Reinstatement of the Notice of Informal Conference

Within the Constitution is enshrined the fundamental right of each person to due process of law. The constitutional mandate to uphold this right carries with it the necessity to flank the rights to life, liberty, or property with protection against the State’s capricious exercise of its inherent powers. Due process must be understood to include the very substance of the rights it seeks to protect, as well as the modes of procedure by which governmental powers must be exercised. As a guarantee of procedural fairness, due process includes in its essence the assurance that every person is duly notified and given the opportunity to be heard.

In deficiency tax assessments, the concept of due process can be found in Section 228 of the 1997 National Internal Revenue Code (NIRC), as implemented by Revenue Regulations (RR) No. 12-99. Pertinently, the procedures in the issuance of deficiency tax assessments involve the issuance of a proper letter of authority, followed by a tax audit where the revenue officers examine the books of accounts and accounting records of the taxpayer within an identified taxable year. Should there be findings of deficiency tax liabilities after the audit, the taxpayer shall be notified of such findings and given the opportunity to respond.

The first instance in which a taxpayer is notified of such findings is through the issuance of a Notice of Informal Conference. The Notice of Informal Conference is essentially a written notice to the taxpayer, issued for purposes informing him or her that he or she may have tax compliance deficiencies. Revenue officers who conducted the audit indicate in their report their deficiency findings, as well as the fact of agreement or disagreement of the taxpayer with the same. If the taxpayer disagrees with his findings, he or she shall be informed in writing of the discrepancies for purposes of conducting an informal conference.

The informal conference itself is a discussion on the merits of the assessment. Revenue officers and taxpayers meet, usually in hopes of coming to an early determination of the taxpayer’s actual tax liabilities. Whereas the informal conference is an opportunity for the revenue officers to present their deficiency findings, taxpayers take the same as an opportunity to refute the same. In order to convince the examiners to reconsider their findings, taxpayers will present the factual and legal bases of their rebuttal, including evidence if available.

It is interesting to note that this feature in the assessment process was originally included in RR No. 12-99, but removed under RR No. 18-2013. The said move to delete the informal conference was supposed to expedite the assessment process by jumping straight into the issuance of a Preliminary Assessment Notice (PAN) after the conduct of the audit. For a time, examiners were not anymore required to discuss their findings with the taxpayers so that the first opportunity by which taxpayers can respond to findings is through the submission of a reply to the PAN.

With the issuance of RR No. 7-2018, the informal conference was reinstated and taxpayers can expect to be given an earlier opportunity to assert their due process rights. Revenue officers may now disclose their deficiency findings at an earlier time, and the taxpayer is provided an additional venue to explain his or her side. It also enables the parties to thresh out issues even prior to the issuance of the preliminary deficiency assessment, and provides an opportunity to discuss findings in such a manner as to make it more palatable to the other party. Thus, the informal conference can foster a more cooperative atmosphere between the revenue officers and taxpayers, as the parties work together to explore, verify, and determine the actual tax liabilities of the taxpayers. Ideally, therefore, this should not only work to expedite the process of collection, but also reduce the incidents of bloated assessments.

Of course, it can still be argued that the reinstatement of this additional step may unnecessarily prolong the assessment process. Thus, it also worth noting that RR No. 7-2018 prescribes a limitation to the period within which the informal conference can be conducted. That is, the informal conference shall not extend beyond 30 days from receipt of the Notice for Informal Conference. lf it is found that the taxpayer is still liable for deficiency taxes after presenting his side, and the taxpayer is not amenable to settle the same, the case shall be endorsed within seven days from the conclusion of the conference to the Assessment Division of the Revenue Region for the issuance of a deficiency tax assessment. Failure on the part of revenue officers to comply with the periods indicated shall be meted with penalty as provided by existing laws, rules and regulations.

All in all, the reinstatement of the informal conference in the tax assessment process enjoys positive reception from taxpayers. While the process of determining the compliance of taxpayers is far from perfect, developments geared towards the reinforcement of the taxpayers’ rights are always welcome. After all, taxes are exactions imposed by the government. Any such exaction, therefore, must undergo the meticulous process of scrutiny in order to ensure that what is being demanded is only the correct amount.

Ana Margarita A. Mortel - Chong is a supervisor from the tax group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice, Tier 1 transfer pricing practice, Tier 1 leading tax transactional firm and the 2016 National Transfer Pricing Firm of the Year in the Philippines by the International Tax Review.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email ph-inquiry@kpmg.com or rgmanabat@kpmg.com.