Revised BIR rules on ‘the waiver’

SUITS THE C-SUITE By Jonald R. Vergara

Business World (05/30/2016 – p.S1/2)

In recent years, the Bureau of Internal Revenue (BIR) has experienced setbacks in many cases where the courts set aside and canceled deficiency tax assessments on the ground that the waiver signed by the taxpayer is invalid. As many taxpayers will know, the waiver — technically, the “Waiver of the Statute of Limitations” — extends the period within which the BIR may issue a deficiency assessment against a taxpayer…

As a general rule, the BIR can assess taxpayers for deficiency internal revenue taxes within 3 years from the last day prescribed by law for filing the tax return, or the actual date of filing of such return, whichever comes later. An assessment issued after the 3-year prescriptive period is invalid.

However, this 3-year prescriptive period to assess does not apply, among others, to cases where the taxpayer issues a waiver in favor of the BIR. By signing a waiver, the taxpayer agrees to extend to a future date the period within which the BIR can issue a deficiency tax assessment. Typically, when the 3-year period is about to expire, taxpayers agree to issue a waiver in cases where they need more time to submit relevant documents to the BIR and prevent the immediate issuance of an assessment.

The BIR recently issued Revenue Memorandum Order (RMO) No. 14-2016 dated April 4, 2016 to repeal the very strict requirements for a valid waiver prescribed in RMO No. 20-1990, Revenue Delegated Authority Order (RDAO) No. 05-2001, and Revenue Memorandum Circular (RMC) No. 06-2005, and to prescribe revised guidelines on the execution of waivers by taxpayers. The changes are significant in that they effectively relax the requirements for a valid waiver, presumably in response to a number of decisions by the Court of Tax Appeals and the Supreme Court which invalidated waivers issued by taxpayers for failure to faithfully comply with the requirements under RMO 20-90, RDAO 05-01 and RMC 06-05.

The salient features of RMO No. 14-2016 include the following:

· The waiver may not necessarily be in the form prescribed by RMO 20-90 or RDAO 05-01 provided that the following conditions are complied with:
· The waiver is executed before the expiration of the period to assess or to collect taxes;
· The waiver is signed by the taxpayer himself, his duly authorized representative, or by any of the responsible officials for corporations; and,
· The expiry date of the period agreed upon to assess/collect the tax is indicated.
· The waiver need not specify the taxes to be assessed nor the amount thereof except in cases of waiver for collection of taxes.
· The taxpayer has the burden to ensure that the waiver is validly executed by its authorized representative. The waiver cannot thereafter be invalidated on the ground that the taxpayer’s representative who participated in the conduct of the audit is not authorized to sign the waiver.
· Notarization of the waiver is now optional.
· The waiver can be accepted by the Commissioner’s authorized representative as prescribed in existing regulations, the revenue district officer, or the group supervisor designated in the Letter of Authority for the audit.
· To be valid, there are only two dates that need to be present on the waiver, namely (1) the date of execution, and (2) the expiry date of the period the taxpayer waives the statute of limitations.

It is no coincidence that each of the above-enumerated amendments on waiver requirements under RMO 14-2016 is the subject of a court decision.

In the recent case of Commissioner of Internal Revenue vs. Next Mobile, Inc. (G.R. No. 212825 promulgated on December 7, 2015), the Supreme Court held that a taxpayer who is in bad faith cannot impugn the validity of the waiver.

While the Supreme Court reiterated that a waiver must strictly comply with the requirements prescribed by the regulations, it qualified and held that a taxpayer cannot impugn the validity of the waiver on the basis of the defects he himself has caused after benefiting from it, as he will be deemed estopped by his bad faith. Despite the waiver’s non-compliance with the requirements in the regulations, the Supreme Court ruled in favor of the BIR and treated the waiver as valid and binding upon the taxpayer since the defect was attributable to the latter’s deliberate acts.

There is no hard-and-fast rule on the issuance of waivers, which is why taxpayers need to take all factors into consideration. While executing a waiver may allow more time for a taxpayer to gather and submit relevant documents before an assessment is finalized, it also prolongs the tax audit taking a toll on the taxpayer’s time and resources, not to mention the continuous running of the interest penalty should the assessment be found valid.

With the issuance of RMO 14-2016 and the pronouncement of the Supreme Court in the Next Mobile case, it appears that tax assessments can no longer be won simply based on technicalities by attacking the validity of waivers. Taxpayers should make it a point to focus not just on procedural or technical issues but more on the merits or the strength of its substantive factual and legal bases against a tax assessment of the BIR.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of EY or SGV & Co.

Jonald R. Vergara is a Tax Principal of SGV & Co.