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Exceptions to the issuance of a PAN:

The NIC and the PAN shall not be required in any of the following cases, in which case, a Formal Letter of Demand and Assessment Notice (FLD/FAN) shall be issued outright:

a. Deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return; or

b. A discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or

c. 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 claimed against the estimated tax liabilities for the taxable quarter or  quarters of the succeeding taxable year; or

d. The excise tax has not been paid; or

e. An article locally purchased or imported by an exempt person has been sold, traded or transferred to a non-exempt person [RR 18-2013].

Note: Prior to the issuance of a PAN, the taxpayer may be allowed to make voluntary payments of probable deficiency taxes and penalties [RMC 11-2014]

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Kathang Isip, Inc. (Kii) is a domestic corporation engaged in the business of manufacturing, importing, exporting, and distributing toys both locally and abroad. Its principal office is located in Kalookan City, Philippines. It has 50 branches in different cities and municipalities in the country. When Kii applied for renewal of its mayor's permit and licenses in its principal office in January this year, Kalookan City demanded payment of the local business tax on the basis of the gross sales reported by the corporation in its audited financial statements for the preceding year. Kil protested, contending that Kalookan City may tax only the sales consummated by its principal office but not the sales consummated by its branch offices located outside Kalookan City.

When Kalookan City denied the protest, Kil engaged the services of Atty. Kristeta Kabuyao to file the necessary judicial proceedings to appeal the decision of Kalookan City. Atty. Kabuyao is a legal expert, but resides in Kalibo, Aklan where her husband operates a resort. She, however, practices in Metro Manila, including Kalookan City. The counsel representing the city, in the case filed in Kalookan City by KII, questioned the use of Atty. Kabuyao's Professional Tax Receipt (PTR) issued in Aklan for a case filed in Kalookan City.

(a) Is Kll's contention that Kalookan City can only collect local business taxes based on sales consummated in the principal office meritorious?

(b) Is the Kalookan City counsel correct in saying that Atty. Kabuyao's PTR issued in Aklan cannot be used in Kalookan?

a) Yes, Section 150 of the Local Government Code (LGC) provides that for purposes of collection of taxes on business, when the taxpayer is operating a branch or sales outlet elsewhere, the tax on the sales made therein shall accrue and shall be paid to the city or municipality where such branch or sales outlet is located.

b) No, As provided under Section 139 of the LGC, payment of Atty. Kabuyao of her PTR in Aklan entitles her to practice her profession in any part of the Philippines.

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ABC, Inc. owns a 950-square meter commercial lot in Quezon City. It received a notice of assessment from the City Assessor, subjecting the property to real property taxes (RPT). Believing that the assessment was erroneous, ABC, Inc. filed a protest with the City Treasurer. However, for failure to pay the RPT, the City Treasurer dismissed the protest.

1) Was the City Treasurer correct in dismissing ABC, Inc.’s protest. Explain.

2) Assuming that ABC, Inc. decides to appeal the dismissal, where should the appeal be filed.

1) Yes, the City Treasurer was correct in dismissing ABC Inc.’s protest.

Under Section 252 of the Local Government Code, no protest shall be entertained unless the taxpayer first pays the tax, in which the words “paid under protest” shall be annotated on the tax receipts.

Here, ABC Inc. failed to first pay the real property tax assessed by the Quezon City when it filed a protest before the City Treasurer.

2) Assuming that ABC, Inc. decides to appeal the dismissal, the appeal should be filed with the Local Board of Assessment Appeals (LBAA).

If the local treasurer denies the protest or fails to act upon it within the 60-day period provided for in Section 252, the taxpayer/real property owner may then appeal or directly file a verified petition with the LBAA within sixty days from denial of the protest or receipt of the notice of assessment, as provided in Section 226 of R.A. No. 7160

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Can CIR delegate the power to interpret the Tax Code?

Yes, In the Court En Banc' s Resolution in San Roque dated October 8, 2013, the Court upheld the authority of a Deputy Commissioner to issue interpretative rules. The Court said that the NIRC does not prohibit the delegation of the CIR’s power under Section 4 thereof. The CIR may delegate the powers vested in him under the pertinent provisions of the NIRC to any or such subordinate officials with the rank equivalent to a division chief or higher, subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the CIR. (CIR v. HEDCOR Sibulan, Inc. J. Caguioa)

Can a taxpayer rely on the opinion of OGCS and OSG in applying exemption from surcharges and interest?

In several cases, this Court deleted the imposition of surcharges and interests on the ground that the taxpayer's good faith and honest belief on previous interpretations of the BIR, the government agency tasked to interpret and implement the tax laws, constitute sufficient justification therefor. In these cases, the taxpayers pointed to a specific ruling issued by the BIR declaring that they are exempt from the payment of the assessed deficiency tax.

Here, PAGCOR fails to point to any particular BIR issuance or ruling which categorically declared that it is not subject to income tax and/or FBT. Instead, PAGCOR relies on the opinions of the Office of the Government Corporate Counsel, and the OSG and the Resolutions issued by the Department of Justice - government offices bereft of any authority to implement or interpret tax laws. Thus, the interests and surcharges which under the law are mandated to be imposed, should be upheld. (PAGCOR v. CIR, J. Caguioa)

Can the Commissioner issue administrative rulings inconsistent with the Tax Code?

As earlier stated, Section 4 of the NIRC of 1997, as amended, grants the CIR the power to issue rulings or opinions interpreting the provisions of the NIRC or other tax laws. However, the CIR cannot, in the exercise of such power, issue administrative rulings or circulars inconsistent with the law sought to be applied. Indeed, administrative issuances must not override, supplant or modify the law, but must remain consistent with the law they intend to carry out. The courts will not countenance administrative issuances that override, instead of remaining consistent and in harmony with the law they seek to apply and implement. Thus, in Philippine Bank of Communications v. Commissioner of Internal Revenue, the Court upheld the nullification of RMC No. 7-85 issued by the Acting Commissioner of Internal Revenue because it was contrary to the express provision of Section 230 of the NIRC of 1977. (CONFEDERATION FOR UNITY, RECOGNITION AND ADVANCEMENT OF GOVERNMENT EMPLOYEES
(COURAGE) v. NATIONAL FEDERATION OF EMPLOYEES ASSOCIATIONS OF THE DEPARTMENT OF AGRICULTURE
(NAFEDA), J. Caguioa)

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What is the period of assessment and collection?

Section 203 of the NIRC of 1997, as amended, limits the CIR’s period to assess and collect internal revenue taxes to three (3) years counted from the last day prescribed by law for the filing of the return or from the day the return was filed, whichever comes later. Thus, assessments issued after the expiration of such period are no longer valid and effective. (CIR v. Systems Technology Institute, J. Caguioa)

What is the reason behind the CIR's prescriptive period the right to assess and collect?

It is to safeguard the interests of taxpayers from unreasonable investigation. (CIR v. Systems Technology Institute citing SMI-Ed Philippines Technology, Inc. v. Commissioner of Internal Revenue, J. Caguioa)

Does estoppel apply as an exception to the statute of limitations on the assessment of taxes?

At this juncture, the Court deems it important to reiterate its ruling in Commissioner of Internal Revenue v. Kudos Metal Corporation (2010), that the doctrine of estoppel cannot be applied as an exception to the statute of limitations on the assessment of taxes considering that there is a detailed procedure for the proper execution of the waiver, which the BIR must strictly follow. The BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO 20-90 and RDAO 05-01, which the BIR itself had issued. Having caused the defects in the waivers, the BIR must bear the consequence. It cannot simply shift the blame to the taxpayer.  (CIR v. Systems Technology Institute, J. Caguioa)

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As regards the claims for VAT refund which are administrative in nature, all have been timely filed. The law requires that the administrative claim should be filed within 2 years from the end of the quarter when the sale was made (Sec. 112(A), NIRC as amended by TRAIN Law); hence, the filing of the administrative claim for refund on Mar. 30, 2016 covering the 4 quarters of 2014, complies with the period prescribed by law.

The same is not true, however, as to the judicial claims. Only the judicial claim filed on Aug. 12, 2016 is timely filed. As provided by Section 112(C), 1997 NIRC as amended by TRAIN Law, one of the conditions for a judicial claim of refund or credit under the VAT System is compliance with the 120(NOW 90) + 30 mandatory and jurisdictional period. Strict compliance with the 120(NOW 90) + 30 periods is, thus, necessary for such claim to prosper (CIR v. San Roque).

The Commissioner has been granted by law 90 days within which to decide the taxpayer's claim. Them, if the Commissioner does not act on the taxpayer's claim within the 90 day period, the taxpayer may appeal to the CTA within 30 days from the expiration of the 90 day period. Applying this to the present case, the 90th day from the filing of the administrative claim fell on June 29, 2016. XL Co. may file the judicial claim from June 30 to Aug. 30, 2016; thus, only the judicial claim filed on Aug. 12, 2016 has been timely filed.

Even though Procter & Gamble (P&G)filed its judicial claim without waiting for the expiration of the one hundred twenty (120)-day mandatory period, the Court of Tax Appeals (CTA) may still take cognizance of the case because the claim was filed within the excepted period stated in Commissioner of Internal Revenue v. San Roque Power Corporation- In this case, records show that P&G filed its judicial claims for refund on March 28, 2007 and June 8, 2007,respectively, or after the issuance of BIR Ruling No. DA-489-03,but before the date when Aichi Forging Company of Asia, Inc.  was promulgated. Thus, even though P&G filed its judicial claim without waiting for the expiration of the 120-day(NOW 90 day) mandatory period, the CTA may still take cognizance of the case because the claim was filed within the excepted period stated in
Commissioner of Internal Revenue v. San Roque Power Corporation. In other words, P&G’s judicial claims were deemed timely filed and should not have been dismissed by the CTA. (P&G Asia v. CIR, J. Caguioa)

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After a Bureau of Internal Revenue (BIR) audit, T. Corp., a domestic corporation engaged in buying and selling of scrap metals, was found to have deficiency income tax of Php 25,000,000.00, including interests and penalties, for the year 2012. For 2012, T Corp. filed its income return (ITR) on April 15, 2013 because it used the calendar year for its accounting. The BIR sent the Preliminary Assessment Notice (PAN) on December 23, 2015, and eventually, the Final Assessment Notice (FAN) on April 11, 2016, which were received by T Corp. on the same dates that they were sent. Upon receipt of the FAN, T Corp. filed it protest letter on June 25, 2016.

Thereafter, and without action from the Commissioner of Internal Revenue (CIR), T. Corp. filed a petition for review before the Court of Tax Appeals, alleging that the assessment has prescribed. For its part, the CIR moved to dismiss the case, pointing out that the assessment had already become final because the protest was filed beyond the allowable period.

a) Is T Corp.’s contention regarding the prescription of the assessment meritorious? Explain.

b) Should the CIR’s motion to dismiss be granted? Explain.

a) No, T Corp.’s contention regarding prescription of the assessment is not meritorious.

Under Section 203 of the National Internal Revenue Code, as a general rule, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return. The deadline for filing the annual income tax return (ITR) of corporations is the 15th day of the 4th month following the close of the fiscal year.

Here, the 15 day of the 4th month following the close of the fiscal year 2012 of T Corp. is April 15, 2013, which is also the date the ITR of T Corp. was filed. The BIR has until April 15, 2016 to assess for proper taxes. The FAN was sent to and received by T Corp. on April 11, 2016, which is within the prescriptive period.

b) Yes, the CIR’s motion to dismiss should be granted.

The taxpayer or authorized representative or agent has thirty (30) days from date of receipt of the FAN to protest the same. If the taxpayer fails to file a valid protest against the FAN within 30 days, the assessment shall become final executory and demandable. (RR18-13).

Here, T Corp. received the FAN on April 11, 2016. T. Corp has until May 11, 2016 to protest the same. However, T Corp. only filed the protest letter on June 25, 2016.

Thus, the motion to dismiss should be granted.

On May 10, 2011, the final withholding tax for certain income payments to W Corp. was withheld and remitted to the Bureau of Internal Revenue (BIR), and the corresponding return therefor was concomitantly filed on the same date. Upon discovering that the amount withheld was excessive, W Corp. filed with the BIR a claim for refund for erroneously withheld and collected final withholding income tax on May 3, 2013. A week after, and without waiting for any decision from the Commissioner of Internal Revenue (CIR), W Cor. Filed a petition for review before the Court of Tax Appeals (CTA) to make sure that the petition was filed within the two (2)-year period for claiming refunds.

In resisting the claim, the BIR contended that the claim must be dismissed by the CTA on the ground of non-exhaustion of administrative remedies because it did not give the CIR the opportunity to act on the claim of refund.

a) Is the BIR’s contention meritorious? Explain.

b) Assuming that the claim for refund filed by W Corp. is for excess and/or unutilized input VAT for the second quarter of 2011, and for which the return was timely filed on July 25, 2011, would your answer be the same? Explain.

a) No, the BIR’s contention is not meritorious.

Sections 204 and 229 of the NIRC pertain to the refund of erroneously or illegally collected taxes. Section 204 applies to administrative claims for refund, while Section 229 to judicial claims for refund. In both instances, the taxpayer’s claim must be filed within two (2) years from the date of payment of the tax or penalty. However, Section 229 of the NIRC further states the condition that a judicial claim for refund may not be maintained until a claim for refund or credit has been duly filed with the Commissioner. However, Section 229 does not imply that the Collector of Internal Revenue (CIR) first act upon the taxpayer’s claim, and that the taxpayer shall not go to court before he is notified of the Collector’s action. The claim with the CIR was intended primarily as a notice of warning that unless the tax or penalty alleged to have been collected erroneously or illegally is refunded, court action will follow, but the period of two years provided in the last clause shall not be deemed interrupted pending consideration of the claim. (CBK Power Company vs CIR, G.R. No. 193383-84, January 14, 2014).

b) No, the answer will not be the same.

For value-added tax (VAT) refunds, Section 112 of the Tax Code provides that the taxpayer, whose sales are zero-rated or effectively zero-rated, has two years after the close of the taxable quarter when the sales were made, to apply for an administrative claim for refund. Thereafter, the Commissioner of Internal Revenue (CIR) has 120 days( now 90 days) from the submission of complete supporting documents to act upon the claim for refund. In case of full or partial denial of the claim or failure of the CIR to act on the application within 120 days, the taxpayer may appeal with the Court of Tax Appeals (CTA) within 30 days from receipt of the decision or upon expiration of the 120-day period (now 90 days).

In the case of CIR vs. Aichi (GR No. 184823 dated October 6, 2010), the Supreme Court (SC) held that the observance of the 120-day period is a mandatory and jurisdictional requisite to the filing of a judicial claim for refund before the CTA. As such, its non- observance would warrant the dismissal of the judicial claim for lack of jurisdiction.