An interesting case that teaches us very important lessons about tax assessments is the case of Commissioner of Internal Revenue v. Derek Arthur P. Ramsay (CTA En Banc No. 1413). The Court of Tax Appeals (CTA), en banc, decided this. While it was not elevated to the Supreme Court, it still holds sway and, in fact, may be considered by the Supreme Court if, and when, a similar case makes its way into the dockets of the highest court of the land.
The factual background: Mr. Ramsay was assessed with deficiency income and value-added taxes for the years 2006 to 2009. However, Mr. Ramsay claims that he was not served any assessment notices with the Formal Letter of Demand (the “FLD”). Furthermore, the FLD did not state a definite date of demand.
Upon the elevation of the case to the CTA, the Court in Division declared the assessment void for failure to afford the taxpayer his right to due process. The Bureau of Internal Revenue appealed the same to the Court En Banc.
When the case reached the Honorable Court of Tax Appeals En Banc, it affirmed the decision of the Court in division. The failure to serve the taxpayer the assessment notices with the FLD is a violation of a taxpayer’s right to due process.
Section 1, Article III of the 1987 Philippine Constitution provides, thus: “No person shall be deprived of life, liberty or property without due process of law, nor shall any person be denied the equal protection of the law.” This cornerstone of the law is integrated in Section 228 of the National Internal Revenue Code, which states that the taxpayer must be informed, in writing, of the law and facts on which the assessment is made. Furthermore, Revenue Regulations 12-99, which are the rules to implement the NIRC, reiterate the importance of stating the facts, the law, rules and regulations, or jurisprudence for the assessment by pointing out that if there is a failure to do so, the formal letter of demand and assessment notice shall be void.
Therefore, under the law and the rules, Mr. Ramsay should have been properly informed. Thus, the findings of the Court in Division must be sustained. The Derek Ramsay case is a useful reminder for everyone. For the taxpayer, he must be aware that, in case an assessment was never given to him, his right to due process must be upheld in case. He must keep in mind that the facts and legal bases must be laid out to him, as well as the date when the assessment is due. On the other side of the coin, the BIR must also ensure that the taxpayer’s right to due process is actually respected, else, they might not collect anything at all.
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The author is a junior associate of Du-Baladad and Associates Law Offices (BDB Law), a member-firm of WTS Global.
The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at josemilio.teves@bdblaw.com.ph or call 403-2001 local 150.