Tax Remedies: Remedies of the Government
IMPORTANCE OF TAX REMEDIES
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to enhance the government’s tax collection efforts
to safeguard against arbitrary action
NON-INJUNCTION OF TAX STATUTES
Sec. 218, NIRC: No court shall have the authority to grant injunction to restrain the
collection of any national internal revenue tax, fee or charge imposed by this Code.
EXCEPTION: a decision of the CIR appealed to the CTA does not suspend payment, levy or
distraint of taxpayer’s property; but if the CTA finds that collection may jeopardize the interest
of the taxpayer or the government, then CTA may suspend or restrain the collection of tax and
require the taxpayer to either deposit the amount claimed or to file a surety bond for more than
double the amount with the court
Q: During pendency of the appeal in the CTA, the BIR files a civil action for collection of
tax in the RTC, what is the remedy of the taxpayer?
A: The taxpayer may file a motion to dismiss in the RTC on the ground that the collection of tax
has no basis where the assessment thereof is still under dispute with CTA.
REMEDIES OF THE GOVERNMENT
- these remedies may be pursued singly or simultaneously
1. Tax Lien
- from the moment the tax is due, not from the service of the warrant of distraint
- not valid against a mortgage purchaser or judgment creditor until NOTICE has been filed by
CIR with the RD of the province or city where property is located (the tax lien shall be annotated
on the title)
2. Compromise
- allowed when:
1. a reasonable doubt as to validity of the claim against the taxpayer exists
2. financial position of the taxpayer demonstrates a clear inability to pay the assessed tax
(minimum compromise rate equivalent to 10% of the basic assessed tax and the taxpayer
must waive in writing his privilege under the Banking Secrecy Law, such waiver
constituting authority of the CIR to inquire into his bank deposits)
Compromise v. ABATEMENT:
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As Effect – C: reduce tax liability; A: cancel the entire tax liability
As to when proper – C: when there is reasonable doubt as to validity of tax assessment or
the taxpayer is financially incapacitated to pay; A: when there is unjust assessment
(excessive) or when administration and collection cost do not justify the amount of tax
due
GR: compromise of criminal violations is allowed, EXCEPT:
1. those already filed in court
2. those involving fraud
GR: power to compromise is a non-delegable power of CIR, EXCEPT that regional evaluation
board may compromise:
1. basic taxes less than P500,000
2. minor criminal violations
NOTA BENE: A compromise penalty is in lieu of a criminal prosecution. If the taxpayer fails to
abide by the compromise arrangement, the government has two options:
1. collect the compromised sum; or
2. disregard the compromise and collect the original tax due.
ADDENDUM: But if the taxpayer does not agree to the compromise, a collection action by the
government for the compromise penalty does not lie. This is because, by its nature, a
compromise is entered into by mutual agreement between parties and the proposed compromise
penalty is neither tax nor an administrative penalty for tax delinquency.
Q: May a case still be compromised after final judgment?
A: No, because by virtue of the final judgment, the government had already acquired a vested
right.
Q: Can withholding tax be compromised?
A: No. Taxpayer constituted as withholding agent who deducted and withheld at source the tax
on income payment made by him holds the taxes as trust funds for the government. He is
obligated to remit them to the BIR. His subsequent inability to pay or remit the tax withheld is
not a ground for compromise because the withholding tax is not a tax upon the withholding
agent but is only a procedure for collection of tax.
3. Distraint and Levy
- summary, extra-judicial or administrative enforcement remedies
DISTRAINT v. LEVY: distraint is to personal property while levy is to real property
KINDS OF DISTRAINT:
1. Actual – when delinquency of the payment sets in; there is actual seizure and distraint
2. Constructive – no actual delinquency ; the owner is prohibited from disposing of his
property; preventive remedy to forestall a possible dissipation of the taxpayer’s assets
when delinquency takes place
CONSTRUCTIVE DISTRAINT PROPER IF:
1.
2.
3.
4.
taxpayer is retiring from any business subject to tax
he intends to leave the Philippines
he removes his property therefrom
he performs any act tending to obstruct the proceedings for collecting the tax due or
which may be due from him
PROCEDURE:
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Actual Distraint Procedure
1. commencement of distraint proceedings by CIR (P1M+) or RDO (P1M or less)
2. service of warrant of distraint
3. notice of sale of distrained property to the owner or possessor not less than 20 days from
date of sale, and osting in not less than 2 public places in municipality or city where
distraint is made
4. sale of property distrained by public auction, highest bidder for cash, or with approval of
CIR through duly licensed commodity or stock exchange
EQUITY OF REDEMPTION: payment of all proper charges any time prior to sale
NOTA BENE: A person in possession or having control of property under actual distraint (or
levy) may be penalized if upon demand he fails or refuses to surrender the goods, EXCEPT in
case of judicial attachment or execution.
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Constructive Distraint Procedure
1. commencement of distraint proceedings
2. service of warrant of constructive distraint
3. taxpayer is required to sign a receipt covering the property distrained and obligate
himself to preserve the same; if taxpayer refuses to sign the receipt, the revenue officer
shall prepare a list of property distrained and in the presence of two witnesses leave a
copy thereof in the premises
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Procedure on Levy of Real Property
1. service of warrant of levy after the expiration of time required to pay the delinquent tax
2. duly authenticated certificate showing the name of the taxpayer and the amounts of the
tax and penalty due from him (operate with the force of a legal execution)
3. written notice of levy to the Register of Deeds and the delinquent taxpayer, his agent or
manager (if TP is absent), occupant of the property (if no agent/manager); in case
government first effected distraint and it is not enough to cover the tax, then CIR shall,
within 30d after execution of the distraint, proceed with levy
4. advertisement of the sale within 20d after levy for a period of at least 30d at the main
entrance of the municipal building and other public, conspicuous places and publication
once a week for 3wks in a newspaper of general circulation
5. public sale of the property under levy at main entrance of the municipal building or on
the premises to be sold
6. return of sale within 5d after sale
7. issue certificate of sale; taxpayer is entitled to any residue
8. in case of no bidder, the property shall be declared forfeited to the government
EQUITY OF REDEMPTION: any time prior to sale
RIGHT OF REDEMPTION: within 1yr from date of sale or forfeiture
4. Civil Action
WHEN:
1. when a tax is assessed and the assessment becomes final and unappealable (because TP
failed to file administrative protest with BIR within 30d from receipt of assessment)
2. when an administrative protest is denied or is not acted upon within 180d from
submission of documents and TP fails to appeal to the CTA
WHERE: regular courts, with approval of CIR except if express delegation to Regional Director;
motion to dismiss the complaint should also be filed in the regular courts
HOW: the complaint must be brought in the name of the Government and conducted by a legal
officer of the BIR
5. Criminal Action
WHEN: before lapse of 5 years (prescription period)
WHERE: DOJ
HOW: complaint approved by CIR brought in the name of the Government and conducted by a
legal officer of the BIR
GROUND: prima facie showing of failure to file a required tax return or a willful attempt to
evade taxes; no need for assessment
6. Other Remedies Available
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Forfeiture
Suspension of Business Operations
Enforcement of Administrative Sanctions
In situations like this, what are the remedies available to the taxpayers? Essentially, there are two
remedies that taxpayers can resort to under the LGC – one is the “protest of assessment” under
Section 195 and a “claim for refund or tax credit” under Section 196. A taxpayer may file a protest
under Section 195 or pay the tax and, thereafter, file claim for refund under Section 196 of the
LGC.
Under what circumstances are these remedies applicable? There are court decisions holding that
Section 195 applies only in cases of notice of assessment. And a notice of assessment, as
commonly understood, upon review or examination conducted by tax authorities after a taxpayer
has paid or supposed to have paid his taxes. Based on the LGC, an LGU has a period of 5 years
(or ten years in case of fraud) within which to conduct as assessment. It could be inferred from
some judicial pronouncements that it is only in this situation where Section 195 applies.
A statement of account or payment order cannot be considered the notice of assessment
required under Section 195 as the notice of assessment contemplates a computation based
on deficiency taxes, when the local treasurer finds that the correct taxes were not paid.
Accordingly, the remedy of protest does not apply to statements of accounts or orders of
payment issued in connection with a taxpayer’s renewal of business permits and licenses at
the beginning of the year. The only remedy is for the concerned taxpayer to pay and, if it
disagrees with the tax payment, file a claim for refund of incorrectly paid or illegally collected
taxes.
A closer look at many other decisions, however, would indicate that a taxpayer faced with
similar situation is free to choose which remedy to enforce. And once he chooses the remedy,
he must observe the procedures laid down by law for the availment of the said chosen
remedy. Apparently, these two remedies call for different requirements and conditions for
their application. As such, a taxpayer should be clear on the basis of its action, and follow the
prescribed procedure for that action.
A taxpayer may therefore file a protest against an assessment made upon the renewal of
business permit. But this option presupposes that taxes had not yet been paid. Once the
contested tax had been paid, a protest will not result in getting the desired result, that is, the
return of the amount allegedly incorrectly paid or illegally collected.
In essence, while a taxpayer may legally protest taxes sought to be imposed when renewing
his business permit, this may delay the issuance of business permit. The only remedy
available to a taxpayer faced with a situation where he is forced to pay tax to avoid the nonissuance of business permit is to pay and apply for a refund or tax credit. This is an
independent remedy and the taxpayer would only need to follow the requirements of said
remedy, which are: (1) the concerned taxpayer files a written claim for refund or credit with
the local treasurer, and (2) the case or proceeding must be filed within two years from the
date of payment of the tax, fee or charge. Judicial precedents dictate that a prior resort to
protest action is not necessary.