Filing, Penalties, and Tax Remedies

Source(s): CPAR

When is the 25% surcharge imposed?

1) Failure to pay any return and pay tax due thereon within prescribed period for filing and payment.
⇒ However, the taxpayer must have FILED the tax return BEFORE the BIR’s notice is received by the entity, even if it PAYS after the notice.

2) Wrong venue for filing a return.
NOTE: This was already repealed under EOPTA.

3) Failure to pay full or part of amount shown in any return required to be filed or failure to pay before the date prescribed for its payment.

4) Failure to pay the deficiency tax within the prescribed time for its payment in the notice of assessment.

5) In an amendment of return where additional tax is due per amended return. However, the 25% surcharge is only paid on the additional tax.

6) On a tax deficiency found during an audit if a particular tax return have been filed beyond the prescribed period or due date.

As a rule, is surcharge imposed on deficiency tax?

No.

Deficiency tax is the difference between correct tax per BIR and tax in the taxpayer’s return.

When is surcharge imposed on top of a deficiency tax, and by what percentage?

It is imposed when a deficiency tax is not paid within the prescribed period as stated in the Notice of Assessment by the BIR at 25%.

Other case include:
- Deficiency tax discovered during tax audit where the related tax return was filed beyond the deadline.

In an amended return where additional tax is to be paid, when will there be surcharge on the additional tax paid?

There will be surcharge of 25% when the initial return was originally filed BEYOND the prescribed deadline.

Suppose the BIR, during an audit, found a deficiency on VAT remitted by a company.

The BIR also found that the original VAT return was paid on time. Will it have a bearing? Will the BIR impose surcharge on the deficiency tax?

Per RMC No. 43-2022, NO.

The BIR will NOT impose surcharge on the deficiency tax on the ground that the ORIGINAL VAT RETURN was paid/filed ON TIME.

However, if the original VAT return was filed beyond the prescribed period or due date, then surcharge is imposed on the deficiency tax found during BIR audit.

When is a 50% surcharge imposed?

There are only TWO cases.

FRAUD + WILLFULL NEGLECT.

1) Willful neglect to file the return within prescribed period.

Willful neglect is hard to prove. One evidence is when taxpayer FILES (NOT PAY) ONLY AFTER prior notice IN WRITING of the BIR.

2) False or fraudulent return is willfully made.

NOTE: Take note of WILFULLY. If there is just a mistake on the end of the taxpayer, usually BIR prescribes a period to rectify. During that period, no surcharge shall be imposed.

What percentage is used for determining substantial underdeclaration of sales or overdeclaration of deductions?

MORE THAN 30% or >30%. It shall constitute a prima facie evidence of falsity or fraud.

What concession is provided to Micro and Small taxpayers with regards to their surcharges?

For 25%: Reduced to 10%.
For 50%: Remains at 50%.

Gross sales value for: MICRO TAXPAYERS?

LESS THAN P3M.

Gross sales value for: SMALL TAXPAYERS?

MORE THAN P3M but LESS THAN P20M.

Gross sales value for: MEDIUM TAXPAYERS?

MORE THAN P20M but LESS THAN P1B.

Gross sales value for: LARGE TAXPAYERS?

P1B and ABOVE.

How much is the interest rate in taxation?

12%.

It is TWICE the legal interest rate by the BSP (6%).

Can you impose deliquency and deficiency interest simultaneously?

NO.

Per TRAIN Law, it is prohibited since they serve different purposes.

In cases of extended payment of tax duly authorized by BIR requested beyond the deadline for payment, is surcharge imposed for late payment?

YES.

Since the extension was BEYOND the deadline, taxpayer is automatically subject to 25% surcharge, EVEN IF extension was approved.

However, if the taxpayer requested for extension ON or BEFORE the prescribed period/deadline, NO SURCHARGE will be imposed.

In cases of extended payment of tax duly authorized by BIR, is interest imposed during the extended period?

YES.

This is regardless if the extended payment was contracted on/before or after the deadline for payment.

In an amendment of return where additional tax is payable per the amended return, is interest imposed?

YES.

However, interest is only imposed on the additional tax to be paid per amended return.

What concession is given to Micro and Small taxpayers with regards to interest imposed on tax?

The interest rate imposed to them is at LEGAL RATE (6%).

For failure to file an information return, statement, list or any required attachment, how much is the penalty?

P1,000.00 for EACH failure.

What is the limit on how much penalty is imposed on information return, statement, list, or required attachments?

P25,000.00.

Meaning, the BIR can only impose penalty on 25 missing attachments.

What concession is provided to Micro and Small taxpayers with regard to failure to file an information return, statement, list or any required attachment?

It is reduced to P500.00.

Limit is capped to P12,500.

What is the penalty for failure of withholding agent to collect and remit tax?

The penalty is equal to the TOTAL AMOUNT of tax not withheld.

Effectively, it’s as if the withholding agent paid for the tax he was suppose to withhold.

What is the penalty for failure of withholding agent to refund excess withholding tax?

Any employer/withholding agent who fails or refuses to refund excess withholding tax shall be liable to a penalty equal to the amount of refunds not refunded.

What must be the contents of an assessment by the BIR to be VALID?

1) Facts or law where conclusion was made.
2) Computation of tax liability by the BIR.
3) The demand including the specified period for deadline of payment.

What is the time for assessment of taxes?

It must be within three (3) years after the last day of payment or the prescribed deadline, whichever is LATER.

What are the exceptions to the GR on the assessment period of taxes?

The 3-year period may be extended if:
1) False or fraudulent return is filed.

⇒ Extended up to 10 years after the DISCOVERY of the falsity/fraud.

2) There is failure or omission to file return.

⇒ Extended up to 10 years after the DISCOVERY of the failure/omission.

3) A period agreed upon by the taxpayer and the CIR of BIR.

Requirement: Such agreement is entered into BEFORE the expiration of the 3-year period.

To prove fraud in order to extend prescriptive period of assessment, what are the requirements?

1) There must be a misstatement or error.
2) The misstatement or error was deliberate or willful.

What kind of evidence is required to prove fraud by the Commissioner of Internal Revenue?

Clear and convincing evidence.

However, this is only resorted into when there is no prima facie evidence (i.e., the 30% rule).

What are the methods of collection of the BIR for delinquent/deficient taxes if taxpayer refuses or is unable to pay?

1) Distraint
2) Levy
3) Court action (civil or criminal)

Distraint is imposed on _______ property.

Personal

Levy is imposed on _______ property.

Real

May the government pursue the collection methods (distraint, levy, court action) simultaneously?

YES.

When is an assessment deemed to be made?

It is when the BIR released, mailed, or sent the notice. Also, collection period begins from this date as well.

What is the collection period of BIR after assessment is made?

3 years ⇒ if for the normal 3-year assessment period (Reckoning date: From issuance of FAN).
5 years ⇒ if for willful neglect where assessment was issued (Reckoning date: From issuance of FAN).
10 years ⇒ if for the exceptional 10-year assessment period in certain cases - no assessment was issued (Reckoning date: From discovery; law says both assessment and collection be within 10 years).

Is assessment still required for criminal tax cases?

Per RMO No. 16-2023, assessment must still be issued in criminal complaints involving collection of tax liabilities.

What are two types of distraint?

1) Constructive: It is a preventive measure. it is when taxpayer retains possession of property but DOES NOT DISPOSE of it. Usually done if taxpayer is retiring from business, obstructing collection, or transferring assets.

2) Actual: Actual confiscation of property to be SOLD at public auction to satisfy tax liability, interest, and costs.

What are personal properties covered by distraint?

• Goods (inventory)

• Chattels (movable personal item like car, machines, equipment)

• Effects (personal items used for the business like belongings, supplies)

• Stocks and other securities

• Debts

• Credits (receivables)

• Bank accounts

• Interests (partnership share)

• Rights to personal property

TRUE OR FALSE: The amount of distraint by the BIR is limited to the basic tax due of the taxpayer.

FALSE.

The amount shall be:
1) Basic tax
2) Additions to tax (surcharge, interest, penalties)
3) Costs of distraint and the subsequent sale expenses

When may a levy on real property imposed?

It may be imposed: BEFORE, SIMULTANEOUSLY, OR AFTER DISTRAINT.

What are the steps on levying real property?

1) BIR shall prepare a duly authenticated certificate which shows:
a) Name of taxpayer
b) Amount of tax and penalty
c) Description of property upon which levy is made

2) Create a written notice of levy to be mailed or served to:
a) Register of Deeds in the province/city/municipality where property is located
b) Delinquent taxpayer

What is a tax lien?

Tax lien is a legal claim placed by BIR on properties of taxpayer with unpaid taxes.

For instance, a land on which levy is imposed on is sold by the delinquent taxpayer, can you automatically proceed to the purchaser and seize the property?

NO. Not automatically.

For the purchaser, mortgagee, or judgment creditor to be liable, a Notice of Tax Lien must be served on the Register of Deeds.

Note that if the other party already purchased, or become a mortgagee of the property before filing to Register of Deeds, BIR won’t enjoy preference over other creditors.

The Notice prevents taxpayer from disposing such property to impose hardship on the BIR.

Does a tax lien apply on all or just specific real property?

It applies to ALL properties and property rights of taxpayer.

It attaches to all property owned by the taxpayer at the time the lien accrues, as well as any property acquired afterward until the tax liability is fully satisfied or prescribes.

A tax lien enjoys preference over ordinary debts and private claims.

When shall any civil action for collection of taxes be filed?

Within 5 years from assessment.

Where shall any civil action for collection of taxes be filed?

It depends on the amount of the basic tax (exclu. charges and penalties)

If BELOW P1,000,000: With the regular courts (e.g., Regional Trial Court, Municipal Trial Court, Metropolitan Trial Court).

If P1,000,000 and ABOVE: The Court of Tax Appeals (CTA).

When shall civil action for collection of tax filed with regular courts?

If BELOW P1,000,000: With the regular courts (e.g., Regional Trial Court, Municipal Trial Court, Metropolitan Trial Court).

When shall civil action for collection of tax filed with Court of Tax Appeals?

If P1,000,000 and ABOVE: The Court of Tax Appeals (CTA).

If a taxpayer’s property has been levied, can a delinquent taxpayer still request for the lifting of the warrants and notices against his property?

If so, until when?

YES.

Provided that:
1) He pays for the TOTAL TAX LIABILITY.
2) He does so considering cut-off periods:

• For Personal / Real Property: At any time PRIOR to the transfer of ownership to the government or highest bidder in the public auction.

• For Bank Accounts (Garnishment): At any time PRIOR to the actual application/turnover of the garnished cash to the BIR for unpaid taxes.

Is the delinquent taxpayer the only person eligible to request for the lifting of notice and warrants against his property for tax collection?

NO.

Aside from the delinquent taxpayer, other persons may request if the ownership has already been transferred.

Particularly, those who is not liable for the tax liabilities in the Notice of Tax Lien, Notice of Levy, or Notice of Encumbrance. <sup>1

1</sup>Such case happens when the Notice is not annotated in the title before or at the time of its transfer. Hence, the third person is innocent.

When may a criminal action for tax collection be filed?

It may be filed for enforcement of penal provisions of the Tax Code.

It must be within five (5) years from assessment.

Can the BIR file the criminal action even if there is an administrative protest by the taxpayer?

YES.

The criminal tax case MAY be filed during the pendency of an administrative protest in the BIR.

The BIR does not have to wait for the protest or appeal to be over before it can file a criminal case in the DOJ or CTA.

May the BIR bypass assessment in criminal complaints involving collection of tax liabilities?

NO.

Per RMO NO. 16-2023, despite the wording of Section 222 (a) of the Tax Code, an assessment must still be issued in criminal complaints.

Meaning, assessment must be filed before tax collection.

Does the 3-year period of assessment and collection rule also applies even for a withholding agent?

YES.

Tax jurisprudence states that the 3-year period rule applying to the principal taxpayer also applies to the withholding agent.

It is to give protection to the agent being seen as “agent of the government” since he may be personally liable upon failure to withhold.

Are there exceptions to the running of the Statute of Limitations?

YES.

a) For periods where CIR is prohibited from making assessment or beginning distraint or levy proceeding in court PLUS sixty (60) days thereafter
b) There is a request for reinvestigation by the taxpayer.
c) When taxpayer cannot be located in an address he gave in the return he filed upon which tax is being assessed or collected.
d) When warrant of distraint/levy is duly served upon taxpayer, his authorized representative, or household member with sufficient discretion, and NO PROPERTY can be located.
e) Taxpayer is out of the Philippines.

The tax assessed by the BIR is worth P50.00 for Juan.

Should the BIR proceed with the tax assessment and collection?

NO.

The rule is:
P100.00 or LESS BASIC TAX ⇒ No tax assessment/collection.

Is there an exception to the rule that the BIR will no longer assess nor collect tax assessment within a specific threshold?

YES.

Even if amounts are less than P100.00, tax may still be assessed and collected provided that these transactions will be lumped in a SINGLE INVESTIGATION and the total deficiency tax assessments (basic tax only) EXCEEDS P100.00.

Is there an absolute prohibition to courts against granting an injunction to restrain the collection of any national internal revenue tax, fee, or charge imposed by the Tax Code?

NO.

As a general rule, no court can do so.

However, such rule is not absolute.

XPN:
The Court of Tax Appeals (CTA) can grant a Temporary Restraining Order (TRO) or injunction when ALL of the following are MET:

1) Jeopardy Element:

• The collection of the tax by the BIR may jeopardize the interest of the government, the taxpayer, or both.

2) Financial Guarantee (Deposit or Bond):

• The taxpayer deposits the amount claimed with the court, OR

• Files a surety bond for NOT MORE THAN DOUBLE the amount of the tax assessed.

3) Merit Element:

• The appeal filed before the CTA is NOT frivolous nor dilatory (i.e., silly/pointless/intended to cause delay).

Does the Commissioner have any power related to related party transactions?

YES.

Under Section 50, the CIR is empowered to distribute, apportion, or allocate gross income or deductions between or among related organization, trade, or business.

This is if he determines that such actions is necessary to prevent tax evasion or to clearly reflect the party’s correct income.

What are the requisites for the BIR to allocate income/deductions among related parties?

1) Common control - two businesses, corporation, or organizations are owned and controlled directly or indirectly by the same interests (i.e, sister companies, parent-subsidiary, affiliates) whether LOCAL OR FOREIGN.

2) Tax Evasion or Clear reflection of income purpose - The allocation is NECESSARY to prevent tax evasion and to clearly reflect income of those parties.

It is the BIR Form required to serve as an Information Return on Transactions with Related Parties (Domestic and Foreign).

Follow up question: Is there an amount threshold which triggers necessity of this BIR Form?

BIR Form No. 1709.

NONE. Such form is filed REGARDLESS of amount and volume of transactions.

What triggers issuance of TRO or Suspension Order by CTA in certain cases?

Suspension order is triggered once there is a:
1) Tax assessment (through PAN); or
2) Adverse decision/ruling of inaction (through FDDA or FAN).

What is a Letter of Authority and what is its purpose?

LOA empowers and authorizes a revenue officer to examine books of accounts and accounting records of a taxpayer to properly collect correct amount of tax due.

It gives authority to an appropriate revenue officer to assess a taxpayer.

To be valid, what must a LOA contain?

A valid LOA must contain:
1) Name of revenue officer assigned to conduct tax audit or tax investigation.
2) Year(s) covered for investigation.

A FAN is issued without any LOA.

What is the effect on such assessment?

It is VOID.

Without any LOA, subsequent steps will be rendered void.

Is there a deadline on the service of LOA after its issuance?

NONE.

Previously, there is. However, to prevent administrative burdens, the BIR through RAMO No. 1-2020 deleted the period.

Such LOA may be served within the audit process period.

Is there a requirement on the jurisdiction of taxpayer as to the issuer of LOA?

YES.

The taxpayer must be within the jurisdiction of the district of Revenue Regional Director issuing the LOA.

Before, service of the LOA beyond ____ days rendered the LOA _____.

30; Null and void

What is the audit period for Revenue District Office (RDO) cases?

Within 180 days from the issuance of LOA

What is the audit period for Large Taxpayer cases?

Within 240 days from issuance of LOA

What is a Notice of Deficiency?

It is a written notice informing taxpayer that the findings of audit conducted on his accounts/records indicate additional tax or deficiency assessments to be paid.

After giving Notice of Discrepancy, how many days is given to the taxpayer to present his side through a Discussion of Discrepancy?

The taxpayer is given 30 days from the receipt of the NoD.

If after a Discussion of Discrepancy, a taxpayer is still found to be liable, what happens next?

The case shall be endorsed to the reviewing office and approving official in the National Office or Revenue Regional Office of the BIR to issue deficiency tax assessment (i.e., Preliminary Assessment Notice).

What is a Preliminary Assessment Notice (PAN)?

It is issued after the finding of CIR or his duly authorized representative that proper taxes should be assessed.

This is a form of notification to the taxpayer of the findings which details:
1) Facts
2) Law or jurisprudence as a basis

Can the BIR skip issuing PAN and move ahead to issue FLD/FAN?

Generally, NO.

Issuance of FAN is a mandatory requirement. Service of FLD/FAN without prior PAN strips off the taxpayer of his right to be informed of the facts and law/jurisprudence upon which the assessment was made.

Is there an absolute prohibition on the non-issuance of PAN before FLD/FAN is issued?

NO.

There are exceptions:
1) Mathematical error - deficiency tax was due to mathematical error
2) Unutilized tax credit - if deficiency is about tax withheld and the amount credited.
3) Carry-over discrepancy - if taxpayer double-dipped or claimed carry over and applied for refund/TCC at the same time.
4) Exempt article discrepancy - if an exempt person from excise tax either from importation or production transfers such article to a non-exempt person.
5) Article transferred without payment - if excise tax on excisable goods was not paid

After issuance of a PAN, how many days are given to taxpayer to respond?

15 days after receipt of PAN.

After the prescribed period for reply to PAN, what is the next step for the BIR?

The BIR issues a Formal Letter of Demand (FLD) and Final Assessment Notice (FAN).

Is it mandatory for the BIR to wait for the specific period after issuance of PAN before issuing FAN?

YES.

The BIR cannot issue a FLD/FAN without waiting for the expiration of the 15-day period to reply.

What is a FLD/FAN?

The Formal Letter of Demand or the Final Assessment Notice is issued when there is a disagreement from taxpayer or no reply within 15 days after issuance of PAN.

Similar to PAN, this shall state:
1) Facts
2) Law or jurisprudence as basis of the assessment

Within how many days after the issuance of FLD/FAN may the taxpayer file for remedies?

Within 60 days from the receipt of FAN.

What remedies are available to the taxpayer after receiving a FLD/FAN?

The taxpayer may either enjoy:
1) Request for Reconsideration - using existing facts, documents, and evidences
2) Request for Reinvestigation - using new presented evidences and facts

Within how many days may the taxpayer submit additional supporting documents in light of a Request for Reinvestigation?

Within 60 days after the submission of the request.

Within how many days shall the CIR act upon the request of taxpayer after receiving FLD/FAN?

• Within 60 days from receipt of Request for Reconsideration; OR

• Within 60 days from receipt of additional supporting documents for Request for Reinvestigation.

What remedies are available to the taxpayer if protest after FLD/FAN is DENIED?

• Administrative appeal: Request for Reconsideration with the CIR.

• Judicial appeal: File appeal to the CTA

Reckoning period: Within 30 days from the receipt of denial.

What remedies are available to the taxpayer if protest after FLD/FAN is NOT ACTED UPON?

• Await decision: Taxpayer may wait decision; if leads to subsequent denial, may file appeal with the CTA within 30 days from the receipt of denial.

• Judicial appeal: File appeal with the CTA within 30 days from end of 180 days.

What should be the contents of the protest with the BIR?

1. Nature of the protest (whether reconsideration or reinvestigation);

2. Newly discovered or additional evidence to be presented (if reinvestigation);

3. Date of FAN or FLD; AND

4. Law, rules and regulations, or jurisprudence as basis of the protest.

NOTE: ALL of these must be present. Otherwise, the protest is NULL AND VOID.

SITUATION: ABC Corp. received an FDDA from the CIR on February 1. Four days later, it filed an administrative Motion for Reconsideration (MR) with the CIR.

On March 15—after 42 days had lapsed from receipt of the FDDA without a ruling on the MR, ABC Corp. filed an appeal with the CTA under the "inaction rule."

The CIR moved to dismiss the appeal for lack of jurisdiction.

Rule on the motion to dismiss.

The CIR's Motion to Dismiss must be GRANTED.

According to the case CIR vs. Ruben U. Yu, the filing of an administrative appeal with the CIR does not STOP the 30 days period within which to file an appeal with the CTA.

If a taxpayer allowed for the 30-day period from FDDA acceptance to lapse, even if he already filed with the CIR, loses him of the right to file with the CTA.

Therefore, it is best for the taxpayer to file its appeal to the CTA when a decision on the administrative appeal is not forthcoming and the 30-day period within which to appeal to the CTA is about to expire.

What are the grounds for claiming tax refund or TCC?

1. Tax was erroneously collected.

2. Tax was illegally collected.

3. There is an excessive payment of tax.

What is the period allotted for claiming refunds for tax?

Within 2 years reckoned from Date of payment (if installment: date of final payment).

XPN: If excess creditable taxes, date of filing of annual income tax return.

With whom is a claim for refund filed?

With the BIR Commissioner.

How many days are given to the Commissioner after submission of documents for filing of refund?

The CIR has 180 days after the submission to decide.

If claim for refund explicitly denied by the CIR, what is the remedy for the taxpayer?

The taxpayer may file a judicial appeal to the CTA within 30 days from the receipt of notice of denial.

If claim for refund not acted upon by the CIR, what is the remedy for the taxpayer?

1. File an appeal with the CTA within 30 days after the end of the 180-day period.

2. Await decision of CIR. If subsequently denied, file appeal with CTA within 30 days from the receipt of decision of denial.

If Juan, a taxpayer, files an administrative refund claim with the BIR within the 2-year period, and the BIR renders a denial decision 2 years and 6 months after the tax payment, can the taxpayer still appeal to the CTA?

NO

BOTH JUDICIAL and ADMINISTRATIVE appeal must fall within 2-year period.

What is the exception to the reckoning period of the 180 days processing by the BIR for tax refund/TCC?

It is when the claim is due to business cessation or dissolution.

The 180 days shall commence not from the submission only of complete documents but also from the submission of BIR Form No. 1905.

Also, refund will only be released after:
1. Mandatory audit for tax liabilities; and
2. Full settlement of unpaid tax liabilities

Is an interest rate imposed on the tax refunds that was paid late by the BIR?

GR: No interest is paid.
XPN: If such payment is directed by law.

Is it absolute that a written claim for refund be filed with the CIR for the taxpayer to be entitled to such?

NO.

There’s an exception:
- CIR MAY, even without a written claim, grant refund or credit if ON THE FACE OF THE RETURN, payment is CLEARLY erroneous.

NOTE: This is NOT MANDATORY, only DISCRETIONARY. Even if in the face, tax payment is clearly erroneous, CIR may still require written claim.

This leniency is only applicable to ADMINISTRATIVE claim and not for judicial claim later on (i.e., with the CTA).

What are the characteristics of a Tax Compromise?

1. It is a mutual concession or settlement.

2. It may be entered into EVEN IF a civil case has been filed in court.

3. It is entered into between the BIR and the taxpayer.

4. There is an offer to pay by taxpayer which is accepted by the Commissioner.

5. It is also called as compromise penalty if paid in lieu of criminal prosecution.

What are the grounds for tax compromise?

1. Reasonable doubt as to the validity of claim against the taxpayer.

2. Financial inability of the taxpayer to pay.

When is there a reasonable doubt as to the validity of the claim against the taxpayer?

1. Jeopardy assessment - a tax assessment assessed without benefit of complete or partial audit by an authorized revenue officer.
   
   This is done if the BIR believes that the tax audit or investigation process will be jeopardized due to the failure of taxpayer to cooperate during audits.

2. Lack of legal or factual basis.

3. Notice of Demand did not comply with formalities.

4. Taxpayer failed to file administrative protest on account of failure to receive notice of assessment.

5. Assessment was made during an extended period granted upon taxpayer’s waiver of statue of limitations. However, such waiver’s validity or authenticity is being questioned.

6. The assessment was issued based on Best Evidence Obtainable Rule and there is a reason that the assessment can be disputed given sufficient and competent evidence.

7. Assessment is based on issue where a court (usually the CTA) has made adverse decision against the BIR. However, Supreme Court has not decided upon the case with finality.