parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. (Art. 2028, Civil Code)
A compromise penalty could not be imposed by the BIR, if the taxpayer did not agree. A compromise being, by its nature, mutual in essence requires agreement. The payment made under protest could only signify that there was no agreement that had effectively been reached between the parties. (Vda. de San Agustin, et al., v.
Commissioner of Internal Revenue, G. R. No. 138485, September 10, 2001)
50-A. What tax cases may be the subject of a
compromise ?
SUGGESTED ANSWER: The following cases may, upon taxpayer’ s compliance with the basis for compromise, be the subject matter of compromise settlement:
a. Delinquent accounts;
b. Cases under administrative protest after issuance of the Final Assessment Notice to the taxpayer which are still pending in the Regional Offices, Revenue District Offices, Legal Service, Large Taxpayer Service (LTS), Collection Service, Enforcement Service and other offices in the National Office;
c. Civil tax cases being disputed before the courts; d. Collection cases filed in courts;
e. Criminal violations, other than those already filed in court, or those involving criminal tax fraud. (Sec. 2, Rev. Regs. No. 30-2002)
51. What tax cases could not be the subject of
compromise ?
SUGGESTED ANSWER:
a. Withholding tax cases unless the applicant-taxpayer invokes provisions of law that cast doubt on the taxpayer’ s obligation to withhold.;
b. Criminal tax fraud cases, confirmed as such by the Commissioner of Internal Revenue or his duly authorized representative;
c. Criminal violations already filed in court;
d. Delinquent accounts with duly approved schedule of installment payments;
e. Cases where final reports of reinvestigation or reconsideration have been issued resulting to reduction in the original assessment and the taxpayer is agreeable to such decision by signing the required agreement form for the purpose. On the other hand, other protested cases shall be handled by the Regional Evaluation Board (REB) or the National Evaluation Board (NEB) on a case to case basis;
f. Cases which become final and executory after final judgment of a court where compromise is requested on the ground of doubtful validity of the assessment; and
g. Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer. (Sec. 2, Rev. Regs. No. 30-2002)
52. The Commissioner may compromise the
payment of any internal revenue tax when:
a. A reasonable doubt as to the validity of the claim against the taxpayer exists provided that the minimum compromise entered into is equivalent to forty percent (40%) of the basic tax; or
b. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax provided that the minimum compromise entered into is equivalent to ten percent (10%) of the basic assessed tax
In the above instances the Commissioner is allowed to enter into a compromise only if the basic tax involved does not exceed One million pesos (P1,000,000.00), and the settlement offered is not less than the prescribed percentages. [Sec. 204 (A), NIRC of 1997]
In instances where the Commissioner is not authorized, the compromise shall be subject to the approval of the Evaluation Board composed of the Commissioner and the four (4) Deputy Commissioners.
53. The Commissioner of Internal Revenue is
authorized to abate or cancel a tax liability, when:
a. The tax or any portion thereof appears to be unjustly or excessively assessed; or
b. The administration and collection costs involved do not justify the collection of the amount due. [Sec. 204 (B), NIRC of 1997]
54. What is the prescriptive period for collecting internal revenue taxes ?
SUGGESTED ANSWER: There are four (4) prescriptive periods for the collection of an internal revenue tax:
a. Collection upon a false or fraudulent return or no return without assessment. In case of a false or fraudulent return with the intent to evade tax or of failure to file a return, “ a proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (10) years after the discovery of the falsity, fraud or omission.” [Sec. 222 (a), NIRC of 1997)
b. Collection upon a false or fraudulent return or no return with assessment. Any internal revenue tax which has been assessed
(because the return is false or fraudulent with intent to evade tax or of failure to fail a return), within a period of ten (10) years from discovery of the falsity, fraud or omission “ may be collected by distraint or
levy or by a proceeding in court within five (5) years following the assessment of the tax.” [Sec. 222 (c), in relation to Sec. 222 (a)
NIRC of 1997, emphasis supplied)
c. Collection upon an extended assessment. Where a tax has been assessed with the period agreed upon between the Commissioner and the taxpayer in writing (which should initially be within three (3) years from the time the return was filed or should have been filed), or any extensions before the expiration of the period agreed upon, the tax “ may be collected by distraint or levy or by a
proceeding in court within the period agreed upon in writing before the expiration of the five (5) year period. The period so
agreed upon may be extended by subsequent written agreements made before the expiration of the period previously agreed upon.” [Sec. 222 (d), in relation to Secs. 222 (b) and 203, NIRC of 1997, emphasis supplied)
d. Collection upon a return that is not false or fraudulent, or where the assessment is not an extended assessment. “ Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the
collection of such taxes shall be begun after the expiration of such period; Provided, That in case where a return is filed beyond the
period prescribed by law, the three (3) year period shall be computed from the day the return was filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered filed on such last day.” (Sec. 203, NIRC of 1997, emphasis supplied)
When the BIR validly issues an assessment within the three (3)-year period, it has another three (3) years within which to collect the tax due by distraint, levy, or court proceeding. The assessment of the tax is deemed made and the three (3)-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent to the taxpayer. [Bank of
Philippine Islands (Formerly Far East Bank and Trust Company) v. Commissioner of Internal Revenue, G. R. No. 174942, March 7,
2008 citing BPI v. Commissioner of Internal Revenue, G.R. No. 139736, 17 October 2005, 473 SCRA 205, 222-223)
NOTES AND COMMENTS:
a. Both the former Sec. 269, NIRC of 1977 and Sec.222 of NIRC of 1997 do not refer to a “ regular return.” It is clear that
of assessment and collection of taxes,” the NIRC of 1997 has eliminated sub-paragraph c of the former Sec. 269 of the NIRC, also entitled “ Exceptions as to the period of limitation of assessment and collection of taxes.” Said Sec. 269 (c), reads “ Any internal revenue tax which has been assessed within the period of limitation above- prescribed may be collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax.”
A perusal of Sec. 222 of the NIRC is clear that it covers only three scenarios only. 1) No assessment was made upon a false or fraudulent return or omission to file a return; 2) an assessment was made upon a false or fraudulent return or omission to file a return; and 3) an extended assessment issued within a period agreed upon by the Commissioner and the taxpayer. The same scenarios are those referred to in the former Sec. 269 which provided for a prescriptive period for collection of three (3) years.
It is clear therefore that neither Sec. 222 nor the former Sec. 269 provide for an instance where the assessment was made upon a “ regular return” or one that is not false or fraudulent, or that there was an agreement to extend the period for assessment.
Resort should therefore be made to the three (3) year period referred to in Sec. 203 of the NIRC of 1997 which reads, “ Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the
collection of such taxes x x x “ (paraphrasing and emphasis
supplied)
55. What is solutio indebeti as applied to tax cases ?
SUGGESTED ANSWER: This is erroneous payment of taxes and occurs when the taxpayer pays under a mistake of fact, as for the instance in a case where he is not aware of an existing exemption in his favor at the time the payment was made. Such payment is held to be not voluntary and therefore, can be recovered or refunded. (Commissioner of Internal Revenue v. Acesite (Philippines) Hotel
Corporation, G. R. No. 147295, February 16, 2007)
NOTES AND COMMENTS: Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it, thereby enriching itself at the expense of its law-abiding citizens. State Land Investment Corporation v.
Commissioner of Internal Revenue, G. R. No. 171956, January 18,
2008 citing BPI-Family Savings Bank, Inc. v. Court of Appeals, G.R. No. 122480, April 12, 2000, 330 SCRA 507.
Under the principle of solutio indebiti provided in Art. 2154, Civil Code, “ If something is received when there is no right to demand it, and it was unduly delivered through mistake, the
obligation to return it arises.” The BIR received something “ when there [was] no right to demand it,” and thus, it has the obligation to return it. State Land Investment Corporation v. Commissioner of
Internal Revenue supra citing Citibank, N. A. v. Court of Appeals and Commissioner of Internal Revenue, G.R. No. 107434, October 10,
1997, 280 SCRA 459, in turn citing Ramie Textiles, Inc. v. Mathay,
Sr., 89 SCRA 586 (1979). It is an ancient principle that no one, not
even the state, shall enrich oneself at the expense of another. Indeed, simple justice requires the speedy refund of the wrongly held
taxes. (Ibid.) 56. What are the reasons for requiring the filing of an administrative application for refund or credit with the BSUGGESTED
56. The filing of an administrative claim for
refund with the BIR, before filing a case with the Court of
Tax Appeals, is necessary for the following reasons
:a. To afford the Commissioner an opportunity to correct his errors or that of subordinate officers. (Gonzales v. Court of Tax
Appeals, et al., 14 SCRA 79)
b. To notify the Government that such taxes have been questioned and the notice should be borne in mind in estimating the revenue available for expenditures. (Bermejo v. Collector, G.R. No. L- 3028, July 28, 1950)
57. As a general rule the filing of an application for refund or credit with the Bureau of Internal Revenue is an administrative precondition before a suit may be filed with the Court of Tax Appeals. Is there any exception ?SUGGESTED ANSWER: Yes. The failure to first file a written claim for refund or credit is not fatal to a petition for review involving a disputed assessment where an assessment was disputed but the protest was denied by the Bureau of Internal Revenue.
To hold that the taxpayer has now lost the right to appeal from the ruling on the disputed assessment and require him to file a claim for a refund of the taxes paid as a condition precedent to his right to appeal, would in effect require of him to go through a useless and needless ceremony that would only delay the disposition of the case, for the Commissioner would certainly disallow the claim for refund in the same way as he disallowed the protest against the assessment. The law, should not be interpreted as to result in absurdities. (vda. de
138485, September 10, 2001 citing Roman Catholic Archbishop of Cebu v. Collector of Internal Revenue, 4 SCRA 279)
NOTE: Reconciliation between above two numbers (56
and 57). An application for refund or credit under Sec. 229 of the
NIRC of 1997 is required where the case filed before the CTA is a refund case, which is not premised upon a disputed assessment. There is no need for a prior application for refund or credit, if the refund is merely a consequence of the resolution of the BIR’ s denial of a protested assessment.
58. What is the nature of the taxpayer’ s remedy of either to ask for a refund of excess tax payments or to apply the same in payment of succeeding taxable periods’ taxes ?
SUGGESTED ANSWER: Sec. 69 of the 1977 NIRC (now Sec. 76 of the NIRC of 1997) provides that any excess of the total quarterly payments over the actual income tax computed in the adjustment or final corporate income tax return, shall either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative and the choice of one precludes the other. Since the Bank has chosen the tax credit approach it cannot anymore avail of the tax refund. (Philippine Bank of Communications v.
Commissioner of Internal Revenue, et al., G.R. No. 112024, January
28, 1999)
NOTES AND COMMENTS:
a. The choice, is given to the taxpayer, whether to claim for refund under Sec. 76 or have its excess taxes applied as
tax credit for the succeeding taxable year, such election is not final. Prior verification and approval by the Commissioner of Internal Revenue is required. The availment of the remedy of tax credit is not absolute and mandatory. It does not confer an absolute right on the part of the taxpayer to avail of the tax credit scheme if it so chooses. Neither does it impose a duty on the part of the government to sit back and allow an important facet of tax collection to be at the sole control and discretion of the taxpayer. (Paseo Realty & Development
Corporation v. Court of Appeals, et al., G. R. No. 119286, October 13,
2004)
59.
What is the “ irrevocability rule” in claims
for refund and what is the rationale behind this ?
SUGGESTED ANSWER: A corporation entitled to a tax credit or refund of the excess estimated quarterly income taxes paid has two options: (1) to carry over the excess credit or (2) to apply for the
issuance of a tax credit certificate or to claim a cash refund. If the option to carry over the excess credit is exercised, the same shall be irrevocable for that taxable period.
In exercising its option, the corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention either to carry over the excess credit or to claim a refund. To facilitate tax collection, these remedies are in the alternative and the choice of one precludes the other. [Systra Philippines, Inc., v. Commissioner of Internal Revenue, G. R. No. 176290, September 21, 2007 citing Philippine Bank of
Communications v. Commissioner of Internal Revenue, 361 Phil. 916
(1999)]
This is known as the irrevocability rule and is embodied in the last sentence of Section 76 of the Tax Code. The phrase “ such option shall be considered irrevocable for that taxable period” means that the option to carry over the excess tax credits of a particular taxable year can no longer be revoked.
The rule prevents a taxpayer from claiming twice the excess quarterly taxes paid: (1) as automatic credit against taxes for the taxable quarters of the succeeding years for which no tax credit certificate has been issued and (2) as a tax credit either for which a tax credit certificate will be issued or which will be claimed for cash refund. (Systra Philippines, Inc., supra citing De Leon, Hector, THE NATIONAL INTERNAL REVENUE CODE, Seventh Edition, 2000, p. 430)
60. In the year 2000 Systra derived excess tax credits and exercised the option to carry them over as tax credits for the next taxable year. However, the tax due for the next taxable year is lower than excess tax credits. It now applies for a refund of the unapplied tax credits. May its refund be granted ? If the refund is denied, does Systra lose the unapplied tax credits ? Explain briefly your answer.
SUGGESTED ANSWER: Systra’ s claim for refund should be denied. Once the carry over option was made, actually or constructively, it became forever irrevocable regardless of whether the excess tax credits were actually or fully utilized Under Section 76 of the Tax Code, a claim for refund of such excess credits can no longer be made. The excess credits will only be applied “ against income tax due for the taxable quarters of the succeeding taxable years.”
Despite the denial of its claim for refund, Systra does not lose the unapplied tax credits. The amount will not be forfeited in favor of the government but will remain in the taxpayer’ s account. Petitioner
may claim and carry it over in the succeeding taxable years, creditable against future income tax liabilities until fully utilized. (Systra Philippines, Inc., v. Commissioner of Internal Revenue, G. R. No. 176290, September 21, 2007 citing Philam Asset Management,
Inc. v. Commissioner of Internal Revenue, G.R. Nos.
156637/162004, 14 December 2005, 477 SCRA 761)
Supposing in the above problem that Systra permanent ceased operations, what happens to the unapplied credits ?
SUGGESTED ANSWER: Where, the corporation permanently ceases its operations before full utilization of the tax credits it opted to carry over, it may then be allowed to claim the refund of the remaining tax credits. In such a case, the remaining tax credits can no longer be carried over and the irrevocability rule ceases to apply.
Cessante ratione legis, cessat ipse lex. (Footnote no. 23, Systra Philippines, Inc., v. Commissioner of Internal Revenue, G. R. No.
176290, September 21, 2007)
NOTES AND COMMENTS: The holding in State Land
Investment Corporation v. Commissioner of Internal Revenue, G. R.
No. 171956, January 18, 2008 that the taxpayer is entitled to a refund because during the succeeding year there was no tax due against which the excess tax credits may be applied is not doctrinal. This is so because it interpreted the provisions of then Sec. 69 of the NIRC, which did not provide for the “ irrevocability rule” now contained in Sec. 76 of the NIRC of 1997.
60-A. In early April 1999 XYZ Bank advanced the amount of P180 million to the BIR its income tax payment for the bank’ s 1999 operations in response for the government’ s call to generate more revenues for national development. In separate letters dated April 19 and 29, 1999 and May 14, 1999 XYZ requested for the issuance of a Tax Credit Certificate (TCC) to be utilized against future tax obligations of the bank.
By the end of 1999, a credit balance in the amount of P73 million remain which was carried over for the years 2000 to 2004 but was not availed of because XYZ incurred losses during the period. On July 28, 2005 PNB reiterated its request for the issuance of a TCC for the P73 million balance. The BIR rejected the request on the ground of among others prescription having been applied for beyond the two-year reglementary period for filing claims for refund as set forth in Sec. 229 of the NIRC of 1997.
Has the claim prescribed ? Explain briefly your answer.
SUGGESTED ANSWER: The claim has not prescribed. Sec. 229 of the Tax Code, as couched, particularly its statute of limitations
component, is in context intended to apply to suits for any national internal revenue tax “ alleged to have been erroneously or illegally