Tuesday, March 13, 2012

CIR vs. FMF Development Corporation [G.R. No. 167765 June 30, 2008]

Facts: On April 15, 1996, FMF filed its Corporate Annual Income Tax Return for taxable year 1995 and declared a loss of P3,348,932.The BIR then sent FMF pre-assessment notices informing it of its alleged tax liabilities. FMF filed a protest against these notices with the BIR and requested for a reconsideration/reinvestigation. RDO Rogelio Zambarrano informed FMF that the reinvestigation had been referred to Revenue Officer Alberto Fortaleza. 

On February 9, 1999, FMF President executed a waiver of the three-year prescriptive period for the BIR to assess internal revenue taxes to extend the assessment period until October 31, 1999. The waiver was accepted and signed by RDO Zambarrano. 

On October 18, 1999, FMF received amended pre-assessment notices dated October 6, 1999 from the BIR. FMF immediately filed a protest on November 3, 1999 but on the same day, it received BIR’s Demand Letter and Assessment Notice dated October 25, 1999 reflecting FMF’s alleged deficiency taxes and accrued interests the total of which amounted to P2,053,698.25. 

On November 24, 1999, FMF filed a letter of protest on the assessment invoking the defense of prescription by reason of the invalidity of the waiver. 

The BIR insisted that the waiver is valid. It ordered FMF to immediately settle its tax liabilities, otherwise, judicial action will be taken. Treating this as BIR’s final decision, FMF filed a petition for review with the CTA. 

The CTA granted the petition and cancelled Assessment Notice made by the BIR because it was already time-barred. The CTA ruled that the waiver did not extend the three-year prescriptive period within which the BIR can make a valid assessment because it did not comply with the procedures laid down in Revenue Memorandum Order (RMO) No. 20-90. On appeal, the Court of Appeals affirmed the decision of the CTA. 

(1) Is the waiver valid? and 

(2) Did the three-year period to assess internal revenue taxes already prescribe? 

Held: Petitioner contends that the waiver was validly executed mainly because it complied with Section 222 (b) of the National Internal Revenue Code (NIRC). On the other hand, respondent counters that the waiver is void because it did not comply with RMO No. 20-90Moreover, a waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription. 

Petition lacks merit. Under Section 203 of the NIRC, internal revenue taxes must be assessed within three years counted from the period fixed by law for the filing of the tax return or the actual date of filing, whichever is later. This mandate governs the question of prescription of the government’s right to assess internal revenue taxes primarily to safeguard the interests of taxpayers from unreasonable investigation. Accordingly, the government must assess internal revenue taxes on time so as not to extend indefinitely the period of assessment and deprive the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after the expiration of reasonable period of time. 

An exception to the three-year prescriptive period on the assessment of taxes is Section 222 (b) of the NIRC, which provides: 

(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon. 

The above provision authorizes the extension of the original three-year period by the execution of a valid waiver. Under RMO No. 20-90, which implements Sections 203 and 222 (b), the following procedures should be followed: 

1. The waiver must be in the form identified as Annex "A" hereof…. 

2. The waiver shall be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials. 

Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or the revenue official authorized by him, as hereinafter provided, shall sign the waiver indicating that the Bureau has accepted and agreed to the waiver. The date of such acceptance by the Bureau should be indicated. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed. 

3. The following revenue officials are authorized to sign the waiver. 

A. In the National Office 

3. Commissioner For tax cases involving more than P1M 

B. In the Regional Offices 

1. The Revenue District Officer with respect to tax cases still pending investigation and the period to assess is about to prescribe regardless of amount. 

4. The waiver must be executed in three (3) copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy shall be indicated in the original copy. 

5. The foregoing procedures shall be strictly followed. Any revenue official found not to have complied with this Order resulting in prescription of the right to assess/collect shall be administratively dealt with. 

Applying RMO No. 20-90, the waiver in question here was defective and did not validly extend the original three-year prescriptive period. 

Firstly, it was not proven that respondent was furnished a copy of the BIR-accepted waiver. Secondly, the waiver was signed only by a revenue district officer, when it should have been signed by the Commissioner as mandated by the NIRC and RMO No. 20-90, considering that the case involves an amount of more than P1 million, and the period to assess is not yet about to prescribe. Lastly, it did not contain the date of acceptance by the Commissioner of Internal Revenue, a requisite necessary to determine whether the waiver was validly accepted before the expiration of the original three-year period. Bear in mind that the waiver in question is a bilateral agreement, thus necessitating the very signatures of both the Commissioner and the taxpayer to give birth to a valid agreement. 

The waiver of the statute of limitations under the NIRC, to a certain extent being a derogation of the taxpayer’s right to security against prolonged and unscrupulous investigations, must be carefully and strictly construed. The waiver of the statute of limitations does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally, particularly where the language of the document is equivocal. Notably, in this case, the waiver became unlimited in time because it did not specify a definite date, agreed upon between the BIR and respondent, within which the former may assess and collect taxes. It also had no binding effect on respondent because there was no consent by the Commissioner. On this basis, no implied consent can be presumed, nor can it be contended that the concurrence to such waiver is a mere formality. 

Consequently, petitioner cannot rely on its invocation of the rule that the government cannot be estopped by the mistakes of its revenue officers in the enforcement of RMO No. 20-90 because the law on prescription should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommended the approval of the law.

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