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Taxpayers get some comfort from the Supreme Court

(Article published in the Nov 16,2005 issue of Manila Standard Today)

          The non-delinquent taxpayer, already battered by the expansion of the coverage of the value-added tax and further facing the certain prospect of the current President exercising her option to raise the VAT-rate to 12% come next year (unless, of course, her tenure is with or without ceremony ended before then), will find the case of Bank of the Philippine Islands v. Commissioner of Internal Revenue, G.R. No. 139736, October 17, 2005, comforting reading.  Despite the odds, the taxpayer sometimes wins.

           The petitioner, the Bank of the Philippine Islands (BPI), is one of the oldest Philippine treasures still standing, with current ties that go way back long to the Roman Catholic and Apostolic Church; the Commissioner of Internal Revenue at the time material to the case was Liwayway Vinzons-Chato, herself an acknowledged defender of the Faith.  The amount involved was not far from a mere a mite, a measly sum, even in those days of 1989, totaling Php28,020.00. 

          But the real winner is the tax-paying public who render unto Ceasar what is Ceasar’s. The non-delinquent taxpayer, if Bank of the Philippine Islands v. Commissioner of Internal Revenue remains law, can, after the lapse of the requisite period, look forward to nights of untroubled sleep with no worries that the tax collector might come knocking with the break of dawn.

          The simplicity of the facts belied the far-reaching implications of the controversy.  BPI sold in two transactions in the year 1985, some US$1,000,000.00 to the then Central Bank of the Philippines (CB).  On 10 October 1989, the Bureau of Internal Revenue (BIR) assessed BPI  for documentary taxes amounting to Php28,020.00 for two transactions in 1985.  The assessment notice was received by BPI on 20 October 1989. 


          BPI protested the assessment in a letter dated 16 November 1989 and filed one day later.  The protest letter, written by BPI’s counsel, the Padilla Law Office, after presenting purely legal arguments, asked that “the assessment be revoked and cancelled.”  Instead of responding to the protest, BIR issued on 15 October 1992 a Warrant of Distraint and/or Levy which BPI received on 23 October 1992, or eight (8) days later.  Nothing, however, seems to have occurred until almost five years later, when, on 11 September 1997, BPI’s counsel received a letter dated 13 August 1997 from Commissioner Liwayway Vinzons-Chato, denying BPI’s “request for reconsideration”.  BPI brought the case to court where the case up the judicial ladder from the Court of Tax Appeals to the Court of Appeals and eventually to the Supreme Court.

           The central issue to be resolved was whether, under the circumstances, the Commissioner of Internal Revenue had lost the right to collect the tax of  Php28,020.00 from BPI by reason of the lapse of time from assessment of the tax to its collection.  The Court of Tax Appeals and the Court of Appeals said “no”.  The Supreme Court said “yes”.

           Under Section 203 of the National Internal Revenue Code (Tax Code), the BIR, except in cases of fraud, falsity or omission in the filing of a tax return, has three (3) years from the time the tax return is required to be filed (or, if filed later, from the date of actual filing of the return) within which to issue a tax assessment or to begin a court proceeding to collect without an assessment.  If the BIR issues an assessment within the period, it gains another three (3) years from assessment within which to collect, administratively, by distraint and levy, and/or judicially, i.e. going to court.

           The period, however, may be extended by valid “waivers” described in Section 223 which are really written agreements between the Commissioner and the taxpayer for a longer period.  It may also be interrupted by the several events listed in Section 226, among them is “when the taxpayer requests for a reinvestigation which is granted by the Commissioner”. 

          It was accepted by the parties that the BIR assessment dated 10 October 1989 was validly made within the three (3) year period to assess.  It was likewise not debated that the three year (3) period to collect the amount assessed started to run from 20 October 1989 when the assessment was received by BPI and, unless extended or suspended, expired three years later on 19 October 1992. Thus, since the BIR was not deemed to have commenced collection of the amount assessed until the Warrant of Distraint and/or Levy that it issued was received by BPI on 23 October 1992, it is clear that, unless the period to collect was extended or suspended, the BIR was collecting four (4) days late.

 The case boiled down, consequently, to the question of whether BPI’s protest amounted to a valid waiver (in which case the period was extended) or, if not, to a request for reinvestigation (in which case the running of the period was suspended).

 It is easy to see why that the BPI protest cannot be seen as a waiver. It was not executed in compliance with the requirements of Section 223 as well as BIR own Revenue Memorandum Order No. 20-90.  Furthermore, even an internal memorandum from a senior official to another in the BIR observed that “the taxpayer fails to execute a Waiver of the Statute of Limitations extending the period of collection of the said tax …pending reconsideration of its protest…”

 It is likewise easy to conclude that the BPI protest was not a request for reinvestigation if one were to look at the statute alone.  The protest contested the assessment exclusively on a question of law. No question of fact was raised.  Nor was there an offer to present evidence.  And in a letter to BPI dated 10 September 1992, the BIR described it as a request for reconsideration. And even if, contrary to all these, it is conceded to be in substance a request for reinvestigation, still it cannot have caused a suspension of the running of the period since it was not, as required by Section 224, granted by the BIR Commissioner.

 ut, if the law is that clear, why did both the Court of Tax Appeals and the Court of Appeals believe the period was suspended?  It was because in the case of Commissioner of Internal Revenue v. Wyeth Suaco Laboratories, Inc. (202 SCRA 125), the Supreme Court held that the period of prescription was interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment.  It was time, asserted BPI, to abandon that ruling.

 But Justice Minita Chico-Nazario, the ponente, was in no mood to embarrass her seniors.  And how she set things aright without offending them could teach Toting Bunye a thing or two on how to execute smooth backtracking.  Instead of abandoning the rule enunciated in Wyeth Sauco, she simply set to “clarify and qualify” it.  She pointed out that what Wyeth Suaco did in that case was really request for reinvestigation which was granted  by the Commissioner and therefore the period of prescription was clearly suspended.  Since the facts in Wyeth Suaco factually differed from the BPI case, there was no need to state that including a request for reconsideration among those that will suspend the running of the prescriptive period was mere obiter dictum.

 The good justice stressed: “This is a simple case wherein respondent BIR Commissioner and other BIR officials failed to act promptly in resolving and denying the request for reconsideration filed by petitioner BPI and in enforcing collection on the assessment.  They presented no reason or explanation as to why it took them eight years to address the protest of petitioner BPI.  The statute of limitations imposed by the Tax Code precisely intends to protect the taxpayer from such prolonged and unreasonable assessment and investigation by the BIR.”

 Of course, that last sentence is the Court’s assurance to the law-abiding taxpayer that it can run to the court for protection.  It is not at all a suggestion to the Ombudsman, or any civic minded citizen whether or not desirous of publicity, to take former BIR Commissioner Liwayway Vinzons-Chato to task for the eight years the BIR failed to act.