Over the years, we have seen drastic changes in our tax laws. Generally, these changes were made in order to adapt to the current environment and meet the growing needs of the country. These changes in our tax laws may be in the form of raising taxes for purposes of increasing collections; or reducing the same to be able to attract investments. However, there are times such goals underlying these changes are not achieved due to failure of some taxpayers to pay the correct amount of their taxes. And although the main remedy is to subject these taxpayers to a Bureau of Internal Revenue (BIR) tax audit/investigation, the process of conducting the same often takes a long time. Hence, as a solution to this dilemma, the Bureau releases pertinent issuances for purposes of expediting the process of conducting a tax audit/investigation.
One of the recent examples for this is the Revenue Memorandum Circular (RMC) No. 110-2020 which was issued in October 2020 because the BIR has observed that there are Revenue Officers (ROs) who are not aware of the different modes of service of an electronic Letter of Authority (eLA), due to the fact that the modes of service laid out in Revenue Memorandum Order (RMO) No. 40-2019 apply only to assessment notices such as Preliminary Assessment Notice (PAN), Final Assessment Notice (FAN)/Formal Letter of Demand (FLD) and Final Decision on Disputed Assessment (FDDA).
In other words, the circular was issued to provide the different modes of service of an eLA, which are discussed as follows:
The first one is the personal service which is the traditional way of serving an eLA. According to the RMC, the mode of serving an eLA through personal service is manifested by delivering a personal copy of the document at the taxpayer’s registered address or known address or wherever he may be found. As provided, a known address shall mean a place other than registered address where business activities of the party are conducted or his place of residence. Further, the circular provides that the personal or substituted service of the eLA shall be effected by the RO assigned to the case or by any duly authorized BIR employee as the case may be. In case, however, personal service is not possible, the available options in serving the eLA are either through a substituted service or by mail.
If through a substituted service, the RMC provides that it can only be resorted to when the party is not present at the registered or known address. Accordingly, in a substituted service, the eLA may be left at the taxpayer’s registered address, with his clerk or with a person having charge thereof. Similarly, if the known address is a place where the business activities are conducted, the eLA may also be left at said place, with the taxpayer’s clerk or with a person having charge thereof. However, if such known address refers to a place of residence, the substituted service can be done by leaving the eLA at said place, with a person of legal age residing therein.
In case no person is found in the party’s registered address or known address, the ROs concerned shall bring a barangay official and two (2) disinterested witnesses (i.e. persons of legal age other than employees of the BIR) to the address so that they may personally observe and attest to such absence. In a like manner, the ROs concerned shall also bring a barangay official and 2 disinterested witnesses so that they may personally observe and attest should the party be found at his registered or known address or any other place but refuses to receive the eLA. Moreover, the original copy of the eLA shall be given to said barangay official under both instances.
Service by mail of the eLA may also be resorted to in case personal service of the same is not possible. Service by mail can be done by sending a copy of the eLA through a registered mail with an instruction to the Postmaster to return the mail to the sender after 10 days, if undelivered; or through a reputable professional courier service; or through ordinary mail, if no registry or reputable courier is available in the locality of the taxpayer.
In addition to the above, the RMC also provides prescribed formats for purposes of documenting the delivery and receipt of the eLA. For eLA served by mail, the front and back of the envelope containing said document is required to be filled in with instruction in case the eLA is not delivered within 10 days and some information in case the same is returned to the BIR. On the other hand, if eLA is served through personal or substituted service, the duplicate copy of the eLA is required to be filled in as well with information for purposes of documenting the acknowledgment of receipt of the eLA. These documents will form part of the docket of the case thereafter.
The completion of personal service takes place upon delivery of the eLA to the taxpayer or his representative. For service by registered mail, the completion is upon actual receipt by the taxpayer or after 5 days from the date of receipt of the first notice of the postmaster, whichever date is earlier. If served through ordinary mail, service is complete upon expiration of 10 days after mailing.
Finally, the RMC provides that if the service is made to the tax agent/practitioner, who is appointed or authorized by the taxpayer in accordance with existing revenue issuances, such service shall be deemed service to the taxpayer.
In view of the foregoing, it seems like the circular is more favorable to the tax authorities conducting the case. Through the other modes of service (i.e. substituted service and service by mail), the BIR is given more power to expedite the process of tax audit/investigation and taxpayers have no choice in case they are selected for audit. Moreover, in view of how entities operate in this pandemic, there may be a possibility that the BIR will officially implement the mode of serving eLA and assessment notices through electronic mail (e-mail), which may widely increase the efficiency in conducting tax audits.
Perhaps, if eLA is already served, the taxpayers may challenge the same in case they spot any noncompliance in its preparation and mode of service, which may be a ground for a void assessment. Remember that a tax audit commences upon the issuance of the eLA. Hence, it is crucial if taxpayers will be familiar of what makes an eLA valid because this will play a big part in determining if an assessment is void or otherwise from the very start. On the other hand, in case an eLA is not yet served, this may be an opportune time to do a tax compliance check in order to review the taxpayer’s records and identify any discrepancies between their financial records and tax filings. Considering the uncertainties of when a taxpayer be subject to a tax audit, these recommended steps may help them immediately address the eLA and assessment notices when they receive such documents.
Erick O. Miranda is a Supervisor from the Tax Group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.
The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email ph-kpmgmla@kpmg.com.