Rules on tax compromises
By Benedicta Du-Baladad
Posted on March 17, 2017 [ bworldonline.com ]
Can the President compromise taxes? NO. The Tax Code vests in the Commissioner of Internal Revenue (the Bureau of Internal Revenue Commissioner) the power and the authority to compromise tax liabilities. He alone can compromise taxes. Not the President. Not the Secretary of Finance.
In acts resulting in violations of the Tax Code, there are two aspects of liability involved -- the criminal aspect, and the civil aspect. These are two separate liabilities. One is not dependent on the other. A conviction of one does not imply a conviction of the other, neither is the acquittal of one a bar to the filing of a case on the other.
Thus, when we talk of tax compromise, we talk of two separate liabilities to compromise. And these are governed by separate and different rules.
All criminal violations of the Tax Code may be compromised by the Commissioner, with the exception of two instances: (a) those already filed in Court, and (b) those involving fraudulent acts. (Section 204, Tax Code)
Fraud is a willful intent to evade taxes. It consists of deception, intentional wrongdoing, willfully and deliberately done or resorted to in order to evade the payment of taxes. Fraud is a serious charge and therefore it must be actual, proven by clear and convincing evidence and never presumed.
Using fake stamps to evade the payment of excise taxes, if proven, is a fraudulent act that is beyond the authority of the BIR Commissioner to compromise. A mere signal to compromise a criminal liability for tax evasion will destroy order and discipline in the payment of taxes.
Civil liability, on the other hand, may be compromised but only on two instances -- when the assessment is of doubtful validity or when the taxpayer is financially incapable to pay the liability. Civil liability pertains to the amount of unpaid taxes plus surcharges and penalty interest that runs from 20% to 40% annually, in case of delinquency.
While the Tax Code allows civil compromises, there is a limitation as to how much the Commissioner can compromise. If due to doubtful validity, the minimum compromise rate is 40% of the basic tax assessed. If due to financial incapacity of the taxpayer, it is 10%.
Examples of doubtful validity are jeopardy (or harassment) assessments issued without the benefit of audit, or arbitrary assessments issued without any factual and legal basis. Examples of financial incapacity, on the other hand, are bankruptcy or the business has ceased to operate, or when there is impairment of capital by at least 50%, or when the taxpayer has no other source of income.
Civil cases may be compromised lower than the above rates but the approval of a collegial Board called the National Evaluation Board composed of the four deputy commissioners and the Commissioner is required. The same is true for all compromises where the basic tax involved exceeds P1 million.
Because compromises effectively condones, waives the collection of taxes, or gives away revenues belonging to the government, any tax compromise granted not in accordance with these rules is a ground for graft and corruption or even plunder.
In practice, notwithstanding the authority to compromise granted to the Commissioner, applications for compromises undergo a very strict and rigid process involving many layers of technical evaluation and approval. It is a long and tedious process, understandably, because it involves giving away government funds.
Thus, when an act constitutes a clear case of tax evasion, done willfully with intent to evade the payment of taxes, and the liability is clearly established, there is no room for tax compromise, both on the criminal aspect and the civil aspect. The taxpayer must be prosecuted and brought to court, and the amount due the government must be collected in full inclusive of penalties.
In the case of corporations, the penalty shall be imposed on the president, general manager, branch manager, treasurer, officer-in-charge, and the employees responsible for the violation. Likewise, any person who wilfully aids or abets in the commission of tax evasion shall be liable in the same manner.
The opinions expressed here are the views of the writer and do not necessarily reflect the views and opinions of FINEX.
Atty. Benedicta Du-Baladad is the managing partner and CEO of Du-Baladad and Associates (BDB Law) and president of FINEX.
Revenue Regulations (RRs) are issuances signed by the Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, that specify, prescribe or define rules and regulations for the effective enforcement of the provisions of the National Internal Revenue Code (NIRC) and related statutes
Revenue Memorandum Orders (RMOs) are issuances that provide directives or instructions; prescribe guidelines; and outline processes, operations, activities, workflows, methods and procedures necessary in the implementation of stated policies, goals, objectives, plans and programs of the Bureau in all areas of operations, except auditing.
Revenue Memorandum Rulings (RMRs) are rulings, opinions and interpretations of the Commissioner of Internal Revenue with respect to the provisions of the Tax Code and other tax laws, as applied to a specific set of facts, with or without established precedents, and which the Commissioner may issue from time to time for the purpose of providing taxpayers guidance on the tax consequences in specific situations. BIR Rulings, therefore, cannot contravene duly issued RMRs; otherwise, the Rulings are null and void ab initio
Revenue Memorandum Circular (RMCs) are issuances that publish pertinent and applicable portions, as well as amplifications, of laws, rules, regulations and precedents issued by the BIR and other agencies/offices.
Revenue Bulletins (RB) refer to periodic issuances, notices and official announcements of the Commissioner of Internal Revenue that consolidate the Bureau of Internal Revenue's position on certain specific issues of law or administration in relation to the provisions of the Tax Code, relevant tax laws and other issuances for the guidance of the public.
BIR Rulings are official position of the Bureau to queries raised by taxpayers and other stakeholders relative to clarification and interpretation of tax laws.