The issuance of a Preliminary Assessment Notice is a mandatory requirement

SECTION 228 OF THE TAX CODE 


Section 228 of the Tax Code clearly requires that the taxpayer must first be informed that he is liable for deficiency taxes through the sending of a PAN (Preliminary Assessment Notice). 

It requires that the taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void.

MANDATORY AND SUBSTANTIVE REQUIREMENT

The use of the word "SHALL"in Section 228 of the NIRC indicates that the requirement of informing the taxpayer of the legal and factual bases of the assessment and the decision made against him is mandatory.(Commissioner of Internal Revenue v. Liquigaz Philippines Corp., G.R. Nos. 215534 & 215557, April 18, 2016)

DUE PROCESS

It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived shall be deprived of property without due process of law. In balancing the scales between the power of the State to tax and its inherent right to prosecute perceived transgressors of the law on one side, and the constitutional rights of a citizen to due process of law and the equal protection of laws on the other, the scales must tilt in favor of the individual, for a citizen’s right is amply protected by the Bill of Rights under the Constitution. Thus while taxes are the lifeblood of the government, the power to tax has its limits, in spite of all its plenitude. (Commissioner of Internal Revenue vs. Metro Star Superama, Inc., G.R. No. 185371, December 8, 2010)

The PAN is a part of due process. It gives both the taxpayer and the Commissioner of Internal Revenue the opportunity to settle the case at the earliest possible time without the need for the issuance of a FAN. (Commissioner of Internal Revenue vs. Metro Star Superama, Inc., G.R. No. 185371, December 8, 2010)

CONTENTS OF A VALID PAN (RR 18-2013)

It shall show in detail the facts and the law, rules and regulations, or jurisprudenceon which the proposed assessment is based. 


He must be informed of the facts and the law upon which the assessment is made. The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations — that taxpayers should be able to present their case and adduce supporting evidence. (Commissioner of Internal Revenue vs. Metro Star Superama, Inc., G.R. No. 185371, December 8, 2010)

WHAT IS THE EFFECT IN CASE THE BIR ISSUED THE FAN/FLD IN ADVANCE OR BEFORE THE ISSUANCE OF THE PAN 


The absence of a PAN is fatal to the validity of an assessment. (Direct Container Line Phils., Inc. v. CIR, CTA Case No. 7616, August 4, 2014)

It is clear that the sending of a PAN to taxpayer to inform him of the assessment made is but part of the due process requirement in the issuance of a deficiency tax assessment, the absence of which renders nugatory any assessment made by the tax authorities (Commissioner of Internal Revenue vs. Metro Star Superama, Inc., G.R. No. 185371, December 8, 2010)

In the case of Dionisia D. Pacquiao v. Milabao, it can be inferred that the BIR had no intention of giving the taxpayer to be heard on her arguments against the PAN, if any. Clearly, respondent failed to observe due process when BIR issued the FLD/FAN even before petitioner supposedly receive the PAN. It is worthy to note that the FLD/FAN was issued 2 days before the issuance of PAN (Dionisia D. Pacquiao v. Milabao CTA Case No. 9039, May 30, 2017)

EXCEPTIONS TO THE ISSUANCE OF A PAN (RR 18-2013)

1)   When the finding for any deficiency tax is the result of mathematical error in the computation of the tax appearing on the face of the tax return filed by the taxpayer; or 


2)   When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or 


3)   When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or 


4)   When the excise tax due on excisable articles has not been paid; or 


5)   When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons. 


In the above-cited cases, a Formal Letter of Demand (FLD)/ Final Assessment Notice (FAN) shall be issued outright.