Tax Refund or Credit

In the complex realm of taxation, one of the avenues available to taxpayers and the tax authorities alike is the concept of a tax compromise. This mechanism allows for the reduction of a taxpayer’s liability under certain conditions and procedures.

What is a tax compromise?

A tax compromise involves the reduction of the taxpayer’s liability.

Who may enter into a compromise of a tax liability?

The following may enter into a compromise on tax liabilities:

1. The Commissioner, provided that compromise shall be subject to the approval of the Evaluation Board composed of the Commissioner and four Deputy Commissioners where:
   1. The basic tax involved exceeds P1 Million; or
   2. The settlement offered is less than the prescribed minimum rates; and
2. Regional Evaluation Boards, provided:
   1. It involves basic deficiency taxes of P500,000 or less; or
   2. It involves minor criminal violations discovered by the Regional and District Offices.

At what stage of litigation may a tax be compromised?

A tax compromise is possible at any stage of the litigation, even during appeal, although legal propriety demands that prior leave of court should be obtained. But a compromise can never be entered into after final judgment, because by virtue of such final judgment, the Government had already acquired a vested right.

What are the requisites for the compromise of taxes to be valid?

For the compromise of taxes to be valid, the following requisites must be present:

1. The taxpayer has a tax liability;
2. There must be an offer (by the taxpayer or Commissioner) of an amount to be paid by the taxpayer;
3. A reasonable doubt as to the validity of the claim against the taxpayer exists or the financial position of the taxpayer demonstrates a clear inability to pay the assessed tax; 
4. There must be acceptance (by the taxpayer or Commissioner, as the case may be) of the offer in settlement of the original claim; and
5. The compromise offer shall be paid by the taxpayer upon filing of the application for compromise settlement;

Note: Another important application requirement is the waiver in writing of the taxpayer’s privilege of the secrecy of bank deposits when he enters into compromise on the ground of his financial incapacity.

What are the grounds for the DENIAL of an offer of a compromise based on financial incapacity?

The Commissioner may deny compromising any national internal revenue tax:

1. If the taxpayer has a Tax Credit Certificate, issued under the NIRC;
2. If the taxpayer has a pending claim for tax refund or tax credit with the BIR, Department of Finance One-Stop-Shop Tax Credit and Duty Drawback Center (Tax Revenue Group or Investment Incentive Group) and/or the courts;
3. If the taxpayer has an existing finalized agreement or prospect of future agreement with any party that resulted or could result to an increase in the equity of the taxpayer at the time of the offer for compromise or at a definite future time; or
4. If the taxpayer failed to execute a waiver of his privilege of the secrecy of bank deposits under Republic Act No. 1405 or under other general or special laws.

Which cases may be compromised?

The following cases may be the subject matter of compromise settlement, viz:

1. Delinquent accounts;
2. Cases under administrative protest after issuance of the Final Assessment Notice to the taxpayer which are still pending in the Regional Offices, Revenue District Offices, Legal Service, Large Taxpayer Service (LTS), Collection Service, Enforcement Service and other offices in the National Office;
3. Civil tax cases being disputed before the courts;
4. Collection cases filed in courts; and
5. Criminal violations, other than those already filed in court or those involving criminal tax frauds.

Note: In criminal cases, other than those involving tax fraud, the CIR has full discretion to compromise before the information (criminal complaint) is filed in court. After the case reaches the prosecutor’s office, the prosecutor must give his consent before he can enter into compromise. Once the information is filed in court, compromise is no longer permitted with or without the consent of the prosecutor.

Which cases may NOT be compromised? 

The following cases may not be the subject matter of a compromise settlement:

1. Withholding tax cases, unless the applicant-taxpayer invokes provisions of law that cast doubt on the taxpayer’s obligation to withhold;
2. Criminal tax fraud cases confirmed as such by the CIR or his duly authorized representative;
3. Criminal violations already filed in court;
4. Delinquent accounts with duly approved schedule of installment payments;
5. Cases where final reports of reinvestigation or reconsideration have been issued resulting in reduction in the original assessment and the taxpayer is agreeable to such decision by signing the required agreement form for the purpose. On the other hand, other protested cases shall be handled by the Regional Evaluation Board (REB) or the National Evaluation Board (NEB) on a case-to-case basis;
6. Cases which become final and executory after final judgment of a court, where compromise is requested on the ground of doubtful validity of the assessment; and
7. Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer.

How is an offer of compromise approved?

Except for offers of compromise where the approval is delegated to the Regional Evaluation Board (REB), all compromise settlements within the jurisdiction of the National Office (NO) shall be approved by a majority of all the members of the NEB composed of the Commissioner and the 4 Deputy Commissioners. All decisions of the NEB, granting the request of the taxpayer or favorable to the taxpayer, shall have the concurrence of the Commissioner.

What is the effect of a judicially approved compromise agreement?

When given judicial approval, a compromise agreement becomes more than a contract binding upon the parties. Having been sanctioned by the court, it is entered as a determination of a controversy and has the force and effect of a judgment. It is immediately executory and not appealable, except for vices of consent or forgery.

Can there be issuance of a writ of execution after a compromise agreement has been judicially approved?

Yes. The nonfulfillment of its terms and conditions justifies the issuance of a writ of execution; in such an instance, execution becomes a ministerial duty of the court.

Should a compromise offer be paid upon filing of the application for compromise settlement?

Yes. No application for compromise settlement shall be processed without the full settlement of the offered amount. In case of disapproval of the application for compromise settlement, the amount paid upon filing of the aforesaid application shall be deducted from the total outstanding tax liabilities.

Source:

National Internal Revenue Code, as amended by TRAIN Law. 

R.R. No. 30-02

R.R. No. 09-13

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