By Roselle K. Yu, 17 October 2013
The magnitude -7.2 quake that struck Visayas the other day was shocking to say the least, as it decimated centuries-old churches and other structures. It has been compared to the force of 32 nuclear bombs dropped over Hiroshima, Japan during the Second World War.
Not everyone knows what to do during an earthquake. Do you run outside? Do you stand under a doorway or crawl under a table? Knowing what to do could spell a world of difference in terms of your safety. In other words, knowing the procedures is crucial as not following them could cost you dearly.Similarly, there are proper steps to be taken when a taxpayer wants to dispute or nullify an adverse ruling issued by the Bureau of Internal Revenue (BIR). Given that the BIR continues to issue rulings, circulars and regulations that have adverse implications, taxpayers must be aware of how to properly avail of possible remedies. One misstep can lead to your case being dismissed based on procedural grounds and not even on the merits of the ruling or regulation you are contesting.In fact, just recently, the Court of Tax Appeals (CTA) had no choice but to dismiss a couple of petitions filed by taxpayers requesting the invalidation of unfavorable rulings issued to them by the BIR. This was because one taxpayer failed to exhaust available administrative remedies and because, in both cases, the CTA has no jurisdiction over such matters.So, how should we go about protesting unfavorable tax rulings?
First, one must observe the requirement to exhaust all available administrative remedies (although there are exceptions to this rule). Under the Tax Code, the BIR Commissioner has the exclusive and original jurisdiction to interpret tax laws, subject to the review of the Secretary of Finance. Since all rulings are now signed by the BIR Commissioner, a taxpayer who receives an adverse ruling can seek its review by the Secretary of Finance within 30 days of receiving the ruling.
The Department of Finance prescribes strict guidelines that must be followed in appealing an adverse tax ruling. These include information that must be reflected in the request for review, and even guidance on formatting requirements. Only upon receiving the ruling of the Secretary of Finance can the taxpayer be considered as having exhausted all available administrative remedies. Generally, only then can the taxpayer raise the issue before the courts.
This doctrine of exhausting all available administrative remedies before seeking judicial intervention is based on jurisprudence and on practical grounds. It costs less, and ideally, provides for faster disposition of issues. It is based on the underlying presumption that, if given the chance, the concerned administrative agency will decide on the matter correctly and will rectify its own error, if necessary.
What about disputing regulations and circulars that are issued to the general public?
Since the Supreme Court has held that revenue regulations and revenue memorandum circulars are actually rulings or opinions of the BIR Commissioner, any attempts to challenge such issuances may also follow the same steps as when one is disputing an adverse ruling. While circulars are already issued by the Commissioner, it would appear from the arguments raised by the BIR in a recent tax court decision that in seeking to nullify a tax issuance, the BIR expects taxpayers to first file a request for reconsideration with the Commissioner, before appealing to the Secretary of Finance.
Once the case is ripe for judicial remedy, to which court should taxpayers raise their appeal?
Based on jurisprudence, the CTA’s jurisdiction to resolve tax disputes does not include cases which cover the validity or constitutionality of a law, or a rule or regulation issued by an administrative agency in the performance of its quasi-legislative function. The determination of whether an administrative issuance has gone beyond the law falls within the jurisdiction of the regular courts. So, in challenging the validity of tax rulings, regulations or circulars issued by the BIR, taxpayers should seek judicial remedy from the regular courts, and not from the CTA.
Einstein is quoted as saying: “Imagination is more important than knowledge.” While there are areas of taxation that may benefit from innovation, imagination and creativity, remedial procedures are not one of them. Filing appeals within the deadline and at the right venue is essential to a successful dispute. After all, you don’t want to be all dressed to the nines and then realize too late that you’ve gone to the wrong party.
The author is an executive director at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
Views or opinions presented in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from such article; the author will be personally liable for any consequent damages or other liabilities.