BIR’s best evidence obtainable

The Authority of Best Evidence Obtainable in Tax Assessment

As tax authorities, it is crucial that we understand the legal framework governing our assessment powers. This blog post delves into the role of best evidence obtainable in determining tax liability, as provided by Section 6(B) of the National Internal Revenue Code of 1997.

Legal Basis for Best Evidence Obtainable

Section 6(B) of the Tax Code states that when a report required by law as a basis for the assessment of any national internal revenue tax is not forthcoming within the time fixed by laws or rules and regulations, or when there is reason to believe that any such report is false, incomplete, or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable. This provision empowers the Bureau of Internal Revenue (BIR) to determine tax liability even if the taxpayer fails to cooperate or submit proper records.

Limitations on Best Evidence Obtainable

However, this power is not unlimited. The BIR may exercise this rule only when its use is clearly justified by the facts and must always comply with the law and due process. In fact, Revenue Memorandum Circular (RMC) 23-00 underscores that an assessment based on the best evidence obtainable is justified only when any of the grounds provided by law is clearly established.

Meaning of Best Evidence Obtainable

The phrase best evidence obtainable does not mean any evidence that is convenient to the BIR. Rather, it refers to the best evidence reasonably available under the circumstances after the BIR has exhausted ordinary means of examination. The absence of records or the presence of incomplete reports does not automatically validate the BIR's making any estimate on the proper taxes to be assessed.

Factual Support for Assessments

Assessments must always be grounded on facts and law. They should not be based on mere presumptions, even if such presumptions appear reasonable or logical. To pass judicial scrutiny, an assessment must be supported by substantial evidence. The presumption of correctness given to tax assessments is only prima facie. It cannot be built upon another presumption.

Cautionary Tale Limitations on Best Evidence Obtainable

In one case, the Court of Tax Appeals (CTA) en banc ruled that the BIR cannot anchor the validity of an assessment on account of the best evidence obtainable rule where the circumstances for its application are not present. RMC 23-00 provides only two instances when the rule may be invoked when records are not forthcoming, or when submitted reports are false, incomplete, or erroneous.

Danger of Overreliance on Best Evidence Obtainable

The danger in overreliance on best evidence obtainable lies in the temptation to equate noncooperation or imperfect documentation with automatic deficiency. The law authorizes estimation only when the statutory conditions are clearly established. Even then, the estimate must approximate reality as closely as possible.

Due Process Considerations

Moreover, due process considerations remain paramount. The taxpayer must be informed of the factual and legal bases of the assessment and given the opportunity to rebut the evidence relied upon. If the taxpayer is able to present sufficient and competent evidence to dispute the estimate, such evidence must be fairly evaluated.

Conclusion Best Evidence Obtainable as a Practical Tool

The best evidence obtainable is a practical tool meant to protect government revenue when direct records are unavailable. However, it is not a substitute for proper investigation and not a license for guesswork. The presumption of correctness attached to tax assessments is not absolute. It can be overturned when there is no substantial factual and legal basis.

As we move forward in transforming our approach to tax assessment, it is essential that we exercise caution in applying this rule. Every assessment must rest on law and verified facts, not on assumptions. The credibility of tax administration depends not only on effective collection but also on fairness, accuracy, and respect for legal standards.

By Xela Leona D. Laqui, Associate at Mata-Perez, Tamayo & Francisco (MTF Counsel).

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CEO / Co-Founder

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