Prescriptive periods

Republic Of The Phil v. GMCC United Development Corporation, G.R. No. 191856, 07 December 2016

Facts:

In 1999, GMCC sold condominium units and parking slots for a total amount of P5,350,000.00. GMCC did
not declare the income it earned from these transactions in its 1999 Audited Financial Statements.

On November 17, 2003, the Bureau of Internal Revenue issued a Notice to Taxpayer to GMCC, which
GMCC ignored. When the BIR issued the Final Assessment Notice that GMCC responded. In a Letter
dated November 23, 2004, GMCC protested the issuance of the Final Assessment Notice citing that the
period to assess and collect the tax had already prescribed.

Contention of GMCC:

Assuming that the period to assess had not yet prescribed, GMCC argued that there was nothing to
declare since it earned no income from the dacion en pago transactions. Even though the dacion en
pago transactions were not included in the GMCC 1998 Financial Statement, they had been duly
reflected in the GMCC 2000 Financial Statement.

Issue: Whether the applicable prescriptive period for the tax assessment is 10-year or the 3-year period

Held:

It is the 3-year prescriptive period that applies. For the 10-year period under Section 222(a) to apply, it is
not enough that fraud is alleged in the complaint; it must be established by clear and convincing
evidence. In GMCC's case, the last day prescribed by law for filing its 1998 tax return was April 15, 1999.
BIR had three years or until 2002 to make an assessment. Since the Preliminary Assessment was made
only on December 8, 2003, the period to assess the tax had already prescribed.

In arguing for the application of the 10-year prescriptive period, BIR claims that the tax return in this
case is fraudulent and thus, the three-year prescriptive period is not applicable. BIR fails to convince that
respondents filed a fraudulent tax return. GMCC may have erred in reporting their tax liability when
they recorded the assailed transactions in the wrong year, but such error stemmed from the wrong
application of the law and is not an indication of their intent to evade payment. If there were really
intent to evade payment, GMCC would not have reported and subsequently paid the income tax, albeit
in the wrong year.

The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the
Government and to its citizens; to the Government because tax officers would be obliged to act
promptly in the making of assessment, and to citizens because after the lapse of the period of
prescription citizens would have a feeling of security against unscrupulous tax agents who will always
find an excuse to inspect the books of taxpayers, not to determine the latter's real liability, but to take
advantage of every opportunity to molest peaceful, law-abiding citizens.