination of those tax assessments 1. Ordinary Prescriptive Period which is
affected by the void FDDA. reckoned 3 years from the date of filing or
41


date of deadline for the filing of the return may be assessed within the period agreed upon.
whichever comes later ; and The period so agreed upon may be extended by
2. Extraordinary Prescriptive Period which is subsequent written agreement made before the
reckoned 10 years from the time of expiration of the period previously agreed upon.
discovery.
(c) Any internal revenue tax which has been
assessed within the period of limitation as
PRESCRIPTIVE PERIOD FOR THE COLLECTION prescribed in paragraph (a) hereof may be
collected by distraint or levy or by a proceeding in
There are 2 schools of thought: court within five (5) years following the
1. 3-year period to assess and 3-years to assessment of the tax.
collect (old law):
(d) Any internal revenue tax, which has been
SEC. 203. Period of Limitation Upon Assessment assessed within the period agreed upon as
and Collection. - Except as provided in Section 222, provided in paragraph (b) hereinabove, may be
internal revenue taxes shall be assessed within collected by distraint or levy or by a proceeding in
three (3) years after the last day prescribed by law court within the period agreed upon in writing
for the filing of the return, and no proceeding in before the expiration of the five (5) -year period.
court without assessment for the collection of such The period so agreed upon may be extended by
taxes shall be begun after the expiration of such subsequent written agreements made before the
period: Provided, That in a case where a return is expiration of the period previously agreed upon.
filed beyond the period prescribed by law, the
three (3)-year period shall be counted from the day (e) Provided, however, That nothing in the
the return was filed. For purposes of this Section, a immediately preceding and paragraph (a) hereof
return filed before the last day prescribed by law shall be construed to authorize the examination
for the filing thereof shall be considered as filed on and investigation or inquiry into any tax return
such last day. filed in accordance with the provisions of any tax
Casasola and Domondon advocates the 3 year amnesty law or decree.
prescriptive period.
According to Dean, follow the 5-year period to collect
2. 5-year period under Section 222: (under Sec. 222) because that is stated under the
NIRC. These provisions specifically for the collection
SEC. 222. Exceptions as to Period of Limitation of of taxes should be amended for clarity’s sake. Sadly,
Assessment and Collection of Taxes. – the TRAIN Law did not provide for a prescriptive
(a) In the case of a false or fraudulent return with period for the collection of taxes.
intent to evade tax or of failure to file a return, the
tax may be assessed, or a proceeding in court for I have researched a few cases:
the collection of such tax may be filed without BPI vs. CIR
assessment, at any time within ten (10) years after G.R. No. 174972, March 7, 2008
the discovery of the falsity, fraud or omission:
Provided, That in a fraud assessment which has The law applicable at this time of the case was the
become final and executory, the fact of fraud shall NIRC of 1977, an old NIRC but the text of the law
be judicially taken cognizance of in the civil or on the prescriptive period is essentialy the same
criminal action for the collection thereof. with the 1997 NIRC.

(b) If before the expiration of the time prescribed RULING: The statute of limitations on assessment
in Section 203 for the assessment of the tax, both and collection of national internal revenue taxes
the Commissioner and the taxpayer have agreed in was shortened from five (5) years to three (3) years
writing to its assessment after such time, the tax by B.P. Blg. 700. Thus, CIR has three (3) years from
42


the date of actual filing of the tax return to assess SEC. 223. Suspension of Running of Statute of
a national internal revenue tax or to commence Limitations. - The running of the Statute of
court proceedings for the collection thereof Limitations provided in Sections 203 and 222 on
without an assessment. the making of assessment and the beginning of
distraint or levy a proceeding in court for
CIR vs. Systems Technology Institute, Inc. collection, in respect of any deficiency, shall be
G.R. No. 220835, July 26, 2017 suspended for the period during which the
The Waivers of Statute of Limitations, being Commissioner is prohibited from making the
defective and invalid, did not extend the CIR's assessment or beginning distraint or levy or a
period to issue the subject assessments. Thus, the proceeding in court and for sixty (60) days
right of the government to assess or collect the thereafter; when the taxpayer requests for a
alleged deficiency taxes is already barred by reinvestigation which is granted by the
prescription. Commissioner; when the taxpayer cannot be
located in the address given by him in the return
Section 203 of the NIRC of 1997, as amended, limits filed upon which a tax is being assessed or
the CIR's periodto assess and collect internal collected: Provided, that, if the taxpayer informs
revenue taxes to three (3) years counted from the the Commissioner of any change in address, the
last day prescribed by law for the filing of the running of the Statute of Limitations will not be
return or from the day the return was filed, suspended; when the warrant of distraint or levy is
whichever comes later. Thus, assessments issued duly served upon the taxpayer, his authorized
after the expiration of such period are no longer representative, or a member of his household with
valid and effective. sufficient discretion, and no property could be
located; and when the taxpayer is out of the
When should you start counting the period? Philippines.

SEC. 222. Exceptions as to Period of Limitation of
Assessment and Collection of Taxes. – March 14, 2019
((Viola)
xxx
Section 223. Suspension of Running of Statute of
(c) Any internal revenue tax which has been Limitations. - The running of the Statute of
assessed within the period of limitation as Limitations provided in Sections 203 and 222 on the
prescribed in paragraph (a) hereof may be making of assessment and the beginning of distraint
collected by distraint or levy or by a proceeding in or levy a proceeding in court for collection, in respect
court within five (5) years following the of any deficiency, shall be suspended for the period
assessment of the tax. during which the Commissioner is prohibited from
making the assessment or beginning distraint or levy
“Assessment” for purpose of running the period to or a proceeding in court and for sixty (60) days
collect refers upon receipt of the taxpayer of the thereafter; when the taxpayer requests for a
assessment reinvestigation which is granted by the
Commissioner; when the taxpayer cannot be located
What if there is no prior assessment made? in the address given by him in the return filed upon
As a rule, judicial proceedings must be made within 3 which a tax is being assessed or collected: Provided,
years. It shall be reckoned from the date of filing of that, if the taxpayer informs the Commissioner of any
the return or the date of deadline of the filing of the change in address, the running of the Statute of
return, whichever comes later. Limitations will not be suspended; when the warrant
of distraint or levy is duly served upon the taxpayer,
When can the prescriptive period be interrupted? his authorized representative, or a member of his
That is Section 223 of the NIRC. household with sufficient discretion, and no property
43


could be located; and when the taxpayer is out of the Who has the burden of proving that the investigation
Philippines. was granted? Since this involves prescription, the
burden is on the part of the BIR.
These are the instances when the statute of limitation
will be suspended: 3. When the taxpayer cannot be located in the
address given by him in the return filed upon which a
1. When the Commissioner is prohibited from making tax is being assessed or collected: Provided, that, if
the assessment or beginning distraint or levy or a the taxpayer informs the Commissioner of any change
proceeding in court and for sixty (60) days thereafter. in address, the running of the Statute of Limitations
-There is probably an injunction issued by will not be suspended.
the court. - This is a situation where the taxpayer has
absconded.
2. When the taxpayer requests for a reinvestigation
which is granted by the Commissioner 4. When the warrant of distraint or levy is duly served
upon the taxpayer, his authorized representative, or
BPI v CIR GR 139736 a member of his household with sufficient discretion,
and no property could be located.
Ruling: To reiterate, Section 224 of the Tax Code of
1977, as amended, identifies specific circumstances Suppose that the government levy has been made,
when the statute of limitations on assessment and and during the auction sale, the proceeds are not
collection may be interrupted or suspended, among enough to cover the entire tax liability and we have to
which is a request for reinvestigation that is granted consider the 3 year prescriptive period. In the PDIC
by the BIR Commissioner. The act of filing a request case, the SC said that it is not essential that the
for reinvestigation alone does not suspend the warrant is made to be fully executed before it can
period; such request must be granted. The grant need have the effect of suspension.
not be express, but may be implied from the acts of
the BIR Commissioner or authorized BIR officials in It is just enough that the proceedings have already
response to the request for reinvestigation. begun by the service of the warrant and not the full
execution thereof.
The statute of limitations on collection may only be
interrupted or suspended by a valid waiver executed Once the warrant is received by the taxpayer, the
in accordance with paragraph (d) of Section 223 of the proceedings have begun already.
Tax Code of 1977, as amended, and the existence of
the circumstances enumerated in Section 224 of the Section 218. Injunction not Available to Restrain
same Code, which include a request for Collection of Tax. - No court shall have the authority
reinvestigation granted by the BIR Commissioner. to grant an injunction to restrain the collection of any
national internal revenue tax, fee or charge imposed
Even when the request for reconsideration or by this Code.
reinvestigation is not accompanied by a valid waiver
or there is no request for reinvestigation that had Basically, the general rule is when it comes to
been granted by the BIR Commissioner, the taxpayer collection of taxes is not allowed, the exception is
may still be held in estoppel and be prevented from found in the TRAIN Law wherein it states that the CTA
setting up the defense of prescription of the statute has the power to grant an injunction to restrain the
of limitations on collection when, by his own repeated collection of any internal revenue charge.
requests or positive acts, the Government had been,
for good reasons, persuaded to postpone collection Apart from the CTA, the SC also has the authority to
to make the taxpayer feel that the demand is not grant the injunction being the final arbiter of tax
unreasonable or that no harassment or injustice is cases.
meant by the Government
44


Requirements for injunction before the CTA: What should the CTA have done in that situation? It
should have considered other factors. Like whether
1. There is an appeal filed with the CTA; the assessment would jeopardize the interest of the
2. That the collection of taxes may jeopardize the taxpayer, or whether the base adopted by the BIR to
interest of the government and/or the tax payer; determine the liability was valid. So, it’s not a hard
3. The taxpayer has deposited the amount or files a and fast rule; it’s just a guideline, but if the facts
surety bond not double the amount sought to be would warrant the reduction of the bond in order to
collected. give justice and fairness to the taxpayer, then the CTA
must afford that remedy to the taxpayer.
Case:
Tridhama Marketing Corporation v CTA TAX COLLECTION

The BIR issued several tax assessment for various Section 205. Remedies for the Collection of
internal revenue taxes against the corporation. The Delinquent Taxes. – The civil remedies for the
protest of the corporation was denied and on appeal collection of internal revenue taxes, fees or
it filed an application for injunction. charges, and any increment thereto resulting from
delinquency shall be:
The CTA would grant the injunction subject to the
condition that a bond must be posted equivalent to a) By distraint of goods, chattels, or effects,
150% of the total amount to be collected which and other personal property of whatever
amounted to 6 billion pesos. character, including stocks and other
securities, debts, credits, bank accounts,
Issue: WON the grant of injunction was done with and interest in and rights to personal
grave abuse of discretion. property, and by levy upon real property
and interest in or rights to real property;
SC: This is a peculiar case. The law says that the surety and
bond to be filed is not more than double the amount. b) By civil or criminal action.

(Ruling on the next part of the transcription) Either of these remedies or both simultaneously
may be pursued in the discretion of the authorities
(Campaner) charged with the collection of such taxes: Provided,
This is peculiar. Why? Because the law says “the however, That the remedies of distraint and levy
amount ?? for surety bond of not more than double shall not be availed of where the amount of tax
the amount”. Magkano pala order nang CTA dito, diba involve is not more than One hundred pesos
150% lang, so it is within the parameters. (PhP100).

The power to tax is sometimes called the power to The judgment in the criminal case shall not only
destroy, hence it must be exercised with great caution impose the penalty but shall also order payment of
to minimize the propriety rights(?) of the taxpayer. the taxes subject of the criminal case as finally
Then, you have the golden egg doctrine. decided by the Commissioner.

If you look at it, it violates the second ground. The The Bureau of Internal Revenue shall advance the
purpose of an injunction is to prevent any injury on amounts needed to defray costs of collection by
the part of the taxpayer, right? But ano ang nangyari? means of civil or criminal action, including the
By requiring the 150% bond, which is way more than preservation or transportation of personal
the net worth of that company, that does not in any property distrained and the advertisement and
way serve the purpose of an injunction. sale thereof, as well as of real property and
improvements thereon.

45


A revenue tax is considered delinquent if it is unpaid The constructive distraint of personal property
after the last day prescribed by law for its payment. If shall be affected by requiring the taxpayer or any
you are not able to pay on the deadline. person having possession or control of such
property to sign a receipt covering the property
If the FAN is already final and executory and the distrained and obligate himself to preserve the
taxpayer did not dispute the assessment of the BIR, same intact and unaltered and not to dispose of
the State can already avail of the remedy of the same; in any manner whatever, without the
collection. express authority of the Commissioner.

Under the above provision, there are four remedies In case the taxpayer or the person having the
available to the government: possession and control of the property sought to
1. Distraint of personal property be placed under constructive distraint refuses or
2. Levy of real properties fails to sign the receipt herein referred to, the
3. Civil action revenue officer effecting the constructive distraint
4. Criminal action shall proceed to prepare a list of such property
and, in the presence of two (2) witnesses, leave a
The first two are the summary remedies for tax copy thereof in the premises where the property
collection. They are found in Sec. 207 of the NIRC. distrained is located, after which the said property
shall be deemed to have been placed under
DISTRAINT constructive distraint.

This is pretty much the same with your Civil Procedure The other term for constructive distraint is preventive
on Rule 39 (Execution). embargo. When the taxpayer’s personal property is
subjected to a constructive distraint, it’s basically a
Pag distrain it is personal property. Distraint is a prohibition on the taxpayer or person in possession of
remedy where a personal property of a delinquent the property to dispose the property sought to be
taxpayer is taken and sold to a public auction and the distrained. “Ayaw na ibaligya, or else.” There is no
proceeds thereof will be applied to the tax liabilities actual taking of the property, mere serving of the
of the taxpayer. notice is enough.

What are the types of distraint? What are the grounds for constructive distraint?
1. Constructive distraint 1. The taxpayer is retiring from any business
2. Actual distraint subject to tax;
2. The taxpayer is intending to leave the
Constructive Distrain Philippines (abscond);
3. The taxpayer would remove his property;
SEC. 206. Constructive Distraint of the Property of 4. The taxpayer is intending to hide or conceal
A Taxpayer. - To safeguard the interest of the his property;
Government, the Commissioner may place under 5. The taxpayer is intending to perform any
constructive distraint the property of a delinquent act tending to obstruct the proceedings for
taxpayer or any taxpayer who, in his opinion, is collecting the tax due or which may be due
retiring from any business subject to tax, or is from him.
intending to leave the Philippines or to remove his
property therefrom or to hide or conceal his How shall the distraint be effected? The constructive
property or to perform any act tending to obstruct distraint of personal property shall be affected by
the proceedings for collecting the tax due or which requiring the taxpayer or any person having
may be due from him. possession or control of such property to sign a
receipt covering the property distrained and obligate
himself to preserve the same intact and unaltered and
46


not to dispose of the same; in any manner whatever, required, the Commissioner or his duly authorized
without the express authority of the Commissioner. representative, if the amount involved is in excess
of One million pesos (P1,000,000), or the Revenue
The taxpayer or the person in possession of the District Officer, if the amount involved is One
property are mandated to do two things: million pesos (P1,000,000) or less, shall seize and
1. Do not sell/dispose the property distraint any goods, chattels or effects, and the
2. Preserve the property personal property, including stocks and other
securities, debts, credits, bank accounts, and
When serving notice, the taxpayer would only sign. interests in and rights to personal property of such
But usually, people are afraid to sign. We would persons ;in sufficient quantity to satisfy the tax, or
always equate our signature as some sort of creation charge, together with any increment thereto
of an obligation on our part. Somewhat, ideny natin incident to delinquency, and the expenses of the
“wala akong sinabi, walang tayong label.” Uso daw sa distraint and the cost of the subsequent sale.
lawschool. (Chuchu puro chismisss.)
A report on the distraint shall, within ten (10) days
(Castro) from receipt of the warrant, be submitted by the
WHAT IF THE TAXPAYER WOULD NOT SIGN THE distraining officer to the Revenue District Officer,
RECEIPT OR THE NOTICE? and to the Revenue Regional Director: Provided,
What the BIR guy or the person serving notice will do That the Commissioner or his duly authorized
is that he will prepare an independent ___ property representative shall, subject to rules and
(inaudible on the blank portion) in front of 2 witnesses regulations promulgated by the Secretary of
and iiwan lang niya doon. That is already an effective Finance, upon recommendation of the
service of notice. Commissioner, have the power to lift such order of
distraint: Provided, further, That a consolidated
ACTUAL DISTRAINT report by the Revenue Regional Director may be
required by the Commissioner as often as
There is an actual seizure of the property involved to necessary.
be solved at a public auction and the proceeds thereof No amendments under TRAIN as to this Section.
will be applied to the tax liabilities of the taxpayer
including surcharges and penalties. WHO EXERCISES DISTRAINT?
Including in the actual distraint is GARNISHMENT. - There are 2 persons involved and depending
In truth ang garnishment parang walang on the amount.
actual seizure yan siya ha, pero somehow
you can imagine that it is seized- effectively More than 1 million Commissioner of
removed from the control of the taxpayer. It Internal Revenue
is not mere disposal but there is some sort of 1 million or below RDO
transfer of that property.
Ano ba yang garnishment? Primary example HOW IS IT DONE?
under Civil Procedure are bank accounts. It is - Actual seizure of the property. And then
not merely to preserve the money in the there will be a notice and then report by the
banks but to turn over the funds. That’s why RDO to the Revenue District.
garnishment is part in actual distraint. It is
found in Section 207 (A) of the NIRC CAN YOU ORDER DISTRAINT TO BE LIFTED?
- Yes, it is entirely possible that the taxpayer
Section 207. Summary Remedies. - can ask the CIR. Because the CIR can lift the
order of distraint but he is required to post a
(A) Distraint of Personal Property. - Upon the bond.
failure of the person owing any delinquent tax or
delinquent revenue to pay the same at the time
47


WHAT IS THE PROCEDURE FOR THE DISTRAINT? PERSONAL PROPERTY
Section 208. Procedure for Distraint and In this type of personal property, a warrant of
Garnishment. - The officer serving the warrant of distraint shall be issued by the BIR and as per rules
distraint shall make or cause to be made an this is in a form of a Warrant of Distraint and Levy
account of the goods, chattels, effects or other (WDL). This will be given to the seizure who will
personal property distrained, a copy of which, execute the seizure.
signed by himself, shall be left either with the This SEIZURE AGENT parang student assistant (SA)
owner or person from whose possession such will serve the warrant distraint and will make a list of
goods, chattels, or effects or other personal the goods that will be subject to distraint and will sign
property were taken, or at the dwelling or place of it and leave a copy thereof to the taxpayer.
business of such person and with someone of So basically, it’s just a listing of all the properties that
suitable age and discretion, to which list shall be will be taken by the BIR.
added a statement of the sum demanded and note
of the time and place of sale. STOCKS AND SECURITIES
For the stocks and securities very simple kasi walang
Stocks and other securities shall be distrained by actual na pagkuha ng gamit. Usually when it comes to
serving a copy of the warrant of distraint upon the distraint of personal property medjo mas masakit kasi
taxpayer and upon the president, manager, yan
treasurer or other responsible officer of the (kwento of Sir about his case in re attachment
corporation, company or association, which issued remedy).
the said stocks or securities.
DEBTS AND SECURITIES
Debts and credits shall be distrained by leaving Debts and credits shall be distrained by leaving with
with the person owing the debts or having in his the person owing the debts or having in his
possession or under his control such credits, or possession or under his control such credits, or with
with his agent, a copy of the warrant of distraint. his agent.
The warrant of distraint shall be sufficient So notice pa lang din.
authority to the person owning the debts or having
in his possession or under his control any credits WHAT IS THE EFFECT?
belonging to the taxpayer to pay to the - The warrant of distraint shall be SUFFICIENT
Commissioner the amount of such debts or credits. AUTHORITY to the person owning the debts
or having in his possession or under his
Bank accounts shall be garnished by serving a control any credits belonging to the taxpayer
warrant of garnishment upon the taxpayer and to pay to the Commissioner the amount of
upon the president, manager, treasurer or other such debts or credits.
responsible officer of the bank. Upon receipt of the
warrant of garnishment, the bank shall tun over to Instead ibayad ko siya sa taxpayer, ibayad ko na lang
the Commissioner so much of the bank accounts as sa BIR and that would apply to the tax liability of the
may be sufficient to satisfy the claim of the taxpayer involved.
Government.
No amendments under TRAIN as to this Section BANK ACCOUNTS
If you can see the provision, there are 4 properties Bank accounts shall be garnished by serving a warrant
involved that can be subject to distraint: of garnishment upon the taxpayer and upon the
1. Personal properties in general- movables president, manager, treasurer or other responsible
(cars, paintings) officer of the bank. Upon receipt of the warrant of
2. Stocks and securities- that’s intangible garnishment, the bank shall tun over to the
properties Commissioner so much of the bank accounts as may
be sufficient to satisfy the claim of the Government.
3. Debts and credits

4. Bank accounts
48


AFTER the garnishment of personal property and Posting of Notice
seizure there will be a public auction. The procedure WHERE IS THE POSTING BE MADE?
is found in Section 209 of NIRC. - It will be made in not less than 2 public
Section 209. Sale of Property Distrained and places in municipality or city where the
Disposition of Proceeds. - The Revenue District distraint is made. But it is NECESSARY that
Officer or his duly authorized representative, other one of the places is the office of the BIR.
than the officer referred to in Section 208 of this
Code shall, according to rules and regulations WHAT ARE THE CONTENTS OF THE NOTICE?
prescribed by the Secretary of Finance, upon - Time of sale
recommendation of the Commissioner, forthwith - Place of sale
cause a notification to be exhibited in not less than - Articles distrained or sought to be sold
two (2) public places in the municipality or city at a public auction
where the distraint is made, specifying; the time
and place of sale and the articles distrained. The WHEN SHOULD THE SALE HAPPEN?
time of sale shall not be less than twenty (20) days - It should not be less than 20 days after
after notice. One place for the posting of such notice. So there must be posting of
notice shall be at the Office of the Mayor of the city notice first and the sale will occur after
or municipality in which the property is distrained. 20 days.

At the time and place fixed in such notice, the said
revenue officer shall sell the goods, chattels, or The personal property may be released prior to the
effects, or other personal property, including sale according to Section 210 NIRC.
stocks and other securities so distrained, at public How do you release?
auction, to the highest bidder for cash, or with the
approval of the Commissioner, through duly Section 210. Release of Distrained Property Upon
licensed commodity or stock exchanges. Payment Prior to Sale. - If at any time prior to the
consummation of the sale all proper charges are
In the case of Stocks and other securities, the paid to the officer conducting the sale, the goods
officer making the sale shall execute a bill of sale or effects distrained shall be restored to the
which he shall deliver to the buyer, and a copy owner.
thereof furnished the corporation, company or So basically, by paying the tax and discharges,
association which issued the stocks or other including in the expenses of setting up the auction
securities. Upon receipt of the copy of the bill of sale.
sale, the corporation, company or association shall
make the corresponding entry in its books, transfer WHAT IF THE PROPERTY WILL NOT BE RELEASED?
the stocks or other securities sold in the name of - Then the auction will proceed and the
the buyer, and issue, if required to do so, the properties will be sold the highest
corresponding certificates of stock or other bidder for cash.
securities.
Stocks and other securities
Any residue over and above what is required to pay In the case of Stocks and other securities, the officer
the entire claim, including expenses, shall be making the sale shall execute a bill of sale which he
returned to the owner of the property sold. The shall deliver to the buyer, and a copy thereof
expenses chargeable upon each seizure and sale furnished the corporation, company or association
shall embrace only the actual expenses of seizure which issued the stocks or other securities.
and preservation of the property pending ;the sale, What happens to the proceeds? It will be for penalties
and no charge shall be imposed for the services of and interests.
the local internal revenue officer or his deputy.

49


WHAT IF THERE ARE NO BIDDERS? IS THAT To this end, any internal revenue officer
POSSIBLE? YES, it is possible. What if basura na yung designated by the Commissioner or his duly
truck? Fully decapitated na yung truck? You cannot authorized representative shall prepare a duly
sell that. authenticated certificate showing the name of the
Look at Section 212 NIRC taxpayer and the amounts of the tax and penalty due
Section 212. Purchase by Government at Sale from him.
Upon Distraint. - When the amount bid for the Said certificate shall operate with the force of
property under distraint is not equal to the amount a legal execution throughout the Philippines.
of the tax or is very much less than the actual Levy shall be affected by writing upon said
market value of the articles offered for sale, the certificate a description of the property upon which
Commissioner or his deputy may purchase the levy is made.
same in behalf of the national Government for the At the same time, written notice of the levy
amount of taxes, penalties and costs due thereon. shall be mailed to or served upon the Register of
Deeds for the province or city where the property is
Property so purchased may be resold by the located and upon the delinquent taxpayer, or if he be
Commissioner or his deputy, subject to the rules absent from the Philippines, to his agent or the
and regulations prescribed by the Secretary of manager of the business in respect to which the
Finance, the net proceeds therefrom shall be liability arose, or if there be none, to the occupant of
remitted to the National Treasury and accounted the property in question.
for as internal revenue. In case the warrant of levy on real property is
not issued before or simultaneously with the warrant
In the end if there are no bidders. of distraint on personal property, and the personal
When will this happen on the purchase on the part of property of the taxpayer is not sufficient to satisfy his
the government? tax delinquency, the Commissioner or his duly
authorized representative shall, within thirty (30) days
(Gido) after execution of the distraint, proceed with the levy
This is like forfeiture; strictly speaking when we say on the taxpayer's real property.
forfeiture it applies to real properties, but technically Within ten (10) days after receipt of the
this one pertains forfeiture of personal properties. warrant, a report on any levy shall be submitted by
the levying officer to the Commissioner or his duly
When the amount paid for a property is not same on authorized representative: Provided, however, That a
the amount taxed. The CIR can ask for authority to sell consolidated report by the Revenue Regional Director
the properties and the proceeds shall be remitted to may be required by the Commissioner as often as
the government. necessary: Provided, further, That the Commissioner
or his duly authorized representative, subject to rules
LEVY and regulations promulgated by the Secretary of
Finance, upon recommendation of the Commissioner,
> levy is the amount collect in seizing real property in shall have the authority to lift warrants of levy issued
order to be sold at public auction to satisfy the tax in accordance with the provisions hereof.
delinquency.
> There is no hierarchy of remedies on the part of the
Transcriber’s note: government when it comes to collection of taxes. The
Basis of Atty. Donalvo’s Reading SEC. 207 (B) Levy on government may avail of the remedies either
Real Property.- After the expiration of the time successively or simultaneously. One their is a FAN the
required to pay the delinquent tax or delinquent BIR can exercise all these powers.
revenue as prescribed in this Section, real property
may be levied upon, before simultaneously or after The first thing that would happen is the BIR will issue
the distraint of personal property belonging to the a duly authenticated certificate, it contains - (1) name
delinquent. of the taxpayer (2) amounts of the tax and penalty
50


due from him (3) the description of the property. Said name of the purchaser and setting out the exact
certificate shall operate with the force of a legal amount of all taxes, penalties and interest: Provided,
execution throughout the Philippines. This certificate however, That in case the proceeds of the sale exceeds
will basically be served to the taxpayer himself and to the claim and cost of sale, the excess shall be turned
the register of deeds where the levied property is over to the owner of the property.
located.
> This means that after the sale and within 5
After that the government may now proceed with the days, the BIR shall issue a certificate of sale. The
sale of the property distrained and subsequently the certificate of sale shall be given to the winning bidder.
disposition of the proceeds of the subject property. On top of that, the sale must be registered with the
registry of deeds. That is very important because that
Let us go first with… is the reckoning point of the redemption period,
SEC. 213. Advertisement and Sale. - Within twenty should the taxpayer wishes to redeem the property.
(20) days after levy, the officer conducting the
proceedings shall proceed to advertise the property or The Revenue Collection Officer, upon
a usable portion thereof as may be necessary to approval by the Revenue District Officer may, out of
satisfy the claim and cost of sale; and such his collection, advance an amount sufficient to defray
advertisement shall cover a period of a least thirty the costs of collection by means of the summary
(30) days. remedies provided for in this Code, including ;the
It shall be effectuated by posting a notice at preservation or transportation in case of personal
the main entrance of the municipal building or city hall property, and the advertisement and subsequent sale,
and in public and conspicuous place in the barrio or both in cases of personal and real property including
district in which the real estate lies and ;by publication improvements found on the latter.
once a week for three (3) weeks in a newspaper of In his monthly collection reports, such advances shall
general circulation in the municipality or city where be reflected and supported by receipts.
the property is located.
The advertisement shall contain a statement Right of Redemption
of the amount of taxes and penalties so due and the
time and place of sale, the name of the taxpayer SEC. 214. Redemption of Property Sold. - Within one
against whom taxes are levied, and a short (1) year from the date of sale, the delinquent
description of the property to be sold. taxpayer, or any one for him, shall have the right of
At any time before the day fixed for the sale, paying to the Revenue District Officer the amount of
the taxpayer may discontinue all proceedings by the public taxes, penalties, and interest thereon from
paying the taxes, penalties and interest. the date of delinquency to the date of sale, together
If he does not do so, the sale shall proceed with interest on said purchase price at the rate of
and shall be held either at the main entrance of the fifteen percent (15%) per annum from the date of
municipal building or city hall, or on the premises to purchase to the date of redemption, and such
be sold, as the officer conducting the proceedings payment shall entitle the person paying to the delivery
shall determine and as the notice of sale shall specify. of the certificate issued to the purchaser and a
Within five (5) days after the sale, a return by certificate from the said Revenue District Officer that
the distraining or levying officer of the proceedings he has thus redeemed the property, and the Revenue
shall be entered upon the records of the Revenue District Officer shall forthwith pay over to the
Collection Officer, the Revenue District officer and the purchaser the amount by which such property has
Revenue Regional Director. thus been redeemed, and said property thereafter
The Revenue Collection Officer, in shall be free form the lien of such taxes and penalties.
consultation with the Revenue district Officer, shall Cralaw
then make out and deliver to the purchaser a The owner shall not, however, be deprived of
certificate from his records, showing the proceedings the possession of the said property and shall be
of the sale, describing the property sold stating the
51


entitled to the rents and other income thereof until satisfaction of the claim in question and within two
the expiration of the time allowed for its redemption. (2) days thereafter, shall make a return of his
proceedings and the forfeiture which shall be
> when it comes to purchase of a property in auction spread upon the records of his office. It shall be the
sale, the purchaser only has an inchoate right , it will duty of the Register of Deeds concerned, upon
become full upon the expiration of the redemption registration with his office of any such declaration
period and it has not been redeemed by the proper of forfeiture, to transfer the title of the property
redemptioner. forfeited to the Government without the necessity
of an order from a competent court.
If the redemptioner redeems the property, he is:
1. Entitled to the delivery of the certificate Within one (1) year from the date of such forfeiture,
issued to the purchaser; the taxpayer, or any one for him, may redeem said
2. A certificate from the Revenue District property by paying to the Commissioner or the
Officer that he has thus redeemed the latter's Revenue Collection Officer the full amount
property. of the taxes and penalties, together with interest
thereon and the costs of sale, but if the property be
(Isidor) not thus redeemed, the forfeiture shall become
absolute.
PROPERTY WHEN NOT REDEEMED
Forfeiture In Favor Of the Government
SEC. 202. FINAL DEED TO PURCHASER. – In case
the taxpayer shall not redeem the property as Now, when will there be a forfeiture in favor of
herein provided, the Revenue District Officer shall, the government?
as grantor, execute a deed conveying to the
purchaser so much of the property as has been 1. No Bidder;
sold, free from all liens of any kind whatsoever, and 2. The amount of the bid is not enough to cover the
the deed shall succinctly recite all the proceedings taxes,penalties,surcharges and interests.
upon which the validity of the sale depends.
How is it effected?
What will happen if the property is not redeemed
within the 1 year period? The BIR officer conducting the sale shall declare
the property forfeited.
Then the RDO will execute a deed of sale
conveying to the purchaser so much of the property So, there is a declaration within 2 days after the sale.
as has been sold, free from any liens of any kind It will make a return of all the proceeding and will also
whatsoever. be recorded in the Registry of Deeds.

So, practically it’s probably the same with your Recording
Rule 39 of the Revised Rules of Court (Execution).
The recording is important because of the 1 year
NO BIDDER/S redemption period.

SEC. 215. FORFEITURE TO GOVERNMENT FOR Even if the property is already forfeited by the
WANT OF BIDDER. – In case there is no bidder for government, the taxpayer is still entitled to redeem
real property exposed for sale as herein above the property within that 1 year period. Now, if the
provided or if the highest bid is for an amount property is not redeemed, the forfeiture should
insufficient to pay the taxes, penalties and costs, the become ABSOLUTE.
Internal Revenue Officer conducting the sale shall
declare the property forfeited to the Government in
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Then, within that time, the goverment is now SEC. 219. NATURE AND EXTENT OF TAX LIEN. – If
allowed to sell the proeprty that was forfeited. any person, corporation, partnership, joint-
account (cuentas en participacion), association or
insurance company liable to pay an internal
GOVERNMENT ACTION revenue tax, neglects or refuses to pay the same
after demand, the amount shall be a lien in favor of
SEC. 216. RESALE OF REAL ESTATE TAKEN FOR the Government of the Philippines from the time
TAXES. – The Commissioner shall have charge of when the assessment was made by the
any real estate obtained by the Government of the Commissioner until paid, with interests, penalties,
Philippines in payment or satisfaction of taxes, and costs that may accrue in addition thereto upon
penalties or costs arising under this Code or in all property and rights to property belonging to the
compromise or adjustment of any claim therefore; taxpayer: Provided, That this lien shall not be valid
and said Commissioner may, upon the giving of not against any mortgagee, purchaser or judgment
less than twenty (20) days notice, sell and dispose creditor until notice of such lien shall be filed by the
of the same of public auction or with prior approval Commissioner in the office of the Register of Deeds
of the Secretary of Finance, dispose of the same at of the province or city where the property of the
private sale. In either case, the proceeds of the sale taxpayer is situated or located.
shall be deposited with the National Treasury, and
an accounting of the same shall rendered to the And then you have also the Tax Lien. So,
Chairman of the Commission on Audit. basically, what this provision says is that properties of
the taxpayer, there is a corresponding tax rate on
What will the government do? them for the payment of whatever internal revenue
taxes in favor of the government.
1.The BIR may sell it again at a public auction; or
2.With prior approval of the Secretary of Finance may It will follow wherever the property will go. But
dispose the same at a private sale. we all know that these properties may also be
encumbered by the taxpayer. So that the
So, Under the Revenue Regulations (not specified by government will have a preference over that
sir which rev reg), I think the BIR is required that the property, it is necessary for the BIR to register that
property be sold first through a public auction before tax lien before the ROD without that registration the
they are allowed to sell it privately or to direct selling. tax lien of the government will be inferior to any
mortgagor or mortgagee.
SEC. 217. FURTHER DISTRAINT OR LEVY. – The
remedy by distraint of personal property and levy But, if you notice, when you to the Civil Code, the
on realty may be repeated if necessary until the full Internal Rvenue tax does not always enjoy the
amount due, including all expenses, is collected. preference. The preference is dependent on the
nature of the obligation which pertains on the
property. And if also if you look at the Labor Code
So, if the value fo the property is not enought to cover there is a workmen’s preference in case of contract
the taxes, penalties, surcharges and interests of the proceeding(?). So the workers enjoy the first
taxpayer then SUCCESSIVE LEVY MAY ALSO BE DONE. preference.

The government is not limited to one levy only, From 2018 TSN (Not discussed)
it can repeat the proceedings as many times as
possible until the tax obligation of the taxpayer TAX LIEN. It is a legal claim or charge to the property
including the surcharges, penalties, and interests has whether real or personal as a security for a tax
been paid. obligation.

53


Nature of Tax Lien. It constitutes as a burden upon For Civil Tax Cases Below 1 Million
all property or property rights belonging to the
delinquent tax payer. This also serves as a warning to We go back to our GENERAL JURISDICTION.
all potential buyers of the property of that person
that any proceeds of such sale should be applied first Depende sa amount, it’s either RTC OR MTC.
to the tax deficiency.
FOR CRIMINAL CASES
Coverage of Tax Lien. It covers both personal and real
properties. The JURISIDCTIONAL AMOUNT IS THE
SAME.
SEC. 220. FORM AND MODE OF PROCEEDING IN
ACTIONS ARISING UNDER THIS CODE. – Civil and One Million and ABOVE
criminal actions and proceedings instituted in
behalf of the Government under the authority of Jurisdiction: CTA
this Code or other law enforced by the Bureau of
Internal Revenue shall be brought in the name of Below 1 Million
the Government of the Philippines and shall be
conducted by legal officers of the Bureau of Jurisdiction: General Jurisdictional Amount applied
Internal Revenue but no civil or criminal action for
the recovery of taxes or the enforcement of any PRINCIPLES
fine, penalty or forfeiture under this Code shall be
filed in court without the approval of the In criminal actions, you have to take note of the
Commissioner. following principles:

What is important in Sec 220 is that no criminal 1. Tax assessment is not a pre-requisite in filing the
for the recovery of taxes of the enforcement of any criminal case;
fine, penalty or forfeiture under this code shall be
filed without the approval of the Commissioner. - What are considered are the OVERT ACTS
constituting the crime
So, whenever there’s a criminal or civil case that
you file, there must be an approval on the part of the 2. A criminal action filed before the appropriate court
BIR or the CIR. is not an assessment;

So, when it comes to civil and criminal actions, - The purpose of assessment is different from the
you have to look at the JURISDICTION. purpose of filing a criminal case against the erring
taxpayer
Where will the government file the civil or criminal
cases? 3. A criminal action may be instituted along with
other modes of collection;
FOR CIVIL CASES
- There is no hierarchy of remedies when it comes to
The CTA has original jurisdiction on CIVIL TAX collection of taxes. The state may avail any or all,
CASES where the principal amount of taxes and fees successively or simultaneously, remedies available to
excluding penalties and surcharges is AT LEAST 1 it.
MILLION PESOS.
4. An acquittal does not necessarily mean
So, 1 million and above the COLLECTION CASE exoneration from tax.
should be filed with the BIR.

54


(Lagat) Now, the definition of compromise in the Civil Code is
Acquittal does not mean exoneration from tax practically the same with that of the NIRC. That would
liability. be the standard for the purpose of the NIRC.

Subsequent payment of the tax does not extinguish A compromise is a contract whereby the parties
the taxpayer’s liability. through mutual agreement by making reciprocal
concessions, avoid a litigation or put an end to one
already commenced.
But later you find out that criminal cases may be
subjected to a compromise so long as 1) it is not yet It’s allowed by law. In fact, it is encouraged by the BIR
filed in court and 2) it does not involve tax fraud cases. because it is a voluntary agreement ba; compromise
na lang tayo beh or instead of paying the full amount
COMPROMISE AND ABATEMENT ito na lang bayaran mo.

Compromise is found in Section 204 (A), NIRC. It’s also recognized in our jurisprudence that
compromise is encouraged. Pugson man gani usahay;
ang judge mangasaba pa gani usahay, so that people
The Commissioner may - will just compromise. The problem is, there are case
where one party asks too much or the other is just
(A) Compromise the payment of any internal revenue offering too little.
tax, when:
Tax cases that are NOT subject to compromise:
(1) A reasonable doubt as to the validity of the claim
against the taxpayer exists; or 1. Withholding Tax cases;
2. Criminal Tax Fraud cases;
(2) The financial position of the taxpayer 3. Criminal violations already filed in court to any
demonstrates a clear inability to pay the assessed tax. compromise;
4. Delinquent accounts with duly approved
The compromise settlement of any tax liability shall schedule of instalment cases;
be subject to the following minimum amounts: 5. Cases where final reports of reinvestigation or
reconsideration have been issued resulting to
For cases of financial incapacity, a minimum reduction in the original assessment and the
compromise rate equivalent to ten percent (10%) of taxpayer is agreeable to such decision by signing
the basic assessed tax; and the required agreement form for the purpose.
meaning, there is already an agreement
For other cases, a minimum compromise rate beforehand
equivalent to forty percent (40%) of the basic
assessed tax. 6. Cases which become final and executory after
final judgment of a court, where compromise is
Where the basic tax involved exceeds One million requested on the ground of doubtful validity of
pesos (P1,000.000) or where the settlement offered the assessment;
is less than the prescribed minimum rates, the 7. Estate tax cases where compromise is requested
compromise shall be subject to the approval of the on the ground of financial incapacity of the
Evaluation Board which shall be composed of the taxpayer.
Commissioner and the four (4) Deputy
Commissioners. TAX CASES THAT MAY BE SUBJECT TO COMPROMISE:

1. Delinquent accounts
55


2. Technical Cases filed after issuance of the presumptions and there is reason to believe
FAN; that it is lacking in legal and/or factual
basis.
3. Civil tax cases filed in courts
Instances where assessments has become final and
4. Collection cases already filed in court executory but there is reason to believe that the
assessment is lacking in legal and/or factual basis:
5. Criminal violations, other than those already
filed in court or those involving criminal tax 3. The taxpayer failed to file an administrative
fraud. protest on account of the alleged failure to
- in practice, criminal cases pinapa- receive notice of assessment and there is
compromise yan nila in order to settle the reason to believe that the assessment is
civil aspect of this case. Tsaka, ang ginagawa lacking in legal and/or factual basis -
ng court, they would still call the case, but it violation of due process .
would be dismissed because there are no

witnesses who appeared; some use 4. The taxpayer failed to file a request for
depositions. reinvestigation/ reconsideration within 30
(Lim) days from receipt of final assessment notice
GROUNDS FOR COMPROMISE and there is reason to believe that the
assessment is lacking in legal and/or factual
Q: What are the grounds for a compromise? basis.
A: There are two grounds:
5. The taxpayer failed to elevate to the Court
1. Reasonable doubt as to the validity of the
of Tax Appeals (CTA) an adverse decision of
assessment the Commissioner, or his authorized
- Basically, you are faulting the BIR. You have representative, in some cases, within 30
an assessment which is doubtful days from receipt thereof and there is
2. Financial position of the taxpayer reason to believe that the assessment is
demonstrates inability to pay, or financial lacking in legal and/or factual basis.

incapacity of the taxpayer.
6. The assessments were issued on or after
- Financial distress January 1, 1998, where the demand notice
allegedly failed to comply with the
Q: When is there reasonable doubt as to the validity
formalities prescribed under Sec. 228 of the
of the assessment?
National Internal Revenue Code of 1997.
A: Revenue Regulations provide for several instances.
The offer to compromise on the ground of reasonable 7. Assessments made based on the “Best
doubt as to the validity of the assessment may be Evidence Obtainable Rule” and there is
accepted when it is shown that: reason to believe that the same can be
1. The delinquent account or disputed disputed by sufficient and competent
assessment is one resulting from a jeopardy evidence.
assessment.
8. The assessment was issued within the
- Meaning the taxpayer does not want to prescriptive period for assessment as
cooperate and the period for assessment is extended by the taxpayer’s execution of
already forthcoming. Waiver of the Statute of Limitations the
validity or authenticity of which is being
2. The assessment seems to be arbitrary in questioned or at issue and there is strong
nature, appearing to be based on reason to believe and evidence to prove
56


that it is not authentic - There is an invalid 4. The presence of circumstances that would
or defective waiver entered by the taxpayer. place the taxpayer in an ability to pay his
accounts.
Q: What do we mean by financial incapacity? a. Example: In bankrupt ka now, then
A: The financial position of the taxpayer kinabukasan nanalo ka sa lotto.
demonstrates clear inability to pay the assessed
taxes. Under revenue regulations, the offer to MINIMUM COMPROMISE AMOUNT
compromise based on financial incapacity may be
accepted upon showing the following grounds: From 2018 TSN:
1. The corporation ceased operation or is already PRESCRIBED MINIMUM PERCENTAGES OF
dissolved. COMPROMISE SETTLEMENT (Section 4, RR 30-
2. Accounting records. The balance sheet of the 2000) The compromise settlement of the internal
taxpayer shows that the taxpayer is suffering from revenue tax liabilities of taxpayers, reckoned on a
surplus or earnings deficit resulting to impairment in per tax type assessment basis, shall be subject to
the original capital by at least 50% and the taxpayer the following minimum rates based on the basic
has no sufficient liquid asset to satisfy the tax liability. assessed tax:
Meaning, the taxpayer is suffering from a net worth 1. For cases of “financial incapacity”- 10% of
deficit (total liabilities exceed total assets). the basic assess tax (without penalties,
3. The taxpayer is a compensation income earner surcharges, and interest)
with no other source of income and the family’s 2. All others - 40%
gross monthly compensation income does not
exceed the levels of compensation income provided, It can still go lower but now subject to the consent
and it appears that the taxpayer possesses no other and approval of the National Evaluation Board.
liveable or distrainable assets, other than his family
home. Q: Who approves the compromise?
§ P10,500 – single § P21,000 per month – married A: REGIONAL EVALUATION BOARD - involving basic
4. The taxpayer has been declared as bankrupt or deficiency taxes of P500,000 or less and for minor
insolvent. criminal violations discovered by the Regional and
GROUNDS FOR DENIAL OF COMPROMISE (under District Offices.
existing revenue regulations): NATIONAL EVALUATION BOARD - basic deficiency
1. The taxpayer has an existing tax credit taxes exceeds P500,000.
certificate. Q: Does it mean that the minimum amount must
2. The taxpayer has a pending claim for tax always be paid?
refund with the BIR or the court. A: No. It really depends kasi mostly, revenue offices
3. The taxpayer has an existing finalized would not follow the 40% as the case may be.
agreement or prospect of future agreement ABATEMENT
with any party that could result to an It refers to the act of diminution, eliminating or
increase in the offer for compromise at a nullifying the tax. Abatement has the following
definite future time. grounds :
a. Meaning there are future 1. Tax or any portion thereof appears to be
agreements that could increase the excessively assessed;
net worth of the taxpayer. 2. The abatement and collection of costs do not
justify the collection of the amount said.
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Distinctions of COMPROMISE vs. ABATEMENT
(From 2018 TSN) When we say tax refund, there is actual return of the
money involved. I-uli jud siya. But when it comes to a
tax credit, what is involve here is just the issuance of
tax credit certificate which the taxpayer would utilize
for the payment of any other important revenue
taxes.

Tax Refund Tax Credit
Effect It involves the return of money
Manner Actual return of Issuance of a
the money tax credit
certificate

This is provided under 2nd para. of Sec. 204(C) of the
NIRC:

Q: Can compromise and abatement go together? A Tax Credit Certificate validly issued under the
provisions of this Code may be applied against any
A: I think yes, it is possible depende sa grounds. If
internal revenue tax, excluding withholding taxes,
reasonable doubt siya, then the taxpayer was able to for which the taxpayer is directly liable. Any
prove the application. The BIR can abate. request for conversion into refund of unutilized tax
TAX REFUNDS AND TAX CREDITS credits may be allowed, subject to the provisions
It is a quite different topic which is why it is on the last of Section 230 of this Code: Provided, That the
part of the course outline. original copy of the Tax Credit Certificate showing
a creditable balance is surrendered to the
(Olamit) appropriate revenue officer for verification and
TAX REFUND cancellation: Provided, further, That in no case
shall a tax refund be given resulting from availment
Now, define a tax refund. of incentives granted pursuant to special laws for
which no actual payment was made.
A tax refund, in the context of the NIRC, is the return
of the taxpayer’s taxes he has paid erroneously Q: What is the nature of tax refunds?
because:
A: As the law conceives, tax refunds are in the nature
1. He is exempted by law; of tax exemptions. So essentially, all the principles in
2. He has erroneously paid the same on the the tax exemptions apply here in the tax refund.
belief that he is subject to tax;
3. There was a collection by the BIR on the In Philippine Phosphate Fertilizer Corp. vs. CIR, GR
belief that there is a law which authorizes 141973, the general rule is that claimants of tax
the collection; and refunds bear the burden of proving the factual basis
4. The BIR collected more than that which is of their claims. This is because tax refunds are in the
allowed by law. nature of tax exemptions, the statutes of which are
construed strictly against the taxpayer and liberally in
Q: Is a tax refund the same with a tax credit? favor of the taxing authority.

A: As to the effect, they are essentially the same. But this principle has been repealed (?; inaudible) by
Because, essentially, it involves the return of money. the CIR vs. Fortune Tobacco case. Do you remember
But as to the manner, it differs.
58


that case? The BIR issued a regulation wherein there (A) Pay the balance of tax still due; or
was a “floor”. (B) Carry-over the excess credit; or
(C) Be credited or refunded with the excess
It is not allowed because that is an ultra vires act. The amount paid, as the case may be.
law does not provide for that kind of tax. Why would In case the corporation is entitled to a tax credit or
you put up a floor on the value of the cigarettes when refund of the excess estimated quarterly income
the law does not provide for such. taxes paid, the excess amount shown on its final
adjustment return may be carried over and
And in effect, the tax refund is on the basis of lack of credited against the estimated quarterly income
any statutory authority to impose such tax in the first tax liabilities for the taxable quarters of the
place. suceeding taxable years. Once the option to carry-
over and apply the excess quarterly income tax
Q: So what is the principle involved? against income tax due for the taxable quarters of
the succeeding taxable years has been made, such
A: It’s not about tax refund as if it’s a tax exemption. option shall be considered irrevocable for that
You apply the general rule on taxation. If there is no taxable period and no application for cash refund
tax law, then you do not impose any taxes. or issuance of a tax credit certificate shall be
allowed therefor.
In the words of the Supreme Court, the rule on strict
interpretation against the taxpayer is not applicable So, as a review, the corporation files this income tax
in this case because the ground for a tax refund is lack return quarterly. And then its cumulative in nature.
of a tax condition imposing such tax. And then on the fourth taxable quarter, whether
calendar or fiscal year, the taxpayer is required to file
Was based was void because it added something a Final Assessment Return.
which is not found
Now, if some of the corporate returns is not equal to
So in essence, the SC here said that if the ground of the final tax due upon filing the tax return, the
tax refund is the lack of law imposing such tax, the corporation has THREE OPTIONS depending upon the
applicable rule is the strict interpretation of tax laws. situation:
But if the basis is a provision of law providing for tax
exemption, then apply the rule on strict 1. Pay the balance if there is any
interpretation against the taxpayer. 2. Carry over the excess tax
3. Be credited or refunded of the tax paid.
Q: What is the legal basis for tax refunds and credits?
Q: Who has the choice to avail of these options?
A: Actually, na-agihan na nato ni siya. Some of these
we have already discussed. The corporate taxpayer has the choice. It’s not
actually the BIR.
1. The first is Sec. 76 of the NIRC. This refers to the
Carry-over. Corporate Tax Liabilities carried over. In case the corporation is entitled to a tax
refund/credit and it chooses the carry over option,
SEC. 76. - Final Adjustment Return. - Every such option shall be irrevocable for that taxable
corporation liable to tax under Section 27 shall file period.
a final adjustment return covering the total taxable
income for the preceding calendar or fiscal year. If What if the corporation was not allowed to carry over
the sum of the quarterly tax payments made the entire amount of tax appurtenant to the taxable
during the said taxable year is not equal to the total year? Can the corporation subsequently claim for a
tax due on the entire taxable income of that year, tax refund?
the corporation shall either:
59


This is not allowed anymore. Because under the law, shall, upon conviction for each act or omission, be
no application for cash refund or issuance of the tax punished by a fine of not less than Fifty thousand
credit certificate shall be allowed for the tax payment pesos (P50,000) but not more than One hundred
which were subject to the carry over. thousand pesos (P100,000) and suffer
imprisonment of not less than ten (10) years but
The exception for that is when the corporation not more than fifteen (15) years and shall likewise
decides to cease its operation, dissolve and liquidate. suffer an additional penalty of perpetual
disqualification to hold public office, to vote, and
2. The next provision of tax refund is about the VAT. to participate in any public election

Normally, it’s just carry over. The general rule is carry (a) Extortion or willful oppression through the use
over of the VAT input taxes against the VAT output of his office or willful oppression and harassment
tax. But if the taxpayer is a zero-rated taxpayer, he of a taxpayer who refused, declined, turned down
can avail of a tax refund or the VAT refund. or rejected any of his offers specified in paragraph
(d) hereof;
Paano yan i-refund ang VAT ngayon?
(b) Knowingly demanding or receiving any fee,
Diba, there is an application to be filed with the BIR. other or greater sums that are authorized by law
Submission of all receipts and all other supporting or receiving any fee, compensation or reward,
documents for the refund and the taxpayer is except as by law prescribed, for the performance
supposed to file the application within two years from of any duty;
the close of the taxable quarter where the VAT-able
sales were made.
(c) Willfully neglecting to give receipts, as by law

required, for any sum collected in the performance
After the filing of the application, the CIR is required
of duty or willfully neglecting to perform any other
to render a decision within the 90-day period. If there
duties enjoined by law;
is no decision within the 90-day period, its alright. The
taxpayer has to wait.
(d) Offering or undertaking to accomplish, file or

Dati kasi the rule is 120 days to decide. And if there is submit a report or assessment on a taxpayer
no decision after the lapse of the 120 days, you have without the appropriate examination of the books
of accounts or tax liability, or offering or
30 days to appeal. That 120 days and 30 days are
undertaking to submit a report or assessment less
mandatory before filing the petition/ claim for refund
than the amount due the Government for any
before the CTA.
consideration or compensation, or conspiring or
But wala na ‘yan ngayon. colluding with another or others to defraud the
revenues or otherwise violate the provisions of this

Q: What if the BIR Official fails to act within 90 days? Code;

A: Then it can be subject to disciplinary action and (e) Neglecting or by design permitting the violation
may be prosecuted for criminal offenses under Sec. of the law by any other person;
269 of the NIRC.
(f) Making or signing any false entry or entries in
SEC. 269. Violations Committed by Government any book, or making or signing any false certificate
Enforcement Officers. - Every official, agent, or or return;
employee of the Bureau of Internal Revenue or any
other agency of the Government charged with the (g) Allowing or conspiring or colluding with another
enforcement of the provisions of this Code, who is to allow the unauthorized retrieval, withdrawal or
guilty of any of the offenses herein below specified recall of any return, statement or declaration after
60


the same has been officially received by the Bureau or refund within two (2) years after the payment of
of Internal Revenue; the tax or penalty: Provided, however, That a
return filed showing an overpayment shall be
(h) Having knowledge or information of any considered as a written claim for credit or refund.
violation of this Code or of any fraud committed on A Tax Credit Certificate validly issued under the
the revenues collectible by the Bureau of Internal provisions of this Code may be applied against any
Revenue, failure to report such knowledge or internal revenue tax, excluding withholding taxes,
information to their superior officer, or failure to for which the taxpayer is directly liable. Any
report as otherwise required by law; request for conversion into refund of unutilized tax
credits may be allowed, subject to the provisions
(i) Without the authority of law, demanding or of Section 230 of this Code: Provided, That the
accepting or attempting to collect, directly or original copy of the Tax Credit Certificate showing
indirectly, as payment or otherwise any sum of a creditable balance is surrendered to the
money or other thing of value for the compromise, appropriate revenue officer for verification and
adjustment or settlement of any charge or cancellation: Provided, further, That in no case
complaint for any violation or alleged violation of shall a tax refund be given resulting from availment
this Code; and of incentives granted pursuant to special laws for
which no actual payment was made.
The Commissioner shall submit to the Chairmen of
(j) Deliberate failure to act on the application for
the Committee on Ways and Means of both the
refunds within prescribed period provided under
Senate and House of Representatives, every six (6)
Section 112 of this Act.
months, a report on the exercise of his powers
under this Section, stating therein the following
Provided, That the provisions of the foregoing facts and information, among others: names and
paragraph notwithstanding, any internal revenue addresses of taxpayers whose cases have been the
officer for which a prima facie case of grave subject of abatement or compromise; amount
misconduct has been established shall, after due involved; amount compromised or abated; and
notice and hearing of the administrative case and reasons for the exercise of power: Provided, That
subject to Civil Service Laws, be dismissed from the the said report shall be presented to the Oversight
revenue service: Provided, further, That the term Committee in Congress that shall be constituted to
'grave misconduct', as defined in Civil Service Law, determine that said powers are reasonably
shall include the issuance of fake letters of exercised and that the Government is not unduly
authority and receipts, forgery of signature, deprived of revenues.
usurpation of authority and habitual issuance of

unreasonable assessments.

SEC. 229. Recovery of Tax Erroneously or Illegally
3. The THIRD is Sec. 204 (C). You have to read this in Collected.- no suit or proceeding shall be
conjunction with Sec. 229 of the NIRC. maintained in any court for the recovery of any
national internal revenue tax hereafter alleged to
(C) Credit or refund taxes erroneously or illegally have been erroneously or illegally assessed or
received or penalties imposed without authority, collected, or of any penalty claimed to have been
refund the value of internal revenue stamps when collected without authority, of any sum alleged to
they are returned in good condition by the have been excessively or in any manner wrongfully
purchaser, and, in his discretion, redeem or change collected without authority, or of any sum alleged
unused stamps that have been rendered unfit for to have been excessively or in any manner
use and refund their value upon proof of wrongfully collected, until a claim for refund or
destruction. No credit or refund of taxes or credit has been duly filed with the Commissioner;
penalties shall be allowed unless the taxpayer files but such suit or proceeding may be maintained,
in writing with the Commissioner a claim for credit
61


whether or not such tax, penalty, or sum has been within a period of 2 years from the time the
paid under protest or duress. erroneous tax payments has been made.
In any case, no such suit or proceeding shall be
filed after the expiration of two (2) years from the Q: Now, what are the instances wherein a tax is
date of payment of the tax or penalty regardless of considered as erroneously or illegaly collected?
any supervening cause that may arise after
payment: Provided, however, That the A: It is considered as erroneously or illegally collected
Commissioner may, even without a written claim when it is levied without any statutory authority.
therefor, refund or credit any tax, where on the Prime example is what happened on CIR vs. Fortune
face of the return upon which payment was made, Tobacco.
such payment appears clearly to have been
erroneously paid. Q: Now, the written application for a refund is very
essential. Is there a form required?
Let us just simplify the provisions.
A: As a rule, there must be a letter request. You must
Q: What are the GROUNDS for refund or credit be able to file by written application. The form,
under Sec. 204 (C) and Sec. 229? nakalimutan ko. But you just indicate in there (tax
return) that there is a negative income or negative
The grounds are as follows: tax.

1. Taxes erroneously or illegally received The return showing overpayment shall be considered
2. Penalties imposed without authority a written claim for refund or tax credit. So, meaning,
3. Sum of money alleged to have been indicating in your ITR or tax return that there is an
excessively or in any manner wrongfully overpayment of taxes is good enough as a claim for a
collected tax refund.
4. Refund the value of internal revenue
stamps when they are returned in good Q: Is there an instance where the BIR may refund or
condition by the purchaser, and, in his credit the taxes even without a written claim?
discretion.
– Yung mga DST, meron man yang A: Yes, there is as provided under Sec. 229, last
mga stamps. Pag-dilapidated, you paragraph:
can return it to the BIR and the BIR
will refund you of the Provided, however, That the Commissioner may,
corresponding value of that DST. even without a written claim therefor, refund or
5. Redeem or change unused stamps that credit any tax, where on the face of the return
have been rendered unfit for use and refund upon which payment was made, such payment
their value upon proof of destruction. appears clearly to have been erroneously paid.

Q: What are the CONDITIONS that must be complied Q: Who may claim the tax refund?
before a refund on this provision be allowed?
A: The general rule is that it is the statutory taxpayer.
There are basically two conditions.
But in case the statutory taxpayer does not file a claim
1. There must be evidence. Evidence to for refund, the Supreme Court has held that a
show that the taxpayer is entitled for the withholding tax agent may file for an application for
refund. tax refund in behalf of his or her principal.

2. There must be a written application for
refund/tax credit to be filed to the CIR
62


While the withholding tax agent has the right to What if the taxes are paid by installments? When will
recover the taxes, he is nevertheless required or has the 2-year period be reckoned from?
the obligation to remit the same to his principal.
The 2-year period will be reckoned from the date the
In one case, the SC held that the taxpayer as defined last installment was paid.
in the NIRC as a person subject to tax. The withholding
agent is considered the taxpayer within the meaning Foreign corporations, because they are mandated to
of the tax law because if the taxpayer will not remit pay quarterly, the 2-year period will be reckoned from
the tax as withheld, the taxpayer will be held liable for the time of the filing of the adjustment return.
surcharges, penalties, and interest.
After filing the written claim for tax refund before the
So with respect to the money withheld, he CIR, the taxpayer must have to wait for a decision.
(withholding agent) is considered as a taxpayer.
If there will be a decision rendered by the CIR against
(Singanon) the resident taxpayer, the taxpayer is to appeal that
What are the requirements in order that the claim for decision by the CIR to the Court of Tax Appeals.
refund of withholding taxes may be granted?
Supposing the taxpayer has already filed a claim for
The requirements are: refund before the CIR and the 2 years is about to
lapse.
1. The written claim was filed within the two-
year prescriptive period in the NIRC; When it comes to refund, if the CIR does not render a
2. The income on which the taxes were to be decision within 2 years, the taxpayer should not let
withheld were included in the return of the the entire 2-year period be consumed.
recipient; and
3. The fact of withholding is established by a The taxpayer must file the judicial claim for refund
copy of the statement duly issued by the before the CTA before the expiration of the 2-year
payor or by the withholding ageng showing period.
the amount paid and the amount of tax
refund therefrom. Meaning, both the administrative claim and the
judicial claim for refund must be filed within the two-
When should the taxpayer file his claim for refund? year period. Otherwise, the claim for refund will
prescribe.
The magic number is 2 years.
That is Sec. 229. The law is clear.
Sec. 204 (C) of the NIRC
No credit or refund of taxes or penalties shall be xxx
allowed unless the taxpayer files in writing with
the Commissioner a claim for credit or refund In any case, no such suit or proceeding shall be filed
within two (2) years after the payment of the tax after the expiration of two (2) years from the date
or penalty: Provided, however, That a return filed of payment of the tax or penalty regardless of any
showing an overpayment shall be considered as a supervening cause that may arise after payment:
written claim for credit or refund. Provided, however, That the Commissioner may,
even without a written claim therefor, refund or
Where should the claim be filed? credit any tax, where on the face of the return
upon which payment was made, such payment
First, there must be administrative filing with the CIR. appears clearly to have been erroneously paid.
This is mandatory. The taxpayer shall first make a
written application before the CIR. It is different from VAT.
63


So take note again, the administrative claim and the delivered, shall be forfeited in favor of the
judicial claim for refund must be filed within the 2- Government and the amount thereof shall revert
year period. to the general fund.

Can the 2-year prescriptive period for the credit or (B) Forfeiture of Tax Credit. - A tax credit certificate
refund be suspended? issued in accordance with the pertinent provisions
of this Code, which shall remain unutilized after
Yes. There are two instances: five (5) years from the date of issue, shall, unless
revalidated, be considered invalid, and shall not
1. If there is an agreement between the BIR and be allowed as payment for internal revenue tax
the taxpayer; liabilities of the taxpayer, and the amount covered
2. If the taxpayer was made to believe by the by the certificate shall revert to the general fund.
CIR that the overpayment would be credited
for other tax liabilities. (C)Transitory Provision. - For purposes of the
preceding Subsection, a tax credit certificate issued
What are the remedies? by the Commissioner or his duly authorized
representative prior to January 1, 1998, which
1. Make an administrative claim for refund remains unutilized or has a creditable balance as of
within 2 years from the date of payment of said date, shall be presented for revalidation with
the tax; both the administrative and judicial the Commissioner or his duly authorized
claim for refund must be filed within the 2- representative or on before June 30, 1998.
year period.
2. After that, after filing the judicial claim for For forfeiture of the tax refund, it is within 5 years
refund with the CTA and the decision is from the date it was served.
adverse, you can file a Motion for
Reconsideration within 15 days from receipt What is a Tax Credit Certificate (TCC)?
of the decision.
3. And then after receiving the order then a A Tax Credit Certificate (TCC) is a certification duly
petition for review may be filed before the issued to the taxpayer by the BIR or his authorized
CTA en banc within 15 days. representative in accordance with the prescribed
4. If the decision is adverse, then file another form acknowledging that the grantee-taxpayer
MR. named therein is legally entitled to a tax-credit, the
5. And then after the MR, then file a petition for money value of which may be used in the payment or
certiorari before the Supreme Court under in satisfaction of any of his tax liability (except those
Rule 45. excluded), or may be converted as a cash refund, or
may otherwise be disposed of in the manner and in
Sec. 230 is Forfeiture of Cash Refund and Tax Credit. accordance with the limitations, if any, as may be
prescribed by the provisions of the Revenue
Meron order ng refund, daog naka. But you neglected Regulations. (Sec. 1, RR No. 5-2000 issued on August
on your right, and then it would expire. 15, 2000)

SEC. 230. Forfeiture of Cash Refund and of Tax What are the sources of tax credits?
Credit. –
1. At the option of the taxpayer, excess
(A) Forfeiture of Refund. - A refund check or quarterly income taxes paid reflected in the
warrant issued in accordance with the pertinent FAR;
provisions of this Code, which shall remain 2. At the option of the taxpayer,
unclaimed or uncashed within five (5) years from overwithholding at source of income taxes
the date the said warrant or check was mailed or to the extent that the amount of such
64


overpayment was not deducted or applied The person whose name appears in the TCC is the only
against income tax due; person allowed to use the TCC and claim the tax
3. Input taxes attributed to: refund stated therein.
a. Zero-rated sales made by VAT-
registered taxpayer, includeing
export sales by a VAT-registered
exporter;
b. Effectively zero-rated sales made by
VAT-registered taxpayer;
4. Unused input taxes resulting from
cancellation of VAT registration due to
retirement from or cessation of business,
or due to changes in or cessation of status
as a VAT taxable taxpayer ;
5. Excise taxes;
6. Taxes erroneously or ilegally paid or
penalties imposed without authority.
Essentially, these tax credits may be used by the
grantee or his assignee in the payment of his direct
internal revenue tax liability, such as income tax,
documentary stamp tax, excise tax, VAT,
percentage tax and other internal revenue taxes.

Except for the following:

1. Payment or remittance for any kind of
withholding tax.
2. Payment arising from the availment of tax
amnesty declared under a legislative
enactment.
3. Payment of deposits on withdrawal of
excisable articles.
4. Payment of taxes not administered or
collected by the BIR.
5. Payment of compromise penalty.

So you cannot use the TCC for the payment of the
above-mentioned.

The Revalidation of the TCC may be done prior to the
expiration of its validity. Of course what is there to
revalidate if there is nothing else.

Can a TCC be assigned to another person?

Under the NIRC there is no prohibition but under the
Revenue Regulations, a TCC cannot be transferred
from one person to another.

65

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