It is a well-settled rule that a taxpayer shall be afforded the right to due process in the assessment of his taxes. Part and parcel of the right to due process are (1) the right to be assessed within the prescriptive period fixed by law; and (2) the right to be informed of the factual and legal bases of any deficiency tax assessment.
The Supreme Court comprehensively discussed these two aspects of a taxpayer’s right to due process in the case of Commissioner of Internal Revenue (CIR) vs Arturo Villanueva (G.R. No. 249540, 28 February 2024).
In Villanueva, the CIR issued a Final Assessment Notice/Formal Letter of Demand (FAN/FLD) for a tax deficiency to respondent Villanueva. Villanueva argued that the FAN/FLD was issued beyond the ordinary three-year prescriptive period for the assessment of taxes, and that he never received a copy of the same.
In response, the CIR said the application of the extraordinary 10-year prescriptive period for assessment was warranted due to the filing of a false return by Villanueva. Further, the CIR alleged that the FAN/FLD was presumed to have been received since it was sent to respondent Villanueva via registered mail.
On the issue of the prescriptive period, the Supreme Court held that the extraordinary 10-year prescriptive period applies only in the following cases: (1) when a taxpayer files a false return with intent to evade taxes; (2) when the taxpayer files a fraudulent return with intent to evade paying taxes; and (3) when a taxpayer fails to file a return.
In case of a false return, the extraordinary 10-year prescriptive period shall be applied only upon concurrence of the following:
- The return contains an error or misstatement that is willful and deliberate, unless there is prima facie evidence of falsity or fraud, in part referring to the thirty percent (30 percent) threshold under Section 248(B) of the Tax Code;
- The assessment notice issued to the taxpayer must clearly state that (a) the extraordinary 10-year prescriptive period is being applied, and (b) the bases for allegations of falsity or fraud; and
- The tax authorities had not acted in a manner that was inconsistent with the invocation of the extraordinary prescriptive period or had otherwise misled the taxpayer that the basic period would be applied.
In this case, the CIR failed to establish any of the foregoing conditions. Thus, the Supreme Court held that the application of the extraordinary 10-year prescriptive period was inappropriate.
On the right to be informed of the factual and legal bases for any deficiency tax assessment, the Supreme Court held that if the taxpayer denies ever having received an assessment notice it becomes incumbent upon the CIR to prove that such notice was, in fact, received by the taxpayer. To discharge this burden, it is essential for the CIR to present independent evidence showing that the assessment notice was released, mailed, or sent to the taxpayer.
In Villanueva, the Supreme Court noted that the CIR presented a copy of the registry receipt of the FAN/FLD. However, it failed to identify or authenticate whether the signature appearing therein belonged to the respondent or his authorized representative. In addition, apart from the registry receipt, no other independent and competent evidence was presented by the CIR to prove respondent’s actual receipt of the assessment notice. Thus, the Supreme Court ruled the assessment notice was void for violation of the taxpayer’s right to due process.
