BIR Ruling [DA-225-04]

April 29, 2004 BIR RULING [DA-225-04] Sec. 223 (c); 1993 Tax Code ACB & Co. Unit 106 G/F Le Metropole Building 326 Tordesillas cor. de la Costa Streets Salcedo Village, Makati City Attention: Jesus Clint O. Aranas Tax Lawyer Gentlemen : This refers to your letter dated April 20, 2004, requesting on behalf of your client, Lubwell Corporation (Lubwell for brevity), for confirmation of your opinion that the right of the BIR to collect the deficiency tax assessment for the taxable years ending December 3, 1996 and 1997 with Assessment Notice dated May 19, 1999 prescribes within a period of three (3) years or until May 25, 2002, pursuant to the provision of Section 203 of the Tax Code of 1995, as amended. The following material facts are determinative in the resolution of the issue posed regarding the prescriptive period to collect. On May 19, 1999, the BIR issued a Final Assessment Notice against Lubwell for taxable years ending December 31, 1996 and 1997 Lubwell protested said assessment on June 16, 1999. Subsequently, on June 22, 1999 a revised Final Assessment Notice was then issued. On July 5, 1999, Lubwell requested for a period of sixty (60) days or until September 5, 1999 to submit other pertinent documents and papers relative to the case. On August 12, 1999 the BIR replied to the letter of July 5, 1999 stating the requirement of the law on compliance with the sixty day period for submission of all relevant documents as provided under Section 228 of the Tax Code of 1997. Lubwell requested on September 2, 1999 for a reconsideration of the decision of the BIR requiring the submission of all relevant documents within sixty days from the filing of the protest. September 8, 1999, a similar request dated September 2, 1999 was submitted to the BIR. On October 12, 1999, the BIR wrote Lubwell indicating among others, that Lubwell has an "inextendible five (5) day period" from receipt thereof to comply and submit the documents required therein. In compliance with the above letter, Lubwell on October 22, 1999, submitted some of the documents and again requested for another 120 day extension from the deadline mentioned in the letter dated October 12, 1999. Lubwell executed a Waiver on the Defense of Prescription on July 30, 2002. On October 23, 2003, Lubwell through its counsel filed a position paper requesting the cancellation of the assessment for having no bases in fact and in law. On March 13, 2004, Lubwell received a letter from the BIR informing the former of the final decision of the BIR on the disputed assessment. Based on all the foregoing representations, you now request for confirmation that the right of the Bureau to collect by virtue of the assessment dated May 19, 1999 has already prescribed on May 25, 2002. IDSaTE In reply, please be informed of the provision of Section 223(c) of the Tax Code of 1993 which provides: "Section 223. Exceptions as to the period of limitation of assessment and collection of taxes . xxx xxx xxx (c) Any internal revenue tax which has been assessed within the period of limitation above prescribed may be collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax." The prescriptive period for collection has been reduced from five (5) to three (3) years to be counted from the date of assessment. The exception to this three-year period of collection is a Waiver of Limitations signed by the taxpayer and accepted by the Commissioner before the lapse of the three-year period. Our Tax Code provides for two main period of prescription. The first refers to assessment and the second refers to the remedies of collection. In the case at bar, what is at issue is the period of collection and there is no question with respect to the issuance of the assessment. As borne out by the records of the case, after the issuance of the Final Notice of Assessment on May 19, 1999, Lubwell filed a protest on June 16, 1999. In its letter, Lubwell prayed to have the deficiency tax assessments against the company reconsidered and consequently written-off. Subsequently, the Bureau on June 22, 1999 issued a detailed Final Assessment Notice bearing the same amount. Said assessment, however, stated " this supersedes the original final notice ." No further request for reconsideration was ever filed by Lubwell except for some requests for extension to submit documents. It is the observation of this Office that there are two identical deficiency tax assessments issued by the Bureau one after the other against Lubwell for the same taxable years and that is the May 19, and June 22, 1999 assessments. The May 19 assessment was vacated with the issuance of the June 22 assessment and in effect rendered the protest filed by Lubwell ineffective because the same was filed in connection with the former assessment. For purposes, however, of counting the three-year period for the collection of taxes against Lubwell, the reckoning date should be June 22, 1999 and not May 19, 1999. It is worth mentioning that the June 22 assessment superseded the assessment issued on May 19, 1999. In other words, there is no more basis to consider the May 19 assessment considering that it was already replaced by the June 22 assessment. Since there was no protest or request for reconsideration that was filed by Lubwell after this date, this Office believes that the right of the Bureau to collect the deficiency tax against Lubwell under assessment notice dated June 22, 1999 has prescribed on June 22, 2002. Similarly important is the resolution of whether or not the Waiver of the Defense of prescription that was executed by the President of Lubwell is valid under the circumstances. In the case of Republic vs. Felix Acebedo (L-204207, March 29, 1968) the Supreme Court said that "it is necessary that the waiver be executed by the parties before the lapse of the three-year prescription period. A waiver is ineffective if it is executed beyond the original prescriptive period." Records disclosed that the first Waiver executed by Early Ampil, President of Lubwell was dated July 30, 2002. Since we have already determined that the period to collect the deficiency tax of Lubwell expired on June 22, 2002, the waiver executed on July 30, 2002, and all other waivers executed to this effect are invalid and have no force and effect. The law does not authorize the extension of the prescriptive period once prescription has set in ( Republic v. Rita Lim de Yu, L-17438 April 30, 1964 ). This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group