Taxes are necessary not only to sustain the government’s operations but also to fund projects that were developed to help promote economic growth and the welfare of its citizens. Without taxes, the government would be paralyzed because absent the needed funds, the government, no matter how formidable, may not be able to perform its functions effectively. Considering the rise in the volume of government projects to ensure public welfare and safety amidst the COVID-19 pandemic, it is not surprising that the tax collection agencies, such as the Bureau of Internal Revenue (BIR), are finding ways to strengthen its tax collection and make it more efficient. Indeed, tax collection is of primordial importance. However, such must be exercised within the bounds of current rules and regulations.
In order to protect taxpayers’ right to due process, Revenue Regulations (RR) No. 12-1999 was issued to govern the procedures to be expected in the conduct of a tax examination which includes steps such as the issuance of a Notice for Informal Conference (NIC) and a Preliminary Assessment Notice (PAN) prior to the issuance of a Formal Letter of Demand (FLD) and Assessment Notice. The NIC contains the initial findings of the BIR based on the examination conducted, with a request to the taxpayer to present its defenses within 15 days from receipt of the NIC or during the informal conference with the revenue officers who audited the taxpayer’s records. Otherwise, the taxpayer shall be considered in default resulting to the issuance of the PAN. On 28 November 2013, the BIR issued RR No.18-2013 which removed the requirement for the issuance of a NIC and the conduct of an informal conference. However, RR 18-2013 was subsequently amended by RR No. 7-2018 which reinstated the NIC and informal conference requirements. Aside from the reinstatement of the said requirement, the RR also extended the period of informal conference from 15 days to 30 days.
The Notice of Discrepancy (NOD) requirement
In September, the BIR issued RR No. 22-2020 amending the previous issuances in relation to the procedures which govern a tax audit and investigation prior to the issuance of a PAN. RR No. 22-2020 now provides that the BIR will issue a NOD instead of a NIC. As in the case of a NIC, the objective of issuing the NOD is to inform the taxpayer in writing of the discrepancies noted by the BIR during their investigation and provide the taxpayer the opportunity to present and explain the alleged discrepancies with relevant supporting schedules and documents. For the contents of the NOD, the BIR issued Revenue Memorandum Circular (RMC) No. 102-2020 prescribing the format of the NOD. The NOD should contain the following information:
- Full name, address, and tax identification number (TIN) of the taxpayer;
- The covered taxable period of the NOD pursuant to a duly issued Letter of Authority (LOA) and the LOA number and date;
- Reference to an attached details of discrepancy which do not constitute a deficiency tax assessment yet, as expressly stated in the NOD;
- An invitation for the taxpayer or its duly authorized representative to present and explain defenses and arguments against the BIR’s findings in a designated address within five (5) days from the receipt of the NOD. Please note that while it is allowed for the taxpayer to be represented by its counsel or another representative in case of his unavailability, the counsel or representative must be authorized in writing in accordance with the required authorization document by the BIR;
- A notice to the taxpayer stating that if he fails to appear on the scheduled date of discussion without prior notice, it would be construed as a waiver of his right to a discussion of discrepancy and that he does not object to any of the findings from the BIR’s investigation;
- A notice stating that that the taxpayer’s failure to reconcile and present/submit supporting documents would result to the issuance of PAN; and
- The NOD shall be signed by the Revenue District Officer (RDO or the Chief of the Investigating Office, as applicable and once received, may be countersigned by the taxpayer’s representative to document receipt.
Conduct of the discussion of the discrepancies (DOD)
The DOD shall not extend beyond 30 days from the receipt of the NOD. During the DOD, the taxpayer shall present the explanations and arguments against the BIR’s findings, and show/submit corresponding supporting documents. If the taxpayer needs additional time to present the supporting documents, he will be allowed to submit such after the DOD. However, the RR provides that all of the necessary supporting documents must be submitted within 30 days from the receipt of the NOD. In the event that the taxpayer is still found to be liable for the deficiency taxes, and does not pay the tax or if he does not agree with the findings, the investigating office shall endorse the case to the reviewing office in the National Office or Revenue Regional Office for the issuance of the PAN within ten (10) days from the conclusion of the discussion with the BIR.
The BIR, in RR No. 22-2020, imposes stricter deadlines than prior issuances on this requirement. As such, some taxpayers are concerned on whether the BIR will be stern in imposing these deadlines given the travel restrictions and operational limitations on businesses brought about by the pandemic. As mentioned above, the government’s efforts to collect must be exercised within the bounds of due process. Hopefully, the BIR can further clarify on how they will implement the new deadlines and how the NOD and DOD requirement will be operationalized by the BIR.
Vilma Clarette P. Manalo 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.
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