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Atty. Jomel N. Manaig highlights some issues in the current tax compromise regulations as applied in mediations ...

Making Mediation More Taxpayer-Friendly

By: Atty. Jomel N. Manaig

Mediation has been a staple of the proceedings before the Court of Tax Appeals (CTA) since its adoption back in 2019. It gives both the taxpayer and the Bureau of Internal Revenue (BIR) another opportunity to amicably settle the tax controversy between them.

Under the implementing guidelines of mediation in the CTA, the compromise agreement shall be subject to the limitations under Section 204 of the 1997 Tax Code, as amended. This section lays down the authority of the Commissioner of Internal Revenue (CIR) to compromise taxes, among others, as implemented by Revenue Regulations (RR) No. 30-2002, as amended. Such authority, as mentioned in the said RR, even covers disputed assessments with the courts.

However, a crucial portion of RR No. 30-2002, as amended, seems to be at odds, if not completely contradictory, to the spirit and intent of mediation at the level of the courts. In the said RR, the compromise offer shall be paid by the taxpayer upon filing of the application for compromise settlement as a prerequisite for processing. 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.

The requirement of prior payment and application of the amount paid upon disapproval does not reflect the amicable nature of mediation. Rather, it may be seen as going against its spirit and intent which further muddies the chance of a successful mediation between the parties.

When exploring the possibility of ending the controversy through mediation, the parties should be able to negotiate with each other as equals. It should be grounded on good faith and fairness to succeed. Requiring taxpayers to cough up the money to the BIR and then keeping it when the BIR itself denies an application is a case of “having your cake and eating it too.” It shouldn’t be like that.

Such a policy erodes the trust and confidence in the entire mediation system.

In case prior payment is to be required as a show of good faith on the side of the taxpayer, the BIR should be fair enough to return the same if it subsequently denies the compromise application. It should not insist on applying it to the “total outstanding tax liability” because the same liability is actually the center of the tax controversy in the first place.

Picture it this way: if a tax assessment case is referred to mediation under the above policy, the taxpayer would be required to pay the offered amount even before any approval from the CIR. In case the CIR subsequently denies the compromise application, it will keep the amount under the pretext of applying it to the “total outstanding tax liability.” If the BIR denies the compromise application, the mediation would be deemed unsuccessful and the tax assessment case will continue.

Now comes the tricky part. What if the taxpayer wins the case and was able to have the tax assessment cancelled? What if the courts decide that the taxpayer is not liable for any tax liability? Then there would be no “total outstanding tax liability” to speak of. In that case, to what then will the BIR apply the prior payment made by the taxpayer?

Will the taxpayer be allowed to refund the said amount? What if the decision on the tax assessment case became final and executory after the lapse of the prescriptive period to file a claim for refund? What then will the remedy of the taxpayer be?

An overarching theme in all of this is that the said policy is unfair to the taxpayer. Again, at the risk of sounding repetitive, mediation should be grounded on good faith and fairness to succeed. Maybe it is high time that this RR and policy be revisited.

To the BIR’s credit, we have observed in actual practice that it has been seeking tacit approvals of compromise applications from the CIR and the National Evaluation Board before requiring taxpayers to pay the compromise offer. Nonetheless, as long as the regulation stands, it is still within the realm of possibility for the BIR to strictly apply the RR.