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Let's Talk Tax

Assessment and 2019 nCoV

Edward D. Roguel Edward D. Roguel

The Department of Health (DoH) confirmed on Thursday, Jan. 30, the first case of novel coronavirus (2019-nCoV) in the Philippines. This alarmed many Filipinos.

Yesterday, I heard on the radio that the DoH reported the first death in the Philippines due to epidemic. It was the first confirmed death outside of China due to 2019 nCoV. This prompted the government to order a travel ban for foreigners coming from China to the Philippines.

The news was so alarming and some people may be freaking out. But according to the DoH, we should all be calm. What we need to do is practice good personal hygiene such as regular hand washing, as a preventive measure. Aside from this, we should start wearing surgical masks when going around crowded areas, or if possible, avoid crowded areas.

In most cases, if we do not know what to do, the tendency is to panic. The same thing may also happen when you receive an assessment from the BIR, especially if the amount is enormous.

But being calm and knowing what do is the key to handling the assessment.

The first thing you should do is to evaluate whether the assessment is valid. For an assessment to be valid, some of the factors that you should determine is if whether the assessment was issued within the prescriptive period; the BIR followed due process; and the Final Assessment Notice (FAN) and the letter of demand (FLD) must comply with the requisites provided under the existing tax laws, among others.

The FAN and FLD must be issued by the Commissioner or his duly authorized representative. It must also state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based. Otherwise, it shall be considered void.

The FAN contains the name, address, and tax identification number (TIN) of the taxpayer; kind of tax; period covered; basic tax assessed, surcharge, interest and compromise penalty, if any; and the date when such deficiency tax must be paid (which is normally 30 days from the date of mailing or release thereof). This information, however, is not sufficient to comply with the requirement under tax law that the taxpayer must be informed in writing of the law and the facts on which the assessment is based, otherwise the assessment is void. The objective of this provision is to ensure that the taxpayer can properly evaluate the correctness of the assessment.

To comply with the provision of the tax law, the FAN is issued together with the FLD. The FLD contains details of the assessments and explains why the taxpayer is liable for such deficiency taxes. The definite amount of tax liabilities and date for payment thereof are also critical for an assessment to be considered valid.

In the case decided by the Supreme Court (SC) (G.R. No. 128315, June 29, 1999), the SC emphasized the importance of indicating the definite due date for payment of an assessment. According the SC, “[a]n assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It also signals the time in which penalties and interests begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it must serve on and received by the taxpayer.”

The SC decision was also cited by the Court of the Tax Appeals (CTA) when it rendered a recent decision in the CTA Case no. 9046. The CTA invalidated a BIR assessment due to the absence of the specific period on which the assessment should be settled. In its ruling, the CTA found that “to be considered valid, the FANs must not only indicate the legal and factual bases of the assessments but must also state a clear and categorical demand for payment of the computed tax liabilities within a specific period. The requirement to indicate a fixed and definite period or a date certain within which a taxpayer must pay the assessed deficiency tax liabilities is indispensable to the validity of the FAN.”

It is also equally important that the assessment contain a definite amount of tax liabilities. The term “definite” is defined as “having distinct or certain limits; free of all ambiguity, uncertainty or obscurity.” Given this definition, the question is, if the assessment contains a specific amount of tax liabilities but final amount may be adjusted depending on the date of payment of such liabilities, would you consider this a definite liability?

Most people would probably say “yes,” since the amount is determinable. If the debt is subject to interest, the amount is normally being adjusted depending on the date of payment. But the same seems not applicable to tax liabilities.

In CTA Case No. 9609, dated Jan. 15, 2020, the CTA invalidated assessment since the amount of tax liabilities is deemed indefinite. The amount will remain indefinite if the tax due is still subject to modification, depending on the date of payment. In this particular case, the FLD received by the taxpayer contains a statement that the interest will have to be adjusted if paid beyond Nov. 20, 2015. While the FLD provided for the computation of the tax liability, the CTA ruled that the amount is deemed indefinite since the tax assessment is still subject to modification or adjustment, depending on the date of payment by the petitioner.

Staying calm and knowing what do is the key to handling the assessment. The first thing you should do is to evaluate whether the assessment is valid. You could also seek the advice of experts to properly guide you.

Both the 2019 nCoV and assessment may be alarming and might even cause death. But to overcome the worst, we need to learn how to respond to every situation. As Charles Swindoll once said, “Life is 10% what happens to me and 90% how I react to it.”

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.


Edward L. Roguel is a partner of Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.


As published in BusinessWorld, dated 04 February 2020