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TAXATION LAW II NOTES | Under Atty. Llamado If return filed after the last day- 3 years counted from last day of actual (Late) filing Exception: 10 years from date of discovery of non- filing of return; filing of false or fraudulent return with intent to evade tax.

TAXPAYER’S REMEDIES Administrative payment

Protest-

Taxpayer’s

remedy

before

Assessment Process (RR 12-99), General (Amended by RR 18-2013) 1.

2. 3. 4. 5.

6. 7. 8.

Period of collection  5 years from assessment  10 years- without assessment, in case of false or fraudulent return with intent to evade tax or failure to file return

Tax Audit: examination of books of accounts and other accounting records Issuance of letter authority Notice of Informal Conference Issuance of Preliminary Assessment Notice (PAN) Exceptions to issuance of PAN Reply to PAN-15 days from receipt. In meritorious and upon written request, extension not exceeding 10 days may be given the TP to respond. (Sec. 3 (a), RR No. 12-85) Issuance of Formal Letter of Demand and Assessment Notice/Final Assessment Notice Disputed Assessment – reply of taxpayer Administrative Decision on a Disputed Assessment

“Sec 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxesa)

Thus, in case of a false or fraudulent return with intent to evade tax, or failure to file a return, BIR has two options

Requisites of a Valid Assessment

1.

Monthly VAT- calibrate at the end of the quarter FAR- you cannot do monthly adjustment return of income VAT- quarterly VAT return Withholding- monthly (every actual withholding) Date of filing the return Before due date On due date Beyond due date Fraudulent filing

Non-filing

10th

2.

of the month following the

Prescriptive period of Assessment

3 years from actual filing 10 years from discovery of bad faith/fraud

Prescriptive period of Collection

2)

5 years from receipt of FAN by taxpayer;

3)

1)

NOTE: if taxpayer files fraudulent return or did not file any return, the BIR may collect without assessment within 10 years of filing of fraudulent return or discovery of nonfiling

4)

5)

Fraud is a question of fact that cannot be presumed but must be sufficiently established. Mere understatement of income does not constitute fraud. It must be proven as a fact that there was intentional and substantial understatement of tax liability. Fraud exists in case of substantial and intentional overstatement or deductions, i.e., when there are fictitious expenses. Fraud is a question of fat. And the circumstances constituting fraud must be alleged and proved in court. Fraud constituted by law is actual and not constructive. Must amount wrong doing with sole object of avoiding tax. (Aznar v. Collector, 8 SCRA 519)

What constitutes a false return? 1)

10 years from discovery of non-filing

Period of Assessment GR: 3 years from last day of filing of return If return filed before last day- 3 years counted from last day of filing (as provided by law) © DimDoms

Asses the correct tax liability ( within 10 years from date of discovery) and subsequently collect on said assessment within 5 years from assessment; or File a proceeding in court for collection within 10 days from date of discovery (of the falsity, fraud or omission) without assessment.

What constitutes fraud?

3 years from due date 3 years from due date

In the case of a false or fraudulent return with intent to evade tax or a failure to file a return, the tax may be assessed OR a proceeding in court for the collection of such tax may be filed without assessment, at any time within 10 years from discovery of the falsity, fraud, or omission.”

2)

1

SC reiterated the declaration in the Aznar case that a “mere showing that the returns filed by the taxpayer were false, notwithstanding the absence of intent to defraud, is sufficient to warrant the application of the 10-year prescriptive period under Section 222 of the NIRC” (CIR v. Asalus Corporation) SC stated that the entry of wrong information due to mistake, carelessness, or ignorance, without intent

TAXATION LAW II NOTES | Under Atty. Llamado

3)

6.

to evade tax, does not constitute a false return. (CIR v. Philippine Daily Inquirer) CTA En Banc- “Each and every error does not and should not result in the operation of the 10-year prescriptive period. Otherwise, on the strength of the Aznar definition of “flasks returns”, BIR examiners conducting regular tax audits, who logically as a matter of course, would always come up with tax findings of either under declaration of income or over declaration of deductions, or both, could mercilessly or arbitrarily raise the argument of “false return” giving rise to the 10 year prescriptive period. (CIR v. Hoya Glass Disk Philippines)

Duty of TP to submit duly executed waiver to CIR or officials designated in the LOA who shall indicate acceptance by signing the same. a) b)

Accepted prior to expiry date TP’s duty to retain a copy

7.

Note the two (2) material dates indicated in the waiver:

a) b)

Date of execution by TP/authorized representative; and Expiry date of Period of TP’s waiver.

8.

Before the expiry date, waiver may be extended.

SUSPENSION of Period of Assessment/ Collection Start of Tax Audit: Issuance of LOA/TVNs/LN 1)

2)

3) 4) 5) 6)

3 year period may be SUSPENDED- if TP and BIR execute a waiver against prescription of assessment before the end of the 3 year period, or in the case of a subsequent extension, before the end of the period so stated I n the previous/earlier waiver. When the CIR prohibited from collecting on the tax, such as when TP appeals the decision of the CIR on disputed assessment with the CTA. When TP requests for reinvestigation which is granted by the CIR. When the TP cannot be located in the address given in the return When warrant of distraint or levy is duly served and no property could be located. When TP is out of the Philippines.

TAX VERIFICATION NOTICE (VTN)- issues for the ff. Cases ( by head of office) not requiring in-depth investigation:    

To verify estate taxes when TP has no other tax liabilities Processing of VAT refund claims under Sec. 112 Claims for tax refund of Job Order Personnel Claims for tax refund for erroneous/double payment of taxes

LETTER NOTICE- issued to explain variances on tax payments based on matching with third-party information (e.g. Summary list of sales v. Summary List of Purchases) LETTER OF AUTHORITY- in-depth investigation

SUSPENSION of Period of Assessment/Collection On waivers- (as RMO 20-90, as amended by RMO 142016) 1.

Not necessarily in the form prescribed by RMO 2090. Valid for as long as following are complied with:

a)

Waiver executed before expiration of period to ASSESS or to COLLECT. Date of execution should be indicated in waiver; Signed by taxpayer or duly authorized representative; Should state the EXPIRY date of Period agreed upon to assess/collect tax.

b) c)

2.

Except for waiver on COLLECTION, not required to indicate specific taxes assessed.

3.

TP charged with burden of ensuring that waivers are validly executed by its authorized representative. Authority of rep. Who participated on audit cannot be contested to invalidate waiver.

4.

Not required to be notarized. Required to be in WRITING.

5.

Since voluntary on part of TP, shall take effect and be binding on TP upon execution.

© DimDoms

Taxpayer’s remedies A. Administrative Protest of Assessment B. Claim for Refund C. Appeal to the CTA Assessment Process (under RMO 12-99) Filing of return-> letter of authority-> informal conference-> PAN-> FAN-> Administrative protest-> final decision on disputed assessment-> appeal to CIR-> judicial appeal Due Process Requirements in the Issuance of Tax Assessment (RR 18-13)

PAN

FLD/FAN

NOTE: Notice for Informal reintroduced under RR 7-2018

2

FDDA

Conference

(NIC)-

TAXATION LAW II NOTES | Under Atty. Llamado Procedure in Protesting the Assessment

o o o o

NIC PAN

To verify estate taxes when TP has no other tax liabilities Processing of VAT refund claims under Sec. 112 Claims for tax refund of Job Order Personnel Claims for tax refund for erroneous/double payment of taxes

LETTER NOTICE – Issued to explain variances on tax payments based on matching with third-party information(eg. Summary list of sales v. Summary list of Purchases)

FLD/FAN

LETTER OF AUTHORITY – In-depth Investigation. There is no substitute for LOA. In 120 days, it needs to be done.

ADMIN PROTEST

o o o o o

FDDA

LOA tells you who are the personnel assigned to investigate. Memorandum of Assignment Process Starts with LOA If none, there will be no valid assessment This should cover one taxable year

XPN: If there is a tax force (POGO already has a tax force for assessment. The LOA covers more than one-year)

APPEAL TO CIR

NOTICE OF INFORMAL CONFERENCE (NIC) Requisites:

JUDICIAL APPEAL

1. 2.

Remedies in conjunction with the BIR authority to collect taxes o o

3. 4.

LGU are proactive in making assessment. This is for DUE PROCESS A. PROTEST

SUSPENSION of Period of Assessment/Collection

PRELIMINARY ASSESSMENT (PAN)

On Waivers – As RMO 20-90, as amended by RMO 14-2016 1.

1. 2.

Not Necessarily in the form prescribed by RMO 2090. Valid for as long as ff. are complied with:

3. a)

b)

Waiver executed before expiration of period to ASSESS or to COLLECT. Date of execution should be indicated in waiver – YOU WILL BE THE ONE TO ASSESS, BIR WILL CHECK. Signed by taxpayer representative

or

duly

4. 5. 6.

authorized 7.

c) 2.

Should state the EXPIRY date of period, agreed upon to assess/collect tax. Except for waiver on COLLECTION, not required to indicate specific taxes assessed.

8. 9.

TAX VERIFICATION NOTICE (TVN) Issued for the ff. cases (by head of Office) not requiring indepth investigation © DimDoms

In writing Contain discrepancies in the TP’s tax payments to afford TP opportunity to present his/her/its side Shall not extend beyond 30 days If assessment is disputed, within 7 days from conclusion of the informal conference, BIR official shall endorse case to Assessment Division or CIR/DULY authorized rep. for issuance of PNA.

3

In Writing Must contain the facts and law on which it is based otherwise, void NO PAN = Void assessment for lack of due process. Substantive and not merely a formal requirement TP must be given an opportunity to respond to the PAN; otherwise, the FAN issued shall be void 15 days to respond to the PAN. SCENARIO: If a REPLY of a FAN was sent a day after the TP responds to the PAN, there is no violation of due process. However, if a FAN is sent without a REPLY, will be a violation of due process. MUST indicate the specific period within which the alleged tax liabilities shall be paid NOT REQUIRED WHEN: a. Mathematical Error – Merely factual, no contest b. Discrepancy between the tax withheld and the amount actually remitted

TAXATION LAW II NOTES | Under Atty. Llamado c.

d. e.

Taxpayer who opted to claim a refund or tax credit of excess CWT carried over the amount – PLEASE RECALL: i. Witholding Tax- Income payee and Income recepient. Excise tax has not been paid An article locally purchased or imported by and exempt person has been sold or traded to non-exempt persons. Ex. PEZA.

2.

Date of the assessment notice; and

3.

The applicable law, rules and regulations, or jurisprudence on which his protest is based, otherwise, his protest shall be considered void and without force and effect.

FINAL DECISION ON DISPUTED ASSESSMENT (FDDA) APPEAL TO THE CIR

FINAL ASSESSMENT NOTICE (FLD/FAN) If the protest is denied, in whole or in part, by the commissioner’s duly authorized representative, the taxpayer may either:

1. Must be in writing. Contains name address, TIN; kind of tax, period covered, basic tax and penalites: date tax must be paid. It will include a summary table, and will be attached with a details of discrepancy, and possible sources. 2. State the facts, the law, rules, regulation, or jurisprudence on which assessment is based; otherwise, the assessment shall be void.

1.

Appeal to the CTA within thirty (30) days from date of receipt of the said decision; or

2.

Elevate his protest through request for reconsideration to the Commissioner within thirty (30) days from date of receipt of the said decision. (RR 18-13)

3. Signed by the CIR or his authorized rep.

JUDICIAL APPEAL

4. Issued within the prescriptive period under the law or extended period agreed upon between the parties o

Within 30 days from denial of protest or denial of request for reconsideration to the CIR; OR within 30 days from lapse of 180 days from the filing of protest

o

Petition for Review before the CTA

5. Served by personal delivery or be registered mail to proper person 6. FAN is covered by validly issued LOA

COMPUTATION OF DEFICIENCY TAX

ADMINISTRATIVE PROTEST 1.

2. 3.

o o

Within 30 days from receipt of FLD/FAN CLAIM FOR REFUND Request for Reconsideration or Request for Reinvestigation In case of Reinvestigation, submit documents within 60 days from filing of protest – STRICT COMPLIANCE NEEDED

SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - no suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

Request for Reconsideration -

A plea of re-evaluation of an assessment on the basis of existing records without addtl evidence. It may involve both a question of fact or of law or both.

Request for Reinvestigation -

A plea of re-evaluation of an assessment on the basis of newly discovered or additional evidence that a taxpayer intends to present in the reinvestigation. It may also involve a question of fact or of law or both.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, 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.

The taxpayer shall state in his protest: 1.

Nature of protest whether reconsideration or reinvestigation, specifying newly discovered or addtl evidence he intends to present if it is a request for reinvestigation;

© DimDoms

Deficiency Interest: Computed from the 1M Delinquency Interest: Computed from the 1.4M

4

TAXATION LAW II NOTES | Under Atty. Llamado adjustment return on or before April 15,1982 when its tax liability for 1981 fell due. (ACCRA Investments Corp. vs. CA)

Section 229 vs. section 112 (A) o

1.

2.

o

o o

o o

Claim for refund under section 112 (A) for unutilized input VAT payments attributable to zerorate sales- must be filed with CIR within 2 years AFTER THE CLOSE OF THE TAXABLE QUARTER when the sales were made.

In filing for claims for excess and unutilized creditable withholding taxes, TP should satisfy the ff. Conditions: 1. 2.

The CIR has 90 days (120) days to decide on the claim.

3.

Within 30 days from the decision of the CIR (before the lapse of the 30 day period) of within 30 days from the lapse of the 90 (120) day period, and no action from the CIR, the TP shall file an appeal with the CTA. (CIR v. Aichi, G.R, No, 184823, October 10, 2010)

4.

Claim for refund under Section 229 - must be filed within 2 years from DATE OF ACTUAL PAYMENT. Administrative and Judicial Claim must be filed within the 2-year period. Final Adjustment Return- April 15 When do you withhold? It is reckoned from the time of the erroneous payment of tax



The proper party to seek a refund of indirect tax is the statutory taxpayer

o

The proper party to question, or seek refund of, an indirect tax is the statutory taxpayer, or the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another.

o

In a decided case, Petron is the proper party to seek a refund even if passed on the indirect tax to Silkair. (Silkair v. CIR)

The seller is the one liable, as he is the one statutorily liable to pay the VAT. PEZA registered entities- exempt

o

Sec. 112 speaks of zero-rated sale transaction. Exporters to foreign territory.

o

Tax refunds founded principally on the legal principle of solutio indebiti (UNJUST ENRICHMENT)

JUDICIAL REMEDY A. Jurisdiction of CTA B. Who may appeal C. Mode of Appeal I.

Tax refunds may be based on the following:

Requirements for Claim for Refund

2)

In case of payments effected through withholding tax system- 2 year period counted from the date of filing of the adjusted final tax return.

The petitioner corp. not claiming a refund of overpaid WT, per se. It is asking for recovery of the amount refundable or creditable determined upon petition’s corp. filing of its final © DimDoms

5

Jurisdiction

to

Review

by

Decision of the CIR in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges or other matters arising under the NIRC or other laws administered by the BIR (mode: petition for review under Rule 42)

2.

Inaction by the CIR in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation three to, or other matters arising from NIRC or other laws administered by the BOR, where the zanria provides a specific period for action, in which case the inaction shall be deemed a denial (mode: petition for review under Rule 42)

3.

Decisions, orders or resolutions of the RTC in local tax cases originally decided in th...