Publishing Presidential Decree No. 1356, dated April 21, 1978, Amending Section 16 of the National Internal Revenue Code by Authorizing the Commissioner of Internal Revenue Under Certain Conditions to Place Natural or Juridical Persons Under Surveillance for Two Months for the Purpose of Establishing a Prima Facie Basis for Assessing Taxes for the Other Months of the Same or Different Taxable Years

May 9, 1978 REVENUE MEMORANDUM CIRCULAR NO. 041-78 SUBJECT : Publishing Presidential Decree No. 1 356, dated April 21, 1978, Amending Section 16 of the National Internal Revenue Co de by Authorizing the Commissioner of Internal Revenue Under Certain Conditions to Place Natural or Juridical Persons Under Surveillance for Two Months for the Purpose of Establishing a Prima Facie Basis for Assessing Taxes for the Other Months of the Same or Different Taxable Years TO : All Internal Revenue Officers and Others Concerned For the information and guidance of all concerned, there is published hereunder the full text of Presidential Decree No. 1356, viz: "MALACAANG MANILA PRESIDENTIAL DECREE NO. 1356 "AMENDING SECTION 16 OF THE NATIONAL INTERNAL REVENUE CODE BY AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE UNDER CERTAIN CONDITIONS TO PLACE NATURAL OR JURIDICAL PERSONS UNDER SURVEILLANCE FOR TWO MONTHS FOR THE PURPOSE OF ESTABLISHING A PRIMA FACIE BASIS FOR ASSESSING TAXES FOR THE OTHER MONTHS OF THE SAME OR DIFFERENT TAXABLE YEARS "WHEREAS, the Bureau of Internal Revenue has conducted surveillance of certain business enterprises for a period of one to two months to determine their true and correct income and/or receipts; "WHEREAS, the findings indicate rampant and flagrant nondeclarations and underdeclarations resulting in substantial loss of revenue; "NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers in me vested by the Constitution, do hereby decree: "SECTION 1. Section 16 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows: "SEC. 16. Power of Commissioner of Internal Revenue to make assessments . When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by law or regulation, or when there is reason to believe that any such report is false, incomplete, or erroneous, the Commissioner of Internal Revenue shall assess the proper tax on the best evidence obtainable. "The Commissioner of Internal Revenue may place the business operations of any person, natural or juridical, under observation or surveillance for a period of two months to be determined under regulations to be prescribed by the Secretary of Finance if there are reasons to believe that such person is not declaring his correct income and receipts for internal revenue tax purposes. The findings for this period may be used as a basis for assessing the taxes for the other months of the same or different taxable years and such assessment shall be considered prima facie correct. "When it shall come to the knowledge of the Commissioner of Internal Revenue that a taxpayer is retiring from the business subject to taxation, or intends to leave the Philippines, or remove his property therefrom, or hide or conceal his property, or perform any act tending to obstruct the proceedings for collecting the tax for the past or current quarter or year, or render the same totally or partly ineffective unless such proceedings are begun immediately, the Commissioner of Internal Revenue shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision, together with a request for the immediate payment of the tax for the tax period so declared terminated and the tax for the preceding year or quarter, or such portion thereof as may be unpaid, and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed, unless paid within the time fixed in the request of the Commissioner of Internal Revenue." "SEC. 2. The Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, shall promulgate rules and regulations to implement the provisions of this Decree. "SEC. 3. This Decree shall take effect upon its approval. "DONE in the City of Manila, this 21st day of April in the year of Our Lord, nineteen hundred and seventy-eight. "(SGD.) FERDINAND E. MARCOS "President of the Philippines By the President: "(SGD.) JACOBO C. CLAVE Presidential Executive Assistant" Features of the Amendment A tax surveillance conducted by the Bureau on certain business enterprises indicated that there are taxpayers who deliberately failed to report their taxable transactions and underdeclare their taxable gross receipts. While such findings can be used for tax purposes for the period covered by the surveillance, the said findings cannot be utilized for the purpose of assessing the taxpayer's liabilities for other months or periods during which no surveillance was conducted in the absence of any legal basis therefor. aisa dc Under the proposed amendment of Section 16 of the National Internal Revenue Code, the Commissioner of Internal Revenue is authorized to place under observation or surveillance the business operations of any person, natural or juridical, for a period of two months. Such surveillance are to be conducted only if there are reasons to believe that such person is not declaring his correct income and receipt for internal revenue tax purposes. The amendment further provides that the findings during the period of surveillance may be used for assessing taxes for other months for the same or different taxable year and such assessment shall be considered prima facie correct. All internal revenue officers and others concerned with the enforcement of internal revenue laws are hereby enjoined to be guided accordingly and to give the decree a wide publicity as possible. EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-P4519-F2828-A-8