AIn a time where every peso in public funds is scrutinized, one piece of paper has recently caught people's attention: the Bureau of Internal Revenue (BIR) Letter of Authorization (LOA). While the LOA is seen as a mere piece of paper, it must be remembered that this document emanates from the Bill of Rights enshrined in the 1987 Constitution, specifically the right of all persons to due process of law.
LOA is fiThe first document issued to initiate an audit of a taxpayer. The LOA is the primary legal document of the BIR that authorizes revenuemarginal forceThe ICS must examine the taxpayer's books and records and issue an assessment of the correct amount of tax payable.
To be valid, the LOA must have a specific period. It should also include the type of tax under review and the names of the revenue officers authorized to conduct the audit. Section 6 of the National Internal Revenue Code (Tax Code) provides that the LOA must be issued by the Commissioner of Internal Revenue or his duly authorized representative. Earlier, a revenue officer had 120 days to examine the books of a taxpayer. Today, Revenue Memorandum Order No. 82-2022 imposes a period of 180 days from issuance of LOA for regular taxpayers and 240 days for large taxpayers.
Section 6 should be read in conjunction with Section 228 of the Tax Code. Section 228 covers the procedure for opposing assessment and lists the due process requirements to be borne by every taxpayer by the Commissioner or his duly authorized representative.
As per section 228 the taxpayer must first be informed about the findings through a Preliminary Assessment Notice (PAN). The taxpayer can file the reply within 15 days of receipt of PAN. If the taxpayer fails to respond, the Commissioner may proceed to issue an assessment, which is a formal letter of demand/final assessment notice (FLD/FAN). The FLD/FAN can be administratively protested by filing a request for reconsideration or re-examination within 30 days of receipt. In case of re-examination, the taxpayer will have 60 days from the time of filing the protest to submit all relevant supporting documents, otherwise assessment will be done. fiCord.
Before Section 228 of the Tax Code, Philippine tax audits operated without a clear structure. The 1939 Tax Code, and later PD 1158, did not require the BIR to issue a PAN, state the facts and law of the assessment, or decide the protest within a certain period. Evaluation processes were largely administrative and discretionary. This all changed with the enactment of the Tax Reform Act of 1997. Consistent with the 1987 Constitution, Section 228 requires the BIR to provide a written notice to the taxpayer explaining the factual and legal basis upon which the assessment is made. Section 228 clearly provides that a PAN which fails to state the law and facts will be invalid. These requirements were implemented through Revenue Regulation No. 12-99, which formalized the PAN to FAN process and detailed protest mechanisms. Subsequent amendments, such as Revenue Regulation No. 18-2013, strengthened the duty to clearly state the facts and law in assessments.
Finance Secretary issued rules that notice of informal conference should be held even before issuing PAN. In early 2020, this informal conference process was renamed Notice of Discrepancy (NoD). The NoD is issued before the PAN, and the taxpayer is given 30 days from receipt of the NoD to address the discrepancy findings of the revenue authorities.
Effectively, by issuing LOA, the taxpayer is given three stages to respond: NOD stage, PAN stage and FLD/FAN stage. In Avon v. Commissioner (GR No. 201398-99, October 3, 2018), the Supreme Court held that all stages of an audit are part of the due process. Each stage should give both the taxpayer and the BIR the opportunity to dispose of the case as quickly as possible without the need for a final assessment notice. However, this objective is not served if the BIR fails to take action or consider the taxpayer's explanations. Throughout the entire audit process, proper procedure should be followed. Finally, the Commissioner's final decision on the disputed assessment must clearly state the facts, law, rules or jurisprudence on which it is based.
Although the tax code, regulations and jurisprudence have clarified the steps of tax audit, it can still be seen that further legislation is necessary to protect the due process rights of taxpayers.
For example, there is no law listing the requirements and standards to which a taxpayer must be subject to an LOA. As a result, taxpayers are reported to have received LOAs continuously for multiple taxable years, without proper justification. The 2003 Revenue Memorandum Order revealed that the BIR uses data taken from third-party matching information to determine discrepancies on sales and purchases. Another matter to be clarified is the audit process by which the valuation is prepared. The findings of discrepancy are speculative based on comparison of the taxpayer's financial statements and returns.
As discussed above, Section 6 of the Tax Code defines who can issue an LOA. Section 228 provides for the manner of protesting assessment arising out of LOA. Since LOAs are now being scrutinized, it may also provide an opportunity to re-consider who the appropriate subjects of an LOA are, and the need for legislation on the process and standards for exercising the power to audit a taxpayer.
The views and opinions expressed in this article are those of the author. This article is for general information and educational purposes, and is not presented as such, and does not constitute legal advice or a legal opinion.
Jennifer Rose O. Tapia Angara is an associate in the tax department of Abello Concepcion Regala Cruz Law Office.
