BIR Ruling [DA-353-00]

September 28, 2000 BIR RULING [DA-353-00] Laya Mananghaya & Co. Certified Public Accountants and Management Consultants 22/F Antel 1000 Corporate Centre 139 Valero Street, Salcedo Village Makati City 1227 Attention: Mr . Mario T . Mananghaya Managing Partner Gentlemen : This refers to your letter dated July 19, 2000 in which you relayed the concerns of your international clients over the integrity and reliability of rulings issued by the Bureau of Internal Revenue. It is represented that some of your international clients expressed the perception that the rulings of the Bureau of Internal Revenue may be arbitrarily revoked or reversed, which could unduly prejudice them; that consequently, some of these clients are now reluctant to enter into transactions for which an interpretation of the appropriate tax laws may be required of this Office; that in view of the foregoing, and in order to enhance you ability to represent to your international clients the integrity, reliability and trustworthiness of rulings promulgated by the BIR, you would like to have confirmation that: 1. The rulings issued by the Bureau of Internal Revenue have integrity, are trustworthy and can be relied upon by the taxpayers for purposes of entering into transactions that may give rise to tax consequences requiring interpretation by the Bureau of Internal Revenue of the pertinent tax laws and regulations; and 2. The Bureau of Internal Revenue does not arbitrarily revoke rulings issued to the prejudice of the taxpayers affected by the said rulings. In reply, please be advised that under the law, the Commissioner has the power to revoke, modify and reverse rulings, opinions or circular issued by the Bureau of Internal Revenue. However, this is resorted to after a critical and deeper analysis and only upon a clear showing that the law and the facts warrant a revocatory action. In other words, the revocation is merely the exception to the norm that all issued rulings and opinions are, as much as practicable, let alone to stand or fall on their own merits. But this rule-making power should be carried out with rigidity and inflexibility. In fact, in most cases, it is not the BIR but the taxpayers themselves who invoke the reversal of previous rulings on the basis of, for instance, new or contemporaneous laws supporting a contrary position, or upon showing that this Office may have committed palpable error of judgment. And rightly so, for administrative rule-making power likewise demands that due process, justice and equity should not be ignored or disregarded just for the sake of maintaining a previous position on a given subject. Indeed, there are doctrines deeply rooted in the past, that have stood the test of time and circumstance. Equally, there are previous positions which must be made adaptable to present circumstance, and so much be changed, in order to prevent injustice. If it is this Office itself which reversed its previous positions on its own accord, such revocation is more often rooted on the doctrine that the government is never estopped from collecting a tax that is legally due it However, this is qualified by Section 246 of the National Internal Revenue Code, in the sense that under this section, rulings and circulars, rules and regulations, promulgated by the Commissioner of Internal Revenue would have no retroactive application if to so apply them would be prejudicial to taxpayers, except in the three instances enumerated therein. This provision of the NIRC on revocation of BIR rulings is quoted hereunder. "SEC. 246. Non-retroactivity of rulings . Any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayers except in the following cases: (a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; (b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or (c) where the taxpayer acted in bad faith." Accordingly, the revocation, reversal or modification of rulings cannot be made to apply retroactively to the prejudice of the taxpayer. Unless the taxpayer misstates or omits material facts in documents required by the Bureau of Internal Revenue, or misrepresents the facts upon which a ruling is based or acted in bad faith, he will not be made liable to tax as a result of a such revocation or modification. Consequently, should a taxpayer rely on a ruling issued to him/it for purposes of entering into a transaction, contract or agreement, the tax consequences of a subsequent revocation or reversal of the ruling relied upon cannot be made to apply to the said transaction, contract or agreement if prejudicial to the affected taxpayer. Please assure your clients, be they foreign or local, that this Bureau does not resort to arbitrary reversal of rulings. In the event that a reversal of ruling cannot be avoided, such reversal is not done for light or flimsy reasons but only in the interest of justice and fair play and after a careful and judicious study of the case and generally with no retroactive effect. Very truly yours, (SGD.) DAKILA B. FONACIER Commissioner of Internal Revenue