DISPENSING WITH THE BOND REQUIREMENT
By Aziza Hannah Bacay on September 2, 2021
As part of its collection efforts, the Bureau of Internal Revenue (BIR) can use summary administrative remedies such as warrants of distraint and/or levy (WDLs) against delinquent taxpayers. Implementation of these presupposes that the taxpayer failed to pay the assessment despite the valid service of notices and that the assessment had attained finality and had become delinquent.
There are instances, though, where the BIR issues WDLs even though the assessment’s validity remains pending in courts. This is consistent with the no injunction rule under Section 218 of the National Internal Revenue Code, as amended (Tax Code). It states that courts do not have the authority to restrain the collection of taxes imposed under the Tax Code.
Section 11 of Republic Act (RA) 1125, as amended, provides an exception. Said provision authorizes courts to suspend the collection of taxes if, in their opinion, such may jeopardize the government’s and/or the taxpayer’s interests. The taxpayer is thus permitted to file a motion for the suspension or collection of the tax together with the petition, answer, or separate motion at any stage of proceedings in the Court of Tax Appeals (CTA) (Rule 10, Sec. 3, A.M. No. 05-11-07-CTA). After a summary hearing, the CTA may enjoin the collection of taxes.
But when the CTA orders the tax collection suspended, the taxpayer is required to post a surety bond of not more than double the disputed amount or value (Sec. 11, RA 1125). The bond requirement, as a general rule, is effective from approval by the court or until the action or proceeding is finally decided, resolved or terminated. Posting of the bond may be costly, especially if the assessment involves millions or billions of pesos.
The taxpayer is not left without remedy, however. The taxpayer may move for the bond requirement to be dispensed with if the method employed by the government in the collection of the tax is not sanctioned by law (Sec. 11, RA 1125).
Preliminary hearing required
In Spouses Pacquiao v. Commissioner of Internal Revenue (CIR) (G.R. No. 213394, April 6,2016), the Supreme Court held that the posting of the bond should not be required if the collection jeopardized the interest of the taxpayer and was done in patent violation of the law. In this case, the Pacquiaos claimed procedural defects in the issuance of notices and that the assessment was merely based on “best possible sources” without citing any detail.
The Supreme Court ordered the case remanded to the CTA for a preliminary hearing to identify, among others, whether the notices – such as the Notice of Informal Conference, Final Decision on Disputed Assessment, Preliminary Collection Letter, and WDLs – were issued in accordance with the law and existing regulations.
The Supreme Court held that it would be absurd to declare the manner of collection violative of law and at the same time require the taxpayer to deposit or file a bond as a prerequisite for the issuance of an injunction.
Furthermore, in Tridharma Marketing Corp. v. CTA and CIR (G.R. No. 215950, June 20, 2016), the Supreme Court held that the CTA committed grave abuse of discretion when it imposed a bond requirement that greatly exceeded the taxpayer’s net worth without conducting a preliminary hearing to determine whether there was sufficient ground to suspend the collection of taxes and whether the means adopted by the CIR in determining the liability of taxpayer was legal and valid.
Ground for dispensation must be proven
In CIR v. Central Luzon Drug Corporation (CTA EB Case No. 2038, March 16, 2021) the CTA en banc granted the suspension of collection of tax and dispensed with the bond requirement because it was proven that the revenue officer who examined the taxpayer’s books was not clothed with a valid Letter of Authority (LOA) authorizing him to conduct the audit. The CTA held that before any of the civil collection remedies could be employed, it must be first established that the taxes subject to collection had become delinquent. In the absence of a valid LOA, there can be no valid assessment that would have caused the taxpayer to become delinquent.
Similarly, in Marketing Convergence, Inc. v. CIR (CTA Case No. 9379, November 16, 2020 and March 8, 2021), it was proven that the examiners who conducted the audit were only given a Memorandum of Assignment, not an LOA, and the assessment was thus declared void. Despite this, the BIR still issued a WDL against the taxpayer, constraining the latter to file an urgent motion for the suspension of the tax collection and a motion to dispense with the bond payment. It was also pointed out that the taxpayer’s audited financial statements showed that the bond required was much higher than the taxpayer’s net worth. The CTA, citing the Pacquiao and Tridharma cases, granted the suspension of the tax collection and dispensed with the posting of the bond.
From the foregoing, it is clear that the posting of a bond as a prerequisite for suspension of tax collection can only be justified if the collection was carried out in consonance with law. If the assessment is void or due process violated, the posting of the bond can be dispensed with.
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Aziza Hannah A. Bacay 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 questions or comments regarding this article, you can email the author at info@mtfcounsel.com or visit the MTF website at www.mtfcounsel.com