BIR releases rules on appealing disputed tax assessments

Prinz Magtulis (philstar.com) - June 15, 2016 - 2:47pm

MANILA, Philippines — The Bureau of Internal Revenue (BIR)
has formalized guidelines on dealing with tax assessments
disputed by taxpayers.

Under Revenue Memorandum Order 26-2016 dated June 13, the

agency underscored the right of the taxpayer to question
tax deficiency assessments sent by the bureau as part of
its investigation.

Assessments are issued to taxpayers being audited. Though

not specifically targeting anyone, BIR issues annual audit
guidelines where "priority" taxpayers are named.

For 2016, this includes the top taxpaying individuals and

corporations, self-employed and professionals as well as
those who failed to pay income taxes on time.

"This is to put everything in one issuance and to make sure

it is handled uniformly," outgoing BIR Commissioner Kim
Henares said when asked for a reason behind the order.

Henares steps down by noon of June 30 when President

Aquino's term lapses.

Under the memorandum, the agency recognizes the taxpayer's

right to object to an assessment, but should follow
specific schedules and procedures on when and how to file
it.

For a pre-assessment notice, the taxpayer may file

an objection although this is "not mandatory."

After 15 days, a final assessment and formal letter of

demand will be issued, to which the taxpayer is given 30
days to request for reconsideration or re-investigation
before the BIR.

A re-investigation means the BIR is being asked by the

taxpayer to assess it again. The order stated to commence
with such, the taxpayer should submit "relevant supporting
documents" within 60 days from its request.

"Evaluation of protest shall be based exclusively on the

documents submitted within this period, and no further
document shall be accepted after the expiration," the order
said.

"The assessment shall become final and executory in the

event the taxpayer fails to submit the relevant supporting
documents within the 60-day period," it added.

A final decision on a disputed assessment shall be issued

to rule on the protest, whether denied or approved
partially or as a whole. This may also be appealed to the
BIR commissioner.

If BIR fails to act on the request for reconsideration or

re-investigation, the taxpayer may file an appeal before
the Court of Tax Appeals within 30 days.

Under the order, the tax agency is given 180 days to act on
reconsideration request and 60 days for a re-
investigation.

"Appeal to the commissioner or to the Court of Tax

Appeals...shall not preclude the taxpayer from voluntarily
settling the assessment partially or fully," it explained.

https://www.philstar.com/business/2016/06/15/1593242/bir-releases-rules-appealing-
disputed-tax-assessments#xK2GYIvhQwuQGoG2.99

6 New Tax Assessment Rules in Philippines under RR No. 18-2013

OCTOBER 20, 2014
The tax assessment regulations in the Philippines have long
been in place since 1985 (Revenue Regulations No. 12-1985),
until its amendment sometime 1999 under Revenue Regulations
No. 12-1999 (RR No. 12-99). Seeing the need to update
certain rules in keeping with a more efficient and
responsive procedures for tax audit in the Philippines, the
Bureau of Internal Revenue (BIR) has issued Revenue
Regulations No. 18-2013 (RR No. 18-2013), amending the tax
assessment rules of 1999. Under, RR No. 18-2013, the
following six (6) new rules have been introduced or
clarified:
1. PAN instead of Informal Conference
In RR 12-99, the findings and alleged deficiency taxes from
the tax examination or tax assessment in the Philippines
shall be contained in a Notice for Informal Conference or
Notice of Preliminary findings informing the taxpayer of
the findings and giving a period ranging from five (5) to
fifteen 915) days to respond either through an informal
discussion with the handling officer or a position paper to
the Notice for Informal Conference.
Under the new rules, the issuance of Notice for Informal
Conference has been deleted and a Preliminary Assessment
Notice (PAN) shall be issued instead of the Notice for
Informal Conference. The tax payer may pay the deficiency
taxes in the PAN or file a protest within fifteen (15) days
stating its disagreement to the findings with the basis of
such protest, facts and the law.
2. Issuance of FAN/FLD within 15 days from PAN
Upon issuance of the Preliminary Assessment Notice (PAN) in
the Philippines, the BIR will issue a Final Assessment
Notice – Formal Letter of Demand (FAN-FLD) within fifteen
(15) days thereof. The wording of RR No. 18-2013 is quite
silent as to the impact of the protest to the PAN timely
filed within fifteen (15) days from receipt thereof.
The taxpayer may pay the deficiency taxes in the Final
Assessment Notice – Formal Letter of Demand (FAN-FLD) in
Philippines issued within the prescriptive period of the
BIR to issue (either under the three-year period, or ten-
year period), or file the protest to the FAN-FLD with
factual and legal basis within thirty (30) days from
receipt thereof, then, submit complete supporting documents
within sixty (60) days from filing the protest.
3. Final and executor of undisputed findings
In filing the protest, the taxpayer should dispute all the
alleged findings on deficiency internal revenue taxes and
any item stated in the assessment that has not been
disputed will become final and executory where the taxpayer
will be required to pay upon filing the protest. Protests
filed without such payment on undisputed findings will not
be accepted by the BIR.
4. Administrative appeal
Tax assessment process would be undertaken by the
commissioner or by the authorized representative such as
Regional Directors. In the event of the following
circumstance, the taxpayer has the option to elevate the
tax assessment case in the Philippines with the Court of
Tax Appeals (CTA) via Petition For Review within thirty
(30) days:
 Denial of the that the protest to the formal assessment
notice – formal letter of demand; or
 Inaction on the protest within one hundred eighty (180)
days
Under the new rules on tax assessment in the Philippines
under RR No. 18-2013, if such denial or inaction has been
made by the Commissioner’s authorized representative, then,
the taxpayer has the option to elevate the same with the
Commissioner of Internal Revenue (CIR) instead of having
the same with the CTA which would require a legal counsel
to file, payment of filing fees, and other technical
requirements.
5. Service of Tax Assessment Notices to taxpayers
Under RR No. 12-99, service of notices such as PAN and FAN-
FLD shall be made either by personal delivery or by
registered mail only. In the new rules of tax assessment in
the Philippines under RR No. 18-2013, the following new
modes of serving notices has been introduced that is more
aligned with the Rules of Court of the Supreme Court of the
Philippines in legal proceedings in the Philippines:
1. Service to taxpayer in its business address, residence,
or wherever it may be found under personal delivery
2. Service to professional courier under service by mail
3. Service to the office in charge of the office, or to a
legal resident at residence, or with the barangay
officials under substituted service
4. Service to tax agent
BIR has now more options tor each out taxpayers under tax
assessment in the Philippines.
6. Imposition of Delinquency interest
Delinquency interest is the interest being imposed upon a
taxpayer as an addition to the tax from the time required
to be paid as stated in the FAN-FLD up to such time of full
payment. RR No. 18-2013 has expressly provided that the
delinquency interest should be imposed. The base for the
computation of such delinquency interest includes the
deficiency interest covering the interest from the time
required by law to be filed or from late filing until the
date required to be paid stated in the FAN-FLD. In short,
the deficiency interest will generate delinquency interest
or interest will earn another interest similar in concept
to a compounded interest computation in finance practice.
References:
 Revenue Regulations No. 18-2013
 Revenue Regulations No. 12-1999
 Revenue Regulations No. 12-1985
By: Garry S. Pagaspas, CPA

http://gppcpas.com/index.php/2014/10/20/new-tax-assessment-
rules-philippines-rr-no-18-2013/

Cutting corners
TOP OF MIND - Katrina Elena DF. Guerrero (The Philippine Star) - December 24, 2013 -
12:00am
“No person shall be deprived of life, liberty, or
property, without due process of the law…―

Revenue Regulations (RR) No. 12-99 was issued on Sept. 6,

1999 to implement provisions of the National Internal
Revenue Code (NIRC), as amended. Section 3 of RR No. 12-99
provides for the due process requirement in the issuance of
a deficiency tax assessment. Recently issued RR No. 18-2013
amends certain sections thereof, and the notable amendments
are as follows:

RR No. 18-2013 no longer provides for any Notice for

Informal Conference (NIC), and consequently, the taxpayer
under audit investigation is immediately issued a
Preliminary Assessment Notice (PAN). The taxpayer then has
15 days to respond to the PAN or he shall be held in
default and a Final Assessment Notice (FAN) shall be
issued, or if he responds within the 15-day period but
disagrees with the assessment, the FAN shall be issued
within 15 days from submission of the response.

Upon issuance of the FAN, the taxpayer is given 30 days to

protest against it. RR No. 18-2013 now makes a distinction
between two kinds of protest, a request for reconsideration
or a request for reinvestigation, and states that the
submission of all relevant supporting documents within 60
days from filing a protest only applies to requests for
reinvestigation. Furthermore, requests for reinvestigation
on administrative appeal to the Commissioner of Internal
Revenue (CIR) shall no longer be allowed, and only issues
raised in the decision of the CIR’s duly authorized
representative shall be entertained in the said appeal.

RR No. 18-2013 clarifies that the taxpayer’s option in

case of inaction on protested assessments within 180 days,
from date of submission of the protest in cases of request
for reconsideration or from date of submission of required
supporting documents in cases of request for
reinvestigation, is to either: (1) file a petition for
review with the Court of Tax Appeals (CTA) within 30 days
after the expiration of the 180-day period; or (2) await
the final decision of the CIR or his duly authorized
representative on the disputed assessment, and then appeal
such final decision to the CTA within 30 days after the
receipt of a copy of such decision. Also, it emphasizes
that these options are mutually exclusive, and the resort
to one bars the application of the other.

With regard to modes of service, RR No. 18-2013 provides

that it may also be made by substituted service, service by
mail, or service to the tax agent appointed by the taxpayer
under certain circumstances prescribed in the pertinent
regulations on accreditation of tax agents.

RR No. 18-2013 provided illustrations on the computation of

the 20-percent delinquency interest in case of late payment
of assessed deficiency taxes.
Gleaned from such amendments is the general streamlining of
the process of assessment, beneficial to both the BIR and
the taxpayer. Both the BIR and the taxpayer spend less time
in disposing of issues with finality and in effect, the BIR
is able to collect taxes more efficiently, if the
circumstance warrants the same, or conversely, the taxpayer
is able to prove its claim against the assessment much
faster should there be no sufficient cause for the
assessment.

Important to note for the taxpayer, is that without the

informal conference, there must be an even closer
monitoring of the progress of the audit and coordination
with the revenue examiners so that concerns may be
addressed at the earliest stage, avoiding unforeseen issues
that will be included in the PAN. To emphasize, after
issuance of the PAN, the taxpayer is given only 15 days to
protest it, and within the same 15 days he must achieve the
tedious feat of gathering past documents for the taxable
year under examination to support his claim.

While it is true that management of documents is the

responsibility of the taxpayer, if there is lack of
diligence in the record-keeping and existence of unexpected
issues in the PAN, 15 days will not suffice for an adequate
gathering of supporting documents to protest the
assessment. This is crucial because a protest of general
denial shall cause the issuance of a FAN within 15 days
from receipt of such protest. This situation may cause the
PAN stage to be meaningless.

In like manner, BIR must also be equally diligent in

executing its responsibilities. The issuance of a FAN
within 15 days from submission of a protest only gives the
BIR very little time to really consider legitimate
arguments and supporting evidence. The BIR must be
efficient and effective in dealing with the large amount of
assessment cases it is faced with everyday. If it merely
conducts a glossary reading of protests submitted to it,
then there is no effect whatsoever between the issuance of
a PAN and a FAN. The purpose then of having two stages and
differentiating each from the other is rendered nugatory.
The shorter process is a double-edged sword. It may be
beneficial or detrimental, and only actual practice can
determine which it will be.

Katrina Elena DF. Guerrero is a supervisor from the tax

group of Manabat Sanagustin & Co. (MS&Co.), the Philippine
member firm of KPMG International.

https://www.philstar.com/business/2013/12/24/1271459/cutting-
corners#OHy7CARbcvA8JFpA.99

BIR’s right to collect has expired

Posted on October 07, 2014

WHEN one is facing a tax assessment case we

resort to exhaust all possible and available
legal remedies that the law provides for the
taxpayer. One of the possible and available
remedies is for the taxpayer to request for a
reinvestigation of the case.

Under Revenue Regulations (RR) No. 18-2013, request for

reinvestigation refers to a plea of re-evaluation of an
assessment on the basis of newly discovered or additional
evidence that a taxpayer intends to present in the
reinvestigation. It may also involve a question of fact or
of law or both.
This request, however, cannot be granted without a return
of favor to the Bureau of Internal Revenue (BIR).As a rule,
when the taxpayer requests for a reinvestigation which is
granted by the Commissioner of the BIR, the running of
prescriptive period of the BIR to assess and collect shall
be suspended. Consequently, the five (5)-year prescriptive
period for BIR to collect the tax assessment shall be
suspended.

WHEN DOES THE SUSPENSION OF THE FIVE (5)-YEAR PRESCRIPTION

PERIOD TO COLLECT COMMENCE?
In G.R. No. 197515 (Commissioner of Internal Revenue vs.
United Salvage and Towage (Phils.), Inc.), the Supreme
Court (SC) said that the request for reinvestigation should
be granted or at least acted upon in due course before the
suspension of the statute of limitations to collect may set
in.

In the instant case, the final assessment notice (FAN) was

issued by the BIR on January 9, 1996 and the taxpayer
requested for a reinvestigation on March 14, 1997. However,
the BIR granted such request only on January 22, 2001 or
after five (5) years from the date of the issuance of the
FAN. Further, the BIR issued Preliminary Collection Letter
only on February 21, 2002.

The BIR argued that its right to collect the tax assessment
has not yet prescribed. The five (5)-year prescriptive
period to collect was interrupted when the taxpayer filed
its request for reinvestigation. Thus, the period for tax
collection should have begun to run from the date of the
reconsidered or modified assessment.

This argument failed to persuade the SC. The Court

emphasized the rule that the Commissioner of the BIR must
first grant the request for reinvestigation as a
requirement for the suspension of the statute of
limitations. The act of requesting a reinvestigation alone
does not suspend the period. The request should first be
granted, in order to effect suspension.

The Court pointed out that while the request for

reinvestigation was made on March 14, 1997, the same was
only acted upon by the BIR on January 22, 2001 which is
beyond the three (3) year statute of limitations from the
issuance of the FAN on January 9, 1996. Further, the Court
stressed that the Preliminary Collection Letter was only
issued on February 21, 2002 which is clearly five (5) long
years had already lapsed before collection was pursued by
 the BIR.

Moreover, the Court rejected the BIR’s argument that the

taxpayer’s act of elevating its protest to the Court of Tax
Appeals has fortified the continuing interruption of the
BIR’s prescriptive period to collect. The Court found the
argument flawed at best because the taxpayer was merely
exercising its right to resort to the proper Court and does
not in any way deter the BIR’s right to collect taxes from
the taxpayer under existing laws.

The Court also elucidated that the statute of limitations

on the collection of taxes was enacted to benefit and
protect the taxpayers. Just as the government is interested
in the stability of its collections, the taxpayers are also
entitled to an assurance that they will not be subjected to
further investigation for tax purposes after the expiration
of a reasonable period of time.

While it is true that taxes are the lifeblood of the

government, it must be exercised fairly, equally and
uniformly so as not for the tax collector to kill the “hen
that lays the golden egg.”

Nikkolai F. Canceran is a manager with the Tax Advisory and

Compliance Division of Punongbayan & Araullo. P&A is a
leading audit, tax, advisory and outsourcing services firm
and is the Philippine member of Grant Thornton
International Ltd.

http://bworldonline.com/content.php?section=Economy&title=B
IR%E2%80%99s-right-to-collect-has-expired&id=95611

REMEDIES OF THE TAXPAYER

BEFORE PAYMENT

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

AFTER PAYMENT

1. claim for tax refund

2. claim for tax credit

1. Administrative Protest (Protest against Assessment)

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

WHERE: BIR

HOW: written protest, stating facts, applicable law, rules and

regulations or jurisprudence o which his protest is based; if only
portions of FAN are disputed, must pay the deficiency tax on
undisputed portion

PROCEDURE:

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

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

WHEN PAN IS NOT REQUIRED:

1. finding for any deficiency tax is the result of mathematical error in

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

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

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

3. Request for Reinvestigation – a plea for reinvestigation of an

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

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

the statute of limitations in favor of the government

4. Judicial Protest

PROCEDURE

1. within 30 days from denial of protest by CIR or from lapse of 180-day

period, appeal to CTA division
2. if CTA division denies, motion for reconsideration within 15 days from
receipt
3. within 15 days from denial of motion, appeal to CTA en banc
4. appeal to SC within 15 days by petition for review (Rule 45)

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

Tax Refund vs. Tax Credit

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

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

Requisites for Recovery

1. there was an actual collection and receipt by the Government of the

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

http://scire-licet.blogspot.com/2010/03/tax-remedies-
remedies-of-taxpayer.html