Letter of Authority (LOA): A Must-have for Tax Assessments in the Philippines

By: Ivan Marx Olarte, CPA

On September 5, 2018, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) No. 75-2018, which highlights the mandatory requirement of a Letter of Authority (LOA) during tax assessments. This RMC specifically refers to a Supreme Court ruling from the case of “Medicard Philippines, Inc. vs. the Commissioner of Internal Revenue.”

On the aforementioned case, the BIR issued Preliminary Assessment Notice (PAN) and later, a Formal Assessment Notice (FAN) to Medicard for deficiency VAT. However, a Letter of Notice (LN) is issued instead of an  LOA.

In the Supreme Court ruling, it has clearly differentiated the LN from an LOA. Specifically, the Court pointed out the three major differences between the two:

1. An LOA is specifically required under the National Internal Revenue Code (NIRC) prior to an examination of a taxpayer. An LN is a mere notification to the taxpayer that there is a discrepancy in the BIR’s RELIEF System.
2. An LOA only has a validity of thirty (30) days from the date of issue. An LN has no such limitation.
3. An LOA provides the revenue officer ten (10) days from receipt of LOA to conduct his examination of the taxpayer. An LN has no such limitation.

The Supreme Court further reiterated that the circumstances described in the Section 6 of NIRC of the Philippines are simply methods of examining the taxpayers to arrive at the correct tax due. Unless made by the Commissioner himself or any of his duly authorized representatives, examinations cannot be done without authority from an LOA. Hence, the Court ruled in favor of Medicard and declared the assessment unauthorized due to lack of LOA.

The RMC further provides that any revenue officers initiating tax assessments or performing any assessment functions in the Philippines without any valid LOA shall be subject to appropriate administrative sanctions. This is to help prevent unwanted controversies and encourage observance of judicial pronouncements.

In general, all Philippine taxpayers are possible candidates for a tax assessment. However, we should not always accept such assessments on its face. We must always ascertain that the person is duly authorized to conduct an assessment through presentation of an LOA. This RMC is but a mere reinforcement reminding us that tax assessments must follow the due process as set by our Constitution.

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances.