The Importance of the Mandatory Statutory Requirement and Function of a Letter of Authority

The bureau has issued Revenue Memorandum Circular (RMC) No. 75-2018  to highlight the doctrinal rule enunciated by the Supreme Court in the case of "Medicard Philippines, Inc. vs. Commissioner of Internal Revenue" (G. R. No. 222743, 05 April 2017) on the mandatory statutory requirement of a Letter of Authority (LOA), for the guidance of all concerned, particularly internal revenue officers tasked with assessment and collection functions and review of disputed assessments.

The summary of judicial ruling is stated as follows:

The judicial ruling , involving a specific statutory' mandate, states that no assessments can be issued or no assessment functions or proceedings can be done without the prior approval and authorization of the Commissioner of Internal Revenue (ClR) or his duly authorized representative, through an LOA. The concept of an LOA is therefore clear and unequivocal . Any tax assessment issued without an LOA is a violation of the taxpayer's right to due process and is therefore "inescapably void."

The Court further emphatically clarified that :

1. The circumstances contemplated under Section 6 of the National Internal revenue Code (NIRC) , as amended, "where the taxpayer may be assessed through best evidence obtainable , inventory-taking or surveillance, among others, have 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."

2. A Letter Notice (LN)" is entirely different and serves a different purpose than an LOA". It is not found in.the NIRC and is not an authority to conduct an audit or examination of the taxpayer leading

to the issuance of deficiency assessments . Due process demands that after an LN has served its purpose , the revenue officer should have properly secured an LOA before proceeding with the further examination and assessment of taxpayer.

To help forestall any unnecessary controversy and to encourage due observance of the judicial pronouncements, any examiner or revenue officer initiating tax assessments or performing assessment functions without an LOA shall be subject to appropriate administrative sanctions.

The provisions of any internal revenue issuance inconsistent herewith are hereby repealed, amended or modified accordingly.

Please refer: https://www.bir.gov.ph/images/bir_files/internal_communications_2/RMCs/2018/RMC%20No%2075-2018.pdf of the full text of RMC No. 75-2018.

Rates on the Excise Tax on Automobiles

Are you planning of investing or buying vehicle today or in the future? Do you consider if it's subject to tax or exempt from tax? May be it is also important to consider the tax matters and other legal transactions in investing or purchasing vehicle.

Few months ago, the bureau has issued Revenue Regulations (RR) No. 5-2018 implementing the Adjustment of Rates on the Excise Tax on Automobiles pursuant to the Provisions of Republic Act No. 10963, otherwise known as the "Tax Reform for Acceleration and Inclusion (TRAIN) Law" amending for the purpose RR No. 25-2003 as follows:

SEC. 3. Section 4 of RR No. 25-2003 is hereby amended as follows:

"SEC. 4. - RATES AND BASES OF THE AD VALOREM TAX ON AUTOMOBILES. There shall be levied, assessed and collected ad valorem tax on automobiles based on the manufacturer's/assembler's or importer's selling price, net of excise tax and value-added tax, in accordance with the following schedule, EFFECTIVE JANUARY 1, 2018:

NET MANUFACTURER'S                                      TAX RATE

PRICE/ IMPORTER'S SELLING

PRICE

UP TO SIX HUNDRED                                              FOUR PERCENT (4%)

THOUSAND PESOS (P600,000.00)

OVER SIX HUNDRED                                              TEN PERCENT (10%)

THOUSAND PESOS (P600,000.00)

TO ONE MILLION PESOS

(P1,000,000.00)

OVER ONE MILLION PESOS                                  TWENTY PERCENT (20%)

(P1,000,000.00) TO FOUR

MILLION PESOS (P4,000,000.00)

OVER FOUR MILLION PESOS                                FIFTY PERCENT (50%)

(P4,000,000.00)

PROVIDED, THAT HYBRID VEHICLES SHALL BE TAXED AT FIFTY PERCENT (50%) OF THE APPLICABLE EXCISE TAX RATES ON AUTOMOBILES SUBJECT TO THE CONDITIONS IN SECTION 9(E) OF THIS REGULATIONS: PROVIDED, FURTHER, THAT IN THE CASE OF IMPORTED AUTOMOBILES NOT FOR SALE, THE TAX IMPOSED HEREIN SHALL BE BASED ON THE TOTAL LANDED VALUE, INCLUDING TRANSACTION VALUE, CUSTOMS DUTY AND ALL OTHER CHARGES."

It also stated in the regulations of vehicles exempt from the excise tax on automobiles as follows:

SEC. 4. Section 9 is hereby amended as follows:

"SEC. 9. TAX-EXEMPT REMOVALS OF AUTOMOBILES. The following removals of locally manufactured/assembled or release of imported automobiles from the place of production or from customs' custody, respectively, are exempt for the payment of the appropriate excise taxes subject to certain conditions.

a. xxx 

xxx xxx xxx 

E. PURELY ELECTRIC VEHICLES SHALL BE EXEMPT FROM THE EXCISE TAX ON AUTOMOBILES. HYBRID VEHICLES SHALL BE SUBJECT TO FIFTY PERCENT (50%) OF THE APPLICABLE EXCISE TAX RATES ON AUTOMOBILES. PRIOR TO THE REMOVAL OF THE AUTOMOBILES FROM THE MANUFACTURING PLANT OR CUSTOMS CUSTODY, THE DEPARTMENT OF ENERGY (DOE) SHALL DETERMINE WHETHER THE AUTOMOBILES ARE HYBRID VEHICLES OR

PURELY ELECTRIC VEHICLES, AND FURNISH THE COMMISSIONER OF INTERNAL REVENUE, ATTENTION: CHIEF EXCISE LARGE TAXPAYERS REGULATORY DIVISION (ELTRD), CERTIFIED COPIES OF THE RESULTS OF SUCH EXAMINATION OR ENDORSEMENT TO THAT EFFECT. 

F. PICK-UPS."

Please refer: https://www.bir.gov.ph/images/bir_files/internal_communications_1/Full%20Text%20RR%202018/RR%20No.%205-2018.pdf of the full tax of RR No. 5-2018.