Doctrine of self-assessment

Doctrine of self-assessment | Daily Tribune

“Taxes are generally self-assessed as they are initially computed and voluntarily paid by the taxpayer. The government does not have to demand it. If the tax payments are correct, the Bureau of Internal Revenue (BIR) need not make an assessment.”

This is the doctrine of self-assessment laid down by the Supreme Court in SMI-Ed Philippines Technology Inc. vs. Commissioner of Internal Revenue (SMI-Ed case).

The BIR relied on this doctrine to justify collecting an alleged deficiency tax without first issuing a deficiency assessment notice. But when may the BIR properly invoke the doctrine of self-assessment?

In Commissioner of Internal Revenue vs Stradcom Corporation (Stradcom case), the BIR issued a Warrant of Distraint and/or Levy (WDL) and a Warrant of Garnishment (WoG) against Stradcom for taxable year 2011. The BIR claimed that Stradcom’s income tax liabilities were due and demandable based on the doctrine of self-assessment.

Even though Stradcom’s 2011 Annual Income Tax Return (AITR) reflected a taxable loss, the BIR pointed to the “Provision for Income Tax–Current” in Stradcom’s audited financial statements as the basis for a supposed deficiency income tax liability.

Stradcom sought to cancel the WDL and WoG, arguing that the BIR violated its right to due process by bypassing the prescribed assessment procedure. To lift the warrants, Stradcom paid the disputed amount and then filed a claim for refund with the Court of Tax Appeals (CTA). The CTA granted the refund, ruling that Stradcom was denied due process because the BIR failed to follow the required assessment procedure. The CTA en banc affirmed, and the BIR elevated the case to the Supreme Court.

The Supreme Court upheld the CTA and clarified that the doctrine of self-assessment presumes a voluntarily declared and unpaid tax obligation, which was absent in Stradcom’s case.

First, the Tax Code requires a “delinquency” before the BIR may collect through civil remedies. Delinquency refers to the amount of tax due from a taxpayer who failed to pay within the time prescribed, arising from either (1) a self-assessed tax, whether or not a tax return was filed, or (2) a deficiency assessment issued by the BIR which has become final and executory.

Neither situation existed here. Stradcom’s 2011 AITR showed no tax due. A self-assessed tax delinquency presupposes that the taxpayer has acknowledged a tax obligation in their return and failed to pay it on time. When the return reports no tax liability, the doctrine of self-assessment does not give rise to an enforceable obligation.

Second, the BIR’s reliance on the SMI-Ed case was misplaced. That ruling merely states that when a taxpayer correctly declares and pays taxes, no further assessment is necessary. The inverse is equally true: when the correctness of the tax payment is in question — as in the Stradcom case — an assessment must be issued before collection can proceed.

In other words, an assessment remains necessary where the taxpayer has not admitted any tax liability in its return, or where the BIR seeks to collect amounts not reflected therein. Conversely, when the taxpayer has declared a tax liability in the return but fails to pay it, the amount becomes immediately demandable and may be collected through administrative remedies without further assessment.