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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 against


erring 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 Assessments
1. 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
1993
4. 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 ROs belief that the
assessment and collection of a deficiency tax will be
jeopardized by delay caused by the taxpayers 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. Collection
Remedies available to the Government in tax
collection:
1. Tax lien
2. Distraint (Actual or constructive)
3. Levy
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 taxpayers 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 LEVY
As to properties covered
Personal Property Real Property
How effected
By seizure of the goods, chattels or effects By mailing/serving a certificate of levy to the
TP and RoD
Notice of Sale
Exhibited 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 posting
and publication once every week for 3
consecutive weeks.
Acquisition by the Government
Purchase by the CIR or his deputy in behalf The internal revenue officer conducting the
of the Natl Govt. (Sec. 212, NIRC) sale shall declare the property forfeited in
favor of the Govt. (Sec 215, NIRC)
Right of Redemption
None. TP has one year to redeem property.
Right of Pre-emption
With With
Forfeiture is the divesture of property without
compensation, in consequence of default or
offense.
SEIZURE FORFEITURE
In seizure, for the In forfeiture, all the
enforcement of tax lien, proceeds of the sale will go
the residue, after to the coffers of the
deducting the tax liability Government.
and expenses, will go to
the 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:

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 Abatement
Nature
Involves a reduction of the taxpayers Involves the cancellation of the entire
liability tax liability of a taxpayer
Officer/s authorized
CIR and Regional Evaluation Board CIR
(P500,000 or less) (Sec. 7B, NIRC)
Grounds
1. Reasonable doubt as to validity of 1. The tax or any portion thereof
assessment; or appears to unjustly or excessively
2. Financial incapacity of taxpayer assessed; or
2. The administration and collection
costs involved do not justify the
collection 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 April
2005
When payment of Internal revenue taxes may be
compromised (Sec. 204, NIRC)

CIVIL CASES

1. Doubtful validity
Minimum Compromise Rate: 40% of basic
tax assessed
2. Financial incapacity
Minimum 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 prosecutors 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 taxpayers 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 arising
Appeals taxes and fees, exclusive of from violations of NIRC or
charges and penalties claimed is TCC and other laws
P1M and above. administered by the BIR and
the BOC where the principal
amount of taxes and fees,
exclusive of charges and
penalties claimed is P1M
and above.
2. RTC, MTC, MeTC - Where the principal amount of - Criminal offenses arising
taxes and fees, exclusive of from violations of NIRC or
charges and penalties claimed is TCC and other laws
less than P1M. (Sec. 7, RA 9282) administered by the BIR and
the BOC where the principal
amount of taxes and fees,
exclusive of charges and
penalties claimed is less
than P1M or where there is
no specified amount. (Sec. 7,
RA 9282)
JURISDICTION (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 and
Industry 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 PRESCRIPTION
The 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. Its 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
taxpayers petition for review wherein payment of the
tax 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
Failure
Assessment: 3 years Assessment: 10 years,
Collection: 5 years from from discovery
assessment Collection: 5 years, from
assessment
If government does not
make an assessment,
they can collect within
10 years from discovery.
They are, however,
limited to purely judicial
remedies. (Section
222(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 taxpayers 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 governments
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)
Before payment
I. 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 CREDIT
TP asks for restitution of the TP asks that the money so paid
money paid as tax be applied to his existing tax
liability
Two-year period to file claim Two-year period starts from
with the CIR starts after the the date such credit was
payment 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 govt cannot be required to pay
interest on tax refunded to the taxpayer, given
that there is no provision in law requiring such.