The guiding hand of due process in tax audit

The Bureau of Internal Revenue (BIR) has evidently illustrated zealousness in tax collection over the years. In fact, it has come out with numerous issuances aimed at the strict implementation of tax laws and rules and regulations. As equally important is the bureau’s ardent collection of taxes with dispatch. Thus, the BIR has introduced amendments to Revenue Regulations No. (RR) 12-99, by issuing RR 18-13, relative to the due process requirement in deficiency tax assessment. In this connection, the BIR clarified some issues regarding the due process requirement in tax audit pursuant to RR 12-99, as amended by RR 18-13 through Revenue Memorandum Circular No. (RMC) 11-14 dated Feb. 18, 2014.

Under RR 18-13, as further elucidated in RMC 39-13, taxpayers should file their responses to PAN and protests or request for reconsideration/ reinvestigation to the FLD/ FAN with the duly authorized representatives of the commissioner. RMC 11-14 has identified the “duly authorized representatives” of the commissioner of Internal Revenue refers to the revenue regional directors, assistant commissioner – Large Taxpayers Service, and assistant commissioner – Enforcement and Advocacy Service, as the case may be. Consequently, the taxpayers must submit their responses to Preliminary Assessment Notice (PAN) and protests or request for reconsideration/reinvestigation to the Final Letter of Demand/Final Assessment Notice (FLD/FAN) and Final Decision on Disputed Assessment (FDDA) with the duly authorized representative of the commissioner who issued the PAN and FLD/FAN. Considering the foregoing, the response or protest filed with the wrong office or person is considered not filed at all, resulting in the issuance of FAN, or non-appealable assessment.

Another point stressed in RMC 11-14 is that the issuance of FLD/FAN reiterating the immediate payment of deficiency taxes and penalties previously made in the PAN or is a denial of the response to a PAN. In the same vein, an FLD for payment of delinquent taxes may be considered as decision on a disputed assessment or disputed PAN. The requirements of due process are complied with so long as the parties are able to exercise their right to be heard. This reiteration in RMC 11-14 is predicated on the various Supreme Court decisions.

As introduced in RR 18-13, an FLD/FAN shall be issued within 15 days from filing/submission of the taxpayer’s response to the PAN. To avoid an interpretation that an FLD/FAN issued beyond the 15-day period may be considered invalid, RMC 11-14 explained that the non-conformity to the reglementary period for the issuance of the FAN should not affect its validity, however, the revenue officer who caused the delay should be subject to administrative sanctions.

In addition, RMC 11-14 made clear that the failure of the taxpayer who requested for the reinvestigation to submit all relevant supporting documents within the 60-day period shall render the FLD/FAN final by operation of law. This effectively bars the taxpayer from disputing the correctness of the FLD/FAN by the introduction of newly discovered evidence.

Finally, RMC 11-14 explicated that the PAN/FLD/FAN/FDDA should be served first to the taxpayer’s registered address before the same may be served to the taxpayer’s known address, or in the alternative, may be served to the taxpayer’s registered address and known address simultaneously.

It is an oft repeated dictum that “The power to tax is the power to destroy.” As equally well-recognized is the aphorism that “The power to tax shall not be the power to destroy” for as long as the court sits. Accordingly, the government could not exercise its taxing power any which way it wants if the same will run afoul of the guarantee of substantive and procedural due process of law.

Arianne C. Artugue is a supervisor from the tax group of R.G. Manabat & Co. (RGM&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 RGM&Co. For comments or inquiries, please email [email protected] or [email protected].

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