Delegation of BIR authority to sign rulings

By Rhea M. Regala, on 28 May 2009

In line with the government’s continuing thrust to implement policies that will enhance its revenue-generating function and minimize opportunities for tax evasion, the Bureau of Internal Revenue (BIR) recently issued Revenue Delegation Authority Order (RDAO) No. 3-2009 last May 15, 2009.

Under said order, the BIR clarifies and modifies the scope of the delegation of authority to sign rulings that involve interpretation of powers of the National Internal Revenue Code, as amended (Code), and grants of tax exemptions, among others, to the BIR Regional Directors, Assistant Commissioner-Legal Service (ACIR-Legal Service) and Deputy Commissioner for Legal and Inspection Group (DCIR-LIG) under the earlier Revenue Memorandum Order (RMO) No 37-2007.

This RDAO was based on Section 7 of the Code which authorizes the Commissioner of Internal Revenue (CIR) to delegate the powers vested in him by law to subordinate officials with the rank equivalent to a division chief or higher, subject to rules and regulations to be promulgated by the Secretary of Finance and the limitations enumerated in the Code. However, excluded from this authority to delegate is the power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the BIR which remains within the exclusive jurisdiction of the CIR. All other rulings falling outside the scope this prohibition may be delegated.

One special feature of this RDAO which has caused great concern to affected taxpayers is the provision in the last paragraph of Section 3 which states that "All rulings issued outside the scope of the delegated authority granted under this Circular and all other issuances on the delegation of authority issued by all previous Commissioners shall also be deemed invalid and without any force or effect and thus, all taxes and penalties that may be due thereon shall become due and payable from the time of the issuance of the unauthorized ruling."

With this provision, taxpayers who complied with their tax obligations in accordance with a ruling previously issued in their favor in violation of the revenue issuance on delegated authority existing at that time, are now at risk of being assessed for deficiency taxes including penalties. Arguably, the concerned taxpayers may raise a contention that they relied on the BIR’s previously issued rulings in good faith. Unfortunately, however, the defense of good faith under Section 246 may not hold water since rulings signed by unauthorized officers are deemed void ab initio. Hence, concerned taxpayers may well have to go over and review their tax rulings to validate if their rulings were signed by the authorized the BIR officer and evaluate if securing a new ruling following the procedures under the RDAO 3-2009 would be the best option for them.

Another important provision of the RDAO is found in Section 4 which clarifies the signing authority in case of multiple tax issues which partly involve those with established precedents and partly those of first impression. Under this provision, the resolution of issues on request for ruling filed containing multiple issues falling under the jurisdictional authorities of two different officials shall be vested upon the higher official. This means that in case of multiple issues which partly involve issues with established precedents and partly issues of first impression, the subordinate official having jurisdiction over issues with established precedents shall be barred from resolving the issues under the authority of the Commissioner, otherwise the portion of the ruling issued by said subordinate official shall be considered null and void.

Implementation of this provision of the RDAO may give rise to a situation wherein a ruling can be partly valid and partly void and thus, obviously, might create confusion on the part of the taxpayer. Determining the borderline on what is valid and not is a confusing and risky task which, if done erroneously, can cause a potential tax assessment to ordinary taxpayers who may not be well-informed of the legalities of BIR rulings.

In addition, this rule on multiple issues can also make the ruling process more complicated since Section 4 does not clarify the procedures to be followed by the taxpayer seeking ruling on multiple issues. Will this require taxpayers to file separate requests for every issue with different BIR offices and therefore also make separate follow-ups or can they simply file one request with the office of the higher authority for the latter to address all the issues, i.e., issues with established precedents and issues of first impression? Apparently, this matter has been overlooked in the RDAO.

However, given that the apprehension on the validity of a ruling, partially or entirely, becomes the burden of the taxpayer, the BIR may have to issue a clarification on this matter to properly guide taxpayers who unfortunately, are always at the losing end even in cases of ambiguous issuances.