Just to Stop the Collection of Your Tax Liabilities
By: Atty. Josephrally L. Chavez, Jr.
The BIR in seeking to perform its tasks of collecting internal revenue taxes, namely: Income Tax, Estate and Donor’s Tax, VAT, Other Percentages Taxes, Excise Tax, Documentary Stamp Tax and Other taxes as may be authorized by the Tax Code is confined and restricted as there are limitations. In this view, in compliance with RR 12-99, 18-13 & 7-18 certain procedures must be observed by the Bureau so as not to deprive the taxpayers their right to due process. But suppose, the Bureau thereafter sent a demand letter or preliminary collection letter or final notice before seizure or there was an inaction on the part of the Commissioner on the protest (Motion for reconsideration or reinvestigation) filed by the taxpayer against the Final Assessment Notice (FAN)? Then the taxpayer has no other recourse but to seek redress before the Court of Tax Appeals by filing a Petition for Review.
While as a matter of rule, the collection of taxes cannot be stopped nor be restrained and that in this jurisdiction, no court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by the Code, (Section 218 of the NIRC). This, of course admits of certain exception. Section 11 of R.A. 9282, which amended R.A. 1125 (The Law Crating the Court of Tax Appeals) was cited. The same provides that — No appeal taken to the Court of Appeals from the Collector of Internal revenue x x x shall suspend the payment, levy, distraint, and/or sale of any property for the satisfaction of his tax liability as provided by existing law. Provided, however, that when in the opinion of the court the collection by the aforementioned government agencies may jeopardize the interest of the Government and/or taxpayer the Court at any stage of the processing may suspend the collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court. Therefore, how much is the bond? The Supreme Court in A.M. 15-92-01 CTA, approved the CTA En Banc Resolution No. 02-2015 which provides that the phrase “amount claimed” stated in Section 11 of RA No. 1125 was construed to refer to the principal amount of the deficiency taxes, excluding penalties, interest and surcharges.
At this point, when such tax case is elevated before the CTA, the taxpayer can question the validity of the assessment issued against him, whether the assessment is defective or not, question the allegation of fraud or the correctness of the said fraud assessment without evidentiary support, assail such attempt by the Bureau of collecting the deficiency taxes on the ground of due process e.g. the fact that all communications and notices from the Bureau were not properly served and/or received. The taxpayer may likewise prove before the court that the Final Decision on Disputed Assessment (FDDA) is void. Or even raise the issue that the assessment made was not based on actual transaction documents but simply on the “best possible sources” and that the same is not permitted under the Tax Code and present further evidence to disprove the said assessment. Remember that under RR 12-99, the taxpayer must be informed in writing of the law and the facts on which the assessment is made, otherwise the assessment is void. And it is settled that, an assessment in order to stand judicial scrutiny, must be based on facts. The presumption of the correctness of an assessment, being a mere presumption, cannot be made to rest on another presumption. Further, the taxpayer is also in a position to strengthen his claim on all of his taxes paid and that his claim of deductions is in compliance with the substantiation requirements.
But since, the BIR is empowered to assess and collect taxes, upon the issuance by the Commissioner or Regional Director of the final decision on disputed assessment against the taxpayer or upon issuance by the CTA in Division or En Banc of its decision upholding the assessment, Warrants of Distraint and Garnishment, and/or Levy shall immediately be issued and served. At this point, the taxpayer must bear in mind that pending resolution of his appeal before the CTA, he must pray for the suspension of the issuance of warrant of distraint and/or levy and warrant of garnishment or if the same had been issued already, better pray for a temporary restraining order (TRO) seeking a similar relief pending the disposition of the subject petition.
Basis for the suspension of collection
The taxpayer must establish the fact that the deficiency tax assessment is prejudicial to his interest and the posting of the bond thereafter. On the other side, in order for the Court to direct the Commissioner to suspend the collection of the deficiency tax, the operative act is that, the taxpayer must make a cash deposit or post a bond to stay the collection of the questioned deficiency taxes. This bond, is a sine que non condition to stop the collection of such deficiency taxes.
In balancing the scale of justice, our court is a court of law. And that, our court is given the power to relax certain rules based on proper merit and consideration. The court is likewise clothed with authority to dispense with the requirement, this especially if the methods employed by the CIR is not sanctioned by law nor is authorized by the Tax Code.. Noteworthy, it is settled in the case of CIR vs. Avelino [100 Phil. 327 (1956)] and CIR vs. Zulueta [100 Phil. 872, (1957)] were it provides for the circumstance of the case that warrant the exception as to the application of Section 11 of R.A. No. 1125 on the bond requirement, this notwithstanding that taxpayer, in order to suspend payment the payment of his tax liabilities, is required to deposit the amount claimed by the Commissioner of Internal Revenue (CIR) or to file a surety bond not more than double the amount due. The ruling on exception provides however that, the requirement of posting a bond to suspend the collection of taxes could be dispensed with only if the methods employed by the CIR in the tax collection were clearly null and void and prejudicial to the taxpayer. Also in the case of CIR vs. Reyes [100 Phil. 822 (1957], it was held that the requirement of the bond as a condition precedent to issuance of writ of injunction applies only in cases where the processes by which the collection sought to be made by means thereof are carried out in consonance with law for such cases provided and not when said processes are obviously in violation of the law to the extreme that they have to be suspended for jeopardizing the interest of the taxpayer.
So, to dispensed with the bond requirement, the taxpayer must also establish that the collection by summary methods of the CIR was null and void and likewise, prove the illegality of the methods employed by the CIR to effect the collection of tax.
Court’s power to restrain tax collection
In the case of Pacquiao vs. CTA [G.R. No. 213394, 5 April 2016], the High Court still holds that the CTA has ample opportunity to issue injunctive writs to restrain the collection of tax and to even dispense with the deposit of the amount claimed or the filing of the required bond, whenever the method employed by the CIR in the collection of tax jeopardizes the interests of a taxpayer for being patently in violation of the law. In this case, the the liability or assessment made by the BIR was above the net worth of the taxpayer as reported in his SALN. Further, it was also ruled that the dispensation of the bond is not simply confined to cases where prescription has set in. While the High Court is likewise empowered to issue a restraining order or grant injunction relief for the taxpayer, it cannot make a preliminary determination on whether or not he CIR used methods sanctioned by law. It said that the determination of whether the methods employed by the CIR in its assessment jeopardized the interests of a taxpayer for being patently in violation of the law is a question of fact that calls for the reception of evidence which would serve as basis.
In another case, the taxpayer questioned the surety bond requirement at the same greatly exceeds its net worth and makes it legally impossible to procure the bond from bonding companies that are limited in their risk assumptions. The Supreme Court ruled that, the CTA in Division gravely abused its discretion because it fixed the amount of the bond at nearly five times the net worth of the taxpayer without conducting a preliminary hearing to ascertain whether there were grounds to suspend the collection of the deficiency assessment on the ground that such collection would jeopardize the interests of the taxpayer.
Although the bond required was itself the amount of the assessment, it behooved the CTA in Division to consider other factors recognized by the law itself towards suspending the collection of the assessment, like whether or not the assessment would jeopardize the interest of the taxpayer, or whether the means adopted by the CIR in determining the liability of the taxpayer was legal and valid. By simply prescribing such high amount of the bond like the initial 150% of the deficiency assessment, or later on even reducing the amount of the bond to equal the deficiency assessment would practically deny to the petitioner the meaningful opportunity to contest the validity of the assessments, and would likely even impoverish it as to force it out of business. [Tridharma Marketing vs. CTA, G.R. No. 215950, June 20, 2016]
The issuance of a writ of preliminary injunction
The requisites for the issuance of a writ of preliminary injunction are: (1) the existence of a clear and unmistakable right that must be protected; and (2) an urgent and paramount necessity for the writ to prevent serious damage. The urgency and paramount necessity for the issuance of a writ of injunction becomes relevant in the another case considering that what is being enjoined is the sale by public auction of the properties of amounting to at least P1.7 billion and which properties are vital to its business operations. If at all, the repercussions and far-reaching implications of the sale of these properties on the operations of taxpayer merit the issuance of a writ of preliminary injunction in its favor. [Talento vs. Excalada, G.R. No. 180884, June 27, 2008]