Tax Assessment - Tax Clinic 2014 PDF

Handling BIR Tax Assessment:
Taxpayer's Rights, Risks and Remedies
Association of MEZ Controllers & Accountants (AMCA)

Waterfront Airport Hotel, Mactan, Cebu
February 21, 2014
2013 Punongbayan & Araullo. All rights reserved.

Stages of Tax Assessment
Mr. Wendell Ganhinhin

Tax & Outsourcing Director, P&A Cebu & Davao Branches

Stages of Tax Assessments
Filing of Tax Issuance of Issuance of

Selection of Investigation Letter of Informal
Return and Preliminary Final
Tax Return (Conduct of Authority Conference
Payment of Assessment Assessment
for Audit Examination) (LOA) (InfoCon)
Tax Notice (PAN) Notice (FAN)

Selection of tax return/ taxpayer for
audit

How are tax returns/taxpayers are selected for audit?
Tax returns/ taxpayers for audit/ investigation are

selected in a variety of ways, including:
o Audit program
o Benchmarking analysis
o Matching of records (RELIEF)
o Third party information
o Routine tax compliance drive

Audit programs (latest)
o Annual audit program - prescribes the criteria in

selecting taxpayers for audit/investigation
- TY 2009 and 2010 (RMO 04-2011, as amended by

RMO 20-2011
o VAT audit program (RMO 19 and 20-2012)

Identifies VAT taxpayers who are candidate for
audit/investigation

What is the best attitude towards BIR audit?
o "Behold, I am coming soon! Blessed is he who keeps

the words of the prophecy in this book." (Revelation
22:7)
o "Behold, I am coming soon! My reward is with me, and I
will give to everyone according to what he has done."
(Revelation 22:12)
o "Yes, I am coming soon." Amen. Come, Lord Jesus.
(Revelation 22:20)

When He is coming?
o "for you know very well that the day of the Lord will come
like a thief in the night." (1 Thessalonians 5:2)
o "But understand this: If the owner of the house had known
at what time of night the thief was coming, he would
have kept watch and would not have let his house be
broken into. "(Matthew 24:43)

Hence,
o We need to be prepared
always.

Issuance of audit notice

Serving of letter of assessment (LA)
Letter of Assessment (LA) - must be served upon the

taxpayer or his authorized representative within thirty
(30) days from date of issue otherwise it becomes
invalid.

What happens upon issuance of audit notice?
Revenue Examiner issues Letter of Authority (LA) and

checklist of presentation of the requirements for the
audit.
Revenue Examiner requests the taxpayer, in writing, to
make available for inspection, the pertinent books of
accounts, accounting records and particular or specific
documents indicating therein the time and date within
which these records should be made available.

What happens upon issuance of audit notice?
Revenue Examiner examines the books of accounts and

other accounting records in the taxpayer's office or place
of business or in the office of the Bureau of Internal
Revenue.

Letter of Authority

Investigation

Documents requested for submission during
examination
1. Annual ITR and certified FS including profit and loss

2. Audited Financial Statement and Certificate of Creditable
Withheld at Source (BIR Form 2307)
3. Quarterly and Monthly VAT/Percentage Tax Returns;
4. Withholding Taxes: (a) Alpha List; (b) 1604CF; (c) 1601E; (d)
1604E; (d) 1601C; (e) 1601F; and others
5. List of inventories Beginning and Ending
6. OR of all taxes paid and/or Customs Duties paid
7. Others

Documents requested for submission during
examination
Worksheets
1. Monthly abstract of all ledger accounts
2. Detailed schedule of sales and its corresponding output taxes
per VAT Regulations. 6-89
3. Schedule of Export and/or VAT Tax Exempt Sales, if any
4. Detailed Schedule of Purchases and its Corresponding input
taxes per VAT Regulations. 6-89
5. Detailed composition of cost of sales
6. Schedule of property and equipment and its accumulated
depreciation/amortization
7. Others
Documents for verification/examination
For verification:
1. General journal and general ledger
2. Subsidiary journals and subsidiary ledgers
3. Sales invoices and receipts
4. Proof of exportations (export permit, inward letter or bank CM
for inward remittance) if any
5. Purchase of invoices and receipts/pertinent importation
documents, if any

Documents for verification/examination
6. Documents and records supporting all deductions/ expenses

claimed;
7. Production reports, if any
8. Other related and pertinent accounting records and
documents
9. Others

What should taxpayers do upon receipt of letter request
for documents
1. Prepare all required documents for submission to BIR

Photocopy
2. If voluminous, examiner usually requests that
documents be recorded and submitted in CD form.
Taxpayer may also request examiner to examine the
documents in the office, instead of submitting the hard
copies to the BIR.
3. Ensure that examiner sign list of documents submitted
and include a transmittal letter for future reference
especially when documents are lost or new examiner
assumes audit/investigation.
Notice of submission of documents
(Revenue Memorandum Order No. 45-2010, May 12, 2010)
o The documents required by the BIR for examination

should be presented within 10 days from date of
receipt of letter of assessment and checklist of
requirements.
o In case a taxpayer fails or refuses to present or
submit required documents, BIR issues first notice,
signed by the Revenue Officer (RO) and/or his group
supervisor.

Notice of submission of documents
(Revenue Memorandum Order No. 45-2010, May 12, 2010)
If the taxpayer ignores the First Notice and continues to

disregard the demand for the submission of the
required documents, a Second and Final Notice,
signed by the Head Office concerned, shall be sent to
the taxpayer after 10 calendar days from receipt of the
First Notice.

BIR remedy in case of non-submission of documents
(Revenue Memorandum No. 45-2010, May 12, 2010)
o SDT is issued 10 days after receipt of the Second

and Final notice
o BIR's courses of action of the taxpayer refuses to
comply with the SDT:
file a criminal case against the taxpayer
initiate a proceeding to cite the taxpayer for
contempt

SDT issuing offices
(Revenue Memorandum Order 10-2013)
Issuance of SDT shall be requested from the ff:

o Assistant Commissioner (ACIR), Enforcement and
Advocacy Legal Service through Prosecution Division
for the National Office
o Assistant Commissioner Large Taxpayer Service
(LTS), through the Prosecution Division for large
taxpayers under the LTS, including LTDOs
o Revenue Regional Directors, through Legal Divisions
for the Regional Offices
o Any other officer duly delegated by the CIR

SDT Issuance
(Revenue Memorandum Order No. 10-2013, April 22, 2013)
o SDT date of issuance - date of SDT signing
o Service of SDT
SDT should be served within three (3) working

days from receipt of revenue officers.
SDT shall be served through personal service,
substituted service, or service by mail.

Enforcement of SDT
(Revenue Memorandum Order No.10-2013, April 22, 2013)
o Compliance date for the submission of books of

accounts and other accounting records pursuant to
the SDT 14th day from date of issuance of the
SDT.
o Payment of administrative penalty shall not excuse
the taxpayer/person from complying with SDT

Criminal action for failure to obey SDT
(Revenue Memorandum Order 10-2013)
o Criminal action will be instituted in case of failure to

obey the SDT.
o Once case is filed, no withdrawal or dismissal of the
case is allowed, notwithstanding the subsequent
submission of documents

Informal conference

Revenue Regulations (RR) 18-2013
Regulations (RR) 18-2013 RDO Chief OAS

Issues notice of informal
removed the requirement to Conference
issue Notice of Informal
Conference prior to the
issuance of Preliminary
Assessment Notice (PAN).

Before RR 18-2013, there is an Informal Conference
Stage
Taxpayer
RDO Chief OAS
Issues notice of informal
RO prepares Conference
"Report of Findings"
Informal Conference venue for the taxpayer to

present his side of the case
1. Request for clarification of findings
2. Presentation of additional documents
3. Reconciliation

After RR 18-2013
LOA PAN FAN
if taxpayer responds
= 15 days from
receipt of reply
If taxpayer fails to
respond = 15 days
from receipt of PAN
Salient Features of Revenue Regulation 18-2013
1. Formal Letter of Demand (FLD) and Final

Assessment Notice (FAN) will be issued 15 days
from:
a) receipt of PAN if taxpayer fails to respond, OR
b) Filing/submission of taxpayer's response;

Note: An FLD/FAN issued beyond fifteen (15) days

from filing/submission of the taxpayers response to
the PAN shall be valid, provided that, it is issued within
the period of limitation to assess internal revenue
taxes.
The non-observance of the 15 day period however,
shall constitute an administrative infraction and the
revenue officers who caused the delay shall be subject
to administrative sanctions as provided for by law and
pertinent revenue issuances. (RMC No. 11-2014, February
18, 2014)
3. Taxpayer is required to state the nature of protest

(reconsideration or reinvestigation) to the FLD/FAN;
4. Introduction of the remedy of Administrative Appeal
with the CIR on the Final Decision on Disputed
Assessment (FDDA) through the filing of request for
reconsideration;
5. Prescribed modes of service for PAN, FLD, FAN
and FDDA by the CIR or her duly authorized
representative (a) Personal Service, (b)
Substituted Service or (c) by mail
6. Imposition of deficiency and delinquency interest
DEFICIENCY INTEREST DELINQUENCY INTEREST

20% 20%
Assessed from date Collected from the due date
prescribed for the payment appearing in the notice and
of tax until full payment demand of the CIR until full
payment

Preliminary Assessment Notice (PAN)

o Notice given to the taxpayer prior to the issuance of a

Final Assessment Notice (FAN)
o Shows in detail, the facts and law, rules and
regulations or jurisprudence on which the proposed
assessments are based.

Exceptions to issuance of PAN
1. Finding is a result of mathematical error

2. Discrepancy between tax withheld and remitted by the
withholding agent
3. Taxpayer claiming a refund/ tax credit of excess CWT
who carried over/applied the same amount claimed
against their estimated tax liabilities
4. Unpaid excise taxes
5. Tax exempt importations transferred to non-tax-
exempt persons

Decision on PAN
Taxpayers confirms
agree
agreement in writing;
pays tax liability
disagree Taxpayer issues reply to

the PAN

Replying to the PAN
1. Submit the written reply to the PAN within the 15-day

period
2. Address the factual and legal basis of the findings
3. Support the arguments and reconciliations with
documentary evidences
4. Exert effort to seek an audience with the revenue officer to
further explain the positions taken
5. If having difficulties with ROs but you believe that your
arguments are meritorious, elevate matter to next in rank.
6. Exhaust all options to resolve the issues, cancel or reduce
the assessment at the PAN stage

Replying to the PAN
If the taxpayer, within fifteen (15) days from date of receipt

of the PAN, responds that he/it disagrees with the findings
of deficiency tax or taxes, an FLD/FAN shall be issued
within fifteen (15) days from filing/submission of the
taxpayers response, calling for payment of the taxpayer's
deficiency tax liability, inclusive of the applicable penalties.

Final Assessment Notice (FAN)

Final Assessment Notice
The Final Assessment Notice (FAN) refers to the

document which contains the final assessment of the
BIR on the taxpayer as regards the taxable year
and/or tax under audit.

Formal Letter of Demand (FLD) / Final Assessment
Notice (FAN)

Final Decision on
Disputed Assessment

Law governing the administrative protest
Sec. 228 of the NIRC:
Such assessment may be protested administratively

by filing a request for reconsideration or
reinvestigation within 30 days from receipt of the
assessment in such form prescribed by implementing
rules and regulations.

Forms of protest
Request for reconsideration - a plea for a re-evaluation

of an assessment on the basis of existing records without
need of additional evidence . It may involve a question of
fact or law or both. New legal argument may be
presented.
Request for reinvestigation - a plea for re-evaluation
on the basis of newly-discovered evidence or additional
evidence that a taxpayer intends to present in the
reinvestigation. It may involve a question of fact or law or
both,

Reconsideration vs reinvestigation
Request for reconsideration does not stop the running of

the 5-year prescriptive period to collect !
BIR should be able to initiate collection within 5 years

from issuance of FAN
If not, the BIR losses right to collect even if the
assessment has become final and executory.
If you have pending protests, check what type (recon or
reinvestigation) and evaluate whether right to collect has
prescribed

Reconsideration vs reinvestigation
Request for reinvestigation suspends the running of the 5-

year prescriptive period for collection.
period between filing of protest and issuance of FDDA is

excluded from the 5 years.
Check that there is a deemed approval of the request for
reinvestigation (TVN, request for documents, other
indications that reinvestigation is on-going)
If none, request will be deemed disapproved.
Running of collection period is not suspended

Reconsideration versus Reinvestigation
(Prescriptive period to collect)
FDDA-denial
No
action
60 days 180 + 30 days
Submit File CTA Final
ReInv Court
docs appeal decision
FAN 30 days
FDDA
ReCon denial
No action
Pro forma protest
A pro forma protest is not valid.
1. General statement that the taxpayer disagrees with the

findings and requests for their cancellation
2. Reiteration of the grounds already stated in the reply to
PAN
3. A reference to the previously filed reply to the PAN (e.g.
"We have already submitted our reply to your findings in a
letter dated _____ and received by your office on _____ . .
.".

Prescribed format
a) Name of the taxpayer and address for the immediate

past 3 taxable years.
b) Nature of request whether reinvestigation or
reconsideration
In case of reinvestigation specify the newly
discovered evidence to be presented
c) Taxable periods covered.
d) Assessment notice number
e) Date of receipt of assessment notice or letter of
demand.

Prescribed format
f) Itemized statement of the findings to which the taxpayer

agrees as a basis for computing the tax due
Protest shall not be deemed validly filed unless
agreed portion of the tax is paid first.
g) The itemized schedule of the adjustments with which
the taxpayer does not agree.
Undisputed items shall be deemed acceptable to
the taxpayer and for which payment of the
estimated deficiency shall be demanded.
h) A statement of facts and/or law in support of the protest.

Proper protest
(Security Bank Corporation v . CIR, CTA Case No. 6564, November 28,
2006)
A protest without a request for reconsideration or

reinvestigation is not a valid protest and shall render
the FAN final and unappealable.
Revenue Regulations No. 12-85 requires that a

taxpayer file either a request for reinvestigation or
reconsideration.

Proper protest
(Security Bank Corporation v . CIR, CTA Case No. 6564, November 28,
2006)
A protest to the PAN is not the same as the protest to the

FAN.
A PAN may or may not even be protested. Failure to
protest shall not make the PAN final and
unappealable.
Such failure only paves the way for the issuance of a
FAN.
Failure to file a valid protest on the FAN shall result in
the finality of the said FAN.

Reinvestigation vs reconsideration
A request for reinvestigation shall be deemed a

mere request for reconsideration if taxpayer
continues to refuse or fail to submit new evidence
and cooperate in the investigation process
(CIR v. Philippine Global Communications, Inc. GR 167146,

October 31, 2006)

Elevation of protest to the CIR
Taxpayer may elevate his protest to the Commissioner

within 30 days from date of receipt of the final decision of
the Commissioner's duly authorized representative.
The decision of the Commissioner's authorized

representative shall not be considered final and
executory.
Counting of the 60 + 180 +30 before appealing with
CTA shall commence from submission of protest to
CIR.

Decision on FAN
Taxpayers confirms
agree
agreement in writing;
pays tax liability
disagree Taxpayer issues protest

to the FAN
Taxpayer

FAN involving several issues
Taxpayer agrees with

finding in the FAN
o Taxpayer shall pay deficiency tax inclusive of

applicable interest and/or surcharge.
o If there are several issues in the assessment and
taxpayer agrees with the validity of some of the
issues raised in the FAN, the taxpayer shall be
required to pay the deficiency taxes on the
undisputed issues.

How should I act during Tax Assessment?
Atty. Charity P. Mandap

Tax Manager, P&A

Responding to Tax Assessments

Cooperate
1. Assign knowledgeable company employee/officer

to exclusively coordinate with the examiners
2. Allocate a room for the conduct of the
examination
3. Evaluate the documents to be submitted to the
examiners
4. Exhaust other means of explaining the nature of
the transaction if documents are not available




Questioning the Validity of a Tax Assessment

Issues on Assessment
1. Prescription
2. Extension of the prescriptive period to assess
3. Validity of the Waiver as a defense
4. FAN without PAN
5. FAN issued before lapse of period to reply to PAN
6. FAN issued without legal & factual basis
7. Assessment based on Relief System

1. Prescriptive Period
Legal Basis:
"Sec. 203. Period of Limitation Upon Assessment and
Collection. Except as provided in Section 222, internal
revenue taxes shall be assessed within three (3) years
after the last day prescribed by law for the filing of the
return, and no proceeding in court without assessment for
the collection of such taxes shall be begun after the
expiration of such period: Provided, that in case where a
return is filed beyond the period prescribed by law, the 3-
year period shall be counted from the day the return was
filed."
1. Prescriptive Period
A FAN/assessment issued beyond the 3-year period is

invalid. The right of the BIR to assess the tax has
prescribed.
Note:
Raise issue on prescription only at FAN stage.
More complex issues on prescription period are
resolved only in the courts. BIR would not normally
yield on issues of prescription unless the period to
assess has clearly prescribed.

1. Prescriptive period for amended returns
In general, the prescriptive period should be reckoned

from the date of filing the amended return.
Amendment extends the prescription period.
Possible defense:
CTA: If the original return is sufficiently complete
(amendment did not introduce significant
changes), prescriptive period should be reckoned
from original return.

2. Extension of the Prescriptive Period to Assess
Why should a taxpayer under examination agree to

extend the prescriptive period for assessment?
- To have time to gather the documents needed to contest

the BIR's findings
- To have more opportunity to resolve the findings at the

Informal Conference or PAN stage

3. Validity of the Waiver as a Defense
Waiver of statute of limitations - an agreement

between the taxpayer and the BIR to extend the period
for the issuance of an assessment beyond the 3-year
period prescribed by law
Basis: Section 223 of the Tax Code
(Prescribed waiver form per RDAO 05-01 attached as

annex under RMC 29-2012)

3. Validity of the Waiver as a
Defense

An invalid waiver could not extend the prescriptive

period and will render the assessment INVALID.
The waiver must strictly comply with Section 222(b) of

the Tax Code and with the requirements in RMO 20-90
to be considered valid.
(Philippine Journalists Inc., v. CIR, GR 162852, December
16, 2004)

Requisites of a valid waiver (RMO 20-90)

1. In writing
2. Indicates date of execution
Must be executed prior to the expiration of the
original period or the extended period under a
previous waiver
3. Indicates definite extension period
4. Signed by a responsible official, if a corporation; of
by taxpayer or his duly authorized representative

5. Executed in 3 copies
o original copy attached to the case docket

o second copy for the taxpayer
o third copy for the Office accepting the waiver.
The fact of receipt by the taxpayer of his file copy

shall be indicated in the original copy.

Must be signed by authorized

signatories
A. National office
1. ACIR or HREA for LTS - For LTS Cases
2. ACIRs for Collection, Special - For taxes
Operations, National Assessment, involving not
Excise and Legal on tax cases pending more than
before their respective offices. Or the P500,000
Head of executive asst. in the absence
of CIR
3. Deputy Commissioner - For tax cases greater

than P500,000 but not
more than P1M
4. Commissioner - For taxes cases involving
more than P1M

Authorized signatories
B. In the Regional Offices (regardless of amount, only if

period is about to prescribe)
1. RDO - cases pending investigation
2. RD, ARD, Chief of Collection or Legal Branch - cases
pending review
3. RD, ARD, Chief of Assessment or Legal Branch -
cases pending collection

Taxpayer only questioned the validity in the courts.
BIR says taxpayer is deemed to have waived his

right to question the validity of the waiver
CTA denied BIR's argument
(CIR v Standard Chartered Bank, CTA EB Case 522,

March 1, 2010)

5. FAN without PAN
FAN without PAN is INVALID

1. The requirement that the taxpayer must be
informed of his liability for deficiency taxes through the
sending of a PAN is part of the due process requirement
in the issuance of deficiency tax assessments.
If only the FAN was issued, the requirements of due

process are not satisfied, and the assessment shall be
deemed void.

4. FAN without PAN
FAN without PAN is INVALID

2. The requirement to issue PAN is provided under
Section 228 of the Tax Code and Section 3.1.2 of RR 12-
99.
Old requirement of merely notifying the taxpayer of
the CIRs findings was changed in 1998 to informing the
taxpayer of not only the law, but also the facts on which
assessment would be made.
(Commissioner of Internal Revenue v. Metro Star Superama,

Inc., GR 185371, December 08, 2010)
FAN issued prior to lapse of period to reply to

PAN does not constitute denial of due process

CASE 1. In its appeal for cancellation of FAN, the

taxpayer alleged that it was deprived of due process
when the BIR issued the FAN only one day after it filed
its reply to the preliminary assessment notice (PAN).
(Cargill Philippines, Inc. v. Commissioner of Internal Revenue,

CTA Case No. 7928, August 23, 2011)

CASE 2. Taxpayer received a PAN assessing it for

deficiency withholding tax. However, before the lapse of the
15-day period within which the taxpayer could reply or give
its comment to the PAN, it was issued the FAN.
[Oakwood Management Services (Philippines), Inc. v. CIR

CTA Case No. 7989, August 8, 2013 & Keppel Fels Energy,
Inc. V. Commissioner of Internal Revenue, CTA Case No.
6826, July 21, 2011]

CTA: Although the taxpayer was not able to take

advantage of the full 15 days given for it to file its
comment on the PAN or its reply was not read by the
BIR, the BIR substantially complied with the
requirements of due process, considering that the
taxpayer was not only given the opportunity to refute
the PAN issued by the BIR but also exercise its option
to file a protest to the FAN.

CTA: A PAN preparatory to the issuance of a FAN

is not, legally speaking, an assessment even if it
contains a computation of the tax liabilities of a
taxpayer. A protest against the PAN, unlike the protest
against the FAN, is not indispensable. A PAN may or
may not be protested by the taxpayer, and the fact of
nonprotest shall not in any way make the PAN final and
unappealable.

6. FAN issued without Legal & Factual Basis
Sec. 228, NIRC
The taxpayer shall be informed in writing of the law

and the facts on which the assessment is made;
otherwise, the assessment shall be void.

Supreme Court:
Compliance with Section 228 is mandatory
(Commissioner of Internal Revenue vs. Azucena T.

Reyes, GR 159694, January 27, 2006)

REVENUE REGULATIONS NO. 12-99

1. FAN shall state the facts, the law, rules and regulations,
or jurisprudence on which the assessment is based.
2. Mode of transmittal to taxpayer

Registered mail
Personal delivery with acknowledged receipt in the
duplicate copy showing the ff:
(a) name
(b) signature
(c) designation (if other than the taxpayer)
(d) date of receipt
Assessment issued beyond the scope of the LA
Deficiency taxes should only be for the year covered

by the LA.
Request for cancellation of out-of-period
assessments.

7. Assessment based on RELIEF System
Assessment based on Summary List of Purchases
FACTS OF THE CASE. A company engaged in

transmission of information was assessed for
undeclared sales. The BIRs assessment arose from
the matching of computer records using the summary
list of purchases submitted by the taxpayers
customers.

7. Assessment based on RELIEF System
CTA: BIRs assessment against the taxpayer cannot

be sustained since the assessment lacks factual basis.
The BIR based its assessment merely on an unverified
quarterly list. The summary list of purchases should
have been verified with other externally sourced data in
order to check the integrity of the information gathered.
(CIR v. Fax N Parcel, Incorporated, CTA EB 883 re: CTA

Case No. 7415, February 14, 2013)

Addressing Usual Issues on Assessments

Unreported/unaccounted expenses, therefore,
undeclared income
Comparison of Financial Statement accounts vs. BIR Form

1601E wherein the discrepancy is treated as Unaccounted
expense the BIR treats this as unaccounted source of cash
which leads to the inference that part of the income has not
been declared (Perez vs. CTA & CIR L-10507, May 30, 1958)
Possible reconciling item: exemption from EWT
Reconcile the source data for the alleged undeclared
expenses
Argue that assessments should not be based on mere
presumptions no matter how reasonable or logical said
presumption may be
Unsupported expenses, tax credits, input VAT
Legal Basis:
Sec. 34(A)(1)(b) Substantiation Requirements No deduction
from gross income shall be allowedS unless the taxpayer
shall substantiate with sufficient evidence, such as official
receipts or other adequate records: (i) the amount of the
expense being deducted, and (ii) the direct connection or
relation of the expense being deducted to the development,
management, operation and/or conduct of the trade, business
or profession of the taxpayer.

Unsupported expenses, tax credits, input VAT
Expenses must be properly substantiated by invoices,

official receipts
Tax credits must be supported by BIR Form No. 2307 forms
Input VAT must be supported by VAT invoice or VAT official
receipt (which must comply with the invoicing requirements
in the VAT regulations)

Failure to withhold, under withholding
Compensation, FBT, EWT, FWT)
Possible reconciling items:
General
- Already subjected to withholding tax;
- Subjected to higher withholding rate;
- Exempted from withholding;

Goods
-Not Top 20,000 corporations; Importations; Prepaid
expenses
Services
-Payment to PEZA-registered entity; Payment to non-
resident foreign corporation for services performed
outside the Philippines

Professional fees
-Payment to GPPs; Payment to travel agency; Payment to
fleet card
Salaries and Wages

-De minimis, Employers share in SSS, Philhealth;
Retirement benefit; Ordinary business expense
Payment to non-resident
-BIR Ruling confirming exemption; Tax Treaty rate;
Services performed abroad
Payment to non-resident
-BIR Ruling confirming exemption; Tax Treaty rate;
Services performed abroad
Fringe Benefit
- Error in computation; already subjected to withholding tax
on compensation; ordinary business expense

Not subjected to VAT
Comparison of Sales per ITR and Sales per VAT return

wherein the discrepancy is treated as Undeclared sales not
subjected to VAT
Undeclared Income in the income tax findings of the BIR
Possible reconciling items:
timing difference;
deductibility of sales returns;
undeclared zero-rated sales in the VAT return;
differences in tax and accounting
Services rendered to PEZA or non-residents
Appealing to the CTA

CTA Jurisdiction
Sec 7 of RA 1125 provides that the CTA shall exercise

exclusive appellate jurisdiction to review decisions of
the Commissioner of Internal Revenue in cases
involving disputed assessments, S penalties
imposed relation thereto or other matters arising from
the NIRC or other laws or part of laws administered by
the BIR.

Period to appeal
Sec 228, NIRC
"If the protest is denied in whole or in part, or is not acted

upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely
affected by the decision or inaction may appeal to the
Court of Tax Appeals within thirty (30) days from receipt
of the said decision, or from the lapse of one
hundred eighty (180)-day period; otherwise, the
decision shall become final, executory and
demandable."

Filing an appeal to CTA upon denial of protest
Failure of a taxpayer to appeal before the CTA from the

inaction of the CIR on a protested assessment within 30
days after the 180-day period does not render an
assessment final and executory.
The taxpayer may await the final decision of the CIR and,
within 30 days from receipt of the decision, appeal the
decision with the CTA.
(Lascona Land Co., Inc. v. CIR, GR 171251, March 5, 2012)

When is the right time to appeal?
60
days (INACTION)
Submit
Reinvestigation 180 + 30 days CTA
Complete
Documents
FAN 30 days
30 days
FDDA
Reconsideration denial
INACTION
180 + 30 days

Period to appeal
If taxpayer fails to submit relevant documents within

the 60-day period, the period to appeal to the CTA is
reduced to 30 days from the lapse of the 180-day
period reckoned from the date the protest was filed
with the BIR. The 60-day period shall not be
considered in the counting of the 180 days.
(Fil-Hispano Holdings Corp. vs. CIR, CTA EB No. 343 re: CTA
Case No. 7331, June 12, 2008)

Period to appeal
Note: RR 12-99, as amended by RR 18-2013, provides that [f]or

requests for reinvestigation, the taxpayer shall submit all relevant
supporting documents in support of his protest within sixty (60) days
from date of filing of his letter of protest, otherwise, the assessment
shall become final. The term the assessment shall become final
means that the failure of the taxpayer who requested for a
reinvestigation to submit all relevant supporting documents within the
sixty (60)-day period shall render the FLD/FAN final by operation of
law. He/it shall be barred from disputing the correctness of the FLD/FAN
by the introduction of newly discovered or additional evidence because
he/it is deemed to have lost his/its chance to present these evidence.
The BIR shall then deny the request for reinvestigation through the
issuance of an FDDA. (RMC 11-2014, February 18, 2014)
Period to appeal
Failure to submit documents
60 days
180 + 30 days
ReInv Submit inaction File CTA
docs appeal
FAN 30 days
30 days
ReCon FDDA-denial

Decision to Appeal Assessment in Court
1. Cost-benefit considerations
2. Strength of the case
3. Company policy
4. Legal issues involved that cannot be resolved at
BIR level
5. Desire to settle recurring legal issues

CTA jurisdiction
Disputed assessment
o FAN that was properly protested within the prescribed

time
30 days from denial or inaction
In the proper protest format reconsideration or
investigation

Protest on undisputed FAN, not appealable
(Allied Banking Corp. v CIR, CTA EB 157, January 2, 2007)
o Taxpayer received a PAN which he replied to.

o BIR responded by issuing a Formal Letter of Demand, as
follows:
Your subject protest was based on the alleged ground that the
Special Savings Deposits allegedly not among those enumerated by
Section 180 fo the NIRCF.
X X X
It is requested that the above deficiency tax be paid immediately
upon receipt hereof, inclusive of penalties incident to delinquency.
This is our final decision based on investigation. If you disagree,
you may appeal this final decision within 30 days from receipt
hereof, otherwise said deficiency assessment shall become final,
executory and demandable.
Protest on undisputed FAN, not appealable
(Allied Banking Corp. v CIR, CTA EB 157, January 2, 2007)
Taxpayer appealed the FLD to the CTA within 30 days.

CTA: The FLD is not a decision of the CIR involving
disputed assessment. It is not appealable at the CTA.
The FLD should be considered as FAN, which should be
appealed administratively by filing a request for
reconsideration or reinvestigation within 30 days.
Denial or inaction on said administrative appeal is
appealable to the CTA.
Taxpayer erroneously interpreted the wordings of the
FLD (prematurely appealed).

Undisputed assessment cannot be appealed
(ECL Foods and Catering Corp. vs CIR, CTA EB No. 184, 28 November
2006)
Taxpayer failed to file a protest against a letter of demand

within the 30- day period. Collection proceeding was
initiated by the BIR.
Taxpayer filed a motion for reconsideration requesting for
reinvestigation which was denied by the BIR. Taxpayer
appealed the denial to the CTA.
CTA decision: An assessment protested beyond the
reglementary period is considered undisputed; rendered
final, executory and unappealable.
CTA cannot act on undisputed assessment; it has no
jurisdiction

Demand letter as final decision appealable to CTA
(Cagayan Corn Products Corporation v. Commissioner of Internal
Revenue, CTA Case No. 8491 dated July 8, 2013)
Demand letter for payment of delinquent taxes may be

considered a final decision on a disputed or protested
assessment that is appealable to the CTA depending on
the language used or tenor of the letter sent to the
taxpayer.
If the tenor of the letter shows the firm stand of the BIR
against the reconsideration of the disputed assessment,
the letter should be considered the final decision of the
BIR on the taxpayers administrative protest or the FDDA.

Whose decisions are appealable?
By statutory provision Decisions of the

Commissioner of Internal Revenue.
RR No. 12-99 Decisions of the CIR or his duly
authorized representative.

Tenor of finality rule
The appealable decision is that letter of denial where the

Commissioner not only demanded payment of the amount
assessed but wherein he also gave the warning that in the
event the taxpayer failed to pay the same, the Commissioner
would be constrained to enforce the collection thereof by
means of the remedies prescribed by law.
(Azucena T. Reyes v. CIR, CTA Case No. 6124, June 19, 2002)

KNOWLEDGE CHECK

Knowledge Check
1. If the taxpayer fails to respond to the Preliminary

Assessment Notice (PAN), the taxpayer shall be considered
in default, in which case, the BIR shall issue which of the
following:
a. Final Decision on Disputed Assessment (FDDA)

b. Formal Letter of Demand and Assessment Notice
(FAN)
c. Notice of Informal Conference
d. Both (a) and (b)

Knowledge Check
2. A taxpayer who received FAN is given 60 days to

submit additional documents in support of
its/his/her protest to the FAN. When should the
60-day period be reckoned?
a. Date of receipt of FAN

b. Date of issuance of PAN
c. Date of filing of protest to the FAN
d. Date of issuance of FAN

Knowledge Check
3. The regular 3-year prescriptive period can be extended upon

written agreement between the taxpayer and the BIR through
the execution of a waiver of defense of prescription. However,
to be considered valid, the waiver should satisfy all of the
following conditions except:
a) The date of execution must be indicated in the waiver.

b) The definite extension period must be indicated in the waiver.
c) The waiver must be signed by a responsible official, if a
corporation; of by a taxpayer or his duly authorized
representative
d) The waiver should be published in at least one newspaper of
general circulation.
Knowledge Check
4. Which of the following is true for request for reinvestigation?
a) A request for reinvestigation does not stop the running of the 5-

year prescriptive period to collect.
b) A request for reinvestigation must be filed within 15 days from
the receipt of FAN.
c) A request for reinvestigation shall be deemed a mere request
for reconsideration if no new evidence was submitted.
d) A request for reinvestigation is a plea for a re-evaluation of an
assessment on the basis of existing records without the need
of additional evidence.

Knowledge Check
5. To be considered "officially" filed, which of the following should

occur with respect to the letter of protest to the FAN of the
taxpayer:
a) The letter of protest to FAN should be included in the database

created by the Office of the CIR.
b) The letter of protest to the FAN should have the BIR logo
c) The letter of protest to the FAN should be received personally
by the CIR and included in the database of all letters of protest
to be created for this purpose.
d) None of the above

Knowledge Check
6. When should the subpoena duces tecum (SDT) be issued

to a taxpayer who fails or refuses to submit the required
documents pursuant to the letter of assessment issued
by the BIR?
a) 10 days from date of receipt by the taxpayer of letter of

assessment and check list of requirements/access to
records
b) 15 days from issuance of preliminary assessment notice
c) 10 days after receipt of second and final notice
d) 15 days from issuance of notice of informal conference
Knowledge Check
7. How many days may a taxpayer request for a

reinvestigation or reconsideration to the Final
Assessment Notice issued by the BIR?
a. 30 days
b. 45 days
c. 60 days
d. 15 days

Knowledge Check
8. If PAN was issued on March 01, 2013, and the taxpayer received
the FAN on March 11, 2013, is the issuance considered valid?
a) No. FAN should be issued on March 16, 2013 which is 15 days

after the issuance of the PAN in order to observe the 15-day
period to protest.
b) Yes. Since issuance of PAN is not required in the conduct of tax
audit or investigation.
c) Yes. The non-observance of the 15-day period does not violate
the right of the taxpayer to due process. What is important is the
taxpayer is able to protest its FAN.
Knowledge Check
9. A protest of FAN which is denied in whole or in part

may be appealed to the Court of Tax Appeals within
how many days from the date of receipt of the denial
issued by the Commissioner of Internal Revenue?
a) 30 days
b) 45 days
c) 60 days
d) 15 days

Knowledge Check
10. In case a taxpayer fails to submit relevant documents

within the 60-day period, the period to appeal to the
CTA is reduced to 30 days from the lapse of the 180-
day period reckoned from when:
a) Date the reply to the PAN was submitted by the taxpayer

b) Date the protest was filed with the BIR. The 60-day
period shall not be considered in the counting of the 180
days.
c) Date of last visit of the examiners assigned to investigate
the books of account of the taxpayer.
Thank you.
Contact:
wendell.ganhinhin@ph.gt.com
cha.mandap@ph.gt.com
tel#: 032-2316090

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Handling BIR Tax Assessment:

Taxpayer's Rights, Risks and Remedies

Association of MEZ Controllers & Accountants (AMCA)

2013 Punongbayan & Araullo. All rights reserved.

Mr. Wendell Ganhinhin

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Filing of Tax Issuance of Issuance of

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Tax returns/ taxpayers for audit/ investigation are

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o Annual audit program - prescribes the criteria in

- TY 2009 and 2010 (RMO 04-2011, as amended by

o VAT audit program (RMO 19 and 20-2012)

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o "Behold, I am coming soon! Blessed is he who keeps

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2014 Punongbayan & Araullo. All rights reserved.

2014 Punongbayan & Araullo. All rights reserved.

2013 Punongbayan & Araullo. All rights reserved.

Letter of Assessment (LA) - must be served upon the

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Revenue Examiner issues Letter of Authority (LA) and

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Revenue Examiner examines the books of accounts and

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2013 Punongbayan & Araullo. All rights reserved.

1. Annual ITR and certified FS including profit and loss

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6. Documents and records supporting all deductions/ expenses

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1. Prepare all required documents for submission to BIR

o The documents required by the BIR for examination

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If the taxpayer ignores the First Notice and continues to

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o SDT is issued 10 days after receipt of the Second

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Issuance of SDT shall be requested from the ff:

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o SDT date of issuance - date of SDT signing

SDT should be served within three (3) working

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o Compliance date for the submission of books of

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o Criminal action will be instituted in case of failure to

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Regulations (RR) 18-2013 RDO Chief OAS

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Informal Conference venue for the taxpayer to

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LOA PAN FAN

1. Formal Letter of Demand (FLD) and Final

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Note: An FLD/FAN issued beyond fifteen (15) days

3. Taxpayer is required to state the nature of protest

6. Imposition of deficiency and delinquency interest

DEFICIENCY INTEREST DELINQUENCY INTEREST

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2013 Punongbayan & Araullo. All rights reserved.