BULLET NOTES ON TAX REMEDIES

Overview
 The basic purpose of remedies is to maintain equilibrium between the interest of the
state and the taxpayer.
 Remedies can be either administrative or judicial.
 Administrative remedies involve assessment and collection, protest and refund.
 Judicial remedies may either be a civil suit or criminal suit, appeal to CTA,
injunction/ temporary restraining order, or criminal suit against erring BIR
officials.
 Summary of Remedies:

Remedies to the State Common Remedies Remedies to the Taxpayer

ADMINISTRATIVE LEVEL (BIR)

Assessment Compromise Protest

Collection Abatement Refund

JUDICIAL LEVEL (Courts)

Civil Suit/Action Appeal to CTA

Criminal Suit/ Action TRO/ Injunction
Criminal Suit against erring
BIR officials

Remedies Available to the Government

 Administrative Remedies
o Assessment
 Similar to audit.
 It is a finding by the taxing authority that the taxpayer has not paid the
correct taxes.
 An assessment contains not only a computation of tax liabilities but
also a demand for payment within a prescribed period. It also signals
the time when penalties and interests begin to accrue against the
taxpayer.
 Time of assessment (statute of limitation or prescriptive period) –
national internal revenue taxes shall be assessed within 3 years:
 After the due date for the filing of the return (a return filed
before the due date shall be considered as filed on such due date);
 From the day the return was filed, where the return is filed
beyond the due date; and
 From the filing of the amended return, if the return was
amended substantially.

 EXCEPTIONS - The 3-year prescriptive period of assessment is extended

if:
 False or fraudulent return with intent to evade the tax was filed -
the assessment may be made within 10 years from the
discovery of the falsity or fraud;
 No return is filed - assessment may be made within 10 years
after the discovery of the failure or omission to file the return;
and
 Before the expiration of the 3-year prescriptive period for
assessment of the tax, both the taxpayer and the CIR have agreed
in writing (waiver) to its assessment after such time, the tax may
be assessed within the period agreed upon. The period so agreed
upon may be extended by subsequent written agreement made
before the expiration of the period previously agreed upon.

 If the government tries to assess a tax beyond the prescriptive periods,

the taxpayer may claim defense of prescription of the right of the
government to assess. The defense of prescription, however, is not
TAXATION BULLET NOTES – Tax Remedies Compiled by Vhin

jurisdictional and must be raised seasonably, otherwise it is deemed

waived.
 How are tax audits/investigations initiated?
 Issuance of Electronic Letter of Authority (eLA), Tax
Verfication Notice (TVN) and/or Letter of Notice (LN) is
considered as a “notice of audit or investigation” that prohibits
amendment to any return covering period referred to in the eLA,
TVN and/or LN.
 RMO No. 62 – 2010 discontinued the manual issuance of Letter of
Authority (LA) and TVNs.
 There must be a grant of authority before any revenue officer can
conduct an examination or issue an assessment. Thus, the BIR
cannot extend its examination or assessment beyond the period
covered by the Letter of Authority (LA).
 LA should cover a taxable period not exceeding one taxable
year. The practice of issuing an LA covering audit of “unverified
prior year’s” is prohibited.

 Place of Examination
 The primary place of examination is the taxpayer’s place of
business.
 The secondary place of examination is at the Office of the BIR.
 Only duly authorized Revenue Office can audit.

 Submission of documents
 Use of best evidence available when:
 The reports or records of the taxpayer are not available
(i.e. lost or destroyed; unreasonably refuses to submit
records); or
 The reports and records submitted by the taxpayer are
determined to be false, incomplete or erroneous or
cannot be understood. [Sec. 6(B), Tax Code]

 End of Audit/Investigation
 Preparation of report of investigation showing preliminary
findings.
 Notice of Informal Conference – RR No. 18 -2013 removed the
requirement for the issuance of a letter of informal conference
before a Preliminary Assessment Notice (PAN) is issued.

o Collection
 Collection means enforcing the payment of tax. The following are the
administrative collection remedies of the government:
 Summary proceedings
 Distraint (actual or constructive)
 Levy
 Tax lien
 Forfeiture
 Suspension of business operations in violation of VAT
 Enforcement of an administrative fine
 Judicial proceedings

 Time of collection (statute of limitation or prescriptive period):

 Return filed was not false or fraudulent
 Collection with prior assessment - within 5 years from
the date of assessment, either by summary proceedings of
distraint and levy or by judicial proceedings.
 Collection without prior assessment - within 3 years from
the date of filing the return or from the last day required by
law for filing, if the return was filed on or before such last
day, by judicial proceedings only.
 Return filed was false or fraudulent with intent to evade the tax
or no return is filed
TAXATION BULLET NOTES – Tax Remedies Compiled by Vhin

 Collection with prior assessment - within 5 years from

the date of assessment, either by summary proceedings of
distraint and levy or judicial proceedings.
 Collection without prior assessment - within 10 years
after the discovery of the falsity, fraud or omission to file
the return, by judicial proceedings only.
 Any internal revenue tax, which has been assessed within the period
agreed upon by the taxpayer and the CIR, 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 5 years prescriptive period to
collect. The period so agreed upon may be extended by subsequent
written agreement made before the expiration of the period previously
agreed upon.
 If the government tries to collect by any of the above remedies beyond
the prescriptive periods, the taxpayer may claim defense of
prescription of the right of the government to collect. The defense of
prescription, however, is not jurisdictional and must be raised
seasonably, otherwise it is deemed waived.

o Distraint
 It is the seizure (taking) by the government of personal property
(tangible of intangible) to enforce payment of taxes.
 It can either be actual distraint or constructive distraint.

Actual Distraint Constructive Distraint

Made only on the property of a Made on the property of any taxpayer,
delinquent taxpayer. whether delinquent or not.
The taxpayer is merely prohibited from
There is taking of possession.
disposing of his property.

 Levy:
o It is the seizure (taking) by the government of real property to enforce payment
of taxes.
Distraint Levy
Personal Property Real Property
Forfeiture by the government is not Forfeiture is authorized
provided
The taxpayer is not given the right of The right of redemption is granted in
redemption with respect to the case of real property levied upon and
distrained personal property sold or forfeited to the government

Levy Garnishment
Real property owned by Personal property owned
As to subject matter and in possession of the by the taxpayer but in the
taxpayer possession of a third party
As to disposition for
Forfeited in favor of the Purchased by the
want of bidders or bids
government then sold to government then resold to
inadequate to satisfy tax
meet the deficiency meet the deficiency
deficiency
As to advertisement for Advertisement once a No advertisement is
sale week for three weeks required

o Tax Lien
 It is a legal claim or charge on property, either real or personal,
established by law as security in default of the payment of taxes. The
extent of lien shall be the tax together with the interests, penalties,
and costs that may accrue. The lien attaches not only from the service of
warrant of distraint but from the time the tax become due and payable.
o Forfeiture
 If there is no bidder in the public sale or if the amount of the highest
bid is insufficient to pay taxes, penalties and costs, the real property
shall be forfeited to the Government. The effect is to transfer the title of
the specific thing from the owner to the Government.
TAXATION BULLET NOTES – Tax Remedies Compiled by Vhin

o Run After Tax Evaders (RATE)

 It is a program initiated by the DOF and BIR to investigate and
prosecute individuals and entities engaged in tax evasion and other
criminal violations of the National Internal Revenue Code of 1997.
 The objectives of the RATE program are:
 Generate the maximum deterrent effect on the taxpaying public
by impressing the fact that tax evasion is a crime and violators will
be caught and punished.
 Enhance voluntary compliance among taxpayers.
 Promote confidence of the public in the tax system.
 Fraudulent activities or criminal tax violations covered by the RATE
Program
 Offenses relating to income:
 Failure to file tax returns.
 Failure to pay
 Deliberate under-declaration of income by more than 30%
of that declared per return (substantial under-declaration).
 Hiding or transferring assets or income.
 Non-remittance of withholding taxes.
 Offenses relating to deductions:
 Deliberate overstatement of amount of deductions by
more than 30% of actual deductions (substantial
overstatement of deductions).
 Claiming personal expenses as business expenses.
 Claiming false deductions.
 Other violations:
 Use of fake Certificate Authorizing Registration (CAR), Tax
Clearance Certificate (TCC) or other accountable forms.
 Failure to register with the BIR.
 Keeping more than one (1) set of books of accounts.
 Making false entries in books and records.

o Run After the Smugglers (RATS)

 In 2005, the Bureau of Customs launched an aggressive battle against
smugglers who pose serious and direct threat to the national economy
by depriving the government of its much- needed revenues.
 To boost its collection, the BOC introduced the Run After the Smugglers
(RATS) Program which aimed to file customs cases against high profile
smugglers.
 It is designed not only to collect taxes but also to ensure that importers
comply with existing laws and regulations on tariff and customs which
complements the post-audit power of the BOC under RA 9135, which
took effect on June 2, 2001.

o Oplan Kandado
 On January 23, 2009, the BIR issued Revenue Memorandum Order No. 3
– 2009 to implement a nationwide “Oplan Kandado” Program.
 Under the program, business operations of non-compliant taxpayers will
be suspended and their establishments will be temporarily closed if
they will be found to have violated certain tax laws.
 The programs aims to intensify the Bureau’s enforcement operations
through strict imposition of prescribed administrative sanctions for non-
compliance with the basic tax requirements.
 Grounds for suspension:
 Failure to issue receipts or invoices by a VAT-registered or
registrable taxpayer.
 Failure to file a VAT return.
 Understatement of taxable sales or receipts by 30% or more of
the correct amount thereof in the case of a VAT-registered or
registrable taxpayer.
 Failure to register.
 The closure of the business establishment shall last for a period of not
less than five (5) days, and shall be in force until the violation is
rectified by the concerned taxpayer.
TAXATION BULLET NOTES – Tax Remedies Compiled by Vhin

 The suspension and temporary closure of business shall not preclude

the BIR from filing the appropriate charges under the RATE Program of
the Bureau, if evidence so warrants the taxpayer concerned or
responsible office of the corporations.
 The closure order shall only be lifted by the BIR when there has been:
 A subsequent filing or amendment of returns with the payment
of the tax inclusive of statutory penalties;
 Subsequent registration with the payment of the corresponding
compromise penalties
 Payment of deficiency taxes inclusive of penalties corresponding
to the sales where no invoices/receipts have been issued; and
 Payment of deficiency taxes inclusive of penalties corresponding
to the understatement of taxable sales or receipts.

Remedies to the State: Judicial Remedies – Civil and Criminal Action

 Civil action is resorted to when a tax liability becomes collectible, that is, the
assessment becomes final and unappealable, or the decision of the CIR has become
final, executory, and demandable.
 Criminal action, like civil action, cannot be instituted without the approval of the
CIR. It is resorted to not only for collection of taxes but also for enforcement of
statutory penalties of all sorts. The judgment in the criminal case shall not only
impose the penalty but shall also order the payment of the taxes.

 The extinction of a taxpayer’s criminal liability does not necessarily result in the
extinguishment of his civil liability. Conversely, the subsequent satisfaction of a
tax liability will not operate to extinguish the criminal liability.

Remedies Available to the Taxpayer

 Administrative Remedies
o Protest
 Protest is a challenge against assessment.
 The filing of a petition for reconsideration or reinvestigation shall be
made within 30 days from the receipt of the assessment with the CIR.
Within 60 days therefrom, all relevant supporting documents should
have been submitted, otherwise the assessment shall become final.

o Refund or Tax Credit

 A taxpayer may file for tax refund in case of excessive or erroneous
payment of a tax with the BIR:
 Tax is collected erroneously or illegally.
 Penalty is collected without authority.
 Sum collected is excessive .

Remedies to the Taxpayer: Judicial Remedies – Civil Action

 General Rule:
o No action shall suspend the collection, payment, levy or distraint, and/or sale
of any property of the taxpayer.
 Exception:
o The CTA is empowered to suspend the collection of internal revenue taxes and
custom duties only when there was a:
 Showing that collection of the tax liability may jeopardize the interest
of the government and/or the taxpayer;
 Deposit of the amount claimed or file a surety bond for not more than
twice the amount of tax with the Court when required; and
 Showing by the taxpayer that appeal is not frivolous nor dilatory.
o Appeal to the CTA within 30 days from the receipt of decision on the protest
or from the lapse of 180 days due to inaction of the Commissioner,
whichever comes earlier.
o Action for damages against a revenue officer by reason of any act done in the
performance of official duty.
o Filing of criminal complaint against erring BIR officials and employees.
o Injunction, when the CTA in its opinion the collection by the CIR may
jeopardize the taxpayer.
TAXATION BULLET NOTES – Tax Remedies Compiled by Vhin

Remedies to Both Government and Taxpayer

 Compromise
o Mutual concession between the taxpayer and the government in setting a tax
deficiency amicably.
o What cases may be compromised?
 Delinquent
 Cases under administrative protests.
 Civil tax cases being disputed before the courts.
 Collection cases filed in courts.
 Criminal violation, other than those already filed in court or those
involving criminal tax refunds.
o What cannot be compromised?
 Criminal violation of NIRC already filed in court.
 Cases involving fraud.
o What are the grounds for compromise?
 A reasonable doubt as to the validity of the claim against the taxpayer
exists; or
 The financial position of the taxpayer demonstrates a clear inability to
pay the assessed tax.
o Prescribed minimum compromise rates:
 Financial incapacity - 10% of the basic assessed tax.
 Other cases - 40% of the basic assessed tax.
o Compromised settlement subject to approval of the Evaluation Board,
composed of the CIR and the 4 Deputy Commissioners:
 Where the basic tax exceeds P1,000,000, or
 Where the settlement offered is less than the prescribed minimum
rates above.
 Abatement
o A tax may be cancelled or obliterated upon the authority of the BIR under
certain circumstances.
o What are the grounds for abatement?
 The tax or any portion thereof appears to be unjustly or excessively
assessed;
 The administration and collection costs involved do not justify the
collection of the amount due; and
 The Commissioner may also, even without claim therefore, refund or
credit any tax where on the face of the return upon which payment was
made such payment appears clearly to have been erroneously paid.

ADDITIONS TO TAX

Civil Penalties and Criminal Penalties

 Civil penalties
o Interest
 In general, interest on unpaid amount of tax is 12% (at double the rate of
legal interest rate for loans or forbearance of any money in the absence of
an express stipulation as set by the BSP; prevailing BSP set legal
interest is 6%).
 Deficiency and delinquency interest shall in no case be imposed
simultaneously.
 Deficiency Interest
 The period when deficiency interest shall stop to run is until full
payment OR upon issuance of a notice and demand by the BIR
Commissioner; whichever comes earlier.

Deficiency Interest Formula:

Deficient tax x 12% x no. of days or months
÷
Total No. of days or months in a year

 Delinquency Interest
 Delinquency interest in case of failure to pay:
 The amount of the tax due on any return required to be filed, or
TAXATION BULLET NOTES – Tax Remedies Compiled by Vhin

 The amount of the tax due for which no return is required, or

 A deficiency tax, or any surcharge or interest thereon on the due
date appearing in the notice and demand of the CIR, there shall be
assessed and collected on the unpaid amount interest at the rate
of 20% per annum until the amount is fully paid, which interest
shall form part of the tax.

Delinquency Interest Formula:

Deficient tax plus any deficiency interest

or

Surcharges x 12% x no. of days or months

÷
Total No. of days or months in a year

 Interest on extended payment

 If any person required to pay the tax is qualified and elects to pay
the tax on installment under the provisions of the Tax Code, but
fails to pay the tax or any installment thereof, or any part of
such amount of installment on or before the date prescribed for its
payment, or where the CIR has authorized an extension of time
within which to pay a tax or a deficiency tax or any part thereof,
there shall be assessed and collected interest at the rate of 12%
per annum on the tax or deficiency tax or any part thereof unpaid
from the date of notice and demand until it is paid.
 Surcharges
o Simple Neglect (25%)
 Failure to file any return and pay the tax due thereon.
 If the return is not filed with the proper internal revenue officer.
 Failure to pay on time the deficiency tax shown in the notice of
assessment.
 Failure to pay the full or part of the amount of tax shown on any
return required to be filed, or the full amount of tax due for which no
return is required to be filed, on or before the date prescribed for its
payment.

o Willful Neglect (50%)

 Willful neglect to file the return on time.
 False or fraudulent return is willfully filed (failure to report sales,
receipts or income in an amount exceeding 30% of that declared per
return, and a claim of deductions in an amount exceeding 30% of actual
deductions, shall render the taxpayer liable for substantial under-
declaration of sales, receipts or income or for substantial overstatement
of deductions, thus making the return filed false or fraudulent.

o Attempt to evade or defeat tax

 Any person who willfully attempts in any manner to evade or defeat any
tax imposed under this Code or the payment thereof shall, in addition
to other penalties provided by law, upon conviction thereof be punished
by a fine of not less than P 500,000 but not more than P 10,000,000
and suffer imprisonment of not less than 6 years but not more than
10 years.