Buzzer beater no more

The phrase “on or before” offers us the option to submit our requirements for a given period, but most of us choose the last day, even the last minute. In school, we were always taught to meet the deadlines or else a punishment is just on the horizon. A simple deduction on grades, non-acceptance of the requirement or even a failing mark may be chosen by our professors to teach us that deadlines must be given importance.

In the corporate world, failure to meet deadlines will be punished worse. One company, in fact, lost around P7.4 million for failing to submit a single tax return on the set deadline, just a delay of one day. Having a faulty internet connection could not help avoid this expense, especially if one will file on the last day of submission.

This is what happened in a fairly recent Supreme Court case (G.R. 238914, dated June 8, 2020) involving an airline company regarding the filing of its second quarterly income tax return (Q2 ITR). On the night of Nov. 29, 2011, the deadline to file its Q2 ITR, the company is claiming that it encountered log-in problems in the Electronic Filing and Payment System (eFPS). Based on company records, it was successfully filed on the afternoon of the next day, Nov. 30, 2011, at 1:38 p.m.

Having the knowledge that the CIR has the power to abate or cancel a tax liability pursuant to Section 204(B)(1) of the Tax Code, the company wrote a letter requesting for abatement on April 11, 2012, after its fiscal year ended on March 31, 2012. However, the BIR responded by issuing an assessment notice containing surcharge, interest, and compromise penalty.

The company paid the interest and compromise penalty, leaving the surcharge unpaid. Thereafter, it filed letters of request dated July 4, 2012 and March 7, 2013 to the CIR requesting for its abatement or cancellation of the surcharge. Premised on the facts that it paid the tax due just one day late after the deadline, that such belated filing was due to circumstances beyond its control and that it acted in good faith, such request for abatement was filed on the ground that the imposition of surcharge was unjust and excessive. Unfortunately, these claims were not taken lightly by the CIR and even the courts, particularly the Supreme Court.

The CIR indeed has the power to abate or cancel a tax liability if it or any portion of it appears to be unjustly or excessively assessed. However, a plain reading of Revenue Regulations (RR) 13-2001 will show that technical malfunction or difficulty encountered during the filing is not among the instances when the penalties may be abated or cancelled on the ground that the imposition thereof is unjust or excessive.

In this case, the CIR found that there was no advice on eFPS unavailability on Nov. 29, 2011 (the deadline for filing the Q2 ITR) and the one-day delay could have been easily avoided had the taxpayer submitted earlier than the last day of filing. While the company is given 60 days to file the return, it chose to file on the last day when it could have filed earlier or before the deadline. To quote the Supreme Court, “a technical malfunction is not a situation too bleak so as to render the (taxpayer) without recourse.” During the appeal with the Court of Tax Appeals (CTA), the company claimed it chose to file on the last day because of the difficulty in interpreting the correct computation of Gross Philippine Billings under the then newly issued RR 11-2011. But the CTA aptly stated that it could file a tentative quarterly ITR if it was still unsure with the figures to avoid paying the 25 percent surcharge for late filing and just amend the return if still warranted under Section 6(A) of the Tax Code.

Without notice of unavailability of eFPS and the presence of a major natural catastrophe, the acceptable reasons for failing to file a tax return on time appears to be very limited. Well-settled is the rule that “The law may be harsh, but it is the law (Dura lex sed lex).” While the Supreme Court considered the company’s situation as unfortunate, it is still bound to apply and give effect to the applicable law and rules. As the ruling of the Supreme Court becomes part of the law of the land, it may be about time to revisit our schedules so we can plan the tax filings accordingly.

Adrian A. Bersabe is an associate from the tax group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International.

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].