Taxwise Or Otherwise
By Kathrine Joy Capales
(Part I)
After nearly two months under enhanced community quarantine (ECQ), Metro Manila is now looking to ease some of the restrictions without compromising public safety. In anticipation, local government units (LGUs) are preparing the guidelines to transition towards new normal. The call to adjust operations on an unprecedented scale is proving to be challenging to industries like the academe, among others.
Even government agencies have not been spared from the struggle. On the tax front, the Bureau of Internal Revenue’s (BIR) collection target for 2020, initially set at P2.58 trillion, was slashed to P2.26 trillion due to the slowdown in tax collections and the inability to conduct audits.
While under ECQ, the BIR issued revenue regulations (RR) and Revenue Memorandum Circulars (RMC) covering tax audits. RMC 31-2020 and RR 7-2020 as amended by RRs 10-2020 and 11-2020, extended the filing deadline of correspondences concerning tax assessments (e.g., replies to assessment notices and submission of documents for reinvestigations). RMC No. 34-2020 and the same RRs also suspended the running of the statute of limitations for tax assessments.
In this article, I’ll cover the implications of RMC 31-2020 and RR 11-2020 to taxpayers with existing tax audits. RMC 34-2020 will be covered next week.
To set the context, let’s revisit the Philippine tax audit process. It starts with the issuance of a Letter of Authority (LoA), allowing the BIR to conduct the audit. After the examination of the taxpayer’s records, the BIR will issue a Notice for Informal Conference (NIC), containing preliminary findings and the schedule for the conference with the revenue officers.
If the BIR does not find the explanations or documents submitted at the conference satisfactory, a Preliminary Assessment Notice (PAN) will be issued. The taxpayer will have 15 days to reply. If the findings remain unresolved, the BIR will issue a Formal Assessment Notice and a Formal Letter of Demand (FAN/FLD). Within 30 days, the taxpayer must file for reconsideration or reinvestigation as a form of protest. Otherwise, the assessment shall become final and executory. In case of a request for reinvestigation, the taxpayer is given an additional 60 days from the filing of the protest to submit supporting documents.
The BIR then has 180 days to decide on the protest and issue a Final Decision on Disputed Assessment (FDDA). If the taxpayer disagrees with the FDDA, an appeal may be filed with the Commissioner of Internal Revenue (CIR) or the Court of Tax Appeals (CTA) within 30 days.
Under RR 11-2020, the deadline for filing of the following documents or correspondences which fall due within the quarantine period starting 16 March 2020 until 30 days from the lifting of the ECQ, shall be extended for “30 days from the date of the lifting of the quarantine:”
1. protests/replies to the NIC, PAN, and FAN/FLD;
2. submission of relevant supporting documents for requests for reinvestigation;
3. appeal to the CIR on assessments which have reached the FDDA stage; and
4. other similar letters and correspondences with due dates.
While not explicitly mentioned, the deadline for submission of documents in response to an LoA may also be extended under Item No. 4 above. Effectively, all tax investigation deadlines at the BIR are extended — from replying to the LoA to appeals to the CIR.
Initially, the BIR under RMC 31-2020 only extended the deadlines to filings/responses falling due within the ECQ. However, RR 11-2020 has expanded this to cover taxpayers whose deadline to respond falls due within 30 days from the date of the lifting of the ECQ.
Moreover, RR 11-2020 clarified two relevant points, noting the restricted coverage of RMC 31-2020:
1) RMC 31-2020 limited the extension to taxpayers in Luzon and other jurisdictions, where the LGUs have adopted and implemented the ECQ or other similar measures. For simplicity, the RR modified this by applying the extension throughout the Philippines.
2) The RMC used the term “quarantine” to refer only to ECQ. The RR broadened the coverage to include any announcement by the National Government, resulting in limited operations and mobility. Thus, the term now includes, but is not limited to, “community quarantine,” “ECQ,” “modified community quarantine (MCQ),” and “general community quarantine (GCQ).”
These issuances are certainly a welcome development for taxpayers with existing tax audits, as it was a struggle to retrieve documents from previous years (on top of existing daily duties) even prior to the quarantine. Nonetheless, there are some aspects of the extension that raises some questions.
For one, the terms “Original Due Date” and “Extended Due Date” in RR 11-2020 may require further clarity. As mentioned, the extension also applies to taxpayers whose original deadline to respond falls within 30 days from the date of the lifting of the ECQ. The extended due date, on the other hand, is within 30 days from the date of the lifting of the quarantine. It is worth noting that the latter is broader in scope as it includes MCQ, community quarantine, and GCQ. Based on the government’s recent announcement, some areas will transition from ECQ to GCQ or Modified ECQ (MECQ) on May 16. Does this transition qualify as “lifting of the ECQ” and therefore the 30-day period from the “lifting of the ECQ”will start on May 16 regardless of whether the GCQ/MECQ period exceeds those 30 days? Or, since the MECQ may just be as restrictive as the ECQ, then the 30 days from the lifting of the ECQ will start when the MECQ is lifted?
Further, since all the extended deadlines are uniformly set to 30 days after the lifting of the quarantine, this may be disadvantageous to some taxpayers who are due to submit supporting documents in relation to a protest to FAN.
To illustrate, let’s assume that there are two taxpayers with existing tax audits. Taxpayer A filed its request for reinvestigation on Jan. 16, while Taxpayer B filed on March 15. Thus, the 60-day period to submit additional documents for Taxpayer A and B would be on March 16, and May 14, respectively. Since both deadlines fall due during the ECQ period, and assuming both are given a filing extension only until June 15, Taxpayer A would have an additional 90 days from its original deadline on March 16, while Taxpayer B would only have an additional 30 days from May 14. In case Taxpayer B is only able to operate and retrieve supporting documents after the lifting of the quarantine, effectively, it was unable to avail of the 60-day period it was allowed under the law since it only had 30 days to meet the deadline.
Considering that the extensions granted are unprecedented, the confusion arising from varied interpretations may be dispelled if there is another issuance providing sample scenarios on the application of the extension for further guidance.
In the meantime, it may be prudent for taxpayers who are due to file their protest letters with the BIR to file these the soonest, to avoid technical challenges from the BIR. As mentioned, the assessment is deemed final and executory if the protest letter is not timely submitted. In case of doubt, it is better to err on the side of caution than to take a regrettable risk.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Kathrine Joy Capales is a manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
