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Most
probably, if you are the head of accounting or finance
in your organization, you must have considered securing
a ruling from the Bureau of Internal Revenue (BIR).
Quite a number of taxpayers, corporate or individual,
write to the BIR for a confirmation of the tax
implications of a given transaction.
What
does a BIR ruling offer them? A business transaction may
turn awry when the tax implications of such transaction
are either ignored or incorrectly estimated. Thus, to
assure that everything would go according to plan, at
least with regard to the tax aspect of the transaction,
businessmen find it expedient to secure a BIR ruling. To
put it simply, a BIR ruling gives the taxpayer peace of
mind. To the minds of many taxpayers, if the BIR,
through a ruling, says the transaction is not subject to
tax, then the taxpayer can wake up the next morning,
rest assured that the transaction would still have the
same tax impact.
The
power of the BIR to issue revenue rulings may well stem
from its power to interpret tax laws. The power of the
commissioner of internal revenue, under the 1997 Tax
Code, is not absolute, though, but is subject to review
by the secretary of finance. Thus, BIR rulings involving
the provisions of the 1997 Tax Code and other tax laws
may be reversed by the secretary of finance.
Not only
the secretary of finance, but the BIR itself, can
reverse its own rulings. In other words, the BIR can
still go back on its word by revoking a previously
issued ruling. Good thing, though, the law is clear that
if the revocation would be prejudicial to the taxpayer,
such revocation cannot be given retroactive application.
The rule on nonretroactivity in case the revocation is
prejudicial to the taxpayer is fairly established in our
jurisprudence.
It is an
established doctrine that “a taxpayer cannot be
convicted for taking the tax authorities at their word.”
(International Business Machines v. US, 343 F 2d [1965]
p. 923.) Thus, the government is precluded from adopting
a position inconsistent with one previously taken where
injustice would result therefrom.
However,
there are instances where a revocation can be applied
retroactively, even if prejudicial to a taxpayer. One is
when a taxpayer deliberately misstates or omits material
facts from his return or in any document required of him
by the BIR. Another is when the facts subsequently
gathered by the BIR are materially different from the
facts on which the ruling is based. Also, when the
taxpayer acted in bad faith, the revocation may have
retroactive effect.
BIR
rulings may also be set aside by courts, if found to be
contrary to law.
Although
the courts may uphold administrative rulings, especially
those that are not contrary to law, it should be noted
that administrative rulings are not binding on the
courts.
The law
does not prescribe in what form a revocation should be
embodied in. In one case, the court ruled that the
revocation was made when the BIR filed its answer to a
taxpayer’s petition for review before the Court of Tax
Appeals, with a position inconsistent with the ruling
previously issued. What is important to note, though, is
that the taxpayer is entitled to the benefits of the
ruling prior to its revocation.
The fact
that BIR rulings can still be revoked, either by the BIR,
the secretary of finance or by the courts, does not
lessen the importance of getting a BIR ruling for
business transactions. The stability that a BIR ruling
offers may far outweigh the risk that the ruling would
be revoked or that the revocation would be applied
retroactively. Thus, for many business transactions, a
BIR ruling is indispensable.
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The author is an associate of BDB Law. If you have any
comments or questions concerning the article, you can
e-mail the author at rolando.t.devesa@bdblaw.com.ph or
call 856-2952. |
