TAX REMEDIES

A. TAX REMEDIES
1. On the part of the government - courses of action provided or allowed in
the law to implement the tax laws or enforce tax collection
2. On the part of the taxpayer - legal actions which they can avail of to seek
relief from the undue burden or oppressive effect of tax laws, or as a means
to check possible excesses by revenue officers in the performance of their
duties

B. ASSESSMENT PROCESS
TAX AUDIT OR INVESTIGATION
The BIR conducts an audit by issuing a Letter of Authority (LOA).

Letter of Authority - is an official document that empowers a Revenue Officer to

examine and scrutinize a taxpayer’s book of accounts or records to determine the
correct internal revenue tax liabilities.

NOTE: Assessments shall have the approval and authorization of Commissioner of

the BIR or his duly authorized representative through an LOA. The concept of LOA is
clear and unequivocal, therefore, assessment without LOA is a violation of
taxpayer’s right to due process and “inescapably void”.

Persons authorized to issue LOA

Taxpayer Person authorized

Under the jurisdiction of the National Office Commissioner of Internal Revenue (CIR)

Under the jurisdiction if the Regional Office Regional Director

TAX CASES NEED NOT BE COVERED BY LOA

1. Involving civil or criminal tax fraud which falls under the jurisdiction of the
National Investigation Division (NID) under the Enforcement and Advocacy
Services (EAS) if the BIR; and
2. Policy cases under audit by the special teams in the National Office.

EFFECT OF THE ISSUANCE OF LOA

A tax return, statement or declaration filed by a taxpayer may be modified,
changed, or amended within three (3) years from the date of filing. However, when
LOA to such documents has been served upon the taxpayer, amendment shall no
longer be allowed.

NOTE: Letter Notice (LN) is different from LOA and serves a different purpose .
ISSUANCE OF NOTICE OF DISCREPANCY (NOD)
Under RR 22-2020, if a taxpayer is found to be liable for deficiency taxes in
the course of investigation conducted by the Revenue Officer, the taxpayer shall be
informed through NOD where it aims to fully afford the taxpayer with a fair
opportunity to present his side within five (5) days from the receipt of NOD and
may be extended for a period not exceeding thirty (30) days from the receipt of
NOD. The Revenue Officer shall state in the initial report of investigation his findings
of discrepancies. Failure on the part of taxpayer to reconcile and present valid
documentary support against the noted discrepancies will result in the issuance of
a deficiency tax assessment through Preliminary Assessment Notice (PAN)
covering the deficiency tax assessment.

ISSUANCE OF PRELIMINARY ASSESSMENT NOTICE (PAN)

PRELIMINARY ASSESSMENT NOTICE (PAN)
A Preliminary Assessment Notice (PAN) is a formal written communication
issued by either the Regional Assessment Division or a Commissioner, or their
designated representative. Its purpose is to inform a taxpayer who has undergone
an audit about the conclusions drawn by the revenue officer. The PAN is required to
include precise details regarding the facts of the case, as well as the applicable
laws, rules, regulations, or legal precedents that substantiate the proposed
assessment. Failure to include this information renders the assessment invalid.

MANDATORY NATURE OF SERVICE OF PAN PRIOR TO FINAL ASSESSMENT NOTICE

As a general rule, issuance of PAN prior to FAN is part of the "due process
requirement", the absence of which renders nugatory any assessment made by
the tax authorities.

EXCEPTION FOR THE ISSUANCE OF PAN under Sec. 228 (Tax Code) and RR 18-2013:
• When the finding for any deficiency tax is the result of mathematical error in
the computation of the tax as appearing on the face of the return; or
• When a discrepancy has been determined between the tax withheld and
the amount actually remitted by the withholding agent; or
• 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 quarter or quarters of the
succeeding taxable year; or
• 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
as, but not limited to, vehicles, capital equipment, machineries and spare
parts, has been sold, traded or transferred to non-exempt persons.
REMEDY OF THE TAXPAYER
The taxpayer has 15 days to reply contesting the finding in the PAN.

EFFECT OF FAILURE TO REPLY

When a taxpayer fails to pay their taxes, the Bureau of Internal Revenue (BIR)
declares them in default. The BIR will then send them a Final Letter of Demand (FLD)
and a Final Assessment Notice (FAN) which notifies the taxpayer that they need to
pay their unpaid taxes, including any applicable penalties (as specified in RR 18-
2013).

ISSUANCE OF FORMAL LETTER OF DEMAND (FLD) and FINAL ASSESSMENT NOTICE

(FAN)
According to Revenue Regulation 18-2013, the FLD/FAN (Final Letter of
Demand/Final Assessment Notice) is a crucial document issued by the
Commissioner or his authorized representative. Its primary purpose is to clearly
articulate the reasons behind the assessment of deficiency tax. This entails
presenting pertinent facts, laws, rules, regulations, or jurisprudence that
substantiate the assessment. It is important to note that the absence of this
essential information would render the assessment null and void.

WHEN ISSUED?
1. The taxpayer failed to respond to the PAN; or
2. The reply to the PAN was found to be without merit.

PRESCRIPTIVE PERIOD
Return filed is not fraudulent Three (3) years from:
A. Actual filing or return; or
B. Deadline for filing whichever is LATER.

1. Return filed is fraudulent; or Ten (10) years from discovery.

2. No return was filed

REMEDY OF THE TAXPAYER

1. File a protest to the CIR or his authorized representative within 30 days from
the date of receipt of the FAN.

TYPES OF PROTEST (RR 18-2013)

Request for Reconsideration
Refer to a plea for re-evaluation of an assessment on the basis of
existing records without need of additional evidence. It may involve both a
question of fact or of law or both.
 Request for Reinvestigation
Refer to a plea for re-evaluation of an assessment on the basis of
newly discovered or additional evidence that a taxpayer intends to present
in the reinvestigation. It may also involve a question of fact or of law or both.

In order to file a valid protest, a person needs to include certain information:

a. They need to specify whether it is a request for reconsideration or
reinvestigation, and if it's the latter, they should mention any newly
discovered or additional evidence they plan to present.
b. They need to provide the date of the assessment notice.
c. They should indicate the relevant laws, rules, regulations, or previous court
decisions on which their protest is based. If this information is not included,
the protest will be considered invalid.

2. Submit all supporting documents within 60 days from filing of protest (in
case of request for reinvestigation under RR 18-2013).

FINAL DECISION ON DISPUTED ASSESSMENT (FDDA)

This is issued when BIR do not agree with the protest and the taxpayer will
have the right to elevate the case to Court of Tax Appeals or CTA.

The decision of commissioner shall state the following:

a. Facts, applicable laws, rules and regulations, jurisprudence on which the
decision is based, otherwise it will be void.
b. That the same is his final decision

DENIAL OF PROTEST

WAYS TO DENY PROTEST

1. Direct Denial
2. Indirect Denial- when the commissioner or his duly representative fails to act
on the protest within 180 days from the date the submission.
3.
Remedies of Taxpayer
Direct Denial – file an appeal with CTA within 30 days from receipt of letter of denial

Indirect Denial – file an appeal with the CTA division within 30 days from the lapse of 180
days or await the final decision of the CIR or his duly authorized representative and
appeal the final decision to the CTA within 30 days after the receipt of a copy of such
decision.
DENIAL OF APPEAL BY THE CTA AND SC

Remedies of Taxpayer

1. If appeal to CTA is denied, file an appeal to the CTA en banc within 15 days
from the receipt of the decision.
2. If once again denied by CTA en banc, file an appeal with the supreme court
(SC) division within 15 days from the receipt of the decision, then, finally, to
the SC en banc.

C. COLLECTION
Once the assessment becomes final, executory, and demandable, BIR may
avail of the remedy of collection.

SECTION 222 of the Tax Code, as amended

• BIR may assess the tax within a period of ten (10) years from the discovery of
a false or fraudulent return with the intent to evade tax or failure to file a
return.
• Any internal revenue tax which has been assessed within the period of
limitation as prescribed in paragraph (a) hereof may be collected by
distraint or levy or by a proceeding in court within five (5) years following the
assessment of the tax.

METHODS OF COLLECTIONS
1. Distraint – the seizure by the government of personal property, tangible or
intangible to enforce the payment of taxes.
a. Actual Distraint - personal property is seized and sold at public
auction. The highest bidder will get the property and the proceeds will
apply to the payment
b. Constructive Distraint – the person in possession of the personal
property is made to sign a receipt, undertaking that he will preserve
and will not dispose of the property without the express authority or
BIR.
This can be availed through the following:
a) Taxpayer is retiring from any business subject to tax
b) Intends to leave the Philippines
c) Removes his property therefrom
d) Performs any act tending to obstruct the processing for collecting
the tax due or which may be due from him.
 Person Authorized to commence distraint proceedings

AMOUNT INVOLVED PERSON AUTHORIZE

More than 1,000,000 CIR

1,000,000 or less Revenue district Officer

RIGHT OF PRE-EMPTION
If any time prior to the consummation of the sale all proper charges are
paid to the officer conducting the sale, the goods or effects distrained shall be
restored to the owner.

2. Levy – the seizure by the government or real properties and interest in or

rights to such properties in order to enforce the payment of taxes.

Right of Redemption
Within 1 year from the date of sale, the property may be redeemed by the
delinquent taxpayer or anyone from him, upon payment of the taxes, penalties
and interest thereon from the date of delinquency to the date of sale, together
with interest on purchase price at 15% per annum from the date of sale to the
date of redemption.

Rights of Owner during the one year period of redemption

During the one year period, the owner shall not be deprived of the
possession of the said property and shall be entitled to the rents and other
income thereof until the expiration of the time allowed for its redemption.

3. Judicial Proceedings
a) Filing Civil Case for collection
b) File a criminal case (Tax Evasion)

D. COMPROMISE
GROUNDS
1. A reasonable doubt as to the validity of the claim against the taxpayer
exists; or
2. The financial position of the taxpayer demonstrates a clear inability to
pay the
All criminal violations may compromise except:
1. Those already filed in court; or
2. Those involving fraud.

MINIMUM AMOUNTS
1. For cases of financial incapacity, a minimum compromise rate equivalent to
ten percent (10%) of the basic assessed tax; and
2. For other cases, a minimum compromise rate equivalent to forty percent
(40%) of the bask assessed tax.

INSTANCES WHEN APPROVAL OF THE EVALUATION BOARD IS REQUIRED

1. Where the basic tax involved exceeds one million pesos (P 1,000,000); or
2. Where the settlement offered is less than the prescribed minimum rates.

COMPOSITION OF THE EVALUATION BOARD

1. CIR
2. Four (4) Deputy Commissioners

E. ABATEMENT OR CANCELLATION OF TAX

GROUNDS
1. The tax or any portion thereof appears to be unjustly or excessively assessed;
or
2. The administration and collection costs involved do not justify the collection
of the amount due.

F. SUSPENSION OF THE RUNNING OF STATUTE OF LIMITATIONS

The prescriptive period assessment and the beginning of distraint or levy a
proceeding in court for collection any tax deficiency may be suspended under the
following situations:
1. Taxpayer's request for reinvestigation was granted;
2. Taxpayer cannot be located in the address given in the return;
3. NO property of the taxpayer can be located; or
4. The taxpayer is Out of the country.
NOTE: The suspension shall be for the duration Of the situation plus days thereafter.

G. CIVIL-PENALTIES
In addition to the basic tax assessed on the taxpayer, the following civil penalties
Will also be collected:
1. Surcharge
2. Interest
SURCHARGE
A 25% surcharge shall te collected in any of the following cases:
1. Failure to file any return and pay the tax due on time.
2. Filing a return with an internal revenue officer other than those With whom
the return is required to be filed unless authorized by the Commissioner of
Internal Revenue.
3. Failure to pay the deficiency tax within the time prescribed for its payment in
the notice of assessment.
4. Failure to pay the full or part of the amount Of tax shown on any return, or
the full amount of tax due for which no return is required to be filed.

A 50% surcharge shall collected in any of the following cases:

1. Willful neglect to file the return on time.
2. There is willful neglect if the taxpayer files only after prior notice in writing
from the BIR.

There is simple neglect (25% surcharge) if the taxpayer voluntarily files the
return after the deadline without notice from the BIR.

Prima facie evidence of false or fraudulent return:

1. Substantial overstatement (more than 30%) of deductions.
2. Substantial under declaration (more than 30%) of taxable sales, receipts or

INTEREST
Interest is an increment on any unpaid amount Of tax, assessed from the date
prescribed for payment until the amount is fully paid.
• Prior to TRAIN Law - twenty percent (20%) per annum.
• upon effectivity of the TRAIN Law - twelve percent (12%) per annum.

KINDS OF INTEREST

1. Deficiency interest — Interest imposed on any deficiency tax due, which

interest shall and collected from the date prescribed ror its payment until
(whichever comes first):[
a. Full payment thereof;
b. Upon issuance of a notice and demand by the Commissioner
or his authorized representative.
 2. Delinquency interest — refers to interest imposed on the failure Of the
taxpayer to pay the following:
a. The amount Of tax due on any return required to be filed;
b. The amount Of the tax due for Which no return is required; or
c. A deficiency tax, or any surcharge or interest thereon on the
due date appearing in the notice and demand Of the CIR or his
authorized representative until the amount is fully paid, which
interest shall form part of the tax.

DOUBLE IMPOSITION OF INTEREST

• Upon the effectivity Of the TRAIN Law, in no case shall the deficiency and
delinquency interest be imposed simultaneously.

TAX DEFICIENCY VS. TAX DELINQUENCY

TAX DEFICIENCY TAX DELINQUENCY

The amount still due and Failure of the taxpayer to pay the tax due on the
collectible from a taxpayer upon date fixed by law or indicated in the assessment
audit or investigation notice (FAN) or letter of demand.

H. REFUND OF TAXES
REQUISITES:
1. A tax was erroneously or illegally collected by the BIR;
2. The taxpayer should file a written claim for refund or tax credit with the CIR
WITHIN TWO (2) YEARS from the DATE OF PAYMENT of the tax or penalty; and
3. If the claim for refund is denied by the CIR, file a petition for refund with the
CTA:
a. Within 30 days from receipt of the denial; AND
b. Within two (2) years from the date of payment of the tax or penalty

According to Section 229 of the Tax Code, taxpayers have the right to seek
reimbursement for any taxes or penalties that were collected in error or unlawfully.
To initiate this process, individuals must file a claim with the Commissioner of
Internal Revenue (CIR) within two years of making the tax payment. It is important
to note that this provision applies to all national internal revenue taxes and
penalties.
Rules on the commencement of the 2-year period:
a. First, when the tax sought to be refunded is legally or erroneously collected, it
commences from the date the tax was paid (Commissioner of Internal
Revenue vs. Victorias Miling, G.R. No. L-24108, Jan. 31, 1968).
b. Second, when the tax is paid only in installments or only in part, it commences
from the date the last or final installment of payment was made, because for
tax purposes, there is no payment until the whole or entire tax lability is fully
paid (Collector of Internal Revenue vs. Prieto, G.R. No. L-11976, 29 Aug. 29, 1961).
c. Third, in case the taxpayer merely made a deposit, it is counted from the
conversion of the deposit to payment (Union Garment vs. Collector of Internal
Revenue, CTA Case No. 416, 17 Nov. 17, 1958).
d. And lastly, in the instance that tax has been withheld from source, it is counted
from the date the withholding tax falls due at the end of the taxable year
(Gibbs vs. Commissioner of Internal Revenue, G.R. No. L-17406, Now. 29, 1965).

REFUND OF INPUT VAT ON ZERO RATED (0%) SALE (Sec. 122 NIRC)
A person who is registered for value-added tax (VAT) and has zero-rated or
effectively zero-rated sales of goods, properties, or services can apply for a tax
refund of the input VAT attributed to those sales. The input VAT that can be claimed
for refund excludes any VAT already applied against output VAT. The application
must be submitted within two years after the end of the taxable quarter when the
sales were made.

For zero-rated sales made under specific sections of the Tax Code, the
payments must have been made in acceptable foreign currency and accounted
for according to BSP rules and regulations. If a taxpayer is involved in both zero-
rated/effectively zero-rated sales and taxable/exempt sales, only the
proportionate share of input VAT allocated to zero-rated/effectively zero-rated
sales can be claimed for refund or as a tax credit certificate.

For businesses engaged in transporting passengers and cargo

internationally by air or sea vessels, the input VAT will be divided proportionally
between zero-rated and non-zero-rated sales.

Refund claims should be filed with the appropriate Bureau of Internal

Revenue (BIR) office, based on the taxpayer's principal place of business. Direct
exporters' refund claims should be filed exclusively with the VAT Credit Audit Division
(VCAD).

Under the TRAIN Law, the Commissioner of Internal Revenue must grant
refund requests for creditable input VAT within 90 days from the date of submission
of supporting documents. If the refund request is denied, the Commissioner must
provide a written explanation of the legal and factual basis for the denial.
 The 90-day processing period under the TRAIN Law will only apply until the
approval of the Recommendation Report on the VAT refund application by the
Commissioner or their authorized representative. Refund claims filed before
January 1, 2018, will be processed within 120 days.If a claim for tax refund is fully or
partially denied, the taxpayer can appeal the decision of the Court of Tax Appeals
within 30 days of receiving the denial.

Note: The BIR issued several revenue issuances in response to the Covid-19
pandemic. These issuances suspend or extend the 90-day processing period for
application for VAT refund.

Source Authors

INCOME TAXATION WITH SPECIAL TOPICS, 2021 Edition Enrico D. Tabag, CPA, MBA
Earl Jimson R. Garcia, CPA, MBA