 Final assessment for EDS corp.

mailed but without demand letter

An assessment notice is a computation prepared by the BIR of the alleged unpaid taxes,
plus interests, penalties or surcharges, if any. However, an assessment notice must
be accompanied by a demand letter from the BIR in order to result in valid
assessment. (RR 12-99)

 Legal defense(s) against the assessment

I would raise the defense that there is no valid assessment because EDS corp. did not
receive a demand letter from the BIR.

 Resident citizen (Manalo); owns vacation house in California acquired in 2000 for
P15M; sold it to another resident citizen (Mayaman) in 2006 for P20M; Manalo paid
CGT of 6% (P1.2M); since he did not derived any ordinary income, no ITR was filed;
was assessed for deficiency IT: 5M (20M-15M) x 35% = 1.75M without the CGT paid
being allowed as tax credit; tax assessment correct?
The BIR officer correctly disallowed the credit of the FT of P1.2M against the net IT,
which is subject to deductions. However, the assessment of 35% is incorrectly imposed.
The correct rate is based on the 5-32% tax scale which is applicable to individuals. (sec.
24(d1) & sec. 42(a5)

 Advice Manalo to protect his interest

I would advise him to demand the application of the 5-32% tax scale instead of the fixed
rate of 35% which applies only to domestic corporations.

 The acquittal of the TP in a criminal action under the Tax Code does not necessarily
result in exoneration of said TP from his civil liability to pay taxes.
In taxation, the TP becomes criminally liable because of a civil liability. While he may be
acquitted on the criminal case, his acquittal could not operate to discharge him from the
duty to pay tax, since that duty is imposed by statute prior to and independent of any
attempt on the TP to evade payment. The obligation to pay the tax is not a mere
consequence of the felonious acts charged in the information, nor is a mere civil liability
derived from crime that would be wiped out by the declaration that the criminal acts
charged did not exist.

 Informed by client (ABC corp.) that they have been directly approached with a
proposal by a BIR insider: to settle by reducing the assessment, but he will get 50%;
tax, criminal and ethical considerations to take into account
I will advise my client not to accept the settlement proposal but instead pay the entire
amount of tax that is legally due to the government.
On the tax aspect, I will tell my client that an assessment covering deficiency taxes
which are legally due must be fully paid to exonerate the TP from further liabilities. The
unwarranted reduction of the assessment and the payment thereof will not close the
case with finality. It can be re-opened anytime within 10 years from discovery so as to
collect the correct amount of taxes.
The act of deliberately paying an amount of tax that is less than what is known by my
client to be legally due through a course of action that is unlawful is considered as tax
evasion. I will advise my client that conniving with a BIR insider to reduce the
assessment for a fee is unlawful which can expose the officers of the corp. to criminal
liability. Likewise, the payment to be made to the BIR official constitutes indirect bribery
punishable under the RPC. Insofar as the BIR officer is concerned, he will also be a
principal to direct bribery and to the criminal violation penalized under sec. 269 of the
Tax Code.
On ethical grounds, agreeing to the settlement scheme is agreeing to the perpetration of
a dishonest act. Since taxation is symbiotic relationship, fair dealing on both sides is of
paramount importance. I will remind my client that TPs owe honesty to government just
as government owes fairness to TPs.

There is a difference between a false return and a fraudulent return. The first merely
implies a deviation from the truth or fact whether intentional or not, whereas the second
is intentional and deceitful with the aim of evading the correct tax due.

 Should the accused be found guilty beyond reasonable doubt for violation of sec. 255
of the Tax Code (for failure to file tax return or to supply correct information), the
imposition of the civil liability by the CTA should be automatic and no assessment
notice from the BIR is necessary?
Yes. If the failure to file tax return or to supply correct information resulted to
unpaid taxes the amount of which is proven during trial, the CTA shall not only
impose the criminal penalty but must likewise order the payment of the civil
liability (sec. 205(b). As a matter of fact, it is well-recognized that in the case of
failure to file a return, a proceeding in court for the collection of the tax may be
filed without the need of an assessment, which recognizes that the civil liability of a
TP maybe established without the need of an assessment (sec. 222(a).

 Affidavit of the CIR; information for failure to file ITR under sec. 255 was filed by the
DOJ with the Manila RTC against a Manila resident; moved to quash – RTC no
jurisdiction in view of the absence of a formal deficiency tax assessment issued by the
CIR; is a prior assessment necessary before an information for violation of sec. 255
could be filed in court?
No. In case of failure to file a return, a proceeding in court for the collection of
the tax may be filed without an assessment (sec. 222(a). The tax can be collected
by filing a criminal action with the RTC because a criminal action is a mode of collecting
the tax liability (sec. 205). Besides, the Commissioner is empowered to prepare a
return on the basis of his own knowledge and upon such information as he can
obtain from testimony or otherwise, which shall be prima facie correct and
sufficient for legal purposes (sec. 6(b). The issuance of a formal deficiency tax
assessment, therefore, is not required.

In cases within the jurisdiction of the Court, the criminal action and the corresponding
civil action for the recovery of civil liability for taxes and penalties shall be deemed
jointly instituted in the same proceeding. The filing of the criminal action shall
necessarily carry with it the filing of the civil action. No right to reserve the filing of such
civil action separately from the criminal action shall be allowed or recognized. (sec. 11,
Rule 9, 2005 Revised Rules of the CTA)

Exclusive jurisdiction over cases involving criminal offenses, to wit:

Appellate jurisdiction over appeals from the judgments, resolutions or orders of the RTCs
in their original jurisdiction in criminal offenses arising from violations of the NIRC or
Tariff and Customs Code and other laws administered by the BIR or Bureau of Customs,
where the principal amount of taxes and fees, exclusive of charges and penalties,
claimed is less than 1M pesos or where there is no specified amount claimed (sec. 3(b2),
Rule 4)

Decisions of the Collector of Customs in protest and seizure cases are appealable to the
Commissioner of Customs within 15 days from receipt of notice of the written decision.
As a rule, decisions of the CC are not appealable to the CTA. If the CC, however, does
not decide a protest for a long period of time, the inaction may be considered as an
adverse decision by the CC and the aggrieved TP may appeal to the CTA even without
the Collector’s and Commissioner’s actual decision.

 Does the CA have the power to review compromise agreements forged by the CIR and
a TP?
No, for either of 2 reasons: (1) in instances in which the CIR is vested with authority to
compromise, such authority should be exercised in accordance with the Commissioner’s
discretion, and courts have no power, as a general rule, to compel him to exercise such
discretion one way or another; (2) if the Commissioner abuses his discretion by not
following the parameters set by law, the CTA, not the CA, may correct such abuse if the
matter is appealed to it. In case of arbitrary or capricious exercise by the Commissioner
of the power to compromise, the compromise can be attacked and reversed through the
judicial process. It must be noted, however, that a compromise is considered as other
matters arising under the NIRC which vests the CTA with jurisdiction, and since the
decision of the CTA is appealable to the SC, the CA is devoid of any power to review a
compromise settlement forged by the Commissioner.

Proceedings before the CTA in the exercise of its exclusive original jurisdiction are in the
nature of trial de novo.

The CTA may suspend the collection of IR taxes if the following conditions are met:
1. The case is pending appeal with the CTA;
2. In the opinion of the Court the collection will jeopardize the interest of the
government and/or the TP; and
3. The TP is willing to deposit in Court the amount being collected or to file a surety
bond for not more than double the amount of the tax (sec. 11, RA 1125, a.a.b. RA
9282)

 Oct. 2005, ABC Corp. imported 1,000 kilos of steel ingots and paid customs duties
and vat to BOC; Feb. 2009, BOC investigated and assessed corp. for deficiency
customs duties and vat, citing provisions of TCC on post-audit; BOC correct?
No. The BOC has lost its right to assess deficiency customs duties and vat. The imported
steel ingots in 2005 have been entered and the customs duties thereon had been paid
thereby making the liquidation of the importation final and conclusive upon all parties
after the expiration of 3 years from the date of final payment of duties and taxes. (sec.
1603, TCC, a.a.b RA 9135)
Note: Insofar as vat on importation is concerned, the underpayment will be
automatically cured when these are credited against the output tax due upon sale by the
imported when the vat return is filed. Be that as it may, an assessment for deficiency
vat can only be made by the BIR (not by BOC), vat being an internal revenue tax, within
3 years from the last day prescribed by law for filing of the vat return (sec. 203).
Final adjustment return for 2010, ABC Corp. had excess tax credits arising from

RULE ON THE WRIT OF AMPARO

A remedy available to any person whose right to life, liberty, and security is
violated or threatened with violation by an unlawful act or omission of a
public official or employee or of a private individual or entity. The writ shall
cover extra legal killings and enforced disappearances or threats thereof.
S