(First of three parts)
Which Philippine law, enacted in 2009, effectively orders the Bureau of Internal Revenue (BIR) to subject to compromise settlement, all unpaid (deficiency tax) assessments issued to a certain type of taxpayer, on terms favorable to that particular type of taxpayer?
Republic Act (RA) No. 9520, also known as the “Philippine Cooperative Code of 2008”, and hereafter referred to as the PCC of 2008, holds that distinction.
The PCC of 2008, which took effect on March 22, 2009, has been heralded by members of more than 68,000 active, registered cooperatives across the country as the answer to the cooperatives’ problems of irregular management, unprofessional operations, lack of transparency, and improper taxation. This plethora of problems, and the need for the modernization of the old Cooperative Code of the Philippines (RA No. 6938), were considered as the driving forces behind the enactment of the PCC of 2008. Now that the PCC of 2008 is ready for full implementation, the cooperative is primed for its purpose, as the primary tool of the government for the attainment of social justice and sustainable economic development. And with all the tax “concessions” and tax incentives provided therein, the cooperative may very well also hold the title of the most tax-exempt entity in Philippine tax jurisdiction.
We shall first examine these concessions, and after that, move on to the incentives. The technicalities of cooperatives, i.e., its definition, the different types, its principles, and the manner of their administration as provided under the PCC of 2008 will best be left to another forum of discourse.
Compromise settlement
Paragraph 2 of Article 144 of the PCC of 2008 expressly provides that all unpaid assessments of previously registered cooperatives shall be the subject of compromise settlement on terms favorable to such cooperatives. Never mind that in most cases, a compromise settlement of a tax assessment is already considered favorable to a taxpayer; the law specifically states that favorable terms be given to the cooperatives. So, how will a cooperative compromise its unpaid assessments?
The compromise settlement of internal revenue taxes is provided under Section 204(A) of the National Internal Revenue Code (NIRC), as amended. The current implementing regulation for compromise settlements is Revenue Regulations (RR) No. 30-2002, as amended.The said regulations provide for, among other procedures, specific cases which may be compromised, and certain exemptions to compromise. Examples of said exemptions to compromise are:
• withholding tax cases
• criminal tax fraud cases confirmed as such by the Commissioner
• criminal violations already filed in court
• delinquent accounts with duly approved schedule of instalment payments
• cases where the taxpayer, after reinvestigation, has agreed to in writing, a written reduction of an originally higher assessment
• cases which have become final and executory after final judgment of a court, where the ground for compromise is doubtful validity of the assessment.
Given these enumerations, can the BIR actually qualify the type of assessments of cooperatives which may or may not be compromised?
Under Section 4 of the NIRC, as amended, the power to interpret tax laws is under the exclusive and original jurisdiction of the Commissioner (of Internal Revenue), subject to the review by the Secretary of Finance. The power to decide disputed assessments is likewise vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.
On the other hand, the PCC of 2008 clearly states that all unpaid assessments shall be compromised. Assuming that the power of interpretation of tax laws by the Commissioner is applicable to a special law such as the PCC of 2008, there is actually no issue to be interpreted as far as the type of assessments to be compromised. The only qualifications mentioned are that the assessments are unpaid and that they were issued to previously registered cooperatives. In other words, the PCC of 2008 is clear and unambiguous in requiring all assessments to be compromised. This being the case, it would appear that the BIR cannot apply RR No. 30-2002, as amended, in so far as to qualify which assessments of cooperatives may or may not be compromised. The cooperative may actually go as far as applying an unpaid assessment for compromise on the basis of Article 144(2) of the PCC of 2008 itself.
Next, in applying a compromise settlement, what are “terms favorable to such cooperatives”?
In a compromise settlement of taxes, a favorable settlement would logically equate to a lower tax payment. Under Section 204 of the NIRC, as amended, the Commissioner may compromise the payment of any internal revenue tax at the following rates: (1) a minimum of 10 percent of the basic assessed tax, for cases of financial incapacity; or (2) a minimum of 40 percent of the basic assessed tax for all other cases. These rates are restated in RR No. 30-2002, as amended, with further qualifications as to their application to specific taxpayers. However, the last paragraph of Section 204(A)(2) of the NIRC, as amended, also states that when the settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the Evaluation Board, composed of the Commissioner and four Deputy Commissioners. Given these provisions, can these qualifications for rates of compromise settlement apply to the unpaid assessments of cooperatives?
The PCC of 2008 does not specify what are favorable terms in a compromise settlement; neither does it provide any procedure or guidance for the compromise proper, as understandably, this procedure well within the power of the BIR to formulate and implement. Hence, it would appear that the rates of compromise, as provided under the NIRC, as amended, and as qualified and implemented under RR No. 30-2002, are applicable to the assessments of cooperatives.
What cooperatives may probably do is use the last paragraph of Section 204(A)(2) of the NIRC, as amended, to offer rates lower than the prescribed minimum, subject to the qualifications stated in RR No. 30-2002, as amended. This would of course require the Evaluation Board to rule on the validity of the compromise offer. However, the Evaluation Board should be guided by the clear intention of the PCC of 2008, which is to terminate the unpaid assessments, if any, of existing cooperatives, in an effort to allow the cooperatives to proceed with their full and unimpeded development.
On the whole, it may be clearer if the BIR were to issue specific regulations dealing with the compromise settlement of assessments of cooperatives, to clarify the procedure to be implemented in applying for compromise. This would be more appropriate considering that RR No. 30-2002 provides for exceptions to compromise settlement, which, as we have discussed earlier, is not applicable to unpaid assessments of cooperatives. (To be continued)
(Andrew James Gerard D. Ruiz is a senior manager for Tax & Corporate Services of Manabat Sanagustin & Co., CPAs, a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.
The views and opinions expressed herein are those of Andrew Ruiz and do not necessarily represent the views and opinions of KPMG in the Philippines. For comments or inquiries, please email manila@kpmg.com.ph or adruiz@kpmg.com).