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No demand, no pay
September 5, 2018 | 9:23 pm

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Taxwise Or Otherwise
By Maria Jonas Yap

“No demand, no delay.” This rule is spelled out by Article 1169 of the Civil
Code, where those obliged to deliver or to do something incur a delay from
the time the obligee (or the person to whom an obligation is owed) judicially or
extrajudicially demands fulfillment of the obligation.

In a situation where a debtor defaults on his payment of a loan, the law

requires that a demand has to be made by the creditor before the debtor can
be considered delayed on his payments, except if the contract itself provided
that no demand is necessary for delay to exist. If no demand was made, then
the loan has not yet become due and demandable, and any foreclosure of
property used as collateral for the loan would be considered premature.

When it comes to tax assessments, however, there is a twist to the rule. In the
case of assessment notices, if there is no demand for payment, not only is
there no delay on the part of the taxpayer, but there is actually no valid
assessment to speak of.

This position was reiterated in a recent decision of the Court of Tax Appeals
(CTA Case No. 8694 dated June 28, 2018) where the deficiency tax
assessment was set aside and cancelled because the Final Assessment
Notice (FAN) did not contain a specific date or period within which the alleged
tax liabilities must be paid. In that decision, the court emphasized that the due
date for payment of the tax liabilities is indispensable in an assessment as it
dictates the time when the penalties, surcharge and interest begin to accrue. If
the date of payment is uncertain, then there is no definite demand on the
taxpayer to immediately pay the assessed tax liabilities.

The due process requirements in the issuance of deficiency taxes are laid
down in Revenue Regulations (RR) No. 12-1999, as amended by RR Nos. 18-
2013 and 7-2018. The regulations provide that a formal letter of demand
(FLD) and FAN calling for the payment of deficiency taxes shall state the
facts, laws, rules and regulations or jurisprudence on which the assessment is
based; otherwise, the notices shall be void. The taxpayer shall have 30 days
from receipt of the FLD and FAN to file an administrative protest.

Significantly, the Supreme Court in earlier rulings categorically pronounced

that an assessment should contain not only the detailed computation of tax
liabilities, but also a demand for payment within a prescribed period. It further
mentioned that an assessment, in the context of the National Internal
Revenue Code, is “a written notice and demand made by the Bureau of
Internal Revenue (BIR) to the taxpayer for the settlement of the due tax
liability that is there: definitely set and fixed.”
Applying the decision of the Supreme Court, merely notifying the taxpayer of
his tax liabilities is not enough. The FLD/FAN should not only show a
computation of tax liabilities and the details of the assessment, but it should
also contain a clear unequivocal demand for payment by indicating the
definite date or period for payment of the assessed taxes. The Supreme
Court, in effect, provided an additional requirement for an assessment to be
considered valid, apart from those laid down under the regulations.

Referring back to the recent CTA case, the deficiency tax assessment was
cancelled because it did not comply with the additional requirement that there
should be sufficient demand for payment by the BIR. In this case, there was
an undated FAN assessing the taxpayer for deficiency taxes and this was
deemed null and void because the due dates on the assessment notices for
all assessment items were left blank or unspecified.

What can be gathered from this case is that taxpayers can raise a defense
against an assessment if there is no demand for payment made. Failure to
comply with the additional requirement of demand proves fatal to the
assessment. Thus, even if the issues raised in the assessments have merit,
taxpayers can still check if the FLD/FAN contains a specific due date for the
payment of the deficiency taxes. If there is none, they can protest that the
assessed amount is not collectible because payment was not actually
demanded by the BIR. Applying the decisions of the courts, in such cases,
taxpayers can firmly say, “No demand, no pay.”

The views or opinions expressed in this article are solely those of the author
and do not necessarily represent those of Isla Lipana & Co. The content is for
general information purposes only, and should not be used as a substitute for
specific advice.
Maria Jonas Yap is a Manager at the Tax Services Department of Isla Lipana
& Co., the Philippine member firm of the PwC network.

+63 (2) 845-2728

maria.jonas.s.yap@ph.pwc.com