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TAX

REMEDIES
UNDER THE
NIRC

BIR COLLECTION GOAL


2016
RMO 2-2016 sets the collection goal of
the BIR this 20016

2.025 Trillion
21% increase
Compared to the collection goal of 2015
1.674 Trillion
Collection goal for Iloilo City this 2016
amounts to

40+ Billion

What is taxation?
It is a mode by which a government make
exactions for revenue in order to support
their existence and carry out their legitimate
objective.

It is the most pervasive and the strongest of


all the powers of the government.

Taxes are the lifeblood of the government,


without which, it cannot subsist.

Taxation is the destructive power which


interferes with the personal and property
rights of the people and takes from them a
portion of their property for the support of
the government.
Paseo Realty & Dev. Corp. vs. Courtof Appeals

Taxation should be exercised with caution


to minimize the injury to the proprietary
rights of a taxpayer.It must be exercised
fairly, equally and uniformly,lest the tax
collector kill thehen that lays the golden
eggs.In order to maintain the general
publics trust and confidence in the
government, this power must be used
justly and not treacherously.

Roxas y Cia vs. CTA, 23 SCRA 276

GOVERNMENT REMEDIES
TAXPAYER REMEDIES

GOVERNMENT REMEDIES
Powers of the BIR (Sec. 2)
To assess and collect all national
internal revenue taxes, fees and charges
To enforce forfeitures, fines and
penalties
To execute judgments in all cases
decided in its favor by the tax court and
ordinary courts
To administer supervisory and police
powers conferred upon it by law

BIR ORGANIZATIONAL STRUCTURE


NATIONAL OFFICE

(Sec. 3, NIRC)

Commissioner of Internal Revenue

4 Deputy Commissioners + National Evaluation Board

Assistant Commissioners (Large Taxpayers Service


Regular and Excise), Enforcement Service, Legal Service,
Collection Service)
Division Chiefs (LTRAD, LTETD, National Investigation
Division, and Policy Cases Division)

REGIONAL OFFICES

Regional Directors

Assistant Regional Directors

Division Chiefs (Assessment, Collection, and Legal)


Revenue District Officers, LTDO, and Special
Investigation Division

Powers of the Commissioner


of Internal Revenue
Power to interpret tax laws and decide
tax cases (Sec. 4)
Power to obtain information and to
summon and examine (Sec. 5)
Power to make assessments and inquire
into bank deposits (Sec. 6)
Authority to delegate power (Sec. 7)
Duty to ensure provision and
distribution of forms, receipts, etc. (Sec.
8)

Power to interpret tax laws


and decide tax cases (Sec. 4)
The CIR has the EXCLUSIVE AND ORIGINAL
jurisdiction to:
Interpret the provisions of the NIRC and other
tax laws, subject to review by the Secretary of
Finance
Decide
Disputed assessments
Refunds of internal revenue taxes, fees,
penalties
Other matters arising from the NIRC, subject
to review by the CTA

A general interpretative rule issued by


the CIR may be relied upon by taxpayers
from the time the rule is issued up to its
reversal by the Commissioner or this
Court.
CIR v. San Roque, G.R. No. 187485, February 12, 2013)

Power to obtain information and


to summon and examine(Sec. 5)
The CIR is authorized by law to do a
whole host of things in
Ascertaining the correctness of any
return, or
Making a return when none has been
made, or
Collecting any such liability, or
Evaluating tax compliance, or
In determining the liability of any
person for tax

The CIR is authorized to:


Examine any document which may be
relevant or material to an inquiry;
Obtain information from a third party in
relation to an investigation or audit of a
taxpayer;
Summon the taxpayer or any person
holding records of the taxpayer to appear
before the CIR and produce documents
Take testimonies of the person concerned;
Cause BIR employees to canvass around
and inquire on persons who may be liable for
any internal revenue tax

The law allows the BIR access to all


relevant or material records and data in
the person of the taxpayer. In fact, the
BIR can accept documents which cannot
be admitted in a judicial proceeding
where the Rules of Court are strictly
observed
Fitness by Design v. CIR, G.R. No. 177982,
October 17, 2008

TAX ASSESSMENT BY THIRD PARTY


LETTER NOTICE
The examination could be made through the
tax returns, reports, and submissions of other
taxpayers whom the subject taxpayers had
transacted with
Normally covers allegations for deficiency
income tax liabilities, value added tax or
percentage tax liabilities
RMO No. 13-2012 dated March 29, 2012
provides guidelines, procedures and minimize
processing time of handling LNs

Third-party information
data matching programs:

Reconciliation
of
Listing
for
Enforcement System Summary List of
Sales and Purchases (TRS-RELIEF) RMO
No. 30-2003
Bureau of Customs Data Program (TRSBOC) RMO 34-2004
Tax Reconciliation System (TRS-LN)
RMO 28-2007, as further amended by
RMO No. 7-2010

Power to make
assessments and inquire
into bank deposits (Sec. 6)
A.Examination
of
returns
and
assessment of tax due
Failure to file a return shall not
prevent the Commissioner from
authorizing the examination of any
taxpayer

Any return, statement of declaration


filed shall NOT be WITHDRAWN
Provided: Within 3 years from the date
of such filing, the same may be
a.Modified,
b.Changed, or
c.Amended
Provided, further: NO notice for AUDIT
or INVESTIGATION of such return,
statement or declaration has been
actually served upon the taxpayer

A.Assessment on Best evidence


obtainable applies:
Tax report required by law for the
purpose of assessment is not
available, or
Tax report is incomplete or fraudulent

The law allows the BIR access to all


relevant or material records and data
in the person of the taxpayer.

A.Authority to conduct Inventory-taking,


surveillance and prescribe presumptive
gross sales and receipts
1)Order inventory-taking
2)Conduct surveillance, if there is
reason to believe that taxpayer is not
declaring his correct income
3)Prescribe a minimum amount of gross
receipts when
(a) taxpayer failed to issue receipts and
invoices;
(b) There is reason to believe that the
books of accounts do not correctly
reflect declarations

I.Authority to inquire into bank deposit


accounts and other related information
held by financial institutions
Bank deposits can be examined only in the
following instances:
A decedent to determine his gross estate;
Any taxpayer who has filed an application
for
compromise
based
on
financial
incapacity; or
Pursuant to an international convention or
tax agreement, which the Philippines is a
signatory (RA 10021)

May bank deposits be disclosed by a


commercial bank to the Commissioner of
Internal Revenue, in connection with a
tax investigation being conducted by
revenue officials, without violating the
relevant bank secrecy laws?

No, there are only 3 instances wherein


the CIR may inquire into the bank
deposits of a taxpayer.
Disclosure in
relation with a tax investigation is not one
of the instances allowed by law.

In case a taxpayer files an application to


compromise the payment of his tax
liabilities on his claim that his financial
position demonstrates a clear inability to
pay the tax assessed, his application shall
not be considered unless and until he
waives in writing his privilege under RA
1405, RA 6426.
Waiver shall constitute the authority of
the Commissioner to inquire into the
bank deposits of the taxpayer.

Request for supply of tax information


from a foreign tax authority
R.A. 10021 Act to allow the exchange of
information by BIR on tax matters
Sec. 2.
Any general or special law
notwithstanding, and for the purpose of complying
with the provisions on exchange of information
contained in tax treaties, CIR is authorized to
obtain any information, including but not limited to
bank deposits and other related information held
by financial institutions, as may be required to
respond to a request by a treaty country.
Sec. 3. Once information is gathered, BIR is
likewise authorized to use, for tax assessment,
verification, audit and enforcement purposes, such

Sec. 5. Income tax returns of specific taxpayers


subject of a request for exchange of information by
a foreign tax authority shall be open for inspection
upon the order of the President of the Phil, under
rules and regulations prescribed by the Secretary of
Finance.
Sec. 6. Any information received by foreign tax
authority from BIR shall be treated as absolutely
confidential in nature and shall be disclosed only to
persons or authorities, including courts and
administrative bodies, involved in the assessment
or collection of, the enforcement or prosecution in
Revenue Regulation No. 10-2010
respect of, or the determination of appeals in
Oct 6, 2010
relation to, the taxes covered by such conventions
or agreements.

In 2011, the Commissioner of the US


Internal Revenue Service (IRS) requested
in writing the CIR to get the information
from a bank in the Philippines, regarding
the deposits of a US citizen residing in the
Philippines, who is under examinations by
officials of the US IRS, pursuant to the USPhilippine Tax Treaty and other existing
laws.
Should the BIR Commissioner
agree to obtain such information from the
bank and provide the same to the IRS?

Yes, R.A. 10021 has amended the NIRC to


allow the CIR to inquire into the bank
deposits upon request of a foreign taxing
authority.

Authority to delegate power (Sec. 7)


Powers that cannot be delegated:
1.To recommend the promulgation of
rules and regulations by the Secretary of
Finance;
2.To issue rulings of first impression or to
reverse, revoke or modify any existing
ruling of the Bureau;
3.To compromise or abate any tax
liability but if P500,000 or less, she can
delegate
4.To assign or reassign officer to
establishments were excise tax articles
are produced or kept

TAX ASSESSMENT
It is an official action by an administrative
officer to determine the tax due of the
taxpayer
It consists of:
Computation of the amount of tax that
must be paid by the taxpayer
Coupled with a demand to pay the tax
within a specified period of time

Remedies of the
GOVERNMENT

ASSESSMENT
COLLECTION

KINDS OF ASSESSMENT:
1.Self-assessment when taxpayer
computes his own liability, files his return,
and pay the tax based on his
computation (Sec. 56[a])
2.Deficiency assessment occurs upon
discovery of the BIR that the selfassessment was either deficient, or when
no return was made by the taxpayer (Sec.
56[b])

Power to issue an assessment is with the


CIR.
However, he can authorize any
revenue
officer
to
conduct
an
assessment.
There must be a clear grant of authority
before a delegated revenue officer can
conduct an assessment. The grant is
embodied in a Letter of Authority.
The period or year covered for
assessment
should
be
specifically
indicated in the Letter of Authority.

The revenue examiner went beyond the authority


conferred by LOA. A LOA authorizes or empowers a
designated revenue officer to examine, verify and
scrutinize a taxpayers books and records in relation to his
internal revenue tax liability for a particular period. The
LOA, the examiners were authorized to examine Sonys
book of accounts and other account records for the period
1997 and unverified prior years. However, CIRs basis
for deficiency vat for 1997 was 1998. They acted without
authority in arriving at the deficiency vat assessment. It
should be considered without force and effect a nullity.
A LOA should cover taxable period not exceeding 1 year.
The practice of issuing LOA covering audit of unverified
prior years is prohibited.
CIR vs. Sony Philippines, Inc.
CTA 90, May 17, 2007)

Taxpayers shall be informed in writing of


the law and the facts on which the
assessment is made; otherwise, the
assessment shall be void. (Sec. 228)
The law requires that the legal and
factual bases of the assessment be
stated in the formal letter of demand and
assessment notice, not in any other
document or paper issued by the CIR.

Before a delegated revenue officer can


conduct said examination or assessment,
there must be a clear grant of authority.
This grant is embodied in a Letter of
Authority.
CIR v. Sony Philippines, Inc.
G.R. No. 178697, November 17, 2010

The assessment by tax examiners are


presumed correct and made in good faith.
The taxpayer has the duty to prove
otherwise.
Sy Po. V. CTA
G.R. No. 81446, August 18, 1998

Notices may be served in the following


modes:
1.Personal service (delivery to known
address);
2.Substituted service (leaving notice with
someone at taxpayers known address);
3.Service by mail.

Period of limitation upon assessment


and collection (Sec. 203)
Gen. Rule: The right to assess must be
done within three (3) years from:
The day the return was ACTUALLY FILED;
From the LAST DAY for filing the return (if
the return was filed before the last day
prescribed by law),

Whichever is LATER

Return was filed BEFORE the last day


prescribed by law considered FILED on
the LAST DAY prescribed by law
Filed on the LAST DAY prescribed by law
filed on such day
Filed BEYOND the period prescribed by
law counted from the day the return
was filed

Exceptions:
1.False or fraudulent return with intent to
evade taxes within 10 years from
DISCOVERY of falsity or fraud
2.Failure or omission to file a return
within 10 years after discovery of failure or
omission to file the return
3.Waiver of statute of limitations in writing,
which must be made before the expiration
of the three-year period of assessment of
taxes: period agreed upon

If the taxpayer files an amended return


which is substantially different from the
original return, the period of prescription
of the right to issue the deficiency
assessment should be counted from
the filing of the amended return, and
not the original return.
CIR vs. Phoenix Assurance Co., Ltd.,
Gr. No. L-19727, May 20, 1965)

If the taxpayer files a wrong return, it is


as though he filed no return at all. This is
true even if all the necessary information
was reflected in the erroneous return. In
situations
like
this,
the
10-year
prescriptive period will apply.
Butuan Sawmill, Inc. v. CA,
Gr. No. L-20601, February 28, 1966

Where the return was made in the wrong


form, the filing thereof did not start the
running of the period of limitation, and
where the return was very deficient; there
was no return at all. If the taxpayer failed
to observe the law, Sec. 332 of the NIRC
grants CIR a 10 year period within which
to bring an action for tax collection.
CIR v. Lilia Gonzales

In determining if prescription to assess


has indeed set in, the important date to
remember is the date when the demand
letter or notice is released, mailed or sent
by the CIR to the taxpayer.
Basilan Estates, Inc. v. CIR
Gr. No. L-22492, September 25, 1967)

PRESERVATION OF BOOKS AND ACCOUNTS


AND OTHER ACCOUNTING RECORDS
Must be preserved for 3 years (last day
prescribed by law for assessment) Sec.
235 of NIRC
Revenue Regulation 17-2013, September 27,
2013

Increased the period for preservation of


books from 3 years to 10 years

Fraud, falsity and the imposition of


10-year period
Fraud is a question of fact and the
circumstances constituting fraud must be
alleged and proved in court. Fraud is
never lightly to be presumed because it is
a serious charge. Hence, if fraud is not
proven, the Government cannot use the
10-year period to make the assessment.
CIR v. Ayala Securities Corporation,
Gr. No. L-29485, March 31, 1976)

Claiming
fictitious
expenses
as
deductions is a proof of falsity or fraud in
the income tax return.
Tan Guan v. CTA
Gr. No. L-23676, April 27, 1967)

WAIVER of PRESCRIPTION (Sec.


222)

The taxpayer and the government may


extend by mutual agreement in writing
the
prescriptive
period
for
the
assessment and collection of taxes.

The requisites of valid


waiver:
1.The waiver must be in proper form
(RMO 20-90);
2.The waiver must be signed by the
taxpayer himself of his duly authorized
representative;
Delegation of authority must be in
writing and duly notarized;

3.The waiver must be duly notarized;

1.The CIR or the revenue official authorized


by him must sign the waiver indicating the
BIRs acceptance and agreement to the
waiver. The date of such acceptance by the
BIR should be indicated;
2.Both the date of execution by the taxpayer
and the date of acceptance by the BIR should
be prior to the expiration of the period of
prescription or before the lapse of the period
agreed upon in case a subsequent
agreement is executed;

Imposition of Penalties (Sec. 247)


Penalties and interests apply to ALL
taxes, fees and charges imposed by the
NIRC
Tax
laws
imposing
penalties
for
delinquencies are intended to hasten tax
payments by punishing evasions or
neglect of duty in respect thereof.
Penalty and interest are not penal but
compensatory.

SURCHARGE
25%

50%

1.Failure to file any return and 1.Willful neglect to file a return


pay the tax due
within the period prescribed
2.Filing a return with an
by law
internal revenue officer other 2.False or fraudulent return is
than those with whom the
willfully made
return is required to be filed; 3.Prima facie evidence of a
3.Failure to pay the deficiency
false and fraudulent return
within the time prescribed in
when substantial under
the notice of assessment;
declaration of taxable
4.Failure to pay the full or part
income or substantial
of the amount of tax stated
overstatement of deductions
in the return on or before the
(failure to declare an amount
date
prescribed
for
its
exceeding 30% for taxable
payment.
income or actual deductions)

Interest (Sec. 249)


Kinds of interest:
1.General interest
2.Deficiency interest
3.Delinquency interest; and
4.Extended payment interest.
Rate: 20% per annum

Rules on Assessment of the NIRC, Civil


Penalties and Interest(RR 12-99)
Richie Rich forgot to file on April 15. He
filed on June 30.
Penalties:
25% surcharge for late filing
20% general interest from due date up to
time paid
Amount to be paid:
TAX DUES + 25% surcharge + 20%
interest

Richie Rich is having a vacation, he paid


on April 15 in Boracay. He did not bother
to file in Iloilo City his registered RDO.
Penalties:
25% surcharge for willful neglect
NO INTEREST paid on time
Amount to be paid:
TAX DUES + 25% surcharge

Richie Rich did not file on April 15. He


didnt care until a demand letter was sent
to him by the BIR to pay by June 30. He
paid on June 30.
Penalties:
50% surcharge for late filing
20% general interest from due date up to
time paid
Amount to be paid:
TAX DUES + 25% surcharge + 20%
interest

Richie Rich filed his return on April 15 and paid


P10,000. He didnt care until a demand letter was
sent to him by the BIR to pay by June 30. He paid on
June 30. Upon pre-audit, it was discovered that there
was an error in computation. The correct amount
due is P20,000. He was assessed deficiency income
tax in a letter demand and assessment notice, the
telling him to pay by June 30. He did.

Penalties:
20% general interest from due date up to time
paid
Amount to be paid:
TAX DUES + 20% interest

Criminal action
No criminal action for the recovery of
taxes shall be filed without the approval
of the CIR
Acquittal of taxpayer in a criminal case
does not exonerate him from tax liability
The crime is complete when the violator
has knowingly and willfully filed a
fraudulent return or neglected to file a
return with intent to evade the tax

Criminal action
No criminal action for the recovery of
taxes shall be filed without the approval
of the CIR
Acquittal of taxpayer in a criminal case
does not exonerate him from tax liability
The crime is complete when the violator
has knowingly and willfuly filed a
fraudulent return or neglected to file a
return with intent to evade the tax

Willful blindness doctrine:


A taxpayer can no longer raise the
defense that the errors on their tax
returns are not their responsibility or that
it is the fault of the accountants they
hired.
The only thing that needs to be proven is
that the taxpayer was aware of his
obligation to file the tax return but he
nevertheless voluntarily, knowingly, and
intentionally failed to file the required
returns.
People vs. Kintanar, January 16, 2013

The Court, therefore, finds the records bereft of any


evidence to establish the key element of willfulness
on the part of the accused to supply the correct and
accurate information on her subject return. The
burden of proof is on the prosecution to prove
beyond reasonable doubt that accused willfully failed
to supply correct and accurate information. Stated
differently, the prosecution must prove that the
accused, a Filipino citizen residing in ti1e Philippines,
is required not only to file an income tax return on
income from all sources, on or before the fifteenth
(15th) day of April of each year, covering the income
for the preceding taxable year, but also to supply
correct and accurate information thereof, and that
any failure thereof is done willfully.

PP. vs. Judy Ann Santos,


CTA Case No. 0-012, January 16, 2013

Prescription in Criminal Cases


Prescriptive period: 5 years
Failure to refusal to pay taxes due from
the service of final notice and demand for
payment of the deficiency taxes
Filing of false or fraudulent returns from
the discovery and institution of judicial
proceedings for its investigation and
punishment

CRIMINAL CASES
Payment of tax due after apprehension
shall not constitute a valid defense in any
prosecution
Sec. 254 to Sec. 268 violations by
taxpayers
Sec. 269 to Sec. 273 violations by
government officers
Sec. 274 to 280 other penal provisions

COLLECTION

The government can only file a


proceeding in court to collect once the
assessment has become final and
unappealable (Sec. 203)
Exception:
1.False or fraudulent return with intent to
evade tax
2.Failure to file a return
Collection
may
be
filed
without
assessment at any time within 10 years
from the discovery of the falsity, fraud, or
omission. (Sec. 222[a])

Remedies for Collection of taxes:


1.Administrative Remedies
Distraint of personal property
Levy of real property
Enforcement of forfeiture of property
Enforcement of tax lien
Requiring of filing of bonds
Requiring proof of filing income tax
returns
Deportation of aliens
Inspection of books of accounts

2. Judicial Remedies
Ordinary civil action
Criminal action

Distraint seizure by the government of


personal property, tangible or intangible,
to enforce the payment of taxes to be
followed by its public sale if the taxes are
not voluntarily paid
Commissioner more than 1 million
RDO 1 million or less

Kinds of distraint:
1.Actual distraint actual delinquency in tax
payment is necessary
2.Constructive distraint no actual delinquency
is necessary, resorted to when tax payer is
Retiring from any business subject to tax;
Intends to leave the Philippines
Intends to remove his property from the
Philippines
Intends to hide or conceal this property
Performs any act tending to obstruct the
proceedings from collecting the tax due

Levy a summary administrative


remedy, seizure of real property to
enforce payment of taxes
A written notice of levy, containing a
description of the property upon which
levy is made, the name of the taxpayer
and the amounts of the tax and penalty
due from them is served upon the
taxpayer

Forefeiture a divestiture or property


without compensation, in consequence of
a default or offense.
Chattels and removal of fixtures of
any sort seizure and sale or destruction
of the specific forfeited property
Real property enforced by a judgment
of condemnation and sale in a legal action
or proceeding, civil or criminal, as the
case may require

Requiring the filing of bonds may be


required by the BIR for issuance of tax
clearance
Deportation of aliens any alien who
1.Knowingly and fraudulently evades the
payment of any internal revenue tax; or
2.Willfully refuses to pay such tax and its
accessory penalties after the decision on
the tax liability

Compromise and abatement


Remedy to both the government and
taxpayer
Authority of CIR to compromise and
abate tax liabilities cannot be delegated
Exception:
1.For assessments issued by the regional
offices involving basic deficiency taxes of
P500,000 or less; and
2.Minor criminal violations

COMPROMISE
Grounds
Doubtful validity of the
claim against taxpayer
Financial incapacity of
the taxpayer

Minimum Compromise
Rate
40% of the basic
assessed tax
10% of the basic
assessed tax

Gen. Rule:
All criminal violations may be
compromised
Exception:
Those already filed in court;
Those involving fraud.

Cases which may be compromised are:


1.Delinquent accounts;
2.Pending administrative cases under
administrative protest after issuance of
final assessment notice to the taxpayer;
3.Civil tax cases being disputed before
the courts;
4.Collection cases filed in courts;
5.Criminal violation - except
(a) already filed in court
(b) involving criminal tax fraud

Cases that cannot be compromised:


1.Withholding tax cases;
2.Criminal tax fraud cases confirmed as such by
the CIR or his duly authorized representative;
3.Criminal violations already filed court;
4.Delinquent accounts with duly approved
schedule of installment payments
5.Cases where final reports of reinvestigation or
reconsideration
6.Cases which become final and executory after
final judgment
7.Estate tax case where compromise is
requested on the ground of financial incapacity
of the taxpayer

Abatement and cancellation of tax


liability (Sec. 204)
Grounds:
1.Taxes or any portion thereof appears to
be unjustly or excessively assessed; or
2.The administration and collection costs
involved do not justify the collection of
the amount due.

Prescriptive period for collection


Gen. Rule: 5 years from the date of
assessment
Exceptions:
1.False and fraudulent return with
intent to evade taxes 10 years from
discovery
without
need
for
prior
assessment
2.Failure or omission to file a return
10 years from discovery without need for
assessment
3.Waiver in writing executed before the
5-year period expires

PRESCRIPTI
VE PERIOD
ASSESSMEN
T VS.
COLLECTIO
N
Regular Return
was made

Assessment

3 years

Collection

5 years from
assessment

False,
Fraudulent, or
Failure to File a
Return
10 years from
discovery
5 years from
assessment

Suspension of running of statute of


limitations (Sec. 223)
Grounds:
1.When the CIR is prohibited from making
an assessment or beginning distraint and
levy or a proceeding in court and for 60
days thereafter
2.The
taxpayer
requests
for
reinvestigation which is granted by the
CIR

REINVESTIGATION RECONSIDERATIO
N
Plea for re-evaluation
on the basis of newlydiscovered or additional
evidence
that
a
taxpayer intends to
present

Plea for a re-evaluation


of an assessment on
the basis of existing
records without need of
additional evidence
Mere
evaluation
existing records

of

Suspends the running Does not suspend the


of prescriptive period
running of prescriptive
period

1.When the taxpayer cannot be located in


the address given by him in the return
filed upon which a tax is being assessed
or collected
2.When the warrant of distraint and levy
is duly served upon the taxpayer, his
authorized representative and no property
could be located
3.When the
Philippines

taxpayer

is

out

of

the

TP files a
PROTEST
LETTER
TP has
30days to
protest
ISSUANCE OF
FLD/FAN
TP has 15
days to
respond
ISSUANCE OF
PAN
BIR finds
deficiency
FILING OF
TAX RETURN

TP has 60 days
from protest
letter to
submit
supporting
documents
(reinvestigatio
n
30 days from
the denial or
after 180
days of
inaction
CTA

BIR Denial
(representative
)
appeal
CIR

Wait for the


decision of BIR
Denial

Remedies of the

TAXPAYER
PROTEST OR DISPUTE THE
ASSESSMENT
REFUND OR RECOVERY OF
ERRONEOUSLY OR
ILLEGALLY COLLECTED
TAXES

DEFINITION, NATURE AND


EFFECT

1.Tax Assessment a finding by the tax


authority that the taxpayer has not paid
the correct taxes, a written notice to a
taxpayer to the effect that the amount
stated is due as a tax and containing a
demand for the payment thereof

1.Tax Audit a systematic review of an


individuals or an organizations account.
The process of examining, going over, or
scrutinizing the books and records of the
taxpayer. It can only be performed upon a
Letter
of
Authority
issued
by
the
Commissioner
2.Letter of Authority - an official
document that empowers a revenue officer
to examine and scrutinize a taxpayers
books of accounts and other accounting
records, in order to determine the taxpayers
correct internal revenue tax liabilities

1.Pre-assessment
notice

a
communication issued by the Regional
Assessment Division, or any concerned BIR
office informing a taxpayer who has been
audited of the findings of the Revenue
Officer following a review of these findings
2.Final assessment notice a notice
given to the taxpayer by the BIR informing
him of the amount of deficiency tax for
which the taxpayer is being assessed on the
findings of the BIR upon failure of the
taxpayer to respond to a PAN or after an
examination has been conducted

1.Jeopardy assessment tax assessment


made by an authorized Revenue Officer
without the benefit of complete or partial
audit, in light of the ROs belief that the
assessment and collection of a deficiency
tax will be jeopardized by delay caused by
taxpayers failure to:
Comply with audit and investigation
requirements to present his books of
accounts and/or pertinent records; or
Substantiate all or any of the deductions,
exemptions or credits claimed in his
return

1.Deficiency and delinquency

DELINQUENT

DEFICIENT

1.Self-assessed tax per


return filed by the
taxpayer on the
prescribed date was
not paid at all or
partially paid
2.Deficiency tax
assessed by the BIR
became final and
executory

1.Amount by which the tax


imposed by law exceeds
the amount shown as tax
by the taxpayer upon his
return; or
2.If no amount is show as
the tax by the taxpayer
upon his return or if no
return is made by the
taxpayer, then the amount
which the tax as
determined by the CIR or
representative exceeds
the amounts previously
assessed

DELINQUENCY

DEFICIENCY

Can be immediately
collected administratively
through the issuance of a
warrant of distraint and levy
or judicial action

Same process but has to go


through the process of filing
the protest against the
assessment and the denial
of such protest by the BIR

The filing of a civil action for


the collection in the
ordinary court is a proper
remedy

Filing of a civil action at the


ordinary court for the
collection of a deficiency tax
during pendency of protest
may be the subject of a
motion to dismiss

Subject to administrative
penalties such as 25%
surcharge, interest and
compromise penalty

Generally not subject to the


25% surcharge although
subject to interest and
compromise penalty

PROTESTING AN ASSESSMENT
(REMEDY BEFORE PAYMENT)
Step one: Issuance of the Preliminary
Assessment Notice (PAN)
Taxpayer is given 15 days from receipt of PAN to
respond
If he doesnt respond (default) Formal Letter
of Demand and Final Assessment Notice
(FLD/FAN) shall be issued
If he responds, a FLD/FAN will be issued
within 15 days from the filing/submission of
the taxpayers response

PRE-ASSESSMENT NOTICE
5-Day Letter

Signed by the Revenue District Officer


Gives taxpayer the opportunity to explain in
writing his position on the findings of revenue
officers; otherwise, findings will be considered
as correct and report will be forwarded to
Chief, Assessment Division

15-Day Letter

Signed by the Chief, Assessment Division or


Regional Director
Gives taxpayer the opportunity to explain in
writing his position on the findings of revenue
officers; otherwise, findings will be considered
as correct and FAN will be issued

The sending of PAN to taxpayer to inform


him of the assessment made is but part
of the due process requirement in the
issuance of a deficiency tax assessment,
the absence of which renders nugatory
any assessment made by the tax
authorities
CIR v. Metro Star Superama, Inc.,
Gr. No. 185371, December 8, 2010

When a PAN is not needed and FLD/FAN


can be issued outright
1.Any deficiency tax is the result of
mathematical error in the computation of
the tax evident on the face of the return
2.Discrepancy between the tax withheld and
the amount actually remitted by the withholding
agent
3.Taxpayer opted to claim a refund or tax
credit for excess creditable withholding
tax carried it over and automatically applied the
amount claimed against the estimated tax
liabilities for the taxable quarter of the
succeeding taxable year

1.Excise tax due on excisable articles has


not been paid
2.When an article locally purchase or
imported by an exempt person has been
sold, traded or transferred to a nonexempt person

REPLY TO PAN
WHEN TO FILE REPLY?
Within 15 days from date of receipt of PAN
Extension or further extension may be requested
from BIR
CONTENT OF REPLY?
Explanation to every item of income or deduction
or other matter questioned by revenue officer
Factual and/or legal bases, including applicable
jurisprudence
Prays for total or partial cancellation of PAN
QUESTION OF FACT OR LAW
Question of fact: Truth or falsity?
Question of law: Law on certain set of facts?
DUE PROCESS OF LAW
Issuance of FAN and Demand Letter is tantamount
to denial of Reply to PAN. Essential elements of
due process are notice and opportunity to present
ones side (Phil. Health Care Providers vs. CIR)

Step two: Issuance of the Formal Letter


Demand and Final Assessment Notice
(FLD/FAN)

LEGAL EFFECTS OF ISSUANCE OF FAN?


Creates legal obligation on the part of taxpayer
to pay tax to government
If taxpayer files timely protest, assessment does
not become final and executory
Taxpayer does not have to pay the deficiency tax
assessment, but deficiency interest shall
start to run from date the tax was due up
to date of payment
Business of taxpayer does not become illegal by
reason of non-payment of deficiency tax, unlike
local business taxes

ESSENTIAL REQUIREMENTS
FAN (BIR FORM 17.08) contains name, address,
and TIN; kind of tax; period covered; basic tax
and penalties; date tax must be paid
FAN and demand letter must state facts, law or
jurisprudence; otherwise, assessment is void (CIR
v. Enron Subic Power Corporation, G.R. No. 166387, Jan.
19, 2009)
Taxpayer was fairly informed since it was able
to categorically explain how assessment came
about (Toledo Power Co. vs. CIR)
PAN has audit sheet but did not explain how
assessment was arrived. Demand letter did
not contain the information on law and facts
(HPCO Agridev Corp vs. CIR)
Signed by Commissioner or his authorized
representative
Issued within the prescriptive period under the
law or the extended period agreed upon between
the parties
Served by personal delivery or by registered mail
FAN was issued on account of a valid letter of
authority

Step three: Protest the FAN


When to file: Within 30 days from the receipt of the
FLD/FAN
Where to file: Commissioner of Internal Revenue
CONSEQUENCES OF ABSENCE OF VALID AND
TIMELY PROTEST
Makes assessment final and executory; merit of
the case or validity of the assessment can not be
raised by taxpayer
Appeal to CTA by taxpayer is no longer available or
ineffective; CTA cannot acquire jurisdiction over
the case; motion to dismiss may be filed by BIR
BIR may pursue collection of taxes and penalties,
administratively and/or judicially
Compromise of assessment is still possible

How to file:
written request
reconsideration or reinvestigation

for

Ways of protesting administratively:


1.Request for reconsideration based
on existing records without need of
additional evidence
2.Request for reinvestigation based
on newly-discovered evidence taxpayer
intends to present in the reinvestigation

The protest must state the following:


1.Nature of the protest (reconsideration
or reinvestigation);
2.Date of the FLD/FAN; and
3.Applicable rules, law, etc.
.If the protest lacks any of these, it shall
be considered VOID and without force
and effect

REQUEST FOR REINVESTIGATION


Submit all relevant supporting documents
from 60 days from the date of the filing of his
letter of protest
Period to decide: CIR must decide within 180
days from the submission of relevant
documents
CIR may either: (a) deny or (b) inaction within
180
days
from
filing
of
protest
(reconsideration) or submission of newlydiscovered
evidence
within
60
days
(reinvestigation)

REMEDY OF TAXPAYER IF PROTEST IS


DENIED
If protest is DENIED
1.By the Commissioner appeal to CTA
within 30 days from the date of receipt of
decision, otherwise final and executory
2.By duly authorized representative
appeal to the Commissioner within 30
days from receipt of decision
Decision of Commissioner appeal to
CTA within 30 days from receipt of the
decision of the CIR

If CIR fails to act on the protest within


180 days
1.Appeal to CTA within 30 days after the
lapse of 180 day period; or
2.Wait for CIRs decision
Option is granted to the taxpayer; hence,
the CIR cannot state that the appeal to
the CTA is late if the taxpayer chooses to
wait for the final decision, even if it is
beyond the 180 day period.
Lascona Land Co. Inc. v. CIR
G.R. No., 171251, March 5, 2012

Step four: Issuance of the Final Decision


on a Disputed Assessment (FDDA)
Issued when the CIR or his representative acts
on the protest
FDDA must state the following:
1.The facts, the applicable rules and regulations
or jurisprudence on which the decision is based;
2.The decisions is the final decision.
.Failure to comply
decision is void

with

first

requirement,

CLAIMING FOR REFUND AND


CREDIT OF TAXES
(REMEDY AFTER PAYMENT)
TAX REFUND actual reimbursement of
the tax
TAX CREDIT the government issues a
tax credit certificate or tax credit memo
covering the amount determined to be
reimbursable can be applied after proper
verification against any sum that may be
due and collectible from the taxpayer

TAX REFUND
There is ACTUAL
reimbursement

TAX CREDIT
This can be applied
against any sum
that may be due
and collectible from
the taxpayer, except
withholding taxes
Not transferrable
(RR 14-2011)

Instances when a claim for refund


may be availed of:
1.Erroneously or illegally assessed or
collected internal revenue taxes;
2.Penalties imposed without authority; or
3.Any sum alleged to have been
excessive or in any manner wrongfully
collected.

When to file: Filed within 2 years after


the payment of tax or penalty
General Rule:
Two-year prescriptive
period is mandatory, after the lapse of
the two-year period, there can no longer
be proceedings for refund
Exception:
1.When the taxpayer and the government
agree to wait for the outcome of a case

General Rule:
Two-year prescriptive
period runs from the payment of the
tax
Exception:
1.Overpaid
quarterly
corporate
income tax after a final adjustment
return is accomplished
2.Overpaid withholding taxes end of
the taxable year
3.Creditable withholding taxes filing
of taxpayers final adjustment return
4.Tax paid in installments date of
payment of the last installment

Where to file: CIR (administrative) or


CTA (judicial)
ADMINISTRATIVE CLAIM FOR REFUND
(BIR)
How to file:
1.Filing a WRITTEN claim for credit or
refund
It must be filed within the period
Substantive basis in law; and
Documents to support or substantiate
the claim

A return filed showing overpayment shall be


considered as a written claim
Documents to support a claim for refund is
necessary because a claim for refund/credit
partakes of the nature of an exemption and
is strictly construed against the claimant.
CIR can refund WITHOUT a written claim
when on the face of the return upon which
payment was made, such payment appears
clearly to have been erroneously paid

JUDICIAL CLAIM FOR REFUND (CTA)

Taxpayer can either:


1.File a claim directly to the CTA without need to
wait for the action of the CIR; or
2.Appeal the decision of denial of the CIR
within 30 days from receipt of decision
Both the claim for refund and appeal to the CTA
must be done within the 2-year period
Hence, if the period is about to expire, and the
CIR has not acted upon the claim, the taxpayer
may file an appeal with the CTA, without
awaiting the decision of the CIR

REFUND
OR
CREDIT
CORPORATIONS
(Sec.
76Adjustment Return)

FOR
Final

Final Adjustment Return filed if the


sum of the quarterly tax payments made
during taxable year is NOT EQUAL to the
total tax due of the entire taxable income
of that year
Quarterly income tax payments is LESS
THAN the annual income tax due (QT <
ATD)
Pay the balance of the tax still due

Quarterly income tax payments is


MORETHAN the annual income tax due
(QT > ATD) taxpayer can either:
1.File for a TAX REFUND; or
2.Avail a TAX CREDIT; or
3.CARRY-OVER the excess credit against
the estimated income tax liabilities of the
succeeding quarter

How to choose:
by marking the
corresponding option box provided in the
Final Adjustment Return(FAR)
Failure to signify ones intention in the
FAR does not mean outright barring of a
valid request for a refund
Carry-over option if chosen, choice is
considered
IRREVOCABLE
for
the
taxable period

HAVE A GREAT
DAY!!
ATTY. BRIANNA KAY A.
TENEFRANCIADE LOS SANTOS, REB