TAX REMEDIES

REMEDIES OF THE

COMMON REMEDIES REMEDIES OF THE

STATE AVAILABLE TO BOTH TAXPAYER

I. ADMINISTRATIVE LEVEL (BIR)

Assessment Compromise Protest

Collection Abatement Refund

II. JUDICIAL LEVEL

Civil Suit/Action Appeal

Criminal Suit/Action TRO/Injunction

Criminal suit againsterring BIR officials

Remedies of the State

I. Administrative Level A. Assessment –

Definition: It is an official action of an administrative officer in determining the amount of tax due from a taxpayer, or it may be a notice to the effect that the amount therein stated is due from the taxpayer as a tax with a demand for the payment of tax or deficiency stated therein.

Basis: Sec. 6, NIRC – Power of the CIR to make assessments xxx

General Rule:Taxes are self-assessing and thus, do

not require the issuance of an assessment in order to establish the tax liability of a taxpayer.

Exceptions: (Taxes which require assessment to establish additional tax liability)

1. Tax period of a taxpayer is terminated (Sec. 6D, NIRC)

2. Deficiency tax liability arising from a tax audit conducted by BIR (Sec. 56B, NIRC)

3. Tax lien (Sec. 219, NIRC) 4. Dissolving corporation (Sec. 52C, NIRC)

(PNOC v CA, GR Nos. 109976 and 112800, 26 April 2005)

Principles Governing Tax Assessments1. All presumptions are in favor of tax

assessments – regularity in the performance of duty (CIR vs. Wyeth Suaco Lab., Inc. 30 Sept. 1991)

2. Assessments should not be based on presumptions – it must be based on actual facts

3. Assessment is discretionary on the part of the Commissioner – mandamus will not lie Exception: Maceda vs. Macaraig, Jr., 8 June

19934. The authority to assess taxes may be

delegated (Oceanic Wireless Network vs. CIR, 09 Dec. 2005)

5. Assessments must be directed to the right party

Cases: Adamson v. Court of Appeals, 21 May 2009 and Barcelon, Roxas Securities, Inc. v. CIR, 7 August 2006

Kinds of Assessment:

1. Self-assessment – one in which the tax is assessed by the taxpayer himself.

2. Deficiency assessment – made by the tax assessor himself whereby the correct amount of that tax is determined after examination/investigation is conducted.

3. Illegal and void assessment – tax assessor has no power to assess at all

4. Erroneous assessment – assessor has power to assess but errs in the exercise thereof.

5. Jeopardy assessment - is a tax assessment made by an authorized Revenue Officer without the benefit of complete or partial audit, in the light of the RO’s belief that the assessment and collection of a deficiency tax will be jeopardized by delay caused by the taxpayer’s failure to:

a. Comply with audit and investigation requirements to present his books of accounts and/or pertinent records, or

b. Substantiate all or any of the deductions, exemptions or credits claimed in his return.

B. CollectionRemedies available to the Government in tax collection:[FLLEDS-C]1. Tax lien [attached interest]2. Distraint (Actual or constructive) 3. Levy [property seized]4. Forfeiture 5. Compromise/Abatement 6. Enforcement of administrative

penalties and fines 7. Suspension of business operations

Case: Angeles City v. Angeles Electric Corporation, GR No. 166134, 29 June 2010 (re: injunction)

• Tax lien – a legal claim or charge on property, either real or personal as security for payment of some debt or obligation.

- valid assessment is required to be issued before a tax lien shall be annotated at the proper registry of property.

- attaches from the time tax became due and payable.

• Distraint – seizure by the government of personal property, tangible or intangible, to enforce payment of taxes.

- the warrant of distraint or levy is a summary procedure “forcing” the taxpayer to pay.

Two types of distraint:

1. Actual – there is taking of possession of personal property from taxpayer by the government.

Garnishment – taking of personal propperty usually cash/sums of money, owned by a delinquent taxpayer, which is in the possession of a third party.

Procedure:

• Commencement of distraint proceedings by CIR (excess of 1M) or RDO (1M or less)

• Issuance/Service of Warrant of Distriant upon the delinquent taxpayer

• Posting of public Auction Sale Notices in 2 conspicuous places in the locality

• Public auction sale

2. Constructive – the owner is merely prohibited from disposing of his property.

- actual tax delinquency of taxpayer is not

necessary. - it is a preventive remedy to forestall

dissipation of the taxpayer’s assets when delinquency takes place.

Issued in the ff. cases:• Taxpayer is retiring from any business subject

to tax • Taxpayer is intending to

- leave the Philippines - remove his property therefrom - hide or conceal his property

• Taxpayer is performing any act tending to obstruct the proceeding for collecting the tax due or which may be due from him

Procedure:

1. CIR serves the warrant of constructive distraint to the delinquent taxpayer.

2. Taxpayer must sign the receipt and obligate himself to preseve the thing distraint.

3. Upon failure to sign receipt:

a. Proceed to prepare a list of such property and

b. In the presence of 2 witnesses leave a copy thereof in the premises where the property distrained is located, after which said property shall be deemed to have been placed under constructive distraint.

• Levy – it refers to the act of seizure of real property in order toe enforce the payment of taxes.

Procedure:1. Prepare a certificate of levy 2. Issuance/service of notice to the

taxpayer and Registry of Deeds 3. Advertisement of the public auction sale –

for a period of 30 days, within 20 days after the levy

4. Public auction sale

- Real property may be levied upon before, simultaneously, or after the distraint of personal property.

- It may be repeated if necessary.

DISTRAINT LEVYAs to properties covered

Personal Property Real Property

How effectedBy seizure of the goods, chattels or effects By mailing/serving a certificate of levy to the

TP and RoD

Notice of SaleExhibited in not less than 2 public places in Advertisement within 20 days after levy for a

the locality period of 30 days. It is effected by postingand publication once every week for 3

consecutive weeks.

Acquisition by the GovernmentPurchase by the CIR or his deputy in behalf The internal revenue officer conducting the

of the Nat’l Gov’t. (Sec. 212, NIRC) sale shall declare the property forfeited infavor of the Gov’t. (Sec 215, NIRC)

Right of RedemptionNone. TP has one year to redeem property. But how?

Right of Pre-emptionWith With

• Forfeiture – is the divesture of property without compensation, in consequence of default or offense.

SEIZURE FORFEITUREIn seizure, for the In forfeiture, all theenforcement of tax lien, proceeds of the sale will gothe residue, after to the coffers of thededucting the tax liability Government.and expenses, will go tothe taxpayer.

- a taxpayer in forfeiture or seizure cases to enforce tax lien may still be subject to criminal action even if his property has been forfeited.

Instances when forfeiture is appropriate[illegal articles]:

1. All chattels, machinery, and removable fixtures of any sort, used in the unlicensed production of artciles. (Sec. 268B, NIRC)

2. Dies used for the printing or making of any internal revenue stamp, label, or tag which is in imitation of or purports to be a lawful stamp, label or tag.

3. Liquor or tobacco shipped under a false name or brand.

• Compromise/Abatement

Compromise AbatementNature

Involves a reduction of the taxpayer’s Involves the cancellation of the entireliability tax liability of a taxpayer

Officer/s authorizedCIR and Regional Evaluation Board CIR(P500,000 or less) (Sec. 7B, NIRC)

Grounds1. Reasonable doubt as to validity of 1. The tax or any portion thereof

assessment; or appears to unjustly or excessively2. Financial incapacity of taxpayer assessed; or

2. The administration and collectioncosts involved do not justify thecollection of the amount due.

Compromise – a contract whereby the parties, by making reciprocal concessions, avoid litigation or put an end to one already commenced. (Art. 2028, Civil Code)

Compromise penalty –a certain amount of money which the taxpayer pays to compromise a tax violation;

- this is paid in lieu of criminal prosecution and cannot be imposed in the absence of a showing that taxpayer consented thereto. [CIR v.First Express Pawnshop Company, Inc., GR Nos. 172045-46, 16 June 2009.]

Cases: Security Bank Corporation v. CIR, 22 August 2006 and Philippine National Oil Company v. Court of Appeals, 26 April2005

When payment of Internal revenue taxes may be compromised (Sec. 204, NIRC)

CIVIL CASES

1. Doubtful validityMinimum Compromise Rate: 40% of basic tax assessed

2. Financial incapacityMinimum Compromise Rate: 10%,

20% or 40% of basic tax assessed, depending upon the condition of the taxpayer.

*See R.R. No. 30-2002

CRIMINAL CASES

In all other criminal cases, the CIR has full discretion to compromise before the information is file in court.

After the case reaches the prosecutor’s office, the prosecutor must give his consent.

Once the information is filed in court, compromise is no longer permitted with or without the consent of the prosecutor.

• Enforcement of administrative penalties and fines

Definition: Increments to the basic tax incident to the taxpayer’s non-compliance with certain legal requirements.

Administrative Penalties/ Surcharges

1. 25% surcharge

a. Failure to file any return and pay the tax due, as required under the provisions of the Tax Code or rules on the date prescribed;

b. Unless otherwise authorized by the BIR commissioner, filing a return with an internal revenue officer other than one with whom the return is required to be filed;

c. Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment;

d. Failure to pay fully or partly the amount of tax shown on any return required to be filed under the provisions of the Tax Code or rules, or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment.

2. 50% surcharge a.In case of willful neglect to file the return within the prescribed period or in case the taxpayer files the return only after prior notice in writing from the CIR or his duly authorized representative.

b.Instances of prima facie evidence of willful or intentional misstatement:

-substantial under declaration (exceeding 30 percent of that declared per return) of sales, receipts or income

-substantial overstatement (exceeding 30 percent of actual deductions) of the deductions claimed

20% interest per annum or such higher rate as may be prescribed by the rules and regulation on

1. Deficiency interest 2. Delinquency interest 3. Interest on extended payment

* See Mlhuillier Pawnshop vs. CIR 501 SCRA 460

• Suspension of Business Operations

1. The Commissioner or his authorized representative may suspend the business operation and temporarily close the business of a VAT-registered person for understatement of taxable sales or receipts by 30% or more of his correct taxable sales or receipts for the taxable quarter.

2. The duration of the temporary closure shall be for a period of not less than 5 days and shall be lifted only upon compliance of whatever requirements imposed by the Commissioner in the collection order.

II. Judicial Level

A. Civil Action –

Definition: For tax remedy purposes, these are actions instituted by the government to COLLECT internal revenue taxes including the filing by the government of claims against the deceased taxpayer with the probate court.

Basis: Sec. 6, NIRC – Power of the CIR to make assessments xxx

It is normally resorted to:

1. When a tax is assessed but the assessment becomes final and unappealable because the taxpayer fails to file an administrative protest with the CIR within 30 days from receipt; or

2. When a protest against assessment is filed and decision of the CIR was rendered but the said decision becomes final, executory, and demandable for failure of the taxpayer to appeal the decision to the CTA within 30 days from the decision.

3. When the protest is not acted upon within 180 days from submission of documents and the taxpayer failed to appeal with the CTA within 30 days from the lapse of the 180-day period.

Form and mode of proceeding (Sec. 220, NIRC)

1. Civil actions shall be brought in the name of the Government of the Philippines.

2. No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner. Exception: delegation to Regional Director (Sec. 7, NIRC)

3. No civil or criminal action for the recovery of taxes or the enforcement of any fine, penalty, or forfeiture shall be filed in court without the approval of the Commissioner.

4. Participation of the Solicitor General esp. In appellate proceedings.

B. Criminal Action

Two common crimes punishable under the Tax Code:

1. Attempt to evade or defeat tax (Sec. 254, NIRC)

2. Failure to file return, supply correct and accurate information, pay tax, withhold and remit tax, and refund excess taxes withheld on compensation. (Sec. 255, NIRC)

* See Run After Tax Evaders (RATE) Program, RMO No. 27-2010, 15 March 2010)

Important Principles on Criminal Actions:

1. Acquittal does not necessarily result in the exoneration of the civil liability to pay taxes.

2. Subsequent satisfaction of civil liability by payment/prescription does not extinguish criminal liability.

3. No subsidiary imprisonment

4. Criminal action may be filed during the pendency of an administrative protest in the BIR.

5. Criminal action may be filed despite the lapse of the period to file a civil action for collection of taxes.

6. Assessment is not a prerequisite in the filing of a criminal action. [Ungab v. Cusi, GR Nos. L-41919-24, 30 May 1980.] compare to [CIR v. Court of Appeals, GR No. 119322, 4 June 1996.]

7. Filing of a criminal action is not an implied assessment by the CIR.

8. Conviction shall also order payment of subject tax.

Court of Tax Appeals:

-Created under Republic Act 1125 on June 16, 1954 - it is a highly specialized body that reviews cases in taxation.-the proceedings herein are judicial in nature, although they are not bound by the technical rules of evidence.-R.A. 9282 enlarged the membership of the Court of Tax Appeals and elevated its rank to the level of a collegiate court with special jurisdiction-CTA is now composed of one (1) Presiding Justice and eight (8) Associate Justices. The CTA may sit en banc or in three (3) divisions with each division consisting of three (3) Justices (RA 9503).

JURISDICTION (exclusive-original):COURT CIVIL ACTION CRIMINAL ACTION

1. Court of Tax - Where the principal amount of - Criminal offenses arisingAppeals taxes and fees, exclusive of from violations of NIRC or

charges and penalties claimed is TCC and other lawsP1M and above. administered by the BIR and

the BOC where the principalamount of taxes and fees,exclusive of charges andpenalties claimed is P1Mand above.

2. RTC, MTC, MeTC - Where the principal amount of - Criminal offenses arisingtaxes and fees, exclusive of from violations of NIRC orcharges and penalties claimed is TCC and other lawsless than P1M. (Sec. 7, RA 9282) administered by the BIR and

the BOC where the principalamount of taxes and fees,exclusive of charges andpenalties claimed is lessthan P1M or where there isno specified amount. (Sec. 7,RA 9282)

JURISDICTION of CA (exclusive-appellate):

(1)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 NIRC or other laws administered by the BIR (via a petition for review under Rule 42);

(2) Inaction by 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 NIRC or other laws administered by the BIR;

(3)Decisions, orders or resolutions of the RTC in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction (via a. petition for review under Rule 43).

(4)Decisions of the Commissioner of Customs in cases involving liability of customs duties, fees or other money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in relation thereto, or other matters arising under the Customs Law or other laws administered by the Bureau of Customs (via a petition for review under Rule 42).

(5)Decisions of the Central Board of Assessment

Appeals in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property originally decided by the Provincial or City Board of Assessment Appeals (via a petition for review under Rule 43).

(6)Decisions of the Secretary of Finance in customs cases elevated to them automatically for review from decisions of the Commissioner of Customs which are adverse to the government under Section 2315 of the Tariff and Customs Code (via a petition for review under Rule 42).

(7) Decisions of the Secretary of Trade andIndustry in cases of non-agricultural product, commodity or article, and the Secretary of Agriculture in cases of agricultural product, commodity or article involving dumping and countervailing duties under Sections 301 and 302 of the Tariff and Customs Code, respectively, and safeguard measures under RA. 8808, where either party may appeal the decision to impose or not to impose said duties (via a petition for review under Rule 42).

Limitation to the Remedies – PRESCRIPTIONThe provisions on the statute of limitations

on assessment and collection of taxes shall be construed and applied liberally in favor of the taxpayer and strictly against the government.Assessment:General Rule: The right to assess must be done 3 years from:

•The day the return was actually filed, or•From the last day for filing the return (if the return was filed before the last day prescribed by law), whichever is later.

Exceptions:1. False or fraudulent return with intent to evade taxes – within 10 years from discovery of the falsity or fraud

2. Failure or omission to file a return – within 10 years after discovery of failure or omission to file the return

3. Waiver of statute of limitations in writing, which must be made before the expiration of the 3 year period of assessment of taxes – period agreed upon

“False return” merely implies deviation from the truth. It’s usually due to mistake, carelessness or ignorance.

“Fraudulent return” implies intentional or deceitful entry with intent to evade the taxes due.

Collection:General Rule: : The prescriptive period to collect the taxes due is 5 years from the date of assessment.Exceptions:1. False or fraudulent return with intent to

evade taxes – within 10 years from discovery without need for prior assessment. The government may file a proceeding in court.

2. Failure or omission to file a return – within 10 years from discovery without need for assessment.

3. Waiver in writing executed before the 5-year period expires – period agreed upon.

CIR v. Philippine Global Communication, 31 October 2006

For prescriptive period purposes, the tax is deemed collected if:

1. If collection is thru summary remedies (distraint and levy), when the government avails of a distraint and levy procedure prescribed under the Code

2. If collection is thru judicial remedies (civil or criminal), when the government files the complaint with the proper court.

A judicial action for the collection of a tax may be initiated by filing of a complain with the proper regular trial court, or where the assessment is appealed to the CTA, by filing an answer to the taxpayer’s petition for review wherein payment of thetax is prayed for.(Read PNOC v CA, GR Nos. 109976 and 112800, 26 April 2005)

General rule: there must be an assessment made before collection is resorted to by the government.

Exception: Section 222 (A), NIRC

- wherein judicial action to collect the tax liability is permitted without an assessment when the taxpayer files a false or fraudulent return with intent to evade the tax or fails to file a return. Collection must be done within 10 years after the discovery. However, if an assessment is made against the taxpayer, the government cannot avail of Section 222 (A). (Republic v Ret, )

Regular Return was Made False, Fraudulent or

FailureAssessment: 3 years Assessment: 10 years,Collection: 5 years from from discovery

assessmentCollection: 5 years, fromassessmentIf government does notmake an assessment,they can collect within10 years from discovery.They are, however,

limited to purely judicialremedies. (Section222(A)

Waiver of Statute of Limitations –Essential conditions for a waiver to be valid:1. It must be executed by the parties before the

lapse of the 3 year prescriptive period for assessment of taxes (Republic v Acebedo).

2. They must be signed by the CIR or any of his agents.

3. It must contain a definite expiration date. (Philippine Journalists v CIR)

4. It must also contain the date when the waiver was executed

5. Waiver must not reduce the prescriptive period to less than that granted by law to the detriment of the state. (Republic v Lopez).

6. The taxpayer’s waiver of statute of limitations does not cover taxes already prescribed. (Republic v Lim De Yu)

*See RMO 20-90

Suspension of Running of Statute of Limitations

The running of the prescriptive period can be suspended in the following situations:

1. When the CIR is prohibited from making an assessment or beginning distraint and levy or a proceeding in court and for 60 days thereafter

2. The taxpayer requests for reinvestigation which is granted by the CIR

3. When the taxpayer cannot be located in the address given by him in the return

filed, unless he informs the CIR of the change of address

4. When the warrant of distraint and levy is duly served upon the taxpayer or authorized representative and no property could be located

5. When the taxpayer is out of the Philippines

6. Those under the CTA law

Prescription of Criminal Actions:

-The prescriptive period for criminal cases is 5 years.

When it begins to run depends on the nature of the violation of the taxpayer:

1. If failure or refusal to pay taxes due – from the service of final notice and demand for payment of the deficiency taxes upon the taxpayer.

2. If filing of false or fraudulent returns – from the institution of judicial proceedings for its investigation and punishment.

Remedies of the Taxpayer

Before payment

I. Administrative Level

A. Protest

– it is a challenge against an assessment.- In protest, the tax has not yet been

paid, and what is being contested is the government’s claim that the tax is underpaid.

- Protesting is the proper remedy when a FAN has been issued.

Requisites of a valid protest:1. In writing 2. Addressed to the CIR 3. Accompanied by a waiver of the

Statute of Limitations in favor of the government

II. Judicial Remedies A. Appeal to CTA division B. Appeal to CTA en banc C. Appeal to the SC D. By way of Special Civil Action E.Action to contest forfeiture of chattel (Sec.231, NIRC) F.Action for damages (Sec.227, NIRC) G. Injunction (R.A. 9282)

After paymentI. Administrative Level (mutually exclusive)

A. Tax Refund– actual reimbursement of the tax.- it is a written claim for the payment

of cash for taxes erroneously or illegally paid by the taxpayer to the government.

- it is proper when the taxpayer has paid the tax pursuant to a self-assessment

B. Tax Credit-a tax certificate or tax credit memo

is issued to the taxpayer, and this can be applied against any sum that may be due and collectible from the taxpayer, except withholding taxes.

TAX REFUND

TAX CREDITTP asks for restitution of the TP asks that the money so paidmoney paid as tax be applied to his existing tax

liabilityTwo-year period to file claim Two-year period starts fromwith the CIR starts after the the date such credit waspayment of the tax or penalty. allowed ( in case credit was

wrongfully made)

Grounds for filing a claim for tax refund/credit:

1. Tax is collected erroneously or illegally 2. Penalty is collected without authority 3. Sum collected is excessive or in any

manner wrongfully collected

Requisites of tax refund or tax credit:1. Claim must be in writing 2. Must be filed within 2 years after

payment of the tax/penalty - This is a condition precedent;

noncompliance bars recovery. 3. Show proof of payment

- a claim for refund partakes the nature of an exemption which cannot be allowed unless granted in the most explicit and categorical language. - a claim for refund is strictly construed against the claimant.

Suspension of the Two-year prescriptive period for refund:

1. There is a pending litigation between the government and the taxpayer; and

2. When the payment of tax was not due because of error or wrongful collection, but because of a patriotic duty to help the cause of the nation (CIR v PNB, 10/25/05)

3. When the taxpayer was made to believe that the refund was going to be allowed by the government

4. With respect to the CTA, the 2-year period is not jurisdictional and may be suspended for reasons of equity and other special circumstances.

- filing of the claim for refund or credit does not suspend the running of the 2-year

prescriptive period. - “supervening events clause” (par. 2, Sec229,

NIRC)

Other considerations affecting tax refund:

1.Partial payment of tax cannot be a basis for tax refund;

2.Tax refund cannot be availed of to revive the right to contest the validity of an assessment once the same has been lost;

3.A withholding agent has a legal right to file a claim for refund but nevertheless has the obligation to remit the same to the principal taxpayer;

4.Generally, the gov’t cannot be required to pay interest on tax refunded to the taxpayer, given that there is no provision in law requiring such.