PENALTIES AND FINES

Refer to:a. Surchargesb. Deficiency Interestc. Delinquency Interestd. Compromise penalty

I. Surcharges:Not really a penalty as used in criminal law but a civil administrative sanction designed primarily to: Protect the State revenue, and Reimburse the government for the expenses in investigating and the loss resulting from the taxpayers fraudAtty. A: Surcharges are generally 25% but if involves fraud it goes up to 50%

II. Interest Deficiency Interest20% per annum from the date prescribed for its payment until the full payment thereofAtty. A: This is an amount added if the taxpayer failed to pay the correct amount of tax that he should pay

Delinquency InterestInterest of 20% or the Manila Reference rate, whichever is higher, required to pay in case of failure to pay: The amount of the tax due on any return required to be filed Amount of the tax due for which return is required The deficiency tax or any surcharge or interest thereon, on the date appearing in the notice and demand of the CIRAtty. A: Delinquency meaning it is paid beyond the period prescribed by law. It is possible that you can be liable for surcharges, deficiency interest and delinquency interest.

III. Compromise PenaltySimilarities of compromise and compromise penalty:

They both imply mutual agreement. A compromise penalty cannot be imposed in the absence of a showing that the taxpayer consented thereto. The CIR has no power to impose and collect the compromise penalties in the absence of a compromise agreement validly entered into between the taxpayer and the CIR.Atty. A: The purpose of a compromise penalty is to avoid possible criminal litigation that may be undertaken by the BIR against you, so you pay instead the compromise penalty

IV. SUSPENSION OF BUSINESS OPERATIONS Failed to register under the VAT system(if you already mandatorily required) Failure to file VAT return Failure to issue VAT receiptsAtty. A: As a rule the business operation may be suspended in no less than 5 days as the case may be

-If despite all the administrative remedies the taxpayer cannot pay, probably no more money or properties, then the government will avail of the judicial remedies.

JUDICIAL REMEDIES

I. CIVIL ACTIONS

Actions instituted by the government to collect internal revenue taxes. Includes filing by the government within the probate court claims against the deceased taxpayer.Atty. A: It is not at all times that the Govt. will start the civil action, it is allowed that the taxpayer can first file the civil action and the government will file an answer.

Enforced by: Filing a civil case for the collection of sum of money with the proper regular court (i.e. MTC or RTC) or Filing an answer to the petition for review filed by the taxpayer with the CTA.

Civil actions filed with ordinary courtsResorted to only when tax becomes: Delinquent CollectibleAtty. A: You can consider a taxpayer delinquent if there is already a final assessment on the amount of tax payable but still the tax payer failed to pay on time.

Collectability arises when: Self-assessed tax shown in the return was not paid within the date prescribed by law.Atty. A: GR is pay as you file, so if you file but you do not pay then the tax there is now collectible.

Final assessment is not protested administratively within 30 days from date of receipt. Atty. A: If no protest it becomes final and executory, no more question, you cannot go anymore in the CTA. The tax is now collectible.

Non-compliance with the condition laid in the approval of protest. Failure to file a timely appeal to the CTA on the final decision of the CIR or his authorized representative on the disputed assessment.Atty. A: Appeal to the CTA must be made within the period of 30 days from the date of reciept of final decision of the CIR.

Defenses precluded by final and executory assessments: Invalidity or illegality of the assessment and Prescription of the governments right to assess.Atty. A: These defenses are already precluded if you fail to file a protest within the prescribed period even if your claim is valid.

Civil actions filed with the CTAAtty. A: These are in the form of answers or response by the BIR to the petition for review filed by the taxpayer to the CTA.The fact that no civil action was filed before the ordinary courts to collect the tax liability is no ground for claiming that the right to collect had already prescribed.The answer filed by the government in the CTA is tantamount to the filing of a civil action for collection in the regular court and has the effect of tolling the prescriptive period. (Hermanos, Inc. vs CIR, 29 SCRA 552)Atty. A. Counterclaims are included in the Answer filed by the govt. in the CTA.

II. CRIMINAL ACTIONS

Common crimes punishable under the Tax Code: Attempt to evade or defeat a tax Failure to file return, supply correct and accurate information, pay tax, withhold and remit tax and refund excess taxes withheld on compensation.

Any person required under the Tax Code To pay any tax Make a return Keep any record Supply correct and accurate information Withhold or remit taxes withheld Refund excess taxes withheld on compensation Who willfully violates these duties at the time or times required by law shall be punished upon conviction in addition to other penalties.Atty. A: Material understatement (income, etc.) or overstatement (expenses, etc.) is considered a prima facie evidence of your intent to evade payment of tax. Considered material if there is a discrepancy of 30% or more.

Is the approval of the CIR required in filing criminal or civil cases?YES. However, the approval of the Commissioner required for the judicial enforcement of tax liability is not jurisdictional. Lack of such approval merely affects the cause of action or capacity to sue.Atty. A: Lack of signature or approval of the commissioner does not necessarily mean that it may automatically be dismissed by the courts for that reason alone. Lack of approval may be cured by an amendment.

Is assessment required before a criminal action may be charged?NO, provided there is a prima facie showing of a willful attempt to avoid taxes.Atty. A: GR: there must be full assessment before a taxpayer can be held liable Exception: Jeopardy assessment and in Criminal action provided there is a prima facie showing of a willful attempt to avoid taxes.Assessment is only necessary in a civil action for collection.

Atty. A (Naay nalimitan si sir ni balik siya sa constructive distraint)-in constructive distraint it is usually effected by leaving a list of the distraint properties duly signed or received by the owner. If the owner does not sign then it will be left there in the presence of two witnesses. The owner of the properties under constructive distraint cannot dispose or mortgage the properties without the approval of the commissioner. If the taxpayer still disposed the said property he will be liable to pay of no less than twice the value of the property and or imprisonment.

REMEDIES OF TAXPAYER

ADMINISTRATIVEa. Before Paymenti. (payment) with protestii. Entering into a compromiseb. After payment filing of a claim for refund or tax credit within 2 years from date of payment regardless of supervening cause.

JUDICIALI. Civil action Appeal to CTA within 30 days from receipt of decision on the protest or from the lapse of 180 days due to inaction of the Commissioner; Action to contest forfeiture of chattel and Action for damages

II. Criminal Action Filing of criminal complaint against erring BIR official and employee and Injunction when the CTA in its opinion, considers that the collection by the BIR may jeopardize taxpayer.Atty. A: GR: there can be no injunction insofar as collection of taxes are concernedException: CTA an issue injunction if in its opinion, considers that the collection by the BIR may jeopardize taxpayer

Protest of AssessmentFile a request for reinvestigation or reconsideration within 30 days from receipt of the assessment

I. Request for reinvestigationA plea for re-evaluation of an assessment on the basis of newly-discovered or additional evidence, that a taxpayer intends to present in the reinvestigation. It involves a question of fact or law or both.Atty. A: If no protest, the assessment becomes final and executory. It is not a mere response, you must include factual and legal basis in your protest.

II. Request for reconsiderationA plea for re-evaluation of the assessment on the basis of existing records without need of additional evidence. Involves a question of fact or law or both (RR No. 12-85)

Within 60 days from filing of protest, all relevant supporting documents should have been submitted, otherwise, the assessment shall become FINAL (cannot be appealed). (Sec. 228, NIRC)

Atty. A: Counting of the 180 day period for the CIR to make a decision will depend on the nature of the protest. If the protest is reinvestigation then the 180 day period will be counted on from the date of submission of the additional documents. If reconsideration then from the 180 day period will be counted from the date of protest.

Appeal of Protest to the CTA (Sec. 228 NIRC)Grounds: If the protest is denied in whole or in part or Is not acted upon within 180 days from submission of documents/filing of protest (reconsideration)

Appellate Court: Court of Tax AppealsPeriod to appeal: Within 30 days from receipt of the decision denying the protest or 30 days from the lapse of the 180 day period.Effect of failure to appeal: the decision shall be final, executor and demandable.

Atty. A: If there is MR in the CIR, only the remaining number of days available for you to appeal in the CTA.

Taxpayers SuitRequisites: the tax money is being extracted and spent in violation of specific Constitutional protections against abuses of legislative power that public money is being deflected to any improper purpose That the petitioner seeks to restrain the respondents from wasting public funds through enforcement of invalid or unconstitutional law.Atty. A: The money subject to taxpayer's suit must be public funds. It must not be from special contributions or donations.

However, the Supreme Court has discretion whether or not to entertain a taxpayers suit and could brush aside the lack of locus standi where the issues are of transcendental importance in keeping with the courts duty to determine that public officers have not abused the discretion given to them.

TAX REFUND OR TAX CREDITGrounds Tax is collected erroneously or illegally Penalty is collected without authority Sum collected is excessive

Requisites Claim must be in writing It must be filed with the Commissioner within two years (2) after the payment of the tax or penalty; and Show proof of payment

Starting date of counting the 2-year period:GENERAL RULE: from the date of payment, regardless of any supervening cause that may arise after payment.

EXCEPTIONS: Corporate Income tax Where a corporation paid quarterly income taxes in any of the first 3 quarters during the taxable year but incurs a net loss during the taxable year, the 2-year period for the filing of the claim for refund or credit shall be counted from the date of the filing of the annual corporate ITR. Income Tax paid in installments, taxes are deemed paid, for purposes of determining the commencement of the 2-year period for filing a written claim for the refund or credit therefrom on the date the last installment was paid.

PRESCRIPTIONAtty. A: Prescriptive period for the govt. to assess and collect tax.

Purpose:Prescriptive periods are designed to secure the taxpayers against unreasonable investigation after the lapse of the period prescribed. They are also beneficial to the government because tax officers will be obliged to act promptly.

General Rules: When the tax law itself is silent on prescription, tax is imprescriptible. When no return is required, tax is imprescriptible Defense of prescription is waivable and Provisions on prescriptions, being remedial in nature should be liberally interpreted to carry out its intent.Atty. A: There has to be an express agreement between the govt. and the taxpayer to waive prescription

Prescriptive period for the ASSESSMENT of taxes:GENERAL RULE: Three years after the date the return is due or filed, whichever is later.

EXCEPTIONS: Failure to file a return: ten (10) years from the date of the discovery of the omission to file the return. False or fraudulent return with intent to evade the tax: ten (10) years from the date of the discovery of the falsity or fraud Agreement in writing to the extension (not reduction) of the period to assess between the Commissioner and the taxpayer before the expiration of the three-year period.Atty. A: The extension must be done before the expiration of the 3 year period. Waiver or renunciation of the original three (3) year limitation, signed by the taxpayer.Atty. A: The waiver must be duly signed by the CIR or his authorized representative,Indicate the date when it was signed (the date indicates the cutoff of the prescriptive period), contain the signature of the taxpayer and express agreement that the taxpayer renounces his right of prescription.

Prescriptive period for the COLLECTION of taxes:

NIRC does not provide for prescriptive period.

2 views- Three (3) years from assessment or within period for collection agreed upon in writing before expiration of the five-year period (CIR v. SCB, GR. 192173, July 29, 2015) Ten (10) years without assessment in case of false or fraudulent return with intent to evade or failure to file return.Atty. A: prescriptive period to collect is 5 years under the old tax code but it was deleted.

Grounds for suspension of the running of prescriptive period for assessment and collection: When the Commissioner is prohibited from making the assessment or beginning the distraint or levy or proceeding in court, and for 60 days thereafterAtty. A: This usually happens if there is an injunction against the commissioner so it suspends the running of the prescriptive period

When the taxpayer requests for a reconsideration which is granted by the CommissionerAtty. A: take note that if the taxpayer request for reconsideration or reinvestigation it is not automatic that the prescriptive period is suspended, it is only suspended if the reconsideration or reinvestigation has been granted by the CIR

When the taxpayer cannot be located in the address given by him in the return, unless he informs the Commissioner of any change in his address When the warrant of distraint or levy is duly served, and no property is located and When the taxpayer is out of the Philippines.

Amended returnAllowed when: The amendment is made within 3 years from the date of filing the original return and No notice of audit or investigation of such return has, in the meantime, been actually served upon the taxpayer.

Effect on prescription:The prescriptive period starts to run from the filing of the original return, if the same is sufficiently complete to enable the CIR to intelligently determine the proper amount of tax to be assessed.

However, where the amended return is substantially different from the original, the right to assess is counted from the filing of the amended return.Atty. A: it is considered substantial if it changes the tax liability of the taxpayer

Prescriptive period for the filing of CRIMINAL ACTION: Five (5) years from the day of the commission of the violation, and if not known, from the discovery thereof and the institution of judicial proceedings for its investigation and punishment.Atty. A: this refers to the criminal violations expressly provided under the tax code.Grounds for interruption of the period: When proceedings are instituted against the guilty persons. (It begins to run again if the proceedings are dismissed for reasons not constituting jeopardy) Offender is absent from the Philippines.

Retroactivity of BIR RulingsGeneral Rule: ProspectiveExceptions: Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the BIR. Where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based and Where the taxpayer acted in bad faith.