Our country is at a crossroads, for better or for worse. Taxpayer’s rights are in the middle of it. I hope the incoming administration recognizes how these rights are being threatened.
I have previously written in this space about the unbridled efforts of the Bureau of Internal Revenue to collect taxes even if these are not yet considered final and executory. The BIR has, in many cases, forced its way by garnishing bank accounts of taxpayers even if the disputed assessments are still pending in court. This has left taxpayers helpless and penniless to continue their business operations. The Court of Tax Appeals, which is the only court that has the power to suspend the collection of tax, is usually upended by the BIR. The BIR orders the banks to deposit the garnished bank accounts to the coffers of the government without regard to the fact that a case is still pending in court and that the CTA has yet to resolve the same.
As I previously mentioned, this bold act is anchored on the belief that the BIR’s power is absolute since the Tax Code itself says that no court can stop the BIR from pursuing collection. But of course, the law creating the CTA has tempered this when it gives the CTA sole power to suspend collection of tax under certain conditions.
When can a taxpayer file a motion for suspension of collection of tax at the CTA? This is critical since there is a prevailing view that it is only when the BIR manifests its intention to collect, by issuing a warrant of distraint and levy or by issuing a warrant of garnishment, that the motion becomes ripe for the CTA to act. But if the CTA will only act when these warrants are issued, it may already be too late. While the CTA is hearing the motion to suspend collection of tax, the BIR may initiate collection proceedings, because to its mind, there is no order from the court preventing it to do so.
In the case of Shell (GR 210501), the Supreme Court (SC) ruled that the provisional remedy of a Suspension Order contemplates the existence of—and thus, has for its object—a “tax liability;” as such, for the said order to issue, it is required that a tax assessment or an adverse decision, ruling, or inaction effectively mandating the payment of taxes had already been issued against the taxpayer.
This means that a suspension order may be issued by the CTA if there is already an assessment, adverse decision, ruling or inaction which effectively demands payment of taxes. Thus, it is not necessary that a warrant of distraint and levy or a warrant of garnishment is issued before the CTA can release a Suspension Order. It is sufficient that a Final Assessment Notice (FAN), or a Final Decision on Disputed Assessment (FDDA) is issued by the BIR before the CTA can act on the motion to suspend collection of tax. This gives the CTA more time to decide on the merits of the motion without being preempted by any collection efforts of the BIR while the motion is being heard.
I discussed previously that the BIR cannot even initiate enforcement proceedings if a deficiency tax assessment is not “delinquent” as defined by its own rules. It means that if the taxpayer was able to timely file a protest letter or elevate the case in court, the disputed assessment is not considered “delinquent” and the BIR must not collect.
There is an interesting case where the SC ruled that the taxpayer’s own act of elevating the disputed assessment to the CTA effectively prevents the BIR from pursuing collection. In the case of Ker (GR L21609), the SC interpreted Section 223 of the Tax Code (previously Section 333). The said section states that the running of the prescriptive period on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection shall be suspended for the period during which the Commissioner of Internal Revenue (CIR) is prohibited from making the assessment or beginning distraint or levy or a proceeding in court.
When is the BIR prohibited from making an assessment or beginning distraint or levy or a proceeding in court? The SC ruled that by filing a case in court, the taxpayer in effect temporarily stays the hands of the CIR to collect.
Based on this case, there is not even a need for a taxpayer to file a motion to suspend collection of tax. By merely filing an appeal to the CTA, the taxpayer prohibits the BIR from initiating any collection proceedings. In return, the running of the prescriptive period for the BIR to collect is tolled until a final and executory judgment is promulgated by the court.
Thus, the power to suspend collection of tax rests with the taxpayer. He exercises this right when he chooses to appeal the disputed assessment in court.
I think this is a more equitable interpretation of the power of the BIR to collect because if the BIR will be allowed to collect even if a case is already under the jurisdiction of the CTA, taxpayers will be left with no other recourse. I am sure this is not what the law contemplates.
We are at a crossroads as a country, and we are still in the middle of a pandemic. The BIR cannot be allowed to wander without a leash. The government must be sensitive to taxpayer’s rights because without it, businesses will die, and chaos will unfold.
The author is a senior partner of Du-Baladad and Associates Law Offices, a member-firm of WTS Global.
The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at [email protected] or call 8403-2001 local 330.