IT’S NO SECRET that the Bureau of Internal Revenue (BIR) was strongly opposed to our legislators’ bill to increase the tax exemption ceiling on employee bonuses to P82,000 from the previous P30,000. With the law now in place and the BIR having issued the implementing regulations just this week, most people expect the BIR to find ways to make up for the lost revenue, even as it lowered its income projection for 2015.
Aside from regular and voluntary tax payments, the BIR’s other main revenue source is collections from tax audits or investigations.
The tax findings assessed during BIR examinations normally involve both factual and legal issues. Primarily for the factual issues, but even for the legal ones, the resolution will depend largely on the availability and quality of the documents to support the transactions involved and the taxpayer’s position.
Under the Tax Code and existing regulations, once a Final or Formal Assessment Notice (FAN) is issued, the taxpayer has 30 days from receipt of the FAN to file a written protest, and 60 days thereafter to submit all necessary supporting documents. These timelines are crucial because failure to properly protest a FAN will make the assessment final and executory.
If the taxpayer determines that supporting documents are necessary (as most often is the case), these may be submitted simultaneously together with the written protest or subsequently, after the protest has been filed, but within the 60-day period. According to the Supreme Court in the case of the Commissioner of Internal Revenue vs. First Express Pawnshop Company, Inc. (G.R. Nos. 172045-46, June 16, 2009), the term “relevant supporting documents” should be understood as those documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit additional documents but it cannot demand what type of supporting documents should be submitted. Otherwise, the BIR may require the taxpayer to produce documents that a taxpayer cannot submit thus putting the taxpayer at the mercy of the BIR.
The Court of Tax Appeals has taken note of this guiding jurisprudence in a number of its decisions. Thus, in a couple of decisions issued late last year, the tax court ruled in favor of two taxpayers involving this same issue.
In one case, the taxpayer submitted documents together with its protest letter. It did not separately submit any other supporting documents within the 60-day period. Subsequently, upon request of the BIR, the taxpayer submitted additional documents. The BIR retained its assessment, claiming that the taxpayer failed to submit the relevant supporting documents within the 60-day period, thereby making the assessment final.
In another case, the taxpayer submitted a protest letter without any supporting documents. The BIR rendered a decision denying the protest, claiming that the assessment had already become final and executory due to the taxpayer’s failure to submit the required documents within the same 60-day period.
Citing jurisprudence, the court reiterated that it is the taxpayer’s prerogative to submit documents and it is also up to the taxpayer to determine what documents should be submitted, if at all. According to the court, the fact that the taxpayer chose to submit the protest without supporting documents does not invalidate the fact that a protest was properly filed. The non-submission of documents within the 60-day period should only matter when the BIR evaluates the merits of the said protest, but it does not result in the deficiency assessment automatically becoming final and executory. In fact, it would appear that when the taxpayer elevated the case to the tax court, it was allowed to submit additional documents to support its claims.
Given the short turnaround time that is given to taxpayers to respond to tax findings once a preliminary assessment notice and a FAN are issued, the court’s recognition that the type of supporting documents should be left at the taxpayer’s discretion seems only fair. It certainly does not prohibit BIR examiners from requesting the submission of certain specific documents which, if available, the taxpayer should willingly submit.
Even if the courts would still accept documents that the taxpayer did not previously submit to the BIR, it is not advisable to wait until then to comply. If feasible, it is always better to resolve an assessment at the administrative (BIR) level. For one thing, you avoid filing fees and other costs.
One way to help resolve the assessment at the BIR level is to communicate openly with the BIR examiners on what type of documents they would consider satisfactory, and work from there. While it is still ultimately up to the taxpayer to determine what documents to submit, it is always good to have the BIR’s input as you start to mount your protest since issues are easily resolved if both parties’ concerns are considered.
Dominique Deborah Black is a senior consultant at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
(02) 845-2728
dominique.deborah.black@ph.pwc.com
source: Businessworld
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