RR 21-20: Voluntary Assessment and Payment Program (VAPP)

By: Hergie Ann De Guzman, CPA

The Bureau of Internal Revenue (BIR) issued Revenue Regulations (RR) No. 21-2020 on September 4, 2020 to prescribe the guidelines on the implementation of the Voluntary Assessment and Payment Program (VAPP).

What is VAPP?

VAPP is one of the programs implemented by the BIR to provide funding for the needs of the Government during the current COVID-19 Pandemic. With the name itself, it is a scheme where taxpayers are encouraged to voluntarily pay taxes. The program is crafted to benefit both the taxpayers and the BIR. Taxpayers who will avail of the VAPP will be given the privilege of “no audit” for the year whereas the BIR will significantly reduce its administrative costs due to decrease in audit.

BIR is expecting for a successful implementation and outcome of this program as it can significantly help our Government cope up with the negative economic effects of the pandemic.

Coverage

1. Covered taxable years

The VAPP applies to all internal revenue taxes covering:

• Taxable calendar year ending 2018; and,
• Fiscal year 2018 ending July 31, 2018 to June 30, 2019.

2. Covered Taxes

Taxes which can be availed with VAPP are Income Tax (IT), Value Added Tax (VAT), Percentage Tax (PT), Excise Tax (ET), Documentary Stamp Tax (DST), Final Taxes (FT) and One-time Transactions (ONETT) taxes (donor’s tax, estate tax, capital gains tax, and documentary stamp tax).

3. Who may avail?

Any natural or juridical person liable to pay for internal revenue taxes for the mentioned period, who unintentionally or erroneously paid the internal revenue tax liabilities or failed to file and pay tax returns.

4. Exceptions

The following taxpayers cannot avail the VAPP:

1. Taxpayers already issued with Final Assessment Notice (FAN) that have been final and executory on or before the effectivity of the RR;
2. Persons under investigation as a result of verified information filed by a tax informer with respect to deficiency taxes;
3. Taxpayers with cases involving tax fraud; and,
4. Taxpayer with pending tax evasion cases and other criminal offenses in the Tax Code.

Requirements for VAPP Application

The following documents are required to be submitted to signify taxpayer’s intention to apply:

1. Duly accomplished Application Form (BIR Form No. 2119);
2. Payment Form or BIR Form No. 0622, with proof of payment;
3. Filed tax returns, proof of payment of taxes paid in 2017 and 2018 and Audited Financial Statements of the covered taxable year (for VAPP for IT, VAT, PT, ET and DST);
4. Copies of remittance returns and proof of payment of final and creditable withholding taxes (for VAPP for Final Withholding Taxes on Compensation, Fringe Benefits, etc. and Creditable Withholding Taxes-non-ONETT);
5. Copy of duly paid BIR Form 0605 and proof of payment for settlement of previous deficiency tax, with or without an assessment notice, if any; and,
6. Duly accomplished ONETT tax returns and corresponding documentary requirements for the said transaction

When and where to file?

Applications for VAPP are until December 31, 2020.

The documentary requirements stated above should be filed personally or through courier service with the Large Taxpayers (LT) Office or Revenue District Office (RDO) having jurisdiction over the taxpayer. 

Instance of separate applications

There should be separate applications to be made for the following cases:

• Taxpayer is registered in an RDO different from the RDO having jurisdiction over the place where the decedent is domiciled at the time of death, for estate tax;
• Taxpayer is registered in an RDO different from the RDO having jurisdiction over the place where the donor is domiciled at the time of donation, for donor’s tax;
• Taxpayer is registered in an RDO different from the RDO having jurisdiction over the place where the property is located, for taxes involving real properties;

The Process

The BIR has thirty (30) days from date of receipt of requirements to complete the evaluation and review of the Application. The Revenue Officer shall endorse the same to the Assistant Chief of LT Office or to the Assistant Revenue District Officer for review. The Chief LT Officer and Chief Revenue District Officer shall be the approving official by signing the BIR Form No. 2119.

If there are deficiencies in the Application, BIR shall notify the taxpayer through the email address indicated on BIR Form No. 2119 to correct any errors/comply/pay the deficiencies within ten (10) working days from receipt of the email notification. Failure to comply within the 10-day period shall result in denial of the application.

Once approved, the taxpayer shall be issued a Certificate of Availment within 3 working days from date of approval. This Certificate will be the proof of entitlement of the privilege under this RR.

Privilege

The taxpayer with issued Certificate of Availment shall not be audited for 2018 for the tax types covered by the availment. Upon VAPP application, all on-going BIR audit to the taxpayer shall be temporarily suspended and shall resume once the availment is rendered invalid. If valid, the issued Letter of Authority (LOA), Tax Verification Notice (TVN), Discrepancy Notice, etc. shall be withdrawn and cancelled.

How much to pay?

Taxes to be paid depends on the type of tax to be applied. Below is a schedule on the proper determination of taxes to be paid under VAPP:

• IT, VAT, PT, ET, and DST (non-ONETT)

Minimum Amount

• Final Withholding Taxes on Compensation, Fringe Benefits, etc. and Creditable Withholding Taxes (non-ONETT) 

5% of the total basic withholding tax remittance 

Note: VAPP application shall constitute a waiver of  claims for tax credit/refund unless taxpayer excludes in its availment the specific tax type for which it is intending to file a claim for tax credit/refund.

• ONETT Taxes (Estate Tax, Donor’s Tax, CGT, CWT/Expanded Withholding Tax, and DST)

Basic tax due of the unfiled tax return or unpaid tax due plus 5%.

Seemingly, the BIR’s offer of “no tax audit” is enticing to the taxpayers since it can save up time, efforts, and stress in dealing with BIR audits. Taxpayers could focus more on the business operation. However, taxpayers should weigh the cost and benefit of taking the VAPP option. 

Effectivity

The RR shall take effect 15 days following its publication in any newspaper of general information.

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.

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By: Tax and Accounting Center Philippines

If you are issued a deficiency tax assessment by the BIR, you do not lose hope for their could still be some remedies. Under Section 204 of the Tax Code, the Commissioner of Internal Revenue (CIR) is authorized to compromise taxes in the Philippines or to allow payment of taxes at minimal amounts in certain instances. Revenue Regulations No. 30-2002 dated December 16, 2002 (RR 30-2002) has been issued to supersede the provisions of Revenue Regulations Nos. 6-20001 and 7-2001. RR 30-2002 has been further amended by the following:

• Revenue Regulations No. 8-2004 dated May 19, 2004, and
• Revenue Regulations 9-2013 dated May 10, 2013.

Instances of compromise

RR No. 30-2002, as amended, provided for specific instances where tax liability in the Philippines could be compromised based on certain conditions and requirements, to wit:

1. Delinquent accounts;
2. Cases under administrative protest after issuance of the Final Assessment Notice to the taxpayer  which are still pending in the Regional Offices, Revenue District Offices, Legal Service, Large Taxpayer Service (LTS), Collection Service, Enforcement Service and other offices in the National Office;
3. Civil tax cases being disputed before the courts;
4. Collection cases filed in courts;
5. Criminal violations, other than those already filed in court or those involving criminal tax fraud.

Further, the following instances could not be compromised under RR No. 30-2002, to wit:

1. Withholding tax cases, unless the applicant-taxpayer invokes provisions of law that cast doubt on the taxpayer’s obligation to withhold;
2.  confirmed as such by the Commissioner of Internal Revenue or his duly authorized representative;
3. Criminal violations already filed in court;
4. Delinquent accounts with duly approved schedule of installment payments;
5. Cases where final reports of re-investigation or reconsideration have been issued resulting to reduction in the original assessment and the taxpayer is agreeable to such decision by signing the required agreement form for the purpose. On the other hand, other protested cases shall be handled by the Regional Evaluation Board (REB) or the National Evaluation Board (NEB) on a case to case basis;
6. Cases which become final and executory after final judgment of a court, where compromise is requested on the ground of doubtful validity of the assessment; and
7. Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer.

Basis of compromise of tax liability in Philippines

For the above instances where RR 30-2002 allows a compromise of tax liabilities in the Philippines, if further provides the basis upon which the same could compromise as follows:

1. Compromise based on doubtful validity of delinquent or disputed assessment

Doubtful validity or when reasonable doubt as to the validity of the assessment against the taxpayer exists requiring a compromise payment of at least 40% of basic tax assessed may be allowed under the following:.

• The delinquent account or disputed assessment is one resulting from a jeopardy assessment (“jeopardy assessment” shall refer to a tax assessment which was assessed without the benefit of complete or partial audit by an authorized revenue officer, who has reason to believe that the assessment and collection of a deficiency tax will be jeopardized by delay because of the taxpayer’s failure to comply with the audit and investigation requirements to present his books of accounts and/or pertinent records, or to substantiate all or any of the deductions, exemptions, or credits claimed in his return); or
•  The assessment seems to be arbitrary in nature, appearing to be based on presumptions and there is reason to believe that it is lacking in legal and/or factual basis; or
• The taxpayer failed to file an administrative protest on account of the alleged failure to receive notice of assessment and there is reason to believe that the assessment is lacking in legal and/or factual basis; or
• The taxpayer failed to file a request for reinvestigation/ reconsideration within 30 days from receipt of final assessment notice and there is reason to believe that the assessment is lacking in legal and/or factual basis; or
• The taxpayer failed to elevate to the Court of Tax Appeals (CTA) an adverse decision of the Commissioner, or his authorized representative, in some cases, within 30 days from receipt thereof and there is reason to believe that the assessment is lacking in legal and/or factual basis; or
• Assessments made based on the “Best Evidence Obtainable Rule” and there is reason to believe that the same can be disputed by sufficient and competent evidence;
• The assessment was issued within the prescriptive period for assessment as extended by the taxpayer’s execution of Waiver of the Statute of Limitations the validity or authenticity of which is being questioned or at issue and there is strong reason to believe and evidence to prove that it is not authentic ; or
• The assessment is based on an issue where the court of competent jurisdiction made an adverse decision against the Bureau, but which the Supreme Court has not decided upon finality.

 2. Compromise based on financial incapacity

Financial incapacity or when the financial position of the taxpayer demonstrates a clear inability to pay the assessed tax requiring a compromise payment of at least 10% of basic tax assessed.

• The corporation ceased operation or is already dissolved or
• The taxpayer, as reflected in its latest Balance Sheet supposed to be filed with the Bureau of Internal Revenue, is suffering from surplus or earnings deficit resulting to impairment in the original capital by at least 50%; or
• The taxpayer is suffering from a net worth deficit (total liabilities exceed total assets) computed by deducting total liabilities (net of deferred credits and amounts payable to stockholders/owners reflected as liabilities, except business related transactions) from total assets (net of prepaid expenses, deferred charges, pre-operating expenses, as well as appraisal increases in fixed assets), taken from the latest audited financial statements; or
• The taxpayer is a compensation income earner with no other source of income and the family’s gross monthly compensation income does not exceed the levels of compensation income, and it appears that the taxpayer possesses no other leviable or distrainable assets, other than his family home; or
• The taxpayer has been declared by any competent tribunal/authority/body/government agency as bankrupt or insolvent.

No offer of compromise shall be entertained unless and until the taxpayer waives in writing his privilege of the secrecy of bank deposits under Republic Act No. 1405 or under other general or special laws, and such waiver shall constitute as the authority of the Commissioner to inquire into the bank deposits of the taxpayer. 

BIR approval on compromise of tax liabilities

Compromise of tax liabilities is discretionary upon the BIR and approval is based on existing facts and circumstances. A formal application is necessary and the BIR would require supporting documentation it would deem necessary to establish the basis of the compromise – doubtful validity or financial incapacity.

Under Section 204 of the Tax Code, as amended, where the basic tax involved exceeds One million pesos (P1,000,000) or where the settlement offered is less than the prescribed minimum rates – 40% on doubtful validity and 10% for financial incapacity, the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners.

Mandatory payment on compromise application

Finally, under Revenue Regulations No. 9-2013 dated May 10, 2013 an application for compromise mandates payment of the minimum amount as a pre-requisite of compromise settlement. This is a new regulation and prior to this rule, payment was required during or upon approval of the application. In case your application is disapproved, the amount paid shall be deducted from your tax liability.

References:

• Revenue Regulations No. 9-2013 – Payment of compromise amount before application
• Revenue Regulations No. 8-2004 – Tax cases with no finality of SC decision not subject to compromise
• Revenue Regulations No. 30-2002 – General rules on compromise

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. 

By: Tax and Accounting Center Philippines

For quite some time, tax evaders had happily succeeded with their utmost objective to pay least taxes (or none at all) by all means and in varied faces of tax evasion. Name it, they came in various ways such as the following:

• arbitrary non-reporting of income,
• over-declaration of expenses,
• fictitious expenses,
• claiming personal expenses as business expense
• borrowing of invoices and receipts,
• non-filing of returns, and more.

Philippine tax system is on a pay-as-you-file system under voluntary compliance where taxpayers learn for themselves how, what and when to pay taxes. Unfortunately, tax evaders look at it as PAY-AS-YOU-LIKE. Philippines tax system employs a check-and-balance mechanism over the voluntary compliance through the exercise of the power to conduct tax examination of tax returns within certain period (say, 3 years or 10 years), but with the large number of taxpayers, some tax evaders get lucky in not being examined. But the game is not yet over, and their time is soon to come!

Bureau of Internal Revenue (BIR) is doing its best in improving the system that would enforce the tax laws, rules and regulations, and eventually hit hard tax evaders. Here are some of the programs and tactics that are geared towards strict tax compliance in the Philippines, discovering lapses, and track down tax evaders:

Run after tax evaders (RATE) in the Philippines

This is a joint program of the BIR and Department of Justice (DOJ) to investigate, prosecute and convict tax evaders for their criminal and other violations of the Tax Code that the BIR would deemed necessary (e.g. failure to file returns, failure to pay taxes, deliberate under-declaration of income or over-declaration of expense by more than 30%, non-remittance of withholding taxes, keeping more than one books of accounts, making false entries on book, and more). Under this, taxpayers alleged for tax invasion from routine audit examination of returns, confidential information, third-party information, and other sources shall be subjected to a preliminary investigation with the DOJ for determination of a probable cause. BIR on the DOJ resolution of probable cause, the tax evader will then be criminally charged before the regular courts. Finding the tax evader guilty may put them behind bars. As of this writing, the Philippine tax authorities had already filed more than hundreds of tax evasion cases and counting.

Oplan Kandado Program in the Philippines

This program started last January 2009 under Revenue Memorandum Order No. 3-2009 intended to punish erring taxpayers by temporarily shutting down business operations of taxpayers based on specific grounds such as the following:

• failure to issue VAT receipt/invoice,
• failure to file VAT return,
• understatement of VATable sales by 30% or more, or
• failure to register

A closure order shall be issued by the BIR and will be lifted only upon compliance as prescribed in the order (e.g. filing and payment of amended VAT return, registration and payment of compromise penalties, and payment of deficiency taxes with penalties).

Tax Compliance Verification Drive in Philippines

This is commonly known to many as “tax mapping” where BIR officers in the Philippines visits business establishments of taxpayers to verify compliance of taxpayers with registration, invoicing, and bookkeeping requirements under existing tax laws, rules, and regulations.  This is not in itself a detailed examination but a simple verification of minor tax compliance with administrative regulations. Each violation carries an amount of penalty and violators may end up paying a lot based on the number of violations. Failure to comply may force the Philippine tax authority to use courts to impose civil and/or criminal liabilities of taxpayers.

 Benchmarking in the Philippines

Benchmarking was implemented through Revenue Memorandum Order No. 4-2006. Under this, the BIR develops industry benchmarks based on the relationships of tax payments and gross sales declared on tax returns using its internal database for the purpose. This industry benchmarks shall be used as reference in determining the extent of compliance of specific industry members and taxpayers within the industry are ranked as follows:

• Low risk
• Medium risk
• High risk

Taxpayer-members of the industry with compliance percentage far from the industry percentage or high-risk will be required to explain its side through a formal letter the BIR will send them. Based on the evaluation of taxpayer’s explanation and other circumstance, Philippine tax authority may conduct tax assessment in the Philippines to further verify the details of its tax compliance. Notably, benchmarking in the Philippines is not in itself a tax audit in the Philippines but only a means that may lead to tax assessment in the Philippines.

Taxpayers Reconciliation System (TRS) in Philippines

Another way for the BIR to get caught tax evaders is through the use of tax returns , reports and attachments filed with them, and third-party information such as importation details from the Bureau of Customs (BoC). Here are some samples on how tax reconciliation in the Philippines works:

Monthly Alphalist of Payees (MAP) attached to the monthly expanded withholding tax return or BIR Form No. 1601-E which identifies taxpayers paid and withheld by the filer where failure of the payee to declare the income in his income tax return may put him in trouble for under-declaration of income.

Another is the reciprocal report on VAT under Revenue Regulations No. 16-2005, as amended, the summary list of sales for VAT seller and the summary list of purchases/summary list of importation of VAT buyer where failure of one to declare would trouble him because the BIR will use the summary provided by the other party. In importations, unrecorded or under-declared importation value for BoC purpose that does not tie-up with summary list of importations may trigger BIR tax examination for alleged under-declaration.

Transfer pricing in the Philippines

Under Revenue Regulations No. 2-2013 prescribing guidelines for transfer pricing, associated companies must transfer goods or services by and between among them at arm’s length transactions so that it will reveal the true amount of taxable income.  Material deviation from the arm’s length nature may entail tax examination. This would cover taxpayers who would mobilize goods or services from among its group of related companies to minimize the impact of taxation on the inter-company sales of good or services.

Summary

There are a lot more ways how BIR could get caught tax evaders in the Philippines and perhaps only time will tell and BIR will have them all, if not most. We commend BIR for its efforts in improving the tax system towards tax compliance and we would expect more improvements on the system and as such, strict tax compliance is much of an urgent need for taxpayers in the Philippines. Tax savings is a best set objective but achieving the same must be put in proper perspective and in accord with tax laws, rules and regulations in the Philippines. Tax compliance may prove to be a good tool towards tax savings because payments for unnecessary penalties will just be a waste of your hard earned business income. Taxpayers are advised to learn what, how, and when to comply.

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. For comments, you may please send mail at in**@************er.org, or you may post a question at Tax and Accounting Center Forum and participate therein.

By: Atty. Pearl Fatima L. Evardone

Philippines tax system is anchored on voluntary compliance under pay-as-you file as it is the taxpayer who is responsible for its tax compliance determining which tax should be paid, how to comply with various reports, and when to pay the same. It has a check and balance mechanism where the tax authority (Bureau of Internal Revenue or BIR) has the right to conduct tax assessment or examination within three (3) years from required filing or from late filing (or 10 years, for false or fraudulent returns with intent to evade taxes or if no tax return filed) to determine the extent of compliance of taxpayers. Under this, the BIR is clothed with such power to require taxpayers to submit to its authority for the purpose of determining such tax compliance and do such acts for collection of taxes due from taxpayers. Hereunder is an overview of how tax assessment in the Philippines or BIR tax audit operates in the Philippines constituting how due process is served upon taxpayers involved in BIR tax investigation in accordance with Revenue Regulations No. 12-1999, as amended.

Letter of Authority (LOA)

Under the Tax Code of the Philippines, a Letter of Authority (LOA) is issued to authorize specific Revenue Officer/s (RO) of a Tax Assessment Group headed by a Group Supervisor (GS) to conduct the tax examination. LOA with attached Checklist of Documentary Requirements will be served within thirty (30) days from date and carries a request for documentation. LOA will specify which tax types will be examined like all internal revenue taxes, income and value added tax, or withholding taxes. It will likewise state the taxable year to be examined and it will only cover for one taxable year. Without a LOA in Philippines, a BIR personnel cannot conduct a valid tax examination or audit of taxpayers books of accounts and other accounting records in Philippines.

Documentation and Sub Poena Duces Tecum

After the service of LOA, BIR RO will proceed with the requested documents enumerated in the attached Checklist of Requirements to the LOA. Such documents, tax returns, reports and accounting records will be used as the basis of their tax examination. You are ought to present such documents for the RO to come-up with its findings. A First Notice will be sent to remind you of such submissions and upon failure, a Second and Final Notice will be sent with threat of legal action for further failure to provide. Should you still fail, BIR may issue a Sub Poena Duces Tecum to mandatorily require you to submit specific documents and papers, within a specified time (normally 14 days from receipt) and place.

Failure to obey said Sub Poena is a ground for criminal prosecution for Disobeying Summons under the Tax Code, as amended, though an action with the Prosecutors Office. Once the Prosecutor or Fiscal determines a probable cause, it may recommend filing an action with the Criminal Court for your prosecution. During such process, the assessment process will have to proceed, otherwise, BIR’s right to assess will prescribe.

Notice of Discrepancy (formerly Notice for Informal Conference)

Upon the documents made available bu the taxpayer along with other information that the RO may have gathered from the BIR system and the third parties, if any, the RO and the GS will then submit their preliminary findings with the Revenue District Officer (RDO), head of the Revenue District Office for approval. Upon approval, a Notice of Discrepancy under Revenue Regulations No. 20-2020, amending Revenue Regulations No. 12-1999, as amended, (formerly Notice For Informal Conference under Revenue Regulations No. 7-2018 ) will be issued with the proposed assessment and an opportunity to explain its side along with presentation of documents to support them. You may either attend the discussion of discrepancy with BIR or submit a Position Paper within the same period with your disagreements based on facts and the applicable laws, rules and regulations. You may submit supporting documents to substantiate your claim. Alternatively, you may pay the proposed assessment. Should you feel the need for more time, you may execute and submit BIR a Waiver from the Defense of Prescription (Waiver) that will extend the three (3) year period of the BIR to assess. This will have to be approved by the BIR and a copy duly signed and notarized will be furnished to you.

In reply, RDO may revise the proposed assessment or may simply forward to the Assessment Division of the Revenue Region (RR), a higher office than the district office of the RDO.

Preliminary Assessment Notice

Based on the docket of the assessment forwarded from the RDO, the Assessment Division of the RR will study the same to determine the need for furtherance of the assessment. Once convinced, then, it will issue a Preliminary Assessment Notice (PAN) with the proposed assessment, unless PAN is no longer necessary. Normally, PAN issued contains material items of the preliminary findings or notice for informal conference.

You may file Protest letter to PAN within fifteen (15) days from receipt thereof with your arguments and discussions of your disagreements based on the facts of your circumstances and the applicable laws, rules, and regulations. Supporting documents may also be submitted along with the Protest or shortly thereafter to substantiate your claims. Alternatively, you may pay the assessment if you feel the need, or you simply disregard if you do not have the feel to act on it.

Formal Assessment Notice – Formal Letter of Demand

After going through your Protest to PAN, BIR will evaluate and if the same finds no basis to cancel the assessment, it will issue an Assessment Notice or Formal Assessment Notice with Formal Letter of Demand (AN-FLD). This AN-FLD must be issued within the three-year (3-year) period from date a tax return is required by law to be filed or from date of late filing. For fraudulent assessment or when no return is filed, the same shall be issued withing ten (10) years from discovery. For failure to issue the AN-FLD within the 3-year or 10-year period, the BIR’s right to assess will prescribe or terminate releasing the taxpayer of its potential tax liabilities for such taxable year.

If you disagree with the tax assessment under the AN-FLD, you must file a Protest, either for reconsideration or for re-investigation within thirty (30) days from receipt thereof. For protest for reinvestigation, you must also submit supporting documents within sixty (60) days from filing the protest. Failure to file a Protest within 30 days or submit documents within 60 days will make the assessment final and executory losing your every right to contest the assessment and ending up with no other option but to pay. If you admit tax liability or if you missed protesting an issue on the AN-FLD, the same will be deemed an implied admission and BIR will proceed to collect tax thereon.

BIR Final Resolution

Based on your Protest, BIR may either grant or deny through a formal communication, say a Final Decision on Disputed Assessment (FDDA). It may even just simply proceed to collection proceedings, without any forma reply to your Protest to AN-FLD. In such case, it may issue a Preliminary Collection Letter (PCL). In either case, this would mean you lost your case with the BIR administrative level, but, does not mean the game is over.

In case the above final decision of the BIR is signed or issued by the Commissioner’s authorized representative like Regional Director, you can opt to file an administrative appeal with the Office of the Commissioner for reconsideration of matters taken up on such final decision.  The Commissioner will normally revert back the case to the BIR Region of origin then to the BIR District Office until final decision of the BIR Commissioner. In case of denial by the Commissioner, you do not need to file a motion for reconsideration (MR) with the Office of the Commissioner and the recourse is an appeal to Court of Tax Appeals, otherwise, it becomes final, executory and demandable.

Court of Tax Appeals (CTA)

Within thirty (30) days from receipt of the final resolution of the BIR (FDDA or PCL), you must file an appeal through a Petition for Review with the Court of Tax Appeals – Division. In case BIR failed to act within 180 days from filing protest for reconsideration or from submission of relevant supporting documents within 60 days from filing protest for reinvestigation, you can opt to file an appeal with the CTA as well, within 30 days from lapse of such 180-day period. At CTA, you will need a counsel of your choice, pay the filing fees based on the amount of disputed assessment. If the case is much of factual issues, the CTA may opt to appoint an Independent Certified public Accountant (ICPA) as an officer of the court for the factual verification and evaluation. The case may drag for some time.

Should you lose on the CTA-Div, you may file a Motion for Reconsideration (MR) with the Court of Tax Appeals – En Banc within fifteen (15) days from receipt thereof. Should you further lose with the CTA-En Banc, do not loss hope as the game is far from being over.

Supreme Court (SC)

Within thirty (30) days from receipt of the final resolution of the CTA-En Banc, you must file an appeal through a Petition for Review with the Supreme Court – Division. You will also need a tax lawyer during the proceedings with the Supreme  Court. Should you lose your case with the SC-Division, then, you could also file an MR with the Supreme Court – En Banc within fifteen (15) days from receipt of such decision of the SC Division.

Finality and Settlement

Upon finality of the decision of the SC-En Banc or upon such other instances where the tax assessment will become final and executory (e.g. failure to file a Protest to AN-FLD, failure to submit documents within 60-days after Protest An-FLD) you may have no other option to pay in full the entire assessment, inclusive of interest and penalties. If you are financially incapable of paying in full and your financials would clearly demonstrate, then, you may apply for a compromise settlement based on financial incapacity where you will pay only 10% of the basic tax due upon BIR approval.

During any stage of the proceedings, you may opt to pay or settle the assessment. Another are of compromise that you may explore is one based on doubtful validity where you will be required to pay 40% of the basic tax due upon BIR approval.

 Summary

In sum, the tax assessment process of the BIR is not something you should be afraid of. You just need a good working knowledge in dealing with them and in protecting your rights as a taxpayer. You can always have a helpline and in case you need a hand, a number of tax practitioners are within your reach. Its bottom line is tax compliance so that if your books of accounts are in order and all taxes were fully accounted for, then, the entire process may just be a formality. The best preparation for the assessment is during the maintenance of the books of accounts and filing and payment of tax returns. You may hire bookkeepers with better exposure to tax compliance that will assist you all the way in avoiding penalties. We go with the notion that in tax examinations, prevention is better than cure.

(Atty. Pearl Fatima L. Evardone is a Legal Consultant and Resource Speaker with Tax and Accounting Center, Inc. on technical areas and special topics.  She is a young and energetic lawyer actively engaged in the practice of law with various fields (e.g. taxation, corporate, civil, criminal, immigration, and other areas) in the Philippines. She is now connected with Trinidad Law Firm as Litigation Lawyer, Office of Congressman Ben P. Evardone as consultant, and with UNESCO as Youth Ambassador for Peace.  For comments, you may please send mail at in**@************er.ph.

• 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. For comments, you may also please send mail at info(@)taxacctgcenter.ph, or you may post a question at Tax and Accounting Center Forum and participate therein.See our quality seminars, workshops, and trainings…See how we can help you with our other professional services : company registrations; Ph Working Visa; and HR Services

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