GAERLAN, J.:
LOA as the source of BIR revenue officers' investigatory powers |
An LOA is the authority given to the appropriate revenue officer assigned to perform assessment functions. It empowers or enables said revenue officer to examine the books of account and other accounting records of a taxpayer for the purpose of collecting the correct amount of tax. An LOA is premised on the fact that the examination of a taxpayer who has already filed his tax returns is a power that statutorily belongs only to the CIR himself or his duly authorized representatives. x x xConsidering that an LOA clothes the appropriate revenue officer with the authority to assess and examine the books of account and records of a taxpayer, such power is necessarily subject to reasonable limitations. In particular, Section C(5) of RMO NO. 43-90, specifically requires that any reassignment/transfer of cases to another RO shall require the issuance of a new LOA:
x x x x
Based on [Section 6(A) of the NIRC], it is clear that unless authorized by the CIR himself or by his duly authorized representative, through an LOA, an examination of the taxpayer cannot ordinarily be undertaken. The circumstances contemplated under Section 6 where the taxpayer may be assessed through best-evidence obtainable, inventory-taking, or surveillance among others has nothing to do with the LOA. These are simply methods of examining the taxpayer in order to arrive at the correct amount of taxes. Hence, unless undertaken by the CIR himself or his duly authorized representatives, other tax agents may not validly conduct any of these kinds of examinations without prior authority.
x x x x
Contrary to the ruling of the CTA en banc, an LOA cannot be dispensed with just because none of the financial books or records being physically kept by MEDICARD was examined. To begin with, Section 6 of the NIRC requires an authority from the CIR or from his duly authorized representatives before an examination "of a taxpayer" may be made. The requirement of authorization is therefore not dependent on whether the taxpayer may be required to physically open his books and financial records but only on whether a taxpayer is being subject to examination.
The BIR's RELIEF System has admittedly made the BIR's assessment and collection efforts much easier and faster. The ease by which the BIR's revenue generating objectives is achieved is no excuse however for its noncompliance with the statutory requirement under Section 6 and with its own administrative issuance. In fact, apart from being a statutory requirement, an LOA is equally needed even under the BIR's RELIEF System because the rationale of requirement is the same whether or not the CIR conducts a physical examination of the taxpayer's records: to prevent undue harassment of a taxpayer and level the playing field between the government's vast resources for tax assessment, collection and enforcement, on one hand, and the solitary taxpayer's dual need to prosecute its business while at the same time responding to the BIR exercise of its statutory powers. The balance between these is achieved by ensuring that any examination of the taxpayer by the BIR's revenue officers is properly authorized in the first place by those to whom the discretion to exercise the power of examination is given by the statute.[30]
C. Other policies for issuance of L/As.Just last year, in Himlayang Filipino Plans, Inc. v. Commissioner of Internal Revenue,[31] which also involved the reassignment of a deficiency tax investigation to another RO without the issuance of a new LOA, we nullified the Formal Letter of Demand and Assessment Notice issued against the taxpayer on the basis of such investigation, thus:
x x x x
5. Any re-assignment/transfer of cases to another RO(s), 64 and revalidation of L/As 65 which have already expired, shall require the issuance of a new L/A, with the corresponding notation thereto, including the previous L/A number and date of issue of said L/As.
A perusal of the records of the case discloses that electronic LOA SN: eLA201000017400 LOA-039-2010-00000072 issued against petitioner specifically authorized revenue officer Cacdac and group supervisor Andaya, to examine the books of accounts of petitioner for taxable year 2009[.] x x xThis Court was more emphatic in Commissioner of Internal Revenue v. McDonald's Philippines Realty Corp.[33] (McDonald's), which opens with this categorical declaration:
x x x x
However, it appeared that Cacdac was not the revenue officer who actually conducted the audit of petitioner's books of accounts. It was revenue officer Bagauisan who audited petitioner by virtue of a memorandum of assignment signed by revenue district officer Nacar[.] x x x
x x x x
The reassignment of the examination of petitioner's books of accounts pursuant to electronic LOA SN: eLA201000017400 LOA-039-2010-00000072 from revenue officer Cacdac to revenue officer Bagauisan necessitates the issuance of a new LOA. This is clear under Revenue Memorandum Order (RMO) No. 43-90 or "An Amendment of Revenue Memorandum Order No. 37-90 Prescribing Revised Policy Guidelines for Examination of Returns and Issuance of Letters of Authority to Audit," x x x
x x x x
Here, there was no new LOA issued naming Bagauisan as the new revenue officer who would conduct the examination of petitioner's books of accounts. The authority of Bagauisan is anchored only upon the memorandum of assignment signed by revenue district officer Nacar.
Section 13 of the NIRC requires that a revenue officer must be validly authorized before conducting an audit of a taxpayer:
x x x x
In addition, under RMO No. 43-90, only the following officers may validly issue a LOA:D. Preparation and issuance of L/As.Thus, revenue officer Bagauisan is not authorized by a new LOA to conduct an audit of petitioner's books of accounts for taxable year 2009.
x x x x
4. For the proper monitoring and coordination of the issuance of Letter of Authority, the only BIR officials authorized to issue and sign Letters of Authority are the Regional Directors, the Deputy Commissioners and the Commissioner. For the exigencies of the service, other officials may be authorized to issue and sign Letters of Authority but only upon prior authorization by the Commissioner himself. (Emphasis supplied)
x x x x
Here, as comprehensively discussed, there was no new LOA issued by the CIR or his duly authorized representative giving revenue officer Bagauisan the power to conduct an audit on petitioner's books of accounts for taxable year 2009. The importance of the lack of the revenue officer's authority to conduct an audit cannot be overemphasized because it goes into the validity of the assessment. The lack of authority of the revenue officers is tantamount to the absence of a LOA itself which results to a void assessment. Being a void assessment, the same bears no fruit.[32]
The practice of reassigning or transferring revenue officers originally named in the Letter of Authority (LOA) and substituting or replacing them with new revenue officers to continue the audit or investigation without a separate or amended LOA (i) violates the taxpayer's right to due process in tax audit or investigation; (ii) usurps the statutory power of the Commissioner of Internal Revenue (CIR) or his duly authorized representative to grant the power to examine the books of account of a taxpayer; and (iii) does not comply with existing Bureau of Internal Revenue (BIR) rules and regulations on the requirement of an LOA in the grant of authority by the CIR or his duly authorized representative to examine the taxpayer's books of accounts.[34]In that case, the RO authorized to investigate the accounts of McDonald's Philippines Realty Corporation through a validly issued LOA was transferred to another assignment; and the investigation was reassigned to another RO through a referral memorandum, without the issuance of a new LOA. We likewise invalidated the resultant assessment and demand:
This case is an occasion for the Court to rule on a disturbing trend of tax audits or investigations conducted by revenue officers who are not specifically named or authorized in the LOA, under the pretext that the original revenue officer authorized to conduct the audit or investigation has been reassigned or transferred to another case or place of assignment, or has retired, resigned or otherwise removed from handling the audit or investigation.The above-quoted rulings find mooring in Sections 5, 6(A) and 13 of the NIRC,[36] which vest tax compliance investigation powers in the CIR, subject to delegation to "duly authorized representatives" under Section 6(A). Notably, such powers are invested in the CIR alone,[37] who may then delegate such powers to his or her "duly authorized representatives" pursuant to law and regulations. The Republic's asseveration that
This practice typically occurs as follows: (i) a valid LOA is issued to an authorized revenue officer; (ii) the revenue officer named in the LOA is reassigned or transferred to another office, case or place of assignment, or retires, resigns, or is otherwise removed from handling the case covered by the LOA; (iii) the revenue district officer or a subordinate official issues a memorandum of assignment, referral memorandum, or such equivalent document to a new revenue officer for the continuation of the audit or investigation; and (iv) the new revenue officer continues the audit or investigation, supposedly under the authority of the previously issued LOA.
This practice of reassigning or transferring revenue officers, who are the original authorized officers named in the LOA, and subsequently substituting or replacing them with new revenue officers who do not have a new or amended LOA issued in their name, has been the subject of several CTA decisions x x x.
The Court hereby puts an end to this practice.
x x x x
[I]t is clear that Marcellano was not authorized under a new and separate, or amended, LOA to continue the audit or investigation of the respondent's books of accounts for C.Y. 2006. The August 31, 2007 LOA was originally issued to revenue officers Eulema Demadura, Lover Loveres, Josa Gomez, and Ernalyn dela Cruz. The original revenue officer, Demadura, was transferred to another assignment. Pursuant to a mere referral memorandum, revenue officer Marcellano continued the audit of the respondent's books of accounts. No new LOA was issued in the name of Marcellano to conduct the audit of the respondent's books of accounts. Moreover, the August 31, 2007 LOA was not amended or modified to include the name of Marcellano. Hence, the authority under which Marcellano continued the audit or investigation was not pursuant to the statutory power of the CIR or his duly authorized representative to grant the authority to examine the taxpayer's books of accounts.[35]
an LOA is not an "authorization letter" of the revenue officers. It actually is issued to taxpayers and not to the revenue officer. It is issued to inform the taxpayer that audit of his person has been authorized by the Commissioner. Once served, any duly authorized revenue officer may now conduct audit not because of, but rather, "pursuant" to such letter of authority. Their authority to conduct audit may be included in the letter or it may in any other document issued by the Commissioner or his duly authorized representative. No strict form or title is necessary as that would give an illogical premium on form over substance - what is important is that audit of the taxpayer must be sanctioned by an LOA which had been previously issued.[38]is therefore erroneous. The Republic's construction of Section 13 of the NIRC to mean that an LOA is not an authorization but a mere notice of investigation to the taxpayer is blatantly contrary to the text of the law. First, the concept of authorization is inherent in the very language of Sections 6(A) and 13 of the NIRC, which speak of a "duly authorized representative"[39] and a "Letter of Authority."[40] Second, the phrase "pursuant to" in Section 13 means "in the course of carrying out, in conformance to or agreement with, [or] according to."[41] Thus, an RO may only examine taxpayers, in the course of carrying out, in conformance to or agreement with, or according to, a validly issued LOA. Stated differently, under the NIRC, the investigatory powers of the ROs flow from the LOA, which is the statutorily designated means by which the CIR delegates its investigative powers to the BIR revenue officers.
The CIR's reassignment powers cannot be invoked to defeat the statutory LOA requirement |
SEC. 17. Assignment of Internal Revenue Officers and Other Employees to Other Duties. - The Commissioner may, subject to the provisions of Section 16 and the laws on civil service, as well as the rules and regulations to be prescribed by the Secretary of Finance upon the recommendation of the Commissioner, assign or reassign internal revenue officers and employees of the Bureau of Internal Revenue, without change in their official rank and salary, to other or special duties connected with the enforcement or administration of the revenue laws as the exigencies of the service may require: Provided, That internal revenue officers assigned to perform assessment or collection functions shall not remain in the same assignment for more than three (3) years; Provided, further, That assignment of internal revenue officers and employees of the Bureau to special duties shall not exceed one (1) year. (Emphasis and underlining supplied)In Castro v. Hechanova, et al.,[42] (Castro) then CIR Benjamin Tabios (CIR Tabios) reassigned Revenue Regional Director Teodoro Castro (Castro) of Revenue Region No. 7 to the BIR central office. When Castro questioned the reassignment, CIR Tabios argued that it was justified under Section 12 of the 1939 NIRC; and this Court, in partially sustaining CIR Tabios' position, held that the reassignment is valid, but for only thirty days, unless a longer duration is approved by the President, under the then prevailing rules on reassignment of government personnel:
Under the law, respondents, as the administrative heads of the Bureau of Internal Revenue, not only have administrative supervision and control over the same, but are also specifically empowered to assign revenue personnel to other duties, thus:Section 17 of the current NIRC is the statutory descendant of Section 12 of the 1939 NIRC. The current Section 17 retains the modifiers "other" and "special" to describe the duties to which revenue officers may be reassigned. However, the current provision departs from the old Section 12 in that: 1) Section 17 incorporates the principle enunciated by this Court in the abovequoted ruling, that such reassignments must be for a limited time only, i.e., one year; and 2) Section 17 explicitly states that "internal revenue officers assigned to perform assessment or collection functions shall not remain in the same assignment for more than three (3) years."[44]"SEC. 12. ASSIGNMENT OF INTERNAL REVENUE AGENTS AND OTHER EMPLOYEES TO OTHER DUTIES. -- The Collector of Internal Revenue may, with the approval of the Secretary of Finance, assign internal revenue agents and other officers and employees of the Bureau of Internal Revenue without change in their official character or salary to such special duties connected with the administration of the revenue laws as the best interest of the service may require."
[Castro], however, contends that for the exercise of the foregoing authority to be valid, the assignment of personnel should involve the performance of some "special duties" and should not result in any change in the official character of their positions and salaries. In assailing the validity of the travel assignment order in question, petitioner claims that being a regional director, to discharge the functions of Revenue Operations-head cannot be considered as performance of a special duty.
The term "special duties" mentioned in the law, evidently is here being equated by the petitioner with work requiring the use of some special talent or knowledge. It may be pointed out, however, that the title of Section 12 of the Revenue Law mentions the assignment of revenue employees to "other duties", and the body thereof refers to "such special duties connected with the administration of the revenue law." To our mind, the "special duties" mentioned in the law refer not to a "special" or extraordinary or different undertaking, but to functions or work other than, or not related to, those regularly discharged by the employee concerned. In other words, to the employee reassigned or detailed to another post, the performance of work other than those he was regularly doing, constitutes the doing of "special duties", which supports the view that the designation is not permanent but merely temporary. And, there is nothing wrong, legally or personnel-wise, in the aforequoted provision, giving to the office administrator or supervisor, the authority to formulate a personnel program designed to improve the service and to carry out the same, utilizing approved techniques or methods in personnel management, to the end that the abilities of the employees may be harnessed to promote optimum public service. Of course, it must be realized that the exercise of this authority may be abused or carried out to serve some other purposes, as so charged in this case. But, as it was once said, "the possibility of abuse is not an argument against the concession of power, as there is no power that is not susceptible of abuse."[43] (Emphasis, italics and underlining supplied)
[There is] nothing in [Section 17 which] would justify dispensing with the issuance of a valid LOA in favor of the Revenue Officer concerned. x x x
x x x x
[T]he statutory requirement of issuing a new LOA in no way prevents the CIR from validly assigning or re-assigning the Revenue Officers and employees of the BIR. It does not even require that audit must be completed before such employee can be transferred. Rather, what is simply required by the law is that in case of reassignment, a new LOA be issued to the Revenue Officer to whom the case is transferred to. To rule otherwise and dispense with the requirement of the issuance of an LOA runs counter to both law and jurisprudence.[45]
Requisite of new LOA for a valid reassignment of tax investigation will not hamper internal revenue operations |
For the proper monitoring and coordination of the issuance of Letter of Authority, the only BIR officials authorized to issue and sign Letters of Authority are the Regional Directors, the Deputy Commissioners and the Commissioner. For the exigencies of the service, other officials may be authorized to issue and sign Letters of Authority but only upon prior authorization by the Commissioner himself.Contrary to the Republic's claims, the requirement of a new LOA for the valid reassignment of a tax investigation can be reconciled with the "one LOA per taxable year" rule under RMO Nos. 8-2006 and 43-90. Items 1 and 2 of Part IV.D. of RMO No. 8-2006 provide:
1. Only one (1) [LOA] shall be issued to the same taxpayer, for the same tax type and period, except where an [LOA] was issued for a specific tax type only and subsequently, another [LOA] was issued to the same taxpayer by the same or another office covering the investigation of all internal revenue taxes (AIRT) for the same taxable period. The [LOA] issued for AIRT purposes shall be allowed provided the coverage shall be limited to AIRT except for the specific tax type and said coverage shall be clearly stated on the face of the [LOA].Clearly, the "one LOA per taxable year" rule is not as ironclad as the Republic portrays it to be. Part IV.D., Item 2 of RMO No. 8-2006 authorizes the issuance of duplicate LOAs, subject to the CIR's discretion to determine which of the two LOAs shall prevail. Obviously, when a tax investigation is reassigned to a different RO pursuant to the mandatory "rotation" of assessment officers under Section 17 of the NIRC, or for any other legally justified reason, the CIR or his/her duly authorized representatives may issue a new LOA to the newly assigned RO, and such LOA can be made to prevail over the LOA issued to the previous investigating officer. Since the CIR's power to issue a LOA is delegable, the concomitant power to uphold the validity of a subsequently issued duplicate LOA is likewise delegable to the CIR's duly authorized representatives, as enumerated in RMO No. 43-90. Stated differently, RMO No. 8-2006 does not prohibit the issuance of a new LOA within the same taxable period if such new LOA is necessitated by the reassignment, retirement, or other inability of the incumbent RO to continue an investigation. The BIR official who will issue the new LOA also has the power to make it prevail over the old, previously issued LOA, subject of course to the control and regulation of the CIR as the statutorily designated tax investigator. It must be noted that Section 13 of the NIRC, in providing for the LOA as the mode of delegation of the CIR's investigatory powers to the ROs, likewise gave the CIR the power to regulate and define the parameters for the issuance of LOAs. The "one LOA per taxable year" rule under RMO Nos. 8-2006 and 43-90 is an example of such a regulation; and such regulation is only valid insofar as it is consistent with the provisions of the NIRC.
2. In case two or more [LOA)s are issued to the same taxpayer for the same tax type and for the same period, the power to decide which [LOA) shall prevail shall be under the exclusive jurisdiction of the Commissioner (CIR). The LA prevailed upon shall be considered cancelled. The concerned [Large Taxpayers Audit and Investigation Division] I and II/[Large Taxpayers District Office]/[Revenue District Office]/[National Investigation Division]/[Special Investigation Division]/ [Task Force] shall indicate under Status Code "Cancelled" and select the appropriate Action Code "LA Cancelled by Order of the CIR". Under the Remarks column, indicate "Cancelled by LA No. ____ issued by (name office). (Emphasis and underlining supplied)
The Sony Philippines doctrine applies in the present case |
Based on Section 13 of the Tax Code, a Letter of Authority or LOA is the authority given to the appropriate revenue officer assigned to perform assessment functions. It empowers or enables said revenue officer to examine the books of account and other accounting records of a taxpayer for the purpose of collecting the correct amount of tax. The very provision of the Tax Code that the CIR relies on is unequivocal with regard to its power to grant authority to examine and assess a taxpayer.Although Sony Philippines involves a different defect in a LOA, i.e., that the LOA's temporal coverage was overbroad as it included "unverified prior years,"[48] the aforequoted legal principle therein is a judicially binding statement of the import of Sections 6(A) and 13 of the NIRC, which is generally applicable to all situations involving the nature and function of a LOA under the NIRC. The Supreme Court's interpretation of a statute constitutes part of such statute from the date of its original enactment, as the interpretation merely establishes the contemporaneous legislative intent effectuated by such statute.[49]SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement. –Clearly, there must be a grant of authority before any revenue officer can conduct an examination or assessment. Equally important is that the revenue officer so authorized must not go beyond the authority given. In the absence of such an authority, the assessment or examination is a nullity.[47]
(A) Examination of Returns and Determination of tax Due. - After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax: Provided, however, That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. x x x (Emphases supplied)