PRESCRIPTIVE RULES

Prescription is a mode of acquiring ownership and other real rights through

the lapse of time in the manner under the conditions prescribed by law. In
the same way, rights and actions are lost by prescription.

Prescriptive periods or periods of limitation refer to the respective

periods of time within which various actions or proceedings in law must be
brought.

A law prescribing the period within which a party having a cause of action
(i.e. ground for which an action may be brought) should enforce a right or
resort to the courts for redress is called statue of limitations.

Prescriptive rules in general

The assessment collection and recovery of taxes, as well as the matter of

prescription thereof, are governed by the provisions of the Tax Code,
particularly Sections 203 and 223 thereof and not by other provisions of law.

1. Under the Tax Code, the assessment and the collection by the
government of tax due and payable must be made within the
prescribed period; otherwise, the right of the government to collect will
be barred.

2. Prescription is a matter of defense, and it must be proved or

established by the party (taxpayer) relying upon it.

3. Sections 203 and 222 refer to a tax the basis by which is required by
law to be reported in a tax return, like for example an income tax or
sales tax. If no return is required by law to be filed, the prescriptive
periods provided therein are not applicable. The fundamental principle
is that limitations upon the right of the government to assess and
collect taxes will not be presumed in the absence of clear legislation to
the contrary and where there is no express statutory provision limiting
such right or providing for its prescription such right is imprescriptible
and the tax may be assessed at any time.

Prescriptive periods for assessment

General Rule:

Where a return was filed, the period for assessment is within three (3) days
after the date the return was due or was filed, whichever is later. Under the

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Tax Code, a return filed before the last day prescribed by law for the filing
thereof, is considered as filed on such last day. If the return is filed beyond
the period prescribed by law, the three-year period shall be counted from the
day the return was filed.

Thus, if the income tax return for the 2003 income was due on April 15, 2004
and the taxpayer filed his income tax return on March 10, 2004, the three (3)
year period is counted from April 15, 2003; but if he filed his return on April
25, 2007, then the period is counted from this latter date.

Exceptions:

a) Where there is a failure to file the required return, the period is within
ten (10) years after the date of the discovery of the omission to file
return. In this connection, it is immaterial that the taxpayer believed in
good faith that he had no tax liability.

b) When there is a return filed but the same is false or fraudulent and
made with intent to evade the tax, the period is also ten (10) years
from the date of the discovery of the falsity or fraud. Anent fraud, the
general rule is that it is never presumed and the circumstances
constituting it must be alleged and proved to exist by clear and
convincing evidence.

Fraud is never to be lightly presumed because it is a serious charge, although

it need not be proved by direct evidence since fraud is a state of mind. The
fraudulent intent to evade payment of taxes cannot be based merely on a
presumption or deduced from mistakes where there is no indication in the
record of any act of bad faith committed by the taxpayer. However, in a
fraud assessment which has become final and executor, the fact of fraud
shall be judicially taken cognizance of in the civil or criminal action for the
collection of the tax.

c) Where the Commissioner of Internal Revenue and the taxpayer before

the expiration of the three (3) year period of limitation have agreed in
writing to the extension of the period, the period so agreed upon may
be extended by subsequent agreements in writing made before the
expiration of the period previously agreed upon. The Commissioner
cannot validly agree to a reduction of the prescriptive period
prescribed by law to the detriment of the State, since it diminishes the
opportunities of collecting taxes due to the government.

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 d) Where there is a written waiver or renunciation of the original three (3)
year limitation signed by the taxpayer. The Bureau of Internal Revenue
requires that all requests for reconsideration of a tax assessment must
be accompanied by a waiver of the statute of limitations duly
accompanied by the taxpayer.

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Date of discovery or falsity or fraud, or failure to file return

It is essential that the discovery of the falsity or fraud or of the failure to file
must have been made within the three (3) year period following the general
rule. The exceptions (a & b) refer to the ten-year period when assessment
may be made from the date of such discovery. Obviously, the discovery
period cannot be without time limit.

However, there is no time limit on the right of the Commissioner to assess

unpaid tax, the basis of which is not required by law to be reported in a
return such as excise taxes on certain articles. There is no law requiring the
filing of return for excise taxes.

Prescriptive periods for collection

General Rule:

a) Where an assessment was made, the period for collection by the

government by distraint or levy or by a proceeding in court is within
five years following the date of assessment .

b) Where no assessment was made and a return was filed and the same
is not false or fraudulent, the period for collection in court is within
three years after the return was due or was filed, whichever is later.

Exceptions:

a) The exceptions relative to the prescriptive periods for assessment are

also applicable. Any internal revenue tax which has been assessed
within the period agreed upon may be collected by distraint or levy or
by a proceeding in court within the period agreed upon in writing
before the expiration of five years following the assessment of the tax.
The period so agreed upon may be extended by subsequent written
agreements made before the expiration of said period previously
agreed upon.

Thus, assuming that the last day for assessment was November 10,
2003 but by agreement in writing on or before said date the period was
extended to December 31, 2003, if the assessment was made on
December 20, 2003, the government has five years from December
20, 2003 within which to collect. The period, December 31, 2003, may
be extended before its expiration by subsequent written agreement.

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 If assessment is made within ten years after the discovery of the
falsity, fraud or omission, the collection by judicial action or by distraint
or levy must be made within five years after assessment following the
general rule; otherwise, the right of the government would prescribe
although the collection is made within the said period of ten years.

By way of illustration, where the fraud was discovered in 2000, the

period for assessment or collection is up to 2010. If the assessment,
however was made in 2003, the period for collection is within five
years from 2003. Hence, collection in 2009 will be late although it is
earlier than 2010. On the other hand, if the assessment is made in
2006, the government has the right to collect until 2011.

b) Where the government makes another assessment on the basis of a

reinvestigation requested by the taxpayer, the prescriptive period for
collection should be counted from the last assessment. Where the
taxpayer demands a reinvestigation should be deducted from the total
period of limitation.

c) Where the assessment is revised because of an amended return which

is substantially different from the original return or as a result of a
reinvestigation asked for by the taxpayer, the period is also counted
from the last revised assessment.

d) Where the action is brought to enforce a compromise entered into

between the Commissioner and the taxpayer, the prescriptive period is
ten years from the time the right of action accrues as fixed in the Civil
Code. Compromise is a contract.

e) Where a tax obligation is secured by a surety bond, a suit for the

forfeiture of the bond is not an action for collection of tax but one for
the enforcement of contractual obligation. Hence, the prescriptive
period is also ten years.

When period of limitations interrupted

The running of the statute of limitations (prescriptive periods) on the making

of assessment and the beginning of distraint pr levy, or a proceeding in court
for collection in respect of any deficiency is suspended.

1. For the period during which the Commissioner of Internal Revenue is

prohibited from making the assessment or beginning the distraint or
levy or a proceeding in court and for sixty days thereafter.

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 2. When the taxpayer requests for a reinvestigation which is granted by
the Commissioner’

3. When the taxpayer cannot be located in the address given by him in

the return filed upon which a tax is being assessed or collected, but the
statute will not be suspended if the taxpayer informs the Commissioner
of Internal Revenue of ant change in address;

4. When the warrant of distraint and levy is duly served upon the
taxpayer, his authorized representative, or with a member of his
household with sufficient discretion, and no property could be located
and

5. When the taxpayer is out of the Philippines

The issuance of warrant of distraint or levy interrupts the period of

prescription for collection.

When return considered as filed

In order that a tax return may be considered as filed for purposes of

prescription, it is required that the return be valid and appropriate. A
defective return is the same as if no return was filed at all.

When return valid

A return is valid if it complies substantially with the requirements of the law;

and there is substantial compliance when the return:

1. is made in good faith and is not false or fraudulent – thus, in a

case, the Supreme Court, applying the above criteria, held that an
estate and inheritance tax return that declared only 93 parcels of land
leaving out 92 other parcels covering 503 hectares was false and
fraudulent as such underdeclaration could not have been the result of
an oversight or mistake; and as the return did not mention any heir,
when there were several who were entitled to the estate, no
inheritance tax (then imposed) could, therefore be assessed; hence,
the return was not considered a true and complete return sufficient to
start the running of the period of limitations.

2. covers the entire period involved –thus, where the return filed is
for a calendar year instead of a fiscal year which is the basis of the
taxpayer’s bookkeeping system, the period will begin to run only from

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 the date the return is filed which includes that portion of the fiscal year
not covered in the earlier return; and

3. contains information as to the various items of income,

deduction and credit with such definiteness as to permit the
computation and assessment of the tax – a return, however, need
not be complete in all its particulars. It is sufficient if it contains the
necessary particulars although some data are inaccurate. Thus, failure
to include three lots of relatively negligible value in relation to the total
asset due to mere omission or mistake and undervaluation of certain
lands arising from honest differences of opinion neither constitutes
fraud nor make the return incomplete.

When return appropriate

A return is appropriate if it a return for the particular tax required by law.

When the return is filed for one kind of internal revenue tax, it cannot be
considered a return for another and different kind of internal revenue tax.
Thus, an income tax return cannot be considered as the equivalent of the
value-added tax return for the purpose of statute of limitations in Section
203 and 223.

Purpose of statutes of limitations

The periods of limitation relative to the assessment and collection of taxes

are designed to secure the taxpayer against unreasonable investigation
after the lapse of the period prescribed.

The fixing of such periods is beneficial not only to the citizens but also to
the government; to the citizens, because after the lapse of the
prescriptive period they would have a feeling of security against
unscrupulous tax agents who will inspect books not to determine their
real liability but to take advantage of every opportunity to molest
peaceful, law-abiding citizens, and to the government, because tax
officers would be obliged to act promptly.

Construction of statutes of limitations

The law on prescription, being a remedial measure, should be interpreted

liberally in order to protect the taxpayer.

Thus, it has been held that a letter requesting the Commissioner of

Internal Revenue that the taxpayer be furnished a copy of the detailed

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 computation of his alleged tax liability did not imply a demand or request
for a reinvestigation and therefore, it should not be interpreted to
authorize or justify the suspension of the running of the period of
limitation.

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