SOME taxpayers may have experienced preparing and submitting extensive documents to the Bureau of Internal Revenue (BIR) to challenge a deficiency tax assessment, only to have their arguments and evidence ignored. In such cases, they often turn to the Court of Tax Appeals (CTA), as some BIR officers merely reiterate the initial findings in their Preliminary Assessment Notice (PAN) in the Final Assessment Notice (FAN) and Final Decision on Disputed Assessment without addressing the taxpayer’s evidence or explaining why the assessment was upheld.
Fortunately, the CTA, both in division and en banc, has rendered several decisions stating that it violates a taxpayer’s right to due process when BIR officers render similar decisions in the resolution of a reply to PAN and protest to a FAN without explaining why the taxpayer’s arguments were rejected. Tax assessments issued in such cases, where due process is ignored, are deemed null and void.
In a tax assessment case involving a manufacturing company, the Supreme Court ruled that, in protesting tax assessments, due process requires the Commissioner of Internal Revenue to consider the taxpayer’s defense and evidence in making a decision. While the BIR is not obliged to accept these arguments, the commissioner must provide reasons, which must appear on record, for rejecting them. Failure to adhere to this requirement constitutes a denial of due process and invalidates the administrative proceedings.
Simply put, the Supreme Court ruled that the right to be heard, which includes the right to present evidence, is meaningless if the commissioner can disregard evidence without explanation. The Supreme Court emphasized that due process is crucial in tax investigations and assessments because they affect the proprietary rights of persons.
Using this rationale, the CTA ruled in subsequent cases that the commissioner violated taxpayers’ right to due process when findings in the PAN and FAN were identical, indicating that the taxpayers’ protests were not duly considered. In these CTA cases, the following situations occurred:
– A comparison of the figures in the PAN and the FAN showed no changes in basic taxes, interests, or compromise penalties. More importantly, the BIR officers failed to address any of the taxpayer’s refutations in the letter-reply to the PAN, which the CTA deemed as an indication that the BIR did not take these into account when issuing the FAN.
– The details of discrepancies in the FAN merely reiterated or copied verbatim the PAN’s content, with only an adjustment to the interest imposed.
– Both the PAN and FAN included the same vague statement: “The records of the case disclosed that you have not introduced sufficient evidence to throw the validity of our findings,” which the CTA deemed too general, lacking specific reasons for rejecting the taxpayer’s arguments.
In the above-described cases, the CTA ruled that while Revenue Memorandum Order 26-2016 makes filing a protest to the PAN optional and requires the FAN to be issued within 15 days from the date of the taxpayer’s receipt of the PAN, it does not undermine but rather reinforces the earlier Supreme Court decision. Once a taxpayer chooses to file a reply to the PAN, the commissioner is obligated to consider it and cannot disregard it without violating the taxpayer’s due process rights and invalidating the assessment.
It is worth noting that in some cases, the appealing taxpayers did not specifically raise the issue of the BIR’s failure to address their arguments and evidence, whereas the findings in the PAN vis-à-vis the FAN were identical. However, the CTA motu proprio addressed and ruled on the case based on this issue.
This development in tax jurisprudence marks a significant step forward for all taxpayers. It underscores the importance of due process and the need for BIR to fairly evaluate and consider the arguments and evidence presented in a taxpayer’s reply to the PAN or protest letter. By doing so, many taxpayers can avoid the burden of filing petitions with the CTA and incurring substantial legal costs. Ensuring objective, transparent assessments at the administrative level will not only uphold taxpayers’ rights but also foster greater trust in the country’s tax system.
Ronald V. Bernas is a tax and legal partner, and Marvin B. Ibarra is a director, both at the Tax & Legal practice of Deloitte Philippines, a member of the Deloitte Asia Pacific Network. For comments or questions, email [email protected]. Discover more insights on surviving tax audits at Deloitte Philippines’ inaugural Tax Summit, Tax Reforms Unlocked: Opportunities and Implications for Taxpayers, on Tuesday, Nov. 19, 2024. Register at https://deloi.tt/3Btvt9b.
Be the first to comment