BIR Ruling [DA-224-02]

November 25, 2002 BIR RULING [DA-224-02] Ms. Marilou Del Rosario Chief, Withholding Tax Division BIR, National Office Building Diliman Quezon City M a d a m : This refers to your indorsement letter dated January 18, 2002 requesting for a legal opinion relative to the suggestion stated in the memorandum dated January 2, 2002 of the Regional Director of Revenue Region No. 8, Makati City that a resolution be made as to whether or not the Preliminary Assessment Notices (PAN) issued by the Withholding Tax Division can be "technically" treated as formal assessments and other issues raised therein. ITECSH It may be recalled that your Office instructed the Regional Office of Revenue Region No. 8, Makati City to issue formal assessments to a number of taxpayers against whom Preliminary Assessment Notices have been previously issued. Said Preliminary Assessment Notices were issued due to mathematical errors and/or discrepancies between the taxes withheld and the amounts actually remitted. After considering the nature of the assessments, the Regional Director of Revenue Region No. 8, Makati City took the position that prior issuance of Preliminary Assessment Notice (PAN) is not required by virtue of the provision of Section 228 of the Tax Code of 1997, which provides: Section 228. Protesting of Assessment. When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a preassessment notice shall not be required in the following cases: (a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax appearing on the face of the return; or (b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; xxx xxx xxx Hence, the following legal questions are now being sought for this Office to resolve: 1. Whether or not the above mentioned assessment (denominated as PAN) are technically treated as formal assessment? If so, then these are all collection cases for which no further issuance of deficiency tax assessments (formal assessment notice) is needed or required. 2. If the same are technically considered as mere PAN, whether or not its issuance within the 3 year prescriptive period is sufficient to suspend the running of the prescriptive period within which to legally issue a formal assessment? In reply, please be informed as follows: 1. The PAN issued by the Withholding Tax Division cannot be "technically" treated as formal assessment and, therefore, the cases should not be considered as collection cases because they still require the issuance of formal assessment. CHcTIA The language of the above-quoted provision is plain and clear. It establishes a general rule and an exception thereto. The general rule is that pre-assessment notice is required. This is to give the taxpayer an opportunity to contest or dispute the assessment to which he is being made liable to pay. However, the law also enumerates a number of cases wherein pre-assessment notice may be dispensed with. The provision that a preassessment notice shall not be required when the finding for any deficiency tax is the result of mathematical error in the computation of the tax or when the discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent is merely directory on the part of the government. So much so that, if a pre-assessment notice has been issued, despite the fact that it is no longer necessary, the same should not appear to be considered as a final notice to the detriment of the taxpayer. Pre-assessment Notice and Final Assessment Notice connote a different import each. In the case of Commissioner of Internal Revenue vs. Union Shipping Corporation , 185 SCRA 547, the Supreme Court had the opportunity to rule that the Commissioner of Internal Revenue should always indicate to the taxpayer in clear and unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final determination on the disputed assessment. On the basis of this statement indubitably showing that the Commissioner's communicated action is his final decision on the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer would be able to determine when his right to the tax court accrues. This rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to continually delay the finality of the assessment and consequently, the collection of the amount demanded as taxes by repeated requests for recomputation and reconsideration. On the part of the Commissioner, this would encourage his Office to conduct a careful and thorough study of every questioned assessment and render a correct and definite decision thereon in the first instance. This would also deter the Commissioner from unfairly making the taxpayer grope in the dark, speculating as to which action constitutes the decision appeallable to the tax court. Of great import, this rule of conduct would meet a pressing need for fair play, regularity and orderliness in administrative action. Clearly then, if we are to interpret the PAN issued by the Withholding Division to constitute a Final Assessment, it would run counter to the dictum of the Supreme Court in the case just mentioned. Therefore, the PAN issued to the taxpayers should stand as it is and should not be treated as Final Assessment. 2. As discussed in the preceding paragraph, the notice issued by the Withholding Tax Division is only a Pre-assessment Notice and the issuance of the same did not suspend the running of the three year period within which to issue a Final Assessment Notice. In addition, the instant case does not fall within enumerated circumstances wherein the running of the prescriptive period for assessment and collection of taxes is suspended, namely: a. When the Commissioner is prohibited from making the assessment or beginning distraint and levy or a proceeding in court and for sixty days thereafter; b. When the taxpayer requests for a reinvestigation which is granted by the Commissioner; c. When the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected; provided that if the taxpayer informs the Commissioner of any change in address, the running of the Statute of Limitations will not be suspended; d. When the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative or a number of his household with sufficient discretion and no property could be located; and e. When the taxpayer is out of the Philippines (Sec. 223, NIRC). However, it may be noteworthy to state that, in addition to the above-mentioned circumstances, if the taxpayers concerned each signed a waiver, the running of the prescriptive period within which they may be assessed is considered tolled or suspended. Thus, the Regional Director can issue the Final Assessment Notices, provided, of course, that the making of the same is still within the period agreed upon as appearing in the Waiver of the Statute of Limitation. TIEHDC Please be guided accordingly. Very truly yours, (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group