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Rights and Remedies of The Government Under The NIRC: I. Power of The Bir To Obtain Information and Make An Assessment
Rights and Remedies of The Government Under The NIRC: I. Power of The Bir To Obtain Information and Make An Assessment
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§ Self assessment system – system under which § Power to interpret the provisions of the
TP makes a declaration in the return on the NIRC and the power to make assessment
basis of his assessment and calculate the tax
due § Assessment based on actual facts – basic
Ø Usually accompanied by payment (“pay-as-
principle in tax assessments
you-file” – Sec. 56(A)(1), NIRC) § §§ 5 & 6 - sources of factual
§ How do tax authorities determine whether TP information and allowable means to
made a correct return and paid the correct obtain them
taxes?
Atty. Terence Conrad H. Bello Slide No. 3 Atty. Terence Conrad H. Bello Slide No. 4
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Sources of info and means to obtain them (§§ 5 & 6) § Sec. 5 authorizes CIR to obtain info and to
Examine books, papers, records or other data ( § 5(A))
§
§ TPI ( § 5(B))
summon, examine and take testimony of
§ Subpoena duces tecum ( § 5(C)) persons to:
§ Subpoena ad testificandum ( § 5(D)) Ø Ascertain correctness of return (or in making a
Tax mapping ( § 5(E))
§
return where none was made)
§ Examination of returns ( § 6(A))
§ Best evidence obtainable ( § 6(B)) Ø Determine liability for any internal revenue tax
§ Inventory-taking, surveillance, and presumptive gross sales and receipts liability (and to collect such liability)
( § 6(C))
§ Termination of taxable period ( § 6(D))
Ø Evaluate tax compliance
§ Fixing of real property values ( § 6(E))
§ Inquiry of bank deposits ( § 6(F))
§ Accreditation and registration of tax agents ( § 6(G))
§ Prescribe additional procedural or documentary requirements ( § 6(H))
Atty. Terence Conrad H. Bello Slide No. 5 Atty. Terence Conrad H. Bello Slide No. 6
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§ Sec. 6 authorizes CIR to make assessment and 1. Administrative summons to TP – 5(C), 6(C)
prescribe add’l requirements for tax • In connection with a tax audit, BIR may summon
administration and enforcement TP or any officer or employee to appear before
the BIR and bring with him/her books of
accounts and other accounting records and
documents – subpoena duces tecum
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Atty. Terence Conrad H. Bello Slide No. 19 Atty. Terence Conrad H. Bello Slide No. 20
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Issuance of FAN – procedure for issuance of assessment per § Gen. procedure for disputing assessment (§ 228)
228 and Rev. Regs. 12-99 (as amended by Rev. Regs. 18-2013 and
further amended by Rev. Regs. 7-2018): § File written protest within 30 days from receipt
a. Notice for informal conference – reinstated by Rev. Regs. 7- of FAN – must contain factual and legal basis
2018; informal conference to be held not more than 30 days
from receipt of NIC § Submit relevant supporting documents –
§ If TP found to be still liable for deficiency taxes after within 60 days from filing written protest
presenting his side, RDO/SID shall endorse the case to
the Assessment Division within 7 days from conclusion § Appeal to CTA – within 30 days from receipt of
of the IC
b. PAN – 15 days to reply, otherwise considered in default final decision on disputed assessment or within
§ Exceptions to notice for informal conference and PAN: (i) 30 days from lapse of 180 days from
mathematical error; (ii) discrepancy between amount submission of relevant supporting documents
withheld and amount remitted; (iii) double claim; (iv)
non-payment of excise tax; and (v) exempt person
transfers articles to non-exempt persons
c. Formal letter of demand and FAN – must contain factual and
legal basis of assessment
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Assessment must be based on actual facts Assessment must be based on actual facts
CIR v. Benipayo Chemical Ind. of the Phil., Inc. v. CIR
§ In order to stand the test of judicial scrutiny, § Assessment arising from disallowance of
an assessment must be based on actual interest on a loan the proceeds of which
facts were allegedly used to purchase stock of
§ The presumption of correctness of an affiliate without factual basis
assessment, being a mere presumption, § BIR findings that loan proceeds used for
cannot be made to rest on another non-business purpose based on increase in
presumption “Investments in Affiliated Co’s” account
§ Assessment should not be based on mere § TP, however, was able to explain why
presumptions, no matter how logical said account increased
presumptions may be
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Atty. Terence Conrad H. Bello Slide No. 33 Atty. Terence Conrad H. Bello 34
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A. Distraint, Garnishment, Levy and Seizure A. Distraint, Garnishment, Levy and Seizure
What are the remedies of the government for the collection Two types of distraint:
of delinquent taxes? 1. Actual –
a.
Summary remedies of distraint and levy (administrative) a. Who?
b.
Civil action (judicial) § Delinquent TP
– Assessment needed
c.
Criminal action (judicial)
2. Constructive –
vThese remedies may be pursued singly or simultaneously
at the discretion of revenue authorities a. Who?
§ Delinquent TP
What are the summary remedies available to the BIR?
– Assessment needed
a. Distraint (actual or constructive) – refers to personal
§ TP intending to evade
property
– Assessment not necessary; enough that
b. Levy – refers to real property administrative procedures (leading to issuance
of an assessment) are commenced
Atty. Terence Conrad H. Bello Slide No. 35 Atty. Terence Conrad H. Bello Slide No. 36
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A. Distraint, Garnishment, Levy and Seizure A. Distraint, Garnishment, Levy and Seizure
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What is the procedure for levy of real property? Requirement for the institution of civil and
criminal actions –
1. Commencement of levy proceedings (§ 207(B))
§ Institution of civil and criminal actions for
2. Service of warrant of levy (§ 207(B)) the recovery of taxes and enforcement of
3. Advertisement for sale (§ 213) any fine, penalty or forfeiture under the
4. Public sale of the property under levy NIRC requires the approval of the CIR (§
220)
5. Redemption of property sold (§ 214)
6. Forfeiture to the gov’t for want of bidder (§
215)
7. Resale of real estate taken for taxes (§ 216)
8. Further distraint and levy (§ 217)
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Republic v. Lim Tian Teng Sons & Co. San Juan v. Vasquez
§ Republic Act 1125 creating the CTA allows the § The determination of the correctness or
TP to dispute the correctness or legality of an incorrectness of a tax assessment to which the TP
assessment both in the purely administrative is not agreeable falls within the jurisdiction of the
level and in said court, but it does not stop or CTA and not of the CFI, for under the aforequoted
provision of law, the Court of Tax Appeals has
prohibit the CIR from collecting the tax exclusive appellate jurisdiction to review on
through any of the means provided for in appeal any decision of the CIR in cases involving
Section 316 of the Tax Code, except when disputed assessments and other matters arising
enjoined by said CTA under sec. 11 under the NIRC or other law or part of law
§ Nowhere in the Tax Code is the CIR required administered by the BIR
to rule first on a TP’s request for § Thus, the BIR may not institute a collection case
reinvestigation before he can go to court for before regular courts while the TP is still disputing
the purpose of collecting the tax assessed* the correctness of the assessment
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Yabes v. Flojo Must the assessment be final and executory before the BIR can collect the
tax deficiency?
§ The CFI cannot lawfully acquire jurisdiction § It depends on the collection remedy availed of by the BIR
– The assessment need not be final and executory before the BIR
over a contested assessment made by the can avail of the summary remedies of distraint and levy (see §
CIR against the deceased TP, which has not 11, RA 1125, as amended by RA 9282; RP v. Lim Tian Teng)
yet become final and executory, and which – The assessment must be final and executory before the BIR may
institute a civil case for collection of deficiency tax (see Yabes,
assessment is still pending before the CTA San Juan, and § 7(b)(2)(c) of RA 1125, as amended by RA 9282)
– In the case of a false or fraudulent return with intent to evade
§ CTA has exclusive jurisdiction over tax or of failure to file a return . . . a [civil or criminal]
disputed assessments; CFI should have proceeding in court for the collection of such tax may be filed
without assessment . . . . (§ 222(a), NIRC)
dismissed the case » Note: under § 7(b)(1) of RA 1125, as amended by RA
9282, the civil liability is deemed instituted along with the
criminal action; no right to reserve civil aspect is allowed
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How do you reconcile Yabes and San Juan, on one hand, Question: the BIR issued a FAN; without
with Lim Tian Teng, on the other hand?
waiting for the TP to file a protest, the BIR
§ Lim Tian Teng’s holding that “nowhere in the Tax Code
is the [CIR] required to rule first on a [TP’s] request for issued a warrant of distraint and levy on the
reinvestigation before he can go to court for the properties of the TP to collect the tax
purpose of collecting the tax assessed” is an obiter deficiency. Is the BIR’s action valid?
dictum
§ The assessment in Lim Tian Teng was already final and § While an assessment need not be final
executory (TP failed to appeal the decision on the and executory before the BIR may avail of
protest -- the referral of the matter to the OSG for the summary remedies of distraint and
collection -- to the CTA); hence, the civil suit for
collection was proper levy, there is good ground to argue that
§ Yabes and San Juan involved disputed assessments the BIR’s action is not valid on the ground
(hence, not yet final and executory) of denial of due process
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Ungab v. Cusi Steps in development of criminal case under the RATE Program
§ Held: What is involved here is not the collection of taxes (RMO 27-2010):
where the assessment of the CIR may be reviewed by the
CTA, but a criminal prosecution for violations of the NIRC § In all RATE cases, an internal preliminary investigation must
which is cognizable by CFIs. While there can be no civil action be first be conducted to establish prima facie evidence of
to enforce collection before the assessment procedures fraud or tax evasion – no-contact audit
under the NIRC have been followed, there is no requirement § LOA issued for formal investigation – contact audit
for the precise computation and assessment of the tax before
there can be a criminal prosecution under the NIRC § If evidence not enough to prove TP’s guilt beyond reasonable
§ An assessment not necessary to a criminal prosecution for doubt, but there exists clear and convincing evidence that
willful attempt to defeat and evade taxes. A crime is fraud has been committed – PAN/FAN issued with 50% fraud
complete when the violator has knowingly and willfully filed a surcharge - CIVIL
fraudulent return with intent to evade and defeat the tax.
The perpetration of the crime is grounded upon knowledge § If evidence is enough to prove TP’s guilt beyond reasonable
on the part of the TP that he has made an inaccurate return, doubt, complaint affidavit will be prepared for filing with the
and the gov’t’s failure to discover the error and promptly to DOJ - CRIMINAL
assess has no connection with the commission of the crime
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§ What are the two main grounds which When may the CIR abate or cancel a tax
authorizes the CIR to compromise the liability?
i. When the tax or a portion thereof
payment of internal revenue taxes? appears to be unjustly or excessively
i. Doubtful validity of the assessment – assessed
minimum compromise rate is 40% of ii. When administrative and collection costs
basic tax assessed involved do not justify the collection of
the amount due
ii. Financial incapacity – minimum
compromise rate is 10% of basic tax
assessed
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When does the 25% surcharge apply (§ 248(A))? When does the 50% surcharge apply (§ 248(B))?
1. Failure to file return and pay tax due thereon within
prescribed period 1. Willful neglect to file the return within the
2. Filing return with internal revenue officer other than prescribed period
with whom return is required to be filed
2. False or fraudulent return is willfully made
3. Failure to pay deficiency tax within time prescribed
for its payment in the notice of assessment § Question: When is there prima facie evidence of
4. Failure to pay full or part of the amount of tax a false or fraudulent return?
shown on return on or before date required for its § Answer: “substantial” (i.e., more than 30%)
payment
underdeclaration of sales, receipts or income;
5. Failure to pay full amount of the tax due for which
no return is required to be filed on or before the substantial overstatement of deductions
date required for its payment
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BIR Rul. 78-98 4. May the BIR waive the imposition of the 25% surcharge?
a. General rule: no; imposition of the 25% surcharge is
§ TP unable to pay withholding taxes on the last day due mandatory for cases falling under §248(A)
to change in payment system; RDO officials also could b. Exception: the BIR has waived the 25% surcharge in
not give a definitive answer on the new payment justifiable circumstances, e.g.:
system i. TP mistakes arising from a difficult interpretation
of the law
§ TP’s tender of a manager’s check was not accepted by
ii. Change in BIR payment policies resulting in
AAB confusion
§ Ruling: penalties and surcharges waived iii. Other justifiable circumstances
§ CIR was convinced that TP attempted to pay 5. May the BIR waive the 50% fraud in cases of willful
withholding tax on the last day (thru the MC), but due neglect to file return, or false or fraudulent returns
willfully made? No. Are there exceptions? None
to confusion on the implementation of new payment
system was unable to do so
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6. Questions 6. Questions
a. Example 2 (50% fraud penalty):
a. Example 1 (penalty for deficiency tax): § TP filed its ITR for taxable year 1997 in April 15, 1998
§ TP filed its ITR for taxable year 1997 in April 15, 1998 with a net taxable income of P500,000
and paid income tax of P100,000 § After a tax investigation, the BIR discovered that the
TP’s ITR is false or fraudulent since it did not report
§ After a tax investigation, the BIR disallowed P200,000 willfully certain income amounting to P500,000
of the TP’s representation expenses for failure to § On its net income per investigation of P1 million, the
income tax due is P350,000; the resulting basic tax
meet the statutory requisites for deductibility deficiency is P175,000 since the TP paid only income tax
of P175,000 per its return filed; assessment issued on
§ Disallowance resulted in a deficiency tax of P70,000; May 31, 1999 demanding payment of the deficiency tax
TP issued an assessment on or before June 30, 1999
§ Question: should BIR impose a 50% surcharge on the
§ Question: should BIR impose a 25% surcharge on the P175,000 deficiency tax in the assessment?
P20,000 deficiency tax in the assessment? § (Yes; filing of a false or fraudulent return triggers the
automatic imposition of the 50% surcharge under §
§ (No; see § 248(A)(3)) 248(B))
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Atty. Terence Conrad H. Bello Slide No. 73 Atty. Terence Conrad H. Bello Slide No. 74
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B. Interest B. Interest
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B. Interest B. Interest
§ Relevant periods:
Ø Due date prescribed for payment of the basic
tax;
Ø Due date appearing in the notice and demand Due Date for Due Date in Actual
of the Commissioner; and Pay’t Demand Payment
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B. Interest B. Interest
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B. Interest B. Interest
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B. Interest B. Interest
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§ Criminal violations may be compromised, CIR v. Lianga Bay Logging Co., Inc.
except: § BIR assessed TP 25% surcharge for allegedly
Ø Those already filed in court, or removing forest products without auxiliary
Ø Those involving fraud invoices; TP assessed also compromise
penalty
§ Held: Imposition of compromise penalty must
be with the conformity of the TP, otherwise
the imposition is illegal
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