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Lecture 8: Tax Remedies and Additions To Tax
Lecture 8: Tax Remedies and Additions To Tax
I. Overview
1. The basic purpose of remedies is to maintain equilibrium between the interest of the state and the taxpayer.
2. Remedies can be either administrative or judicial.
3. Administrative remedies involves assessment and collection, protest and refund.
4. Judicial remedies may either be a civil suit or criminal suit, appeal to CTA, injunction/ temporary restraining order, or criminal
suit against erring BIR officials.
5. Summary of Remedies
- If the government tries to assess a tax beyond the prescriptive periods, the taxpayer may claim defense of
prescription of the right of the government to assess. The defense of prescription, however, is not jurisdictional and
must be raised seasonably, otherwise it is deemed waived.
- Place of Examination
The primary place of examination is the taxpayer’s place of business.
The secondary place of examination is at the Office of the BIR
LECTURE 8: TAX REMEDIES AND ADDITIONS TO TAX
b. Collection
- Collection means enforcing the payment of tax. The following are the administrative collection remedies of the
government:
i. Summary proceedings
Distraint (actual or constructive)
Levy
Tax lien
Forfeiture
Suspension of business operations in violation of VAT
Enforcement of an administrative fine
ii. Judicial proceedings
- Any internal revenue tax, which has been assessed within the period agreed upon by the taxpayer and the CIR, may
be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the
expiration of the 5 years prescriptive period to collect. The period so agreed upon may e extended by subsequent
written agreement made before the expiration of the period previously agreed upon.
- If the government tries to collect by any of the above remedies beyond the prescriptive periods, the taxpayer may
claim defense of prescription of the right of the government to collect. The defense of prescription, however, is not
jurisdictional and must be raised seasonably, otherwise it is deemed waived
c. Distraint
- It is the seizure (taking) by the government of personal property (tangible of intangible) to enforce payment of taxes.
- It can either be actual distraint or constructive distraint.
-
ACTUAL DISTRAINT CONSTRUCTIVE DISTRAINT
Made only on the property of a delinquent Made on the property of any taxpayer,
taxpayer whether delinquent or not.
There is taking of possession. The taxpayer is merely prohibited from
disposing of his property.
LECTURE 8: TAX REMEDIES AND ADDITIONS TO TAX
d. Levy:
- It is the seizure (taking) by the government of real property to enforce payment of taxes.
DISTRAINT LEVY
1. Personal Property 1. Real Property
2. Forfeiture by the government is not provided. 2. Forfeiture is authorized
3. The taxpayer is not given the right of redemption 3. The right of redemption is granted in case of
with respect to the distrained personal property. real property levied upon and sold or forfeited to
the government.
Levy Garnishment
1. As to subject matter Real property owned by and in Personal property owned by the
possession of the taxpayer. taxpayer but in the possession
of a third party.
2. As to disposition for want Forfeited in favor of the government Purchased by the government
of bidders or bids inadequate then sold to meet the deficiency. then resold to meet the
to satisfy tax deficiency deficiency.
3. As to advertisement for sale Advertisement once a week for No advertisement is required.
three weeks.
e. Tax Lien:
- It is a legal claim or charge on property, either real or personal, established by law as security in default of the
payment of taxes. The extent of lien shall be the tax together with the interests, penalties, and costs that may
accrue. The lien attaches not only from the service of warrant of distraint but from the time the tax become due and
payable.
f. Forfeiture
- If there is no bidder in the public sale or if the amount of the highest bid is insufficient to pay taxes, penalties and
costs, the real property shall be forfeited to the Government. The effect is to transfer the title of the specific thing
from the owner to the Government.
iv. Background
In March 2005, the BIR and the DOF launched the Run After Tax Evaders (RATE) Program.
LECTURE 8: TAX REMEDIES AND ADDITIONS TO TAX
Since March 2005, 87 complaints of tax evasion have been submitted to the Department of Justice (DOJ)
for preliminary investigation under the RATE Program, including those filed against actors, businessmen,
public officials and other high profile personalities.
The BIR registered a record income tax collection in 15 April 2005 of P21.4 Billion or a 43.6% increase
from the P14.8 Billion collected compared to the previous year.
But almost 5 years after the program’s launch, only 6 out of the 87 complaints for tax evasion submitted to
the DOJ progressed to the filing of criminal cases in court.
i. Oplan Kandado
i. On January 23, 2009, the BIR issued Revenue Memorandum Order No. 3 – 2009 to implement a nationwide
“Oplan Kandado” Program
ii. Under the program, business operations of non-compliant taxpayers will be suspended and their establishments
will be temporarily closed if they will be found to have violated certain tax laws.
iii. The programs aims to intensify the Bureau’s enforcement operations through strict imposition of prescribed
administrative sanctions for non-compliance with the basic tax requirements.
iv. Grounds for suspension:
Failure to issue receipts or invoices by a VAT-registered or registrable taxpayer;
Failure to file a VAT return;
Understatement of taxable sales or receipts by 30% or more of the correct amount thereof in the case of a
VAT-registered or registrable taxpayer;
Failure to register
v. The closure of the business establishment shall last for a period of not less than five (5) days, and shall be in force
until the violation is rectified by the concerned taxpayer.
vi. The suspension and temporary closure of business shall not preclude the BIR from filing the appropriate charges
under the RATE Program of the Bureau, if evidence so warrants the taxpayer concerned or responsible office of
the corporations.
vii. The closure order shall only be lifted by the BIR when there has been:
A subsequent filing or amendment of returns with the payment of the tax inclusive of statutory penalties;
Subsequent registration with the payment of the corresponding compromise penalties
Payment of deficiency taxes inclusive of penalties corresponding to the sales where no invoices/receipts
have been issued; and
Payment of deficiency taxes inclusive of penalties corresponding to the understatement of taxable sales or
receipts.
III. Remedies to the State: Judicial Remedies – Civil and Criminal Action
a. Civil action is resorted to when a tax liability becomes collectible, that is, the assessment becomes final and unappealable, or
the decision of the CIR has become final, executory, and demandable.
b. Criminal action, like civil action, cannot be instituted without the approval of the CIR. It is resorted to not only for collection of
taxes but also for enforcement of statutory penalties of all sorts. The judgment in the criminal case shall not only impose the
penalty but shall also order the payment of the taxes.
c. The extinction of a taxpayer’s criminal liability does not necessarily result in the extinguishment of his civil liability. Conversely,
the subsequent satisfaction of a tax liability will not operate to extinguish the criminal liability.
2. Abatement
a. A tax may be cancelled or obliterated upon the authority of the BIR under certain circumstances.
b. What are the grounds for abatement?
i. The tax or any portion thereof appears to be unjustly or excessively assessed;
ii. The administration and collection costs involved do not justify the collection of the amount due; and
iii. The Commissioner may also, even without claim therefore, refund or credit any tax where on the face of
the return upon which payment was made such payment appears clearly to have been erroneously paid.
I. Overview
II. Civil Penalties and Criminal Penalties
a. Interest
In general, there shall be assessed and collected on any unpaid amount of tax, interest at the rate of 20% per annum, or such
higher rate as may be prescribed by rules and regulations, from the date prescribed for payment until the amount is fully paid.
1. Deficiency Interest
Any deficiency in the tax due, as the term is defined in the Tax Code, shall be subject to the interest at the rate of
20% per annum, which interest shall be assessed and collected from the date prescribed for its payment until the full
payment thereof.
Formula:
Deficiency Interest = Deficient tax x 20% x no. of days or months
Total No. of days or months in a year
LECTURE 8: TAX REMEDIES AND ADDITIONS TO TAX
2. Delinquency Interest
Delinquency interest in case of failure to pay:
i. The amount of the tax due on any return required to be filed, or
ii. The amount of the tax due for which no return is required, or
iii. A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of
the CIR, there shall be assessed and collected on the unpaid amount interest at the rate of 20% per annum
until the amount is fully paid, which interest shall form part of the tax.
Formula:
Delinquency Interest = Deficient tax plus any deficiency interest or surcharges
times 20% times no. of days or months
Total No. of days or months in a year
b. Surcharges
1. Simple Neglect (25%)
i. Failure to file any return and pay the tax due thereon.
ii. If the return is not filed with the proper internal revenue officer.
iii. Failure to pay on time the deficiency tax shown in the notice of assessment.
iv. Failure to pay the full or part of the amount of tax shown on any return required to be filed, or the full amount of
tax due for which no return is required to be filed, on or before the date prescribed for its payment.
Problems:
1. Anita filed her annual income tax return on April 3, 2015 for her income last 2014. Until what day can the Bureau of Internal Revenue make its
assessment?
2. Anita filed her annual income tax return on May 3, 2015 for her income last 2014. Until what day can the Bureau of Internal Revenue make a
collection if there should be an assessment?
3. XYZ Corporation filed its annual income tax return on April 10, 2015. On October 3, 2016, it was found out that the return filed was fraudulent.
Until what day can the Bureau of Internal Revenue make a collection?
4. XYZ Corporation filed its annual income tax return on April 10, 2015. On October 3, 2016, it was found out that the return filed was fraudulent.
Until what day can the Bureau of Internal Revenue make a collection if there should be an assessment?
5. Date assessment was received - February 8, 2009. Petition for reconsideration was filed with the Bureau of Internal Revenue of February 18,
2009. Documents supporting the petition were filed with the Bureau of Internal Revenue on February 28, 2009. Decision of denial of the
petition was received on March 11, 2009. Second request for reconsideration was filed with the Bureau of Internal Revenue on March 21,
2009. Date revised assessment was received was April 2, 2009. Last day to appeal to the Court of Tax Appeals:
6. Assessment received - January 5, 2015. Petition for reconsideration filed with the Bureau of Internal Revenue - February 1, 2015. Documents
supporting the petition filed by the taxpayer - February 7, 2015. Decision of the Bureau of Internal Revenue denying the petition was received
- March 22, 2015. Second request for reconsideration filed with the Bureau of Internal Revenue - March 30, 2015. Decision of denial of
second request for reconsideration was received - April 12, 2009. Last day to appeal to the Court of Tax Appeals:
7. Date assessment was received - January 2, 2009. Petition for reconsideration was filed with the Bureau of Internal Revenue - January 12,
2009. Documents supporting the petition for reconsideration was filed with the Bureau of Internal Revenue - January 22, 2009. No decision
on the protest by July 12, 2009. Last day to appeal to the Court of Tax Appeals:
8. On January 20, 2008, a taxpayer filed a protest on/request for reconsideration of an assessment of a tax. He received a final decision of the
Bureau of Internal Revenue on the protest on April 30, 2008. He failed to appeal to the decision to the Court of Tax Appeals. The Bureau of
LECTURE 8: TAX REMEDIES AND ADDITIONS TO TAX
Internal Revenue was collecting the tax by summary proceedings on June 20, 2013. The taxpayer was opposing the collection of the tax on
the ground of prescription of the government to collect. When shall be the last day to collect?
10. Date the national internal revenue tax was erroneously paid - April 10, 2007. Claim for refund was filed with the Bureau of Internal Revenue -
March 10, 2008. Date decision of denial of refund was received – March 21, 2009. Last day to appeal to the Court of Tax Appeals: