Easy does it!

Taxes are the lifeblood and the main source of revenue of the government. They are used by the State to fund the needs of its citizens and to develop the common wealth. This is the main reason why the primary power and duty of the Bureau of Internal Revenue (BIR), as provided in the National Internal Revenue Code (NIRC), as amended, is the assessment and collection of all national internal revenue taxes, fees and charges. Without taxes, the government will not be able to survive and continue to perform its functions.

One of the powers of the commissioner of Internal Revenue (CIR) is the power to obtain information. After a return has been filed or for the purpose of making a return if none was filed, the CIR has the authority to examine any books, papers, records or other data of the taxpayer in order to ascertain the correctness of such return or to determine any tax liability. If, in the view of the CIR or his duly authorized representative, there is a tax due which has not been paid by the taxpayer, an assessment will be made by the BIR. Generally, as provided by Section 203 of the NIRC as amended, tax assessment must be made within three (3) years after the last day prescribed by law for the filing of the return or from the date of actual filing of the return, whichever comes later. Collection of taxes, on the other hand, must be done through distraint or levy, or by a proceeding in court within five (5) years following the assessment of the tax. This prescription was intended to safeguard the taxpayers from any unreasonable examination, investigation or assessment.

Section 222 (b) of the NIRC as amended, however, allows the CIR or his duly authorized representative and the taxpayer or his authorized representative to agree in writing as to a definite or specific future date, after the three-year prescription period, within which the former may assess and collect taxes. The agreement, to be valid, must be executed prior to the expiration of the three-year period prescribed in Section 203 for the assessment of the tax. Moreover, Section 222 (d) of the NIRC, as amended, also provides that the CIR or his duly authorized representative and the taxpayer or his authorized representative may decide on a certain date when to collect from the taxpayer the assessed internal revenue taxes for a given taxable period, before the expiration to collect taxes. This must be done in writing.

The execution of a waiver of the defense of prescription, however, has been subject to abuse by taxpayers. The BIR observed it has been a rampant practice by taxpayers to challenge the validity of their own waivers of the defense of prescription after availing the benefits thereof. To protect the interest of the state against the abusive acts of the taxpayers, the BIR issued Revenue Memorandum Order No. 14-2016 which provides the guidelines for the execution of waivers of the defense of prescription.

The guidelines clarified there is no required form for a waiver to be valid. This is a clear departure from Revenue Memorandum Order 20-90 which required a prescribed form in order for a waiver to be valid. As long as it has been executed prior to the expiration of the period to assess or to collect the taxes, signed by the taxpayer himself or his duly authorized representative, and properly dated with the date of execution and the expiry date of the period agreed upon, the waiver would be binding between the parties since it is a voluntary act of the taxpayer. In the case of corporations, the signature must be affixed by any of its responsible officials.

There is no necessity, as well, for the waiver to specify the particular taxes to be assessed nor its corresponding amount. A sweeping statement of “all internal revenue taxes” would be sufficient as the BIR is still in the process of determining the tax liability of the taxpayer during the assessment stage. This rule, however, is not applicable in the execution of a waiver for the collection of taxes where the specific taxes assessed must be indicated in order for the BIR to determine the taxes to be collected.

The guidelines also provide that it is the taxpayer which has the burden of ensuring that the waiver is duly executed by its authorized representative. After execution, the validity of the authority of the representative cannot be assailed.

Further, the waiver must be in writing but need not be notarized. Upon execution, it is legally effective and binding on the taxpayer considering it is a voluntary act of the taxpayer.

The accomplished waiver must be submitted to the CIR or official/s designated in BIR issuances or the revenue district officer or group supervisor indicated in the Letter of Authority/Memorandum of Assignment. Acceptance must be indicated by placing their signatures prior to the expiration of the period to assess or collect. The taxpayer must, likewise, keep a personal copy of the accepted waiver.

The waiver of the statute of limitation is subject to further extension provided it be done before the expiration of the period designated in the previously executed waiver.

Now that the guidelines for the execution of the waiver of the defense of prescription have been relaxed by the BIR, taxpayers are now better guided on the contents, format and other requirements of a valid waiver. Taxpayers will not be burdened by the technicalities found in the old rule, thus, making it easier for them to execute a valid waiver. Hence, they can no longer subsequently contest its validity after they have availed of its benefits. Taxpayers cannot have their cake and eat it too.

On the part of the BIR, these guidelines would allow them to facilitate assessments better once a valid waiver has been executed. This would eventually result to more revenues on the part of the government. With less complicated rules, the BIR may envision greater benefits for both the government and the taxpayer.

Aventino S. Gopico III is a supervisor from the tax group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice, Tier 1 transfer pricing practice and Tier 1 leading tax transactional firm in the Philippines by the International Tax Review.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email [email protected] or [email protected].