A hefty tax assessment issued by the Bureau of Internal Revenue (“BIR”) of the Philippine Government is a constant concern for all businesses, both local and multinational, operating in the Philippines. This is especially true when these assessments include staggering amounts of interests and surcharges that may double the assessment while it is being questioned.

The Philippine Tax Code imposes interest at the rate of 20% per annum on any unpaid amount of tax, reckoned from the date prescribed for payment until the amount is fully paid.[1] Surcharges amounting to 25% of the amount due may also be imposed for: (1) failure to file a return and pay the tax due; (2) filing a return with an internal revenue officer other than those with whom the return is required to be filed; (3) failure to pay deficiency tax within the time prescribed for its payment in the notice of assessment; or (4) failure to pay the full or part of the amount of tax shown on the return, or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment.[2]

A recent example of the possible doubling of the assessment while the same is being questioned can be found in the case of Philex Mining Corporation, [3] where deficiency tax in the amount of PhP 62,811,161.39 was assessed on the company’s 1982 annual income tax return. The case was decided by the Philippine Supreme Court in 2008, in which the company was ordered to pay the deficiency tax with 20% delinquency interest computed from 10 February 1995, which was the due date given for the payment of the deficiency income tax, up to the actual date of payment. Clearly, the rate of 20% per annum became even more burdensome throughout the pendency of the case, which took more than 10 years (counted from the due date) to be resolved.

Anent the foregoing concern, it should be pointed out that the Philippine Supreme Court has had the occasion to delete tax liability for interests and surcharges based upon the taxpayer’s good faith and honest belief.

Indeed, in the 2006 case of Michel J. Lhuillier Pawnshop, Inc., the Philippine Supreme Court held that good faith and honest belief that one is not subject to tax on the basis of previous interpretation of government agencies tasked to implement the tax law are sufficient justification to delete the imposition of surcharges and interest.[4] To justify the deletion of the imposed charges, this doctrine requires entities to point to a “previous interpretation” of a government agency holding that they are not subject to a particular tax. Examples of what would serve as sufficient basis are rulings of the Philippine Commissioner of Internal Revenue and the Philippine Court of Tax Appeals,[5] or a letter from the Philippine BIR.[6] Further, in the 2009 case of H. Tambunting Pawnshop, Inc., the Philippine Supreme Court ruled that good faith can still be ascribed to the entity that fails to pay its taxes by reason of a particular novel issue of taxation before that issue is resolved for the first time by the Court.[7]  Still, special care must be taken not to rely on findings of agencies that are not empowered to interpret local tax laws, such as that of the Philippine Bureau of Local Government and Finance (“BLGF”) in the case of Smart Communications, Inc.[8] In this case, the interpretation rendered by the BLGF was not found to be authoritative or persuasive.

Disclaimer: This article has been prepared for informational purposes only and should not be treated as legal advice.





[1]  Section 249, National Internal Revenue Code of the Philippines (“Philippine Tax Code”).
[2]  Section 248, Philippine Tax Code.
[3]  Philex Mining Corporation v. Commissioner of Internal Revenue, 551 SCRA 428 (2008).
[4]  Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal Revenue, 501 SCRA 450 (2006).
[5]  Tambunting Pawnshop, Inc. v. Commissioner of Internal Revenue, 610 SCRA 514 (2010).
[6]  Commissioner of Internal Revenue v. St. Luke’s Medical Center, Inc., 682 SCRA 66 (2012).
[7]  H. Tambunting Pawnshop, Inc. v. Commissioner of Internal Revenue, 584 SCRA 445 (2009).
[8]  City of Iloilo v. Smart Communications, Inc., 580 SCRA 332 (2009).

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