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Thursday.

No PAN intended
The dynamics of taxation has always been acknowledged. As one of the fundamental
powers of a sovereign, taxation is designed to ensure that sufficient revenues must be
collected by the government to defray its expenses. As such, tax administration and
regulations should be continually updated and revisited, in keeping with the everchanging demands of time, in accordance with and pursuant to the fiscal policy set by
the administration.
With the increasing demands for improved generation of revenues, the Bureau of
Internal Revenue (BIR) has intensified its campaign for better tax compliance and
collection from taxpayers. This aggressive stance by the BIR has resulted in the rising
number of assessment and tax-evasion cases being pursued.
Relative to the due-process requirements in conducting tax assessments, Section 228 of
the 1997 Tax Code requires that a preliminary-assessment notice (PAN) shall be issued
notifying the taxpayers of the findings of the BIR, except in certain cases enumerated
therein. The pre-assessment is designed to inform the taxpayer in writing of the law and
the facts on which the assessment is based; otherwise, the assessment shall be void.
The taxpayer is then given the opportunity to file his reply to the notice within the period
required by the BIR. Failure to do so would warrant the BIR to issue an assessment on
its findings.
In relation to this provision, Section 3 of Revenue Regulations (RR) 12-99 prescribes in
details the procedures in the issuance of the deficiency-tax assessments as follows:
1) Issuance of the notice for informal conference. The taxpayer is afforded an
opportunity to present his arguments on the findings issued by the BIR within15 days
from the receipt thereof. After which, the PAN may be issued.
2) Issuance of the PAN. This is now the proposed assessment showing therein the
details, the facts and the law on which the assessment is based. The taxpayer is given

15 days to file his reply to the PAN from the receipt thereof. In case of failure to file its
reply within the prescribed period, a formal letter of demand and assessment notice shall
be issued.
3) Issuance of the final letter of demand and assessment notice. This is now the
demand by the BIR for the payment of the deficiency taxes assessed, which again
includes the factual and legal bases relied upon by the examiners for the computation of
the deficiency taxes.
The taxpayer may protest the assessment within 30 days from the receipt thereof and
from the filing of the protest, 60 days to submit documents supporting the arguments
raised in the protest.
Considering these procedural requirements, the Supreme Court (SC) in a recent case
(G.R. 185371, December 8, 2010) ruled that Section 228 of the Tax Code requires that
the taxpayer must be informed that he is liable for deficiency taxes through the sending
of the PAN. The SC thus held that the sending of a PAN to taxpayer to inform him of the
assessment made is but part of the due process requirement in the issuance of a
deficiency-tax assessment, the absence of which renders nugatory any assessment
made by the tax authorities. Further, it ruled that the use of the word shall in 3.1.2 of
RR 12-99 describes the mandatory nature of the service of the PAN, without which,
there is no assessment.
Undeniably, the forgoing procedural requirements enunciated in the 1997 Tax Code and
RR 12-99 are considered the due process requirements in the issuance of the
deficiency-tax assessments. These provisions are the bastion of the constitutional
protection against violation of the right to due process of the taxpayers, whereas the
taxpayers are informed of the facts and the law from which the assessment is based to
afford them the opportunity to present their case and adduce supporting evidence
against such assessment. Failure to comply with these requirements may be considered
a violation of the constitutional right of the taxpayer to due process and, therefore, any
assessment issued in violation thereof shall be considered void.
It may be deduced further that as Section 228 of the Tax Code and Section 3 of RR 1299 embody the constitutional protection of the taxpayer against unreasonable, capricious
and unwarranted assessments, the same should be complied with fully and strictly by
the tax authorities; otherwise, their assessment shall be considered null and void.
The power to tax may be continuously changing, forever dynamic and pervasive; but
still, the exercise of such power is subordinated to one of the constitutional safeguards
enshrined in our Constitutionthat no person shall be deprived of property without due
process of law. Thus, all taxation rules and procedures shall therefore bend and give
way to the constitutionally protected rights of the taxpayers.

The author is a senior associate of Du-Baladad and Associates Law Offices (BDB Law).
If you have any comments or questions concerning the article, you can e-mail the author
at deo.saludario@bdblaw.com.ph or call 403-2001 local 320.