CASE: CIR vs.

The Stanley Work Sales

DOCTRINE: A statute of limitations on the assessment and collection of internal revenue taxes was
adopted to serve a purpose that would benefit both the taxpayer and the government. It precisely
intends to protect the taxpayer from prolonged and unreasonable assessment and investigation by the
Bureau of Internal Revenue (BIR)

FACTS: Petitioner is the duly appointed officer of the Bureau of Internal Revenue (BIR) mandated to
exercise the powers and perform the duties of his office including, among others, the power to decide
disputed assessments, refunds of internal revenue taxes, fees and other... charges, penalties imposed in
relation thereto, or other matters arising under the National Internal Revenue Code. Respondent, on the
other hand, is a domestic corporation duly organized and existing under Philippine laws and duly
registered with the Securities and Exchange Commission. Its office address is at the 5th Floor, Pan Pacific
Hotel, Adriatico Street corner Gen. Malvar Street, Manila.

On January 1, 1979, respondent and Stanley Works Agencies (Pte.) Limited, Singapore (Stanley
Singapore) entered into a Representation Agreement. Under such agreement, Stanley-Singapore
appointed respondent as its sole agent for the selling of its products within the Philippines, on an indent
basis.

On April 16, 1990, respondent filed with the BIR its Annual Income Tax Return for taxable year 1989.

On March 19, 1993, pursuant to Letter of Authority dated July 3, 1992, the BIR issued against
respondent a Pre-Assessment Notice (PAN) No. 002523 for 1989 deficiency income tax.

On March 29, 1993, respondent received its copy of the PAN.

On April 12, 1993, petitioner, through OTC Domingo C. Paz of Revenue Region No. 4B-2 of Makati, issued
to respondent Assessment Notice No. 002523-89-6014 for deficiency income tax for taxable year 1989.
The Notice was sent on April 15, 1993 and respondent received it on April 21, 1993.

On May 19, 1993, respondent, through its external auditors Punongbayan & Araullo, filed a protest
letter and requested reconsideration and cancellation of the assessment.

On November 16, 1993, a certain Mr. John Ang, on behalf of respondent, executed a "Waiver of the
Defense of Prescription under the Statute of Limitations of the National Internal Revenue Code"
(Waiver). Under the terms of the Waiver, respondent waived its right to raise the... defense of
prescription under Section 223 of the NIRC of 1977 insofar as the assessment and collection of any
deficiency taxes for the year ended December 31, 1989, but not after June 30, 1994. The Waiver was not
signed by petitioner or any of his authorized representatives and did not state the date of acceptance as
prescribed under Revenue Memorandum Order No. 20-90. Respondent did not execute any other
Waiver or similar document before or after the expiration of the November 16, 1993 Waiver on June 30,
1994.

On January 6, 1994, respondent, through its external auditors Punongbayan & Araullo, wrote a letter to
the Chief of the BIR Appellate Division and requested the latter to take cognizance of respondent's
protest/request for reconsideration, asserting that the dispute involved... pure questions of law. On
February 22, 1994, respondent sent a similar letter to the Revenue District Officer (RDO) of BIR Revenue
Region No. 4B-2 and asked for the transmittal of the entire docket of the subject tax assessment to the
BIR Appellate Division.

On September 30, 1994, respondent, through its external auditors Punongbayan & Araullo, submitted a
Supplemental Memorandum on its protest to the BIR Revenue Region No. 4B-2.

On September 20, 1995, respondent, through its external auditors Punongbayan & Araullo, filed a
Supplemental Memorandum with the BIR Appellate Division.

On November 29, 2001, the Chief of the BIR Appellate Division sent a letter to respondent requiring it to
submit duly authenticated financial statements for the worldwide operations of Stanley Works and a
sworn declaration from the home office on the allocated share of... respondent as a "branch office."

On December 11, 2001, respondent, through its counsel, the Quisumbing Torres Law Offices, wrote the
BIR Appellate Division and asked for an extension of period within which to comply with the request for
submission of documents. On January 15, 2002, respondent sent a request for... an extension of period
to submit a Supplemental Memorandum.

On March 4, 2002, respondent, through its counsel, the Quisumbing Torres Law Offices, submitted a
Supplemental Memorandum alleging, inter alia, that petitioner's right to collect the alleged deficiency
income tax has prescribed.

On March 22, 2004, petitioner rendered a Decision denying respondent's request for reconsideration
and ordering respondent to pay the deficiency income tax plus interest that may have accrued.

ISSUE: Whether the period to collect the assessed deficiency income taxes has not yet prescribed due to
the respondent’s execution of the Waiver of the Statute of Limitations.

RULING: No. The statute of limitations on the right to assess and collect a tax means that once the
period established by law for the assessment and collection of taxes has lapsed, the government’s
corresponding right to enforce that action is barred by provision of law.

The period to assess and collect deficiency taxes may be extended only upon a written agreement
between the CIR and the taxpayer prior to the expiration of the three-year prescribed period in
accordance with Section 222(b) of the NIRC.

In Philippine Journalist, Inc. v. Commissioner of Internal Revenue, the Court categorically stated that a
Waiver must strictly conform to RMO No. 20-90. The mandatory nature of the requirements set forth in
RMO No. 20-90, as ruled upon by this Court, was recognized by the BIR itself in the latter’s subsequent
issuances, namely, Revenue Memorandum Circular (RMC) Nos. 62005 and 29-2012. Thus, the BIR
cannot claim the benefits of extending the period to collect the deficiency tax as a consequence of the
Waiver when, in truth it was the BIR’s inaction which is the proximate cause of the defects of the
Waiver. The BIR has the burden of ensuring compliance with the requirements of RMO No. 20-90, as
they have the burden of securing the right of the government to assess and collect tax deficiencies. This
right would prescribe absent any showing of a valid extension of the period set by the law.

To emphasize, the Waiver was not a unilateral act of the taxpayer; hence, the BIR must act on it, either
by conforming to or by disagreeing with the extension. A waiver of the statute of limitations, whether on
assessment or collection, should not be construed as a waiver of the right to invoke the defense of
prescription but, rather, an agreement between the taxpayer and the BIR to extend the period to a date
certain, within which the latter could still assess or collect taxes due. The waiver does not imply that the
taxpayer relinquishes the right to invoke prescription unequivocally.

Although the court recognize that the power of taxation is deemed inherent in order to support the
government, tax provisions are not all about raising revenue. Our legislature has provided safeguards
and remedies beneficial to both the taxpayer, to protect against abuse; and the government, to
promptly act for the availability and recovery of revenues. A statute of limitations on the assessment
and collection of internal revenue taxes was adopted to serve a purpose that would benefit both the
taxpayer and the government.