WAIVER OF PRESCRIPTIVE PERIOD TO ASSESS TAX
By: Aziza Hannah A. Bacay on October 4, 2018
A part of taxpayer’s due process rights under law is to be subject to a tax audit and assessment (for deficiency taxes) by the BIR only within certain defined periods, known as “prescriptive periods.”
If the BIR does not make a tax assessment within the prescriptive periods, the BIR will be forever barred from making such an assessment.
The legal prescriptive periods for the BIR to make an assessment are: (a) three years counted from the last day allowed by law to file the tax return or from the day the tax return was filed, whichever comes later, and (b) in case there is fraud, ten years from discovery of the fraud.
Prescriptive periods may be extended by a taxpayer’s execution and the BIR’s acceptance of a waiver of defense of prescription pursuant to Section 222(b) of the Tax Code.
Because a waiver is an abandonment of rights, benefits or privileges, it should not be taken lightly. Thus, the law institutes safeguards to ensure that the person executing the waiver is well aware of the consequences of such action.
The Supreme Court has ruled that a waiver, to be valid, must be “voluntary” and “intentional.” There must be clear intent by a capable person of the surrender or relinquishment of a right known to by him to exist (F.F. Cruz & Co., Inc. v. HR Construction Corp., 668 SCRA 302). A waiver of prescription in tax assessments is no exception.
The old administrative requirements on the issuance of waivers were set out in the BIR’s Revenue Memorandum Order No. (RMO) 20-90 and Revenue Delegation Authority Order No. (RDAO) 05-01. These requirements included the execution of a prescribed form, which must be notarized and accepted by the BIR within the three-year prescriptive period.
Indicating the BIR’s date of acceptance of the waiver and furnishing a copy of the BIR-accepted waiver to the taxpayer before the expiry of the prescriptive period sought to be extended were also mandatory requirements.
These old administrative requirements were revised and relaxed in RMO 14-16 dated April 4, 2016. RMO 14-16 states that a “waiver is a voluntary act of the taxpayer.” Hence, the waiver shall have legal effect and be binding on the taxpayer upon its execution.
RMO 14-16 did away with the requirements of indicating the date of BIR’s acceptance and delivery of the accepted waiver to the taxpayer. It also made optional the requirement of notarization, as well as using the forms of waivers prescribed under RDAO 05-01.
In Commissioner of Internal Revenue v. Next Mobile (G.R. No. 212825, December 7, 2015), the Court of Tax Appeals (CTA), because of the particular facts in this case, upheld the validity of the waivers executed by the taxpayer despite their infirmities, on the basis that the taxpayer was equally at fault with the BIR, and thus in pari delicto.
Thus, even if there is no strict compliance by the BIR with the rules regarding waiver, the validity of the waiver may be upheld if the taxpayer contributed to the defects in the waiver.
In recent decisions of the CTA, the CTA invalidated waivers which failed to strictly comply with the requirements under RMO 20-90 and RDAO 05-01, which were the rules then applicable at the time of the execution of the waiver.
In Megabucks Merchandising Corp. vs. Commissioner of Internal Revenue (CTA Case No. 9345, August 17, 2018), the CTA invalidated several waivers because the date of execution by the taxpayer and date of acceptance by the BIR were already beyond the three-year period.
The CTA explained that when the period to assess has already expired, there is nothing more for the waiver to extend.
Furthermore, the CTA found that the taxpayer was not furnished with a copy of the waiver. The CTA emphasized that furnishing the taxpayer with a copy of the waiver is “not only to give notice of the existence of the document, but of the acceptance by the BIR and the perfection of the agreement.”
In the cases of Commissioner of Internal Revenue vs. Tektite Insurance Brokers, Inc. (C.T.A. EB Case No. 1544, January 17, 2018) and Meinan Philippines, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 8839, January 18, 2018), the CTA invalidated a waiver for failure by the BIR to indicate its acceptance, as prescribed in RMO 20-90 and RDAO 05-01. The CTA stressed that the date of acceptance is necessary to determine whether the waiver was validly accepted by the BIR before the expiration of the original three-year period.
The above cases show that the CTA will consistently and strictly apply the applicable waiver requirements. However, these cases were decided by the CTA using RMO 20-90 and RDAO 05-01, the regulations then applicable to the facts of these cases.
With the new and relaxed waiver requirements under RMO 14-16, however, if the CTA were to now decide a case involving facts similar to those in the cases discussed above, the CTA may very well arrive at a different conclusion or ruling.
Aziza Hannah A. Bacay is a Junior Associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is an active member of MTF Counsel’s corporate and tax practice. The contents of the above article are intended for general information purposes only and do not constitute legal advice. If you have any question or comment regarding this article, you may email the author at email@example.com or visit MTF Counsel’s website at www.mtfcounsel.com.
From The Manila Times website on October 4, 2018