Tax Articles

Usual Assessment Suspects

By: Atty. Mabel L. Buted

There are many items that the BIR usually focus on and are the usual suspects when the BIR conducts an audit.  But there are also court decisions (although some are only by the CTA, thus not yet final) debunking these findings.  These are the usual suspects which never go away.

When taxpayers have net operating loss incurred during the year under audit, the BIR would oftentimes disallow as deduction the said net operating loss on the ground that the tax benefit of the said loss will be or was carried forward to the succeeding period. The same is true with excess MCIT (Minimum Corporate Income Tax) credits and excess input taxes for the current period which are not being accepted by the BIR as valid tax credits against the deficiency taxes assessed upon taxpayers. But there are court pronouncements allowing the net operating losses and the said excess tax credits. The CTA, in its many decisions, has been consistent in holding that the disallowances are improper because, accordingly, since the tax benefit derived from the carry-over of the said amounts redounds to the succeeding years, the taxpayer may only be assessed in the said succeeding year and not in the current period subject of BIR audit. I hope the BIR will consider the CTA’s ruling and logic on this issue and drop assessments involving the same.

Also, assessments based on “no-contact audit approach” (third-party data matching), without conducting the proper verification procedures (which are the BIR’s own, by the way), are still usual. The court also has, many times, struck down this particular method of assessment because this would merely result to presumption that is based on another presumption.  I hope the BIR will consider the court’s decisions on this matter and stick with the procedure as mandated in their circulars so that the “matching” is properly verified and will not result in a void assessment.

No less than the Supreme Court in the Inquirer Case has ruled that no undeclared income should result from the taxpayer’s alleged undeclared purchases simply because there is no gain realized from these supposed undeclared purchases. Again, by requiring the taxpayer to account for undeclared purchases in an income tax assessment will be an unproductive exercise.  The Supreme Court will strike down an assessment arising from this. 

The Supreme Court has also held that no prior tax treaty relief application (TTRA) is required before the taxpayer may avail of the benefits under the tax treaties. Yet, we still encounter assessments on the basis of non-filing of previous TTRA. 

Taxpayers are now faced with a dilemma on how to deal with tax assessments in relation to their tax compliance.  How can they avoid recurring tax assessments, specially when there are court decisions ruling against the BIR on a particular tax issue? Should they go to court and question the tax assessments themeselves given that there are CTA cases (although not yet part of jurisprudence) and Supreme Court cases that can cancel the entire assessment? 

I hope the current BIR procedure will be updated to include decisions made by the courts over the years.  It can already drop in its menu of assessments, tax issues that have already been ruled upon by the Supreme Court and consider the logic of the Decisions of the CTA as well (although not yet part of jurisprudence).  This is important so that the BIR can evolve to be a more efficient tax collector as it concentrates on tax assessments that really matter.  This will also give taxpayers clarity, on how to proceed with their tax compliance and avoid being assessed on the same issues.