Cutting corners

“No person shall be deprived of life, liberty, or property, without due process of the law…”

Revenue Regulations (RR) No. 12-99 was issued on Sept. 6, 1999 to implement provisions of the National Internal Revenue Code (NIRC), as amended. Section 3 of RR No. 12-99 provides for the due process requirement in the issuance of a deficiency tax assessment. Recently issued RR No. 18-2013 amends certain sections thereof, and the notable amendments are as follows:

RR No. 18-2013 no longer provides for any Notice for Informal Conference (NIC), and consequently, the taxpayer under audit investigation is immediately issued a Preliminary Assessment Notice (PAN). The taxpayer then has 15 days to respond to the PAN or he shall be held in default and a Final Assessment Notice (FAN) shall be issued, or if he responds within the 15-day period but disagrees with the assessment, the FAN shall be issued within 15 days from submission of the response.

Upon issuance of the FAN, the taxpayer is given 30 days to protest against it. RR No. 18-2013 now makes a distinction between two kinds of protest, a request for reconsideration or a request for reinvestigation, and states that the submission of all relevant supporting documents within 60 days from filing a protest only applies to requests for reinvestigation. Furthermore, requests for reinvestigation on administrative appeal to the Commissioner of Internal Revenue (CIR) shall no longer be allowed, and only issues raised in the decision of the CIR’s duly authorized representative shall be entertained in the said appeal.

RR No. 18-2013 clarifies that the taxpayer’s option in case of inaction on protested assessments within 180 days, from date of submission of the protest in cases of request for reconsideration or from date of submission of required supporting documents in cases of request for reinvestigation, is to either: (1) file a petition for review with the Court of Tax Appeals (CTA) within 30 days after the expiration of the 180-day period; or (2) await the final decision of the CIR or his duly authorized representative on the disputed assessment, and then appeal such final decision to the CTA within 30 days after the receipt of a copy of such decision. Also, it emphasizes that these options are mutually exclusive, and the resort to one bars the application of the other.

With regard to modes of service, RR No. 18-2013 provides that it may also be made by substituted service, service by mail, or service to the tax agent appointed by the taxpayer under certain circumstances prescribed in the pertinent regulations on accreditation of tax agents.

RR No. 18-2013 provided illustrations on the computation of the 20-percent delinquency interest in case of late payment of assessed deficiency taxes.

Gleaned from such amendments is the general streamlining of the process of assessment, beneficial to both the BIR and the taxpayer. Both the BIR and the taxpayer spend less time in disposing of issues with finality and in effect, the BIR is able to collect taxes more efficiently, if the circumstance warrants the same, or conversely, the taxpayer is able to prove its claim against the assessment much faster should there be no sufficient cause for the assessment.

Important to note for the taxpayer, is that without the informal conference, there must be an even closer monitoring of the progress of the audit and coordination with the revenue examiners so that concerns may be addressed at the earliest stage, avoiding unforeseen issues that will be included in the PAN. To emphasize, after issuance of the PAN, the taxpayer is given only 15 days to protest it, and within the same 15 days he must achieve the tedious feat of gathering past documents for the taxable year under examination to support his claim.

While it is true that management of documents is the responsibility of the taxpayer, if there is lack of diligence in the record-keeping and existence of unexpected issues in the PAN, 15 days will not suffice for an adequate gathering of supporting documents to protest the assessment. This is crucial because a protest of general denial shall cause the issuance of a FAN within 15 days from receipt of such protest. This situation may cause the PAN stage to be meaningless.

In like manner, BIR must also be equally diligent in executing its responsibilities. The issuance of a FAN within 15 days from submission of a protest only gives the BIR very little time to really consider legitimate arguments and supporting evidence. The BIR must be efficient and effective in dealing with the large amount of assessment cases it is faced with everyday. If it merely conducts a glossary reading of protests submitted to it, then there is no effect whatsoever between the issuance of a PAN and a FAN. The purpose then of having two stages and differentiating each from the other is rendered nugatory.

The shorter process is a double-edged sword. It may be beneficial or detrimental, and only actual practice can determine which it will be.

Katrina Elena DF. Guerrero is a supervisor from the tax group of Manabat Sanagustin & 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].

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