Taxation

Reynaldo G. Geronimo

Partner

Tax Remedies

Under the NIRC

(Administrative Level)

What is meant by “tax remedies”?

The term “tax remedies” refers to the actions and processes that the Government
may undertake to enforce the collection of legitimate taxes and those that taxpayer may
take or pursue in order to resist the payment of what he considers are unlawful taxes.

At which stage of taxation, does the subject of “Tax Remedies” come in?

The subject of “Tax Remedies” comes in the last stage, namely, at the stage or
phase of Collection, after the earlier stage of Levy.

General Outline

A. Peacetime preparation for battle

B. Actual Combat

1. Opening moves

2. Middle Game

3. End Game

C. Clearing the battlefield

A.

Maneuvers of Taxpayer

and

Government during peace time

 Setting up the taxpayer’s positions

1. Taxpayer Registers with the RDO.

Every person subject to any internal revenue tax should, after securing his
Taxpayer Identification Number, register once with the appropriate Revenue District
Officer (a) within 10 days from employment or (b) on or before commencement of
business, or (c) before payment of any tax due or upon filing of a return, statement or
declaration as required by the Tax Code.

He must pay upon registration, and annually thereafter on or before 31 st of

January, the annual registration fee (P500) for each and every separate or distinct
establishment or place of business and for each type of internal revenue tax for wich he
is obligated.

Exempted from registration fee are: (a) cooperatives, (b) individuals earning purely
compensation income, (c) overseas workers.

2. Taxpayer keeps Books of Accounts

a. Kinds: (i) must maintain journal and a ledger; (ii) may maintain subsidiary books

b. Form: (i) if quarterly gross sales, etc. do not exceed P50,000, use Simplified Set
of Bookkeeping records authorized by Sec. of Finance; (ii) if quarterly gross sales is
over P150,000, books must be audited yearly by a CPA

c. Language: (i) must be in the native language, English or Spanish; (ii) in addition, may
be in another language, but translation must be kept. Keeping of such books in any
language other than native language, English and Spanish is prohibited.

d. Duration of preservation: 3 years from date of last entry.

Gov’t setting up its own position

• 1. Issues the Taxpayer’s Identification Number or TIN;

• 2. Accepts the registration;

• 3. Inspects/ examines the books of account; for income tax purposes, inspection is
done only once a year, except in cases of:

– a. fraud, irregularity or mistake as determined by Commissioner;

– b. taxpayer requests reinvestigation

– c. Verification of compliance with withholding tax laws and regulations;

– d. Verification of capital gains tax liabilities;

– e. In the exercise of the Commissioner’s right to obtain information from other

persons;

• Examination and inspection shall be done in the taxpayer’s office, or place of

business, or in the office of the BIR.

• This examination is made under a “Letter of Authority”.

Powers of the Commissioner to ensure collection of proper tax

• 1.Power to interpret the provisions of the Tax Code and other tax laws- under the
exclusive and original jurisdiction of the Commissioner, subject to review by the Sec. of
Finance;

• 2. Power to obtain information and to summon, examine and take testimony of

persons;

• 3. Authority to conduct inventory-taking, surveillance and prescribe presumptive

gross sales and receipts;
• 4. Authority to terminate taxable period;

• 5. Authority to accredit and register tax agents;

• 6. Authority to prescribe additional procedural or documenary requirements in

connection with the submission or preparation of financial statements accompanying the
tax returns.

• Duty to ensure the provision and distribution of forms, receipts, certificates and
appliances and acknowledgment of payment of taxes.

Under the ideal situation, as a result of the positioning by the taxpayer and the
Government,

• The taxpayer computes for himself his on tax liability correctly and, to inform the
Government of his calculations, files the required internal revenue return and pays the
tax;

• The Government receives the money, and hopefully, spends it properly.

The conflict begins when:

• Either the Government believes the taxpayer paid less that what should have been
paid,

• Or the taxpayer believes he had paid or been made to pay more than what he is
required under the law to pay.

Shots Across the Bow

How does the Gov’t initially try to collect the right amount of tax?
 When the Commissioner or his duly authorized representative finds that proper
taxes should be assessed, he must first notify the taxpayer of his findings.

This is called a “pre-assessment notice” (PAN).

When is a “pre-assessment notice” of PAN not required?

A PAN is not required:

• When the finding for any deficiency tax is the result of mathematical error in the
computation of tax as appearing on the face of the return;

• When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent;

• When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount against the estimated tax liabilities for the
taxable quarter or quarters of the succeeding taxable year;

• When the excise tax due on excisable articles have not been paid;

• When an article locally purchased or imported by an exempt person has been sold,
traded or transferred to non-exempt persons.

What should the preassessment notice contain?

• The taxpayer shall be informed in writing of the law and the facts on which the
preassessment notice was based.
• The taxpayer shall be required to respond to the said notice within 15 days from
receipt and invited to an informal conference at the Revenue District Office.

This is called a “Preliminary Conference.”

II

The Start of the

Actual Shooting

How does the Government start the enforcement of the duty to pay internal revenue
taxes?

When the Government believes that the taxpayer did not pay or paid less than
what he should have paid in taxes, the Government issues an “assessment” which is a
written notice and demand for the settlement of a due tax liability that is definitely set
and fixed therein.

Contents of an assessment

An assessment must contain:

• Notice to the taxpayer stating the amount that is due from him;

• Demand to pay the said amount on or before a certain date.

Examples of what are NOT assessments

• An affidavit, which was executed by the revenue officers stating the tax liability of
the taxpayer and attached to the criminal complaint for tax evasion is not an
assessment.

• A letter transmitting the computation by a revenue officer of the liability and giving
the taxpayer an opportunity to disprove the findings is not an assessment.
 What is the presumption regarding the correctness of an assessment?

Assessments are prima facie presumed correct and made in good faith. In the
absence of proof of any irregularities in the performance of official duties, an
assessment will not be disturbed. The mere failure to present proof of error justifies
judicial affirmation of an assessment.

Within what period may the Government issue an assessment?

Generally, internal revenue taxes must be assessed within three (3) years after the
last day prescribed by law for the filing of the return. A return filed before the last day
shall be deemed filed on the last day. A return filed after the last day shall be
considered filed on such day of actual filing.

When may assessments be issued and the tax collected even beyond the 3-year
prescriptive period?

Exceptions to the prescriptive period are:

• 1. In case of a (a) false or fraudulent return with intent to evade tax or (b) failure to
file a return, the tax may be assessed (and a collection case may be filed in court) at
any time within 10 years after the discovery of the falsity, fraud or omission

• 2. If, before the expiration of 3-year prescriptive period, the Commissioner and the
taxpayer agree in writing to its assessment after such time, the assessment may be
made within the agreed period or its agreed extensions.

In what other instances is the prescriptive period to assess and collect suspended?

• During the time that the Commissioner is prohibited to do so and for 60 days
thereafter;

• When the taxpayer requests for a reinvestigation which is granted by

Commissioner;
• When taxpayer cannot be located in the address stated in the return, when
taxpayer is out of the Philippines, and, as for collection only, when no property can be
located.

What is the effect of the Government’s failure to issue an assessment within the proper
period?

No proceeding in court without assessment for the collection of taxes shall be

begun after the expiration of the three (3) years after the last day prescribed for the filing
of the relevant tax return.

What is the effect of the neglect or refusal of the taxpayer to pay an internal revenue tax
after demand?

The tax due becomes a lien in favor of the Government from the time when the
assessment was made by the Commissioner until paid, with interests, penalties, and
costs that may accrue in addition thereto upon all property and rights to property
belonging to the taxpayer.

What is the effect of the tax lien on third parties?

The lien shall be not be valid against any mortgagee, purchaser, or judgment
creditor until notice of such lien shall be filed by the Commissioner in the office of the
Register of Deeds of the province or city where the property of the taxpayer is situated
or located.

III

The Exchange of

Heavy Artilery Fire

What are the remedies that the government may take to enforce collection of taxes?

• Administrative proceedings: distraint (constructive and/or actual) of personal

property and/or levy of real property

• Judicial action: civil or criminal action

What is the remedy of the taxpayer who does not agree with the tax assessment?

• Before payment: Dispute the assessment within 30 days from receipt; if protest is
denied or unacted upon within 180 days from the Commissioner’s receipt of all the
papers, taxpayer may appeal to the Court of Tax Appeals within 30 days from receipt of
decision or lapse of the 180-day period.

• 2. After payment: Taxpayer may claim for a refund within two (2) years from date of
payment; if claim is denied, or is not acted upon within the said two year period, the
taxpayer may appeal to the Court of Tax Appeals through a Petition for Review within 30
days from receipt of the denial, or, if the refund was not acted upon, appeal to the Court
of Tax Appeals prior to the expiration of the 2-year period.

IV

Surrender of the Taxpayer

What are the administrative remedies of the taxpayer against the collection of taxes?

• The taxpayer may offer to compromise his civil and criminal liability (except for
those where a case has already been filed and those involving fraud) on grounds of (a)
doubtful validity of assessment, and/or (b) clear inability to pay;

• The taxpayer may also ask for abatement upon showing that (a) tax has been
unjustly or excessively assessed and/or (b) cost of collection does not justify collection

Thank You

and

Good Luck