Guidelines on protest letters

IN LINE with its mandate to collect taxes due to the government, the Bureau of Internal Revenue (BIR) is given the authority to conduct regular tax examinations of taxpayers’ books of accounts and other accounting records. These examinations would normally result in deficiency tax findings, which, in most cases, would lead to issuance of tax assessments against the concerned taxpayer.

The rules governing the assessment of national internal revenue taxes are provided in Section 228 (formerly Section 244) of the 1997 Tax Code, as amended, and in the various implementing rules and regulations, principally, Revenue Regulations (RR) No. 12-99, which I have briefly summarized below.

The investigation commences with the issuance of a Letter of Authority (LoA) by the BIR authorizing the examination of the taxpayer’s books and records for a particular year by the revenue officers named therein. If the audit results in deficiency tax findings, the BIR issues a Notice of Informal Conference (NIC), to which the taxpayer may respond either in writing or through a preliminary conference with the revenue examiners, normally within 15 days from receipt of the NIC. If the issues are not resolved, the BIR will proceed with the issuance of a Preliminary Assessment Notice (PAN) proposing to assess deficiency taxes. The taxpayer may protest the PAN in writing, normally also within 15 days. If no protest against the PAN is received, or if the BIR does not agree with the protest filed, the BIR shall issue a Final Assessment Notice (FAN) containing the facts as well as the laws, rules, regulations, or jurisprudence on which the assessment is based. Within a period of 30 days from the date of the taxpayer’s receipt of the FAN, he must file his written protest or request for reinvestigation/reconsideration with the BIR stating the facts, the applicable law, rules and regulations, or jurisprudence on which the protest is based. Failure to make a proper and timely protest will render the FAN final and executory. After the filing of the protest, the taxpayer still has another 60 days within which to submit the relevant supporting documents.

Clearly based on these rules, the filing of an administrative protest against the FAN is of utmost importance since a default would leave the taxpayer with no other recourse but to pay the deficiency tax assessed, regardless of whether the same is valid or not. Being a critical part of the assessment process, the filing of the administrative protest must be done in the proper form and within the time prescribed by the law. However, it has been observed by the BIR that in numerous cases, protest letters, although proper in form and filed within the prescribed deadline, were not filed with the proper offices of the BIR. This has led to the conduct of unwarranted reinvestigation of cases, and consequently to the undue accumulation of delinquent accounts and the premature enforcement of summary remedies against the concerned taxpayers.

To put order in the filing procedures of protest letters, the BIR has issued Revenue Memorandum Circular (RMC) No. 39-2013, dated April 4, 2013, which provides the guidelines in the receipt of protest letters, requests for reinvestigation/reconsideration, and other similar correspondences from taxpayers. RMC No. 39-2013 basically supplements RR No. 12-99 and outlines the following procedures:

1. All letters of protests, requests for reinvestigation/ reconsideration and other similar correspondences shall only be filed by the taxpayer or his duly authorized representatives, in person or through registered mail with return card. Filing shall be made with the Office of the concerned Regional Director (RD), Assistant Commissioner-Large Taxpayers Service (ACIR-LTS), and Assistant Commissioner-Enforcement Service (ACIR-ES), who signed the PAN, FAN and Formal Letters of Demand, for proper recording of the protests, and evaluation if the protests are in accordance with Section 228 of the Tax Code, as implemented by RR No. 12-99.

This procedure must be strictly followed by taxpayers since failure to do so would render the letter of protest, request for reinvestigation/reconsideration and other similar correspondences void and without force and effect.

2. After filing is made, the revenue officers above-mentioned are primarily mandated to ensure that complete/accurate reports on all protests filed with their respective offices are properly prepared in the prescribed form and that said reports are promptly submitted to the Commissioner of Internal Revenue (CIR) every Monday of each week in hard and soft copies. The soft copy of the report shall be e-mailed to the personal e-mail addresses of the CIR and her duly authorized representative (kim.jacinto-henares@bir.gov.ph and flor.mercado@bir.gov.ph).

3. Based on the weekly report submitted, the Office of the CIR shall create a database of all letters of protest, requests for reinvestigation/reconsideration and other similar correspondences received by the different offices of the BIR. The said database shall be regularly updated for purposes of providing accurate information on the matter to all concerned officials and employees.

4. Any letter of protest, request for reinvestigation/ reconsideration or other similar correspondences allegedly filed by any taxpayer but not included in the aforementioned database shall be deemed not officially filed with the BIR and shall not be used as basis for granting any request for reinvestigation/ reconsideration of any FAN or Final Decision on Disputed Assessment (FDDA) issued against the taxpayer.

While the issuance of RMC No. 39-2013 will certainly aid the BIR in monitoring all letters of protest, requests for reinvestigation/reconsideration and other similar correspondences, it raises some concerns on the part of the taxpayers, specifically with respect to provision number 4 above, which effectively considers invalid or as not having been officially filed any letter of protest or a request for reinvestigation/reconsideration which is not included in the CIR database. Since the creation of the CIR database is largely dependent on human effort, it cannot be absolutely free of human mistakes, inadvertence, or negligence. If this rule is strictly implemented, taxpayers who have faithfully filed their protest letters in accordance with the prescribed procedures may stand to lose in an assessment case simply because of possible procedural lapses on the part of the concerned officers of the BIR. RMC No. 39-2013 apparently does not contain any provision protecting the rights of the taxpayers in case of inadvertence or negligence by revenue officers, much less imperfections in the internal system of the BIR.

Accordingly, if only to protect their rights, taxpayers would be faced with the burden of further monitoring the BIR’s compliance with the procedures stated in RMC No. 39-2013, literally starting from the preparation of the complete/accurate report, then to the submission of the hard copy of the report to the CIR and the e-mailing of the soft copy to the CIR e-mail address, and up to the actual uploading of their respective protest letters to the CIR database. If necessary, taxpayers may need to secure a certification from the CIR that their protest letter is already included in the CIR database.

Generally, RMC No. 39-2013 is useful in establishing an effective assessment process. However, on a practical level, I believe that this should be revisited to ensure that implementation of the guidelines on receipt of protest letters, requests for reinvestigation/reconsideration, and similar correspondences will equally provide the taxpayers adequate protection of their right to due process.

The author is a senior consultant at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PricewaterhouseCoopers global network. Send inquiries or feedback to laverne.a.bacaser@ph.pwc.com.

The views or opinions presented in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co.. The firm will not accept any liability arising from such article.

source:  Businessworld