BIR clarifies stand on tax assessments

MANILA, Philippines - The Bureau of Internal Revenue reiterated that no offer of compromise on the ground of reasonable doubt shall be entertained when the tax assessment was made with basis in fact and in law.

BIR chief Kim Henares clarified that an assessment based on “best evidence obtainable rule” should not be automatically considered as a doubtful assessment.

Henares explained that a “taxpayer’s failure to present or submit the required documents necessary to make the assessment of its tax liability makes it incumbent to the Bureau to resort to the application of the best evidence obtainable method to recover unpaid taxes due the government.”

Failure to substantiate all or any of the deductions, exemptions or credits claimed in his or her income tax returns is also a ground for the BIR to employ the best evidence obtainable method, she said.

“Therefore any assessment made as a result thereof is presumed prima facie correct and sufficient for all legal purposes,” Henares pointed out. 

The BIR issued Revenue Memorandum Circular No. 34-2014 to clarify the rule on whether or not an assessment resulting from jeopardy/arbitrary assessment or which was based on “best evidence” obtainable method could be considered as a doubtful assessment in so far as compromise settlement application is concerned.

Jeopardy assessment shall refer to a tax assessment made without the benefit of a complete or partial audit by an authorized revenue officer.

Under Sec. 204 of the Tax Code, a taxpayer can avail of a compromise with the government if a reasonable doubt to the validity of the claim exists or the financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.

Compromise of tax deficiencies is discretionary upon the BIR and approval is based on facts and circumstances.

The contesting taxpayer would need to formally file an application and submit supporting documentation that the BIR would deem necessary to establish the basis of the compromise.

Assessment based on “best evidence obtainable” applies when the report or records requested from the taxpayer are not forthcoming.

The BIR has the authority to obtain information and to examine a person’s compliance to tax laws. It can issue a subpoena duces tecum (SDT) in order to facilitate the investigation of possible tax liability.

The issuance of an SDT is intended to compel taxpayers to immediately comply with the requirement to submit the required documents and to speed up the completion of the investigation.