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TAX ADMINISTRATION

Handout No. 1-02 A.G. DULAY

PART I: CONCEPT OF TAX ADMINISTRATION

A. DEFINITION OF TAX ADMINISTRATION


A system involving the assessment, collection and enforcement of taxes, including the
execution of judgment in all tax cases decided in favor of the BIR by the courts.

B. TAX ADMINISTRATIVE AGENCIES

Department of Finance (DOF) main responsible for the fiscal policies and general
management of the Philippine Governments financial resources.

It has executive supervision and control over the following government agencies:

1. Bureau of Internal Revenue (BIR)


2. Bureau of Customs (BOC)
3. Land Transportation Office (LTO)
4. Duly and lawfully authorized collectors (ex. Authorized Agent Banks or AABs)
5. Local offices in charge to enforce local taxation
a. Provincial, City, Municipal and Barangay Treasurers
b. Provincial and City Assessors
c. Provincial and City Board of Assessment Appeals
d. Central Board of Assessment Appeals

C. OTHER TAX ENFORCERS


1. The Secretary of the Department of Justice (DOJ)
2. Various offices that indirectly provide assistance in the collection of taxed, such as:
a. The Courts
b. Register of Deeds
c. The Secretary of the Department of Public Works and Highways (DPWH)
d. Philippine Economic Zone Authority (PEZA)
e. Board of Investments (BOI)
f. City Fiscals
g. Notary Public
3. The head of the appropriate government office and its subordinates, with respect To
the collection of energy tax
4. Banks duly accredited by the BIR Commissioner with respect to receipt of payments of
internal revenue taxes
5. Withholding agents

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Handout No. 1-02 A.G. DULAY

PART II: THE BUREAU OF INTERNAL REVENUE (BIR)

~> The BIR is principally tasked with the enforcement of the National Internal Revenue Code
(NIRC).

A. BIR OFFICERS
1. The Commissioner
2. Deputy Commissioners - a total of six who are tasked to head the following groups:
a. Operations Group
b. Legal and Enforcement
c. Information Systems Group
d. Resource Management Group
e. Tax Reform and Administration Group
f. Special Concerns Group
3. Revenue Regional Director
4. Revenue District Officer
5. Revenue Examiners and Officers
6. Division Chiefs
7. BIR Collection Agents

B. POWER AND DUTIES OF THE BIR


1. Assessment and collection of all national internal revenue taxes, fees and charges
2. Enforcement of all forfeitures, penalties and fines connected therewith
3. Execution of judgment in all cases decided in its favor by the Court of Tax Appeals
(CTA) and ordinary courts
4. Give effect to and administer the supervisory and police power conferred to it by the
NIRC or other laws

C. POWERS AND AUTHORITY OF THE BIR COMMISSIONER


1. Interpret tax laws
2. Decide disputed tax assessments
3. Summon, and obtain information or testimony of persons
4. Make assessments and prescribe additional tax requirements
5. Compromise, abate and refund or credit taxes
6. Suspend the business operations of a taxpayer
7. Delegate powers

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TAX ADMINISTRATION
Handout No. 1-02 A.G. DULAY

PART III: ADMINISTRATIVE PROVISIONS

The following are the requirements for compliance by a taxpayer engaged in a business, as
the case may be, as laid down in the Tax Code or NIRC:

A. REGISTRATION

Important Points:
1. A person subject to ANY internal revenue tax shall register once with the appropriate
revenue office [could be the revenue office (a) where the taxpayer resides or (b) work
or (3) where the business of the taxpayer is located].
2. Any person (natural or juridical) who is required to file a tax return, statement or
document with the BIR shall be registered and assigned with a Taxpayer Identification
Number (TIN).
3. Only ONE (1) TIN shall be assigned to a taxpayer. Otherwise, having more than one TIN
will result to a criminal liability under the Tax Code.

Exceptions:
a. Foreign Currency Deposit Unit (FCDU) of a local or foreign bank in the Philippines
b. Estate of a deceased person

Registration Period:
1. Within ten (10) days from the date of employment;
2. On or before the commencement of the business;
3. Before payment of any tax due; or
4. Upon filing of a return, statement or declaration as required under the Tax Code.

**********************************************
Annual Registration Fee = P 500.00
(for every separate or distinct establishment or place of business where sales transactions occur)
**********************************************
1. This fee shall be paid:
a. upon registration; and
b. every year thereafter on or before January 31 (amount may vary depending on the
gross receipts of the taxpayer for the last taxable year)

2. The following are exempted to pay the annual registration fee:


a. Cooperatives
b. Individuals earning purely compensation income
c. Overseas Filipino Workers (OFWs)

BIR Forms:
1. BIR Form No. 1901 for self-employed, mixed income individuals, estates and trusts
2. BIR Form No. 1902 for individuals earning purely compensation income
3. BIR Form No. 1903 for corporation and partnerships
4. BIR Form No. 1904 for one-time taxpayer and persons registering under Executive
Order (E.O.) No. 98 (securing TIN to be able to transact with any government agencies)

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TAX ADMINISTRATION
Handout No. 1-02 A.G. DULAY

5. BIR Form No. 1905 for updating or cancellation of registration, cancellation of TIN
and new copy of certificate of registration

B. REQUIREMENTS FOR CONTINUANCE OF BUSINESS OF A DECEASED PERSON

Rules:
1. No additional tax payment shall be required for the remaining period within which the
tax was paid.
2. The person who will continue the business should submit inventories of goods or stocks
to the BIR within 30 days from the death of the decedent.
3. The same requirements in no. 1 and 2 above will apply in case of transfer of ownership
or change of name of the business establishment.

C. REQUIREMENTS FOR THE TRANSFER OF PLACE OF BUSINESS

Rules:
1. It shall be the taxpayers duty to update his registration status by filling an application
for registration information update.
2. The transfer of registration requires no additional registration fee to be paid by the
taxpayer.
3. Before the transfer, the taxpayer must secure the necessary tax clearance from the
Revenue District Office (RDO) where the head office or branch is presently registered.

D. PRINTING OF RECEIPTS, SALES OR COMMERCIAL INVOICES

Rules:
1. Official Receipt for sales of services
2. Invoice for sales of goods

Requirements:
1. Authority to Print (ATP) (BIR Form No. 1906) shall be secured from the BIR.
2. The printed receipts or invoice should:
a. Be serially numbered;
b. Contain the name, business style, TIN and business address of the person or entity
who will use such receipts or invoices; and
c. Contain information that may be required by rules and regulations to be
promulgated by the Secretary of Finance, upon recommendation of the BIR
Commissioner.

E. ISSUANCE OF RECEIPTS, SALES OR COMMERCIAL INVOICES

Rules:
1. Time for issuance of receipts or invoices = time when transaction is effected
2. Value of merchandise sold or service rendered = P25.00 or more
receipt or invoice is required

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Handout No. 1-02 A.G. DULAY

3. When receipt or invoice is NOT required:


a. Value of merchandise sold or service rendered is less than P25.00
b. If exempted by the BIR Commissioner in meritorious cases

4. When receipt or invoice must be issued regardless of the amount:


a. Payments for rentals, commissions, compensation or fees
b. Sale is made by a person liable to VAT to another person also liable to VAT

(in the two cases above, the receipt or invoice should indicate the name, business (if
any), and address of the purchaser/customer/client)

5. The original receipt or invoice shall be issued to the customer and the seller shall keep
the duplicate in his place of business for ten years.
6. Both the seller and customer should keep his copy of receipts or invoices for a period
of ten years in his place of business from the close of the taxable year in which such
document was made.

VAT-registered versus Non-VAT registered business:

VAT-registered with gross sales or receipts of more than P1,919,500/yr.


- issues VAT official receipt or sales invoice

Non-VAT registered with gross sales or receipts of P1,919,500/yr. and below


- issues official receipt or sales invoice

F. CERTIFICATE OF PAYMENT

Rules:
1. The certificate of payment including the receipts supporting the payment of taxes
made (e.g. annual registration fee) shall be kept in plain view where the business is
conducted.
2. In case of a peddler or other persons not having a fixed place of business, the same
shall be kept in the possession of the holder thereof, and shall be presented upon
demand of any internal revenue officer.

G. THE TAX RETURN


Tax return refers to a formal report prepared by the taxpayer or his agent in a
prescribed form showing an enumeration of taxable amounts and description of taxable
transactions, allowable deductions, amount of tax and tax payable to the government.

Examples of Income Tax Returns (ITR):


1. BIR Form No. 1700 version June 2013 Annual ITR for Individuals Earning Purely
Compensation Income)
2. BIR Form No. 1701 version June 2013 Annual ITR for Self Employed Individuals,
Estates and Trusts)
3. BIR Form No. 1701Q version July 2008 Quarterly ITR for Self-Employed Individuals,
Estates and Trusts

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TAX ADMINISTRATION
Handout No. 1-02 A.G. DULAY

4. BIR Form No. 1702-RT version June 2013 Annual ITR for Corporations, Partnerships
and Other Non-Individual Taxpayers Subject Only to the REGULAR Income Tax Rate
5. BIR Form No. 1702-EX version June 2013 - Annual ITR for use only by Corporations,
Partnerships and Other Non-lndividual Taxpayers EXEMPT Under the Tax Code, as
amended, [Sec. 30 and those exempted in Sec. 27(C)] and Other Special Laws, with NO
Other Taxable Income
6. BIR Form No. 1702-MX version June 2013 - Annual ITR for Corporations, Partnerships
and Other Non-individuals with Mixed Income Subject to MULTIPLE Income Tax Rates
or with Income Subject to Special/Preferential Rate
7. BIR Form No. 1702Q version July 2008 Quarterly ITR for Corporations, Partnerships
and Other Non-Individual Taxpayers

Deadline of Filing and Payment of the ITR:

General Rule: Pay as you file

Quarterly Annual
Compensation (Individual Taxpayer)
Filing Deadline on or before April 15 of the
Payment Deadline succeeding year

Business/Profession (Individual Taxpayer)


Filing Deadline Within 15 days from the close of the on or before April 15 of the
taxable quarter, whether calendar or succeeding year
Payment Deadline fiscal year

Corporate Taxpayers
Within 60 days from the close of the On or before the 15th day of April, or
Filing Deadline
taxable quarter, whether calendar or on or before the 15th day of the 4th
fiscal year month following the close of the fiscal
Payment Deadline
year, as the case may be

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TAX ADMINISTRATION
Handout No. 1-02 A.G. DULAY

PART IV: TAX REMEDIES (IN GENERAL)

A. DEFINITION OF TAX REMEDIES


Tax remedies are procedures or actions available both to the:
a. Government to collect taxes (as provided by the lifeblood doctrine)
Examples:
1. Tax Assessment
2. Compromise
3. Tax Lien
4. Levy on Real Property
5. Distraint on Personal Property

b. Taxpayer to avoid abuses in the payment of taxes (as provided by the due
process of law)
Examples:
1. Dispute to a tax assessment
2. Compromise
3. Tax refund
4. Amendment of tax returns

B. THE TAX ASSESSMENT

General Assumption: Internal revenue taxes are self-assessing.


>> Why? The taxpayer is required to pay his taxes even without the governments
assessment.

1. DEFINITION
Tax assessment is a formal letter made by the BIR demanding the taxpayer to settle
his tax liabilities within the specified period.

NOTE: Tax assessments are presumed to be correct and made in good faith.

2. FORMS AS USED IN THE TAX CODE


a. Determining the correctness of the tax due in accordance with the prevailing tax
laws;
b. Giving a written notice of the finding to the taxpayer; and
c. Issuing a demand for the payment of tax liability or tax deficiency within a specified
period.

3. WHO MAKES THE ASSESSMENT

The following may authorize the examination of ANY taxpayer and the assessment of
the correct amount of taxes:

a. The BIR Commissioner; or


b. His duly authorized representatives

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NOTE: Failure on the part of the taxpayer to file a return shall not prevent the
Commissioner from authorizing the examination of any taxpayer.

4. KINDS OF TAX ASSESSMENT


a. Self-assessment an assessment made by taxpayer himself

b. Prospective assessment or pre-assessment notice or PAN an assessment which


informs the taxpayer about the findings by the tax examiner about the taxpayers
deficiency tax/es

c. Deficiency assessment an assessment made by a tax assessor showing the


correct amount of tax after the tax audit

d. Jeopardy assessment an assessment without the benefit of complete or partial


tax audit intended to prevent the delay of the assessment and collection of taxes
because the taxpayer failed to comply with the tax investigation requirements and
to substantiate his records with proper documents

e. Disputed assessment an assessment that is being questioned by the taxpayer as


to its validity and legality

f. Final Assessment an official assessment which was not disputed or appealed by


the taxpayer within the prescribed period and has become final and executory

g. Illegal or Void assessment an assessment made by a tax examiner without


authority or against the tax law

5. WHEN TO ASSESS

The BIR could make tax assessments on the following cases:


a. Before a tax return is filed
a1. After the prescription period expired; or
a2. If the taxpayer intends to leave the country, close his business, hide his
property or perform any act which will intend to obstruct the proceeding in the
collection of the tax (Jeopardy Assessment)
b. After a fraudulent tax return is uncovered

6. PERIOD OF ASSESSMENT
This refers to the span of time allowed by law to the BIR to investigate a taxpayers
tax discrepancy to enforce collection of taxes.

NOTE: If the BIR has not assessed or collected within the assessment period, its right to
act has expired and therefore, the taxpayer is deemed to have paid the correct
amount of tax.

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Summary of Prescriptive Periods:

Violation Assessment Period Collection Period


Simple Neglect within 3 years from the date of filing of within 3 years from assessment
(filed return was not false or return or from the last day required by
fraudulent) law for filing, if the return was filed
before such last day

Willful Neglect within 10 years after the discovery of within 3 years from assessment
(filed return was false or the falsity, fraud or omission
fraudulent)

7. THE ASSESSMENT PROCESS

Taxpayer files the tax return (self-assessment)

BIR performs audit of the taxpayer's books and records

Issuance of Preliminary Assessment Notice (PAN) to the taxpayer

Taxpayer needs to respond within 15 days from the date of receipt of the PAN

If taxpayer responded
If taxpayer failed to respond -->
considered in default
Agree Does not agree

A Formal Letter of Demand and


Payment and collection of FLD/FAN shall be issued Final Assessment Notice
deficiency taxes, plus penalties within 15 days from (FLD/FAN) shall be issued
filing/submission of the
taxpayers response
Payment and collection of
deficiency taxes, plus penalties
The taxpayer may protest*
within 30 days from the date
of receipt of FLD/FAN
If protest is not acted upon by the Commissioners
duly authorized representative
Failed to file a valid protest If protest is denied a. within 180 days from the date of filing of protest
(reconsideration); or
b. from the date of submission of additional
documents within 60 days from the date of filing
Assessment becomes final and Either: the protest (reinvestigation)
demandable a. Appeal to the CTA within 30
days from the date of receipt
of the decision; or
b. Elevate the protest through
Either:
request for reconsideration to
a. Appeal to the CTA within 30 days after the
the Commissioner within 30
expiration of the 180-day period; or
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b. Await the Final Decision on a Disputed
of the decision.
Assessment (FDDA) from the Commissioners
duly authorized representative on the disputed
assessment.
TAX ADMINISTRATION
Handout No. 1-02 A.G. DULAY

*Types of Protest:
a. Reconsideration
refers to a plea of re-evaluation of an assessment on the basis of existing
records without need of additional evidence. It may involve a question of fact or
of law or both.

~ For motion for reconsideration, the decision of the BIR will be based only on
documents already submitted to the BIR prior to the issuance of FAN and no new
evidence will be accepted.

b. Reinvestigation
refers to a plea of re-evaluation of an assessment on the basis of newly
discovered evidence that a taxpayer intends to present in the reinvestigation. It
may also involve a question of fact or of law or both.

~ For motion for reinvestigation, the taxpayer is required to submit all relevant and
additional supporting documents within 60 days from filing of protest.

When PAN is not required:


a. 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; or
b. When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or
c. 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; or
d. When the excise tax due on excisable articles has not been paid; or
e. 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.

In the above-cited cases, a FLD/FAN shall be issued outright. (RR No. 18-2013)

NOTE: The Notice of Informal Conference was already removed in the tax assessment
process as per Revenue Regulations (RR) No. 18-2013, as clarified by Revenue
Memorandum Circular (RMC) No. 11-2014.

8. REQUISITES OF A VALID ASSESSMENT


a. The tax official and the taxpayer have no agreement made during the pre-
assessment stage;
b. The tax assessment must be in writing; and
c. The tax assessment must state the facts, law, rules and regulations or
jurisprudence in which the assessment is made, otherwise, it is considered null and
void.

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PART V: TAX REMEDIES OF THE GOVERNMENT

A. TYPES OF REMEDIES
1. Summary Proceedings or Administrative Remedies
a. Distraint of personal property
b. Levy on real property
c. Other administrative collection remedies

2. Judicial Proceedings or Judicial Remedies


a. Civil action
b. Criminal action

Important Notes:
a. Either of the summary or judicial or both simultaneously may be pursued in the
discretion of the authorities charged with the collection of such taxes.
b. The remedies of distraint and levy shall not be availed of where the amount of tax
involved is not more than P100.00.
c. The judgment in the criminal case shall not only impose the penalty but shall also order
payment of such taxes which are the subject of the criminal cases as finally decided by
the BIR Commissioner.

B. DISTRAINT OF PERSONAL PROPERTY


The confiscation of the taxpayers personal property (whether tangible or intangible)
by the government to enforce payment of taxes, followed by its public sale if taxes
accruing thereto are not voluntarily paid.

1. ACTUAL VS. CONSTRUCTIVE DISTRAINT

ACTUAL CONSTRUCTIVE
Personal property is physically taken Personal property is NOT physically taken
The taxpayer is already delinquent in payment of his There is no finding yet of a discrepancy, only that
taxes the taxpayer is leaving the country or disposing of
hi property on fraud of creditors or is in the
process of liquidation
Personal property taken is sold in order to satisfy Personal property is merely held as security to
the delinquent taxes answer for any future tax delinquency

2. WHO ARE AUTHORIZED TO DO ACTUAL DISTRAINT

Amount of delinquent tax is P1,000,000 or less The Revenue District Officer


Amount of delinquent tax is more than P1,000,000 The BIR Commissioner or his duly authorized
representative

3. WHO HAS THE POWER TO LIFT ORDER OF DISTRAINT


The BIR Commissioner or his duly authorized representative

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4. RELEASE OF DISTRAINT PROPERTY UPON PAYMENT PRIOR TO SALE


~ If at any time PRIOR to the consummation of the sale, all proper charges are paid to
the officer conducting the sale, the goods or effects distrained shall be restored to the
owner.

5. FURTHER DISTRAINT
~ The remedy by distraint of personal property maybe repeated if necessary until the
full amount due, including all expenses, is collected.

C. LEVY ON REAL PROPERTY


The confiscation of the taxpayers immovable property by the government to enforce
payment of taxes, followed by its public sale if taxes accruing thereto are not
voluntarily paid.

1. WHEN TO LEVY
~ After the expiration of the time required to pay the delinquent tax or revenue, real
property may be levied upon BEFORE, SIMULTANEOUSLY or AFTER the distraint of
personal property belonging to the delinquent taxpayer.

2. HOW IS LEVY EFFECTED


~ Levy shall be in writing upon a duly authenticated certificate showing the following:
a. Name of the taxpayer
b. Amount of the tax and penalty due from him
c. Description of the property upon which levy is made

3. TO WHOM SHALL LEVY BE SERVED


a. Register of Deeds of the province or city where the property is located; and
b. Upon the delinquent taxpayer
c. Or if he is absent from the Philippines, to his agent or the manager of his business
in respect to which the liability arose
d. Or if there is none, to the occupant of the property in question

4. REDEMPTION OF PROPERTY SOLD


~ The property sold may be redeemed by the delinquent taxpayer within 1 year from
the date of sale by paying:
a. The amount of public taxes;
b. Penalties; and
c. Interest thereon from the date of delinquency to the date of sale with 15% interest
per annum of the purchase price from the date of purchase to the date of
redemption

~ The owner shall not be deprived of the possession of the property sold and shall be
entitled to the rents and other income thereof until the expiration of the time allowed
for redemption.

5. FURTHER LEVY
(same rule with distraint of personal property applies)

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D. OTHER COLLECTION REMEDIES


1. Imposition of Injunction
An injunction is a restraining order issued by the Court having jurisdiction over the
filed suit intended to forbid the continuance of the action of law for purposes of due
process.

Important Notes:
a. The Tax Laws provides that injunctions are not available to restrain collection of
national internal revenue taxes, fee or charge imposed by the Tax Code.
b. The imposition of injunction is only applicable within the discretion of the Tax
Court.

2. Enforcement of tax lien


A tax lien is a legal claim or charge on property, either real or personal, as security
from the payment of a tax obligation.

Important Notes:
a. Tax lien is directed to the property subject to tax regardless of the owner of the
property, irrespective of who is the possessor thereof.
b. It is enforced by:
b1. Seizure proceeds are applied to satisfy the tax liability and the excess thereof
will be returned to the taxpayer.
b2. Forfeiture no part of the proceeds will go to the taxpayer since the property
was confiscated in favor of the government.
c. Tax lien is not valid against any mortgage, purchases or judgment creditor until
notice of such lien shall be filed by the Commissioner in the Office of the Register of
Deeds of the province or city where the property of the taxpayer is located.

3. Enforcement of forfeiture

Important Notes:
a. If the sale of confiscated articles would be harmful to the public health, the
Commissioner may order that these be destroyed.
b. Enforcement:
b1. Chattel and removable fixtures by seizure and sale or destruction
b2. Real property by a judgment of condemnation and sale in legal action or
proceeding, civil or criminal, as the case require
c. Forfeited property shall not immediately be destroyed for at least 20 days after
seizure for evidence purposes.

4. Requiring the filing of bonds (mostly applicable to customs duties and excise taxes)

5. Requiring proof of filing of ITRs

6. Giving rewards to informers

7. Making arrest, search and seizure

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8. Deportation of aliens

9. Entering into compromise of tax case


A compromise is a contract whereby the parties, by reciprocal concessions, avoid
litigation or put an end to one already commenced.

Important Notes:
a. A compromise of the tax liability is possible at ANY stage of the litigation.
b. All criminal violations may be compromised EXCEPT:
b1. Those already filed in court; or
b2. Those involving fraud

Considerations in a tax compromise agreement:


a. The taxpayer must have a tax liability;
b. There must be an offer by the taxpayer or Commissioner of an amount to be paid
by the taxpayer; and
c. There must be an acceptance by the Commissioner or taxpayer, as the case may
be, of the offer is settlement of the original claim.

Basis for acceptance of compromise settlement:


a. A reasonable doubt as to the validity of the claim against the taxpayer exists; or
b. The financial position of the taxpayer demonstrates a clear inability to pay the
assessed tax.

Cases which may be compromised:


a. Delinquent accounts except those with duly approved schedule of installment
payments
b. Cases under administrative protest after issuance of the Final Notice of Assessment
to the taxpayer which are still pending in the Regional Offices, RDOs, Legal Service,
Large Taxpayer Service, Collection Service, Enforcement Service and other offices
in the National Office
c. Civil tax cases being disputed before the courts
d. Collection cases filed before the courts
e. Criminal violations (see Important Notes under this section for the exceptions)

Cases which may NOT be compromised:


a. Withholding tax cases, unless the taxpayer invokes provisions of law that cast
doubt on the taxpayers obligation to withhold
b. Estate tax cases where compromise is requested on the ground of financial
incapacity of the taxpayer
c. Delinquent accounts with duly approved schedule of installment payments
d. Criminal tax fraud cases
e. Criminal violations already filed in court
f. Cases where final reports of reinvestigation or reconsideration have been issued
resulting to a reduction in the original assessment and the taxpayer is agreeable to
such decision by signing the required agreement form for that purpose
g. Cases which become final and executory

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Minimum percentage of compromise:

Percentage Basis for Compromise


10% 1. Individual whose only source is from employment and whose monthly salary is
P10,500 or less, if single, or P21,000 or less, if married, and has no
leviable/distrainable assets other than family home;
2. Individual without any source of income;
3. Taxpayer with zero net worth;
4. Taxpayer with negative net worth;
5. Already non-operating companies for a period of 3 years or more as of date of
application for compromise settlement.

20% 1. Dissolved corporations;


2. Already non-operating companies for a period of less than 3 years;
3. Declared insolvent, bankrupt unless the taxpayer falls under any of the cases
subject to a different percentage.

40% Taxpayer is suffering from surplus or earnings deficit resulting to impairment in the
original capacity by at least 50%

10. Inspection of books of accounts

Important Notes:
a. The Revenue Officers (RO) may be authorized by the Commissioner to inspect the
taxpayers books of accounts and other records.

b. Inspection and examination shall be made only once in a taxable year, EXCEPT on
the following cases:
b1. Fraud, irregularity and mistakes as determined by the Commissioner
b2. Request for reinvestigation
b3. Verification of compliance with withholding tax laws and regulations
b4. Verification of capital gains tax liabilities

c. Taxpayers are required to preserve their books of accounts within 10 years but
only in the form of hardcopies for the first five years thereof. Thereafter, the
taxpayer may retain only an electronic copy of the hardcopy of the books of
accounts, subsidiaries and other accounting records. (RR No. 5-2014)

d. Books of records shall be kept in a native language, English or Spanish. Otherwise,


a true and complete translation of all entries shall be made of the said required
language.

e. A Letter of Authority (LOA) signed by either the BIR Commissioner, his deputy,
officials of the investigating division, Regional Director, Assistant Director or the
Revenue District Officer will be served to the taxpayer as a request to permit the
bearer thereof to conduct the necessary examination of the taxpayers books of
accounts and records.

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11. Civil and criminal actions

a. Civil action
One that is brought to enforce, redress or protect private rights
In general, all types of legal proceedings other than criminal proceedings are
civil actions.
For tax purposes, this refers to actions instituted by the government to collect
national internal revenue taxes in the ordinary courts

b. Criminal action
A penal prosecution; it is an action, suit or cause instituted to punish an
infraction of the criminal laws.

Important Notes:
b1. The judgment in the criminal case shall not only impose the penalty but also
order payment of the taxes as decided by the CTA.
b2. As a rule, assessment is not necessary before filing criminal complaint to tax
evasion.
b3. Tax fraud or evasion is a criminal case. However, the burden of proof for the
establishment of fraud lies with the BIR.

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PART VI: TAX REMEDIES OF THE TAXPAYER

A. TYPES OF REMEDIES
1. Summary Proceedings or Administrative Remedies
a. Tax Avoidance or Tax Minimization (please see Part II of Handout No. 1-01)
b. Amendment of Tax Returns

Considerations:
must be made within 3 years from the date of filing of such return
no notice for audit or investigation of such return has been served to the
taxpayer

c. Demand for the Letter of Authority (LOA)


d. Protesting an assessment
(please refer to the discussion in the previous sections)

e. Applying for a No Audit Program or NAP

Qualifications:
Income tax payment for the current taxable year must exceed the income tax
payment for the base year by at least 20%; and
Ratio of income tax payment to gross sales/receipts for the current taxable
year must be at least equal to that of the base year.

f. Entering into a Compromise


(please refer to the discussion in the previous sections)

g. Filing of Claim for Tax Credit or Refund

Instances of tax credit or refund:


The Commissioner has the authority to credit or refund:
g1. Taxes erroneously or illegally received.
g2. Penalties imposed without authority.
g3. The value of internal revenue stamps when returned in good condition by the
purchaser.
g4. The value, upon proof of destruction, of unused stamps that are unfit for use.

Important Notes:
1. A filed return showing an overpayment shall be considered as a written claim
for the credit or refund.
2. A Tax Credit Certificate (TCC) validly issued under the provisions of the Tax
Code may be applied against any internal revenue tax, excluding withholding
taxes, for which the taxpayer is directly liable.

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Prescriptive Period:

Tax Claim Prescriptive Period Forfeiture in Favor of the Gov't.


Tax Credit Within 2 years after the payment of tax TCC unutilized within 5 years from
or penalty date of mailing or delivery
Tax Refund Within 2 years after the payment of tax Refund check or warrant unclaimed or
or penalty uncashed within 5 years from date of
mailing or delivery

2. Judicial Proceedings or Judicial Remedies

a. Civil action
a1. Appeal to the CTA
a2. Secure Injunction from CTA
a3. Appeal from CTA to the SC

b. Criminal action

c. Others
c1. Action for Damages against Revenue Officers
c2. Action to Contest Forfeiture of Chattel

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PART VII: ADDITIONS TO TAX

A. DEFINITION OF TERMS

Delinquency
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

Deficiency
the amount still due and collectible from a taxpayer upon audit or investigation

Surcharge
a civil penalty imposed by law as addition to the main tax required to be paid

Willful neglect
the taxpayer knowingly delays the filing of the tax return

False or Fraudulent Return


The following shall constitute prima facie evidence of such:
a. Substantial under declaration of taxable sales, receipts or income (e.g. failure to
report sales, receipts or income in an amount exceeding 30% of that declared per
return);
b. Substantial overstatement of deductions (e.g. claim of deduction in an amount
exceeding 30% of actual deductions); or
c. Recurrence or understatement of income or overstatement of deductions for more
than one taxable year.

B. ADDITIONS TO TAX
1. Interest

Formula:

Interest = Basic Tax Due * 20% * (no. of days late/365 days)

General Rule:
There shall be assessed and collected on any unpaid amount of tax, interest at the rate
of 20% per annum, or such higher rate as may be prescribed by rules and regulations,
from the date prescribed for payment until the amount is fully paid.

a. Interest on deficiency
Applied in case there is any deficiency in the tax due

b. Interest on delinquency
Applied in case of failure to pay:
The amount of the tax due on any return required to be filed;
The amount of the tax for which no return is required; or

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A deficiency tax, or any surcharge or interest thereon on the due date


appearing in the notice of demand of the Commissioner, there shall be assessed
and collected on the unpaid amount, interest at 20% per annum, or such higher
rate as may be prescribed by rules and regulations until the amount is fully
paid.

c. Interest on extended payment


Applied if any person required to pay the tax is qualified and elects to pay the
tax in installments but fails to pay the tax or any installment hereof, or any part
of such amount or installment on or before the date prescribed for its payments
or where the Commissioner has authorized an extension of time within which to
pay a tax or deficiency tax or any part thereof

2. Surcharge

Percentage Basis for Compromise


25% 1. Failure to file any return and pay the tax due thereon as required under the
provisions of the Tax Code or rules and regulations on the date prescribed; or
2. Unless otherwise authorized by the Commissioner, filing a return with an internal
revenue officer other than those with whom the return is required to be filed; or
3. Failure to pay the deficiency tax within the time prescribed for its payment in the
notice of assessment; or
4. Failure to pay the full or part of the amount of tax shown on any return required
to be filed under ther provisions of the Tax 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.

50% 1. In case of willful neglect to file the return within the period prescribed by the Tax
Code; or
2. In case a false or fraudulent return is willfully made;*** or
3. In case a person who is not VAT-registered issues an invoice or receipts showing
his TIN, followed by the word "VAT".
*** In case the taxpayer, without notice from the Commissioner or his duly authorized
representative,voluntarily files a return, only 25% surcharge shall be imposed for late filing and late
payment of the tax in lieu of the 50% surcharge.

3. Compromise Penalty
consensual in nature

(please refer to Revenue Memorandum Order (RMO) No. 7-2015)

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C. FORMATOF COMPUTATION

Tax Payable xxx


Add:
Surcharge xxx
Interest xxx
Compromise xxx xxx
Total amount payable (overpayment) xxx

**********************************************

Sources:
1. The 1997 National Internal Revenue Code
2. Various BIR Regulations
3. Income Taxation by Valencia and Roxas 6th edition
4. Review Notes from various Review Centers

If the going seems easy, you are going DOWNHILL.


-Anonymous

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