WAIVER OF THE STATUTE OF LIMITATIONS IN TAXATION
By Ellaine Anne Bernardino on June 17, 2021
As a general rule, the Bureau of Internal Revenue (BIR) has three years from the last day prescribed by law for the filing of the tax return or from the day the tax return was filed, whichever is later, to assess internal revenue taxes of a taxpayer. The assessments issued after the expiration of the three-year period shall no longer be valid and effective. The prescriptive period on the right of the BIR to assess is meant to safeguard the interests of taxpayers from unreasonable investigation.
However, the three-year prescriptive period may be extended through the execution of a waiver on the statute of limitations, wherein the commissioner of Internal Revenue or his duly authorized representative and the taxpayer agree in writing before the expiration of the three-year period, as to a specific future date when the period to assess is extended. The waiver must be entered by both parties with utmost good faith and in compliance with the requirements provided in the law.
Waivers are considered a derogation of the taxpayer’s right to security against prolonged and unscrupulous investigations; thus, it must be strictly construed. However, such a principle does not preclude the courts from upholding the validity of a waiver and considering the taxpayer estopped from questioning its validity in certain circumstances.
In the case of Philippine Journalists Inc. vs. CIR (GR162852, Dec. 16, 2004), the Supreme Court (SC) previously held that Revenue Memorandum Order (RMO) 20-90 must be strictly complied with for a waiver to be valid. Hence, the courts then issued several decisions striking down waivers on various grounds for failure to comply with RMO 20-90 and Revenue Delegation Authority Order 05-01, such as (1) lack of authority of the person executing the waiver (2) failure of the BIR to indicate the date of acceptance of the waiver (3) failure of the BIR to furnish the taxpayer with a copy of the signed waiver and (4) failure to duly notarize the waiver.
However, the courts held that the taxpayer is precluded from contesting the waiver on the basis of estoppel and pari-delicto (mutual fault).
In the case of Rizal Commercial Banking Corp. (RCBC) vs. CIR (GR170257, Sept. 7, 2011), the Supreme Court ruled that RCBC, by partially paying the revised assessments issued within the extended period as provided for in the questioned waivers, impliedly admitted the validity of those waivers. The SC held that had RCBC truly believed that the waivers were invalid and that the assessments were issued beyond the prescriptive period, it should not have paid the reduced amount of taxes in the revised assessment. The SC considered RCBC’s subsequent action to have effectively belied its insistence that the waivers are invalid. Thus, the SC held that RCBC is estopped from questioning the validity of the waivers.
Furthermore, in CIR vs. Next Mobile Inc. (Next Mobile) (GR212825, Dec. 7, 2015), the SC held that both the BIR and the taxpayer, in this case, are in pari delicto. In this case, Next Mobile executed waivers through their representative although her authority to sign these waivers was not presented upon their submission to the BIR. On the other hand, the BIR has failed five times to verify the authority of the said representative to execute the waivers. The SC ruled that both parties knew the infirmities of the waivers, yet they continued dealing with each other without rectifying such infirmities. Next Mobile deliberately executed defective waivers and then raised the very same deficiencies it caused to avoid the tax liability, when by virtue of these waivers, it was given the opportunity to gather and submit documents to substantiate its claims during the investigation.
Hence, the SC held that after enjoying such benefits and allowing the BIR to rely on such waivers, Next Mobile is estopped from challenging its validity.
After the passage of the Next Mobile case, the BIR issued Revenue Memorandum Circular 141-19 revising and relaxing some requirements of a valid waiver to include the following:
a) The condition that the delegation of authority to a representative be in writing and notarized is no longer required
b) The taxpayer cannot seek to invalidate his waiver by contesting the authority of his own representative
c) The date of acceptance by the BIR officer is no longer required to be indicated for the waiver’s validity
d) The waiver may or may not be notarized; it is sufficient that the waiver is in writing
e) The taxpayer is charged with the burden of ensuring that his waiver is validly executed when submitted to the BIR
In the more recent case of UPS-DELBROS Transport Inc. vs. CIR (CTA EB 2031 and 2031, Nov. 19, 2020), the Court of Tax Appeals ruled that the waivers are still valid and its failure to state the kind of tax covered and the amount due are not fatal, which will cause its nullification. Thus, the waiver may simply state “all internal revenue taxes,” since it is only the assessment stage where the tax liability of the taxpayer is determined.
It is clear that a taxpayer may contest the validity of a waiver but there are also instances when it will be precluded to do so. The requirements have been changed and relaxed. Also, the taxpayer now has the burden to ensure that the waiver is validly executed. Thus, taxpayers should be aware of the due requisites for a valid waiver.
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Ellaine Anne L. Bernardino is a junior associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com.