Appealing a BIR ruling

ASIDE from the pork barrel scam issue, I think that by now, many taxpayers are aware that the Bureau of Internal Revenue (BIR) is working doubly hard to attain its collection goal. One of its strategies to achieve its target is to strictly enforce tax laws. This has resulted in the denial of request for rulings issued to some taxpayers, including the rulings on upstream merger (BIR Ruling No. 508-2012, Aug. 3, 2012), deductibility of royalties (BIR Ruling No. 014-2012, Jan. 4, 2012) and NOLCO (BIR Ruling No. 214-2012, March 28, 2012), among others.

Taxpayers who received unfavorable rulings from the BIR may be wondering what their remedy could be. Can they still file a request for reconsideration of the BIR ruling issued to them? Or, can they go directly to the Court of Tax Appeals (CTA) and question the decision of the BIR?

In Department Order No. 23-01, issued by the Department of Finance, a taxpayer who receives an adverse ruling from the BIR may, within 30 days from receipt of such ruling, file a request with the Secretary of Finance to review the opinion of the BIR. The request for review must be in writing and must contain all the information required under said Order. This administrative remedy must be exhausted first before a taxpayer can go to the Court and question the unfavorable ruling issued by the BIR.

In a CTA decision (CTA EB Case No.874), the CTA En Banc ruled that the “jurisprudence have it that before a party is allowed to seek the intervention of the court, it is a pre-condition that he should first avail of all available administrative remedies under the rules. Hence, if a remedy within the administrative machinery can still be resorted to by giving the administrative officer concerned every opportunity to decide on a matter that comes within his jurisdiction, then such remedy should be exhausted first before the court’s judicial power can be sought. The premature invocation of the court’s intervention is lethal to one’s cause of action...”

Hence, a taxpayer can seek the Court’s action only after exhausting all available administrative remedies.

If after filing a request for review with the Secretary of Finance, the taxpayer still receives an unfavorable response, the question then is, where should the taxpayer file the petition for review? Does it now fall under the jurisdiction of the CTA?

Based on Section 7 of Republic Act (RA) No. 1125, as amended by RA No. 9282 (an Act expanding the jurisdiction of the CTA), one of the jurisdictions of the CTA is to review by appeal the “decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue.”

Based on this, it seems that with regard to issues with the BIR, the cases that may be brought to the CTA are not limited to decisions involving disputed assessments or refunds of internal revenue taxes. It may also involve other matters arising under the Tax Code or other laws administered by the BIR. Hence, it appears that the adverse ruling issued by the BIR to a taxpayer may also be filed for appeal with the CTA. The CTA, however, has a different view.

In the same CTA decision, the Court ruled that if the action essentially involves the validity or constitutionality of a law or administrative ruling, the CTA has no authority to rule on it. Instead, the Regional Trial Court (RTC) has jurisdiction over the said issue. Accordingly, the case was dismissed.

The same view was taken by the CTA in CTA Case No. 8360. In this particular case, the petitioner requested a ruling with the BIR to confirm the petitioner’s position that its purchases qualify for value-added tax zero rating. The BIR’s response was negative. The petitioner then filed a Request for Review of the said BIR ruling with the Secretary of Finance.

The Secretary of Finance, in its letter dated Sept. 8, 2011, addressed to the petitioner, affirmed the position of the BIR. The petitioner filed a Petition for Review with the CTA to assail the validity of the said BIR ruling and the letter issued by the Secretary of Finance. The CTA, however, ruled that its jurisdiction to resolve tax disputes, in general, does not include cases where the validity or constitutionality of a law or a rule or regulation issued by the administrative agency in the performance of its quasi-legislative function is challenged. Accordingly, the issue pertaining to the validity of the BIR ruling, among others, is beyond the jurisdiction of the CTA.

Other than exhausting all the administrative remedies, taxpayers should be aware of the legal remedies and the proper venue for filing a petition for review. A technicality may lead to the dismissal of a case, or worse, to significant amount of assessment against the taxpayer.

The author is a partner with the tax advisory and compliance division of Punongbayan & Araullo. P&A is a member firm within Grant Thornton International Ltd.

source:  Businessworld