Establishing legal and factual bases of tax assessments

Under Section 228 of the Tax Code, a taxpayer must be informed in writing of the legal and factual bases of the tax assessment made against him. Otherwise, the assessment shall be considered void.

In the preliminary assessment notice (PAN) and Formal Assessment Notice (FAN) issued against the taxpayer, the BIR merely stated that per computerized matching conducted by the BIR, the taxpayer has undeclared importations as a result of comparing the Bureau of Customs (BOC) importation data and the VAT returns of the taxpayer.

The Court of Tax Appeals (CTA) held that the assessment notices issued against the taxpayer were not valid since they failed to state the legal and factual bases for the deficiency income tax and VAT arising from the alleged undeclared importation of the taxpayer. 

The CTA noted that the details in the assessment notices issued to the taxpayer are not sufficient to allow the taxpayer to intelligently answer the assessment as well as prepare the documentary evidence for its protest. Hence, it cancelled the deficiency VAT and income tax assessment arising from the alleged undeclared importation of the taxpayer.

(Commissioner of Internal Revenue v. BASF Philippines, Inc., CTA EB Case No. 872 re CTA Case No. 8128, September 12, 2013)

Tax Brief

Punongbayan and Araullo