The Philippines: Tax Assessment, Appeal and Dispute Resolution

The Philippines:

Tax Assessment, Appeal and

Dispute Resolution

Presentation made for

The ASEAN Tax System Seminar

September 15 to 17, 2010 Bangkok, Thailand

The Philippine Tax Office: BIR

Chiefs Officials of the BIR

Commissioner of Internal Revenue

Deputy Commissioner – Operations Group

Deputy Commissioner – Legal & Inspection Group Deputy Commissioner – Resource Management Group Deputy Commissioner – Information

Large Taxpayers Offices

LT Audit Offices Group (Assistant

Commissioners Regular & Excise)

CIR

1

2

8

Regional & District Offices

District

Offices

Regions

DCIR -

OG

1

19

119

Powers & Duties of the BIR

  Assess and collect of all internal revenue

taxes, fees, and charges, and

  Enforce all forfeitures, penalties, and fines

connected with the assessment & collection function

  Execute favorable judgments the Court of

Powers of the Commissioner of BIR

  Interpret:

  exclusive and original jurisdiction to interpret the

provisions tax laws (subject to review by the Secretary of Finance)

  Decide:

  To decide on, (subject to the exclusive appellate

jurisdiction of the Court of Tax Appeals)

  disputed assessments

  refunds of internal revenue taxes, fees or other

Power of Commissioner of the BIR

  Examination

  Notice of Audit, Letters of Authority, Tax Verification

Notice, Letter Notice

  Obtain information

  Request for Third Party Information, Data-Linkage

  Summon any person

  Subpoena Duces Tecum

  Take testimony

  Subpoena Ad Testificandum

  To order canvass [survey or surveillance]

Audit Notice

  Issuance of Audit Notice

  Letter of Authority

  Letter Notice of Discrepancy

  Burden of proof is upon the taxpayer to show

clearly that the assessment is wrong and without basis or is erroneous.

  Failure to do so on the part of the taxpayer

justify the judicial affirmation of the assessment

Audit and Investigation

  Audit and Investigation Proper

  Actual audit of taxpayer’s books of account   Use of third party information to check on

accuracy of reporting

  Revenue Officers who audit the taxpayer shall

prepare a report of discrepancies noted with a report of possible tax deficiency assessment

  Average: 120 days to conduct audit &

Informal Conference

  Notice of Informal Conference

  A Notice of Informal Conference is an invitation by

the Revenue District Office (RDO) to a taxpayer under audit to visit the tax office to hear all the discrepancies noted by the Revenue Officer who audited their books of accounts with a

computation of possible tax deficiency assessment

Informal Conference

  Notice of Informal Conference

  An Informal Conference affords the taxpayer with

an opportunity to present his side of the case

  After service of a Notice of Informal Conference,

taxpayer is given fifteen (15) days from date of

receipt to appear before the tax agency, otherwise he shall be considered in default.

Preliminary Assessment Notice (PAN)

  Preliminary Assessment Notice (PAN)

  After an Informal Conference, taxpayer is given

reasonable time to present documentary evidence or explanation on the discrepancies noted and to rebut the deficiency tax assessment against them

  If still there exist a sufficient basis to assess or

after the taxpayer has been declared in default in an informal conference a PAN shall be issued

Preliminary Assessment Notice (PAN)

  Preliminary Assessment Notice (PAN)

  A PAN is issued and served either personally or

by registered mail to the taxpayer

  It contains a explanation of the deficiency tax

assessment, showing in details the facts and the laws and rules and regulations or jurisprudence on which the proposed assessment is based

  Taxpayer is given fifteen (15) days to respond to

Final Assessment Notice (FAN) and

Formal Letter of Demand

  Final Assessment Notice (FAN) and Formal

Letter of Demand

  After giving opportunity to the taxpayer to rebut

the PAN and still there are basis to assess deficiency taxes or there are still unexplained

issues or after they have been in default, a Final Assessment Notice shall be issued against them with a Formal Letter of Demand calling for the payment of the computed deficiency tax

Exceptions to Prior Notice of Assessment

  When the finding for any deficiency tax is the

result of mathematical error in the

computation of the tax appearing on the face of the tax return by the taxpayer; or

  When a discrepancy has been determined

between the tax withheld and the amount

Exceptions to Prior Notice of Assessment

  When a taxpayer who opted to claim a refund

or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the

estimated tax liabilities for the taxable

Exceptions to Prior Notice of Assessment

  When the excise tax due on excisable articles

has not been paid; or

  When an article locally purchased or

imported by an exempt person, such asm but not limited to vehicles, capital equipment,

machineries, and spare parts, has been sold, traded or transferred to non-exempt persons

Final Assessment Notice (FAN) and

Formal Letter of Demand

  Final Assessment Notice (FAN) and Formal

Letter of Demand

  Issued by the Commissioner or his authorized

representative

  It must state the facts, the laws, rules and

regulations, or jurisprudence on which the assessment is made, otherwise the letter of demand and assessment notice shall be void

Disputed Tax Assessment

  A taxpayer may protest administratively within thirty

(30) days from receipt of the formal letter of demand and assessment notice

  If there are several issues involved in the formal

letter of demand and assessment notice but the taxpayer only disputes or protests validity of some issues raised, the taxpayer shall be required to pay the deficiency tax on undisputed tax assessments

Disputed Tax Assessment

  Taxpayer’s failure to present facts, laws,

rules and jurisprudence to support his protest on an issue will likewise make such issue

undisputed thus collectible

  A collection letter shall be issued to the

taxpayer calling for the payment of the said deficiency tax, inclusive of the applicable penalties on the undisputed assessment

Disputed Tax Assessment

  Taxpayer who administratively protest an

assessment is required to submit required

documents within sixty (60) days from filing of letter of protest, otherwise, the assessment becomes final, executory and demandable

  Also, if the taxpayer fails to file a timely

protest, the assessment becomes final, executory and demandable

Final Decision on Disputed Assessment

(FDDA)

  Within 180 days, the protest may be denied

in whole or in part by the Commissioner of his authorized representative through the

issuance of a Final Decision on Disputed

Assessment (FDDA), where taxpayer is given thirty (30) days to administratively appeal or judicially make an appeal

Administrative Appeal

  Within thirty (30) days from receipt of FDDA

taxpayer may file an appeal before the

Commissioner on matters involving question of law or before the assessing office on

matters involving question of facts, otherwise, the assessment becames final, executory

Judicial Appeal

  In alternative, within thirty (30) days from

receipt of FDDA taxpayer may opt to file an appeal before the Court of Tax Appeals

Administrative Decision on Appeal

  The CIR is expected to render a decision

which shall state the facts, the applicable law, rules and regulations or jurisprudence on

which the decision is made, otherwise such a decision shall be considered void

  Likewise it should state that such is a final

decision

  Thereafter, taxpayer may make a judicial

appeal before the Court of Tax Appeals (CTA)

Judicial Decision on Appeal

  Decision rendered by the Court of Tax

Appeals (CTA) may be appealed before CTA on motion for reconsideration, then it can still be further appealed before the CTA En Banc, then finally before Supreme Court

Court of Tax Appeals

  Composed of nine (9) justices

  Divided into three (3) branches

  Makes a decision either

  En Banc

Appellate Jurisdiction of CTA

  By law has exclusive appellate jurisdiction to

review by appeal   Decision of the CIR   Inaction of the CIR

  Decisions of lower court on local tax cases   Decision of Commissioner of Customs

  Decisions of real property taxes

  Decisions of Finance on cases elevated to them

by automatic review