PENALTIES AND FINES

Refer to:
a. Surcharges
b. Deficiency Interest
c. Delinquency Interest
d. Compromise penalty
I.
Surcharges:
Not really a penalty as used in criminal
law but a civil administrative sanction
designed primarily to:
Protect the State revenue, and
Reimburse the government for
the expenses in investigating
and the loss resulting from the
taxpayers fraud
Atty. A: Surcharges are generally 25%
but if involves fraud it goes up to 50%
II.

Interest
Deficiency Interest
20% per annum from the date
prescribed for its payment until the full
payment thereof
Atty. A: This is an amount added if the
taxpayer failed to pay the correct
amount of tax that he should pay
Delinquency Interest
Interest of 20% or the Manila
Reference rate, whichever is higher,
required to pay in case of failure to
pay:
The amount of the tax due on
any return required to be filed
Amount of the tax due for which
return is required
The deficiency tax or any
surcharge or interest thereon,
on the date appearing in the
notice and demand of the CIR

Atty. A: Delinquency meaning it is paid

beyond the period prescribed by law. It
is possible that you can be liable for
surcharges, deficiency interest and
delinquency interest.

III.
Compromise Penalty
Similarities
of
compromise
compromise penalty:

and

They
both
imply
mutual
agreement.
A compromise penalty cannot
be imposed in the absence of a
showing that the taxpayer
consented thereto.
The CIR has no power to impose
and collect the compromise
penalties in the absence of a
compromise agreement validly
entered
into
between
the
taxpayer and the CIR.
Atty. A: The purpose of a compromise
penalty is to avoid possible criminal
litigation that may be undertaken by
the BIR against you, so you pay
instead the compromise penalty

IV.

SUSPENSION
OF
BUSINESS
OPERATIONS
Failed to register under the VAT
system(if
you
already
mandatorily required)
Failure to file VAT return
Failure to issue VAT receipts
Atty. A: As a rule the business
operation may be suspended in no
less than 5 days as the case may be
-If despite all the administrative
remedies the taxpayer cannot pay,
probably
no
more
money
or

properties, then the government will

avail of the judicial remedies.

Self-assessed tax shown in

return was not paid within
date prescribed by law.
Atty. A: GR is pay as you file, so if
file but you do not pay then the
there is now collectible.

the
the
you
tax

JUDICIAL REMEDIES
I.

CIVIL ACTIONS

Actions instituted by the government

to collect internal revenue taxes.
Includes filing by the government
within the probate court claims
against the deceased taxpayer.
Atty. A: It is not at all times that the
Govt. will start the civil action, it is
allowed that the taxpayer can first file
the civil action and the government
will file an answer.
Enforced by:
Filing a civil case for the
collection of sum of money with
the proper regular court (i.e.
MTC or RTC) or
Filing an answer to the petition
for review filed by the taxpayer
with the CTA.
Civil actions filed with ordinary
courts
Resorted to only when tax becomes:
Delinquent
Collectible
Atty. A: You can consider a taxpayer
delinquent if there is already a final
assessment on the amount of tax
payable but still the tax payer failed to
pay on time.
Collectability arises when:

Final
assessment
is
not
protested
administratively
within 30 days from date of
receipt.
Atty. A: If no protest it becomes final
and executory, no more question, you
cannot go anymore in the CTA. The tax
is now collectible.

Non-compliance
with
the
condition laid in the approval of
protest.
Failure to file a timely appeal to
the CTA on the final decision of
the CIR or his authorized
representative on the disputed
assessment.
Atty. A: Appeal to the CTA must be
made within the period of 30 days
from the date of reciept of final
decision of the CIR.
Defenses precluded by final and
executory assessments:
Invalidity or illegality of the
assessment and
Prescription
of
the
governments right to assess.
Atty. A: These defenses are already
precluded if you fail to file a protest
within the prescribed period even if
your claim is valid.
Civil actions filed with the CTA
Atty. A: These are in the form of
answers or response by the BIR to the

petition for review filed by the

taxpayer to the CTA.
The fact that no civil action was filed
before the ordinary courts to collect
the tax liability is no ground for
claiming that the right to collect had
already prescribed.
The answer filed by the government in
the CTA is tantamount to the filing of a
civil action for collection in the regular
court and has the effect of tolling the
prescriptive period. (Hermanos, Inc. vs
CIR, 29 SCRA 552)
Atty. A. Counterclaims are included in
the Answer filed by the govt. in the
CTA.

II.

CRIMINAL ACTIONS

Common crimes punishable under the

Tax Code:
Attempt to evade or defeat a
tax
Failure to file return, supply
correct
and
accurate
information, pay tax, withhold
and remit tax and refund excess
taxes
withheld
on
compensation.
Any person required under the Tax
Code
To pay any tax
Make a return
Keep any record
Supply correct and accurate
information
Withhold or remit taxes withheld
Refund excess taxes withheld
on compensation
Who willfully violates these
duties at the time or times
required by law shall be

punished upon conviction in

addition to other penalties.
Atty. A: Material understatement
(income,
etc.)
or
overstatement
(expenses, etc.) is considered a prima
facie evidence of your intent to evade
payment of tax. Considered material if
there is a discrepancy of 30% or more.
Is the approval of the CIR required in
filing criminal or civil cases?
YES. However, the approval of the
Commissioner required for the judicial
enforcement of tax liability is not
jurisdictional. Lack of such approval
merely affects the cause of action or
capacity to sue.
Atty. A: Lack of signature or approval
of
the
commissioner does
not
necessarily
mean
that
it
may
automatically be dismissed by the
courts for that reason alone. Lack of
approval may be cured by an
amendment.
Is assessment required before a
criminal action may be charged?
NO, provided there is a prima facie
showing of a willful attempt to avoid
taxes.
Atty. A: GR: there must be full
assessment before a taxpayer can be
held liable
Exception:
Jeopardy assessment and in Criminal
action provided there is a prima facie
showing of a willful attempt to avoid
taxes.
Assessment is only necessary in a civil
action for collection.
Atty. A (Naay nalimitan si sir ni balik
siya sa constructive distraint)

-in constructive distraint it is usually

effected by leaving a list of the
distraint properties duly signed or
received by the owner. If the owner
does not sign then it will be left there
in the presence of two witnesses. The
owner of the properties under
constructive distraint cannot dispose
or mortgage the properties without
the approval of the commissioner. If
the taxpayer still disposed the said
property he will be liable to pay of no
less than twice the value of the
property and or imprisonment.

REMEDIES OF TAXPAYER
ADMINISTRATIVE
a. Before Payment
i. (payment) with protest
ii. Entering into a compromise
b. After payment filing of a claim for
refund or tax credit within 2 years
from date of payment regardless of
supervening cause.
JUDICIAL
I.
Civil action
Appeal to CTA within 30
days from receipt of
decision on the protest or
from the lapse of 180
days due to inaction of
the Commissioner;
Action
to
contest
forfeiture of chattel and
Action for damages
II.

Criminal Action
Filing
of
criminal
complaint against erring
BIR official and employee
and

Injunction when the CTA

in its opinion, considers
that the collection by the
BIR
may
jeopardize
taxpayer.
Atty. A: GR: there can be no
injunction insofar as collection
of taxes are concerned
Exception:
CTA
an
issue
injunction if in its opinion,
considers that the collection by
the
BIR
may
jeopardize
taxpayer
Protest of Assessment
File a request for reinvestigation or
reconsideration within 30 days from
receipt of the assessment
I.

Request for reinvestigation

A plea for re-evaluation of an
assessment on the basis of newlydiscovered or additional evidence,
that a taxpayer intends to present in
the reinvestigation. It involves a
question of fact or law or both.
Atty. A: If no protest, the assessment
becomes final and executory. It is not
a mere response, you must include
factual and legal basis in your protest.
II.

Request for reconsideration

A plea for re-evaluation of the
assessment on the basis of existing
records without need of additional
evidence. Involves a question of fact
or law or both (RR No. 12-85)
Within 60 days from filing of protest,
all relevant supporting documents
should
have
been
submitted,
otherwise,
the
assessment
shall
become FINAL (cannot be appealed).
(Sec. 228, NIRC)

Atty. A: Counting of the 180 day period

for the CIR to make a decision will
depend on the nature of the protest. If
the protest is reinvestigation then the
180 day period will be counted on
from the date of submission of the
additional
documents.
If
reconsideration then from the 180 day
period will be counted from the date of
protest.
Appeal of Protest to the CTA (Sec.
228 NIRC)
Grounds:
If the protest is denied in
whole or in part or
Is not acted upon within
180
days
from
submission
of
documents/filing
of
protest (reconsideration)
Appellate Court: Court of Tax Appeals
Period to appeal: Within 30 days from
receipt of the decision denying the
protest or
30 days from the lapse of the 180 day
period.
Effect of failure to appeal: the decision
shall
be
final,
executor
and
demandable.
Atty. A: If there is MR in the CIR, only
the remaining number of days
available for you to appeal in the CTA.

Taxpayers Suit
Requisites:
the
tax
money
is
being
extracted and spent in violation
of
specific
Constitutional

protections against abuses of

legislative power
that public money is being
deflected to any improper
purpose
That the petitioner seeks to
restrain the respondents from
wasting public funds through
enforcement
of
invalid
or
unconstitutional law.
Atty. A: The money subject to
taxpayer's suit must be public funds. It
must not be from special contributions
or donations.
However, the Supreme Court has
discretion whether or not to entertain
a taxpayers suit and could brush
aside the lack of locus standi where
the issues are of transcendental
importance in keeping with the courts
duty to determine that public officers
have not abused the discretion given
to them.

TAX REFUND OR TAX CREDIT

Grounds
Tax is collected erroneously or
illegally
Penalty is collected without
authority
Sum collected is excessive
Requisites
Claim must be in writing
It must be filed with the
Commissioner within two years
(2) after the payment of the tax
or penalty; and
Show proof of payment
Starting date of counting the 2-year
period:

GENERAL RULE: from the date

of payment, regardless of any
supervening cause that may
arise after payment.
EXCEPTIONS:
Corporate Income tax
Where
a
corporation
paid
quarterly income taxes in any of
the first 3 quarters during the
taxable year but incurs a net
loss during the taxable year, the
2-year period for the filing of
the claim for refund or credit
shall be counted from the date
of the filing of the annual
corporate ITR.
Income Tax paid in installments,
taxes are deemed paid, for
purposes of determining the
commencement of the 2-year
period for filing a written claim
for
the
refund
or
credit
therefrom on the date the last
installment was paid.
PRESCRIPTION
Atty. A: Prescriptive period for the
govt. to assess and collect tax.
Purpose:
Prescriptive periods are designed to
secure
the
taxpayers
against
unreasonable investigation after the
lapse of the period prescribed. They
are also beneficial to the government
because tax officers will be obliged to
act promptly.
General Rules:
When the tax law itself is silent
on
prescription,
tax
is
imprescriptible.

When no return is required, tax

is imprescriptible
Defense
of
prescription
is
waivable and
Provisions
on
prescriptions,
being remedial in nature should
be liberally interpreted to carry
out its intent.
Atty. A: There has to be an
express agreement between the govt.
and the taxpayer to waive prescription
Prescriptive
period
for
the
ASSESSMENT of taxes:
GENERAL RULE:
Three years after the date the
return is due or filed, whichever is
later.
EXCEPTIONS:
Failure to file a return: ten (10)
years from the date of the
discovery of the omission to file
the return.
False or fraudulent return with
intent to evade the tax: ten (10)
years from the date of the
discovery of the falsity or fraud
Agreement in writing to the
extension (not reduction) of the
period to assess between the
Commissioner and the taxpayer
before the expiration of the
three-year period.
Atty. A: The extension must be
done before the expiration of the 3
year period.
Waiver or renunciation of the
original three (3) year limitation,
signed by the taxpayer.
Atty. A: The waiver must be duly
signed by the CIR or his authorized
representative,

Indicate the date when it was

signed (the date indicates the
cutoff
of
the
prescriptive
period), contain the signature of
the
taxpayer
and
express
agreement that the taxpayer
renounces
his
right
of
prescription.

Prescriptive
period
COLLECTION of taxes:

for

the

NIRC does not provide for prescriptive

period.
2 views Three
(3)
years

from
assessment or within period for
collection
agreed
upon
in
writing before expiration of the
five-year period (CIR v. SCB, GR.
192173, July 29, 2015)
Ten (10) years without
assessment in case of false or
fraudulent return with intent to
evade or failure to file return.
Atty. A: prescriptive period to collect is
5 years under the old tax code but it
was deleted.
Grounds for suspension of the
running of prescriptive period for
assessment and collection:
When the Commissioner is
prohibited from making the
assessment or beginning the
distraint or levy or proceeding
in court, and for 60 days
thereafter
Atty. A: This usually happens if
there is an injunction against the
commissioner so it suspends the
running of the prescriptive period

When the taxpayer requests for

a reconsideration which is
granted by the Commissioner
Atty. A: take note that if the
taxpayer request for reconsideration
or reinvestigation it is not automatic
that
the
prescriptive
period
is
suspended, it is only suspended if the
reconsideration or reinvestigation has
been granted by the CIR

When the taxpayer cannot be

located in the address given by
him in the return, unless he
informs the Commissioner of
any change in his address
When the warrant of distraint or
levy is duly served, and no
property is located and
When the taxpayer is out of the
Philippines.

Amended return
Allowed when:
The amendment is made within
3 years from the date of filing
the original return and
No
notice
of
audit
or
investigation of such return has,
in the meantime, been actually
served upon the taxpayer.
Effect on prescription:
The prescriptive period starts to
run from the filing of the original
return, if the same is sufficiently
complete to enable the CIR to
intelligently
determine
the
proper amount of tax to be
assessed.

However, where the amended return is

substantially
different
from
the
original, the right to assess is counted
from the filing of the amended return.
Atty. A: it is considered substantial if it
changes the tax liability of the
taxpayer
Prescriptive period for the filing of
CRIMINAL ACTION:
Five (5) years from the day of the
commission of the violation, and if not
known, from the discovery thereof and
the institution of judicial proceedings
for its investigation and punishment.
Atty. A: this refers to the criminal
violations expressly provided under
the tax code.
Grounds for interruption of the
period:
When proceedings are instituted
against the guilty persons. (It

begins to run again if the

proceedings are dismissed for
reasons
not
constituting
jeopardy)
Offender is absent from the
Philippines.

Retroactivity of BIR Rulings

General Rule: Prospective
Exceptions:
Where the taxpayer deliberately
misstates or omits material
facts from his return or any
document required of him by
the BIR.
Where the facts subsequently
gathered by the BIR are
materially different from the
facts on which the ruling is
based and
Where the taxpayer acted in
bad faith.