Facts
On May 14, 2010, the Bureau of Internal Revenue (“BIR”) served Telstar Manufacturing Corporation (“Telstar”) a Letter of Authority (“LOA”) to investigate its tax liabilities for the year 2009. Telstar submitted its documents, books, and records to the BIR, and its President and General Manager, executed two (2) Waivers of the Defense of Prescription under the Statute of Limitations of the Tax Code, both of which were accepted.
On June 18, 2013, Telstar received a Preliminary Assessment Notice (“PAN”) for various deficiency taxes. Telstar filed its response, and on October 16, 2013, the BIR issued a Formal Letter of Demand and Final Assessment Notice for deficiency income tax, VAT, expanded withholding tax, and other taxes. Telstar eventually lodged a judicial protest against the assessment, arguing mainly that the waivers were invalid and that the assessments were issued beyond the prescriptive period.
The Commissioner of Internal Revenue (“CIR”), on the other hand, argued that Telstar was barred from questioning the validity of the waivers due to in pari delicto and estoppel. The CIR insisted that the assessments were factually and legally supported and that the waivers validly extended the prescriptive period.
ISSUE: Has the BIR’s right to assess Telstar for deficiency taxes already prescribed?
Ruling
YES, BIR’s right had already prescribed. The Supreme Court held that generally, when a waiver fails to comply with the requisites under Revenue Memorandum Order No. 20-90 and Revenue Delegation of Authority Order No. 05-01, it is invalid and ineffective to extend the prescriptive period to assess taxes.
In the present case, the CIR had until April 15, 2013 for income tax, January 25, 2013 for value-added tax, and January 28, 2013 for expanded withholding tax, within which to assess Telstar for deficiency taxes covering taxable year 2009. If valid, the waivers would have effectively extended such period to June 30, 2013 for the first waiver and December 31, 2013 for the second waiver.
Upon scrutiny, the executed waivers suffer from several defects. First, the request made was for an extension of time within which to present additional documents, and not for the reinvestigation and/or reconsideration of the pending internal revenue case as required under Revenue Memorandum Order No. 20-90.
Second, the subject waivers failed to specify the kind and amount of taxes due. Logically, there can be no agreement if the kind and amount of the taxes to be assessed or collected were not indicated. Hence, specific information in the waiver is necessary for its validity. Third, the subject waivers were not signed by the Commissioner but by Assistant Commissioner. The requirement in Revenue Memorandum Order No. 20-90 clearly specifies that it is the Commissioner who should sign for the BIR such waivers where the taxes exceed PHP 1,000,000.00.
Notably, on the part of Telstar, the waivers were signed by Puyo without any notarized written authority to do so. However, in signing the correspondence with the CIR (including the reply to the Preliminary Assessment Notice and the protest to the Formal Letter of Demand), Puyo effectively held herself out as authorized by Telstar to act on its behalf. Nevertheless, it was ultimately the responsibility of the BIR to ensure that the waivers executed by Telstar strictly complied with the legal requirements for their validity before accepting them.
True, Telstar failed to present the notarized authority of its president and general manager who signed the waivers on its behalf, which is a clear violation of Revenue Memorandum Order No. 20-90 and Revenue Delegation of Authority Order No. 05-01. However, the BIR did not ensure that all supporting documents were attached before accepting the waivers, including the notarized written authority of Telstar’s representative to sign them on the corporation’s behalf. Thus, the BIR’s inaction was the proximate cause of the defects in the waiver, thereby preventing the extension of the period to assess or collect taxes against Telstar.
Telstar was not estopped from invoking the defense of prescription. In this regard, it bears emphasis that the doctrine of estoppel cannot be applied as an exception to the statute of limitations on the assessment of taxes considering that there is a detailed procedure for the proper execution of the waiver.
Thus, the Supreme Court ruled that the waivers were void and as such, did not extend the prescriptive period to assess Telstar for deficiency taxes. Accordingly, the Formal Letter of Demand and the Final Assessment Notice issued by the CIR on October 13, 2013 are void and of no legal effect.