In September, the BIR issued two revenue regulations related to tax assessments. The first one is on the Voluntary Assessment and Payment Program (VAPP), allowing taxpayers to make voluntary payments and be entitled to immunity from or cancellation of an ongoing audit.
The second is what I would like to discuss in this article — Revenue Regulations (RR) No. 22-2020 — on the due process requirement in the issuance of a deficiency tax assessment. It is an amendment to the regulations covering the tax audit process, specifically Section 3 of RR No. 12-1999, which was likewise earlier amended by RR No. 18-2013 and RR No. 7-2018. The major change is on the BIR’s issuance of a Notice of Discrepancy (NoD) instead of a Notice for Informal Conference (NIC).
An NIC is a written notice issued by the BIR informing the taxpayer of the preliminary findings and discrepancies found during an audit. It also contains an invitation to schedule a conference with the revenue officers, where the taxpayer is allowed to explain his side and submit supporting documents to the examiner. RR No. 7-2018 provides that the Informal Conference shall in no case extend beyond 30 days from receipt of the notice.
With the issuance of RR No. 22-2020, the taxpayer must then be informed through an NoD instead of an NIC. Let’s try to distinguish the two.
Based on the revenue officer’s submitted initial report of investigation, the taxpayer must be informed in writing of the discrepancy or discrepancies in the payment of internal revenue taxes, as a preliminary step to the Discussion of Discrepancy.
Comparable with the NIC, the NoD allows the taxpayer to present and explain his side on the discrepancies found. Based on Annex A of RR 22-2020, the taxpayer has five days from receipt of the NoD to present and explain his side. The NoD shortened the period for the initial discussion/conference since the NIC typically gave the taxpayer around 10 to 15 days to respond. Nonetheless, should the taxpayer need more time to present other documents in response to the NoD, he may submit them after the discussion not later than 30 days after receipt of the NoD.
Similar to the NIC, the taxpayer’s failure to appear on the scheduled date, without prior notice to the BIR, will be construed as a waiver of the taxpayer’s right to a Discussion of Discrepancy. Consequently, the taxpayer is deemed to have no objections to the findings in the NoD. The failure of the taxpayer to reconcile and present valid documentary support against the noted discrepancies will result in a Preliminary Assessment Notice (PAN). Also, in both notices, if the taxpayer remains liable for deficiency taxes after presenting his side, and fails to pay the deficiency taxes or disagrees with the findings, the investigating office is to endorse the case for issuance of a deficiency tax assessment.
Again, there is no significant difference between the NIC and NoD in this aspect.
So, where does the distinction lie?
The difference is in the number of days the BIR office concerned has to endorse the case for the issuance of a deficiency tax assessment. For the NIC, the investigating office (or Revenue District Office) endorses the case to the Assessment Division of the Revenue Regional Office or the Commissioner or his duly authorized representative at the National Office within seven days from the conclusion of the Informal Conference. On the other hand, in the case of the NoD, the investigating office endorses the case to the reviewing office within 10 days from the conclusion of the discussion. Failure on the part of revenue officers to comply with the period renders them liable to penalty. Given the minimal difference in the number of days, it doesn’t seem to be an important distinction either — at least nothing that could spell much difference from a taxpayer’s point of view.
Overall, the NoD runs parallel with the NIC in terms of the timeline and initial process taxpayers undergo during a tax assessment. It seems that the NIC or Notice for Informal Conference was just renamed as Notice of Discrepancy, perhaps to emphasize the discrepancy rather than the conference. Save for the difference in name and minimal difference in the number of days for endorsement of the revenue examiner’s report, the NoD will likely implemented the same way as the NIC.
Although there is no substantial difference between the two notices, the good thing is, taxpayers still retain their procedural right to due process. Their right to be heard, through the explanations and supporting documents that they offer, should protect them against arbitrary and invalid deficiency tax assessment.
RR No. 22-2020 takes effect 15 days following the date of its publication on Sept. 17. Hence, starting Oct. 2, taxpayers under audit should not be surprised if they receive the NoD instead of the NIC. With differences so minor, however, will anyone even notice?
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.
Christian D. Grimaldo is a Senior Consultant at the Client Accounting Services group of Isla Lipana & Co., the Philippine member firm of the PwC network.
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