Assessment based on estimates
BEING assessed by the Bureau of Internal Revenue ( BIR) is akin to living out your worst nightmare. Evan Esar, an American humorist, once said that some taxpayers close their eyes, some cover their ears, some shut their mouths, but all pay through the nose.
Given the well- entrenched principle in taxation that tax assessments made by tax examiners are prima facie presumed correct and made in good faith, the taxpayers have the burden of proving otherwise. In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a BIR examiner and approved by supe-
In a recent case involving a transport service provider (CTA Case No. 9063, dated Oct. 19, 2018), the petitioner- taxpayer
- panded withholding tax (EWT), among other taxes. The basic tax due arose from the alleged nonwithholding of income payments pursuant to Section 58 of the Philippine Tax Code, as implemented by Revenue Regulations (RR) No. 2-98.
According to the BIR, the assessed item for EWT was based on the entries indicated in the accounts payable register, in consultation with the petitionertaxpayer’s finance controller considering that the petitioner’s system was unavailable for veri-
entries had no corresponding withholding taxes.
The petitioner- taxpayer asserted that it properly withheld taxes due on its income payments on the subject year of assessment. Likewise, the petitioner-taxpayer
- ment notice (FAN) emphasized that the assessment was based on mere speculation and that the BIR has no valid basis since the monthly accounts payable would naturally vary from month to month, and the variance for each month could be substantial. The petitioner-taxpayer also submitted that the assessment should be cancelled for being null and void as it is based on mere presumptions, not on actual facts.
In the instant case as noted by the CTA, the petitioner-taxpayer failed to prove its contentions and effectively contradicted the
defense solely on the nature of the assessment being an estimate. Even in the proceedings of the said case, petitioner-taxpayer was not able to fully substantiate its claim.
According to the CTA, the petitioner- taxpayer was also unsuccessful in proving proper withholding and remittance of the withholding taxes on every item listed and considered in to cancel the assessment against the petitioner-taxpayer considering that assessments based on estimates or approximates are valid under the best evidence obtainable rule. While it appears that the basis of the BIR is not strong, petitioner-taxpayer should not rely on the weakness of such evidence but on the strength of its own documents.
As discussed by the CTA, citing a decision of the Supreme Court in the case of Sy Po vs. Hon. Court of Tax Appeals, et. al. (G.R. No. 81446, Aug. 18, 1988), in the absence of accounting records or other documents necessary for the proper determination of the taxpayer’s tax liability, Section 6 (B) of the Philippine Tax Code requires that the assessment of the tax be determined based on the best evidence obtainable. It should be noted that assessments based on estimates or approximates are valid under the best evidence obtainable rule.
a required return or other document at the time prescribed by
a false or fraudulent return or other documents, the commissioner shall make or amend the return from his own knowledge, and from such information as he can obtain through testimony or otherwise, which shall be prima
legal purposes.
The rule on the “best evidence obtainable” applies when a tax report required by law for the purpose of assessment is not available or when the tax report is incomplete or fraudulent.
Furthermore, revenue memorandum circular ( RMC) No.
- ment based on “best evidence obtainable rule” should not be automatically considered a doubtful assessment. Scrutiny as to the surrounding circumstances that led to the issuance of an assessment should be thoroughly evaluated.
The taxpayer’s failure to present or submit the required documents necessary to determine its tax liability left the bureau with no choice but to resort to the application of the best evidence obtainable method to recover unpaid taxes due to the government. Consequently, any assessment made as a result thereof is presumed prima facie correct and sufficient for all legal purposes.