Tax assessments suspensions and extensions under quarantine

Even as life moves on under the new normal, lots of anxiety remains amidst the uncertainty. The rollout of vaccines has provided a measure of relief, but the pandemic is far from over as more infectious variants emerge. Our neighbors in Southeast Asian as well as other parts of the world have experienced the devastation these variants are capable of causing to communities, healthcare systems, and economies.

As our country seeks to avoid the alarming surge of infections experienced by our neighbors, the government reverted to the strictest quarantine setting, enhanced community quarantine (ECQ), between Aug. 6 and 20 for Metro Manila and various other regions. Once more, ECQ restricts the mobility of the citizenry and the operations of organizations, not excepting the Bureau of Internal Revenue (BIR).

As in the past, the ECQ again prohibits the BIR from conducting assessments and tax collection due to the stay-at-home orders.

As a brief background on the statute of limitations, under the law, the BIR has three years to assess deficiency taxes by issuing a Formal Assessment Notice (FAN). The three- year period is counted from the last day prescribed by the law to file the return or the day when the tax return was actually filed, including any amendment filed after, whichever comes later. Therefore, any deficiency tax assessment arising from a FAN issued beyond this three-year prescriptive period is considered void.

You may recall that during the two and a half-month ECQ last year, the BIR immediately issued Revenue Memorandum Circular (RMC) 34-2020, suspending the running time of the statute of limitations for tax assessments until 60 days from the lifting of the state of national emergency. With the extended quarantine, this directive was echoed by Revenue Regulations Nos. (RR) 7-2020 and 10-2020, as amended by RR 11-2020, and subsequently by RR 12-2020.

Such suspensions are allowed under Section 223 of the Tax Code. In cases where the Commissioner of the Internal Revenue (CIR) is prohibited from making any assessment and collection of deficiency taxes, the running of the statute of limitations may be suspended for a specified period plus 60 days after.

Parallel with the changing community quarantine directives, in December, the BIR clarified the counting of the suspension through RMC No. 136-2020. Under the RMC, the three-year prescriptive period for tax assessments and the five-year period for tax collections was extended for 137 days, reckoned from the suspension of the statute of limitations on March 16, 2020 to May 31, 2020, plus 60 days.

When Metro Manila, Bulacan, Cavite, Laguna, and Rizal, or the so-called “NCR Plus,” entered ECQ on March 29 to April 11 earlier this year, the BIR issued RMC No. 52-2021, further suspending the running of the statute of limitations during the period, and up to 60 days after.

Next, RMC No. 80-2021 was issued extending the suspension while NCR Plus was under the modified enhanced community quarantine (MECQ) between April 12 and May 14 this year. Citing the definition of “quarantine” under RR No. 12-2020, which includes MECQ, the BIR maintained the suspension for a total of 107 days inclusive of all the extensions.

It is worth noting that RMC 52-2021 and RMC 80-2021 did not consider the two-week period when Metro Manila and its immediate surrounding entered MECQ between Aug. 4 and Aug. 18 last year.

With the latest ECQ/ MECQ, the BIR has just issued RMC No. 93-2021, extending the suspension, once again, by the number of days in the ECQ/MECQ period plus 60 days. Further, the BIR clarified that this suspension will continue to be extended for any future reimplementation of ECQ/ MECQ. Consequently, it prevents taxpayers from raising the defense of prescription on tax assessments.

For taxpayers, the BIR also issued RMC 92-2021 extending the deadline of submission of the letters and correspondence in relation to ongoing BIR audits in light of the ECQ and MECQ currently in effect.

As with RMC 45-2021, it extended the deadline for submission of the following documents related to tax investigations for a period of 30 days upon lifting of the ECQ and MECQ:

o Position papers and supporting documents in response to notice of discrepancy;

o Protest letters in response of FAN/Formal Letter of Demand (FLD);

o Transmittal letter and supporting documents in relation to request for reinvestigation;

o Request for reconsideration to the CIR on Final Decision on Disputed Assessment (FDDA); and

o Other similar letters and correspondences.

Meanwhile, a 15-day extension applies to the submission of the following upon lifting of the ECQ and MECQ:

o Reply and supporting documents in response to FAN; and

o Submission of documents in response to Subpoena Duces Tecum.

Finally 10 days has been given for the submission of documents in relation to first, second, and final notices, upon lifting of the ECQ and MECQ.

One may note that the extension of the statute of limitations and filing deadlines are not given the same consideration. The BIR was given a 60-day extension while the taxpayers, on the other hand, have only been granted 30 days, at most, from the lifting of the quarantine.

As taxpayers and the government are both in need of funds in these times, one would hope for a more equitable extension to be afforded to taxpayers once the quarantine has been lifted. After all, tax has always been founded on the principle of reciprocity.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.

Ian Renzo Galicia is an Associate at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.

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