Imposition of deficiency and delinquency interest

The simultaneous imposition of deficiency interest and delinquency interest does not result in double imposition of penalties as the law clearly differentiates and authorizes the imposition of both interests.

Under Section 249(A) of the Tax Code, deficiency interest is authorized to be assessed on the deficiency tax due from the date prescribed for its payment until its full payment thereof. On the other hand, Section 249(C) of the Tax Code authorizes the imposition of delinquency interest in case of failure to pay deficiency tax from the due date appearing on the notice and demand of the BIR Commissioner until the amount is fully paid with the interest forming part of the tax.

The CTA defined the term “deficiency” as the amount still due and collectible from a taxpayer upon audit or investigation, whereas the term “delinquency” is defined as the failure of the taxpayer to pay the tax due on the date fixed by law or indicated in the assessment notice or letter of demand.

As further amplified by the CTA, deficiency interest is imposed on the amount short of the full tax due and should be paid to the government, which is the deficiency tax. On the other hand, the delinquency interest is imposed on failure to pay: (a) the amount of tax due on any return required to be filed; (b) the amount of tax due for which no return is required; or (c) deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner of Internal Revenue. In other words, the CTA held that deficiency interest is imposed for the shortage of taxes paid while delinquency interest is imposed for the delay in payment of taxes.

As to when the deficiency and delinquency interests legally accrue, the CTA explained that based on Section 249(B) and (C)(3) of the Tax Code, the deficiency interest on any deficiency tax shall be assessed from the date prescribed for its payment until the full payment thereof, while the assessment of the delinquency interest that is imposed upon failure to pay a deficiency tax, or any urcharge or interest thereon, shall be reckoned from the due date appearing in the notice and demand of the Commissioner of Internal Revenue until the amount is fully paid.

(Takenaka Corporation Philippine Branch v. Commissioner of Internal Revenue, CTA EB Case No. 745 re CTA Case No. 7701, September 4, 2012)

Tax Brief – October 2012

Punongbayan and Araullo