TAX REMEDIES

RECALL:
Thursday, October 17, 2024 9:04 PM  TRAIN law - effective 2018
- Remedial action for the government (to enforce BIR found something MISSING  CREATE - effective 2021
collection on unpaid taxes) and taxpayer (legal action to
avail / seek relief from undue burden / opressive effect

 Letter Notice (LN) If clarified, then all

○ Due process demands that after an LN has served its purpose, the revenue officer goods!
should have properly secured an LOA before proceeding with the assessment.
○ Issued when BIR found something missing
○ A letter to clarify and not for audit

Failure to submit requested documents in the LN

BIR conducts an audit by issuing Letter of Authority (LOA).

• official document that gives a Revenue Officer (RO) authority to examine taxpayer’s books of accounts
• to determine the taxpayer's correct internal revenue tax liabilities ISSUANCE OF SUBPOENA DUCES TECUM & EVEN CRIMINAL PROSECUTION
• Sec. 235 of the Tax Code. Books and records of taxpayers may be INSPECTED only once (1) in a taxable  No submission of docs requested by BIR within the period stated in the LN
year, except IN CASES OF FRAUD, IRREGULARITY or MISTAKES determined by the Comissioner  Or when submitted docs are incomplete
• BIR must issue LOA prior to issuing PRELIMINARY ASSESSMENT NOTICE (PAN), FINAL ASSESSMENT
NOTICE (FAN) or FINAL DECISION ON A DISPUTED ASSESSMENT (FDDA)
PERSON AUTHORIZED to issue LOA
PRESCRIPTIVE PERIOD
National Office Commissioner of Internal Revenue (CIR)
- or 'Statute of limitations'. It is the time limit tax authorities (e.g. BIR)
Regional Offices Regional Director have to assess or collect any unpaid taxes from taxpayer

• Any tax assessment issued without an LOA is a violation of the taxpayer's right to due process and is Return filed is Three (3) years from:
therefore “inescapably void”. NOT 1. Actual filing of return
FRAUDULENT 2. Deadline for filing (whichever Is later)
CASES NOT NEEDED OF A LOA:
1. Involving civil or criminal tax fraud If return filed is Ten (10) years from discovery
2. Policy cases under audit by special teams in the National Office. FRAUDULENT
- During the three (3) years, a tax return filed by taxpayer may be
amended. However, when LOA or investigation has been conducted,
amendment shall no longer be allowed, and thus, shall await remedy.
- If taxpayer did not file a return, prescriptive period for issuance of FAN
During investigation/audit, if RO found deficiency in tax liability:
is 10 years from discovery
ISSUANCE OF NOTICE OF DISCREPANCY (NOD)
- Shall consists of the initial report of RO in the investigation and his findings of such discrepancies.
- Allows taxpayer to discuss his side on the discrepancies found

Make voluntary payments of probable deficiency taxes and penalties prior to the issuance of PAN (Audit is closed)

Discussion to present valid documentary support against the discrepancies Issuance of PRELIMINARY ASSESSMENT NOTICE (PAN)
(within 5 DAYS to reply from receipt of NOD and may be EXTENDED to 30 DAYS) - Sec. 228 of the NIRC. States that PAN shall inform taxpayer in writing of law and facts which the
assessment is based as part of due process. Sec. 3 of RR (#12-99) shall show in detail the proposed
assessment is based, otherwise void.
Failure to reply / present valid documentary - Issued when:
If reply is valid, then all goods! support: • after review and evaluation by the Commissioner or authorized rep.
• after determining that there exists sufficient basis to assess the taxpayer for any deficiency tax.
• Taxpayer fails to file a return. Additionally, taxpayer files a return but fails to pay the tax
• Taxpayer Pays the tax but insufficient
NOT REQUIRED IN THE FF deficiency due to:
1. mathematical error
2. Discrepancy between tax withheld and actually remitted by withholding agent
3. unpaid excise taxes
4. When article (vehicles, capital equipment, machineries, spare parts) locally PURCHASED or
imported by an EXEMPT person, HAS BEEN SOLD TO NON-EXEMPT PERSONS (meaning the
items purchased/impported by EXEMPT sold to NON-EXEMPT)
~ ASSESSMENT 5. A claim of refund or tax credit of excess (CWT) determined to have already carried over or
- Written notice and demand by BIR for settlement of due tax automatically applied against tax liabilities for the succeeding taxable year.
liability that is exisitng currently and fixed. (e.g. PAN, FAN)

The REPLY to the PAN and PROTEST to the FAN are submitted to Chance to reply contesting the PAN (15 DAYS)
the office of the signatory, (Commissioner or Auth. Rep.)
otherwise, as if no REPLY or PROTEST is filed.
If reply is valid, then
all goods! Failure to reply / reply found to be without merit

Issuance of FORMAL LETTER OF DEMAND (FLD) & FINAL ASSESSMENT NOTICE (FAN)
- Issued by the Commissioner or authorized rep
- It is a calling of payment of taxpayer's deficiency.
- Shall state the facts, law, rules and regulations, on which the ASSESSMENT IS BASED, otherwise, VOID
Pays the assessment - Issued when:
(Audit is closed) ○ Taxpayer failed to respond to the PAN
○ Reply to the PAN was found to be without merit.

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 File a protest to CIR (within 30 DAYS from receipt of FAN/FLD) Ignores FAN/FLD
Shall state in his protest:
• NATURE of protest (reconsideration or reinvestigation)
• DATE of Assessment notice
• LAW, rules and regulations which the protest is based,
(otherwise, protest is considered void) CIR issues warrant of
distraint/levy

RECONSIDERATION REINVESTIGATION
Plea of re-evaluation of an assessment on the basis of existing Plea of re-evaluation on the basis of newly, discovered or File civil case for
records w/o need of additional evidence. addtl. Evidence that taxypayer intends to present in the collection
reinvestigation.

BIR doesn't agree with Failure to submit

the protest Submit all supporting documents
(W/IN 60 DAYS FROM FILING OF
PROTEST)
Issue Final Decision on Disputed Assessment (FDDA) by BIR
- The authority to issue FDDA remains with the
Commissioner
- Issued if BIR doesn't agree with the protest.
- Issued in order for the taxpayer to have the right to
elevate the case to the Court of Tax Appeals (CTA).
- Shall contain:
○ Facts, applicable laws, rules, and regulations,
which decision is based, otherwise, VOID.
○ Final decision of the Commissioner.

After the agreement of BIR to the PROTEST TO FAN/FLD and

submission of supporting documents for reinvestigation, proceed to the Commissioner of Internal Revenue (CIR)

CIR cancels the assessment CIR denies the protest /FDDA

(Audit is closed)

Direct Denial of Protest Indirect Denial of Protest CIR fails the act on the protest
- If CIR or auth. Rep. fails to act on
taxpayer's protest w/in 180 days
from submission, protest may be
considered denied.
w/in 3O DAYS from
receipt of Letter of Denial Await decision of CIR

w/in 3O DAYS from the

lapse of 180 day period
w/in 3O DAYS after the receipt
of the copy of decision
APPEAL TO COURT OF TAX APPEALS (CTA)

RECALL / OTHER NOTES:

• Deadline of filing of Donor's tax return - 30th day following/after the donation was made

COLLECTION
- BIR may avail of the remedy of collection when the assessment becomes final, executory and demandable.
- Sec. 222 ( EXCEPTIONS AS TO PERIOD OF LIMITATION OF ASSESSMENT AND COLLECTION OF TAXES.)
○ Any internal revenue tax which has been assessed Within prescribed period MAY BE COLLECTED by DISTRAINT or LEVY W/IN 5 YRS following the assessment of the tax.
○ In the case of frauduient return, tax may be assessed WITHIN 10 YRS after discovery provided, that assessment has become final and excutory and the fact shall be judicially taken
cognizance (notice or consider)

○ PRESCRIPTIVE PERIOD OF COLLECTION

General Within 5 yrs after issuance of FAN
If return filed is FRAUDULENT or NO RETURN WAS FILED Ten (10) years from discovery

METHODS OF COLLECTION
1. Distraint - seizure of the government of personal property, tangible or intangible to enforce payment of tax.
a. Actual - personal property Is physically seized by the BIR and offered " for sale at public auction. The proceeds is then used for the payment of taxes
i. Garnishment - distraint of bank accounts
Note: When BIR's decision affirming an assessment is appealed to the CTA, the BIR's power to gamish is NOT SUSPENDED since the continued existence of government depends on tax revenues.
a. Constructive - person in possession is made to signed a receipt to preserve the property and not to dispose unless authorized by BIR.
• retiring from any business subject to tax.
• intends to leave the Philippines.
• removes his property therefrom.
• performs any act tending to obstruct the proceeding for collecting tax due

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 RIGHT OF PRE-EMPTION
- Before completion of the sale, ALL TAXES, INTEREST, & PENALTIES are paid to the officer, the goods shall then be restored to the ownder.

PERSON AUTHORIZED to commence distraint proceedings

1,000,000 + Commissioner of Internal Revenue (CIR)
- 1,000,000 Revenue District Officer

2. Levy - seizure of the government of real property, its interest or rights to enforce payment of tax.

RIGHT OF REDEMPTION
- 1 year from date of sale, property may be redeemed by the taxpayer. He is not then deprived of its possession nor of its fruits, rents and other income from it until the expiration of
redemption period. If failed to redeemed, a final deed of sale is executed in favor of the buyer.

Note: Collection of a deficiency tax assessment by distraint and levy may be repeated, if necessary, until the full amount due, including all expenses, is collected;

3. Judicial Proceedings
a. Filing of civil case for collection
b. File a criminal case (Tax Evasion)

COMPROMISE
- Only in the grounds of:
○ There exist a reasonable doubt in the validity of the claim against the taxpayer.
○ The financial position of the taxpayer shows CLEAR inability to pay the assessed tax.
 For financial incapacity, Minimum compromise rate = 10% of basic assessed tax.
 For other cases, min. compromise rate = 40% of basic assessed tax.
- EVALUATION BOARD
□ CIR
□ 4 Deputy Commissioners
○ Approval of the Evaluation Board is required:
 Where basic tax EXCEEDS 1,000,000
 Settlement offered is LESS THAN THE PRESCRIBED MINIMUM RATES.

CIVIL PENALTIES
1. Surcharge - a fee, charge, or tax added.
a. 25%
- In any of the following cases:
 Simple neglect, if taxpayer voluntarily files the return after deadline without notice from BIR
 Failure to file any return and pay the tax due on time.
 Filing a return with an internal revenue officer instead with whom the return is required to be filed, unless authorized by the Commissioner of
Internal Revenue. (wrong venue filing)
 Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment.
 Failure to pay the full or part of the amount of tax shown on any return, or the full amount of tax due for which no return is required to be filed.
b. 50%
- In any of the following cases:
 Willful neglect to file the return ontime.
□ There is willful neglect if the taxpayer files only after prior notice in writing from the "BIR.
□ Fraudulent return

2. Interest - increment on any unpaid amount of tax, assessed from the date prescribed for payment until the amount is fully paid.
 Prior to TRAIN - 20% per year
 Upon effectivity of TRAIN - 12% per year

KINDS OF INTEREST (BOTH 12% after 2018 (TRAIN))

1. Deficiency
- interest imposed on any deficiency, shall be assessed and collected from the date it is
prescibed (whichever comes first):
 Full payment
 Issuance of a notice and demand by the Commissioner or authorized representative

2. Delinquency
- interest imposed on the failure of the taxpayer to pay the following:
 Amount of tax due on any return required to be filed
 Amount of tax due which no return is required, or
 A deficiency tax, surcharge, interest on the due date in the notice and demand of CIR or auth. Rep. until it is fully paid.
(interest shall form part of the tax)

Note: Upon effectivity of TRAIN, in no case shall deficiency and delinquency be imposed simultaneously.

Tax Deficiency Tax Delinquency

Amount still due and collectible upon audit or investigation Failure of taxpayer to pay on date fixed by law or indicated in the FAN or FLD

Prima facie evidence of fraudulent return:

1) Substantial (significant) overstatement (more than 30%) of deductions.
2) Substantial under declaration (more than 30%) of taxable sales, receipts or income.
REFUND OF TAXES
- Requisites:
1. Tax erroneously or illegally collected by BIR
2. Taxpayer should file a WRITTEN CLAIM FOR REFUND or TAX CREDIT WITH THE CIR W/IN 2 yrs from DATE OF PAYMENT OF TAX OR PENALTY
3. If claim for refund is denied by CIR, file a petition with CTA:
a. Within 30 DAYS from receipt of denial, AND
b. Within 2 yrs from date of payment of tax or penalty

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REFUND OF INPUT VAT
- Sec. 112 of the Tax Code. A vat registered person whose sales of goods, properties or services are zero-rated may apply for the issuance of a tax refund of input vat
attributable on such sales.
○ A CLAIM FOR REFUND or credit of unutilized input vat must be filed within two (2) years after the close of the taxable quarter when the sales were made.
- Sec. 229 of the Tax Code. Prescriiptive period for filing a claim for refund of ERRONEOUSLY PAID TAX (inc. INPUT VAT) is 2 yrs from date of erroneous payment.

Period of Refund/Credit of Input taxes shall be made

• The Commissioner shall grant refund for creditable input taxes within 90 days from the date of submission of receipts or invoices and other documents in
support of the application filed ( or start from the filing of the claim) up to the release of the payment of the vat refund.
• In case of full or partial denial of the claim for tax refund, the taxpayer may, within 30 days from receipt of the decision denying the claim, appeal the decision
to the CTA.

CANCELLATION OF TAX LIABILITY OR ABATEMENT

- On the grounds where:
○ Tax appears to be unjustly or excessively assessed
○ Admin and collection costs DOES NOT JUSIFY THE COLLECTION AMOUNT DUE

SUSPENSION OF PRESCRIPTIVE PERIOD or STATUTE OF LIMITATIONS

- Suspension shall be for the duration of situation + 60 days
- Assessment prescriptive period and beginning of distraint for collection may be suspended when:
○ Request for reinvestigation
○ Taxpayer cannot be located in the address given in the return
○ No property of taxpayer can be located
○ Out of the country

CTA SUSPENSION OF THE COLLECTION OF NATIONAL INTERNAL REVENUE TAX

- The case is pending appeal with the CTA.
- In the opinion of the court, the collection will jeopardize the interest of the Goverment and/or the taxpayer.
- The taxpayer is willing to deposit in Court the amount being collected or file a surety bond for not more than double the amount of the tax

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