BIR audit, a means for the country

Taxes are the lifeblood of the country, the key to the survival of a developing economy.  By reason of their utmost importance, the Bureau of Internal Revenue (BIR) has the significant task of developing a system for correct and regular tax collection.

One system to implement the correct and regular collection of taxes is the assessment/audit program of the BIR.  This audit program being conducted by the various revenue, district offices and regional offices of the BIR is said to not only increase enforcement revenue but also to improve voluntary tax compliance and collect the correct amount of taxes from taxpayers.

Any audit of the books of any taxpayer is composed of different stages which may be generally summarized as follows: starting with the issuance of the written authorization – i.e. Letter of Authority (LA), Letter Notice (LN), Tax Verification Notice (TVN) or Electronic Letter of Authority (eLA)- empowering the BIR personnel to conduct the audit, to the actual audit of the books of account, the informal conference between the taxpayer and the BIR, and then the issuance of the Preliminary Assessment Notice (PAN), Final Assessment Notice (FAN) and the Final Decision on Disputed Assessment (FDDA).

During the assessment process, the taxpayer is granted several rights and remedies to controvert the deficiency findings of the BIR.  Among these remedies, the primary and the most important right given is the right to rebut an assessment through the filing of a position paper and protest against the PAN and FAN, respectively. The position paper must be filed within 15 days from the receipt of the PAN.  On the other hand, the protest which may either be a request for reconsideration or a request for reinvestigation must be filed within thirty (30) days from the receipt of the FAN.  Absent the protest, the assessment becomes final and executory.

For the receipt of the protest, the BIR has recently issued Revenue Memorandum Circular No. 39-2013 (RMC No. 39-13), dated April 4, 2013, clarifying the guidelines on the receipt of protest letter on FAN and FDDA.  RMC No. 39-13 was issued to avoid the conduct of unwarranted reinvestigation cases, to prevent the undue accumulation of delinquent accounts, and to obviate the premature enforcement of summary remedies against the concerned taxpayers.

RMC No. 39-13 provides that all letters of protest, requests for reinvestigation/reconsideration and similar correspondences should only be filed by the taxpayers or their duly authorized representatives, in person or through registered mail with return card, with the Office of the concerned Regional Director (RD), assistant commissioner-large taxpayers service (ACIR-LTS) and assistant commissioner-enforcement who signed the PANs, FANs and Formal Letters of Demand, for proper recording of the protests and evaluation of the same.  The recording will be on a weekly basis and said recording/report will be used for the creation of a database for all letters of protest, requests for reinvestigation/reconsideration and similar correspondences received by the different offices of the bureau.  RMC No. 39-13 states that if a taxpayer’s protest and similar correspondences are not included in such database, the same will be deemed as not officially filed with the BIR and will not be used as basis for the grant of any request for reinvestigation/reconsideration of any FAN or FDDA issued against the taxpayer.  This latter mandate has, in fact, raised concerns that the BIR is adding conditions not found under the law on the taxpayer’s availment of remedies against assessments.

It must be noted that although a taxpayer is granted the right to question or rebut an assessment, a mandatory procedure for the filing of a position paper, protest or similar correspondence is followed, and not all similar correspondence will be acceptable to the BIR for a certain stage in the audit procedure.

For example, the Legal Petition Notices (LPN)/Declarations and similar documents filed by taxpayers or their consultants to question the validity of an eLA cannot be filed in lieu of the protest or position paper.  Although the filing of the required position paper or protest will suspend the normal process and procedures of an audit (but not necessarily the prescriptive period for the BIR to make an assessment) in order to give ample time for the BIR to review and give merit to the arguments/defenses raised in the protest and/or position paper, the filing of an LPN will not stay the assessment process. 

Revenue Memorandum Circular No. 38-13 (RMC No. 38-13), dated May 2, 2013, provides that the normal process and procedures related to audit arising from eLA issued will not be suspended notwithstanding the receipt of an LPN by the examiner pertaining to the case and that any LPN filed by a taxpayer to the national office of the BIR questioning the validity and enforceability of an eLA duly issued by the concerned regional director for the audit of taxpayer will not be entertained.

RMC No. 38-13 emphasized that upon receipt of the PAN or FAN, the taxpayer is given a certain period only to rebut the assessment upon his compliance with the requirements of filing a position paper or protest.  Any LPN, declaration or any similar document protesting the assessment addressed to the commissioner of Internal Revenue or any official in the national office of the BIR without the issuance of an FDDA from the regional office will be considered premature and invalid.

The procedures mandated by the BIR, as shown in the above RMCs, are to ensure the orderly flow in the conduct of an audit.  While every taxpayer is given due course, the BIR also needs to protect itself from unscrupulous taxpayers who merely want to delay the audit proceedings.  The great importance of taxes in the daily running of the country implores the BIR to prevent unnecessary delays that will hamper tax collection.  Thus, the taxpayers should be aware of and pursue only the remedies allowed under the law.

Katrina Monserrat F. Aznar is a supervisor from the tax group of Manabat Sanagutin & Co. (MS&Co.), the Philippine member firm of KPMG International.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The view and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or MS&Co. For comments or inquiries, please email [email protected] or [email protected].