Pacquaio's defense

WHEN an assessment has become final and executory, what can the taxpayer do?

A taxpayer is given ample time to protest the tax assessment made by the Bureau of Internal Revenue (BIR) for any taxable year. In fact, a typical assessment -- from issuance of letter of authority to the final assessment notice (FAN) -- lasts at least six months and involves several correspondences between the taxpayer and the tax examiner. However, when the assessments made by the BIR are duly received by the taxpayer, but the taxpayer fails to file its protest within the prescribed period, the said assessment will become final and executory, and will be subject to collection.

Based on news articles, this seems to be where the tax case of boxing legend Manny Pacquiao is.

When the assessment has become final and executory, any taxpayer who finds himself in the same situation as Pacquiao has the option to pay the full amount, which includes the basic tax plus increments, or apply for compromise settlement, or altogether refuse to pay the assessed tax.

The first option -- pay the final assessed tax and increments -- includes the basic tax, interest of 20%, surcharges of 25%-20% and penalties, if any. This may not be a practical option for Pacquiao since he can provide the documents required by the BIR to prove his payments made in the US through Top Rank. Further, any income made in the Philippines will still be subject to deductibles, subject to proper documentations. Therefore, the assessment made by the BIR may be minimized to a few millions, if not a few hundred thousand pesos.

As to the second option, compromise is when the taxpayer and the BIR enter into an agreement by making reciprocal concessions to avoid litigation or to put an end to one that has already commenced. One of the grounds that can be subject to a compromise, under Revenue Regulations No. (RR) 30-02, as amended by RR 08-04 and RR 09-13, is when there is failure to file a request for reinvestigation or reconsideration within 30 days from issuance of FAN, and there is reason to believe that the assessment is lacking in legal and/or factual basis. A compromise offer must be paid by the taxpayer upon filing of application for the compromise settlement.

In Pacquiao’s case, should his tax consultants find that the factual basis of the alleged deficient tax liability can be weakened by evidence showing payment of taxes, such as authenticated or original documents coming from the Internal Revenue Service (IRS), then they can opt to offer a compromise settlement with the BIR. If the BIR accepts the compromise settlement, the amount that Pacquiao is required to pay will be reduced to at least 40% of the basic tax assessed. It must be noted that the full amount can no longer be cancelled, mainly because the assessment has become final and executory without any protest filed by Pacquiao. However, a smaller amount may be allowed, subject to the approval of the National Evaluation Board, which shall be composed of the commissioner of Internal Revenue and the four deputy commissioners of the BIR.

Technical knock-out is Pacquiao’s worst enemy in this match. Prudence teaches us that a taxpayer must be diligent and responsible in his or her tax responsibilities. And any negligence is but the accountability of the taxpayer himself or herself, and not his or her accountants or lawyers -- a principle upheld in the Kintanar case (People v. Gloria Kintanar [CTA EB Crim. No. 006, Dec. 3, 2010] was sustained by the Supreme Court (SC) in 2012).

Some would ask, why put Pacquiao in the hot seat when he acquired all his income through hard work, persistence and legal means? A simple answer is this: he is not a special case. Other taxpayers who failed to file their protest within the prescribed period also earned their income in an honest and diligent manner. If Pacquiao is given special consideration, then this should likewise be extended to other taxpayers in a similar situation.

Pacquiao's tax situation has happened before and will happen again. It just so happens that the issuance of the warrant of garnishment was served after the devastation of typhoon Yolanda, when we lost several kababayans, and after the success of Pacquiao in his fight against Brandon Rios. The timing is unfortunate, but the tax consequences should be expected because the process has been in place for some time now.

Dura lex sed lex. The law may be harsh, but that is the law.

Maridelle N. Ramos

Let’s Talk Tax

Punongbayan and Araullo