Monday, October 27, 2014

Is a compromise settlement a remedy for taxpayer importers?

ONCE the tax assessment is rendered final and the collection stage begins, taxpayers have an option to file for a compromise settlement to pay for a reduced amount, in meritorious cases.


Revenue Regulations No. (RR) 30-2002, as amended, provides for specific grounds when a taxpayer can request for compromise settlement: (1) when there is doubtful validity in the tax assessment or (2) when there is financial incapacity on the part of the taxpayer. In either case, the taxpayer has the burden of proof and is obligated to pay the amount of the compromise offer -- which ranges from 10% to 40% of the basic deficiency taxes -- before filing the application for settlement. Otherwise, the application will not move forward.

Taxpayers with pending applications for compromise settlements face the risk of accruing interest on the unpaid balance of the previously assessed amount in case their application is later denied by the BIR. It normally takes years for the BIR to issue its final decision on the matter, so concerned taxpayers have to diligently follow up the status of their application and secure the BIR’s approval.

In other cases, because of the time it takes the BIR to issue its decision on the compromise offer, the five-year prescription period to collect by the BIR expires. In such situation, the BIR may no longer collect the balance of the compromise offer should the application be later denied.

source:  Businessworld

At any rate, the application for a compromise settlement is a remedy on the part of the taxpayer that is recognized by tax regulations.

However, some taxpayers, particularly importers, were surprised by the apparent impact of Revenue Memorandum Order No. (RMO) 10-2014, as amended by RMO 33-2014, on compromise settlement process. Under these RMOs, a regular BIR Importer Clearance Certificate (ICC) cannot be issued to the applicant importer with a pending application for compromise settlement since taxpayers with pending compromise application is considered as having a delinquent account in the BIR’s database. Instead, only a provisional accreditation will be issued with a validity of six months, on the condition that it is filed on or before July 31, 2014. After such date, no provisional ICC may be issued.

Further, in case the application for compromise settlement is not favorably acted upon by the concerned BIR office within the said six-month period, the same shall be considered as a valid ground for the eventual denial of the application for the issuance of a regular accreditation.

Thus, the above RMOs have a tremendous impact on the business operations of importers. Don’t these RMOs, in effect, negate importers’ right to enter into a compromise settlement, since the need to secure the regular BIR ICC would compel the taxpayer-importer to immediately settle the balance of the compromise offer? Thus, the issuance of RMO 10-2014 and 33-2014 impacts the business operations of taxpayers with pending application for a compromise settlement. For the importers, no importation could mean no business.

Perhaps the BIR could offer some flexibility for taxpayers-importers with pending applications for compromise settlement. One option is to consider an application approved if it is not acted upon by the BIR within the six-month period. Another option is to extend the six-month provisional period up to the time that the BIR renders its decision on the application for compromise.

If these are not possible, it is the hope of taxpayers-importers that the BIR would come up with an issuance that would address their concerns on their application for compromise settlement. After all, we should all help build the business sector for the development of the Philippine economy.

On the part of the taxpayers-importers, a second look at the remedy of compromise settlement should be made as early as the commencement of the BIR assessment process. Or better yet, even before the BIR’s assessment process, the taxpayers-importers should be very cautious of tax exposures that have to be reviewed and corrected, so that the risks of BIR assessment findings could be mitigated.

In conclusion, there are obvious risks to compromise settlements. Taxpayers must assess these risks vis-à-vis the amount of tax findings.

Due diligence is pertinent.

Madel V. Ramos is a tax associate with the Tax Advisory and Compliance division of Punongbayan & Araullo.

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