A Special Power of Attorney (SPA) for Tax Compromise Applications is a deceptively simple document that, in Philippine tax practice, can make or break an entire settlement strategy. It is where the Civil Code rules on agency, the National Internal Revenue Code (NIRC), BIR procedural rules, and case law on compromise intersect.
Below is a comprehensive discussion in the Philippine context.
I. Context: Why a Special Power of Attorney Matters in Tax Compromises
A tax compromise is an agreement between the taxpayer and the government (through the BIR) to settle a tax liability for less than the full amount, usually on specific legal grounds. It is not a mere extension or rearrangement of payment; it is a mutual concession.
In practice, many taxpayers act through lawyers, accountants, or other representatives in:
- Responding to assessments
- Negotiating with the BIR
- Filing a compromise application or offer of compromise
- Accepting the terms and conditions of settlement
Because a tax compromise involves waiving rights and reducing or altering obligations, Philippine law treats it as an act that requires special authority. This special authority is embodied in a Special Power of Attorney.
II. Legal Framework
A. Civil Code on Agency and Compromise
Under the Civil Code, an agent (attorney-in-fact) generally needs special authority to perform certain acts, among them:
- To compromise a claim or a right
- To submit disputes to arbitration
- To waive rights, such as the right to appeal or contest further
This comes from the provision that lists acts that cannot be carried out by an agent without a special power of attorney (commonly associated with Article 1878 of the Civil Code and related provisions on agency).
Key points:
- Compromise is a special act. It is not presumed within a general mandate “to represent me in all my affairs.”
- Authority must be explicit, not implied. Wording like “to compromise, settle, and enter into any agreement respecting my tax liabilities” is safer than vague wording.
- Acts done without special authority may be unenforceable against the principal unless ratified.
B. National Internal Revenue Code (NIRC)
The NIRC, particularly the section on compromise of tax liabilities (commonly known as Section 204), authorizes the Commissioner of Internal Revenue to compromise a tax liability under specific grounds, usually:
- Doubtful validity of the assessment or claim
- Financial incapacity of the taxpayer to pay
Although the NIRC does not spell out the SPA format, it assumes that whoever negotiates and signs documents on behalf of a taxpayer must be duly authorized. In BIR operations, that due authorization is evidenced by:
- A Board Resolution/Secretary’s Certificate (for corporations), and
- A Special Power of Attorney if the representative is not an officer acting in his/her own corporate capacity or if the act is a compromise.
C. BIR Regulations and Administrative Practice
BIR issuances (Revenue Memorandum Orders, Revenue Regulations, circulars) on compromise usually require:
- A written request or application for compromise
- Supporting financial documents (for financial incapacity)
- Documents establishing authority to represent the taxpayer – usually an SPA or corporate resolution
In practice, BIR examiners, lawyers, and the National or Regional Evaluation Boards are strict about:
- Proper and sufficient authority of the signatory
- Correct designation of the representative as attorney-in-fact
- Scope of authority (e.g., to sign compromise forms, accept conditions, and pay the compromise amount)
D. Notarial Practice and Evidence
Because compromise is a serious disposition of rights and obligations, the SPA is almost always required to be:
- In writing, and
- Notarized (or consularized, if executed abroad)
A notarized SPA:
- Converts the document into a public document, with increased evidentiary weight in courts and before the BIR.
- Facilitates its acceptance by the BIR, courts, and other agencies.
If executed outside the Philippines, the SPA must ordinarily be:
- Consularized before a Philippine consulate, or
- Apostilled under the Apostille Convention, if applicable.
III. Nature and Purpose of the SPA for Tax Compromise
A Special Power of Attorney for Tax Compromise Applications is a written, notarized authorization by a taxpayer (principal) empowering another person (attorney-in-fact) to:
- Deal with the BIR on tax assessments or liabilities
- Negotiate and apply for compromise
- Sign and submit compromise applications and related forms
- Accept compromise terms and undertake payment
- Perform other ancillary acts (file protests, sign waivers, receive notices, etc.), depending on drafting
It serves two parallel roles:
- Civil law perspective – demonstrates that the representative has special authority to compromise or waive rights; and
- Administrative law perspective – satisfies BIR’s procedural requirements, allowing the representative to transact validly with the BIR.
IV. When is an SPA Required in Tax Compromise Situations?
An SPA is generally required when:
- The taxpayer will not personally sign the compromise application or related documents.
- The representative will accept or propose specific compromise terms (e.g., reduced amount, staggered payment, waiver of defenses).
- The representative will withdraw protests or appeals, or will waive rights such as the right to further contest an assessment.
Scenarios:
- Individual taxpayer: If the individual meets with the BIR and signs everything personally, an SPA is usually unnecessary. Once a lawyer or accountant negotiates and signs on their behalf, an SPA is almost always demanded.
- Corporation: A compromise is a major corporate act. The corporation usually needs a Board Resolution authorizing an officer to compromise, and if that officer delegates to outside counsel or adviser, an SPA from the corporation is needed.
- Estate or trust: Executors, administrators, or trustees who authorize counsel to compromise will issue an SPA alongside proof of their own authority (e.g., Letters of Administration).
V. Who May Be Appointed as Attorney-in-Fact?
Any person with legal capacity may be appointed, such as:
- Lawyers (counsel of record or retained lawyers)
- Certified public accountants (CPAs) or tax consultants
- Family members (spouse, siblings, etc.)
- Corporate officers or employees, in the case of corporate taxpayers
The critical point is not who they are, but whether they have properly documented authority to enter into a compromise.
VI. Essential Contents of a Tax Compromise SPA
While there is no single mandatory template, Philippine practice and BIR expectations have converged around certain essential elements.
A. Heading and Title
The document is typically titled along the lines of:
SPECIAL POWER OF ATTORNEY
(For Tax Compromise Application)
This signals to the BIR reviewer what the document is for.
B. Parties and Identification
The SPA should clearly identify:
For entities (corporations, partnerships):
- Corporate name
- SEC registration details (optional but helpful)
- Principal office address
- Name, position, and authority of the officer signing (e.g., President, Managing Partner)
C. Recitals
Recitals (whereas clauses) typically:
Describe the BIR case, such as:
- Type of tax (income, VAT, excise, percentage tax, etc.)
- Taxable year(s) involved
- Assessment Notice number, docket number, or case reference
State that the taxpayer intends to apply for compromise of its tax liabilities based on specific grounds (doubtful validity and/or financial incapacity).
This anchors the authority on a concrete dispute or case, though it can be drafted broadly to cover related liabilities.
D. Grant of Special Authority
This is the heart of the SPA. The authority is usually phrased in very explicit terms, such as empowering the attorney-in-fact:
To represent the principal before the BIR and other government agencies in relation to specified tax assessments or liabilities;
To negotiate, propose, and accept a compromise of tax liabilities, including:
- Signing compromise offers, computations, and agreements
- Proposing and accepting reduced amounts or settlement options
To sign and file:
- Compromise applications
- Protests, replies, and position papers
- Petitions or motions related to the compromise
To waive or withdraw:
- Protests, administrative appeals, or further remedies, if part of the compromise terms
- Certain rights (e.g., contesting the assessment beyond the compromise agreement)
To receive documents and refunds, if any, such as:
- Notices of approval or denial of compromise
- Official receipts or proof of payment
To pay the agreed compromise amount on behalf of the principal, as necessary.
Because compromise involves waiver and finality, it is safest to spell out each of these acts rather than rely on broad catch-all phrases.
E. Scope and Limitations
Best practice is to define:
- Whether the SPA applies only to specific assessments/years, or
- Also covers related or subsequent assessments arising from the same audit.
Some SPAs also set monetary limits, e.g.:
Provided that the attorney-in-fact shall not accept any compromise settlement that requires the payment of more than [specific amount] without the principal’s prior written consent.
This is a matter of internal control but can be useful if the principal wants tighter control over the negotiation.
F. Duration and Revocation
The SPA may state:
- An effective date (usually upon signing and notarization);
- That it remains effective until revoked in writing, or until a specific event (e.g., final resolution of the BIR case).
While a general rule is that a principal can revoke an SPA at any time, clear drafting helps avoid conflicts, especially if the negotiation extends over several years.
G. Signatures, Notarization, and Acknowledgment
The SPA should:
- Be signed by the principal (or authorized signatory of a corporation/estate), and
- Properly acknowledged before a notary public, with a complete notarial acknowledgment block.
For corporate taxpayers, the notary will also typically require:
- A Board Resolution or Secretary’s Certificate confirming the authority of the signatory to execute the SPA on behalf of the corporation.
If executed abroad, the SPA must be consularized or apostilled before use in the Philippines.
VII. Special Considerations for Different Types of Taxpayers
A. Individual Taxpayers
Key concerns:
- Whether the liability relates to separate or conjugal property
- Whether both spouses should sign if the tax liability arises from a joint return or conjugal business
Practically:
- If the BIR assessment names only one spouse, that spouse is usually treated as the taxpayer.
- If both spouses are involved, it is safer to have both of them either sign the SPA or issue separate SPAs.
B. Married Taxpayers and Conjugal Property
If the compromise involves a liability that may be enforced against conjugal property (such as business income arising during marriage), caution dictates:
- Joint participation of both spouses in authorizing any compromise which could affect conjugal assets;
- Express acknowledgment that the compromise may involve settlement of liabilities enforceable against conjugal property.
C. Corporations
Formalities are more rigid. Typically, the BIR will require:
Board Resolution or Secretary’s Certificate authorizing a specific officer (e.g., President, Treasurer) to:
- Represent the corporation before the BIR;
- File a compromise application;
- Sign compromise agreements.
If that officer appoints a lawyer or advisor to do these acts, the corporation issues an SPA signed by that authorized officer, referencing the Board Resolution.
The SPA and board resolution should:
- Identify the specific assessments or tax types;
- State expressly the authority to compromise and to accept settlement terms.
D. Partnerships and Joint Ventures
For registered partnerships (general or limited):
- The managing partner typically executes the SPA.
- A partnership resolution may be used to back up the SPA, especially when the tax assessment is substantial.
For joint ventures (e.g., construction JVs), the SPA may require signatures from all co-venturers or the designated managing venturer, depending on their agreement.
E. Estates and Trusts
The representative (executor, administrator, or trustee) must show:
- Legal authority (Letters Testamentary/Administration, court order, trust instrument)
- SPA assigning to counsel the authority to compromise and settle tax liabilities, often including estate tax assessments.
VIII. SPA in Administrative vs Judicial Tax Compromise
A. Administrative Level (BIR)
At the BIR administrative level, the SPA is central. It:
- Authorizes the representative to appear in conferences, submit documents, and sign the compromise offer;
- Validates any acceptance of compromise terms communicated by the representative.
Without a proper SPA, the BIR may:
- Refuse to process the compromise application; or
- Require the taxpayer to ratify any acts already performed by the representative.
B. Judicial Level (Court of Tax Appeals and Regular Courts)
When a tax case reaches the Court of Tax Appeals (CTA) or even the Supreme Court, additional rules apply:
- Lawyers are officers of the court, but they still need special authority from the client to compromise.
- Philippine jurisprudence is consistent that a lawyer cannot compromise the client’s cause without special authority, and such compromise is not binding on the client unless ratified.
At this stage:
- The SPA (or board resolution in the case of corporations) must be sufficient to cover judicial compromises, whether reached in mediation, judicial dispute resolution, or directly between the parties with court approval.
- Courts will often require proof of authority (SPA, resolutions) before approving a compromise agreement.
IX. Validity, Defects, and Ratification of the SPA
A. Consequences of Defective or Missing SPA
If a purported compromise is signed by a representative without a valid SPA or special authority, possible consequences include:
- The compromise may be void or unenforceable as against the taxpayer;
- The BIR could insist that the taxpayer ratify the compromise;
- The taxpayer may later question the compromise, claiming lack of authority of the representative.
The risk cuts both ways:
- The government may face difficulty enforcing a compromise agreement against a taxpayer who did not properly authorize it;
- The taxpayer may face complications in asserting that the compromise is binding and final if the BIR later disputes the representative’s authority.
B. Ratification
Under the Civil Code, ratification can cure a lack of authority if:
- The principal, knowing the facts, expressly confirms the unauthorized act; or
- The principal accepts benefits under the compromise (e.g., enjoys reduced liability and does not object within a reasonable time).
Ratification can be:
- Express, via a subsequent SPA or written confirmation; or
- Implied, through acts inconsistent with repudiation.
However, relying on ratification is risky in tax matters; best practice is to have a proper SPA from the outset.
C. Revocation of SPA
Since agency is generally revocable, the principal can revoke the SPA by:
- A later written revocation, preferably notarized;
- Issuing a new SPA that explicitly revokes or supersedes previous appointments.
For revocation to be effective against the BIR or courts:
- The revocation must be communicated to them;
- Otherwise, the BIR may continue to rely in good faith on the authority of the previous representative.
X. Practical Drafting Tips and Common Pitfalls
A. Drafting Tips
Be specific about authority
- Use clear language: “to compromise,” “to negotiate and accept compromise offers,” “to withdraw protests,” “to waive rights,” etc.
Identify the tax matters involved
- Cite assessment numbers, taxable years, docket numbers, and tax types (income, VAT, etc.).
Include standard incidental powers
- To file, sign, submit documents;
- To receive BIR communications;
- To pay compromise amounts.
Attach supporting documents
- Board resolutions, corporate certificates, proof of authority of signatories.
Provide for duration and revocation
- Clarify whether the SPA is meant only for specific cases and how it can be revoked.
Coordinate with BIR templates and practice
- Where BIR offices have preferred formats, align with them while preserving all essential powers.
B. Common Pitfalls
Generic or vague authority
- SPAs that merely state “to represent me before the BIR” without express authority “to compromise” may be challenged or rejected.
Lack of notarization or improper notarization
- Unnotarized SPAs may be viewed as incomplete or unreliable in official proceedings.
Missing corporate approvals
- For corporations, an SPA signed by an officer without board authority can be questioned.
Outdated case references
- Using outdated assessment numbers or references can cause confusion and delays.
Not updating the SPA after change in circumstances
- Change in taxpayer’s name, officers, or structure may necessitate updated SPAs.
Failure to expressly authorize waiver of appeal rights
- If the compromise requires withdrawal of pending protests or appeals, the SPA should clearly authorize that.
XI. Interaction with Professional Responsibility and Ethics
For lawyers, a tax compromise often intersects with:
- Duty to obtain client consent before settling;
- Duty to explain the consequences of compromise;
- Obligation not to exceed authority granted by SPA or board resolutions.
For CPAs and tax advisers, professional standards similarly require:
- Acting only under proper authority;
- Accurately communicating the scope of their authority to the BIR;
- Avoiding misrepresentation of their capacity to compromise.
XII. Conclusion
In Philippine tax practice, the Special Power of Attorney for Tax Compromise Applications is not a mere formality. It is:
- The legal backbone that validates the actions of representatives before the BIR and courts;
- The bridge between the Civil Code’s rules on agency and the NIRC’s mechanisms for tax compromise;
- A key risk-management tool for both taxpayers and their advisers.
A well-drafted SPA:
- Clearly identifies the parties and the tax matters involved;
- Explicitly grants the authority to compromise and to waive rights as necessary;
- Complies with notarial and corporate formalities; and
- Reduces disputes over whether the representative’s actions are binding on the taxpayer.
Given the high financial stakes and the finality of tax compromises, investing care in the content, formalities, and timing of the SPA is essential. Taxpayers and practitioners should treat it as a central document in any tax compromise strategy, not as an afterthought.
(This discussion is for general informational purposes only and is not a substitute for legal advice on specific cases.)