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Presumption resting on another presumption
The Bureau of Internal Revenue (BIR) hopes to effectively utilize the Third Party Information Matching Program (the Program) because it is a no-contact assessment that would negate perceived corruption in tax assessments. In the said Program, the buyer of a company's products is matched against another companys reported sales. If there are discrepancies, the BIR issues a Letter Notice (LN) to verify any tax deficiencies. Revenue Memorandum Circular (RMC) No. 40-03 provides that an LN being served by the BIR to a taxpayer who is found to have under-declared its sales or purchases through the Program can be considered a notice of audit or investigation. This should not be the case. An LN merely serves as a notice to a taxpayer that it will be subjected to audit or investigation with specific reference to the result of information obtained from third party sources. It cannot give rise to an assessment without the BIR first conducting an audit or investigation. This is affirmed by Revenue Memorandum Order (RMO) No. 42-03 issued by the BIR itself. It is expressly provided in the said RMO that an LN shall serve as a discrepancy notice to the taxpayer, similar to a Notice of Informal Conference. Thus, the procedures defined in Revenue Regulation (RR) No. 12-99 should likewise be observed. RMO No. 42-03 further requires that the concerned taxpayer be given an opportunity to reconcile the discrepancy. RMO No. 46-04 further provides that in the event a taxpayer who has been issued an LN protests the accuracy of the data provided by third party sources, the revenue officer, upon receipt of the protest letter, should evaluate the protest letter and require not only the taxpayer to execute a Sworn Statement on the data it has provided, but also the third party source with respect to the data it presented. Moreover, the Regional Director/Head of the Large Taxpayers Service should decide on the most appropriate enforcement action (such as
audit, investigation, surveillance and/or stock-taking) that will expedite the
recovery of the unpaid taxes. Strict compliance with RMO No. 46-04 was recently affirmed by the Court of Tax Appeals (CTA) in Fort Bonifacio Development Corporation v CIR, CTA Case No. 7531, February 4, 2009. In this case, the CTA cancelled the assessment for failure of the BIR to present certifications/sworn statements from the third party source. The information used to make the assessment was deemed unconfirmed and the assessment based merely on presumptions. This is supported by the very basic tenets of due process. Under the Tax Code, the BIR is required to first notify the taxpayer of its findings, which should be based on facts and not on presumptions. The certifications/sworn statements guarantee that the taxpayer is informed in writing of the true facts on which the assessment is based, and that the BIR has confirmed its proposed assessment with its third party source. Thus, in comparing the purchases of one taxpayer from the sales of another, the BIR must make sure that it is making an accurate assessment. With this recent decision by the CTA, it only affirms that our courts will not condone and promote irresponsibility and laxity on the part of the BIR in observing the procedures prescribed by law and existing internal rules, especially when a taxpayers right to due process is already being violated. The BIR should be mindful not to issue baseless and unconfirmed LNs. An assessment must be based on actual facts. It should not be based on a mere presumption or assumption, regardless of how reasonable or logical said presumption may be. The Supreme Court has elucidated that in order to stand the test of judicial scrutiny, the assessment must be based on actual facts. If the correctness of an assessment is mere presumption, it cannot be made to rest on another conjecture.