RE Developers: Protecting the Environment with Tax Issues

Sadly, it is typhoon and habagat (monsoon) season again. It is usually at this season that our country suffers the brunt of some of the strongest typhoons to make landfall. Typhoons, according to the experts, are getting stronger as a result of climate change. Thus, in an effort to reduce the effects of climate change, renewable energy (RE) sources are highly encouraged by the government. Currently, RE sources available in the Philippines include hydro power, ocean energy, geothermal, wind, solar, and biomass, such as bagasse and palay husk.

  

More than six years from the issuance of the Renewable Energy Act of 2008 and its implementing rules and regulations (IRR), the Department of Energy (DoE) has already awarded a total of 664 renewable energy contracts, as of the end of April 2015. Some 240 contracts are still pending approval by the department.

Aside from the business potential of RE sources, most companies are also entering into RE development due to the fiscal/tax incentives available under the RE Law. Under the IRR of the said law, the Bureau of Internal Revenue (BIR) shall, in coordination with DoE, Department of Finance, Bureau of Customs, BOI and other concerned government agencies, promulgate revenue regulations governing the grant of fiscal incentives. Unfortunately, several years from the issuance of the IRR, the BIR has yet to issue the guidelines for the implementation of the tax incentives under said Act. Thus, with the rising number of RE contracts being awarded, the government must look into the long overdue revenue regulations implementing the fiscal incentives.

Among other things, implementation of the following tax incentives available to RE developer must be clarified in the said revenue regulations:

Income Tax Holiday (ITH) incentive on additional investment. Under the law, new investments in RE project shall be entitled to seven years ITH from start of commercial operation. Additional investment shall be entitled to not more than three times the period of initial availment. The ITH for additional investments in an existing RE project shall be applied only to the income attributable to the additional investment, which may or may not result in increased capacity.

Thus, the revenue regulations must provide the formula to compute that income attributable to the additional investment. For increased capacity, how should the base figure be computed? Is it based on the highest sales in the last three years, or just based on the last year’s capacity? For additional investments that do not result in increased capacity, how should the income attributable to that investment be computed? Should it be based on increase in net income?

Corporate Tax Rate of 10%. After the allowed period of availment of the ITH, the registered RE developer shall pay a corporate tax of 10% on its net taxable income, as defined in the National Internal Revenue Code (Tax Code) of 1997, as amended by Republic Act No. 9337. However, the said RE developer shall pass on the savings to end users in the form of lower power rates, pursuant to a technical study by the DoE.

Yet no results of any technical study to determine the extent of savings and how the pass-on mechanism would work has been presented by the DoE. Since there may be RE developers whose ITH incentive period has or shall already expire, mechanisms or guidelines on how to implement this incentive should already be in place. Among other things, the mechanism must provide the basis for the lower power rates. Should it be determined based on the current period’s rates? Or should it be based on previous period rates charged to end users?

Tax credit on domestic capital equipment and services related to the installation of equipment and machinery. Subject to certain conditions, a tax credit equivalent to 100% of the value of the value-added tax (VAT) and customs duties that would have been paid on imported RE machinery, equipment, materials, and parts shall be given to a registered RE developer who purchases these from a domestic manufacturer, fabricator or supplier.

As provided in the IRR, the BIR shall promulgate a revenue regulation governing the granting of tax credit on domestic capital equipment. But again, no issuance has been issued yet. Thus, issues on how and where the application shall be made -- can this be utilized against any tax due? -- among other things are not clear yet.

Zero-percent VAT on sales and purchases; duty free importation. Sale of fuel from RE sources or power generated from RE, as well as local purchases needed for the development, construction, and installation of the plant facilities of RE developers, shall be subject to 0% VAT. However, for importations, the law provides that importation of machinery and equipment, and materials and parts thereof, including control and communication equipment, shall be exempt only from tariff duties within the first 10 years from the issuance of a Certificate of Registration to an RE developer. The law does not provide VAT exemption for importation.

Thus, input tax from importations of RE machinery or equipment shall be an additional cost to the RE developer. Being attributable to zero-rated sales, such shall be available as tax credit or be applied for refund. However, with the current trend now on the applications for refund, RE developers must still weigh the cost and benefit of such an application.

These are just some of the issues that the issuance of the revenue regulations can very well address. To further tap the unending potential of renewable energy sources available in our country, our government must provide clear implementing revenue regulations on the availment of tax incentives. Having this in place shall mean protecting the environment and assuring our country of additional sources of energy.

Ma. Lourdes Politado-Aclan

Let’s Talk Tax

Punongbayan and Araullo

Should we abolish the estate tax?

A few days ago, I was invited to discuss estate taxes. One of the questions proferred by viewers was whether the Philippines should repeal estate taxes. The viewer probably thought that imposing estate tax on top of the various taxes that we as taxpayers have to shoulder is a huge an imposition on our overstretched budgets.

Considering that we have already paid 32% personal income tax and most probably 12% value-added tax in purchasing the property, deducting a further 20% in estate tax would increase the government’s cut on our hard-earned money to an unconscionable level.

What is estate tax and why do some countries such as the Philippines impose estate tax? Why are we being taxed upon death as if our death is a voluntary mode of transferring property? Aren’t we supposed to conserve our property so that we can pass on our legacy and the fruits of our labor to our progeny without the government confiscating a portion thereof?

Estate tax is not a tax on property. Rather, it is a tax on the privilege of the deceased person to transmit his estate to his heirs and beneficiaries at the time of death. It is imposed on the right of transmitting property upon the death of the owner.

The Philippines is not the only country that levies estate tax. We do not even impose the highest rates on estate tax. The US, UK, Japan, South Korea and France also impose estate taxes ranging from 40% to 55%. By way of contrast, 15 of the 34 member countries of the Organization of Economic Cooperation and Development do not impose estate or inheritance tax at all.

At present, our estate tax ranges from 0% to 20%. The highest rate is imposed on the value of the net taxable estate exceeding P10 million. If we trace the history of our estate tax, the 20% rate is actually a huge improvement. From July 28, 1992 up to December 31, 1997, the top rate was at 35% on any value exceeding P10 million, while from January 1, 1973 to July 27, 1992 the top rate was a whopping 60% on any value exceeding P3 million.

Proponents of the abolition of estate tax argue that estate tax retards economic development as it depletes capital particularly those used in business. Imagine inheriting a business worth P20 million with most of the assets in real property and equipment. In order to pay for the estate tax, there might emerge a need to liquidate or sell a portion of the business. This will negatively impact on the development or growth of the business, perhaps leading to decreased production and retrenchment.

Another argument in support of repealing estate tax is that it has a narrow tax base and huge administrative cost. Simply put, the costs do not justify the expected tax revenue. For example, in 2007, there were only 29,198 estate tax returns filed, producing P649.9 million worth of estate tax collections.

The Bureau of Internal Revenue (BIR) did not provide the total number of recorded deaths for the same year but noted that the recorded deaths in the National Statistics Office are 415,271 for 2005 and 389,081 for 2006. Basing on the lower number of total deaths, less than 10% of all estates filed the corresponding tax return.

Also, total number of estate tax returns amounted to 29,863 in 2008 and 26,811 in 2009 with total estate tax collections of P854.9 million and P876.8 million, respectively.

Various other countries have acknowledged the need to remove estate taxes. From 2000 to the present, 12 countries have repealed their estate taxes. More are probably on their way to abolishing this tax.

The Philippines appears to be a long way from having an estate tax-free system. The BIR is even increasing its efforts to run after estates which did not file estate returns and pay the correct taxes.

Maybe with elections coming up in 2016, we will have a new set of leaders who will see the value of abolishing estate tax. Until then, we can only hope that our leaders become enlightened.

Atty. Eleanor L. Roque

Let’s Talk Tax

Punongbayan and Araullo

Land I can call my own: Tax procedures for real property acquisition

One of the ultimate goals of Filipinos is to acquire real property. Whether it’s residential property, agricultural land, or commercial space, such acquisitions are treated as part of one’s legacy, which can be passed on to descendants.

One of the advantages of real property is that it generally appreciates over time. Accordingly, land has been the source of many of the country’s biggest fortunes. The first acquisition of real property is a momentous event for almost everyone, a marker of having attained a comfortable station in life.

There are various ways that will ripen to transferring real properties which include but not limted to sale, donation, inheritance, property swap or payment of debt. Whatever the mode it is, ownership is only secure when the transferee’s name is annotated in the Transfer Certificate of Title (TCT), Condominium Certificate of Title (CCT) or Original Certificate of Title (OCT).

With the real estate boom of recent years, many have jumped on the bandwagon and purchasing property of their own. It therefore comes as no surprise that many have fallen into the trap of purchasing real properties which they cannot register in their names, either because they have not secured a Certificate Authorizing Registration (CAR) or the title to the property is bogus.

In other words many still fail to observe the processes prescribed by law. Others exercise due diligence too late, when penalties have already piled up.

On April 17, 2015, the Bureau of Internal Revenue (BIR) circularized the Memorandum of Agreement (MoA) between the Department of Finance, the Department of Justice, the BIR and the Land Registration Authority (LRA) dated Sept. 25, 2013. The MoA aims to plug all loopholes to prevent tax leakage and to properly ensure that all taxes due to the government are collected before registration or transfer of real property is effected by the Register of Deeds (RD). With the MoA, the concerned agencies undertake to expedite the delivery of services to the public and simultaneously, promptly collect the tax due.

The MoA focuses on inter-agency linkages to achieve better monitoring and control over real property transactions. The BIR’s role in achieving the MoA’s goal is to issue CAR, furnish reports on CAR issued and generated online to the RDs for online automated verification as to authenticity by LRA, and receiving and matching electronic reports from LRA on the New Number generated for the newly issued TCT/CCT/OCT.

On the other hand LRA and the RDs are to provide linkage, comparing information relating to all Real Property Transfers against the CARs issued by the BIR. The LRA shall also ensure the development, implementation, and operation of the online automated verification of the CARs presented to the RD through its Land Titling Computerization Project (LTCP). LRA shall also ensure, through the LTCP, the development, implementation, and operation of an automated system that shall provide BIR with monthly electronic reports on new TCT/CCT/OCT, immediately upon their issuance and inclusion.

It is fairly well known that the transfer of a real property requires the issuance of a CAR to the transferor. However, with enhanced communications among agencies, a finding of tax deficiency remains possible even after the real property is registered with the RD under the name of the transferee. To avoid this problem, the transferor must comply with the CAR requirement of the BIR. The parties must know what taxes they will have to pay for.

For instance, in a sale transaction, the owner will be required to pay capital gains tax (CGT) pursuant to Section 24 (D) in the case of an individual seller or Section 27 (D)(5) in the case of a corporate seller. It must be noted that the BIR shall compute the CGT liability of the seller based on the selling price, the fair market value based on the BIR’s zonal valuation, or the assessed value based on the tax declaration of the Local Government Unit which has jurisdiction of the real property, whichever is highest. Moreover, the documentary stamp tax (DST) pursuant to Section 196 of the Tax Code must be paid by any of the parties that have agreed to bear the tax liability.

It is also important to note the deadline within which the CGT returns or DST returns should be filed to avoid the running of the interest of the tax due. The DST should be paid on or before the 5th day of the next succeeding month when the deed of sale is executed. On the other hand, the CGT on sale, exchange or disposition of real properties treated as capital assets (those that are not actually used in the business) shall be filed within 30 days following each sale, exchange or disposition. It shall be filed and the taxes due thereon be made to an authorized agent bank in the appropriate revenue district.

In addition, sellers who convey their real properties which are considered ordinary assets shall report the sale as part of their income and subject the same to value-added tax. The buyer on the other hand, is required to subject the payment to expanded withholding tax which shall be filed on or before the 10th day of the next succeeding month when the deed is executed, subject, however, to the specific rules prescribed by Revenue Regulations No. 2-98, as amended, and the rules prescribed in the eFPS regulations, in case the taxpayer is duly registered with the same. The returns shall also be filed in the appropriate revenue district.

In 2003, the BIR issued Revenue Memorandum Order No. 15-2003 (RMC 15-2003) prescribing policies, guidelines and procedures in the processing of One-Time Transactions and the issuance of CAR on various transactions which include transfer of real properties. Taxpayers must be aware of the checklist of documentary requirements on sale of real property subject to CGT, foreclosure sale of real property, sale of real property classified as real assets, sale of real property under the Community Mortgage Program, tax-exempt sale of principal residence, transfer subject to donor’s tax, transfer subject to estate tax, and sale of real property under Socialized Housing Program as Certified by the HLURB. The BIR is strictly implementing RMC 15-2003 and non-compliance entails non-issuance of the CAR.

After the issuance of the CAR, the buyer must use it within one (1) year, otherwise it is considered revoked and the buyer must apply for CAR again.

The MoA opens a lot of doors towards responsible transfer of properties. The rules and regulations have been there for a long time, but many choose to ignore it. By ignoring these requirements, transferees cannot be wholly secure in their ownership and penalties keep piling up over time. Transferees of real property must be vigilant that the transferor has done everything to comply with his tax and other obligations with the BIR.

While investing in real property promises a brighter future for the investor, doing it the right way should be a primordial consideration to avoid future complications, the resolution of which consume a lot of time, money and peace of mind. After all, buying a little piece of that earth requires that we expend some of the fruits of our labor earned over many years.

Eliezer P. Ambatali

Let’s Talk Tax

Punongbayan and Araullo

Inferno

"Sienna, slow down!" people would urge her. "You can't save the world!”

What a terrible thing to say.

Through her acts of public service, Sienna came in contact with several members of a local humanitarian group.  When they invited her to join them on a monthlong trip to the Philippines, she jumped at the chance.

Sienna imagined they were going to feed poor fishermen or farmers in the countryside, which she had read was a wonderland of geological beauty, with vibrant seabeds and dazzling plains. And so when the group settled in among the throngs in the city of Manila -- the most densely populated city on earth -- Sienna could only gape in horror. She had never seen poverty on this scale.

How can one person possibly make a difference?

For every one person Sienna fed, there were hundreds more who gazed at her with desolate eyes. Manila had six-hour traffic jams, suffocating pollution, and a horrifying sex trade, whose workers consisted primarily of young children, many of whom had been sold to pimps by parents who took solace in knowing that at least their children would be fed.

Amid this chaos of child prostitution, panhandlers, pickpockets, and worse, Sienna found herself suddenly paralyzed.  All around her, she could see humanity overrun by its primal instinct for survival.  When they face desperation . . . human beings become animals.

For Sienna, all the dark depression came flooding back.  She had suddenly understood mankind for what it was -- a species on the brink.

I was wrong, she thought. I can't save the world.

Overwhelmed by a rush of frantic mania, Sienna broke into a sprint through the city streets, thrusting her way through the masses of people, knocking them over, pressing on, searching for open space.

I'm being suffocated by human flesh!

As she ran, she could feel the eyes upon her again.  She no longer blended in.  She was tall and fair-skinned with a blond ponytail waving behind her. Men stared at her as if she were naked.

When her legs finally gave out, she had no idea how far she had run or where she had gone.  She cleared the tears and grime from her eyes and saw that she was standing in a kind of shantytown -- a city made of pieces of corrugated metal and cardboard propped up and held together.  All around her the wails of crying babies and the stench of human excrement hung in the air.

I've run through the gates of hell?

"Turista," a deep voice sneered behind her. "Magkano?" How much?

Sienna spun to see three young men approaching, salivating like wolves.  She instantly know shw was in danger and she tried to back away, but they corraled her, like predators hunting in a pack.

Sienna shouted for help, but nobody paid attention to her cries.  Only fifteen feet away, she saw an old woman sitting on a tire, carving the rot off an old onion with a rusty knife.  The woman did not even glance up when Sienna shouted.

When the men seized her and dragged her inside a little shack, Sienna had no illusions about what was going to happen, and the terror was all-consuming.  She fought with everything she had, but they were strong, quickly pinning her down on an old, soiled mattress.

They tore open her shirt, clawing at her soft skin.  When she screamed, they stuffed her torn shirt to deep into her mouth that she thought she would choke.  Then they flipped her onto her stomach, forcing her face into the putrid bed.

Sienna Brooks had always felt pity for the ignorant sould who could believe in God amid a world of such suffering, and yet now she herself was praying . .  . praying with all her heart.

Please, God, deliver me from evil.

Even as she prayed, she could hear the men laughing, taunting her as their filty hands hauled her jeans down over her flailing legs.  One of them climbed onto her back, sweaty and heavy, his perspiration dripping onto her skin.

I'm a virgin, Sienna thought.  This is how it is going to happen to me.

Suddenly the man on her back leaped off her, and the taunting jeers turned into shouts of anger and fear.

The warm sweat rolling unto Sienna's back form above suddenly began gushing . . . spilling onto the mattress in splatters of red.

When Sienna rolled over to see what was happening, she saw the old woman with the half-peeled onion and the rusty now standing over her attacker, who was now bleeding profusely from his back.

The old woman glared threateningly at the others, whipping her bloody knife through the air until the three men scampered off.

Without a word, the old woman helped Sienna gather her clothes and get dressed.

"Salamat," Sienna whispered tearfully. "Thank you."

The old woman tapped her ear, indicating she was deaf.

Sienna placed her palms together, closed her eyes and bowed her head in a gesture of respect. Whe she opened her eyes, the woman was gone.

Sienna left the Philippines at once, without even saying good-bye to the other members of the group.

Inferno

 Dan Brown

pages 465 to 468.

Imposition of penalties for failure to file returns under electronic systems of the BIR by taxpayers covered by eFPS and eBIRForms

The BIR clarified the coverage of non-eFPS filers who shall mandatorily use the or Electronic Bureau of Internal Revenue Forms (eBIRForms) facility by electronically submitting and filing all tax returns for certain taxpayers. 

According to the RR No. 5-2015, filing electronically shall be mandatory only for accredited tax agents (ATAs), practitioners and all its client-taxpayers, accredited printers of principal and supplementary receipts and invoices, one-time transaction (ONETT) taxpayers, those filing no-payment returns, government corporations, local government units and cooperatives.

Covered taxpayers are also required to print the system-generated Filing Reference (FRN) page, upon successful validation of the tax returns, and submit to the Authorized Agent Banks for the payment of the taxes due thereon.

It may be recalled that the detailed procedures of the online account enrolment for the use of the online eBIRForms system was provided in Revenue Memorandum Order No. (RMO) 24-2013.

The BIR, on a separate announcement, also reminded the following taxpayers mandated to enrol, file, and pay tax returns EARLY using the Electronic Filing and Payment System (eFPS):

·  Taxpayer Account Management Program (TAMP) Taxpayers;

·   Accredited Importer and Prospective Importer required to secure the BIR-ICC and BIR-BCC;

·   National Government Agencies (NGAs);

·   All Licensed Local Contractors;

·   Enterprise Enjoying Fiscal Incentives (PEZA,BOI, Various Zone Authorities);

·   Top 5,000 Individual Taxpayers;

·   Corporations with Paid-up Capital Stock of P10 Million and above;

·   Corporations with complete computerized system;

·   Procuring Government Agencies with respect to Withholding of VAT and Percentage Taxes;

·   Government Bidders;

·   Large Taxpayers; and

·   Top 20,000 private corporations

It should be noted that the failure to file tax returns using eFPS or eBIRForms shall be subject to the imposition of a penalty of One Thousand Pesos (P1,000) per return. Additionally, for failure to file a tax return in a manner not in compliance with existing regulations tantamount to wrong venue filing pursuant to Section 248 (A)(2) of the NIRC shall incur civil penalty of 25% of the tax due to be paid.

Revenue Regulations No. 5-2015

Tax Alerts

Punongbayan and Araullo

The need to adjust taxation on individuals

THERE IS no question that everyone welcomes payday, which is when all of us are sure to have at least some resources to pay for our needs and desires. What isn’t often realized is that the government has paydays of its own, in the form of tax collections. It is these funds that pay for public goods and services which, in theory, help improve the people’s quality of life.

   

Pursuing this line of thinking brings us to conclude that higher taxes ought to mean a better standard of living. A government that asks for more taxes must deliver on an implied promise of more infrastructure, better health care services, increased education and R&D funding, among other things. Otherwise, there would be little or no return for the public. The other side of this argument is that a government collecting fewer taxes would leave the public free to spend for its needs and desires as it sees fit.

For some of us, the key to progress and economic growth lies in enhancing the government’s ability to raise revenue. But lowering income taxes on individuals does not necessary mean a country cannot grow. The counter-argument has always been that when individuals are taxed less and left with more resources to spend, a large share of these additional resources will find their way to corporations, which will pay more taxes to the government -- a win-win scenario for everyone involved.

Against this backdrop, let us examine the recent expansion of the tax exemption for bonuses and other benefits.

On Jan. 5, the Bureau of Internal Revenue released Revenue Regulation No. 1-2015, expanding the list of tax-exempt benefits to include those received via collective bargaining agreements, as well as productivity incentive schemes to the extent of P10,000 per employee per taxable year.

On Feb. 12, President Benigno S. C Aquino III signed into law Republic Act No. 10653, which increased the ceiling on tax-exempt 13th month pay and other benefits to P82,000 from P30,000. The new law also mandates that the President adjust this threshold every three years to its present value using the consumer price index as published by the National Statistics Office.

The expanded exemptions may only be felt by those receiving 13th month pay and other bonuses of more than P30,000 a year. How about low- and middle-income earners? Does the government intend to take away a bit of the tax burden from them as well?

Our tax system should be progressive. The poor and the middle class should never be taxed at the same level as the upper class. Unfortunately, our tax rates have remained stagnant for decades, distorting the lines between the poor, the middle class and the wealthy. The result is that an ordinary worker, who earns more than P500,000 annually, pays the same 32% personal rate as that paid by a company president.

The good news is that our lawmakers are now addressing these distortions. Bills pending in both houses of Congress would reduce the income tax burdens on individuals. Some bills aim to increase personal and other exemptions, while others aim to adjust income tax brackets and reduce the rates for individual taxpayers.

My hope that enough time remains to pass these into law, considering that the 2016 elections are fast approaching.

Meanwhile, Republic Act 9504, which took effect in 2008, increased the personal exemption to P50,000 and the additional exemptions to P25,000 for each qualified dependent up to a maximum of four. For almost seven years, however, the exemption amounts have not been adjusted. Since personal exemptions are meant to aid individuals in meeting their living expenses, I believe that personal exemptions and additional exemptions should also be adjusted -- to take into account inflation.

Another bill pending with th e legislature seeks to amend the tax brackets and reducing the rates on individuals. This bill was drafted as a measure to discourage migration of our own workforce and to attract human capital by the time of implementation of the Association of South East Asian Nations (ASEAN) Economic Community (AEC). The AEC has the goal of regional economic integration starting Dec. 31, 2015. One of the objectives of the integration is to create a single market and production base through the free movement of goods, services, investment and skilled labor in the region.

Next to Thailand and Vietnam, the Philippines has the highest top tax rate at 32%. When the AEC Declaration was signed in 2007, some member-states started to gradually lower their corporate and individual income tax rates.

If ASEAN Integration goes through this year, the Philippines must brace for competition from other ASEAN nations. One of the implications is that the workforce may move elsewhere to seek a better quality of life, making it critical for the government to address the problem of improving local conditions. Currently, the government is still working on improving services, but my hope is that it gives its citizens the freedom to help themselves -- by enacting fair and equitable tax laws.

Donna Flor V. Lipat

Let’s Talk Tax

Punongbayan and Araullo

What makes or breaks a tax case

ANYONE who likes mainstream pop music knows that the chorus often makes the song. The chorus is the high point, with the most unforgettable lines and the catchiest beat. A song may or may not have a third or a fourth verse or even a coda. But a chorus is a must.

Having been in the tax practice for several years, I have come to observe that tax cases with the Bureau of Internal Revenue (BIR) often follow the pattern of songs. Like songs with lines and verses, each relating to its message, a tax investigation has several parts, and when taken as a whole, the exercise is aimed at determining whether the taxpayer has unpaid taxes and whether the government has the right to assess and collect the same.

First, an investigation takes place where tax issues are identified and addressed. The taxpayer and the BIR examiners go through the process of discussing the tax treatment of income and expenses, discussing laws and jurisprudence, reconciling tax discrepancies and submitting supporting documents. In every stage of the tax investigation, the substantive and procedural due process rules must come into play: the BIR is required to send a Preliminary Notice Assessment, to which a taxpayer is given 15 days to reply and submit documents; in case of a disagreement as to the taxes assessed, the BIR shall send a Final Letter of Demand (FLD) or a Final Assessment Notice (FAN) within the three (3) -year period prescribed for the assessment of taxes. 

The taxpayer must contest the FLD or FAN in a timely manner by filing a request for reconsideration or a request for reinvestigation; otherwise, tax assessments become final and executory. The BIR may or may not act on the protest by issuing a Final Decision on Disputed Assessment (FDDA), and the taxpayer may or may elevate the case to the Court of Tax Appeals (CTA).

Where it is established that the BIR duly served a FLD or FAN, what makes or breaks the tax case is the filing or non-filing of the protest letter. The filing of the protest to the FLD or FAN is the most crucial remedy in the pursuit of a taxpayer’s defense. In countless cases decided by the courts, the validity of the tax assessments were upheld not because the government had a basis to assess and collect the taxes, but because the taxpayer failed to dispute the assessment and collection of the taxes within the period and by the manner prescribed by law.

Section 228 of the National Internal Revenue Code (NIRC) of 1997 provides that the tax assessment may be protested by filing a request for reconsideration or reinvestigation within 30 days from receipt of the assessment, and within 60 days from the filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. In a recent decision, the CTA held that the tax assessment does not become final and executory although the taxpayer chose to submit the protest without supporting documents, since the lack of documentation will only matter when the BIR evaluates the merits of the said protest (CTA Case No. 8185, Third Division, December 3, 2014).

The filing of the protest letter should not only be made; it must also be clearly established. Last week, the CTA dismissed an appeal filed by a taxpayer on the final decision of the BIR, citing lack of jurisdiction. In this case, the facts show that the BIR issued a FAN against the taxpayer, and later, a FDDA. The petitioner filed an appeal on the FDDA with the Commissioner of Internal Revenue. The CTA held that although the petitioner made allegations that it filed a protest letter, no proof was presented. For having failed to file a protest to the FAN within the given period, the FAN attained finality (CTA Case No. 8891, Third Division, February 2, 2015).

Under Revenue Regulation (RR) No. 18-2013, which implements Section 228 of the NIRC, the protest letter should now indicate the nature of the protest, i.e., request for reconsideration or request for reinvestigation, specifying the newly discovered evidence to be presented in case of reinvestigation, the date of the assessment notice, the applicable laws, rules and regulations, and jurisprudence on which the protest is based; otherwise, the protest shall be considered void and without force and effect. The additional requirements laid down in RR No. 18-2013 only highlight how important the exercise of this remedy is.

The two cases and the new regulation cited above illustrate how the filing (and non-filing) of the protest letter can make or break the tax case.

To relate all of these to our song analogy, I would say the protest letter is definitely the chorus. A bad chorus can still make for an enjoyable song, although its ultimate meaning may be difficult to understand. On the other hand, a song without a chorus may have no point at all.

Jean Ross Abenasa-Miso

Let’s Talk Tax

Punongbayan and Araullo