Casino Rule: The house always wins. Something to keep in mind for who study the tax system, particularly in light of the recent policy turnaround in regard to the waiver of the Statute of Limitations.
Until just recently, the prevailing rules on the proper execution of the waiver of the Statute of Limitations under the National Internal Revenue Code of the Philippines (Tax Code) can be found in Revenue Memorandum Order (RMO) 20-90 of the Bureau of Internal Revenue (BIR). In the landmark case of Philippine Journalists, Inc. v. Commissioner of Internal Revenue (G.R. No. 162852, 16 December 2004), the Supreme Court (SC) gave a stringent interpretation of RMO 20-90, requiring faithful compliance with its requirements for a waiver to be valid. The court ruled that since a waiver to extend the period for the BIR to issue an assessment and collect taxes “is a derogation of the taxpayer’s right to security against prolonged and unscrupulous investigations, waivers of this kind must be carefully and strictly construed.”
Recently however, the Supreme Court adjusted its stance. In G.R. No. 212825 dated Dec. 29, 2015, the high court laid down exceptions to the rule. In this case, the BIR and the corporate taxpayer were considered in pari delicto or in equal fault, and the Court deemed it more equitable to allow BIR’s lapses to pass (mentioning that proper administrative sanctions could be imposed on the negligent BIR officials). Consequently, the validity of the waivers were upheld in support of the principle that tax collection is the lifeblood of the state. Since the taxpayer was also at fault, it was not allowed to benefit from its own wrongdoing by invalidating the signed waivers. For failure to raise any objections, the taxpayer was estopped from questioning the validity of the waivers.
In parallel with this SC decision, the BIR found it high time to repeal RMO 20-90. Thus, on April 4, the BIR issued RMO 14-2016, providing a new set of rules on executing waivers. Under the new relaxed rules, the waiver may be, but not necessarily in the form prescribed by RMO 20-90 or the related Revenue Delegation Authority Order No. 05-01. The taxpayer’s failure to follow the prescribed forms will not invalidate the executed waiver, as long as the following minimum conditions are complied with:
• The waiver of the Statute of Limitations shall be executed before the expiration of the period to assess or to collect taxes. The date of execution shall specifically be indicated in the waiver.
• The waiver shall be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials.
• The expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription should be indicated.
In addition, the taxpayer is now charged with the burden of ensuring that the waivers are validly executed by its authorized representatives. The BIR no longer requires that the delegation of authority to a representative be in writing and notarized. This means that it is presumed that the person signing has the authority to do so. Thus, the taxpayer is now estopped from questioning the authority of its representative who signed the waiver. Also, the waiver itself need not be notarized. It is sufficient that they be in writing to produce legal effect and to bind the taxpayer upon its execution.
The apparent departure from RMO 20-90 is the previous requirement that only the authorized revenue officials are allowed to accept the waiver. With the new relaxed rules, the group supervisor as designated in the Letter of Authority or Memorandum of Assignment can accept the waiver. Further, the date of acceptance of the signed waiver by the BIR is no longer required to be indicated. RMO 14-2016 only considers two material dates: 1) the date of the execution of the waiver by the taxpayer or its authorized representative; and 2) the expiry date of the period the taxpayer waives the statute of limitations.
Even under the old rules, taxpayers must consider carefully whether or not they should execute waivers to extend the prescriptive period. Now, with these new relaxed rules that lean in favor of the BIR, the decision should be weighed more carefully because once signed, waivers can no longer be challenged.
While it would seem unfair for the BIR to change a long-standing rule to its advantage, it is but proper since the Commissioner, under the Tax Code, is vested with powers, not only to assess and collect taxes, but also to prescribe additional requirements for tax administration and enforcement. This means that the Commissioner has the power to make, amend or repeal rulings he may deem necessary for the proper implementation and interpretation of the tax laws.
With the enactment of RMO 14-2016, the BIR would seem to always win. As for the taxpayers, however, the law may be harsh, but like players in a game of poker, they will have to play by the rules.
The views or opinions expressed 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 the article
Caryl H. Granada-Bacay is a senior consultant at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
(02) 845-2728
caryl.h.granada@ph.pwc.com
source: Businessworld
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