Government'S Remedies in Taxation

GOVERNMENT’S REMEDIES IN
TAXATION
REMEDIES
• These pertain to the means and mechanisms
by which the violation of a right or provisions
of law is prevented, redressed or
compensated.
• Government remedies are the means which
can be used by the government to ensure that
it gets sufficient money into its coffers to keep
the government machinery moving.
REMEDIES
• Taxpayer’s remedies, on the other hand, are
those which are available to the taxpayer to
ensure that his rights are protected while the
government exercises its power to tax.
GOVERNMENT’S REMEDIES
(1) ASSESSMENT – an action either by the taxpayer
or an administrative officer to determine the
taxpayer’s tax due.
• 2 Kinds:
1. Self-assessment – here, the taxpayer computes his own
liability, files his return, and pays the tax based on his
computation. Generally, taxes are self-assessing;
2. Deficiency assessment – this occurs upon discovery of the
BIR that the self-assessment was either deficient, or when
no return was made by the taxpayer
• DEFICIENCY ASSESSMENT :
• Consists of a computation of the amount of tax
that must be paid by the taxpayer; and
• Coupled with a demand to pay the tax within a
specified period of time.
• To be valid, the assessment must be:
(1) in writing
(2) must inform in taxpayer of the law and the facts on
which the assessment is made
• DEFICIENCY ASSESSMENT
• The power to issue an assessment is with the
CIR.
• However, this power is delegable.
• Before the delegated revenue officer can
conduct an examination or assessment, there
must be a clear grant of authority, embodied
in a Letter of Authority (LOA).
• The power to issue an assessment is with the
CIR.
• However, this power is delegable.
• Before the delegated revenue officer can
conduct an examination or assessment, there
must be a clear grant of authority, embodied
in a Letter of Authority (LOA).
• The LOA cannot be for “unverified prior years”.
The other period or years should be
specifically indicated in the LOA, otherwise,
the LOA is void insofar as the unverified prior
years is concerned.
• After the examination and the BIR finds
sufficient basis for an assessment, the BIR will
issue a preliminary assessment notice (PAN)
stating the facts, laws, rules, regulations, and
jurisprudence on which the proposed
assessment is based.
• The taxpayer has 15 days from receipt of the PAN
to respond.
• If he doesn’t, he is in default, and a Formal Letter of
Demand and Final Assessment Notice (FLD/FAN) shall
be issued.
• If he does, a FLD/FAN will be issued within 15 days
from the filing/submission of the taxpayer’s response.
• If no PAN is given (and the case is no part of the
exceptions), then the FAN which follows therefrom is
void.
• FLD/FAN can be protested within 30 days from receipt
• A PAN is not needed and FAN can be issued outright in the
following cases:
1) Any deficiency tax is the result of mathematical error in the
computation of the tax evident on the face of the return.
2) Discrepancy between the tax withheld and the amount actually
remitted by the withholding agent.
3) Taxpayer who opted to claim a refund or tax credit for excess
creditable withholding tax carried it over and automatically
applied the amount claimed against the estimated tax liabilities
for the taxable quarter of the succeeding taxable year.
4) Excise tax due on excisable articles has not been paid
5) When an article locally purchased or imported by an exempt
person has been sold, traded or transferred to non-exempt
person.
• PRESCRIPTIVE PERIOD FOR DEFICIENCY
ASSESSMENT
• Assessments made beyond the prescriptive
period are not binding on the taxpayer.
• General Rule: The right to assess must be
exercised within 3 years from:
The day the return was actually filed; or
From the last day prescribed by law for filing the
return, whichever is later
ASSESSMENT
• General Rule: 3 years
• Exceptions:
• False or fraudulent return with intent to evade
taxes: within 10 years from discovery of the falsity
or fraud
• Failure or omission to file a return: within 10 years
after discovery of the failure or omission
• Waiver of the statute of limitations in writing, :
period agreed upon
ASSESSMENT
• Waivers of the statute of limitation, requisites for
validity:
1) Must be in writing (need not be notarized)
2) Date of execution and acceptance of the waiver by
the BIR shall be before the expiration of the period
to assess or collect taxes;
3) Date of execution shall be specifically indicated in
the waiver;
4) Signed by the taxpayer or his duly authorized
representative. For corporation, the waiver must be
signed by any of its responsible officials.; and
5) Expiry date of the period agreed upon should be
indicated
(2) IMPOSITION OF PENALTIES AND INTERESTS
- apply to all taxes, fees and charges imposed by
the NIRC.
- the purpose of this is to discourage delay in the
payment of taxes due to the Government.
- penalties can be either 25% or 50% surcharge
- interest can be either (1) general interest; (2)
deficiency interest; (3) delinquency interest; and
(4)extended payment interest.
CIVIL PENALTIES
25% surcharge is imposable on the amount due in the following cases:
1) Failure to file a return AND pay the tax due;
2) Filing a return with an internal revenue officer other than those
with whom the return is required to be filed;
3) Failure to pay the deficiency tax within the time prescribed in the
notice of assessment; and
4) Failure to pay the full or part of the amount of tax stated in the
return (or full amount when no return is filed) on or before the
date prescribed for its payment.
NOTE:
There is NO 25% surcharge when you file on time, pay the full
amount stated in the return, but subsequently find out that the return
filed and the amount paid was erroneous.
CIVIL PENALTIES
50% surcharge is imposable on the amount due
in the following cases:
1) Willful neglect to file a return within the
period prescribed by law
2) False or fraudulent return is willfully made.
CIVIL PENALTIES
50% surcharge is imposable on the amount due in
the following cases:
1) Willful neglect to file a return within the period
prescribed by law
Note: If the taxpayer voluntarily files the return,
without notice from the BIR, only 25% surcharge
shall be imposed for late filing and late payment of
the tax.
But if the taxpayer files the return only after
prior notice in writing from the BIR, then the 50%
surcharge will be imposed.
CIVIL PENALTIES
50% surcharge is imposable on the amount due
in the following cases:
2) False or fraudulent return is willfully made
Note: There is a prima facie evidence of a false and
fraudulent return when there is substantial
underdeclaration of taxable income or substantial
overstatement of deductions (failure to declare an
amount exceeding 30% for taxable income or actual
deductions)
INTEREST
 For general interest, the interest on unpaid taxes is
20% per annum on any unpaid amount of tax from
the date prescribed for payment until the amount is
fully paid.
 For deficiency interest, the rate is 20% per annum on
any deficiency in the tax due from the date
prescribed for its payment until full payment.
INTEREST
 For delinquency interest, 20% per annum on the
unpaid amount in case of failure to pay:
* amount of tax due on any return required to be
filed; or
* amount of tax due for which no return is
required; or
* deficiency tax, or any surcharge or interest
thereon on the due date appearing in the notice and
demand of the CIR.
INTEREST
 For interest on extended payment, the rate is 20%
per annum.
This is imposed when a taxpayer is qualified and
elects to pay the tax on installment, but fails to pay the
tax or any installment thereof, or pays it beyond the
period of payment; or
The CIR has authorized an extension of time
within which to pay a tax or deficiency tax or any part
thereof.
LET’S APPLY! Identify the penalties for each of
the following situations:
1. Lucky Chan forgot to file on April 15. He filed
on June 30 after he woke up in a cold sweat and
realized his error.
Penalties: 25% surcharge for late filing and late payment.

20% general interest from date due up to time paid.
2. Lucky Chan paid on April 15, but he got
distracted by a girl in red and paid to the wrong
agent bank.
Penalties: 25% surcharge

No interest charge because he paid on time, just at
the wrong place.
Result: Pay the surcharge (no need to pay the tax due)
3. Lucky Chan didn’t file on April 15. He didn’t
care until a demand letter was sent to him by
the BIR to pay by June 30. He paid on June 30.
Penalties: 50% surcharge

20% general interest from date due (not from
demand) up to time paid.
Result: Pay tax, plus penalties
4. Lucky Chan filed his income tax return on time (April
15) and paid P100,000. Upon pre-audit, it was
discovered that there was an error in computation. The
correct amount due was P120,000. He was assessed for
deficiency income tax in a letter of demand and
assessment notice, telling him to pay by June 30. He
did.
Penalties: 20% deficiency interest on the deficiency tax from
date due up to time paid.
No surcharge (no ground for the imposition)
5. KSP, Inc. filed its return and paid on time tax
amounting to P100,000. BIR disallowed its deductions,
so their taxable income went back up like a balloon.
They were sent a PAN stating that the correct amount
due was P170,000. They failed to protest. BIR sent
them a formal demand telling them to pay by June 30
of next year. They did.
Penalties: 20% deficiency interest on the deficiency tax from
date due up to time paid.
No surcharge (no ground for the imposition)
6. McJunahld’s Inc. filed its return on time in April 15 and paid
P175,000 for its income tax (it declared a P500,000 net taxable
income). However, the BIR discovered that it did not report a
taxable income of another P500,000 – a clear case of false and
fraudulent return. This amounted to a deficiency income tax of
another P175,000. They were informed by a PAN, but they failed
to protest. A formal letter of demand and assessment notice was
issued to them on May 31 demanding them to pay by June 30 of
next year. They paid.
Penalties: 50% surcharge (deficiency tax is the base)
20% deficiency interest imposed on deficiency tax
from date due up to time paid.
6. Continuing on the preceding situation, McJunahld did not pay
on June 30, the deadline for the payment of the assessment. As
such, the corporation shall be considered later in payment of the
said assessment. They pay on July 31.
Penalties: 25% surcharge on the amount supposed to be paid

on June 30.
20% delinquency interest on the amount supposed
to be paid on June 30, from the day after the payment was
due until time of actual payment
3) Criminal Actions and Other Penalties
No criminal action for the recovery of taxes
shall be filed without the approval of the CIR.
However, this required approval can be
delegated to and issued by subordinate
officials because the approval of filing of a
criminal action is not one of the non-
delegable functions of the CIR.
A criminal complaint is instituted not to
demand payment, but to penalize the
taxpayer for violation of the Tax Code.
Acquittal of taxpayer in a criminal case does
not exonerate him from tax liability.
Computation and assessment of deficiency
taxes is not a prerequisite for criminal
prosecution under the NIRC. Hence, protesting
an assessment cannot stop criminal
prosecution under the NIRC.
 When fraudulent tax returns are involved, a
proceeding in court after the collection of such
tax may be begun even without assessment.
 Intent to defraud need not be shown for a
conviction of tax evasion.
 The only thing that needs to be proven is that the
taxpayer was aware of his obligation to file the
tax return but he nevertheless voluntarily,
knowingly, and intentionally failed to file the
required returns.
PRESCRIPTION: 5 years, counted from:
service of the final notice and demand for
payment of the deficiency taxes upon the
taxpayer, if the violation is for failure or refusal
to pay the tax due.
discovery and institution of judicial
proceedings for its investigation and
punishment, if the violation is for filing of false
or fraudulent returns.
INFORMER’S REWARDS:
An informer is any qualified person who
voluntarily provides definite and sworn
information not yet in the possession of the BIR
nor of public knowledge, leading to the
discovery of frauds upon the NIRC, resulting to
the recovery of revenues and fees and/or
conviction of the guilty party and/or imposition
of any fine or penalty.
Who are DISQUALIFIED to avail of the Informer’s
Reward
 A BIR official or any other incumbent public
official or employee;
 Relative within the 6th degree of consanguinity of
a BIR official or employee, or other public official
or employee;
 Though already retired or separated from service,
BIR officials or employees or other public officers
who acquired the information in the course of
their duties during their incumbency.
4) Collection
When there is no valid protest made by the
taxpayer, the assessment shall become final
and unappealable, and thus the tax shall be
collectible.
4) Collection
GR: The government can file a proceeding in
court to collect once the assessment has
become final and unappealable.
XP: In the case of a false or fraudulent return
with intent to evade tax or of failure to file a return,
a proceeding for collection may be filed without
assessment ay any time within 10 years after the
discovery of the falsity, fraud, or omission.
4) Collection
MODES:
1. Summary/Extrajudicial/Administrative
2. Judicial (whether civil or criminal)
> These modes may be pursued singly or
independently of each other or all of the
simultaneously.
4) Collection
MODES:
1. Summary/Extrajudicial/Administrative
a. Distraint – enforced on personal property
b. Levy – enforced on real property
c. Tax lien
4) Collection
DISTRAINT
2 Kinds:
1. Actual – personal property is actually seized
by the BIR; actual delinquency in tax
payment is necessary
2. Constructive – no actual delinquency is
necessary
4) Collection
DISTRAINT
Actual Distraint
Procedures:
1. Commencement of distraint proceedings
2. Service of warrant of distraint
3. Notice of sale of distrained property
4. Release of distrained property, prior to sale
5. Sale of property distrained
6. Purchase by Government at sale upon distraint.
4) Collection
DISTRAINT
Constructive Distraint is resorted to when the CIR
believes that the taxpayer:
 is retiring from any business subject to tax
 Intends to leave the Philippines
 Intends to remove his property from the
Philippines
 Intends to hide or conceal his property; or
 Performing any act tending to obstruct the
proceedings for collecting the tax due.
4) Collection
DISTRAINT
Constructive Distraint is effected by:
The taxpayer will be required to sign a receipt
covering the property distrained and obligate
himself to:
Preserve it intact and unaltered, and
Not dispose it of in any manner, without express
authority of the CIR
4) Collection
LEVY
Procedures:
1. Commencement of levy proceedings
2. Service of warrant of levy
3. Advertisement for sale
4. Public sale of the property under levy
5. Redemption of property sold
6. Forfeiture to the Government for want of bidder
7. Resale of real estate taken for taxes
8. Further distraint and levy
4) Collection
TAX LIEN
A lien is a legal claim or charge on property,
either real or personal, established by law as a
security in default of the payment of taxes.
The tax, together with interest, penalties, and
costs that may accrue in addition thereto, is a
lien upon all property and rights to property
belonging to the taxpayer.
4) Collection
TAX LIEN
The lien shall NOT be valid against any
mortgagee, purchaser, or judgment creditor
until notice of such lien shall be filed by the
CIR in the Office of the Register of Deeds of
the province of city where the property of the
taxpayer is situated or located.
Lien attaches from the time tax became due
and payable.
4) Collection
Suspension of Collection
GR: No court can issue an injunction to restraint the
collection of internal revenue taxes, fees, or charges
imposed by the NIRC.
XP: Only the CTA can issue an injunction and it is only
allowed when the following conditions concur:
1. There is an appeal to the CTA;
2. in the opinion of the court, the collection may
jeopardize the interest of the Government and/or the
taxpayer; and
3. Taxpayer either to deposit the amount claimed or to
file a surety bond for not more than double the
amount with the Court.
4) Collection
Prescriptive Period: 5 years from date of
assessment.
Exceptions:
1. False or fraudulent return with intent to evade
taxes: within 10 years from discovery without
need of assessment. The government may file a
proceeding in court.
2. Failure or omission to file a return: within 10
years from discovery without need for
assessment.
3. Waiver in writing executed before the 5-year
period expires: period agreed upon
4) Collection
Prescriptive Period for both the power to assess
and power to collect can be suspended in the
following situations:
1. When the CIR is prohibited from making an
assessment or beginning distraint and levy or a
proceeding in court and for 60 days thereafter
4) Collection
2. Taxpayer requests for reinvestigation which is
granted by the CIR.
3. Taxpayer cannot be located in the address
given by him in the return filed, unless he
informs the CIR of the change of address.
4) Collection
4. When the warrant of distraint and levy is duly
served upon the taxpayer or authorized
representative and no property could be
located.
5. When the taxpayer is out of the Philippines
REMEDIES OF THE TAXPAYER
TAXPAYER’S REMEDIES
1 ) Protest or dispute of assessment
2) Refund or recovery of erroneously or illegally
collected taxes.
1) PROTEST OR DISPUTE OF ASSESSMENT
Filed within 30 days from date of receipt of
the FLD/FAN
Can be in the form of either a written request
for
 Reinvestigation; or
Reconsideration
For requests for reinvestigation, the taxpayer
shall submit all relevant supporting
documents within 60 days from the date of
the filing of his letter of protest.
The CIR or his representative must act on the
protest within 180 days counted from:
date of filing of the protest (in case of a request
for reconsideration); or
date of submission of the required relevant
supporting documents (in case of reinvestigation)
If the CIR does not act within the 180 day
period, the taxpayer may either:
(1) Appeal to the CTA within 30 days from the
expiration of the 180-day period ; or
(2) Wait for the final decision of the CIR’s
representative and appeal such decision to
the CTA within 30 days after receipt of copy
of such decision).
Quick rundown of the protest procedure
 LOA
 BIR finds deficiency and issues PAN (15 days to
respond)
 FLD/FAN (30 days to protest)
 Taxpayer files protest letter
 Submit supporting documents if request for
reinvestigation (60 days from time of protest letter)
 BIR denial > Appeal to CTA or CIR (and then CTA) (within 30
days from receipt of decision)
 BIR inaction for 180 days > Appeal to CTA (within 30 days
from lapse of 180 days) or Wait for decision of the CIR.
2) CLAIM FOR REFUND/CREDIT
Instances when a claim for refund may be
availed of:
• Erroneously or illegally assessed or collected
internal revenue taxes
• Penalties imposed without authority; or
• Any sum alleged to have been excessive or in
any manner wrongfully collected.
Requirements:
1. Written claim for credit or refund filed with
the CIR
2. Within 2 years after the actual payment of
the tax or penalty
A taxable corporation whose total quarterly
income tax payments in a given taxable year
exceeds its total income due is given 3 options:
1. Filing for a tax refund; or
2. Avail of a tax credit; or
3. Carry over the excess credit against the
estimated income tax liabilities of the
succeeding quarter.
REMEDIES COMMON TO THE
GOVERNMENT AND THE TAXPAYER
COMMON REMEDIES
1. Compromise
2. Abatement
COMMON REMEDIES
(1) COMPROMISE
Grounds:
1. Doubtful validity of the claim against the
taxpayer; or
2. Financial incapacity of the taxpayer
COMMON REMEDIES
(1) COMPROMISE
Cases which may be compromised:
1. Delinquent accounts;
2. Pending administrative cases under
administrative protest after issuance of FAN;
3. Civil tax cases disputed before the courts;
4. Collection cases filed in courts;
5. Criminal violations (XP – (1) already filed in
court; (2) involving criminal tax fraud
COMMON REMEDIES
(1) COMPROMISE
Cases which MAY NOT be compromised:
1. Withholding tax cases, unless the applicant-
taxpayer invokes provisions of law that cast
doubt on the taxpayer’s obligation to
withhold;
2. Criminal tax fraud cases confirmed as such by
the CIR or his duly authorized representative;
COMMON REMEDIES
(1) COMPROMISE
3. Criminal violations already filed in court;
4. Delinquent accounts with duly approved
schedule of installment payments.
5. Cases where final reports of reinvestigation or
reconsideration have been issued resulting to
reduction in the original assessment and the
taxpayer is agreeable to such decision by signing
the required assessment form for the purpose
COMMON REMEDIES
(1) COMPROMISE
6. Cases which become final and executory after
final judgment of a court, where compromise is
requested on the ground of doubtful validity of
the assessment;
7. Estate tax cases where compromise is
requested on the ground of the financial
incapacity of the taxpayer.
COMMON REMEDIES
(1) COMPROMISE
Minimum Compromise Rates
Based on financial incapacity – 10% of the
basic assessed tax
Based on doubtful validity – 40% of the basic
assessed tax
COMMON REMEDIES
(2) ABATEMENT OR CANCELLATION OF TAX
LIABILITY
When Allowed:
1. The taxes or any portion thereof appears to
be unjustly or excessively assessed; or
2. The administration and collection costs do
not justify the collection of the amount due.

Government'S Remedies in Taxation

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GOVERNMENT’S REMEDIES IN

Penalties: 25% surcharge for late filing and late payment.

Penalties: 25% surcharge

Penalties: 50% surcharge

Penalties: 25% surcharge on the amount supposed to be paid

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