By: Mary Anjanette V. Mandawe
In a nutshell, the obligation of a taxpayer is to pay the right amount of tax at the right time. Nevertheless, some taxpayers, individuals and corporations alike, tend to have shortcomings in fulfilling this obligation. Consequently, such may lead to an assessment by the Bureau of Internal Revenue (BIR). But how can one know that he will be the subject of the Bureau’s assessment?
Fundamental to this is Section 228 of the Tax Code, as amended. It clearly requires that the taxpayer be notified in writing that he is liable for deficiency taxes through the issuance and delivery of notices –i.e. Preliminary Assessment Notice (PAN), Formal Letter of Demand and Final Assessment Notice (FLD/FAN). He must be informed of the facts and the law upon which the assessment is made; otherwise, such issued notice shall be deemed void. Moreover, the same provision requires that the decision of the Commissioner of Internal Revenue (CIR) or his duly authorized representative on a disputed assessment state the facts, laws, and rules and regulations, or jurisprudence on which such decision is based. Failure to do so would invalidate the Final Decision on a Disputed Assessment (FDDA).
In May 2019, the BIR issued Revenue Memorandum Order (RMO) No. 40-2019 prescribing the procedures for the proper service of assessment notices with the provisions of Section 3.1.6 of Revenue Regulations (RR) No. 18-2013.
The issuance provides that the assessment notices (i.e. PAN, FLD/FAN, and FDDA) shall be served to the taxpayer by delivery of a notice through personal service to his registered or known address, or wherever he may be found.
Only in cases where personal service is not possible (e.g. when the taxpayer is not present at the registered or known address), the Revenue Officers (ROs) assigned to the case shall serve the notice either by substituted service or by mail. In a substituted service, the assessment notice may be left at the taxpayer’s registered address with his clerk or with a person having charge thereof. The same shall also apply if the known address is a place where the business activities of the taxpayer are conducted. However, if the known address is the place of residence, substituted service can be made by leaving the copy with a person of legal age residing therein.
In cases where no person is found at the party’s registered or known address, or a party is found but refuses to receive the assessment notice, the ROs may resort to constructive service by bringing a barangay official and two (2) disinterested witnesses (i.e. persons of legal age other than employees of the BIR) so that they may personally observe and attest to such absence or refusal, as the case may be.
Lastly, assessment notices may be served by mail. This may be done by sending a copy of the assessment notice through registered mail by the Philippine Postal Corporation (PhlPost), through a reputable professional courier company (PCC), or through an ordinary mail, if no registry or reputable courier is available in the locality of the taxpayer.
The importance of being familiar with the above procedure was exemplified in Court of Tax Appeals (CTA) EB Case No. 1551:
To give a brief background, in 2010, Ithiel Corporation, the taxpayer, was duly notified that it was liable for deficiency income tax (IT), value-added tax (VAT), and expanded withholding tax (EWT) for taxable year 2006 in the aggregate estimated amount of Php38 million, inclusive of interests and surcharges.
On 05 June 2013, the taxpayer initially received an FDDA through an attempted personal service by the concerned ROs. Unfortunately, the servers were not permitted to enter the taxpayer’s premises and so they left the document with the premises’ security guard. To ensure receipt by Ithiel, a copy of the FDDA was again served by registered mail which was received by the taxpayer on 13 July 2013.
On 08 August 2013, Ithiel filed a petition for review to the CTA assailing the above FDDA. In summary, the latter contented that the ROs who conducted the assessment were not vested with authority [i.e. their names were not indicated in the relevant Letter of Authority (LOA)]. Consequently, the assessment was deemed void for lack of authority of the examining ROs. (CTA Case No. 8689)
In 2017, the CIR sought to reverse and set aside the above CTA’s decision. However, this was denied for lack of merit. Interestingly, the justice who presided over this proceeding of the Court En Banc, had a dissenting opinion; he voted to grant the petition for review. In his view, the Court is precluded from cancelling the FDDA or declaring it void since the taxpayer failed to appeal the FDDA within the 30-day reglementary period reckoned from its initial receipt of the document on 05 June 2013. Note that the petition was filed on 08 August 2013; hence, it was clearly beyond the period allowed by law. Accordingly, the FDDA had already become final, executory, demandable, and unappealable. In light of this, the CIR filed a motion for reconsideration in 2018 raising that the judicial claim of the taxpayer was filed out of time.
The issue now is the determination of the correct reckoning date of Ithiel’s receipt of the FDDA. On one hand, CIR contends that the date of receipt should be on 05 June 2013 when substituted service was made. On the other hand, the taxpayer contends that the reckoning date thereof should be on 13 July 2013 when it received the FDDA through registered mail, rendering its claim filed on time. The correct date is crucial in determining whether the CTA has jurisdiction to entertain the instant case.
Following the procedures discussed above, the personal service of the FDDA constitutes an invalid service as it was not served upon the taxpayer itself. Likewise, the receipt of the document by the security guard, who is not an employee of the taxpayer and thus has no authority to receive the same, is not a valid service. Considering the important nature of the document being served, it is incumbent upon the CIR’s representatives to at least verify the authority of the person who received these documents.
Without proof of due receipt (i.e. receipt by a person duly authorized to receive the FDDA), the Court En Banc is constrained to conclude that the CIR failed to satisfactorily prove that it observed the taxpayer’s right to due process when it served the document through such substituted service. In this case, the service through registered mail is the dominant mode which has the effect of superseding the initial service made.
On a related note, in this mode, the said security guard is judicially allowed to receive the document. The Supreme Court recognized that the authority of security guards to receive official notices is confined in situations where the notice is served by registered mail as they are considered within the scope of a person of sufficient discretion to receive the document. The paramount consideration is that the registered mail is delivered to the taxpayer’s address and received by a person who would be able to appreciate the importance of the papers delivered to him, even if that person is not a subordinate or employee of the taxpayer or authorized by a special power of attorney.
Considering the foregoing, the Court En Banc ruled that the FDDA was deemed received by Ithiel on 13 July 2013, when it was served through registered mail. Hence, the CTA has jurisdiction to entertain the case and as such, the CIR’s motion for reconsideration was denied for lack of merit.
Mary Anjanette V. Mandawe is an Associate 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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