by: Julius Patrick C. Acosta
"O Romeo, Romeo! wherefore art thou Romeo?" is perhaps one of the most famous and recognizable lines in literature. The exchange between Romeo and Juliet in Act II, Scene II of the said play is where the central conflict is revealed to the main characters. As members of families who have been fated to be rivals, both Romeo and Juliet must choose between desire and duty. Should they or should they not pursue each other despite carrying their family's name and everything it entails. Juliet, however, seems to challenge this idea by telling Romeo:
"What's in a name? That which we call a rose
By any other name would smell as sweet;"
Here, Juliet claims that names are merely conventions we follow and that the essence of what is named remains even if it is called by another name. A rose, if it were called by another name, does not change its "rose-ness" at all, and that seems to tell Romeo that it does not matter if he is of the rival family because Juliet's love, like a rose, still blooms profusely.
The BIR seemed to have had a similar mindset as Julia in Mindanao Sanitarium & Hospital College, Inc. [MSHCI] vs. Commissioner of Internal Revenue (CTA Case No. 8673, 06 May 2019) wherein MSHCI was assessed for alleged deficiency taxes but denied having received the PAN and argued that the PAN was not duly served but was sent instead to another entity with a similar name (almost).
The Supreme Court (SC), in a litany of cases, has consistently ruled that if a taxpayer denies ever having received an assessment from the BIR, it is the duty of the latter to prove by competent evidence that such notice was indeed received by the addressee. In the above case, the Court of Tax Appeals (CTA) ruled that the BIR failed to discharge this duty and to present substantial evidence showing that MSHCI indeed received the PAN.
To support its position that proper service was made, the BIR presented the Master list of Registered Mail and a Certification issued by a Postmaster. But while the Master list noted the name, address, and registry receipt number of MSHCI, the Certification proved that the notice was addressed and delivered to Mindanao Sanitarium and Hospital, Inc., which is clearly not MSHCI. The CTA further explained that the registry receipt of the assessment notice could have been easily obtained but the BIR still failed to present such evidence.
Section 228 of the National Internal Revenue Code, as amended (Tax Code), requires that a taxpayer must be first informed of his liability for deficiency taxes through the sending of a PAN, which is part of the due process requirement in the issuance of deficiency tax assessment, the absence of which would render nugatory any assessment made by the tax authorities. Thus, for its failure to send the PAN stating the facts and law on which the assessment was made as required by Section 228 of the Tax Code, the assessment made by BIR Commissioner or his authorized representatives is void. (Commissioner of Internal Revenue vs. Bank of Philippine Islands, G.R. No. 224327, 11 June 2018) Consequently, as a void assessment bears no valid fruit, the alleged deficiency taxes of MSHCI were cancelled.
The fundamental law of the land itself provides that no person shall be deprived of property without due process of law. Between the power to tax of the government and the right of a citizen to due process of law and the equal protection of laws, more weight is due to the latter as a citizen’s right is amply protected by the Bill of Rights under the 1987 Constitution. The SC has time and again stated that taxes are the lifeblood of the government. However, the power to tax is not without its limits. While we can all concede the inevitability and indispensability of taxation, democratic regimes such as ours requires that such power be reasonably exercised and in accordance with prescribed procedure.
There have been other cases wherein taxpayers did not receive a PAN but still received a Formal Letter of Demand/Final Assessment Notice (FLD/FAN) – usually issued outside the three-year prescriptive period within which the BIR may assess taxpayers. In such cases, taxpayers must not be naïve and be wary enough ask for proof (like the registry receipt) that the PAN was indeed properly served. Otherwise, a taxpayer may end up paying for alleged deficiency taxes which most likely stemmed from a should-have-been void assessment.
For the tax authorities, they must keep in mind that “taxes are what we pay for a civilized society. Without taxes, the government would be paralyzed for the lack of the motive power to activate and operate it.” Thus, diligence must be exercised in following the due process requirements set by law because something as simple as failing to double-check the name of a taxpayer would cost the government millions which could have been collected were it not for the improper and/or out-of-period issuance of assessment notices – millions that could have been used to improve government services, especially those catered to assist Filipinos who have less in life. Without diligence, both the government and the Filipino people, very much like the ill-fated lovers in the Bard’s play, may end up the tragic losers.
Julius Patrick C. Acosta is an Assistant Manager 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 and Tier 1 transfer pricing practice by the International Tax Review.
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