Published 2 November 2020, The Daily Tribune

The right to due process is crucial for the protection of human rights and is core to every democratic society. As enshrined in the Philippine 1987 Constitution, no person shall be deprived of life, liberty or property without due process of law. The right to due process guarantees that the State must respect individual rights by setting limitations on laws and legal proceedings. This includes granting all persons a right to fair trial and effective remedy.

While taxation is the lifeblood of the government, the power of the State to collect tax must be balanced with the taxpayer’s right to substantial and procedural due process. The Supreme Court has recognized that, between the power of the State to tax and an individual’s right to due process, the scale favors the right of the taxpayer to due process (Commissioner of Internal Revenue vs Fitness by Design Inc., GR 215957, 9 November 2016).

Consistent with the constitutionally mandated right to due process of taxpayers, the National Internal Revenue Code (Tax Code) sets substantial and procedural requirements for the Bureau of Internal Revenue (BIR) to observe in performing tax investigations. Section 228 of the Tax Code requires that the assessment must be made in writing and should state the law and facts on which the assessment is based.

Further, the BIR should observe proper procedure in the issuance of the assessment. The process should provide the taxpayer the right to discuss, and protest or appeal, the findings of the BIR, in the course of the tax investigation. Pursuant to the mandate of the Tax Code, the Department of Finance issued Revenue Regulations 12-1999, which prescribes the procedure for tax assessment. This was subsequently amended by Revenue Regulations 18-2013, 7-2018, and, most recently, 22-2020, which was published on 17 September 2020.

The most notable change introduced by RR 22-2020 is the requirement for the issuance of a Notice of Discrepancy (NoD) before the Preliminary Assessment Notice (PAN) is issued. The NoD replaced the Notice of Informal Conference (NIC), which was reinstated on 22 January 2018 by RR 7-2018 after it was removed on 2013 in RR 18-2013. Under RR 22-2020, the taxpayer and the BIR have 30 days from taxpayer’s receipt of the NoD to discuss the BIR’s findings of alleged discrepancies in tax payment (Discussion of Discrepancy). It is during the Discussion of Discrepancy that the taxpayer is given the opportunity to present his side of the case and explain the discrepancy found during the investigation of the revenue officer assigned and submit documents to support the explanation or arguments.

During the Discussion of Discrepancy, the taxpayer should present all necessary documents to support his explanation. If the taxpayer requires more time to prepare and present the documents, the taxpayer has 30 days from receipt of NoD to submit such supporting documents.

If the taxing authority still finds the taxpayer liable for deficiency tax or the taxpayer is unable to sufficiently address the items of the alleged tax discrepancy, the PAN may be issued within 10 days from the conclusion of the Discussion.

The assessment shall be formalized through the issuance of the formal assessment notice (FAN). The taxpayer has 30 days from receipt of the FAN to protest the assessment by writing a request for reconsideration or reinvestigation. The taxpayer should state in the protest: the nature of protest whether reconsideration or reinvestigation, specifying newly discovered or additional evidence he intends to present if it is a request for reinvestigation; date of the assessment notice; and the applicable law, rules and regulations, or jurisprudence on which his protest is based, otherwise, the protest shall be considered void and without force and effect.

Further, additional supporting documents should be submitted by the taxpayer within 60 days from filing of the protest for requests for reinvestigation, otherwise, the assessment shall become final.

The BIR’s decision on the protest, which is contained in the Final Decision on Disputed Assessment (FDDA), should likewise state the facts, applicable law, rules and regulations or jurisprudence on which the decision is based; otherwise, the FDDA shall be void.

If the protest is denied, in whole or in part, the taxpayer may either: appeal to the Court of Tax Appeals (CTA) within 30 days from receipt of the FDDA; or elevate the protest, through request for reconsideration, to the Commissioner of Internal Revenue (CIR) within 30 days from receipt of the FDDA. If the taxpayer elevated the protest to the CIR and the CIR did not act on the request for reconsideration within 180 days, the taxpayer may either appeal to the CTA within 30 days from the lapse of the 180-day period or from the date the CIR finally decides on the request.

The Supreme Court repeatedly stressed the importance of giving the taxpayer an opportunity to make an effective protest or appeal on the assessment or decision. It held that any deficiency to the mandated content of the assessment or its process will not be tolerated (Commissioner of Internal Revenue vs Fitness by Design Inc., GR 215957, 9 November 2016).

Thus, in Commissioner of Internal Revenue vs First Sumiden Circuits Inc. (CTA EB 1831, 12 February 2020), the CTA En Banc cancelled a new finding in the assessment raised for the first time by the BIR in the FDDA. In said case, the BIR included in the FDDA a new finding of alleged discrepancy which was not previously raised in the PAN and FAN. The CTA cancelled the new assessment on the ground that it violated the taxpayer’s right to due process as the taxpayer was not given the chance to refute the assessment within the administrative level.

Knowledge of the basic requirements and procedures on tax assessments is valuable for taxpayers going through tax investigation. While the foregoing may be used as a guide, it is strongly recommended to consult with a tax practitioner to properly evaluate the rights and remedies available for the taxpayer.

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