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CIR v. NEXT MOBILE, INC. GR No. 212825.

December 7, 2015
FACTS: Respondent filed with the BIR taxes for 2001. Respondent, through Sarmiento, their
director of Finance, executed several waivers of the statute of limitations to extend the
prescriptive periods of assessment for taxes.
On 2005, respondent received from the BIR a PAN and a formal letter of demand to pay
deficiency income tax. The BIR denied respondent's protest.
With the CTA, it was held that the demand was beyond the three year prescription period
under the NIRC. That the case does not apply the 10 year prescription period as there was
not false return by the respondent. Also, the waivers did not validly extend the prescription
because of irregularities.
ISSUE: Whether the period to pay has prescribed.
RULING: NO.
The SC held that a waiver of the statute of limitations must faithfully comply with RMO No.
20-90 and RDAO 05-01 in order to be valid. Sarmiento failed to show her authority to the BIR
to sign the waivers.
The BIR were also at fault having to neglect their ministerial duties.
Both parties knew the infirmities of the waivers but still continued. Respondents were held in
bad faith as after having benefited by the waivers by giving them more time to pay, they
used the waivers they made themselves when the consequences were not in their favor.
The BIR's negligence amounts to malice and bad faith as they also knew the waivers did not
conform with RMO 20-90 and RDAO 05-01.
As both parties are in bad faith, the SC granted the petition on the issue of the nullification
of the formal letter of demand to the CTA.

In the recent case of Commissioner of Internal Revenue vs. Next Mobile,


Inc. (G.R. No. 212825 promulgated on December 7, 2015), the Supreme
Court held that a taxpayer who is in bad faith cannot impugn the validity
of the waiver.

While the Supreme Court reiterated that a waiver must strictly comply
with the requirements prescribed by the regulations, it qualifi ed and held
that a taxpayer cannot impugn the validity of the waiver on the basis of
the defects he himself has caused after benefi ting from it, as he will be

deemed estopped by his bad faith. Despite the waivers non-compliance


with the requirements in the regulations, the Supreme Court ruled in favor
of the BIR and treated the waiver as valid and binding upon the taxpayer
since the defect was attributable to the latters deliberate acts.

There is no hard-and-fast rule on the issuance of waivers, which is why


taxpayers need to take all factors into consideration. While executing a
waiver may allow more time for a taxpayer to gather and submit relevant
documents before an assessment is fi nalized, it also prolongs the tax audit
taking a toll on the taxpayers time and resources, not to mention the
continuous running of the interest penalty should the assessment be found
valid.

With the issuance of RMO 14-2016 and the pronouncement of the Supreme
Court in the Next Mobile case, it appears that tax assessments can no
longer be won simply based on technicalities by attacking the validity of
waivers. Taxpayers should make it a point to focus not just on procedural
or technical issues but more on the merits or the strength of its
substantive factual and legal bases against a tax assessment of the BIR.

The Court of Tax Appeals (CTA), however, has differing views. In the most recent case
of Next Mobile, Inc. vs. Commissioner of Internal Revenue, the CTA, applying the
Aznar ruling, interpreted that any deviation from the truth, even a 5% underdeclaration of the reported gross revenues, already constitutes a false return and
warrants the application of the 10-year prescriptive period to assess