In December, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) 141-2019, reiterating the salient points of Revenue Memorandum Order (RMO) 14-2016 on the proper execution of Waivers of the Defense of Prescription.
By way of background, RMO 14-2016 revised the guidelines relative to the execution of Waiver of the Statute of Limitations, thus repealing the long-standing rules under RMO 20-1990 and Revenue Delegation Authority Order (RDAO) 05-2001, and consequently relaxing the stringent rules on the execution of waivers.
According to RMO 14-2016, the revision was necessary given the rampant practice by taxpayers of contesting the validity of their waivers of the statute of limitations after having availed of its benefits.
I do agree with the BIR’s action of eliminating the strict format and the notarization of waivers, which are mere formalities. However, the substantive requirements should be retained since a waiver, to a certain extent, is a derogation of the taxpayers’ right to security against prolonged and unscrupulous investigations. Waivers must, therefore, be carefully and strictly construed.
Section 222 of the Tax Code is the legal basis for the execution of Waivers of the Defense of Prescription as an exception to the period of limitation for the assessment and collection of deficiency taxes. The law states that if both the Commissioner and the taxpayer agree in writing on the waiver before the expiration of the general three-year assessment period counted from the filing of the return, an assessment can still be conducted subsequently within an agreed period.
Thus, Section 222 implies that the Waiver of the Defense of Prescription is a bilateral agreement as hinted by the words agreed and both, referring to the Commissioner and the taxpayer.
The principle that waivers are bilateral agreements between the taxpayer and the BIR has long been recognized in several decisions of the Supreme Court (SC) and the Court of Tax Appeals (CTA). For instance, in the landmark case of Philippine Journalists, Inc. vs. Commissioner of Internal Revenue, G.R. No. 162852, December 16, 2004, the SC held that a waiver of the Statute of Limitations is not a unilateral act by the taxpayer or the BIR. Rather, it is a bilateral agreement between them, extending to a certain date the period to issue an assessment and collect the taxes due. It is considered an approval to extend the authority of the BIR to examine the taxpayer’s records and issue an assessment over an agreed period.
Notably, there are some provisions of RMC 141-2019 and RMO 14-2016, which are inconsistent with Section 222 of the Tax Code, specifically on the following:
1. The waiver is a unilateral and voluntary undertaking which takes legal effect and will be binding on the taxpayer immediately upon execution.
2. Being a voluntary act of the taxpayer, the waiver shall take legal effect and be binding on the taxpayer upon its execution.
3. The date of acceptance by the BIR Officer is no longer required to be indicated for the waiver’s validity.
Statements 1 and 2 are inconsistent with Section 222 and the SC ruling I mentioned above since the statements consider the waiver as a unilateral and voluntary undertaking of the taxpayer (instead of a bilateral agreement), immediately binding on the taxpayer (rather than on both the BIR and taxpayer). As for Statement 3, the date of acceptance is critical to the validity of the waiver since it signifies the consummation of the agreement to extend the period of prescription, which should be completed before the expiry period under Section 203 of the Tax Code.
Given the glaring inconsistency of the BIR issuances with the Tax Code, the BIR should revisit its guidelines to harmonize them with the law they seek to implement.
While the BIR, in the exercise of its rule-making power, can formulate rules and regulations to implement the declared policies laid down by Congress, administrative issuances, like RMC 141-2019 and RMO 14-2016, must be consistent with the law. Implementing rules cannot exceed or detract from the provisions of the law they are intended to implement.
Otherwise, we shall have a case of unconstitutional legislation by administrative agencies like the BIR, amending an Act of Congress through the issuance of regulations that run contrary to the law they seek to implement, to the detriment of the rights of taxpayers. As French philosopher, Charles de Montesquieu would say, “Useless laws weaken necessary laws.”
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.
Rachel D. Sison is a Senior Manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
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