“An ounce of prevention is worth more than a pound of a cure.” At any stage of the tax assessment process, complications will surely arise when the notices and requests from the Bureau of Internal Revenue (BIR) remain unheeded.

During the early stages of the tax assessment process, the examiners authorized by the Bureau of Internal Revenue (BIR) through the issuance of a Letter of Authority (LOA) are mandated to conduct the examination of the books of accounts and tax records of the taxpayer by directly requesting such documents from the latter. During this stage, the taxpayer is given a specific period to submit the requested documents upon the receipt of the First Notice. In case the taxpayer fails to submit all the requested documents in the First Notice, the BIR will issue the Second and Final notice to submit the required records and documents.

It is only when the taxpayer fails to substantially comply with the Final Notice to submit required records and documents will a Subpoena Duces Tecum (SDT) be issued by the BIR to the taxpayer. Pursuant to Revenue Memorandum Order (RMO) No. 10-2013, in case the information or records requested are not furnished within the period prescribed in the written notice, or when the information or records submitted are substantially incomplete, the concerned revenue officer conducting a verification or investigation shall request for the issuance of SDT through a Memorandum Report. Stating therein the relevant facts and specifying the particular documents or records not made available to him and the taxpayer liable or the third party/office concerned.

What is an SDT?

Pursuant to Section 1 of Rule 21 of the Rules of Court, it is worthy to note that an SDT is a coercive process requiring the taxpayer to bring with him any books, documents, or other things under his control. (8199 Convenience Corp. v. Commissioner of Internal Revenue, C.T.A. EB Case No. 1912, September 3, 2020)

Pursuant to Section 2 of the Tax Code, as amended (the “Tax Code”), the BIR is conferred the authority to assess and collect all national internal revenue taxes, fees, and charges. To aid the BIR in the discharge of such mandate, Section 5(c) of the Tax Code endows upon the Commissioner of Internal Revenue or his duly authorized representatives, the power to command the production of books, papers, records, or other data of any person liable for tax, required to file a tax return, or in the possession of said documents.

Enforcement of an SDT

As a rule, the SDT shall be served through personal service by personally delivering a copy of the SDT to the party at his registered address before the same is served to the taxpayer’s known address, or simultaneously to the taxpayer’s registered address and known address. In case personal service is not practicable, the SDT shall be served by substituted service or by mail as per RMO No. 10-2013, as amended by RMO No. 08-2014.

If a taxpayer receives an SDT from the BIR, the taxpayer is given the final opportunity to comply with the request for documents by the BIR and is ordered to appear in person before the Commissioner or his duly authorized representative at the time and place specified in the SDT. From there, the taxpayer is allowed to submit the requested documents by the BIR and/or to present his side and supporting alternative documents in case of unavailability or inapplicability of the documents requested.

Institution of Criminal Action

For failure to obey the directives of an SDT, which is to personally appear before the requesting officer and to produce the requested documents, Section 266 of the Tax Code, as amended, provides for a punishment of fine and imprisonment for the unwilling or unsuspecting taxpayer. Section 266 of the Tax Code, as amended, penalizes by fine and imprisonment, any person, who, despite being summoned, neglects to produce books of account, records, memoranda, or other papers required therein.

In the case of Ang vs. People, (C.T.A. EB Criminal Case No.095, August 02, 2023), the Court of Tax Appeal En Banc mentioned the elements of this offense. First, the offender is duly summoned; second, offender is summoned to appear and produce books of accounts, records, memoranda or other reports, or to furnish information as required by the Tax Code, as amended; and third, the offender neglects to appear or to produce the documents just mentioned.

In the unlikely event that a taxpayer fails to obey the directives stated in the SDT, the BIR may endorse the case for the issuance of a warrant of arrest to be issued against the taxpayer. In the case of associations, partnerships, or corporations, the penalty shall be imposed on the partner, president, general manager, branch manager, treasurer, officer-in-charge, and the employees responsible for the violation as per Section 253(d) of the Tax Code, as amended. From here, the tax assessment process elevates into a full-blown trial in court to which the taxpayer must present his defense against the improper issuance of the SDT and more importantly, to prove his innocence towards the alleged violation of Section 266 of the Tax Code.

Compliance with the requests of the BIR is essential.

Close coordination with the BIR examiners during first contact establishes a good relationship throughout the assessment process which also assists in bridging any gap or gray area that may arise during the preliminary stages of requesting documentary requirements from the taxpayer. Communication and attending to the request for documents is material in resolving problems in the early stages of the tax assessment process.

Conservatively, full compliance with any request from the BIR alleviates any form of impending complication which may arise during the tax assessment process. By attending and fully complying with all the notices the taxpayer receives from the BIR, it removes the risk of elevating the need to issue an SDT. Essentially, at any stage of the tax assessment process, taxpayers should be proactive in coordinating with the BIR examiners to address their request for documentation and records and to promptly submit the same to build rapport, promote transparency and smoothen the flow of the tax assessment process.

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.


As published in BusinessWorld, dated 21 November 2023