Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City
FIFTEENTH CONGRESS

First Regular Session

HOUSE BILL NO. 1430

INTRODUCED BY: Honorable Mar-Len Abigail S. Binay

EXPLANATORY NOTE

Under Section 203 of the National Internal Revenue Code
(‘NIRC”), the Bureau of Internal Revenue (“BIR”) can assess and collect
taxes only within three (3) years from the last day prescribed by law in
the filing of the return.

In Commissioner of Internal Revenue vs. B.F. Goodrich
Phils., Inc., 303 SCRA 546 (1999) the Supreme Court held that “(flor
the purpose of safeguarding taxpayers from any unreasonable
examination, investigation or assessment, our tax law provides a
statute of limitations in the collection of taxes. Thus, the law on
prescription, being a remedial measure, should be liberally construed
in order to afford such protection”. [Report of the Tax Commission, Vol.
I, p. 98 and Republic v. Ablaza, 108 Phil. 1105, 1108 (1960); cited in
Vitug, Compendium of Tax Law and Jurisprudence, p. 252, 2nd revised
ed. (1989); Hector S. de Leon, The National Internal Revenue Code
Annotated, p. 509, 1991 ed.; and Ruben E. Agpalo, Statutory
Construction, p. 227, 2nd ed. (1990)]

Similarly, the Supreme Court in Bank of the Philippine
Istands, vs. Commissioner of Internal Revenue, 473 SCRA 205
(2005), explained that the prescriptive period for assessment provides
the citizenry security against “unscrupulous tax agents who always
finds excuses to inspect the books of taxpayers, not to determine
the latter's real liability, but to take advantage of every
opportunity to molest peaceful, law-abiding citizens. Without such
a legal defense, taxpayers would be under obligation to always keep
their books and keep them open for inspection subject to harassment
by unscrupulous tax agents.”

However, despite this clear legislative intent recognized by the
Supreme Court, the exceptions to the three (3)-year prescriptive period
under Section 222 of the NIRC have been maliciously used in the
malevolent scheme of unscrupulous tax agents to harass taxpayers
and extort money from the latter. Specifically, the exceptions to the


prescriptive period which have been abused by unscrupulous tax
agents to the great prejudice of taxpayers are: (i) filing of a false return;
and (ii) filing of a fraudulent return with intent to evade taxes.

A false return has been defined as one “which contains wrong
information due to mistake, carelessness or  ignorance.”[cf.
Commissioner of Internal Revenue vs. B.F. Goodrich Phils., Inc,
303 SCRA 546 (1999)] Resultantly, any return which contains a wrong
information of whatever nature, and even if such inaccuracy was
without any intent to evade taxes, may be argued as being a “false
return” that is not covered by the three (3)-year prescriptive period.
Hence, taxpayers have been subjected to harassment and extortion
from unscrupulous tax agents who invoke the slightest inaccuracy in a
return to demand the inspection of books beyond the three (3)-year
period. This demand for inspection is not to determine the real
liability of the taxpayer, but to take advantage of taxpayers who
under Section 235 of the NIRC are not required to maintain said
books beyond three (3) years. All told, due to the definition of a “false
return”, a taxpayer is now effectively under obligation to always keep
his books and keep them open for inspection.

Fraud, on the other hand, “is deemed to comprise anything
calculated to deceive, including all acts, omissions, and concealment
involving a breach of legal or equitable duty, trust or confidence justly
reposed, resulting in the damage to another, or by which an undue
and unconscionable advantage is taken of another.” [Commissioner of
Internal Revenue v. Court of Appeals, 327 Phil. 1, 33 (1996) cited in
Commissioner of Internal Revenue, vs. The Estate Of Benigno P.
Toda, Jr. 438 SCRA 290 (2004)] However, the said exception is
likewise being abused by unscrupulous tax agents to harass taxpayers
even without any clear and convincing evidence to support an
allegation of fraud. Worse, these tax agents use the mere failure of the
taxpayer to provide his books for inspection and/or to submit
documents which pertain to transactions that transpired in taxable
years more than three (3) years ago as basis to claim fraud, and thus
circumvent the three (3) year prescriptive period.

This bill, therefore, seeks to limit the exceptions to the three (3)-
year prescriptive period in assessing taxes by removing “false returns”
as one of the exceptions. A false return brought about by negligence,
mistake, carelessness or ignorance should necessarily fall within those
matters which the BIR must be able to ascertain within the three (3)-
year prescriptive period because the government is not placed in any
disadvantage as the supporting documents of these returns are readily
open for inspection and review by the BIR. However, it goes without
saying that a return which contains false information due to a
conscious and deliberate effort on the part of the taxpayer to evade
taxes may fall as a “fraudulent return”, which is still an exception to
the three (3)-year prescriptive period.


This bill likewise seeks to restrict “fraudulent return” as an
exception to the three (3)-year prescriptive period by mandating the
BIR to first establish the purported fraud through clear and convincing
evidence which they must already have in its possession, and not
through evidence which they intend to obtain from the taxpayer.
Moreover, the failure of a taxpayer to provide for inspection his books
and other supporting documents involving taxable years beyond the
three (3)-year prescriptive period shall not be used as an indicia of any
purported fraud.

In view of the foregoing, it is respectfully requested that all
members of the 14% Congress consider and approve this bill with
dispatch.

mance i S. BINAY


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
First Regular Session

1430
HOUSE BILL NO.

INTRODUCED BY: Honorable Mar-Len Abigail S. Binay

AN ACT
AMENDING SECTION 222 OF REPUBLIC ACT NO. 8424,
OTHERWISE KNOWN AS THE “TAX REFORM ACT OF 1997”

Be it enacted in the Senate and the House of Representatives of the
Philippines in Congress assembled:

SECTION 1. Section 222 of Republic Act No. 8424, as amended,
otherwise known as the “Tax Reform Act of 1997”, is hereby amended
to read as follows:

“Section 222. Exception as to Period of Limitation of
Assessment and Collection of Taxes. -

(a) In the case of a fraudulent return
with intent to evade tax, or of failure to file a
return, the tax may be assessed at any time
within ten (10) years after the discovery of the
fraud or omission: Provided, That the
Commissioner can only claim fraud if he is
already in possession of clear and convincing
evidence that establishes the said fraud;
Provided, Further, That the failure of the
taxpayer to submit his books and other
documents covering periods beyond the
period of limitation under Section 205 shall
not be considered as an indicia of any fraud;
Provided, Finally, That a fraudulent return in
a fraud assessment which has become final
and executory, the fact of fraud shall be
judicially taken cognizance of in the civil or
criminal action for the collection thereof.


Negligence, whether slight or gross,
mistake, carelessness or ignorance resulting
in an inaccurate return shall not constitute as
an exception to the period of limitation of
assessment and collection of taxes.

(b) If before the expiration of the time
prescribed in Section 203 for the assessment
of the tax, both the Commissioner and the
taxpayer have agreed in writing to its
assessment after such time, the tax may be
assessed within the period agreed upon. The
period so agreed upon may be extended by
subsequent written agreement made before
the expiration of the period previously agreed
upon.

(c) Any internal revenue tax which
has been assessed within the period of
limitation as prescribed in paragraph (a)
hereof may be collected by distrait or levy or
by a proceeding in court within five (5) years
following the assessment of the tax.

(4) Any internal revenue tax, which
has been assessed within the period agreed
upon as provided in paragraph (b) herein
above, may be collected by distrait or levy or
by a proceeding in court within the period
agreed upon in writing before the expiration of
the five (5) year period. The period so agreed
upon may be extended by subsequent written
agreements made before the expiration of the
period previously agreed upon.

(c) Provided, however, That nothing in
the immediately preceding Section and
paragraph (a) hereof shall be construed to
authorize the examination and investigation
or inquiry into any tax return filed in
accordance with the provisions of any tax
amnesty law or decree.”

SEC. 2. If any clause, provision, paragraph or part hereof shall
be declared unconstitutional or invalid, such declaration shall not
affect, invalidate, or impair any other part thereof, but such
declaration shall be merely confined to the clause, provision,
paragraph or part directly involved in the controversy in which such

declaration has been rendered.


SEC. 3. All laws and other administrative issuances, i.e.,
implementing rules and regulations, and parts thereof which are
inconsistent with the provisions of this Act are hereby modified,

amended, superseded or repealed accordingly.
SEC. 4. This Act shall take effect after fifteen (15) days from the
completion of its publication in the Official Gazette or any major daily

newspaper of general circulation in the Philippines.

Approved,