i. Prescriptive Period for Assessment

Prescriptive Period for Assessment

Secs. 203¹ and 222 of the NIRC² provide for a statute of limitations on the assessment and collection of internal revenue taxes, and exceptions therefrom, in order to safeguard the interest of the taxpayer against unreasonable investigation.

Unreasonable investigation contemplates cases where the period for assessment extends indefinitely because this deprives the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time.

Construction of statutory provision on prescription The law on prescription, being a remedial measure, should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer. (Philippine Journalists, Inc. v. CIR, G.R. No. 162852, 16 December 2004)³

Prescriptive Period

As a rule, internal revenue taxes shall be assessed within three years after the last day prescribed by law for filing the return. If the return is filed late, the three-year period is counted from the day it was filed; a return filed early is considered filed on the prescribed last day. (NIRC, Sec. 203)

Note: A return filed before the last day prescribed by law for filing shall be considered as filed on the last day. (NIRC, Sec. 203)⁴

Example: If TP files his/her ITR on April 10, 2021, the government’s right to assess will prescribe on May 17, 2024. When the return was filed BEFORE the due date, then it is considered as filed on the last day.

If TP files his/her ITR on April 20, 2021, the government’s right to assess will prescribe on May 17, 2024. When the return was filed before the extended deadline (May 17), then it is considered as filed on the last day.

Burden of Proof that Return was Filed to Apply 3-Year Prescriptive Period

The taxpayer has the burden to prove that a return had been filed by him in order that the 3-year period can apply. (Republic v. Marsman Development Company, G.R. No. L-18956, 27 April 1972)⁵

Prescription of the government’s right to assess taxes is an affirmative defense. (Taligaman Lumber Co., Inc. v. Collector of Internal Revenue, G.R. No. L-15716, 31 March 1962)⁶

When to Raise the Defense of Prescription

A taxpayer can raise the defense of prescription for the first time on appeal to CTA En Banc, Rule 9, Section 1 of the Rules of Court, as amended by the 2019 Amendments to the Rules of Civil Procedure⁷ provides that if the pleadings and evidence on record show that the claim is barred by prescription, the court must dismiss the claim on the ground of prescription. (Rule 9, Section 1 of the Rules of Court, as amended by the 2019 Amendments to the Rules of Civil Procedure; China Banking Corporation v. CIR, G.R. No. 172509, 4 February 2015⁸)

Requisites in Order That a Return May Be Considered Filed for Purposes of Starting the Running of the Prescriptive Period

• The return must be valid – it must comply substantially with the requirements of the law; and
• The return must be appropriate–It is a return for the particular tax required by law (i.e. income tax return is NOT the equivalent of the VAT return) (Butuan Sawmill, Inc. v. CTA, G.R. No. L-20601, 28 February 1966)⁹

When an Assessment is Deemed Made

An assessment is deemed made when notice to this effect is released, mailed or sent to the taxpayer within the 3-year period. It is not required that the notice be received by the taxpayer within the prescribed period. But the sending of the notice must clearly be proven. (Basilan Estates, Inc. v. CIR, G.R. No. L-22492, 5 September 1967)¹⁰

Example: TP filed his/her ITR on April 15, 2021. The BIR mailed the notice of assessment to TP on April 10, 2024. However, the TP only received the notice on April 20, 2024. In this case, the assessment is deemed made on April 10, 2024, when the notice is mailed to the TP which is within the 3-year period. Hence, the government’s right to assess has not yet prescribed.

If the taxpayer denies having received the assessment, the CIR must then prove by competent evidence that such notice was indeed received by the addressee. The onus probandi has shifted to the BIR to show by contrary evidence that the taxpayer indeed received the assessment. While a mailed letter is deemed received by the addressee in the course of mail, this is merely a disputable presumption, the direct denialof which shifts the burden to the sender to prove that the mailed letter was received by the addressee. (CIR v. GJM Philippines Manufacturing, Inc., G.R. No. 202695, 29 February 2016)¹¹

Computing the Prescriptive Period

For computing the three-year assessment period under NIRC Sec. 203, Section 31 of the Administrative Code¹², not Art. 13 of the Civil Code¹³, governs. A year consists of 12 calendar months. (CIR v. Primetown Property Group, G.R. No. 162155)¹⁴

General Rule:

• Substantial Amendment – An amended return may start a new prescriptive period for assessment if it substantially changes an original return that was insufficient to enable the CIR to determine the tax. Merely increasing a reported net loss does not, by itself, restart the period if the original return was sufficiently complete (CIR v. Phoenix Assurance Co., Ltd., G.R. No. L-19727, 20 May 1965)¹⁵
• Superficial Amendment – The counting of the prescriptive period shall still be the original period (CIR v. Phoenix Assurance Co., Ltd.)

Exception: If the return is sufficiently complete to enable the CIR to intelligently determine the proper amount of the tax to be assessed, the prescriptive period for assessment starts from the filing of the original return (A.L. Ammen Transportation v. Collector, CTA Case No. 540)¹⁶

Note: If a return for a different tax is filed, the effect is as if NO RETURN was filed, and thus, the applicable prescriptive is 10 years from discovery of the omission to file a return, rather than the 3-year prescriptive period (Butuan Sawmill, Inc. v. CTA)¹⁷

Exceptions to the general prescriptive period

• False/fraudulent return or no return – 10-year prescriptive period (NIRC, Sec. 222[a])¹⁸
• Suspension of prescriptive period – CIR is prohibited from assessing or collecting, plus 60 days (NIRC, Sec. 223)¹⁹
• Waiver of prescriptive period (NIRC, Sec. 222[b])²⁰