The room was tense. The last words reverberating in the air were those of the revenue officers: “I‑CTA na natin ’to” (Let’s take this to the CTA).
Time seemed to stop, as I calculated in a few seconds our next steps. Should I take the statement, uttered so lightly, as a threat or as an invitation for us to increase our settlement offer?
I decided to keep my mouth shut, holding to the original offer my client had authorized me to transact. At this point, the stakes were high for us—every move taken with caution—while all leverage seemed to be on the Bureau’s side.
Tax Audits and the BIR’s role as Final Arbiter
The preceding scene unfolded during the reinvestigation stage of a tax audit conducted by the Bureau of Internal Revenue (BIR). If you have ever received a Letter of Authority (LOA) from the BIR, you may already be familiar with this process.
In accordance with the Philippine Tax Code, tax audits—commenced through the issuance of a LOA—progress through several stages marked by the following notices: Notice of Discrepancy (NOD), Preliminary Assessment Notice (PAN), Final Assessment Notice (FAN), and Final Decision on Disputed Assessment (FDDA). At the FAN stage, taxpayers may appeal either through a request for reconsideration or a reinvestigation. If the latter is chosen, the reinvestigation period becomes the final leg of a BIR tax audit, during which taxpayers are granted 60 days to submit additional documents and engage revenue officers in discussions toward a possible settlement.
In essence, the reinvestigation represents the last opportunity for the taxpayer to be heard based on the supplemental defenses and evidence presented during the extension period as well as those during the earlier stages of the audit. Thereafter, the case is ultimately decided by the Commissioner of Internal Revenue (CIR) through the issuance of a FDDA.
The matter may still be elevated to the Court of Tax Appeals (CTA). Yet, given the substantial court fees and resources required to pursue such a remedy, it is often more practical to aim for settlement at the administrative level. Extreme circumstances, however, compel taxpayers to appeal to the CTA—particularly when no agreement is reached on the tax deficiency or when the Bureau insists on an unreasonable or unmerited settlement amount. As the final arbiter of the tax audit, the BIR has the last say, leaving the taxpayer to either accept the final assessment, seek compromise when legally available, or pursue judicial remedies.
The Tax Code requires the BIR to provide reasons for any denial, in line with the taxpayer’s right to due process. In several cases, however, the BIR has unjustly ruled against taxpayers by disregarding protests and defenses without providing valid justification.
In CIR v. Avon Products Manufacturing, Inc., the Supreme Court ruled:
“Tax assessments issued in violation of the due process rights of a taxpayer are null and void. While the government has an interest in the swift collection of taxes, the Bureau of Internal Revenue and its officers and agents cannot be overreaching in their efforts, but must perform their duties in accordance with law, with their own rules of procedure, and always with regard to the basic tenets of due process.
The 1997 National Internal Revenue Code, also known as the Tax Code, and revenue regulations allow a taxpayer to file a reply or otherwise to submit comments or arguments with supporting documents at each stage in the assessment process. Due process requires the Bureau of Internal Revenue to consider defenses and evidence submitted by the taxpayer and to render a decision based on these submissions. Failure to adhere to these requirements constitutes a denial of due process and taints the administrative proceedings with invalidity.” (Emphasis and underscoring supplied)
In a more recent case, CIC Property Venture Holdings, Inc. v. CIR, the CTA upheld the same principle, to wit:
“The CTA found that there has been a violation of due process since the Petitioner was not given an opportunity to be heard, and it was found that the PAN and the FAN are completely identical in wording and figures. The CTA reiterated that compliance with due process is not limited to the opportunity to present their case and adduce evidence but also extends to the consideration and appreciation of such explanations provided by the Petitioner. While the Respondent is not obliged to accept the arguments of the Petitioner, it is imperative that the agency actually and conscientiously consider the evidence submitted. Should the arguments be rejected by the Respondent, the Respondent is obligated to state its reasons. The identical PAN and FAN further strengthens the findings that the Respondent failed to consider the evidence provided by the Petitioner. As the assessment is rendered void, the assessment cannot bear valid fruit. As the respondent failed to consider or appreciate the petitioner’s arguments raised in its Reply to PAN, as evidenced by the issuance of an identical PAN and FAN, thereby disregarding petitioner’s right to due process. Hence, the CTA ruled that the PAN, FAN, and FDDA are rendered null and void, and of no force and effect.” (Emphasis supplied)
In both cases, the assessment was declared null and void for violating the taxpayer’s right to due process. Specifically, the assessments—the PAN, FAN, and FDDA—issued at different stages after the taxpayers had submitted their protest and supporting documents, reflected identical figures. Such uniformity constitutes prima facie evidence that the BIR failed to evaluate the defenses presented in the protest letters and accompanying documentation.
As the Court famously said in the Avon case: “The right to be heard, which includes the right to present evidence, is meaningless if the [Commissioner] can simply ignore the evidence without reason.”
Hoorah for those taxpayers who won the arduous court battles. But there lies the elephant in the room: where do these revenue officers get the audacity to simply disregard evidence without reason? If the assessment was ultimately declared null and void, why must it reach the courts in the first place instead of being resolved at the administrative level?
The Grim Realities
As previously mentioned, tax audits in the Philippines go through several stages. At each stage, the taxpayer is given the opportunity to defend its case and submit supporting documents, while the BIR is expected to re‑evaluate the original assessment in light of these defenses. Thus, settlement of alleged deficiencies may occur at the NOD, PAN, FAN, or FDDA level, provided both parties agree on the settlement amount. Ideally, the whole audit process may be completed within a 180 to 240-day timeframe, as prescribed by the Tax Code.
Often, however, taxpayers refuse to settle when the assessed deficiency is far greater than what is actually due. In the court cases cited earlier, appeals were filed because the BIR failed to give due consideration to the taxpayers’ defenses, as evidenced by identical figures in the NOD, PAN, and FAN. The original assessed amount was simply retained—without valid explanation. This constitutes a clear violation of due process.
While it is favorable when the court rules in the taxpayer’s favor, the process imposes heavy costs. Court filing fees, professional fees for legal counsel, and expert witness expenses are substantial. Beyond these, the disruption to normal business operations results in significant opportunity costs. Time and effort devoted to litigation could have been directed toward more productive endeavors. In this equation, the taxpayer bears the greater loss.
As for the BIR? Nothing. They face no consequences for issuing incorrect assessments. Their discretion operates unchecked, and at the end of the day, they are “just doing their job”—no matter how carelessly or arbitrarily.
The Tax Code already contains certain penalty provisions applicable to public officers, including provisions on violations committed by government enforcement officers, unlawful divulgence of taxpayer information, unlawful interest of revenue law enforcers in business, violations of withholding tax provisions, and failure to issue and execute warrants. However, these provisions do not squarely impose case-specific accountability on revenue officers for issuing or maintaining arbitrary, unsupported, or repeatedly identical assessments that are later nullified for violation of due process or for lack of factual and/or legal basis. Existing public accountability laws—such as the Code of Conduct and Ethical Standards for Public Officials and Employees, the Anti-Graft and Corrupt Practices Act, and civil service/administrative discipline rules—may apply in proper cases. Still, a clearer statutory mechanism specifically addressing abusive or grossly negligent tax assessments has yet to be enacted to strengthen taxpayer protection.
Given these circumstances, some taxpayers even resort to bribes or under‑the‑table transactions to induce the BIR to lower deficiency assessments. For those willing to compromise principles, this becomes a cheaper alternative to litigation, especially because of the uncertainty of court outcomes— an uncertainty the BIR leverages during negotiations.
Silver Lining
If the tables were turned, under the present circumstances, I too might have thoughtlessly uttered the words, “I-CTA na natin ’to.” Then leave it to the taxpayer to interpret and mull over.
Take it, and the taxpayer proceeds to court with a sure casualty loss. Leave it, and the taxpayer attempts to haggle with the BIR the proper way—or resorts to grease money.
If only there were rightful consequences for revenue officers who issue grossly incorrect assessments. Defending a case and substantiating protests costs taxpayers time and money; so shouldn’t revenue officers bear accountability as well?
Given the substantial impact of tax audits on business operations, the BIR’s discretion must be tempered with responsibility. Legislative reform could introduce penalties for erring officers and enforce discipline. In this way, accountability would no longer rest solely on taxpayers; revenue officers would also have “skin in the game.”
With such reform, perhaps the BIR would think twice before issuing identical assessments at the NOD, PAN, and FAN stages. Perhaps, they would ensure that assessments are grounded in verified facts and supported by evidence, rather than arbitrary figures. Perhaps, corruption would find less fertile ground in tax audits. Perhaps, this paves the way for a less corrupt and better Philippines…
References:
- National Internal Revenue Code of 1997, as amended, Secs. 6, 204, and 228
- National Internal Revenue Code of 1997, as amended, Title X, Chapter III, Secs. 269 to 273
- Revenue Regulations No. 12-99, as amended by Revenue Regulations No. 18-2013
- Revenue Regulations No. 22-2020
- Revenue Memorandum Circular No. 82-2022
- Commissioner of Internal Revenue vs. Avon Products Manufacturing, Inc., et seq., G.R. Nos. 201398-99 and 201418-19, October 3, 2018
- CIC Property Venture Holdings, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10668, June 11, 2025
Disclaimer: The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the official policy or position of UHY M.L. Aguirre & Co., CPAs or its affiliates.
A Commentary by: Ms. Imy Eulin , CPA
