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Rulings appealed, rulings revoked

Philippine tax laws are oftentimes said to be some of the most complex in the region. For
one, our Tax Code, with its 292 sections, poses a great challenge even to seasoned tax
lawyers. Furthermore, the Bureau of Internal Revenue (BIR) releases countless
administrative issuances that are amended every now and then. These factors expose
our tax laws to different interpretations, allowing some parties to construe its provisions
in a way that is favorable to them.
The Commissioner of Internal Revenue (CIR) is vested with the power to interpret tax
laws in the form of tax rulings. BIR rulings are issued in response to a specific request
filed by a taxpayer. Normally, taxpayers requesting for a confirmatory ruling expect, to a
reasonable extent, a favorable response from the BIR. But what if the CIR does
otherwise and issues an adverse ruling, or one that is contrary to the interpretation of the
taxpayer?
Since the BIR is under the supervision and control of the Department of Finance (DOF),
tax rulings and other BIR issuances are subject to the review of the latter. In fact,
Department Order 23-01 sets forth the guidelines for handling a case wherein the
taxpayer receives an adverse ruling from the BIR. As implemented by Revenue
Administrative Order (RAO) 3-01, taxpayers may seek a DOF review of the ruling within
30 days from the date of receipt of the adverse ruling.
It is important to know, however, that in all cases, an adverse ruling can only be brought
to the attention of the DOF if it is the final adverse decision of the commissioner. This is
in adherence to the principle of exhaustion of administrative remedies.

For the rulings decided by the revenue regional directors, the letter for reconsideration
shall be addressed to the CIR, but filed with the Office of the Assistant Commissioner for
Legal Service (ACIR-LS). On the other hand, adverse rulings decided by the ACIR-LS
should be elevated to the deputy CIR for legal and inspection group. In both cases, the
adverse ruling being contested should be appealed to the reviewing office within 15 days
from receipt thereof.
It is worth emphasizing that RAO 3-01 does apply to rulings that are deemed void ab
initio because they contradict duly issued revenue regulations, revenue memorandum
orders, revenue memorandum rulings and revenue memorandum circulars.
What is interesting is when the BIR revokes a ruling either by implication, by issuing a
new one that is in direct contrast to its precedents, or by making an issuance that
expressly abandons a specific ruling. This is not unusual since the BIR is allowed to
revisit its own interpretation of the tax laws and possibly come up with a totally different
view, which could be triggered by a change in leadership.
Fortunately, the Tax Code provides for the nonretroactivity of rulings. Subject to certain
exceptions, it says that any revocation, modification or reversal of any rulings or circulars
promulgated by the CIR shall not be given retroactive application if it will be prejudicial to
the taxpayers. Thus, rulings and BIR issuances shall remain valid and effective and may
be relied upon by the taxpayers until revoked by the BIR itself or by the DOF.
One fascinating issue in relation to this nonretroactivity of rulings is the effect of the
revocation not because of change in the interpretation of the law, but because of a
deviation from existing guidelines for its issuance. An example of this is when the ruling
of first impression does not bear the signature of the CIR but only of its delegate.
It seems that the remedy discussed under RAO 3-01 does not apply since this can be
categorized as void ab initio for noncompliance with the issuance prescribing the
authorized signatories of BIR rulings. Despite this, it is also correct to say that the
taxpayer is not barred from refiling the request for confirmatory ruling and from giving the
CIR the opportunity to review the merits of its case.
In this case, the rule on nonretroactivity of rulings should not be denied against the
concerned taxpayer simply because of an oversight in the observance of an established
protocol. Undue prejudice will be caused to the unsuspecting taxpayer if it will be made
to pay for any deficiency taxes after relying on an apparently valid ruling.