Tax Remedies

I. Assessment

Assessment

Importance

Kinds

Principles Governing Tax Assessment

Assessment Process

Letter of Authority (LOA)

issued by Revenue Regional Director

authority given to RO to perform assessment function

empowers RO to examine records of taxpayer

for purpose of collecting tax

1. Services must be done within 30 days

from date of issuance

NOTE: DELETED

2. Within 120 days, RO must:

a. conduct audit

b. submit requirements of investigation

3. Issuance of new letter of authority (otherwise; void)

in case of:

1. re-assignment to another RO

2. re-validation of L/As which already expired

Note:

Memorandum or any other proof are not equivalent document for proof of substitution.

Issued by RDO

Investigation

Frequency of Examination

GR: Once per taxable year.

XPN:

1. CIR discovers

fraud

irregularities

mistakes by TP

2. Per TP request of re-investigation and granted by CIR

3. Compliance verification as to withholding and other taxes prescribed by RMO

4. TP's CGT liabilities must be verified

5. CIR exercises rights to power obtain information

Notice of Discrepancy (NOD)

Allows TP to explain his side on the discrepancies found.

formerly: Notice of Informal Conference (NIC)

Rules:

If TP disagrees;

within 30 days after receipt of NOD, submit explanation and other documents

Discussion of Discrepancy

within 30 days from receipt of NOD

2

If after DOD, TP is still found liable and taxes are not yet paid,

case shall be endorsed for issuance of PAN within 10 days

Requisites:

1. In writing and signed by CIR

2. TP must be informed on legal and factual basis of assessment

3. TP may pay for deficiencies and penalties before PAN is issued

METER

1. Mathematical Error on Tax Return

3. Excess CWT

5. Transferred to non-exempt persons by an exempt persons.

4. Excise Tax has not been paid

2. Discrepancy on Tax Withheld vs Tax Remitted to BIR

Reply

within 15 days from receipt of PAN

15-day Period must also be observed by BIR

Final Assessment Notice & Formal Letter of Demand (FAN/FLD)

issued within 15 days from TP's reply of disagreement in assessed defeciency

When issued?

1. No need to issue PAN

METER

2. TP's failure to reply

3. If the CIR or his DAR does not agree with the reply to the PAN

Requisites for validity:

1. In writing and signed by BIR

2. Legal and Factual basis established and TP is informed

3. There must be a demand for payment within the prescribed period

4. Must be directly received by taxpayer

Protest

optional

protest of assessment should be within 30 days from receipt of FAN

Non-protest

assessment becomes final and executory

cannot be appealed to the CTA

Kinds:

1. Request for reconsideration

no additional evidence needed

2. Request for reinvestigation

additional evidence are submitted

within 60 days from date of filing of protest

Final Decision on Disputed Assessment (FDDA)

issues FDDA within 180 days from

(reconsideration): filing of protest

= 180 days

or (reinvestigation): submission of additional documents

= 60 + 180 days = 240 days

Remedy against FDDA:

Denied by DAR

a. Appeal to the CTA

within 30 days from date of receipt of decision

b. Protest through request for reconsideration to the CIR

within 30 days from date of receipt of decision

Inaction by DAR

c. Appeal to the CTA

within 30 days after expiration of the 180 day period

d. Await for CIR's DAR re: final decision on disputed assessment

inaction ni DAR dili pwede muakyat sa CIR

Denial by CIR

e. Appeal to CTA

within 30 days from date of receipt of decision

Inaction by CIR

f. Appeal to the CTA

within 30 days after expiration of the 180 day period

g.

Await CIR final decision on disputed assessment

+ Appeal to CTA

within 30 days from date of receipt of copy decision

Summary of remedies against FDDA

Content of FDDA:

Facts, laws, RR or jurisprudence on which decision is based.

What if FDDA is void?

Ans: Does not ipso facto render the assessment void. Thus, assessment is still valid.

Vs. VOID LOA, FAN = Void Assessment

What is the effect of failure to appeal?

Ans: Decision or assessment becomes final and executory.

Summary of Assessment Process

PAN = PIPTIN = 15 days

FAN/FLD = FIFTEEN X 2 = 30 days

Replies to the PAN = 15 days

TIP:

Sino binibilangan natin?

TP = from Receipt

BIR = from Release

The Most Important Concept

When is assessment final?

II. Collection

When to collect?

upon final assessment

tax due is already determined

XPN:

Judicial action to collect tax is permitted even without an assessment when the taxpayer:

1. Files a false or fraudulent return with intent to evade the tax

2. Fails to file a return

Modes of Collection

1. Payment

2. Tax Lien

legal claim

charge on property

security for the payment of tax obligations

3. Levy

seizure of real property

vs. Distraint - personal properties

levy = lupa

4. Distraint

personal property

vs. Levy - real property

di lupa

enforced on the goods, chattels or effects of the taxpayer

Kinds of Distraint:

1. Actual

2. Constructive

forestalling a possible dissipation of TP's assets upon deliquency

When proper:

1. Retirement from business

2. Absconding/Concealment Property

3. Intending to obstruct proceedings for collecting the tax due

5. Garnishment

G = gamit ng iba

property of taxpayer in the hands of a third person

e.g. Bank Deposits

Bank head officer are required to provide their official email address.

6. Forfeiture

confiscation of property

transfers property to the government

no further levy for such would be for the total satisfaction of the tax due

total satisfaction

Redemption:

When:

Within 1 year from the date of forfeiture

How:

Full amount + Penalties + Interest + Cost of Sales

None redemption:

forfeiture becomes absolute

III. Prescription

Prescriptive Period

Assessment

GR: Whichever is later

3 years from due date

When is it made?

assessment is deemed made only when CIR releases, mails or sends such notice to the taxpayer

assessment contemplated refers to service of the FAN upon the TP

FAN should be within the 3 years

actual filing

XPN:

10 years from discovery if:

False

wrong information due to

mistake

carelessness

ignorance

Fraudulent filing

intentional

deceitful

to evade the correct tax due

question of fact

must be alleged and proved

Prima Facie evidence of fraud

The TP:

substantially (>30%)

a. underdeclared

taxable sales

receipts

income

b. overstated

deductions

Non-filing

Collection

GR: 3 years from receipt of FAN by taxpayer

XPN:

5 years from assessment if:

Fraudulent filing

Non-filing

Amended Return

substantially (30%) different from original

from the filing of amended return

When:

GR: within 3 years form date of filing

return may be amended

XPN:

notice for audit or investigation has been served upon the TP

rihanna doctrine

Reasons for Prescription

1. To the government

obliged to be prompt in making assessments

2. To the taxpayers

a. security against unjust tax audit

b. limit on obligation to keep books and inspection

Extension of prescriptive period

Can prescriptive period be extended?

YES.

Upon issuance of Waiver of the Statute of Limitations

Rules:

1. Must be in writing

2. Specified future date

3. Made before expiration of the assessment period

4. Does not cover taxes already prescribed.

Guidelines:

Otherwise, defective.

Can multiple waivers be executed?

Yes.

When suspended?

1. TP Cannot be located

XPN: CIR is informed of change in address.

2. TP is out of the PH

3. TP requests for reinvestigation which is granted by CIR

4. WDL is duly served and no property is located

5. CIR is prohibited from assessment and levy

Cam agreement shorten prescriptive period?

No.

CIR or his DAR has the power to suspend business operations

Grounds:

1. Failure to register

2. VAT-registered person

a. failed to issue receipts or invoices

b. failure to file a VAT return

c. substantial understatement (>30%) of taxable sales or receipts for taxable quarter

Procedure

Surveillance

Mission Orders

may be

covert

overt

may lead to

issuance of LOA

Rules:

1. Signed by Chair of Review Board

2. Served immediately to the taxpayer

3. Shall state the particular provisions of the NIRC that were violated

Procedures:

1. TP must refute finding of BIR within 2 days from receipt of VCN

2. RB transmits TP's response to the Investigate Office for evaluation

3. Investigating Office prepares response within 3 days from receipt of response

Duration:

not less than 5-days

until rectified

IV. Compromise

Compromise

Compromise

contract between government and TP to settle liability

Compromise Penalty

amount paid by TP to compromise tax violation

paid in lieu of criminal prosecution

Requisites:

1. Tax liability of the TP

2. Offer of TP of an amount to be paid by him

3. Acceptance (by CIR or TP) of offer in claim settlement

Grounds:

Doubtful validity

a. Resulting from a jeopardy assessment (minadali ang assessment)

b. arbitrary in nature

lacking in legal and/or factual basis

c. failure to file protest because notice of assessment has not been received

d. failed to file a request for reinvestigation/recondereation

lacking in legal and/or factual basis

e. TP failed to elevate to the CTA

lacking in legal and/or factual basis

f. "Best evidence obtainable rule" can be disputed by sufficient and competent evidence

g. Defect in the waiver of Statute of Limitations

h. court made adverse decision against BIR

Requisites for compromise:

1. Clear inability to pay

2. Waive in writing his privilege of secrecy of bank deposit

Denial of Compromise:

1. TCC issued

2. Pending claim for tax refund/credit

3. Possible increase in equity

4. Failed to execute a waiver of secrecy of bank deposits

Approval of Compromise

> 1M

National Evaluation Board

> 500k

CIR

<= 500k

Regional Evaluation Board

Cases compromised

can

1. Delinquent accounts

2. under administrative protest

3. covered by PAN

4. civil tax cases

5. collection cases

6. criminal violations

xpn:

1. already filed in courts

2. involving criminal tax fraud

cannot

1. criminal tax fraud cases

2. criminal violations already in courts

3. delinquents with duly approved schedule of installment payments

4. FDDA has been issued which TP agreed

5. Final and executory cases after court judgement where compromise is requested on the ground of doubtful validity

6. estate tax cases as to financial incapacity

7. WHT cases

When is compromise made?

Criminal cases

prior to institution

Civil cases

at any stage

Refusal to follow compromise

1. Enforce the compromise

Prescriptive Period: 10 yrs

2. Rescind the compromise

Abatement

Abatement

cancellation of entire tax liability

Grounds for Abatement

1. unjustly assessed

2. payment at wrong venue

3. failure to file and pay return on time due to adverse circumstances

a. force majeure

b. substantial losses from prolonged labor dispute

c. legitimate business reverses

4. circumstances beyond control

5. difficult interpretation of law

6. mistake in payment due to erroneous written official advice

V. Additions to Tax

1. Surcharge

reimbursement to government

Kinds:

1. Failure to file any return and pay the tax due

2. Wrong venue of filing

DELETED per EOPTA

3. Failure to pay deficiency tax within prescribed period

4. Failure to pay tax shown on any return

1. Willful neglect

2. False or fraudulent return made

Problem:

2. Interest

DOUBLE the legal interest rate

@ 6%

x2 = 12%

Kinds:

1. Deficiency Interest

kulang

from: date prescribed to pay

Deadlines:

Estate Tax = 1 yr

Donor's Tax = 30 days

VAT = 30 days following the close of the quarter

OPT = 30 days following the close of the quarter

Income Tax =

Individual

Quarterly

= (MAN) May, August, November 15

Annual

= April15

Corporations

Quarterly

60 days

Annual

CGT = 30 days

FWT = 30 days following the close of the quarter

DST = 5th day

until: EARLIER

a. full payment

b. issuance of Notice and Demand by CIR

Problem

2. Delinquency Interest

late

Failure to pay:

1. Amount of tax due

2. Deficiency Tax

DEFICIENCY AND DELINQUENCY INTEREST SHOULD NOT BE IMPOSED SIMULTANEOUSLY

Can interest earn interest?

YES.

Problem

3. Interest on Extended Payment

3. Compromise Penalties

VI. Refund

Is the government liable for interest?

GR: NO.

No interest on refund of tax

XPN:

1. authorized by law

2. arbitrariness in tax collection

Modes:

1. Tax Refund

Actual reimbursement of tax

2. Tax Credit

Government issues Tax Credit Certificate (TCC)

Kinds:

1. Sec. 229 - Refund of taxes erroneously or illegally collected

Requisites:

1. Grounds

a. erroneously or illegally assessed or collected

b. penalty is imposed without authority

c. sum collected is excessive

2. Written claim for refund

3. Period

Old:

Filed within 2yrs from payment

EOPTA:

CIR shall process and decide refund within 180 days from date of submission of complete documents

Denial/Failure to act

appeal the decision with the CTA within 30 days after 180-day period

4. Proof of Payment

On WT tax:

proof of withholding

proof of remittance

5. Filed by property party

exclusive to TP

Illustrations:

VAT

Seller

WHT

Either

2. Sec. 112A - Refund of Input VAT attributable to zero-rated sale

Who?

VAT-registered

sales are

zero-rated

effectively zero-rated

When?

Within 2 years after close of taxable quarter when sales were made.

Amount?

input tax applied against input tax

only those input taxes that is attributable to the zero-rated sale

ratable portion allocable to zero-rated sales is immediately refundable

3. Sec. 112B - Refund of Input VAT on cancellation of registration

Who?

When?

Within 2 years from date of cancellation

Period to decide:

CIR should decide within 90 days from actual date of filing

Denial

must be in writing

Appeal to CTA:

within 30 days

palaging 30 days pag aakyat ng CTA

4. Section 76 - Refund of Excess income tax on dissolution

Quarterly tax payments > Total tax due for the year

Corporation shall:

1. Carry-over the excess credit

irrevocable

EOPTA: can be refunded within 2 years from dissolution or cessation of business

2. Be credited (TCC)

3. Refunded

Burden of proof:

TP

Forfeiture of Refund or Credit

1. Tax Refund

unclaimed within 5 years from date of mailing/delivery

2. Tax Credit

TCC unutilized after 5 years from date of issue

VII. Judicial Remedies

Hierarchy of Courts

1 Presiding Justice + 8 Associate Justices

3 Divisions

Jurisdiction of the CTA

1. Exclusive appellate jurisdiction

a. decisions of the CIR

b. inaction by the CIR

c. local tax cases

d. decisions of the CBAA

e. decisions of the Commissioner of Customs

f. decisions of SoF on Customs Cases

g. Sec. of DTI and Sec. of Agriculture

on dumping and countervailing duties

h. criminal offenses from RTC

2. Exclusive original jurisdiction

a. (CC > 1M) all criminal offenses from violations of the

NIRC

CMTA

laws administered by BIR/BOC

b. (CC > 1M) final and executory assessments

Period of Appeal

within 30 days

from:

1. Receipt of decision ruling

2. Expiration of period fixed by law for action

Mode of Appeal

filing petition for review

Who hears the appeal?

GR: Division of CTA (first-time)

2 members necessary for rendition of a decision or resolution in the Division Level

Disagreement to the decision

Motion for reconsideration (15 days)

XPN: decisions fro CBAA and RTC (appellate jurisdiction)

Composition

1 Chief Justice + 14 Associate Justicces

3 Divisions with 5 Justices each

Effect of Appeal to Collection

When collection may jeopardize Govt's or TP's interest,

court may suspend collection

at any stage

Court may require TP

1. deposit the amount claimed

2. file a surety bond for not more than 2x amount with the Court

Are BIR Rulings Retroactive?

No.

Only Court Rulings are retroactive.

Court's Construction

In case of doubt

TAX STATUTES (burden)

against: Government

in favor of: TP

REFUNDS

against: TP

in favor of: Government

Tax Remedies under the LGC

Protest on Local Taxes

RPT:

Bayad muna bago protest

Refund on Local Taxes

1. Written

2. Filed with the court of competent jurisdiction within 2 years

Rules on Distraint and Levy

Warrant of Distraint and Levy

Who is authorized to issue WDL?

more than Php 1M

CIR or DAR

less than Php 1M

RDO

Further Distraint and Levy

fully exhausted until tax is fully paid