Waves of waivers
Some of the important lessons in life we learn from unpleasant experiences. Learning from the mistakes of our past keeps us from repeating them. Wisdom comes from accepting errors and exercising better judgment in the future.
The above statements hold true even in tax collection. In the past, the Bureau of Internal Revenue (BIR) lost assessment cases due to the issue of waivers on the statute of limitations for the assessment of deficiency taxes. It may have learned its lesson the hard way, but the Bureau has implemented improved measures stemming from its experience.
In a 2004 case ( G. R. 162852 dated Dec. 16, 2004), the Supreme Court ruled that a waiver must strictly conform to the requirements set forth under the rules; otherwise, the waiver is invalid. At that time, the prevailing rule on the proper execution of a waiver of the statute of limitations was Revenue Memorandum Order ( RMO) No. 201990 and Revenue Delegation Authority Order No. 5-2001.
In a subsequent case (G.R. No. 212825 dated Dec. 7, 2015), the Supreme Court provided an exception to the general rule on validity of waivers. The crux of the issue pertained to the issuance of defective waivers, arising from the fault of both the taxpayer and the BIR. The waivers were said to be executed by the taxpayer’s accountant without a notarized board authority to sign in behalf of the company. On the other hand, the BIR was considered to be careless in performing its functions when it did not ensure that the waiver was duly accomplished and signed by an authorized representative, among others. In that case, the Supreme Court tolerated the BIR’s slip- ups for equitable reasons. The validity of the waiver in favor of the state was then upheld on the strength of the timehonored principle that taxes are the lifeblood of the government. In its decision, the Court said the BIR’s right to collect taxes should not be jeopardized merely because of the mistakes and lapses of its officers, especially in cases where the taxpayer was obviously in bad faith when it voluntarily executed the waivers and subsequently insisted on their invalidity by raising the very same defects it caused. Thus, the taxpayer was estopped from questioning the validity of the waivers.
As for the erring BIR officials, the Court suggested enforcing administrative liabilities for their failure to properly comply with the procedures.
In a more recent decision (G.R. No. 213943 dated March 22, 2017), the Supreme Court ruled that the threeyear period to assess was not extended because all the waivers executed by the taxpayer were considered defective. What is significant to note is that the waivers were considered defective because the BIR failed to provide the third copies to the office accepting the waivers and these copies were merely attached to the docket of the case. Also, the revenue official who accepted the third waiver was not authorized to do so. In this case, the defects were solely due to the fault of the BIR.
While the BIR argued that the taxpayer was estopped from questioning the validity of the waivers, the Courts clarified that the BIR cannot shift the blame to the taxpayer for the defective waivers. The BIR cannot easily invoke the doctrine of estoppel to cover its failure to comply with the requirements for valid issuance of waivers. Having caused the defects, the BIR must bear the consequences. Considering that the waivers are defective, the assessment was considered issued beyond the three-year prescriptive period, and thus, void. Contrary to the 2015 case, the Court ruled in favor of the taxpayer here because it played no part in the waivers’ defects.
With the issuance of a new RMO last year, the question is — Can taxpayers apply the above decisions of the Supreme Court for issues on waivers today?
On April 18, 2016, the BIR issued RMO No. 14-2016 which laid down new guidelines on the execution of waivers. According to the new RMO, compliance with the prescribed form is not mandatory. A taxpayer’s failure to follow the forms would not invalidate the executed waiver, for as long as (1) it is executed before the expiration period, and the date of execution is specifically provided in the waiver; (2) the waiver is signed by the taxpayer or duly appointed representative/responsible official; and (3) the expiry date of the period agreed upon to assess/collect the tax after the three-year period is indicated.
In addition, the new RMO provides that the taxpayer is charged with the burden of ensuring that the waivers are validly executed. The taxpayer must submit the duly executed waiver to the Commissioner of Internal Revenue or to the authorized revenue official (e.g., concerned revenue district officer or group supervisor as designated in the Letter of Authority or Memorandum of Assignment) who shall then indicate acceptance by signing the waiver. Moreover, the taxpayer must retain a copy of the accepted waivers.
Under the new RMO which seems to favor the BIR, it appears that upon execution of the waiver, taxpayers can no longer challenge its validity.
Thus, while there is a level of comfort in the decision of the Court that taxpayers should not be made to suffer for lapses of the BIR, this will only apply to waivers that have been executed prior to the effectivity of the new RMO. The BIR has learned from past mistakes. Here’s to hoping that taxpayers have learned from their own.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.