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and the facts on which the assessment is made;
ü otherwise, the assessment shall be void.
(Sec. 228, NIRC)
If the taxpayer disagrees with the findings in the PAN, he has fifteen (15) days from his receipt of the PAN to file a written reply contesting the proposed assessment.
PAN no longer required when :
(a) The finding for any deficiency tax is the result of MATHEMATICAL ERROR in the computation of the tax as appearing on the face of the return; or
(b) A DISCREPANCY has been determined between the TAX WITHHELD and the amount ACTUALLY REMITTED by the withholding agent; or
(c) A taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; OR
(d) The EXCISE TAX due on excisable articles has not been paid; or
(e) An article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to a non-exempt person. (Sec. 228, NIRC)
III. FORMAL ASSESSMENT STAGE
What is a Notice of Assessment (Final Assessment Notice “FAN” or Formal Letter of Demand)?
A declaration of deficiency taxes issued to a taxpayer who fails to respond to a pre-assessment notice within the prescribed period of time, or whose reply to the PAN was found to be without merit. This is commonly known as the Final Assessment Notice (FAN).
An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. The ultimate purpose of assessment is to ascertain the amount that each taxpayer is to pay. An assessment is a notice to the effect that the amount therein stated is due as tax and a demand for payment thereof. (Tupaz v. Ulep, 1999) The formal letter of demand shall be issued by the Commissioner or his duly authorized representative. The letter of demand calling for the payment of the taxpayer’s deficiency taxes shall state the FACTS, the LAW, RULES and REGULATIONS or JURISPRUDENCE on which the assessment is based, OTHERWISE, the formal letter of demand or assessment notice shall be VOID. (RR 12-99)
NOTE:
§ A follow-up letter/demand letter for payment of taxes is considered a notice of assessment. [REPUBLIC vs. CA and NIELSON & CO. (April 30, 1987)]
§ Where the taxpayer is appealing on the ground that the assessment is erroneous, it is incumbent upon him to prove what is the correct and just liability by a full and fair disclosure of all pertinent data. [Bonifacio Sy Po v.
CTA]
Within what time may the
Commissioner issue a notice of assessment?
§ If the taxpayer filed a return→
internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return. If a return is filed beyond the period prescribed by law, the three-year period shall be counted from the day the return was filed. A return filed before the last day prescribed by law for filing shall be considered as filed on the last day.
(Sec. 203, NIRC)
è NOTE: In short, the period for assessment is within three years from the time the return is filed or from the time the return is due, WHICHEVER IS LATER.
§ If the taxpayer DID NOT file a return→ internal revenue taxes shall be assessed within ten years after the discovery of the failure to file the return (Sec. 222a, NIRC)
§ If the taxpayer filed a false or fraudulent return with intent to evade tax→ internal revenue taxes shall be assessed within ten years after the discovery of the falsity or fraud (Sec. 222a, NIRC)
o Fraud or falsity on the return with intent to evade payment of tax is a question of fact and the circumstances constituting fraud must be alleged and proved in the court below. The finding of the trial court as to its existence and non-existence is final and cannot be reviewed by the Supreme Court unless clearly shown to be erroneous. [CIR V. Ayala Securities (1976)]
o Q: Are there tax returns which are false but not fraudulent? àààà YES. There must be a distinction between false returns (due to mistakes, carelessness or ignorance) and fraudulent returns (with intent to evade taxes). The fraud contemplated by law is actual and not constructive, and must amount to intentional wrongdoing with the sole object of avoiding the tax. [Aznar v. CTA (1974)]
• WAIVER: The taxpayer and the Commissioner may agree in writing, before the expiration of the time
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period of assessment (Sec. 222b, NIRC) è The waiver of prescription must be
executed properly per RMO 20-90, otherwise, invalid and results to prescription of the right to assess/collect. [PHIL JOURNALISTS INC. v. CIR (December 16, 2004)]
è Requirements under RMO 20-90:
1. definite agreed date,
2. date of acceptance indicated, and
3. taxpayer must be furnished with a copy of the waiver.
Q: What is the nature of prescription on the right to assess?
The law on prescription, being a remedial measure, should be LIBERALLY CONSTRUED in order to afford protection. As a corollary, the exceptions to the law on prescription should be clearly construed. Hence, negligence or oversight on the part of the BIR cannot prejudice taxpayers, considering that the prescriptive period was precisely intended to give them peace of mind. [CIR v. Goodrich Philippines (1999)]
RMC No. 48-90 Counting of the Prescriptive Periods (April 23, 1990)
The 3-year prescriptive period expires on the 1,095th day, notwithstanding the fact that within the period, there is a leap year which is of 366 days. This principle applies to ALL
prescriptive periods under the Code. (applied in ASIABANK v. CIR, CTA Case No.6095, Oct. 9, 2001)
When is an assessment deemed made?
An assessment is deemed made when the demand letter or notice is RELEASED, MAILED OR SENT by the BIR to the taxpayer. The law does not require that the taxpayer receive the notice within the three-year or ten-year period. [CIR vs.
BAUTISTA (May 27, 1959)]
If the taxpayer does not agree with the assessment, what is his REMEDY?
o To contest an assessment by filing a letter of PROTEST stating in detail his reasons for contesting the assessment.
o When no protest is seasonably made by the taxpayer, the assessment shall become final and unappealable, and thus the tax shall be collectible.
Q: What is the nature of an assessment when it is final and executory?
It is in the nature of an enforcement judgment such that no inquiry can be made thereon on the merits of the original case.
Within what time may the taxpayer protest the assessment?
o Within thirty (30) days by filing a request for reconsideration or reinvestigation from receipt of the assessment.
o Within sixty (60) days from filing of the protest, all relevant supporting documents must be submitted,
otherwise the assessment shall become final. (§228)
What are the characteristics of a valid protest?
A protest is considered validly made if it satisfies the following conditions:
1) it is made in writing, and addressed to the Commissioner of Internal Revenue
2) it contains the information the following information (from RR 12-85):
§ name of the taxpayer and address for the immediate past three taxable years
§ nature of request whether reinvestigation or reconsideration specifying newly-discovered evidence he intends to present if it is a request for reinvestigation
§ the taxable periods covered
§ assessment number
§ date of receipt of assessment notice or letter of demand
§ itemized statement of the findings to which the taxpayer agrees as a basis for computing the tax due, which amount should be paid immediately upon the filing of the protest. For this purpose, the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first
§ the itemized schedule of the adjustments with which the taxpayer does not agree
§ a statement of facts and/or law in support of the protest.
3) It states the FACTS, applicable LAW, RULES and REGULATIONS or JURISPRUDENCE on which his protest is based, otherwise the protest shall be considered void and without force and effect.
4) It is filed within the period prescribed by law
What should the taxpayer do if his protest is denied or is not acted upon by the Commissioner?
§ Situation 1: If the Commissioner DENIES THE PROTEST filed by the taxpayer→ the taxpayer may appeal to the Court of Tax Appeals within thirty days from receipt of the decision denying the protest (Sec. 228, NIRC)
→ Where there is a request for reconsideration, final demand letter from BIR is considered a decision on a disputed or protested assessment which is therefore appealable to the CTA. [CIR v. ISABELA CULTURAL CORP. (July 11, 2001)]
§ Situation 2: If the Commissioner did NOT ACT UPON THE PROTEST within one hundred and eighty days from the time the documents were submitted→ the taxpayer may either:
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from the lapse of the 180-day period OR
o Wait until the Commissioner decides before he elevates the case to the CTA
NOTE: If Situation 1 occurs and the taxpayer does not file a protest within the prescribed period, the assessment becomes FINAL, EXECUTORY and DEMANDABLE. But if the Situation 2 occurs and the taxpayer does not file a protest within the prescribed period, the assessment DOES NOT become FINAL, EXECUTORY and DEMANDABLE. In cases of inaction by the Commissioner, Section 228 of the Tax Code merely gave the taxpayer an OPTION: first, he may appeal to the Court of Tax Appeals within thirty days from the lapse of the 180-day period, or second, he may wait until the Commissioner decides on his protest before he elevates his case. [LASCONA LAND Co vs. CIR (January 4, 2000)]
When does the 30-day period to appeal in Situation 1 commence to run?
The 30-day period starts when the taxpayer receives the decision of the Commissioner denying the protest. The decision of the Commissioner must categorically state that his action on the disputed assessment
is final, otherwise period to appeal will not commence to run. [ADVERTISING ASSOCIATES vs. CA (December 26, 1984)]
NOTE: A Division of the CTA shall hear the appeal. (Sec. 11, RA 1125 as amended by RA 9282 [2004])
If the taxpayer is not satisfied with the CTA Division’s ruling, what is his REMEDY?
§ FIRST, he may file a motion for reconsideration before the same Division of the CTA within fifteen (15) days from notice thereof. (Sec. 11, RA 1125 as amended by RA 9282 [2004])
§ THEN, a party adversely affected by a resolution of a Division of the CTA on a motion for reconsideration may file a petition for review with the CTA en banc. (Sec. 18, RA 1125 as amended by RA 9282 [2004])
If the taxpayer is not satisfied with the decision of the CTA en banc, what is his REMEDY?
A party adversely affected by a decision or ruling of the CTA en banc may file with the Supreme Court a verified petition for review on certiorari pursuant to Rule 45 of the 1997 Rules of Court. (Sec. 19, RA 1125 as amended by RA 9282 [2004]) . EFFECTS OF RA 9282 ON THE CTA’S JURISDICTION:
The CTA shall exercise
A. EXCLUSIVE APPELLATE JURISDICTION to review by appeal:
Decisions of the Commissioner of Internal Revenue
1. disputed assessments,
2. refunds of internal revenue taxes, fees or other charges, 3. penalties in relation thereto, or
4. other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;
Inaction by the Commissioner of Internal Revenue
5. disputed assessments,
6. refunds of internal revenue taxes, fees or other charges, 7. penalties in relations thereto, or
8. other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial;
Decisions, orders or resolutions of the Regional Trial Courts
local tax cases originally decided or resolved by them in the exercise of their
→ original or appellate jurisdiction;
Decisions of the Commissioner of Customs
→ liability for customs duties, fees or other money charges,
→ seizure, detention or release of property affected,
→ fines, forfeitures or other penalties in relation thereto, or
→ other matters arising under the Customs Law or other laws administered by the Bureau of Customs;
Decisions of the Central Board of Assessment Appeals
exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property originally decided by the provincial or city board of assessment appeals;
Decisions of the Secretary of Finance
customs cases elevated to him automatically for review from decisions of the Commissioner of Customs which are adverse to the Government under Section 2315 of the Tariff and Customs Code;
Decisions of the Secretary of
Trade and Industry
(nonagricultural product, commodity or article)
Secretary of Agriculture (agricultural product, commodity or article)
→ involving dumping and countervailing duties under Section 301 and 302, respectively, of the Tariff and Customs Code, and
→ safeguard measures under Republic Act No. 8800, where either party may appeal the decision to impose or not to impose said duties.
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OFFENSES:
1. EXCLUSIVE ORIGINAL JURISDICTION over all criminal offenses arising from violations of the National Internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of million pesos (P1,000,000.00) or where there is no specified amount claimed shall be tried by the regular Courts and the jurisdiction of the CTA shall be appellate.
§ NOTE: Any provision of law or the Rules of Court to the contrary notwithstanding, the criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with, and jointly determined in the same proceeding by the
2. EXCLUSIVE APPELLATE JURISDICTION in criminal offenses:
a) Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax cases originally decided by them, in their respected territorial jurisdiction.
b) Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in their respective jurisdiction.
C. Jurisdiction over TAX COLLECTION CASES:
1. EXCLUSIVE ORIGINAL JURISDICTION in tax collection cases involving final and executory assessments for taxes, fees, charges and penalties.
§ EXCEPTION: Collection cases where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than One million pesos (P1,000,000.00) shall be tried by the proper Municipal Trial Court, Metropolitan Trial Court and Regional Trial Court.
2. EXCLUSIVE APPELLATE
JURISDICTION in tax collection cases:
a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection cases originally decided by them, in their respective territorial jurisdiction.
b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the Exercise of their appellate jurisdiction over tax collection cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts, in their respective jurisdiction.
IV. COLLECTION LETTER/WARRANTS