It is innate in every human being to have basic rights. They can never be taken away. They are valid and universal. In the corporate context, taxpayers are entitled to due process. Whether they be small or big businesses, they are entitled to the right to due process and equal protection of the law.

In a recent Supreme Court decision (G.R. No. 222476, promulgated on May 5, 2021), the court reiterates the importance of the procedural and substantive rules on assessment of national internal revenue taxes.

In this case, the taxpayer’s assessment of income tax, value-added tax, expanded withholding tax, fringe benefits tax and improperly accumulated earnings tax (IAET) were cancelled because due process was violated.

It is always important that any taxpayer follow and take note of these procedural and substantive rules on assessment. While in this case, the taxpayer properly responded and protested the Formal Letter of Demand (FLD) or Final Assessment Notice (FAN), the subject assessment was invalid and illegal due to the violation of procedural due process.


Like in any normal tax assessment, the rule on serving notice must first be observed. The issuance of Notice of Discrepancy or NoD, Preliminary Assessment Notice or PAN, Formal Letter of Demand or FLD, Final Assessment Notice or FAN, and Final Decision on Disputed Assessment or FDDA are vital. They play an important role in any tax assessment process. Failure to issue or absence of any of these notices is always a fatal defect in an assessment case.

Thus, it is important that taxpayers know the procedural rules to protect their right to due process.

Recently, the BIR issued RR 22-2020 which provides guidelines on the issuance of NoD to inform taxpayers in writing of any discrepancies and provide the taxpayer ample time to present supporting documents and explain any alleged discrepancies. All necessary documents must be submitted within the prescribed period.

For the issuance of PAN, the taxpayer must be given 15 days to respond upon receipt of the notice. This recent case reiterates that the notice must actually be received by the taxpayer or his authorized representative. A mere assumption of its receipt without proof that the letter was actually received can cause the assessment to be invalid. As such, failure to observe this procedure violated the due process requirements.

For the issuance of FAN/FLD, on the other hand, the taxpayer is given 30 days from the receipt of the FLD/FAN to file an administrative protest.

While it is true that these notices must be served to taxpayers, voluntary payment of some tax deficiencies if not all, may be viewed as acknowledgement of tax deficiencies. Voluntary payment of questioned deficiency taxes on an assessment cuts the running of interest charges. However, it is not an outright waiver of the right to question the validity of such assessment notices.

Indeed, the taxpayers have every right to take action and avail of remedies as long as they do so within the allowed time prescribed by law.


In this recent case, the taxpayer consistently protested the IAET assessment due to lack of factual basis. Section 228 of the Tax Code, as amended, and pursuant to elementary due process, the taxpayer must always be informed in writing and the facts upon which an assessment is based; otherwise, the assessment is cancelled. The taxpayer must be knowledgeable that IAET is imposed on certain taxpayers. IAET shall not apply to banks, insurance companies, publicly-held companies and other taxpayers covered by special laws such as PEZA registered entities. 

Please note the IAET has been repealed by virtue of the CREATE Law, which took effect on April 11, 2021 after its publication on March 27, 2021.

Time and again, in any BIR assessment cases, these procedures must be observed. One missing step may render an assessment void. Always be informed about the legal and factual basis. As taxpayers, we must know our basic constitutional rights to due process and equal protection of the law. Remember, knowledge is power.

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 03 August 2021