TAX REMEDIES

Galicha, Franz
Paderayon, Cassandra
Peñalosa, Gianna
Soriano, Le Belle
Yantakosol, Jintana
TAX REMEDIES
These are the procedural steps that may be undertaken by the government or a taxpayer for
the resolution of disputes concerning the levy or imposition, assessment, collection and refund
of taxes.

WHY THE NEED FOR REMEDIES?

These tax remedies exist to enhance the government’s tax collection efforts; they too come as
safeguards against arbitrary action. While taxes are the lifeblood of the government and should
be collected without unnecessary hindrance, such collection must nevertheless be made in
accordance with law as any arbitrariness will negate the very reason for the government itself.
(Reyes v. Almanzor, G.R. No. 49839-46, April 26, 1991)

OUTLINE OF REMEDIES

1. BASIC REMEDIES
i. Assessment; and
ii. Collection
2. OTHER CLASSIFICATIONS
i. As to procedure
a. Assessment and Collection; and
b. Collection without assessment
ii. As to the nature of the proceedings
a. Administrative Remedies
b. Judicial Remedies
3. Administrative Remedies
i. Exercise of power to make assessments
ii. Remedies in the collection stage:
a. Tax Lien
b. Distraint of personal property and garnishment of bank deposits
c. Levy of real property
d. Compromise and abatement
e. Penalties and fines
f. Non-availability of injunction to restrain collection of tax
iii. Other remedies
a. Forfeiture; and
b. Suspension of business operations
4. Judicial Remedies
i. Civil; and
ii. Criminal
TAX REMEDIES IN INTERNAL REVENUE TAXATION

• Tax Remedies in internal revenue taxation takes place when there is a dispute between the
taxpayer and the BIR relative to the assessment, collection, payment or refund of internal
revenue taxes such as income tax ( which includes capital gains taxes and final taxes on
income), estate taxes, donor’s taxes etc., or relative to compliance with administrative rules
and regulations promulgated for the efficient and effective enforcement of internal revenue
laws.

Subjects of Tax Remedies in Internal Revenue Taxation

A. Assessment of internal revenue taxes

B. Collection of internal revenue taxes
C. refund of internal revenue taxes.
D. imposition of administrative or civil fines, penalties, interests of surcharges
E. promulgation and/or enforcement of administrative rules and regulations for the efficient
and effective enforcement of internal revenue laws
F. prosecution of criminal violations of internal revenue laws.
ASSESSMENT

An official action of an administrative officer in:

1. Determining the computation of the sum due;
2. Giving notice to that effect to the taxpayer; and
3. Making, simultaneously with or sometimes after the giving of notice, of a demand upon
him for the payment of tax deficiency stated within a specified period.
(CIR v. PASCOR Realty Development Corp., G.R. No. 128315, June 29, 1999)

GENERAL RULE - Taxes are self-assessing and thus do not require the issuance of an assessment
notice in order to establish the tax liability of a taxpayer.
EXCEPTIONS – instances where taxes require assessment to establish additional tax liability
1. Tax period of taxpayer is terminated (NIRC, Sec. 6(d));
2. Deficiency tax liability arising from a tax audit conducted by the BIR (NIRC, Sec.
56(b));
3. Tax lien (NIRC, Sec. 219); or
4. Dissolving corporation (NIRC, Sec. 52 (c))

KINDS OF ASSESSMENT

1. SELF-ASSESSMENT – tax is assessed by the taxpayer himself

2. DEFICIENCY ASSESSMENT – made by the tax assessor himself where the correct amount of
the tax is determined after an examination or investigation is conducted
3. DISPUTED ASSESSMENT – takes place when a taxpayer questions an assessment and asks
the collector to reconsider or cancel the same because he believes that he is not liable
4. JEOPARDY ASSESSMENT – tax assessment made by an authorized Revenue Officer without
the benefit of a complete or partial audit, in light of the officer’s belief that the assessment
and collection of a deficiency tax will be jeopardized by delay caused by the taxpayer’s failure
to:

a. Comply with audit and investigation requirements to present his books of

accounts and/or pertinent records; or
b. Substantiate all or any of the deductions, exemptions or credits claimed in his
return (R.R. 30-2002, Sec. 3(1)(a))
REQUISITES OF A VALID ASSESSMENT

1. It must be in writing and signed by the BIR

2. It must contain a demand for payment within the prescriptive period for the issuance of
assessment notices.
3. it shall state the facts, the law, rules and regulations or jurisprudence on which the
assessment is based, otherwise, the assessment shall be void.

PRESCRIPTION OF GOVERNMENT’S RIGHT TO ASSESS TAXES

General Rule (Sec 203, NIRC)

• Assessment shall be made within three (3) years after the last day prescribed by law for
the filing of the return or from the day the return was filed in case the return was filed
beyond the period prescribed by law.
• A return filed before April 15 shall be considered filed on such date.
Exceptions (Sec 222, NIRC)
1. Also a proceeding in court for the collection of such tax may be filed without assessment
2. Assessment may be made within ten (10) years after the discovery of the falsity, fraud
or omission in the following cases:
1. in case of the false or fraudulent return with intent to evade tax; or
2. failure to file a return
3. by mutual agreement between government and taxpayer (which must be in
writing) before the lapse.

In case the Commissioner and the taxpayer agree in writing to a different period before the
expiration of the original prescriptive period. The period so agreed upon may be extended by
subsequent written agreement before the expiration of the period previously agreed upon.

WHEN IS A TAX ASSESSMENT DEEMED MADE?

It is not the issue date of the demand and/or notice that is the reckoning point in prescription
but rather it is the date when the demand letter is released, mailed or sent to the taxpayer that
constitutes an actual assessment. (Republic vs Limaco)

Example: If it was received by the taxpayer in a particular date (Dec. 5, 1997), you should count
the prescriptive period for making an assessment from the date it was mailed, released or sent
by the BIR and not from the receipt of the notice of assessment by the taxpayer.

Q: Is the assessment made by the CIR subject to judicial review?

• A: NO, for such power is discretionary. What may be the subject of a judicial review is the
decision of the CIR on the protest against the assessment, not the assessment itself.

RELEASE OF ASSESSMENT NOTICE OR DEMAND BEFORE THE LAPSE OF THE

PRESCRIPTIVE PERIOD

The assessment may be subject to revision by the BIR. If revised, the prescriptive period will
commence to run from the safe when such revised assessment is mailed, released or sent. So, it
is not from the date the original assessment is mailed etc. but from the date the revised
assessment has been mailed.

The making of assessment is prescriptible.

The Supreme Court held in case that so long as the release thereof is effected before
prescription sets in, the assessment is deemed made on time even though the same is actually
received by the taxpayer after the expiration of the prescription period. [Basilan Estates, Inc. v.
Commissioner, 21 SCRA 17]

The law does not require that the demand or notice be received within the prescriptive period.
(Republic vs Tan)

Where the taxpayer-addressee makes a direct denial of receipt of a mailed demand letter, such
denial shifts the burden to the government to prove that such letter was such indeed received
by the taxpayer. (Republic vs CA)

IMPORTANT CONSIDERATIONS RE PRESCRIPTION OF GOVERNMENT’S RIGHT TO

ASSESS TAXES

DATE OF FILING TAX RETURNS A MATERIAL FACTOR IN RESOLVING QUESTIONS

ON PRESCRIPTION

The date of the filing of tax return is important for purposes of determining whether or not the
tax was assessed within the prescriptive period.

Since prescription is an affirmative defense, it is incumbent upon the taxpayer to prove that a
return had been filed by him, otherwise, there is a basis for the BIR to assess the tax within the
10 year period, on the ground that no return was filed by the taxpayer. (Republic vs Marsman
Dev’t.)
FAILURE TO FILE A RETURN

• Omission to file a return in the date prescribed by law

• Omission can be intentional or not,
• The mere omission is already a violation regardless of the fraudulent intent or willfulness of
the individual (CIR vs. Bank of Commerce, CTA EB Case No. 654, March 14, 2011).
• The tax may be assessed, or a proceeding in court for the collection of such tax may be begun
without assessment, at any time within ten years after the discovery of the falsity, fraud or
omission

EFFECT OF FILING A AMENDED RETURN

The Supreme Court held that where the amended return is substantially different from the
original return, the right of the Bureau of Internal Revenue to assess the tax is counted from the
filing of the amended return. [Commissioner v. Phoenix Assurance Co. Ltd. L-19127, May 20,
1965].

EFFECT OF FILING A WRONG RETURN

If what was filed was a wrong return, the 10 year period still applies. This is true even if the
information embodied in the wrong return could enable the BIR to assess the tax liability of the
taxpayer. (Butuan Sawmill vs CTA)

PRESCRIPTIVE PERIOD FOR MAKING AN ASSESSMENT & COLLECTION

•With prior assessment

•Without prior assessment
• Return filed is not false or fraudulent
• Return was file but there exist a deficiency
• Return was filed but no payment has been made
3 years from the date of actual filing. If it was filed earlier than the date
fixed by the Tax Code.
COLLECTION: Within 5 years from the date of assessment

3 years from the date of actual filing or from the last day fixed by law for filing such return.
Failure/Falsify/Fraudulent
a. Intentional failure to file a return
b. False return
c. Fraudulent return

10 years from the discovery of such omission of failure, falsity or fraud

COLLECTION: 5 years from the date of assessment.

Taxes may be collected even without prior assessment and prescriptive period is 10 years from
the discovery of failure or omission, falsity or fraud.

Notes: The rule is if prior assessment has been made, the BIR can avail of the administrative
and judicial remedy. But if without prior assessment, the BIR can only avail of the judicial
remedies.

Return must be the one prescribed by the BIR. SO, if you file your Books of Accounts in lieu of
that return, that does not constitute return.

Grounds for Suspension of the prescriptive periods

• 1. When taxpayer cannot be Located in the address given by him in the return, unless he
informs the CIR of any change in his address thru a written notice to the BIR;
• 2. When the taxpayer is Out of the Philippines (Sec. 223, NIRC)
• 3. When the Warrant of distraint and levy is duly served upon the taxpayer, his authorized
representative or a member of his household with sufficient discretion and no property is
located (proper only for suspension of the period to collect);
• 4. Where the CIR is prohibited from making the assessment or beginning distraint or levy or a
proceeding in court for 60 days thereafter, such as where there is a Pending petition for
review in the CTA from the decision on the protested assessment (Republic v. Ker & Co., GR
L-21609; September 29, 1966);
• 5. Where CIR and the taxpayer Agreed in writing for the extension of the assessment, the tax
may be assessed within the period so agreed upon (Sec. 222 [b], NIRC);
• 6. When the taxpayer Requests for reinvestigation which is granted by the Commissioner
(Collector v. Suyoc Consolidated Mining Co., G.R. L-11527, November 25, 1958); NOTE: A
request for reconsideration alone does not suspend the period to assess/collect.
• 7. When there is an Answer filed by the BIR to the petition for review in the CTA (Hermanos
v. CIR, GR. No. L-24972. September 30, 1969) where the court justified this by saying that in
the answer filed by the BIR, it prayed for the collection of taxes.

CIVIL PENALTIES
• Instances where the Civil Penalties (Surcharges) under the Tax Code are imposed
• 1. There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to
be paid 25% surcharge of the amount due in the following cases:
• a. Failure to file any return and pay the tax due thereon;
• b. Unless otherwise authorized by the Commissioner, filing of a return with an internal
revenue officer other than those with whom the return is required to be filed; or
• c. Failure to pay the deficiency tax within the time prescribed for its payment in the
notice of assessment;
• d. Failure to pay the full or part of the amount of tax shown on any return required to
be filed under the provisions of this Code or rules and regulations, 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 (Sec. 248, NIRC).
• 2. In case of willful neglect to file the return within the period prescribed by this Code or by
rules and regulations, or in case a false or fraudulent return is willfully made, the penalty to
be imposed shall be 50% of the tax or of the deficiency tax, in case any payment has been
made on the basis of such return before the discovery of the falsity or fraud:
• Provided, That a substantial underdeclaration of taxable sales, receipts or income, or
a substantial overstatement of deductions, as determined by the Commissioner
pursuant to the rules and regulations to be promulgated by the Secretary of Finance,
shall constitute prima facie evidence of a false or fraudulent return.

FALSE vs. FRAUDULENT RETURN

• False return is a deviation from the truth or fact whether intentional or not.
• Fraudulent return is intentional and deceitful with the aim of evading the correct tax due.
• Distinction must be made between false returns due to mistakes, carelessness or ignorance
and fraudulent returns with intent to evade taxes.
• The fraud contemplated by law is actual and not constructive. It must amount to intentional
wrong doing with the sole object of avoiding the tax. It necessarily follows that a mere mistake
cannot be considered as fraudulent intent. Thus, if both the petitioner and the respondent
Commissioner committed mistakes in making the entries in the returns and the assessment
respectively under the inventory method of determining tax liability, it would be unfair to treat
the mistakes of the petitioner and the respondent, as tainted with fraud for each year from
1946 to 1951, inclusive. [Aznar v. Commissioner, Aug. 23, 1974]

Fraud

• Fraud is a question of fact and the circumstances constituting fraud must be alleged and
proved.
• Fraud must be a product of a deliberate intent to evade taxes. Hence, mere under-declaration
does not necessarily imply fraud.
• Fraud must be actual and not constructive. It must amount to intentional wrong doing with
the sole purpose of avoiding the tax. A mere mistake cannot be considered as fraudulent intent.

PRIMA FACIE EVIDENCE OF A FALSE OR FRAUDULENT RETURN

• 1. A substantial underdeclaration of taxable sales, receipts, or income, or a substantial
overstatement of deductions, as declared by the CIR pursuant to rules and regulations to be
promulgated by the Secretary of Finance;
• 2. Failure to report sales, receipts or income in an amount exceeding thirty percent (30%) of
that declared per tax return;
• 3. A claim of deductions in an amount exceeding thirty percent (30%) of the actual
deductions (Sec.248 (B), NIRC)
• 4. When the taxpayer has willfully and knowingly filed it with the intent to evade a part or all
of the tax legally due from him (Ungab v. Cusi, 97 SCRA 877). (2002 Bar Question)

Substantial underdeclaration

• Failure to report sales, receipts or income in an amount exceeding thirty percent (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 underdeclaration of sales, receipts
or income or for overstatement of deductions, as mentioned herein (Sec. 248, NIRC).

ASSESSMENT PROCEDURE

1. File tax return

2. Letter of authority to examine. If satisfied, COLLECTION.
3. Notice of informal conference. If satisfied with explanation, COLLECTION.
4. Pre-Assessment Notice
5. Response – 15 days
6. Notice of assessment and letter of demand
7. Administrative protest
1. Reconsideration; or
2. Reinvestigation
8. Denial or Inaction of the Commissioner – 180 days
9. Appeal to the CTA – within 30 days from the denial or lapse of 180 days (inaction)
10. Appeal to the CA – within 15 days from notice (CA decides within 12 months)
11. Petition for Review on Certiorari to the Supreme Court

SERVICE OF ASSESSMENT

3 ways to serve PAN/FAN/FDDA are as follows:

1. Personal service
2. Registered mail
3. Substituted delivery

• The affidavit-report of BIR examiner showing computation of tax liabilities, and

recommending the issuance of a notice of assessment, is not an assessment itself which is the
subject of a motion for reconsideration/reinvestigation or protest by the taxpayer. This is so,
because it was not sent to the taxpayer, and does not demand payment of the tax within a
certain period of time. An assessment is deemed made only when the BIR release, mails, or
sends such notice to the taxpayer

Q May THE CIR BE Compelled BY MANDAMUS TO MAKE AN ASSESSMENT

• No. mandamus cannot lie to compel the CIR to make an assessment. The CIR s power to
assess is a discretionary one.

Letter of Authority (LA)

• It is an official document that empowers a Revenue Officer (RO) to examine and scrutinize a
taxpayer’s books of accounts and other accounting records, in order to determine the
taxpayer’s correct internal revenue tax liabilities (Sec. 13, NIRC).
• NOTE: There must be a grant of authority before any revenue officer can conduct an
examination or assessment and the revenue officer must not go beyond authority.
Otherwise, the assessment or examination is a nullity
• LA should cover a taxable period not exceeding one taxable year. The practice of issuing LAs
covering audit of “unverified prior years” is therefore prohibited (CIR v. Sony Philippines, Inc.,
G.R. No. 178697, November 17, 2010).

Cases which need not be covered by a Valid LA

• 1. Cases involving civil or criminal tax fraud which fall under the jurisdiction of the tax
fraud division of the Enforcement Services; and
• 2. Policy cases under audit by the Special Teams in the National Office (RMO 36-99).

• Q: How many times can a taxpayer be subjected to examination and inspection for the
same taxable year?
• A:
• GR: Only once per taxable year.
• XPNs: 1. When the CIR determines that Fraud, irregularities, or mistakes were
committed by the taxpayer
 • 2. When the taxpayer himself requests for the Reinvestigation or re-
examination of his books of accounts and it was granted by the commissioner
• 3. When there is a need to verify the taxpayer’s Compliance with withholding
and other internal revenue taxes as prescribed in a Revenue Memorandum Order
issued by the Commissioner
• 4. When the taxpayer’s Capital gains tax liabilities must be verified
• 5. When the Commissioner chooses to exercise his power to obtain information
relative to the examination of other taxpayers (Secs. 5 and 235, NIRC).

ISSUANCE OF PRELIMINARY ASSESSMENT NOTICE (PAN)

• If after review and evaluation by the Commissioner or his duly authorized representative, as
the case may be, it is determined that there exists sufficient basis to assess the taxpayer for
any deficiency tax or taxes, the said Office shall issue to the taxpayer a PAN for the proposed
assessment. It shall show in detail the facts and the law, rules and regulations, or
jurisprudence on which the proposed assessment is based (R.R. No. 18-2013).

Requirements of a valid PAN

• 1. In writing; and
• 2. Should inform the taxpayer of the law and the facts on which the assessment is made
(Sec. 228, NIRC)
• Thus, the sending of PAN to taxpayer to inform him of the assessment made is but part of the
“due process requirement in the issuance of a deficiency tax assessment,” the absence of
which renders nugatory any assessment made by the tax authorities. Therefore, for its failure
to send the PAN stating the facts and the law on which the assessment was made as required
by the law, the assessment made by CIR is void (CIR v. Metro Star Suprema, Inc., G.R. No.
185371, December 8, 2010).

EXCEPTIONS TO ISSUANCE OF PAN

• As a rule, there must be a PAN issued by the BIR before issuing a Formal Letter of Demand
(FLD)/ Final Assessment Notice (FAN).
• PAN is not required in the following instances:
 • 1. When the finding for any deficiency tax is the result of Mathematical error in
the computation of the tax appearing on the face of the tax return filed by the
taxpayer;
• 2. When the Excise tax due on excisable articles has not been paid; or
• 3. When a Discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent; or
• 4. 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 (Sec. 228,
NIRC); or
• 5. 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 (Sec. 3.1.2, R.R. No. 18-2013).
• In the above-cited cases, a FLD/FAN shall be issued outright.

REPLY TO PAN

• It is the answer of the taxpayer in contesting the findings of the revenue officers contained in
a PAN.
• Period for the taxpayer to respond to PAN via “Reply”
• The taxpayer has 15 days from receipt of PAN to file a written reply contesting the
proposed assessment.

Effect of taxpayer’s failure to respond to PAN

• The taxpayer shall be considered in default, in which case, a Formal Letter of Demand and
Final Assessment Notice (FLD/FAN) shall be issued calling for payment of the taxpayer's
deficiency tax liability, inclusive of the applicable penalties. (Par. 2, Sec. 3.1.1, R.R. No. 18-
2013).
• NOTE: The failure to file a reply to PAN will not bar the taxpayer from protesting the FAN
because PAN is not the final assessment which can be protested as contemplated under the
NIRC.
• For the purpose of contesting in writing the findings contained in a PAN, the regulations use
the term “reply” to distinguish the written objections against a FAN issued by the BIR, where
the generic term “protest” or the specific term “request for reconsideration” or “request for
reinvestigation” is utilized

ISSUANCE OF FORMAL LETTER OF DEMAND AND ASSESSMENT NOTICE/ FINAL

NOTICE OF ASSESSMENT
• Final Assessment Notice (FAN) It is a declaration of deficiency taxes issued to a taxpayer who
fails to respond to a PAN within the prescribed period of time, or whose reply to the PAN was
found to be without merit.
• The FLD/FAN calling for payment of the taxpayer's deficiency tax or taxes shall state the facts,
the law, rules and regulations, or jurisprudence on which the assessment is based; otherwise,
the assessment shall be void (Sec. 3.1.3,R.R. No. 18-2013).
• The FAN and FLD should always go together. The law requires that the factual and/or legal
bases of the assessment must be stated, and this requirement is not satisfied by the issuance
of FAN alone, a letter of demand fills up the void and explains to the taxpayer how the
deficiency assessment was arrived at, including the reasons and legal bases for the
assessment.
• Issuance of FAN It is within 15 days from receipt of the protest to PAN

Remedies of the taxpayer after the issuance of a FAN

• The taxpayer may protest the assessment within 30 days from receipt. Otherwise, the
assessment becomes final, executory, demandable and not appealable to the CTA.

ADMINISTRATIVE DECISION ON DISPUTED ASSESSMENT

Final Decision on a Disputed Assessment (FDDA)

• The decision of the Commissioner or his duly authorized representative shall state:
• 1. the facts, the applicable law, rules and regulations, or jurisprudence on which such
decision is based, otherwise, the decision shall be void, and
• 2. that the same is his final decision (Sec. 3.1.5, R.R. No. 18-2013).

If the protest is denied, in whole or in part, by the Commissioner’s duly authorized

representative, the taxpayer may either:

• 1. Appeal to the Court of Tax Appeals (CTA) within thirty (30) days from date of receipt of the
said decision; or
• 2. Elevate his protest through request for reconsideration to the Commissioner within thirty
(30) days from date of receipt of the said decision (par.7, ibid.).
• NOTE: No request for reinvestigation shall be allowed in administrative appeal and only
issues raised in the decision of the Commissioner’s duly authorized representative shall be
entertained by the Commissioner.

PROTEST OF ASSESSMENT BY TAXPAYER

• Requisites of a protest
 • 1. In writing;
• 2. Addressed to the CIR;
• 3. Accompanied by a waiver of the Statute of Limitations in favor of the Government.
Without the waiver the prescriptive period will not be tolled; (BPI v. CIR, G.R. No.
139736, October 17, 2005)
• 4. State the facts, applicable law, rules and regulations or jurisprudence on which the
protest is based otherwise the protest would be void; and
• 5. Must contain the following: a. Name of the taxpayer and address for the
immediate past 3 taxable years; b. Nature of the request, specifying the newly
discovered evidence to be presented; c. Taxable periods covered by the assessment;
d. Amount and kind of tax involved and the assessment notice number; e. Date of
receipt of the assessment notice or letter of demand; f. Itemized statement of the
finding to which the taxpayer agrees (if any) as basis for the Tax Remedies Under NIRC
computation of the tax due, which must be paid upon filing of the protest; g. Itemized
schedule of the adjustments to which the taxpayer does not agree; h. Statements of
facts or law in support of the protest; and i. Documentary evidence as it may deem
necessary and relevant to support its protest to be submitted 60 days from the filing
thereof.

WHEN TO FILE A PROTEST

• An assessment may be protested administratively by filing a request for reconsideration or

reinvestigation within 30 days from receipt of the assessment.
• Procedure to be followed in protesting an assessment
• 1. BIR issues assessment notice.
• 2. The taxpayer files an administrative protest against the assessment. Such protest
may either be a request for reconsideration or for reinvestigation. The protest must
be filed within 30 days from receipt of assessment. (“30-day period”)
• NOTE: the FAN must be protested by the taxpayer within the 30-day period,
despite the fact that exactly the same issues were raised by the revenue
officers in the PAN. The protest against the FAN is not the same as the reply to
the PAN
• All relevant documents must be submitted within 60 days from filing of protest; otherwise,
the assessment shall become final and unappealable. (“60-day period”)
• 3. In case the CIR decides adversely or if no decision yet after the lapse of 180 days,
the taxpayer may appeal to the CTA Division, 30 days from the receipt of the decision
or from the lapse of the 180 days otherwise the decision shall become final, executory
and demandable. (RCBC v. CIR, G.R. No. 168498, April 24, 2007)
• 4. If the decision is adverse to the taxpayer, he may file a motion for reconsideration
or new trial before the same Division of the CTA within 15 days from notice thereof.
• 5. In case the resolution of a Division of the CTA on a motion for reconsideration or
new trial is adverse to the taxpayer, he may file a petition for review with the CTA en
banc.
 • 6. The ruling or decision of the CTA en banc may be appealed with the Supreme Court
through a verified petition for review on certiorari pursuant to Rule 45 of the 1997
Rules of Civil Procedure.

EFFECT OF FAILURE TO PROTEST

• Failure to file a valid protest against the FLD/FAN within the 30-day period shall render the
assessment final, executory and demandable and the taxpayer loses his right to contest the
assessment, at the administrative and judicial levels. Thus, the tax shall be collectible.
• The filing of the protest within 30-day period from the receipt of the assessment would be
mandatory for the taxpayer to use the other administrative and judicial remedies.

RENDITION OF DECISION BY COMMISSIONER

DENIAL OF PROTEST

• Forms of denial of the protest

• 1. Direct Denial of Protest – By an administrative decision on a disputed assessment,
stating the facts, applicable law, rules and regulations or jurisprudence on which such
decision is based otherwise, the decision shall be void in which case the same shall
not be considered a decision on a disputed assessment and that the same is his final
decision (R.R. 12-99).
• 2. Indirect Denial of Protest:
• a. Formal and final letter of demand from the BIR to the taxpayer.
• b. Civil collection can also be considered as denial of protest of assessment
(BIR v. Union Shipping Corp., G.R. No. 66160, May 21, 1990)
• c. Commissioner did not rule on the taxpayer’s motion for reconsideration of
the assessment, the period to appeal will only start when the respondent
would receive the summons for the civil action for collection of deficiency tax
(BIR v. Union Shipping Corp., G.R. No. 66160, May 21, 1990).
• NOTE: Preliminary collection letter may serve as assessment notice. (United
International Pictures v. CIR, G.R. No. 110318, August 28, 1996)
• d. Filing of criminal action against the taxpayer
• e. Issuance of warrant of distraint and levy to enforce collection of deficiency
assessment is outright denial of the request for reconsideration (Hilado v. CIR,
CTA case 1256, Feb. 25, 1964).
• 3. After the expiration of the period fixed by law for action, in which case the inaction
by the Commissioner within 180 days from submission of documents shall be deemed
a denial.

• REMEDIES OF TAXPAYER TO THE ACTION BY COMMISSIONER

• Q: What is the remedy available to the taxpayer if the CIR denies his protest in whole or in
part?
• A: The remedy is to appeal such decision to the CTA within 30 days from receipt of the
decision. Otherwise, the assessment will become final, executory and demandable.

IN CASE OF INACTION BY COMMISSIONER WITHIN 180 DAYS FROM SUBMISSION

OF DOCUMENTS

• Options given to the taxpayer if there would be inaction by the CIR within 180 days from
submission of the documents
• A: The taxpayer has two alternative options:
• 1. File a petition for review with the CTA within 30 days after the expiration of the
180-day period; or
• 2. Wait for the final decision of the CIR on the disputed assessment and appeal the
final decision to the CTA within 30 days from the receipt of the decision.
• NOTE: In case the action filed by the taxpayer is a claim for refund and not protesting the
amount of the tax, the period of 180 days and 30 days must concur with the 2 year
prescriptive period. Hence, a petition for review may already be filed even before the
expiration of the 180 day period if the period of 2 years from the date of payment will
already lapse.
• When the law provided for the remedy to appeal the inaction of the CIR, it did not intend to
limit it to a single remedy of filing an appeal after the lapse of 180-day prescribed period.
Precisely, when a taxpayer protested an assessment, he naturally expects the CIR to decide
either positively or negatively. A taxpayer cannot be prejudiced if he chooses to wait for the
final decision of the CIR on the protested assessment. More so, because the law and
jurisprudence have always contemplated a scenario where the CIR will decide on the
protested assessment (Lascona Land Co., Inc. v. CIR, G.R. No. 171251, March 5, 2012). (2014
Bar)
COLLECTION

It is the actual effort exerted by the government to effect the exaction of what is due from the
taxpayer. It is the final stage and goal of tax administration.

General Rule
Collection may be instituted within five (5) years following the assessment of the tax [Sec.
222C]
Exception
A proceeding in court for collection, without assessment, may be instituted within ten (10)
years after the discovery of falsity, fraud, or omission in the case of a false or fraudulent return
with intent to evade tax or failure to file a return [Sec. 222A]

PRINCIPLES GOVERNING THE FILING OF AN ACTION FOR COLLECTION WITH THE

BIR

a. BIR assessment is considered final and executory, if no protest or dispute has been
made by the taxpayer. IF protested by the taxpayer but he did not appeal, the BIR
decision on such protest, the effect is that the BIR decision shall be considered final and
executory.
b. IF he appeals the decision of the BIR of the Commissioner to the CTA but he did not
appeal the decision of the CTA to CA, the decision of the CTA shall be final and
executory.
c. If he appeals to the CA but the CA decision affirming that decision of the BIR was not
appealed to the SC, CA decision shall be final and executory.
d. If appealed to SC but SC affirm the decision of the CA, SC decision is final and executory.
• If the decision of the BIR is final and executory, the assessment made cannot be
questioned. The issue of prescription can no longer be raised except if the BIR submitted
the particular issue for the resolution of the Court, that is considered as waiver on the
part of the BIR and such issue of prescription may be subject to resolution.
• There is no provision in the TAX Code that prohibits the BIR from filing an action for
collection even if the resolution on the motion for reconsideration on the assessment
made is still pending.
• When the case is pending before the CTA, collection may also be made by filing of an
answer to the petition for review with the CTA. This is tantamount to a filing of
collection of tax. This will also stop the running of the prescriptive period for collection
of taxes.
• Collection of taxes is prescriptible.
• Collection is only allowed when there is already a final assessment made for the
determination of the tax due.
Assessments are deemed final when:
• 1. The taxpayer failed to file a protest 30 days from receipt of the assessment
• 2. After the 180 day period and the CIR has not yet acted on the protest, the taxpayer
fails to appeal it
• 3. After 30 days from the receipt of the decision of the CIR the taxpayer fails to
appeal.

WHEN DOES THE 5-YEAR PRESCRIPTIVE PERIOD START TO RUN?

• The period of limitation to collect is counted from the assessment of the tax.
• Assessment is deemed made at the time the demand or assessment notice has been
sent, released or mailed to the taxpayer.
• The actual sending or release to the taxpayer of the assessment notice or demand is,
therefore, necessary in order to determine the actual date when the tax being collected
was assessed.

WHEN IS THE TAX DEEMED COLLECTED FOR PURPOSES OF THE PRESCRIPTIVE

PERIOD?

• Collection through summary remedies is effectuated by summary methods when the

government avails of the distraint and levy procedure.
• If collection is to be effected through judicial remedies, the collection of the tax is begun
by the filing of the complaint with the proper court.
• However, if the decision of the Commissioner on a protested assessment is appealed to
the CTA, the collection of the tax is considered begun when the government files its
answer to the taxpayer’s petition for review.

MAY THERE BE A JUDICIAL ACTION TO COLLECT A TAX LIABILITY EVEN IF THERE

IS NO PREVIOUS ASSESSMENT?

• Yes. A proceeding in court for collection without assessment may be instituted within
ten years after the discovery of falsity, fraud, or omission in the case of a false or
fraudulent return.
• Two possibilities that could arise:
• Taxpayer files a false or fraudulent return with intent to evade taxes.
• Tax payer does not file any return at all.

TAX OBLIGATION SECURED BY A BOND

Where the tax obligation is secured by a bond, the prescriptive period for the action for the
forfeiture of the bond is governed by the Civil Code: 10 years to enforce a written contractual
obligation.

WAIVER OF THE STATUTE OF LIMITATIONS

• Sec. 222B of the NIRC allows the taxpayer and the government to extend by mutual
agreement the prescriptive periods for the assessment and collection of taxes. Such an
agreement must be in writing.
• The waiver must be signed by the parties before the lapse of the three-year prescriptive
period. A waiver is ineffectual if it is executed beyond the original prescriptive period.
• The extended period may again be extended provided the new period be agreed upon
before the lapse of the extended period.

PROCEDURE FOR WAIVER OF PRESCRIPTION PERIOD UNDER R.M.O. 20-90

Requisites
1. Waiver must be in accordance with the prescribed form;
2. Signed by the taxpayer himself or his authorized representative;
3. Commissioner or his duly authorized agent must sign the waiver indicating the BIR’s
acceptance of the waiver.

PRESCRIPTION OF THE GOVERNMENT’S RIGHT TO RECOVER AN ERRONEOUSLY

REFUNDED TAX

The same as the three (3) year prescriptive period for making assessments (Guagua Electric Co.,
Inc. v. Commissioner 19 SCRA 790)

EQUITABLE RECOUPMENT AND PRESCRIPTION

The rule in this jurisdiction is not to allow the setting off the prescribed tax against a tax refund;
for if that were so, this would only encourage negligence on the part of our collecting officers
who would feel despite prescription in the thought that they could always collect the
prescribed tax through the expedient of set-off (CIR vs UST)

SUSPENSION OF THE RUNNING OF THE STATUTE OF LIMITATIONS

The running of the Statute of Limitations provided in Sec. 203 and 222 on the making of
assessment and the beginning of distraint or levy or a proceeding in court for collection, in
respect of any deficiency, shall be suspended under any of the following circumstances
1. When the Commissioner is prohibited from making the assessment or beginning the
distraint, levy, or proceeding in court and for sixty days thereafter;
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 tax is being assessed or collected, unless the taxpayer has informed the Commissioner of
any change in address;
4. When the warrant of distraint or levy is duly served upon the taxpayer, his authorized
representative, or a member of his household with sufficient discretion, and no property could
be located; and
5. When the taxpayer is out of the Philippines.

Examples when the Commissioner is prohibited from assessing or collecting the tax

1. The filing of a petition for review in the Court of Tax Appeals from the decision of the
Commissioner on a protested assessment interrupts the running of the prescriptive period for
collection. [Republic v. Ker & Co., Ltd. 18 SCRA 207]
2. When the CTA enjoins the collection of the tax under Sec. 11 of RA 1125

Request for reinvestigation which should be granted or acted upon by the Commissioner

It should be emphasized that a mere request for reinvestigation without any corresponding
action on the part of the Commissioner does not interrupt the running of the prescriptive
period.

Will an extra-judicial demand interrupt the prescription period?

No. Sec. 22 of the NIRC enumerates the instances when the prescription is interrupted, and an
extra-judicial demand is not one of them.

GROUNDS FOR THE SUSPENSION OF PRESCRIPTIVE PERIOD IN THE COLLECTION

OF TAXES

• No property could be allocated;

• Agreement between the BIR and the taxpayer to the effect that the prescriptive period
shall be suspended pending the negotiation;
• If the BIR is Prohibited from a distraint or levy of real property;
• If the taxpayer is Out of the Philippines;
• If the address of the taxpayer Cannot be located;
• The filing of an Answer to the petition for review executed by a taxpayer with the CTA;
 • When a Request for reinvestigation has been granted by the BIR.

RULE OF PRESCRIPTION IN CRIMINAL CASES (SEC. 281. ,NIRC)

• All violations of any provision of this Code shall prescribe after Five (5) years.
• Prescription shall begin to run from the day of the commission of the violation of the law, and
if the same be not known at the time, from the discovery thereof and the institution of judicial
proceedings for its investigation and punishment.
• The prescription shall be interrupted when proceedings are instituted against the guilty
persons and shall begin to run again if the proceedings are dismissed for reasons not
constituting jeopardy.
• The term of prescription shall not run when the offender is absent from the Philippines.

WHEN DEFENSE OF PRESCRIPTION MAY BE RAISED EVEN ON APPEAL

Criminal Case involving tax violations

The defense of prescription can be raised or invoked by the accused even if the case had
already been decided by the lower court but pending decision on appeal.

Civil Action for the collection of Taxes

The defense of prescription, if not raised in the lower court, is barred permanently.

Reason: Issues or defenses not raised in the administrative proceeding and/or in the lower
court cannot be raised for the first time on appeal.

PRESCRIPTIVE PERIOD IN CRIMINAL CASES – WHEN DOES IT START TO RUN?

It depends on the nature of the tax avoidance.

By its nature, the violation could only be committed after service of notice and demand for
payment of the deficiency taxes upon the taxpayer. This is so because prior to the finality of
the assessment, the taxpayer has not committed any violation for nonpayment of the tax. The
offense was committed only after the finality of the assessment coupled with the taxpayer’s
willful refusal to pay the taxes within the allotted period. (Lim, Sr. vs CA)
ADMINISTRATIVE REMEDIES

Tax Lien
A legal claim or charge on property, real or personal, established by law as security in default of
the payment of taxes.

When does a lien in favor of the government arise?

1. Personal property – from the time the tax became due and demandable
2. Real property – from the time of registration with the Register of Deeds
The lien shall be valid against any mortgagee purchaser or judgment creditor only when notice
of such lien shall be filed by the CIR in the office of the RD of the province or city where the
property of the taxpayer is situated or located (NIRC, Sec. 219)

Distraint of Personal Property

Distraint is a remedy whereby the collection of delinquent taxes is enforced on the goods,
chattels or effects and other personal property of whatever character of the taxpayer.

Kinds of Distraint
1. Actual – resorted to when at the time required for payment, a person fails to pay
his delinquent tax obligation; actual seizure and taking possession of personal
property
2. Constructive – issued where no actual tax delinquency of the taxpayer is
necessary before the same is resorted to by the government.

Levy of Real Property

Levy refers to seizure of real properties and interest in or rights to such properties for the
satisfaction of taxes due from the delinquent taxpayer.

When may levy be effected?

Real property may be levied upon before, simultaneously, or after the distraint of personal
property belonging to the delinquent taxpayer (NIRC, Sec. 207(b)); and the remedy by distraint
and levy may be repeated if necessary until full amount, including all expenses, is collected
(NIRC, Sec. 217).

Penalties and Fines

Increments to the basic tax incident to the taxpayer’s non-compliance with certain legal
requirements

No Injunction to restrain tax collection

No court shall have the authority to grant an injunction to restrain the collection of any NIR tax,
fee or charge imposed (NIRC, Sec. 218)
OTHER REMEDIES

Suspension of Business Operations

Forfeiture (of Confiscated Article)

Forfeiture is the divestiture of property without compensation, in consequence of a default or
offense.

In forfeiture, all the proceeds of the sale will go to the government; whereas in seizure, the
residue, after deducting the tax liability and expenses, will go to the taxpayer.
JUDICIAL REMEDIES

CIVIL

Actions instituted by the government to collect internal revenue taxes including the filing by the
government of claims against the deceased taxpayer with the probate court.

The government can collect when the assessment has become final and executory.

TWO WAYS TO ENFORCE CIVIL LIABILITY THROUGH CIVIL ACTION

1. File a case for collection of sum of money with the proper regular court (NIRC, Secs. 203
and 222); and
2. Filing an answer to the petition for review filed by the taxpayer with the CTA.

CRIMINAL
A criminal complaint is instituted to penalize the taxpayer for violation of the NIRC and not to
demand payment.

Two common crimes punishable

1. Attempt to evade or defeat tax (NIRC, Sec. 254); and
2. Failure to file return, supply correct and accurate information, pay tax, withhold and
remit tax and refund excess taxes withheld on compensation (NIRC, Sec. 255)

Remember:
WILLFULL BLINDNESS DOCTRINE
A taxpayer can no longer raise the defense that the errors on their tax returns are not their
responsibility or that it is the fault of the accountants they hired.

IMPORTANT PRINCIPLES ON CRIMINAL ACTIONS

1. Assessment is not necessary before filing a criminal action and criminal action may be
filed during the pendency of an administrative protest in the BIR.
(Exception: Before one is prosecuted for willful attempt to evade or defeat any tax, the fact that
a tax is due must first be proved.)
2. The acquittal of a taxpayer in a criminal action does not necessarily result in his
exoneration from his civil liability to pay taxes.
3. Payment of the tax due after apprehension shall not constitute a valid defense in any
prosecution for violation of any provision of the NIRC or in any action for the forfeiture
of untaxed articles.
4. The subsequent satisfaction of civil liability by payment or prescription does not
extinguish the taxpayer’s criminal liability
5. No subsidiary imprisonment
6. Criminal action may be filed despite the lapse of the period to file a civil action for
collection of taxes.
7. Filing of a criminal action is not an implied assessment by the CIR.
8. No reservation to file civil actions.
9. Assessment is still necessary even if the accused is found guilty under Sec. 255 of the
NIRC.
TAX REFUND

It is the actual reimbursement of tax

Two-fold purpose of refund

a. to afford the collector an opportunity to correct the mistake, if any, committed by him or his
subordinate officers and
b. to notify the government that such taxes have been questioned, and the notice should be
borne in mind in estimating the revenue available for expenditure
(Bermejo v. CIR, 87 Phil. 96)

GROUNDS AND REQUISITES FOR REFUND

1. Penalty is collected without authority.

2. Tax is Illegally collected.
3. Tax is Erroneously collected
4. Sum collected is Excessive or in any manner wrongfully collected.

REQUIREMENTS FOR A CLAIM OF TAX REFUND OR A TAX CREDIT

1. There is tax collected erroneously or illegally, or a penalty collected without authority, or a

sum excessively or wrongfully collected (Sec. 229, NIRC).
NOTE: Payment under protest is not required.
2. There must be a written claim for refund filed by the taxpayer with the CIR GR: Written
claim is required.
XPN: a. When on the face of the return upon which payment was made, such
payment appears clearly to have erroneously paid, the CIR may refund or credit the tax even
without a written claim (Sec.229, NIRC).
b. A return filed showing an overpayment shall be considered as a written
claim for credit or refund (Sec. 204 (C), NIRC). (2002, 2010 Bar)
3. Must be a categorical claim for refund or credit;
- It is for the CIR to afford an opportunity to correct the action of subordinate
officers; and
- To notify the Government that such taxes have been questioned and the notice
should then be borne in mind in estimating the revenue available for
expenditure (Bermejo v. CIR, G.R. No. L-3029, July 25, 1950).
4. Must be filed within 2 years from date of payment of the tax or penalty regardless of any
supervening cause that may arise after payment.
No suit or proceeding shall be instituted after the expiration of the such period; and
(2008 Bar)
5. The taxpayer must present proof of payment of the tax.
NOTE: The two (2) year- period applies only to suits or proceedings for the recovery of taxes or
penalties erroneously, excessively, illegally or wrongfully collected.
Accordingly, an ordinary claim for tax credit would prescribe in ten (10) years under Art. 1144 of
the Civil Code (Victorias Milling Co. v. Central Bank, 13 SCRA 479).

It is necessary that the be paid in full, and that the claim for refund in the BIR as well as the
proceedings in the CTA be commenced within two (2) years counted from the payment of the
tax.

Reckoning period of the 2-year prescriptive period for a claim of tax refund

1. Tax is paid in installments – 2 years should be counted from the date of the final payment.

2. Payments effected through the withholding tax system – It is from the end of the taxable
year or when the tax liability falls due that the 2 year prescriptive starts to run.

3. In corporate dissolution or merger – The 2-year prescriptive period should be counted 30

days after the approval by the SEC of its plan for dissolution.

NOTE: In case of payments effected through withholding tax system, the tax liability is deemed
paid when the same falls due at the end of the tax year. This is because a taxpayer, resident or
non-resident, who contributes to the withholding tax system, do not really deposit an amount
to the CIR, but, in truth, performs and extinguishes his tax obligation for the year concerned
(Gibbs v. CIR, G.R. No. L- 17406, November 29, 1965).

This ruling has been explained involving corporate quarterly income tax. The filing and payment
of the quarterly income tax should only be considered as mere installments of the annual tax
due. These quarterly payments should be treated as advances or portions of the annual income
tax due, to be adjusted at the end of the year, its Final Adjustment Return (CIR v. TMX Sales,
G.R. No. 83736, January 15,1992 reiterated in CIR v. CA, G.R. No. 117254, January 21, 1999).

Q: Is a deficiency tax assessment a bar to a claim for tax refund or tax credit? (2005 Bar)

A: YES, the deficiency tax assessment is a bar to a tax refund or credit. The taxpayer cannot be
entitled to a refund and at the same time liable for a tax deficiency assessment for the same
year. The deficiency assessment creates a doubt as to the truth and accuracy of the Tax Return.
Said Return cannot therefore be the basis of the refund (CIR v. CA, G.R. No. 106611, July 21,
1994).

Conditions for the grant of tax refund when the creditable withholding tax is in
excess of the amount of the tax due:

1. The claim is filed with the CIR within the 2-year period from the date of payment of the tax or
from the date of the filing of the Final Adjustment Return;
2. It must be shown in the return of the recipient that the income payment received was
declared as part of the gross income; and
3. The fact of withholding is established by a copy of a statement duly issued by the payor to
the payee showing the amount of the tax withheld therefrom

With regard to the second requirement, it is fundamental that the findings of fact by the CTA in
Division are not to be disturbed without any showing of grave abuse of discretion considering
that the members of the Division are in the best position to analyze the documents presented
by the parties. Consequently, the Court adopts the findings of the CTA in Division, which the
CTA En Banc concurred with. (Republic of the Philippines, represented by the CIR vs. Team
(Phils.) Energy corporation (formerly Mirant Phils. Energy Corporation), G.R. No. 188016,
January 14, 2015)

Two (2)-year period shall be computed under the Administrative Code of 1987, a year is
composed of 12 calendar months. The number of days is irrelevant (CIR v. Primetown Property
Group, Inc. 531 SCRA 436,).

The two-year period for filing tax refund is not Jurisdictional

The Supreme Court held that even if the two-year period had already lapsed, the same is not
jurisdictional and may be suspended for reasons of equity and other special circumstances (CIR
v. PNB, 474 SCRA 303).

LEGAL BASIS OF TAX REFUNDS

Tax refunds are not founded principally on legislative grace

It is based on legal principle which underlies in all quasi contracts abhorring a person’s unjust
enrichment at the expense of another. The dynamic of erroneous payment of tax fits to a tee
the prototypic quasi-contract, solution indebiti, which covers not only mistake in fact but also
mistake in law.

The pertinent laws governing this principle are found in Article 2142 and Article 2154 of the
New Civil Code.

STATUTORY BASIS FOR TAX REFUND UNDER THE TAX CODE

Provisions of the Tax Code regarding refund

1. Corporations entitled to refund of excess estimated quarterly income paid as shown on its
final adjustment return (Sec. 75 and 76, NIRC)
2. Claims for refund of VAT-registered persons, whose sales are zero-rated or effectively zero-
rated, with regard to their creditable input tax due, except transitional input tax, to the extent
that such input tax has not been applied against output tax (Sec. 112, NIRC)
3. Locally produced or manufactured goods, whether in their original state or as ingredients,
any excise tax paid thereon shall be credited or refunded upon submission of proof of actual
exportation (Sec. 130(d), NIRC)
4. National Internal Revenue Tax: a) erroneously or illegally assessed or collected; b) any
penalty claimed to have been collected without authority; or c) any sum allegedly to have been
excessively or in any manner wrongfully collected, may be recovered in a suit or proceeding for
that purpose (Sec. 229 and Sec. 204(c), NIRC)

NECESSITY OF PROOF FOR CLAIM OR REFUND

Claim for refund partakes the nature of an exemption, hence it is strictly construed against the
claimant and the failure to discharge said burden is fatal to the claim
(CIR v. S.C. Johnson and Son Inc., et. al., G.R. No. 127105).

Evidence that may be presented that would best substantiate the taxpayer’s claim for tax
refund

The pertinent invoices, receipts, and export sales documents are the best and competent
pieces of evidence required to substantiate a taxpayer’s claim for tax credit or refund.
No evidence which has not been formally offered shall be considered and where the pertinent
invoices or receipts purportedly evidencing the VAT paid by the taxpayer were not submitted,
the court may not determine the veracity of the amount of VAT that the taxpayer paid.
Mere allegations of the figures in the amended return are not sufficient proof of the amount of
its refund entitlement (Atlas Consolidated Mining and Development Corporation v. CIR, 546
SCRA 150).

BURDEN OF PROOF FOR CLAIM OF REFUND

Construction for a Claim of refund

Tax refunds, condonations and amnesties, being in the nature of tax exemptions, must be
strictly construed against the taxpayer and liberally in favor of the government.

GR: Tax refunds, like tax exemptions, are construed strictly against the taxpayer. The claimants
have the burden of proof to establish the factual basis of their claim for refund or tax credit
(Hitachi Global Storage Philippines v. CIR G.R. No. 174212, October 20, 2010).
It is logical to assume that in order to discharge this burden, the law intends the filing of an
application for a refund to necessarily include the filing of complete supporting documents to
prove entitlement for the refund.
Otherwise, the mere filing of an application without any supporting document would be as
good as filing a mere scrap of paper. (Hedcor v. CIR, G.R. No. 207575, July
15, 2015)

XPN: The contention that a tax refund takes on the nature of a tax exemption does not apply
where the claim for refund is premised on erroneous payment of tax. There is parity between
tax refund and tax exemption only when the former is based wither on a tax exemption or tax
refund statute. (CIR. v. Fortune Tobacco, Corp., G.R. No. 167274-75, July, 21, 2008).

Tax Credit Certificate (TCC)

TCC is validly issued under the provisions of the NIRC and may be applied against any internal
revenue tax, excluding withholding taxes, for which the taxpayer is directly liable (Sec. 204 [C],
NIRC).

NOTE: A transferee in good faith and for value of the TCC who has relied on the transferor’s
representation of the genuineness and validity of the TCC transferred to it may not be legally
required to pay again the tax covered by the TCC, which have been fully utilized through
settlement of internal revenue tax liabilities and later on were declared null and void.
Conversely, when the transferee is party to the fraud as when it did not obtain the TCC for
value or was a party to or has knowledge of its fraudulent issuance, said transferee is liable for
the taxes and for the fraud committed as provided for by law (CIR v. Petron Corporation G.R.,
No. 185568, March 21, 2012).

WHO MAY CLAIM or APPLY FOR TAX REFUND /TAX CREDIT

General Rule:
The “taxpayer” is the person entitled to claim a tax refund. He is the “party adversely affected”
who is given the right to appeal the decision or ruling of the Commissioner.

Proper party to question/seek a tax refund in indirect taxes

The proper party is the statutory taxpayer , the person on whom the tax is imposed by law and
who paid the tax even when he shifts the burden thereof to another because once shifted, it is
no longer in the nature of a tax, but part of the purchase price or the cost of goods or services
sold (Exxon Mobil Petroleum and Chemical Holdings, Inc. vs. CIR, G.R. No. 180909, January 19,
2011; Silkair (Singapore) Pte., Ltd. v. CIR, G.R. No. 166482, January 25, 2012).
The Irrevocability Rule
The exercise of the option to carry over excess tax credits bars a taxpayer from claiming the
same excess tax credits for refund in the succeeding taxable year. Sec. 76 of the NIRC provides
that once the option to carry over and apply the excess quarterly income tax due for the
taxable quarters of the succeeding taxable years has been made, such option shall be
considered irrevocable for that taxable period and no application for cash refund or issuance of
tax credit certificate shall be allowed. These remedies are in the alternative and the choice of
one precludes the other.

The phrase “such option shall be considered irrevocable for that taxable period” in Sec. 76 of
the NIRC means that the option to carry over the excess tax credits of a particular taxable year
can no longer be revoked (SYSTRA Phil., Inc. v. CIR, G.R. No. 176290, September 21, 2007).

NOTE: Under the old provision, the option to carry-over the excess or overpaid income tax for a
given taxable year is limited to the immediately succeeding taxable year only.

In contrast, under Section 76 of the NIRC of 1997, the application of the option to carry over the
excess of creditable tax is not limited only to the immediately following taxable year but
extends to the next succeeding taxable years. The clear intent in the amendment under section
76 is to make the option, once exercised, irrevocable for the “succeeding taxable years”
(Asiaworld Properties Philippines Corporation v. CIR, G.R. No. 171766, July 29, 2010).

The exercise of an option is irrevocable and a decision to carry-over and apply tax overpayment
continues until the overpayment has been fully applied to tax liabilities (until fully exhausted)
(CIR vs. McGeorge Food Industries, Inc., G.R. No. 174157, October 20, 2010).

Once the option to carry-over excess income tax payments to the succeeding years has been
made, it becomes irrevocable. Thus, applications for refund of the unutilized excess income tax
payments may no longer be allowed
(Belle Corporation v. CIR, G.R. No. 181298, January 10, 2011).

The exercise of the option to carry-over precludes a claim for a refund (CIR v. Philippine
American Life and General Insurance Company, G.R. No. 175124, September 29, 2010).

Period of filing an appeal to CTA in case of denial by CIR of the claim for refund

It must be filed within 30 days from receipt of the decision of the CIR but not to exceed the 2-
year period from date of payment of the tax or penalty regardless of any supervening cause
that may arise after payment.

In case the decision of the CIR takes too long and the 2- year period is about to end,
proceedings in the CTA must be commenced and there would no longer be any need to
wait for the decision of the CIR.

Distinction between the application of the 2-Year prescriptive period under Sec. 229 and
Under Sec. 112 (VAT)

1. Section 229 refers to recovery of tax erroneously or illegally collected. The decision of the CIR
is appealable to the CTA sitting in division within 30 days after the receipt but must be within
the 2-year period from payment or filing of the final adjusted return. Thus, if the
Commissioner denies the claim for refund within the 2-year period, the remedy is to file an
appeal with the CTA 30 days from the receipt of such denial. But, such 30-day period must
also be within the 2-year period. For example, if there are only 10 days left within such 2-
year period, then, the taxpayer has only 10 days within which to appeal his claim. However, if
there is an inaction on the part of the Commissioner and the 2-year period is about to lapse,
the remedy is to file an appeal also with the CTA.
2. Section 112 refers to refunds or tax credits of input tax. It is only the administrative claim
that must be filed within the two-year prescriptive period; the judicial claim need not fall within
the two-year prescriptive period. If he files his claim on the last day of the two year prescriptive
period, his claim is still filed on time. The Commissioner will then have 120 days from such filing
to decide the claim. If the Commissioner decides the claim on the 120th day or does not decide
it on that day, the taxpayer still has 30 days to file his judicial claim with the CTA.

NOTE: Under Sec. 112, the 2-year prescriptive period applies only to the ADMINISTRATIVE
CLAIM BEFORE THE CIR AND NOT TO JUDICIAL CLAIM BEFORE THE CTA because the taxpayer
always has 30 days from the decision of the CIR or from the lapse of the 120-day period even
after the lapse of 2 years from the taxable quarter where the sales were made. (CIR v.
Mindanao Geothermal II Partnership, 713 SCRA 645, [2014])

Waiver of prescription in an action for refund

GR: The 2-year period is not jurisdictional. Therefore, if the government failed to plead
prescription in a motion to dismiss or as a defense in its answer to the petition for review, it is
deemed waived.
XPN: Taxpayer amends his petition for review alleging therein a new cause of action and the
government pleads prescription in his answer to the amended petition for
review.

OTHER CONSIDERATIONS AFFECTING TAX REFUND

Payment under protest is not a requirement

A suit or proceeding for tax refund may be maintained “whether or not such tax, penalty or
sum has been paid under protest or duress” (Sec. 204 [3], NIRC).
NOTE: The taxpayer’s willingness to pay the tax is no waiver to raise, defenses against the tax’s
legality (CIR v. Gonzales, G.R. No. L-19495, November 24, 1966).

Payment under protest required

It is necessary in claims for refund for real property taxes under Sec. 252, LGC and for customs
duties under Sec. 2308, TCC.

Rule on government’s liability for interests on tax refunds

GR: There can be no interest on refund of tax.

XPNs: 1. If interest is authorized by law.
2. Arbitrariness in the collection of tax.
3. Under Sec. 79C[2] with respect to income taxes withheld on the wages of the
employees.
NOTE: An action is not arbitrary when exercised honestly and upon due consideration where
there is room for two opinions, however much it may be believed that an erroneous conclusion
was reached. Arbitrariness presupposes inexcusable or obstinate disregard of legal
provisions (Philex Mining Corp. v. CIR, G.R. 120324, April 21, 1999).

Tax Refund or Tax Credit may be Forfeited to the Government

1. Tax Refund – When a refund check or warrant remains unclaimed or uncashed within 5 years
from date of mailing or delivery.
2. Tax Credit – a Tax Credit Certificate which remains unutilized after 5 years from date of issue,
shall be invalid. Unless revalidated (Sec. 230, NIRC).

NOTE: Those who claim for refund must not only prove its entitlement to the excess credits, but
likewise must prove that no carry over has been made in cases where refund is sought.
However, proving that no carry over has been made does not absolutely require the
presentation of the quarterly ITRs.
With Winebrenner Inigo Insurance Brokers, Inc. having complied with the requirements for
refund, and without the CIR showing contrary evidence other than its bare assertion of the
absence of the quarterly ITRs, copies of which are easily verifiable by its very own records, the
burden of proof of establishing the propriety of the claim for refund has been sufficiently
discharged. Hence, the grant of refund is proper (Winebrenner Iñigo Insurance Brokers, Inc. v.
Commissioner of Internal Revenue, G.R. No. 206526, January 28, 2015).