Philippines: Tax Updates May-June 2022 (SyCipLaw Tax Issues And Practical Solutions (T.I.P.S.) International Edition Vol. 6)

1. Are the Bureau of Internal Revenue's collection efforts deemed initiated at the time of the issuance of the Final Decision on Disputed Assessment?

No. The Bureau of Internal Revenue's (BIR's) collection efforts are initiated by distraint, levy, or court proceeding and not upon issuance of a Final Decision on Disputed Assessment (FDDA). Distraint and levy proceedings are validly commenced by the issuance of a warrant of distraint and levy and service thereof on the taxpayer. On the other hand, a judicial action for the collection of tax is initiated: (a) by the filing of a complaint with the court of competent jurisdiction; or (b) if the assessment is appealed to the Court of Tax Appeals (CTA), by filing an answer to the taxpayer's petition for review wherein payment of the tax is prayed for.

In Commissioner of Internal Revenue v. CTA Second Division and QL Development, Inc. (G.R. No. 258947, March 29, 2022), the Supreme Court rejected the Commissioner of Internal Revenue's (CIR's) argument that the FDDA effectively operated as a collection letter for the satisfaction of deficiency tax liabilities. The Supreme Court reminded that collection efforts are initiated by distraint, levy, or court proceeding. In this case, since no warrant of distraint and/or levy was served on the taxpayer, and no judicial proceedings were initiated by the CIR within the prescriptive period to collect, prescription had already set in. Given that the assessment was issued within the 3-year ordinary prescriptive period to assess, the May - June 2022 1 Court said that the CIR had another 3 years from the issuance of the final assessment to initiate the collection of taxes by distraint or levy or court proceeding. The 5-year period for collection of taxes applies only to assessments issued within the extraordinary period of 10 years in cases of false or fraudulent return or failure to file a return. The Supreme Court ruled that prescription had already set in when the CIR initiated its collection efforts only in 2020.

2. Does failure to indicate the date of acceptance of the BIR in the Waiver of the Defense of Prescription under the Statute of Limitations render the waiver invalid?

Yes, but only under the previous rules issued by the BIR. Failure to indicate the date of acceptance of the BIR in the Waiver of the Defense of Prescription under the Statute of Limitations (Waiver) renders the same invalid. However, in this case, the taxpayer's contributory fault or negligence coupled with estoppel rendered effective the otherwise flawed Waiver, regardless of the physical number of mistakes attributable to each party.

In Republic of the Philippines, represented by the Bureau of Internal Revenue v. First Gas Power Corporation (G.R. No. 214933, February 15, 2022), the Supreme Court ruled that the Waivers were defective because the date of acceptance by the BIR was not indicated therein. Revenue Memorandum Order (RMO) 20-90 and Revenue Delegation of Authority Order (RDAO) 05-01 clearly mandate that the date of acceptance by the BIR should be indicated in the Waiver. The Court rejected the argument that the date of the notarization should be presumed as the date of acceptance. The date of notarization cannot be regarded as the date of acceptance, as the notary public is distinct from the CIR who is authorized by law to accept Waivers.

However, in Asian Transmission Corporation v. Commissioner of Internal Revenue (G.R. No. 230861, February 14, 2022), the Supreme Court ruled that if a Waiver suffers from defects attributable to both parties, the Waiver's validity is not determined by who between the BIR and the taxpayer has committed more mistakes. The taxpayer's contributory fault or negligence coupled with estoppel will render effective an otherwise flawed Waiver, regardless of the physical number of mistakes attributable to either the taxpayer or the BIR. Further, in this case, the taxpayer issued eight successive Waivers over the course of four years. The Waivers had always been marred by defects, and yet, the taxpayer continued to correspond with the tax authorities and allowed them to proceed with their investigation. Thus, the Supreme Court found that the taxpayer was estopped from questioning the validity of the Waivers.

3. Would the failure to indicate a definite due date in the tax assessment render the same invalid?

Yes. A Final Assessment Notice (FAN) that does not contain a definite due date for payment by the taxpayer is invalid.

In Republic of the Philippines, represented by the Bureau of Internal Revenue v. First Gas Power Corporation (G.R. No. 214933. February 15, 2022), the Supreme Court ruled that failure to indicate a definite due date for payment in the FAN and the Formal Letter of Demand (FLD) renders the same invalid. In this case, the last paragraph of each of the assessments stated the following: "In view thereof, you are requested to pay your aforesaid deficiency income tax liability/penalties through the duly authorized agent bank in which you are enrolled within the time shown in the enclosed assessment notice." However, the due date in each of the FAN was left blank. The FAN did not contain a definite due date and actual demand to pay. Thus, the Supreme Court ruled that there was no valid assessment.

4. Can an officer of a corporation be held criminally liable for the corporation's failure to pay taxes solely on the basis of a letter to the BIR signed by such officer expressing the corporation's willingness to enter into a compromise?

No. A letter to the BIR signed by a corporate officer expressing their willingness to enter into a compromise cannot be considered as an implied admission of guilt of the corporate officer, as the National Internal Revenue Code, as amended (Tax Code) expressly allows compromise even for violations of its penal provisions.

In Genoveva S. Suarez v. People of the Philippines and the Bureau of Internal Revenue (G.R. No. 253429, October 6, 2021), the Supreme Court ruled that the petitioner, who was the Executive Vice-President of a corporation assessed for deficiency taxes, cannot be held liable under Section 255 in relation to Sections 253 (d) and 256 of the Tax Code. Section 253 expressly identified the following corporate officers who may be held liable for violations of the Tax Code committed by the corporation: partner, president, general manager, branch manager, treasurer, officer-in-charge, and the employees responsible for the violation. An Executive Vice-President is not one of the corporate officers enumerated under the Tax Code. Further, the petitioner cannot be regarded as an employee responsible for the violation, as there was no evidence presented that the 3 SyCipLaw TIPS (International Edition) | May - June 2022 3 petitioner has actively participated in or has failed to prevent the violation by the corporation. Lastly, the letter to the BIR expressing her willingness to settle the corporation's tax liabilities through compromise cannot be used as an implied admission of guilt pursuant to the provisions of the Rules on Evidence. Offers of compromise for matters that are allowed by law to be compromised cannot be received in evidence as an implied admission of guilt. The Tax Code explicitly states that all criminal violations of the Tax Code may be compromised except: (a) those already filed in court, or (b) those involving fraud. Thus, the Tax Code itself allows compromise even for violations of its penal provisions.

5. Does the Court of Tax Appeals have jurisdiction over a claim for tax refund filed by the Bangko Sentral ng Pilipinas with the BIR?

Yes. In Bangko Sentral ng Pilipinas v. Commissioner of Internal Revenue (CTA EB NO. 2231 [CTA Case No. 9478], April 18, 2022), the CTA En Banc reversed the CTA Second Division's decision and ruled that the CTA has jurisdiction over a claim for tax refund filed by the Bangko Sentral ng Pilipinas (BSP) with the BIR.

In this case, the CTA Second Division previously ruled that the CTA had no jurisdiction over BSP's claim for tax refund with the BIR based on Presidential Decree No. 242 (PD 242), which provides that the Secretary of Justice, the Solicitor General, or the Government Corporate Counsel shall have jurisdiction to administratively settle or adjudicate all disputes and claims solely between government agencies and offices, including government-owned or controlled corporations which are under the executive control and supervision of the President of the Philippines. The CTA Second Division also relied on Power Sector Assets and Liabilities Management Corp. v. CIR (G.R. No. 198146, August 8, 2017) (PSALM Case) in ruling that PD 242 applies and that the CTA does not have jurisdiction over the case.

In reversing the CTA Second Division's ruling, the CTA En Banc ruled that: (a) Republic Act No. 1125, as amended (RA 1125), vests the CTA with jurisdiction to hear all tax-related cases; (b) RA 1125 is the exception to the general law that is PD 242; (c) the CTA has undoubted expertise in tax cases; (d) recent jurisprudence has recognized the CTA's jurisdiction over tax issues involving national government agencies; (e) as an independent body, the BSP is not under the control and supervision of the President of the Philippines; (f) the PSALM Case is not applicable considering that, in the PSALM Case, there was a memorandum of agreement between PSALM, the National Power Corporation (NPC), and the BIR, which obligated NPC and PSALM to pay basic Value-Added Tax (VAT) to the BIR under protest, and all parties to seek resolution of the issue on the deficiency VAT before the appropriate court or body; and (g) the PSALM Case is also not applicable because there was no inaction or decision of the CIR to review in that case as the case was brought before the Department of Justice (DOJ). Thus, the CTA En Banc ruled that "absent any agreement between or among the parties on the voluntary submission of the tax issues to the DOJ, the default provision on CTA's exclusive appellate jurisdiction should prevail."

Here, the CTA En Banc found that the BSP was able to establish its claim for a tax refund based on Section 199(l) of the Tax Code, which provides that contracts, deeds, documents, etc., related to the conduct of business of the BSP, are exempt from documentary stamp tax.

6. Does filing a motion for reconsideration of a final decision on a disputed assessment with an Assistant Commissioner of the BIR toll the 30-day period to appeal to the CTA, or the CIR, to question the assessment?

No. Section 3.1.4 of BIR Revenue Regulation (RR) No. 18-2013 provides that if the taxpayer receives a decision from the CIR's authorized representative, the taxpayer may either appeal to the CTA within 30 days from receipt thereof or elevate the case to the CIR through a request for reconsideration within the same period.

In Alphaland Southgate Tower, Inc. v. CIR (CTA EB No. 2251 [CTA Case No. 9610], April 20, 2022), the taxpayer received a Final Assessment Notice and Formal Letter of Demand (FAN) from an OIC-Assistant Commissioner (ACIR) on October 9, 2015. The taxpayer protested the FAN on November 3, 2015 by way of reinvestigation. The ACIR subsequently denied the request for reinvestigation on May 5, 2016, which denial the taxpayer received on May 16, 2016. On May 17, 2016, the taxpayer filed a letter with the ACIR, seeking reconsideration of the denial of taxpayer's request for reinvestigation. On June 29, 2016, the taxpayer received the Final Decision on Disputed Assessment with Details of Discrepancies issued by the ACIR. On June 5, 2017, or more than a year after filing the letter for reconsideration with the ACIR, the taxpayer filed a petition for review with the CTA to question the FAN.

The CTA Second Division dismissed the petition for review for lack of jurisdiction.

On appeal by the taxpayer, the CTA En Banc ruled that the CTA Division has no jurisdiction to try the case. The CTA En Banc explained that, pursuant to Section 228 of the Tax Code, as implemented by RR No. 12-99, as amended by RR No. 18-2013, upon receipt of the ACIR's decision denying the taxpayer's request for reinvestigation on May 16, 2016, the taxpayer should have either (a) appealed the decision to the CTA, or (b) filed a request for reconsideration before the CIR, both within 30 days. The CTA En Banc explained that the request for reconsideration should have been filed with the CIR, and not the ACIR. In view of the taxpayer's failure to avail itself of either remedy, the petition for review it filed with the CTA to question the FAN was already filed out of time, and the ACIR's decision became final and executory.

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