Tax Digest
Volume 9,
Series 52
Defective Waivers still VALID if Parties are In Pari Delicto

The Supreme Court (SC) in case of CIR vs. Next Mobile, Inc. (G.R. No. 212825 dated December 29, 2015) held that the taxpayer is estopped from questioning the validity of “Waiver of Statute of Limitations” when both parties (taxpayer and the BIR) are equally culpable or guilty or in pari delicto.

The respondent represented by the director of finance executed five (5) waivers of the statute of limitations to extend the prescriptive period of assessment for taxes due from January 1, 2001 to December 31, 2001. The CTA First Division held that the waivers executed by respondents did not validly extend the three (3) year prescriptive period to assess respondent for the deficiency as it was found that the waivers did not properly follow the procedure in accordance with Revenue Memorandum Order (RMO) No. 20-90 and

Revenue Delegation Authority Order (RDAO) No. 05-01. Therefore, the Waivers have no binding effect on the respondent for the following reasons:

  1. Person who signed the waiver lacks notarized written authority from the BOD;
  2. BIR’s date of acceptance were not indicated in the waivers; and
  3. Irregularities in the date of acceptance of the waivers executed.

The case was elevated to the SC questioning whether or not the CIR’s right to assess respondent’s deficiency taxes had already prescribed. The SC finds the petition with merit citing Section 222(b) of the NIRC stating that the period to assess and collect taxes can be extended upon execution of written agreement between the CIR and the taxpayer before the expiration of the three (3) year period, known as a “waiver of statute of limitation” which must faithfully comply with the provision of RMO No. 20-90 and RDAO No. 05-01 for it to be valid and binding.

In various decisions of the Higher Court, it consistently held that when a provision has not been complied it could be a ground for invalidity of the waiver – thus the period to assess will not be extended. However, in this case the SC finds this Waiver, though defective, still valid for the following grounds:

  1. Parties are in pari delicto or “in equal fault,” which connotes that the two parties to a controversy are equally culpable or guilty and they shall have no action against each other.
    In this case, the taxpayer executed five (5) defective waivers and the BIR did not do its duty to ensure that the waiver is duly accomplished in accordance with the regulation. Both parties knew the infirmities of the waivers yet they continued dealing with each other without rectifying the infirmities.
  2. Parties must come to court with clean hands. The respondent should not be allowed to benefit from the flaws in its own Waivers and successfully insist on their invalidity in order to evade its responsibility to pay taxes.
  3. Respondent is estopped from questioning the validity of its Waivers when it repeatedly delivered a waiver which allowed the examiner to rely on them. The taxpayer did not raised any objection against the validity until the BIR issued its assessment; and
  4. The Court also finds the situation suspicious as it is the taxpayer who voluntarily executed the waiver and yet they are questioning its validity. The BIR’s right to collect should not be jeopardized merely because of the mistakes of its officers, especially in cases where the taxpayer is obviously in bad faith.

[G.R. No. 212825; CIR v. Next Mobile, Inc. dated December 7, 2015]
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