Request for reinvestigation revisited

Taxation is one of the government’s great powers. Collecting taxes is essential for government to perform its functions and should not be hindered unnecessarily. To balance this power, the taxpayer is accorded the right to due process of the law, or the right to be heard.

For tax investigations in the Philippines, the taxpayer is accorded due process at every stage of a Bureau of Internal Revenue (BIR) audit. Beginning from the issuance of the Notice of Discrepancy all the way through to the issuance of the Preliminary Assessment Notice and Final Assessment Notice/Formal Letter of Demand (FAN/FLD), a taxpayer is granted an opportunity to explain its position and refute the findings presented. In case the taxpayer has exhausted all administrative remedies available and no agreement has been reached with the BIR, the taxpayer can still resort to judicial remedies.

But like any right, the right to due process must be exercised in accordance with the law, implementing rules and regulations, and jurisprudence.

On Jan. 29, the Court of Tax Appeals (CTA) promulgated its decision in CTA Case 10039, in which it declared as valid the BIR’s denial of a taxpayer’s request for reinvestigation. In the case in question, the BIR issued a FAN/FLD to the taxpayer, which the latter protested with a request for reinvestigation within the prescribed period. However, the BIR denied the request, contending that the taxpayer did not file a valid protest, among others. The taxpayer argued that the denial was premature and a violation of due process. Thus, a petition for review was filed with the court to appeal the denial. The CTA ruled that the taxpayer’s request for reinvestigation did not meet the requisites of a valid protest letter. Moreover, the denial of the request for reinvestigation could not be considered the BIR’s final decision on the disputed assessment, which would put it under the jurisdiction of the CTA.

Citing the Supreme Court, the CTA ruled that if a taxpayer’s response to the FAN/FLD does not meet all the requirements of a valid protest, then there is no administrative protest to speak of.

The CTA reiterated that the protest letter filed must be in such form and manner as prescribed by the implementing rules and regulations. Specifically, a valid protest letter must state all of the following elements: (a) the nature of the protest; i.e., reconsideration or, reinvestigation specifying the newly discovered or any additional evidence which the taxpayer intends to present; (b) the date of the assessment notice; and (c) the applicable laws, rules and regulations, or jurisprudence on which the taxpayer’s protest is based. Lacking any of these would result in a protest which is void and without force and effect.

In the case at hand, the court held that the taxpayer’s protest letter was void as it only stated the nature of the protest (i.e., request for reinvestigation) and nothing more.

The tax court likewise held that since the taxpayer’s response was void, the BIR’s denial of its request for reinvestigation cannot be considered the BIR’s final decision on a disputed assessment. As there is no decision on disputed assessment to assail, the CTA cannot acquire jurisdiction over the case. Thus, the petition was considered to be prematurely filed and dismissed.

Under the implementing rules and regulations, if the taxpayer’s request for reinvestigation cannot be considered a valid protest, this can be equated to a failure to file a valid protest against the FAN/FLD. Thus, the assessment becomes final, executory and demandable. That said, without a valid protest, the administrative and judicial appeals with the Commissioner and CTA, respectively, are not available to the taxpayer.

The pronouncements of the CTA in this case emphasize the significance of a valid protest. It is worth noting that rights accorded to taxpayers must be exercised with due consideration of the laws which form the boundaries for such use. Otherwise, it cannot be given the expected weight it normally carries to balance the scales against the state’s power to tax.  Such as in this case, without a valid protest, it cannot be said that the taxpayer’s right was violated which entitles him to seek remedy with the CTA. More critically, without a valid protest, the BIR’s assessment would become final and executory under our tax law.

As we expect the State to impose its power to collect taxes with due regard to the taxpayer’s right, the taxpayer is likewise expected to not sleep on his right. Such a right must be exercised exhaustively or else it will be lost. The taxpayer cannot later turn to the courts for remedy on a right which he has failed to avail of.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.

Elizabeth K. Adaoag-Belarmino is a manager at the Tax Services department of Isla Lipana & Co., the Philippine member firm of the PricewaterhouseCoopers global network.