Republic of the Philippine:

HOUSE OF REPRESENTATIVES RECEIVED
Quezon City DATE: 2.4.19 omen
ae

SEVENTEENTH CONGRESS TIVE: a

BY:

First Regular Session

1005

REGISTRATION UNTT

HOUSE BILL NO. BILLS AND INDEX SERVICE

INTRODUCED BY: HONORABLE LUIS JOSE ANGEL N. CAMPOS, JR.

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 “(Nor 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. 1, p. 98 and Republic v. Ablaza, 108 Phil. 1105, 1108
(1960); cited in Viug, 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 Islands, 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

HOUSE OF REPRESENTATIVES



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 indicia of any purported fraud.

In view of the foregoing, it is respectfully requested that all members of the 17%
Congress consider and approve this bill with dispatch.

LUIS JOSE ANGEL N. J


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SEVENTEENTH CONGRESS
First Regular Session

1005

HOUSE BILL NO.

INTRODUCED BY: Honorable LUIS JOSE ANGEL N. CAMPOS, JR.

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 Congr
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

. 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 y 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 er to si s
documents covering periods beyond the period of
limitation under Section 205 shall not be considered as
an_indicia of any fraud; Provided, Finall
fraudulent_return_in_a_fraud_assessment_which_has
become final and executory, the fact of fraud shall he
judicially taken cognizance of inthe civil or criminal
action for the collection thereof.

Negligence, whether slight or gross, mistake,
carelessness or ignorance resulting in an inaccurate

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.

(e) 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.c., 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,