Handling BIR Tax Assessment

:
Taxpayer's Rights, Risks and Remedies

Association of MEZ Controllers & Accountants (AMCA)
Waterfront Airport Hotel, Mactan, Cebu
February 21, 2014

© 2013 Punongbayan & Araullo. All rights reserved.

Stages of Tax Assessment

Mr. Wendell Ganhinhin
Tax & Outsourcing Director, P&A Cebu & Davao Branches

© 2013 Punongbayan & Araullo. All rights reserved.

Stages of Tax Assessments

Filing of Tax Issuance of Issuance of
Selection of Investigation Letter of Informal
Return and Preliminary Final
Tax Return (Conduct of Authority Conference
Payment of Assessment Assessment
for Audit Examination) (LOA) (InfoCon)
Tax Notice (PAN) Notice (FAN)

© 2014 Punongbayan & Araullo. All rights reserved.

All rights reserved. Selection of tax return/ taxpayer for audit © 2013 Punongbayan & Araullo. .

All rights reserved. including: o Audit program o Benchmarking analysis o Matching of records (RELIEF) o Third party information o Routine tax compliance drive © 2014 Punongbayan & Araullo. .How are tax returns/taxpayers are selected for audit? Tax returns/ taxpayers for audit/ investigation are selected in a variety of ways.

.Audit programs (latest) o Annual audit program .prescribes the criteria in selecting taxpayers for audit/investigation .TY 2009 and 2010 (RMO 04-2011. as amended by RMO 20-2011 o VAT audit program (RMO 19 and 20-2012) – Identifies VAT taxpayers who are candidate for audit/investigation © 2014 Punongbayan & Araullo. All rights reserved.

Lord Jesus. . and I will give to everyone according to what he has done. I am coming soon. I am coming soon! My reward is with me." (Revelation 22:12) o "Yes. All rights reserved.What is the best attitude towards BIR audit? o "Behold." Amen. Come. I am coming soon! Blessed is he who keeps the words of the prophecy in this book. (Revelation 22:20) © 2014 Punongbayan & Araullo." (Revelation 22:7) o "Behold.

." (1 Thessalonians 5:2) o "But understand this: If the owner of the house had known at what time of night the thief was coming. "(Matthew 24:43) © 2014 Punongbayan & Araullo. All rights reserved. he would have kept watch and would not have let his house be broken into.When He is coming? o "for you know very well that the day of the Lord will come like a thief in the night.

o We need to be prepared always. All rights reserved.Hence. . © 2014 Punongbayan & Araullo.

. All rights reserved. Issuance of audit notice © 2013 Punongbayan & Araullo.

All rights reserved. © 2014 Punongbayan & Araullo. .must be served upon the taxpayer or his authorized representative within thirty (30) days from date of issue otherwise it becomes invalid.Serving of letter of assessment (LA) Letter of Assessment (LA) .

All rights reserved. accounting records and particular or specific documents indicating therein the time and date within which these records should be made available. in writing. © 2014 Punongbayan & Araullo.What happens upon issuance of audit notice?  Revenue Examiner issues Letter of Authority (LA) and checklist of presentation of the requirements for the audit.  Revenue Examiner requests the taxpayer. to make available for inspection. . the pertinent books of accounts.

.What happens upon issuance of audit notice?  Revenue Examiner examines the books of accounts and other accounting records in the taxpayer's office or place of business or in the office of the Bureau of Internal Revenue. All rights reserved. © 2014 Punongbayan & Araullo.

. All rights reserved.Letter of Authority © 2014 Punongbayan & Araullo.

Investigation © 2013 Punongbayan & Araullo. . All rights reserved.

(b) 1604CF. . OR of all taxes paid and/or Customs Duties paid 7. Others © 2014 Punongbayan & Araullo. and others 5. (d) 1604E. List of inventories – Beginning and Ending 6.Documents requested for submission during examination 1. (e) 1601F. 4. Quarterly and Monthly VAT/Percentage Tax Returns. Withholding Taxes: (a) Alpha List. (d) 1601C. Audited Financial Statement and Certificate of Creditable Withheld at Source (BIR Form 2307) 3. Annual ITR and certified FS including profit and loss 2. All rights reserved. (c) 1601E.

Schedule of Export and/or VAT Tax Exempt Sales. Detailed composition of cost of sales 6. 6-89 5. Detailed Schedule of Purchases and its Corresponding input taxes per VAT Regulations. Detailed schedule of sales and its corresponding output taxes per VAT Regulations. Monthly abstract of all ledger accounts 2. Others © 2014 Punongbayan & Araullo. All rights reserved. Schedule of property and equipment and its accumulated depreciation/amortization 7. if any 4.Documents requested for submission during examination Worksheets 1. . 6-89 3.

General journal and general ledger 2. All rights reserved. inward letter or bank CM for inward remittance) if any 5. Proof of exportations (export permit. if any © 2014 Punongbayan & Araullo. Purchase of invoices and receipts/pertinent importation documents.Documents for verification/examination For verification: 1. Sales invoices and receipts 4. Subsidiary journals and subsidiary ledgers 3. .

if any 8. Other related and pertinent accounting records and documents 9. Others © 2014 Punongbayan & Araullo. 7. Production reports. . Documents and records supporting all deductions/ expenses claimed. All rights reserved.Documents for verification/examination 6.

What should taxpayers do upon receipt of letter request for documents 1. © 2014 Punongbayan & Araullo. Taxpayer may also request examiner to examine the documents in the office. Ensure that examiner sign list of documents submitted and include a transmittal letter – for future reference especially when documents are lost or new examiner assumes audit/investigation. 3. examiner usually requests that documents be recorded and submitted in CD form. instead of submitting the hard copies to the BIR. All rights reserved. If voluminous. Prepare all required documents for submission to BIR – Photocopy 2. .

45-2010. May 12. © 2014 Punongbayan & Araullo. signed by the Revenue Officer (RO) and/or his group supervisor. BIR issues first notice.Notice of submission of documents (Revenue Memorandum Order No. . o In case a taxpayer fails or refuses to present or submit required documents. 2010) o The documents required by the BIR for examination should be presented within 10 days from date of receipt of letter of assessment and checklist of requirements. All rights reserved.

All rights reserved. © 2014 Punongbayan & Araullo. . signed by the Head Office concerned. May 12. shall be sent to the taxpayer after 10 calendar days from receipt of the First Notice. a Second and Final Notice.Notice of submission of documents (Revenue Memorandum Order No. 2010) • If the taxpayer ignores the First Notice and continues to disregard the demand for the submission of the required documents. 45-2010.

2010) o SDT is issued 10 days after receipt of the Second and Final notice o BIR's courses of action of the taxpayer refuses to comply with the SDT:  file a criminal case against the taxpayer  initiate a proceeding to cite the taxpayer for contempt © 2014 Punongbayan & Araullo. May 12. 45-2010.BIR remedy in case of non-submission of documents (Revenue Memorandum No. . All rights reserved.

All rights reserved. including LTDOs o Revenue Regional Directors. .SDT issuing offices (Revenue Memorandum Order 10-2013) Issuance of SDT shall be requested from the ff: o Assistant Commissioner (ACIR). through the Prosecution Division – for large taxpayers under the LTS. through Legal Divisions – for the Regional Offices o Any other officer duly delegated by the CIR © 2014 Punongbayan & Araullo. Enforcement and Advocacy Legal Service through Prosecution Division – for the National Office o Assistant Commissioner – Large Taxpayer Service (LTS).

All rights reserved. or service by mail. substituted service. 10-2013.  SDT shall be served through personal service.SDT Issuance (Revenue Memorandum Order No. April 22. 2013) o SDT date of issuance .date of SDT signing o Service of SDT –  SDT should be served within three (3) working days from receipt of revenue officers. © 2014 Punongbayan & Araullo. .

All rights reserved.Enforcement of SDT (Revenue Memorandum Order No.10-2013. o Payment of administrative penalty shall not excuse the taxpayer/person from complying with SDT © 2014 Punongbayan & Araullo. April 22. 2013) o Compliance date for the submission of books of accounts and other accounting records pursuant to the SDT – 14th day from date of issuance of the SDT. .

no withdrawal or dismissal of the case is allowed. All rights reserved. .Criminal action for failure to obey SDT (Revenue Memorandum Order 10-2013) o Criminal action will be instituted in case of failure to obey the SDT. notwithstanding the subsequent submission of documents © 2014 Punongbayan & Araullo. o Once case is filed.

All rights reserved. Informal conference © 2013 Punongbayan & Araullo. .

Revenue Regulations (RR) 18-2013

Regulations (RR) 18-2013 RDO Chief –OAS
Issues notice of informal
removed the requirement to Conference
issue Notice of Informal
Conference prior to the
issuance of Preliminary
Assessment Notice (PAN).

© 2014 Punongbayan & Araullo. All rights reserved.

Before RR 18-2013, there is an Informal Conference
Stage

Taxpayer
RDO Chief –OAS
Issues notice of informal
RO prepares Conference
"Report of Findings"

Informal Conference – venue for the taxpayer to
present his side of the case
1. Request for clarification of findings
2. Presentation of additional documents
3. Reconciliation

© 2014 Punongbayan & Araullo. All rights reserved.

After RR 18-2013

LOA PAN FAN

if taxpayer responds
= 15 days from
receipt of reply

If taxpayer fails to
respond = 15 days
from receipt of PAN
© 2013 Punongbayan & Araullo. All rights reserved.

Formal Letter of Demand (FLD) and Final Assessment Notice (FAN) will be issued 15 days from: a) receipt of PAN if taxpayer fails to respond. OR b) Filing/submission of taxpayer's response. © 2014 Punongbayan & Araullo.Salient Features of Revenue Regulation 18-2013 1. . All rights reserved.

Salient Features of Revenue Regulation 18-2013

Note: An FLD/FAN issued beyond fifteen (15) days
from filing/submission of the taxpayer’s response to
the PAN shall be valid, provided that, it is issued within
the period of limitation to assess internal revenue
taxes.
The non-observance of the 15 day period however,
shall constitute an administrative infraction and the
revenue officers who caused the delay shall be subject
to administrative sanctions as provided for by law and
pertinent revenue issuances. (RMC No. 11-2014, February
18, 2014)
© 2014 Punongbayan & Araullo. All rights reserved.

Salient Features of Revenue Regulation 18-2013

3. Taxpayer is required to state the nature of protest
(reconsideration or reinvestigation) to the FLD/FAN;
4. Introduction of the remedy of Administrative Appeal
with the CIR on the Final Decision on Disputed
Assessment (FDDA) through the filing of request for
reconsideration;
5. Prescribed modes of service for PAN, FLD, FAN
and FDDA by the CIR or her duly authorized
representative – (a) Personal Service, (b)
Substituted Service or (c) by mail
© 2014 Punongbayan & Araullo. All rights reserved.

Salient Features of Revenue Regulation 18-2013

6. Imposition of deficiency and delinquency interest

DEFICIENCY INTEREST DELINQUENCY INTEREST
• 20% • 20%
• Assessed from date • Collected from the due date
prescribed for the payment appearing in the notice and
of tax until full payment demand of the CIR until full
payment

© 2014 Punongbayan & Araullo. All rights reserved.

. All rights reserved. Preliminary Assessment Notice (PAN) © 2013 Punongbayan & Araullo.

Preliminary Assessment Notice (PAN) Preliminary Assessment Notice (PAN) o Notice given to the taxpayer prior to the issuance of a Final Assessment Notice (FAN) o Shows in detail. the facts and law. . All rights reserved. rules and regulations or jurisprudence on which the proposed assessments are based. © 2014 Punongbayan & Araullo.

All rights reserved.Exceptions to issuance of PAN 1. Discrepancy between tax withheld and remitted by the withholding agent 3. Tax exempt importations transferred to non-tax- exempt persons © 2014 Punongbayan & Araullo. Finding is a result of mathematical error 2. . Unpaid excise taxes 5. Taxpayer claiming a refund/ tax credit of excess CWT who carried over/applied the same amount claimed against their estimated tax liabilities 4.

Decision on PAN Taxpayers confirms agree agreement in writing. pays tax liability disagree Taxpayer issues reply to the PAN © 2014 Punongbayan & Araullo. All rights reserved. .

Submit the written reply to the PAN within the 15-day period 2. Support the arguments and reconciliations with documentary evidences 4. . If having difficulties with ROs but you believe that your arguments are meritorious. cancel or reduce the assessment at the PAN stage © 2014 Punongbayan & Araullo. 6.Replying to the PAN 1. Exert effort to seek an audience with the revenue officer to further explain the positions taken 5. Address the factual and legal basis of the findings 3. elevate matter to next in rank. Exhaust all options to resolve the issues. All rights reserved.

inclusive of the applicable penalties. © 2014 Punongbayan & Araullo. calling for payment of the taxpayer's deficiency tax liability. All rights reserved. an FLD/FAN shall be issued within fifteen (15) days from filing/submission of the taxpayer’s response.Replying to the PAN If the taxpayer. within fifteen (15) days from date of receipt of the PAN. responds that he/it disagrees with the findings of deficiency tax or taxes. .

All rights reserved. . Final Assessment Notice (FAN) © 2013 Punongbayan & Araullo.

All rights reserved. © 2014 Punongbayan & Araullo. .Final Assessment Notice The Final Assessment Notice (FAN) refers to the document which contains the final assessment of the BIR on the taxpayer as regards the taxable year and/or tax under audit.

All rights reserved.Formal Letter of Demand (FLD) / Final Assessment Notice (FAN) © 2014 Punongbayan & Araullo. .

. All rights reserved.Final Decision on Disputed Assessment © 2014 Punongbayan & Araullo.

Law governing the administrative protest Sec. . 228 of the NIRC: Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within 30 days from receipt of the assessment in such form prescribed by implementing rules and regulations. © 2014 Punongbayan & Araullo. All rights reserved.

© 2014 Punongbayan & Araullo.a plea for re-evaluation on the basis of newly-discovered evidence or additional evidence that a taxpayer intends to present in the reinvestigation. Request for reinvestigation . All rights reserved.Forms of protest Request for reconsideration . New legal argument may be presented.a plea for a re-evaluation of an assessment on the basis of existing records without need of additional evidence . It may involve a question of fact or law or both. . It may involve a question of fact or law or both.

All rights reserved. check what type (recon or reinvestigation) and evaluate whether right to collect has prescribed © 2014 Punongbayan & Araullo. . – If you have pending protests.Reconsideration vs reinvestigation Request for reconsideration does not stop the running of the 5-year prescriptive period to collect ! – BIR should be able to initiate collection within 5 years from issuance of FAN • If not. the BIR losses right to collect even if the assessment has become final and executory.

All rights reserved. request for documents. other indications that reinvestigation is on-going) • If none. request will be deemed disapproved. Running of collection period is not suspended © 2014 Punongbayan & Araullo. – period between filing of protest and issuance of FDDA is excluded from the 5 years. – Check that there is a deemed approval of the request for reinvestigation (TVN.Reconsideration vs reinvestigation Request for reinvestigation suspends the running of the 5- year prescriptive period for collection. .

.Reconsideration versus Reinvestigation (Prescriptive period to collect) FDDA-denial No action 60 days 180 + 30 days Submit File CTA Final ReInv Court docs appeal decision FAN 30 days FDDA ReCon denial No action © 2014 Punongbayan & Araullo. All rights reserved.

© 2014 Punongbayan & Araullo. "We have already submitted our reply to your findings in a letter dated _____ and received by your office on _____ . Reiteration of the grounds already stated in the reply to PAN 3. 1.".Pro forma protest A pro forma protest is not valid. All rights reserved. A reference to the previously filed reply to the PAN (e. . . General statement that the taxpayer disagrees with the findings and requests for their cancellation 2.g. .

© 2014 Punongbayan & Araullo. b) Nature of request whether reinvestigation or reconsideration • In case of reinvestigation – specify the newly discovered evidence to be presented c) Taxable periods covered.Prescribed format a) Name of the taxpayer and address for the immediate past 3 taxable years. d) Assessment notice number e) Date of receipt of assessment notice or letter of demand. All rights reserved. .

.Prescribed format f) Itemized statement of the findings to which the taxpayer agrees as a basis for computing the tax due • Protest shall not be deemed validly filed unless agreed portion of the tax is paid first. All rights reserved. h) A statement of facts and/or law in support of the protest. g) The itemized schedule of the adjustments with which the taxpayer does not agree. © 2014 Punongbayan & Araullo. • Undisputed items shall be deemed acceptable to the taxpayer and for which payment of the estimated deficiency shall be demanded.

© 2014 Punongbayan & Araullo. CIR.Proper protest (Security Bank Corporation v . 2006) • A protest without a request for reconsideration or reinvestigation is not a valid protest and shall render the FAN final and unappealable. CTA Case No. – Revenue Regulations No. 6564. 12-85 requires that a taxpayer file either a request for reinvestigation or reconsideration. All rights reserved. . November 28.

All rights reserved. – A PAN may or may not even be protested. – Such failure only paves the way for the issuance of a FAN. CIR. .Proper protest (Security Bank Corporation v . November 28. © 2014 Punongbayan & Araullo. 2006) • A protest to the PAN is not the same as the protest to the FAN. – Failure to file a valid protest on the FAN shall result in the finality of the said FAN. CTA Case No. Failure to protest shall not make the PAN final and unappealable. 6564.

Inc. October 31. GR 167146. 2006) © 2014 Punongbayan & Araullo. . Philippine Global Communications. All rights reserved.Reinvestigation vs reconsideration A request for reinvestigation shall be deemed a mere request for reconsideration if taxpayer continues to refuse or fail to submit new evidence and cooperate in the investigation process (CIR v.

. – The decision of the Commissioner's authorized representative shall not be considered final and executory.Elevation of protest to the CIR • Taxpayer may elevate his protest to the Commissioner within 30 days from date of receipt of the final decision of the Commissioner's duly authorized representative. All rights reserved. – Counting of the 60 + 180 +30 before appealing with CTA shall commence from submission of protest to CIR. © 2014 Punongbayan & Araullo.

All rights reserved. . pays tax liability disagree Taxpayer issues protest to the FAN Taxpayer © 2014 Punongbayan & Araullo.Decision on FAN Taxpayers confirms agree agreement in writing.

the taxpayer shall be required to pay the deficiency taxes on the undisputed issues. © 2014 Punongbayan & Araullo.FAN involving several issues Taxpayer agrees with finding in the FAN o Taxpayer shall pay deficiency tax inclusive of applicable interest and/or surcharge. o If there are several issues in the assessment and taxpayer agrees with the validity of some of the issues raised in the FAN. All rights reserved. .

All rights reserved. How should I act during Tax Assessment? Atty. Mandap Tax Manager. P&A © 2013 Punongbayan & Araullo. Charity P. .

Responding to Tax Assessments © 2014 Punongbayan & Araullo. . All rights reserved.

All rights reserved.Cooperate 1. . Exhaust other means of explaining the nature of the transaction if documents are not available © 2014 Punongbayan & Araullo. Allocate a room for the conduct of the examination 3. Assign knowledgeable company employee/officer to exclusively coordinate with the examiners 2. Evaluate the documents to be submitted to the examiners 4.

All rights reserved.Responding to Tax Assessments © 2014 Punongbayan & Araullo. .

.Responding to Tax Assessments © 2014 Punongbayan & Araullo. All rights reserved.

All rights reserved. .Responding to Tax Assessments © 2014 Punongbayan & Araullo.

. Questioning the Validity of a Tax Assessment © 2013 Punongbayan & Araullo. All rights reserved.

FAN without PAN 5. FAN issued before lapse of period to reply to PAN 6. Validity of the Waiver as a defense 4. Prescription 2. FAN issued without legal & factual basis 7.Issues on Assessment 1. All rights reserved. Assessment based on Relief System © 2014 Punongbayan & Araullo. Extension of the prescriptive period to assess 3. .

internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return. that in case where a return is filed beyond the period prescribed by law." © 2014 Punongbayan & Araullo. – Except as provided in Section 222. . All rights reserved. Period of Limitation Upon Assessment and Collection. Prescriptive Period Legal Basis: "Sec. 203. the 3- year period shall be counted from the day the return was filed. and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided.1.

BIR would not normally yield on issues of prescription unless the period to assess has clearly prescribed. . Note: – Raise issue on prescription only at FAN stage.1. © 2014 Punongbayan & Araullo. – More complex issues on prescription period are resolved only in the courts. The right of the BIR to assess the tax has prescribed. All rights reserved. Prescriptive Period A FAN/assessment issued beyond the 3-year period is invalid.

. the prescriptive period should be reckoned from the date of filing the amended return. prescriptive period should be reckoned from original return.1. Possible defense: CTA: If the original return is sufficiently complete (amendment did not introduce significant changes). © 2014 Punongbayan & Araullo. All rights reserved. Prescriptive period for amended returns In general. – Amendment extends the prescription period.

To have time to gather the documents needed to contest the BIR's findings . All rights reserved.2. . Extension of the Prescriptive Period to Assess Why should a taxpayer under examination agree to extend the prescriptive period for assessment? .To have more opportunity to resolve the findings at the Informal Conference or PAN stage © 2014 Punongbayan & Araullo.

Validity of the Waiver as a Defense Waiver of statute of limitations . .3.an agreement between the taxpayer and the BIR to extend the period for the issuance of an assessment beyond the 3-year period prescribed by law Basis: Section 223 of the Tax Code (Prescribed waiver form per RDAO 05-01 attached as annex under RMC 29-2012) © 2014 Punongbayan & Araullo. All rights reserved.

. All rights reserved.3. Validity of the Waiver as a Defense © 2014 Punongbayan & Araullo.

Validity of the Waiver as a Defense An invalid waiver could not extend the prescriptive period and will render the assessment INVALID..3. CIR. 2004) © 2014 Punongbayan & Araullo. . (Philippine Journalists Inc. GR 162852. December 16. All rights reserved. v. The waiver must strictly comply with Section 222(b) of the Tax Code and with the requirements in RMO 20-90 to be considered valid.

3. Indicates definite extension period 4. . of by taxpayer or his duly authorized representative © 2014 Punongbayan & Araullo. In writing 2. if a corporation. Signed by a responsible official. Validity of the Waiver as a Defense Requisites of a valid waiver (RMO 20-90) 1. Indicates date of execution • Must be executed prior to the expiration of the original period or the extended period under a previous waiver 3. All rights reserved.

– The fact of receipt by the taxpayer of his file copy shall be indicated in the original copy. All rights reserved. © 2014 Punongbayan & Araullo. Validity of the Waiver as a Defense 5.3. Executed in 3 copies o original copy attached to the case docket o second copy for the taxpayer o third copy for the Office accepting the waiver. .

000 Head of executive asst. ACIRs for Collection. National Assessment. Special .For LTS Cases 2. in the absence of CIR © 2014 Punongbayan & Araullo.3.For taxes Operations. All rights reserved. involving not Excise and Legal on tax cases pending more than before their respective offices. Validity of the Waiver as a Defense Must be signed by authorized signatories A. ACIR or HREA for LTS . National office 1. Or the P500. .

Deputy Commissioner .000 but not more than P1M 4. All rights reserved. . Commissioner .3.For taxes cases involving more than P1M © 2014 Punongbayan & Araullo.For tax cases greater than P500. Validity of the Waiver as a Defense 3.

ARD. Chief of Collection or Legal Branch . Chief of Assessment or Legal Branch - cases pending collection © 2014 Punongbayan & Araullo. RD. All rights reserved.3.cases pending review 3. . only if period is about to prescribe) 1. RDO .cases pending investigation 2. ARD. Validity of the Waiver as a Defense Authorized signatories B. RD. In the Regional Offices (regardless of amount.

March 1. CTA EB Case 522. . All rights reserved.3. 2010) © 2014 Punongbayan & Araullo. Validity of the Waiver as a Defense Taxpayer only questioned the validity in the courts. – BIR says taxpayer is deemed to have waived his right to question the validity of the waiver – CTA denied BIR's argument (CIR v Standard Chartered Bank.

. If only the FAN was issued. the requirements of due process are not satisfied. and the assessment shall be deemed void. All rights reserved. The requirement that the taxpayer must be informed of his liability for deficiency taxes through the sending of a PAN is part of the due process requirement in the issuance of deficiency tax assessments.5. © 2014 Punongbayan & Araullo. FAN without PAN FAN without PAN is INVALID 1.

4. . (Commissioner of Internal Revenue v. 2010) © 2014 Punongbayan & Araullo. but also the facts on which assessment would be made. All rights reserved.. Inc. Old requirement of merely notifying the taxpayer of the CIR’s findings was changed in 1998 to informing the taxpayer of not only the law. Metro Star Superama. December 08.2 of RR 12- 99.1. The requirement to issue PAN is provided under Section 228 of the Tax Code and Section 3. GR 185371. FAN without PAN FAN without PAN is INVALID 2.

All rights reserved. FAN issued before lapse of period to reply to PAN FAN issued prior to lapse of period to reply to PAN does not constitute denial of due process © 2014 Punongbayan & Araullo. .5.

7928. FAN issued before lapse of period to reply to PAN CASE 1.5. All rights reserved. August 23. v. (Cargill Philippines. 2011) © 2014 Punongbayan & Araullo. In its appeal for cancellation of FAN. the taxpayer alleged that it was deprived of due process when the BIR issued the FAN only one day after it filed its reply to the preliminary assessment notice (PAN). CTA Case No. Commissioner of Internal Revenue. Inc. .

V. [Oakwood Management Services (Philippines). Inc. it was issued the FAN. . 7989. Taxpayer received a PAN assessing it for deficiency withholding tax. 6826. Commissioner of Internal Revenue. All rights reserved. before the lapse of the 15-day period within which the taxpayer could reply or give its comment to the PAN. 2011] © 2014 Punongbayan & Araullo. However.5. Inc. CTA Case No. CIR CTA Case No. 2013 & Keppel Fels Energy. August 8. v. FAN issued before lapse of period to reply to PAN CASE 2. July 21.

All rights reserved. considering that the taxpayer was not only given the opportunity to refute the PAN issued by the BIR but also exercise its option to file a protest to the FAN. © 2014 Punongbayan & Araullo. the BIR substantially complied with the requirements of due process. .5. FAN issued before lapse of period to reply to PAN CTA: Although the taxpayer was not able to take advantage of the full 15 days given for it to file its comment on the PAN or its reply was not read by the BIR.

an assessment even if it contains a computation of the tax liabilities of a taxpayer. legally speaking. All rights reserved.5. and the fact of nonprotest shall not in any way make the PAN final and unappealable. is not indispensable. A PAN may or may not be protested by the taxpayer. © 2014 Punongbayan & Araullo. unlike the protest against the FAN. . FAN issued before lapse of period to reply to PAN CTA: A PAN preparatory to the issuance of a FAN is not. A protest against the PAN.

All rights reserved.6. 228. NIRC The taxpayer shall be informed in writing of the law and the facts on which the assessment is made. otherwise. the assessment shall be void. . FAN issued without Legal & Factual Basis Sec. © 2014 Punongbayan & Araullo.

GR 159694. 2006) © 2014 Punongbayan & Araullo. Reyes. All rights reserved. FAN issued without Legal & Factual Basis Supreme Court: Compliance with Section 228 is mandatory (Commissioner of Internal Revenue vs.6. . Azucena T. January 27.

FAN shall state the facts. the law. 2. All rights reserved. or jurisprudence on which the assessment is based. Mode of transmittal to taxpayer • Registered mail • Personal delivery with acknowledged receipt in the duplicate copy showing the ff: (a) name (b) signature (c) designation (if other than the taxpayer) (d) date of receipt © 2014 Punongbayan & Araullo. FAN issued without Legal & Factual Basis REVENUE REGULATIONS NO.6. rules and regulations. 12-99 1. .

6. © 2014 Punongbayan & Araullo. FAN issued without Legal & Factual Basis Assessment issued beyond the scope of the LA • Deficiency taxes should only be for the year covered by the LA. . All rights reserved. • Request for cancellation of out-of-period assessments.

. A company engaged in transmission of information was assessed for undeclared sales. Assessment based on RELIEF System Assessment based on Summary List of Purchases FACTS OF THE CASE.7. © 2014 Punongbayan & Araullo. All rights reserved. The BIR’s assessment arose from the matching of computer records using the summary list of purchases submitted by the taxpayer’s customers.

Fax N Parcel. All rights reserved. CTA EB 883 re: CTA Case No. Assessment based on RELIEF System CTA: BIR’s assessment against the taxpayer cannot be sustained since the assessment lacks factual basis. . 7415. (CIR v. 2013) © 2014 Punongbayan & Araullo. The BIR based its assessment merely on an unverified quarterly list.7. The summary list of purchases should have been verified with other externally sourced data in order to check the integrity of the information gathered. Incorporated. February 14.

. All rights reserved. Addressing Usual Issues on Assessments © 2013 Punongbayan & Araullo.

CTA & CIR L-10507. therefore. BIR Form 1601E wherein the discrepancy is treated as Unaccounted expense – the BIR treats this as unaccounted source of cash which leads to the inference that part of the income has not been declared (Perez vs. undeclared income • Comparison of Financial Statement accounts vs. May 30. 1958) • Possible reconciling item: exemption from EWT • Reconcile the source data for the alleged undeclared expenses • Argue that assessments should not be based on mere presumptions no matter how reasonable or logical said presumption may be © 2014 Punongbayan & Araullo. . All rights reserved.Unreported/unaccounted expenses.

. and (ii) the direct connection or relation of the expense being deducted to the development.Unsupported expenses. such as official receipts or other adequate records: (i) the amount of the expense being deducted. 34(A)(1)(b) Substantiation Requirements – No deduction from gross income shall be allowedS unless the taxpayer shall substantiate with sufficient evidence. management. input VAT Legal Basis: Sec. operation and/or conduct of the trade. © 2014 Punongbayan & Araullo. tax credits. business or profession of the taxpayer. All rights reserved.

.Unsupported expenses. 2307 forms • Input VAT must be supported by VAT invoice or VAT official receipt (which must comply with the invoicing requirements in the VAT regulations) © 2014 Punongbayan & Araullo. All rights reserved. input VAT • Expenses must be properly substantiated by invoices. tax credits. official receipts • Tax credits must be supported by BIR Form No.

Exempted from withholding. . FWT) Possible reconciling items: • General .Subjected to higher withholding rate.Failure to withhold. FBT. . .Already subjected to withholding tax. All rights reserved. under withholding Compensation. © 2014 Punongbayan & Araullo. EWT.

Failure to withhold. under withholding Compensation. Importations. All rights reserved. FBT.000 corporations. Payment to non- resident foreign corporation for services performed outside the Philippines © 2014 Punongbayan & Araullo. FWT) • Goods -Not Top 20. . EWT. Prepaid expenses • Services -Payment to PEZA-registered entity.

Payment to fleet card • Salaries and Wages -De minimis. FBT. Employer’s share in SSS. Payment to travel agency.Failure to withhold. Services performed abroad © 2014 Punongbayan & Araullo. EWT. Retirement benefit. under withholding Compensation. . Ordinary business expense • Payment to non-resident -BIR Ruling confirming exemption. All rights reserved. Tax Treaty rate. Philhealth. FWT) • Professional fees -Payment to GPPs.

FBT. under withholding Compensation. ordinary business expense © 2014 Punongbayan & Araullo.Error in computation. Tax Treaty rate. All rights reserved. Services performed abroad • Fringe Benefit . already subjected to withholding tax on compensation. FWT) • Payment to non-resident -BIR Ruling confirming exemption. .Failure to withhold. EWT.

All rights reserved. – differences in tax and accounting • Services rendered to PEZA or non-residents © 2014 Punongbayan & Araullo.Not subjected to VAT • Comparison of Sales per ITR and Sales per VAT return wherein the discrepancy is treated as Undeclared sales not subjected to VAT • Undeclared Income in the income tax findings of the BIR • Possible reconciling items: – timing difference. – deductibility of sales returns. . – undeclared zero-rated sales in the VAT return.

All rights reserved. . Appealing to the CTA © 2013 Punongbayan & Araullo.

© 2014 Punongbayan & Araullo. . All rights reserved.CTA Jurisdiction Sec 7 of RA 1125 provides that the CTA shall exercise exclusive appellate jurisdiction to review decisions of the Commissioner of Internal Revenue in cases involving disputed assessments. S penalties imposed relation thereto or other matters arising from the NIRC or other laws or part of laws administered by the BIR.

" © 2014 Punongbayan & Araullo.Period to appeal Sec 228. NIRC "If the protest is denied in whole or in part. All rights reserved. the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision. or is not acted upon within one hundred eighty (180) days from submission of documents. . the decision shall become final. or from the lapse of one hundred eighty (180)-day period. executory and demandable. otherwise.

CIR. 2012) © 2014 Punongbayan & Araullo.. GR 171251. March 5. . All rights reserved. (Lascona Land Co. Inc. appeal the decision with the CTA. v. The taxpayer may await the final decision of the CIR and.Filing an appeal to CTA upon denial of protest Failure of a taxpayer to appeal before the CTA from the inaction of the CIR on a protested assessment within 30 days after the 180-day period does not render an assessment final and executory. within 30 days from receipt of the decision.

. All rights reserved.When is the right time to appeal? 60 days (INACTION) Submit Reinvestigation 180 + 30 days CTA Complete Documents FAN 30 days 30 days FDDA Reconsideration denial INACTION 180 + 30 days © 2014 Punongbayan & Araullo.

2008) © 2014 Punongbayan & Araullo. CIR. vs. The 60-day period shall not be considered in the counting of the 180 days. 7331. All rights reserved. 343 re: CTA Case No. CTA EB No. . June 12. (Fil-Hispano Holdings Corp.Period to appeal If taxpayer fails to submit relevant documents within the 60-day period. the period to appeal to the CTA is reduced to 30 days from the lapse of the 180-day period reckoned from the date the protest was filed with the BIR.

All rights reserved. .Period to appeal Note: RR 12-99. otherwise. February 18. the taxpayer shall submit all relevant supporting documents in support of his protest within sixty (60) days from date of filing of his letter of protest.” The term “the assessment shall become final” means that the failure of the taxpayer who requested for a reinvestigation to submit all relevant supporting documents within the sixty (60)-day period shall render the FLD/FAN “final” by operation of law. as amended by RR 18-2013. He/it shall be barred from disputing the correctness of the FLD/FAN by the introduction of newly discovered or additional evidence because he/it is deemed to have lost his/its chance to present these evidence. 2014) © 2014 Punongbayan & Araullo. (RMC 11-2014. provides that “[f]or requests for reinvestigation. the assessment shall become final. The BIR shall then deny the request for reinvestigation through the issuance of an FDDA.

. All rights reserved.Period to appeal Failure to submit documents 60 days 180 + 30 days ReInv Submit inaction File CTA docs appeal FAN 30 days 30 days ReCon FDDA-denial © 2014 Punongbayan & Araullo.

Legal issues involved that cannot be resolved at BIR level 5.Decision to Appeal Assessment in Court 1. Strength of the case 3. . Company policy 4. Cost-benefit considerations 2. All rights reserved. Desire to settle recurring legal issues © 2014 Punongbayan & Araullo.

CTA jurisdiction Disputed assessment o FAN that was properly protested within the prescribed time – 30 days from denial or inaction – In the proper protest format – reconsideration or investigation © 2014 Punongbayan & Araullo. All rights reserved. .

o BIR responded by issuing a Formal Letter of Demand.” X X X It is requested that the above deficiency tax be paid immediately upon receipt hereof. All rights reserved. as follows: “Your subject protest was based on the alleged ground that the Special Savings Deposits allegedly not among those enumerated by Section 180 fo the NIRCF. . not appealable (Allied Banking Corp. v CIR. If you disagree. January 2. otherwise said deficiency assessment shall become final. This is our final decision based on investigation. 2007) o Taxpayer received a PAN which he replied to. © 2014 Punongbayan & Araullo. CTA EB 157. you may appeal this final decision within 30 days from receipt hereof. inclusive of penalties incident to delinquency.Protest on undisputed FAN. executory and demandable.

not appealable (Allied Banking Corp. – The FLD should be considered as FAN. All rights reserved. © 2014 Punongbayan & Araullo. CTA EB 157. – Taxpayer erroneously interpreted the wordings of the FLD (prematurely appealed). 2007) • Taxpayer appealed the FLD to the CTA within 30 days. v CIR. • CTA: The FLD is not a decision of the CIR involving disputed assessment.Protest on undisputed FAN. It is not appealable at the CTA. – Denial or inaction on said administrative appeal is appealable to the CTA. . January 2. which should be appealed administratively by filing a request for reconsideration or reinvestigation within 30 days.

. rendered final. – CTA cannot act on undisputed assessment. All rights reserved.Undisputed assessment cannot be appealed (ECL Foods and Catering Corp. Collection proceeding was initiated by the BIR. • Taxpayer filed a motion for reconsideration requesting for reinvestigation which was denied by the BIR. CTA EB No.day period. • CTA decision: An assessment protested beyond the reglementary period is considered undisputed. vs CIR. 28 November 2006) • Taxpayer failed to file a protest against a letter of demand within the 30. Taxpayer appealed the denial to the CTA. it has no jurisdiction © 2014 Punongbayan & Araullo. 184. executory and unappealable.

If the tenor of the letter shows the firm stand of the BIR against the reconsideration of the disputed assessment. . CTA Case No.Demand letter as final decision appealable to CTA (Cagayan Corn Products Corporation v. 8491 dated July 8. © 2014 Punongbayan & Araullo. 2013) Demand letter for payment of delinquent taxes may be considered a final decision on a disputed or protested assessment that is appealable to the CTA depending on the language used or tenor of the letter sent to the taxpayer. All rights reserved. the letter should be considered the final decision of the BIR on the taxpayer’s administrative protest or the FDDA. Commissioner of Internal Revenue.

• RR No. .Whose decisions are appealable? • By statutory provision – Decisions of the Commissioner of Internal Revenue. © 2014 Punongbayan & Araullo. All rights reserved. 12-99 – Decisions of the CIR or his duly authorized representative.

CTA Case No. All rights reserved. .Tenor of finality rule The appealable decision is that letter of denial where the Commissioner not only demanded payment of the amount assessed but wherein he also gave the warning that in the event the taxpayer failed to pay the same. CIR. the Commissioner would be constrained to enforce the collection thereof by means of the remedies prescribed by law. (Azucena T. Reyes v. June 19. 6124. 2002) © 2014 Punongbayan & Araullo.

All rights reserved. . KNOWLEDGE CHECK © 2013 Punongbayan & Araullo.

Final Decision on Disputed Assessment (FDDA) b. Formal Letter of Demand and Assessment Notice (FAN) c. All rights reserved. If the taxpayer fails to respond to the Preliminary Assessment Notice (PAN).Knowledge Check 1. Both (a) and (b) © 2014 Punongbayan & Araullo. Notice of Informal Conference d. . the taxpayer shall be considered in default. in which case. the BIR shall issue which of the following: a.

Knowledge Check

2. A taxpayer who received FAN is given 60 days to
submit additional documents in support of
its/his/her protest to the FAN. When should the
60-day period be reckoned?

a. Date of receipt of FAN
b. Date of issuance of PAN
c. Date of filing of protest to the FAN
d. Date of issuance of FAN

© 2014 Punongbayan & Araullo. All rights reserved.

Knowledge Check

3. The regular 3-year prescriptive period can be extended upon
written agreement between the taxpayer and the BIR through
the execution of a waiver of defense of prescription. However,
to be considered valid, the waiver should satisfy all of the
following conditions except:

a) The date of execution must be indicated in the waiver.
b) The definite extension period must be indicated in the waiver.
c) The waiver must be signed by a responsible official, if a
corporation; of by a taxpayer or his duly authorized
representative
d) The waiver should be published in at least one newspaper of
general circulation.
© 2014 Punongbayan & Araullo. All rights reserved.

Knowledge Check

4. Which of the following is true for request for reinvestigation?

a) A request for reinvestigation does not stop the running of the 5-
year prescriptive period to collect.
b) A request for reinvestigation must be filed within 15 days from
the receipt of FAN.
c) A request for reinvestigation shall be deemed a mere request
for reconsideration if no new evidence was submitted.
d) A request for reinvestigation is a plea for a re-evaluation of an
assessment on the basis of existing records without the need
of additional evidence.

© 2014 Punongbayan & Araullo. All rights reserved.

Knowledge Check 5. All rights reserved. b) The letter of protest to the FAN should have the BIR logo c) The letter of protest to the FAN should be received personally by the CIR and included in the database of all letters of protest to be created for this purpose. which of the following should occur with respect to the letter of protest to the FAN of the taxpayer: a) The letter of protest to FAN should be included in the database created by the Office of the CIR. . To be considered "officially" filed. d) None of the above © 2014 Punongbayan & Araullo.

All rights reserved.Knowledge Check 6. . When should the subpoena duces tecum (SDT) be issued to a taxpayer who fails or refuses to submit the required documents pursuant to the letter of assessment issued by the BIR? a) 10 days from date of receipt by the taxpayer of letter of assessment and check list of requirements/access to records b) 15 days from issuance of preliminary assessment notice c) 10 days after receipt of second and final notice d) 15 days from issuance of notice of informal conference © 2014 Punongbayan & Araullo.

30 days b.Knowledge Check 7. 45 days c. All rights reserved. How many days may a taxpayer request for a reinvestigation or reconsideration to the Final Assessment Notice issued by the BIR? a. . 60 days d. 15 days © 2014 Punongbayan & Araullo.

c) Yes. The non-observance of the 15-day period does not violate the right of the taxpayer to due process. 2013. What is important is the taxpayer is able to protest its FAN. If PAN was issued on March 01. is the issuance considered valid? a) No. All rights reserved. 2013. 2013 which is 15 days after the issuance of the PAN in order to observe the 15-day period to protest. Since issuance of PAN is not required in the conduct of tax audit or investigation. FAN should be issued on March 16. b) Yes. and the taxpayer received the FAN on March 11. . d) None of the above © 2014 Punongbayan & Araullo.Knowledge Check 8.

Knowledge Check 9. A protest of FAN which is denied in whole or in part may be appealed to the Court of Tax Appeals within how many days from the date of receipt of the denial issued by the Commissioner of Internal Revenue? a) 30 days b) 45 days c) 60 days d) 15 days © 2014 Punongbayan & Araullo. All rights reserved. .

In case a taxpayer fails to submit relevant documents within the 60-day period. The 60-day period shall not be considered in the counting of the 180 days. . the period to appeal to the CTA is reduced to 30 days from the lapse of the 180- day period reckoned from when: a) Date the reply to the PAN was submitted by the taxpayer b) Date the protest was filed with the BIR. All rights reserved.Knowledge Check 10. c) Date of last visit of the examiners assigned to investigate the books of account of the taxpayer. d) None of the above © 2014 Punongbayan & Araullo.

com cha.mandap@ph.ganhinhin@ph.com tel#: 032-2316090 © 2013 Punongbayan & Araullo. All rights reserved. Contact: wendell.gt. Thank you. .gt.