Monday, December 3, 2012

Effectivity of BIR issuances by: Rachelle Ann C. Baod

TAXPAYERS and practitioners alike were recently bombarded by numerous and controversial rules and regulations from the Bureau of Internal Revenue (BIR). These issuances cover a wide variety of subjects and affect various types of taxpayers.

Most of these issuances did not even go through public hearing. It is more often the rule, not the exception, that taxpayers are caught unaware of the new requirements imposed upon them.

Not surprisingly, most taxpayers are now confused or ambivalent about how to implement the changes brought about by the new issuances.

On top of implementation and operational issues, taxpayers are also not clear as to when the issuances take effect and the periods covered by the issuances.

For instance, Revenue Regulations No. (RR) 14-2012 provided that the regulations shall take effect 15 days following complete publication in a newspaper of general circulation in the Philippines.

The effectivity clause, however, of RR No. 12-2012, Revenue Memorandum Circular (RMC) Nos. 77-2012, 75-2012, 73-2012 and 65-2012 provided that the same shall take effect immediately.

On the other hand, RMC Nos. 76-2012, 74-2012 and 63-2012 merely enjoined all internal revenue officers and other concerned entities or individuals to give such circulars as wide a publicity as possible and did not provide for the date of effectivity.

With these various issuances, the seemingly onerous compliance effort has become even more stringent, taking also into consideration the confusion of the public with regard to the effectivity of BIR issuances.

Before we can ascertain the effectivity of such issuances, determination as to the nature of the issuance is necessary.

Discussions of collateral issues are also important, particularly on whether or not publication is mandatory for an issuance to be valid and enforceable. In addition, if and when the issuances become effective, are these applicable prospectively or retroactively?


The so-called RR, RMC, BIR Ruling, Revenue Memorandum Order (RMO) and Revenue Audit Memorandum Order (RAMO) are the most common issuances of the BIR. These issuances, being administrative in nature, generally have the force and effect of law.


Laws shall take effect 15 days following the completion of their publication either in the Official Gazette or in a newspaper of general circulation in the Philippines, unless it is otherwise provided, pursuant to the New Civil Code (NCC).

In a long line of decisions, the Supreme Court (SC) has enunciated in the landmark case Tanada v Tuvera that publication is necessary in those cases where the legislation itself does not provide for its effectivity date -- for then the date of publication is material for determining its date of effectivity, which is the 15th day following its publication -- but not when the law itself provides for the date when it goes into effect.

The clear object of the law is to give the general public adequate notice of the various laws which are meant to regulate their actions and conduct as citizens. It is a requirement of due process embodied in our Constitution. It is a rule of law that before a person may be bound by law, he must first be officially and specifically informed of its contents.

Without such notice and publication, there would be no basis for the application of the legal maxim ignorantia legis non excusat (ignorance of the law excuses no one from compliance therewith) laid down under Article 3 of the NCC. It would be the height of injustice to punish or otherwise burden a citizen for the transgression of a law of which he had no notice whatsoever, not even a constructive one.

It is worthy to note, however, that administrative issuances, such as those issued by the BIR, may be distinguished according to their nature and substance: legislative and interpretative. The difference is crucial in determining whether or not p ublication is mandatory prior to effectivity.

A legislative rule is in the matter of subordinate legislation, designed to implement primary legislation by providing the details thereof.

An interpretative rule, meanwhile, is designed to provide guidelines to the law which the administrative agency is in charge of enforcing. (BPI Leasing Corp. v. CA, GR No. 127624, Nov. 18, 2003)

In the same way that laws must have the benefit of public hearing, it is generally required that before a legislative rule is adopted there must be notice, hearing and publication.

"There are, however, several exceptions to the requirement of publication. First, an interpretative regulation does not require publication in order to be effective. The applicability of an interpretative regulation needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed. It adds nothing to the law and does not affect the substantial rights of any person. Second, a regulation that is merely internal in nature does not require publication for its effectivity. It seeks to regulate only the personnel of the administrative agency and not the general public. Third, a letter of instruction issued by an administrative agency concerning rules or guidelines to be followed by subordinates in the performance of their duties does not require publication in order to be effective." (ASTEC v ERC, GR No. 192117, Sept. 18, 2012; CIR v Michel J. Lhuillier Pawnshop, Inc.,).


In the case of Commissioner of Internal Revenue (CIR) v. Fortune Tobacco, et al., (21 SCRA 236), the SC nullified an RMC which reclassified certain cigarettes and subjected them to a higher tax rate, holding it invalid for lack of notice, publication and public hearing.

"(T)he doctrine enunciated in Fortune Tobacco, and reiterated in CIR v. Michel J. Lhuillier Pawnshop, Inc., (GR 150497) is that when an administrative rule goes beyond merely providing for the means that can facilitate or render less cumbersome the implementation of the law and substantially increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard and, thereafter, to be duly informed, before the issuance is given the force and effect of law. In Lhuillier and Fortune Tobacco, the Court invalidated the revenue memoranda concerned because the same increased the tax liabilities of the affected taxpayers without affording them due process." (BPI Leasing v. CA)


The principle is well entrenched that statutes, including administrative rules and regulations, operate prospectively, unless the legislative intent to the contrary is manifest by express terms or by necessary implication.

They may, however, be applied retroactively in cases of procedural and interpretative laws, among others.

Any revocation, modification or reversal of any of the rules and regulations promulgated by the BIR or any of the rulings or circulars promulgated by the CIR shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers except in the following cases: (a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the BIR; (b) where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based; or (c) where the taxpayer acted in bad faith (Section 246 of the 1997 Tax Code, as amended).

Hence, in the light of the foregoing, circulars, rulings or other issuances promulgated by the CIR have no retroactive application if such would tantamount to prejudice to the taxpayers.

Conversely, if the same is beneficial to taxpayers, it must be given retroactive application to lighten the taxpayer’s burden.

The power of taxation should be exercised with caution to m inimize injury to the rights of a taxpayer. This has been reiterated and re-emphasized in our laws and vast array of Supreme Court decisions.


To summarize: despite the harshness of implementation, BIR issuances mandating all taxpayers to strictly comply with its provisions still have the force and effect of law.

Taxpayers, however, are not deprived of remedies. The validity and enforceability of BIR issuances may be assailed if proven to be suffering from legal infirmities and are in violation of the clear and categorical provisions of the Constitution and statutes intended to protect the rights vested on the taxpayers.

Source:  Punongbayan and Araullo

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