THE Supreme Court (SC) has directed the Court of Tax Appeals (CTA) to determine the civil liability for unpaid taxes of a private contractor from Palawan in relation to the projects funded by the Malampaya funds.
In an 11-page decision penned by Associate Justice Mario V. Lopez, the Court’s Second Division granted the petition filed by the government seeking the reversal of the rulings of the CTA on June 9, 2022, and November 4, 2022. In these the CTA found no civil liability on the part of Rebecca S. Tiotangco, owner of Anilos Trading and Construction, despite finding her guilty of the criminal offense for tax evasion.
Citing the lack of a valid assessment, the CTA refused to impose civil liability on Tiotangco for unpaid taxes amounting to about P22 million despite the finding of guilt in the criminal case.
According to the CTA, the failure of the Bureau of Internal Revenue (BIR) to prove that Tiotangco received the assessment notices was tantamount to violating her right to due process, which would invalidate the assessment.
Under Section 205 of the 1997 Tax Code, a formal assessment is required to award civil liability in criminal cases. Thus, the tax appeals court said that without a valid assessment, there is no basis for the CTA to rule on (Tiotangco’s) civil liability.
However, the SC ruled that a valid assessment for deficiency taxes is not prerequisite for collecting the taxpayer-accused’s civil liability for unpaid taxes in the criminal prosecution for tax law violations.
Citing its recent ruling in People v. Mendez, the SC clarified that with the advent of Republic Act (RA) 9282 (An Act Expanding the Jurisdiction of the CTA), a formal assessment is no longer a condition precedent to the imposition of civil liability for unpaid taxes in relation to the criminal tax case.
It added that Section 7 (b) (1) of RA 9282 gives the CTA “exclusive original jurisdiction” over all criminal offenses from violations of all tax-related laws.
The said provision further states that “the criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with, and jointly determined in the same proceeding by the CTA, the filing of the criminal action being deemed to necessarily carry with it the filing of the civil action.”
The High Tribunal said this provision of RA 9282 “impliedly repealed” Section 205 of the 1997 Tax Code.
“Here, the prosecution did not file a civil action for collection of deficiency taxes apart from the criminal case for violation of Section 255 of the 1997 Tax Code. The criminal action is deemed a collection case. Therefore, a prior assessment is not required for the CTA to rule on Tiotangco’s deficiency tax liability. The amount of unpaid taxes and the corresponding penalties can be determined by competent evidence, other than the formal assessment,” the SC declared.
“Hence, there is a need to remand the case to the CTA Division to determine [Tiotangco’s] civil liability in CTA Criminal Case 0-602 and CTA Criminal Case 0-605 for willful failure to file to supply correct and accurate information in her income tax returns for the taxable years 2010 and 2008,” the SC added.
In a statement issued nearly a decade ago, the Department of Finance (DOF) said the BIR filed on November 9, 2014, a criminal complaint with the Department of Justice against Tiotangco “for Willful Attempt to Evade or Defeat Tax, and Deliberate Failure to Supply Correct and Accurate Information in her Annual Income Tax Returns (ITR) and in her Quarterly Value Added Tax (VAT) Returns, for taxable years 2008 and 2010, all in violation of Sections 254 and 255 of the National Internal Revenue Code of 1997, as amended (Tax Code).” (See https://www.dof.gov.ph/bir-nets-another-malampaya-fund-infrastructure-projects-contractor-and-cpa-lawyer/)
The DOF said “investigation showed that Tiotangco declared in her ITRs for taxable years 2008 and 2010 gross income amounting to only P16.49 million and P20.05 million, respectively.”
“However, a Certification issued by the Provincial Government of Palawan in reply to an access letter sent by the BIR showed that Tiotangco received income payments from the said local government unit amounting to P76.19 million in 2008 and P31.63 million in 2010,” the DOF statement read.
The DOF added that a comparison of Tiotangco’s gross income declaration in her ITRs as against income payments she received from the Provincial Government of Palawan disclosed that she substantially underdeclared her correct taxable income by P59.70 million or by 362 percent in 2008 and by P11.58 million or by 57 percent in 2010.
“As a consequence of her acts and omissions, Tiotangco was assessed an aggregate deficiency tax liability of P82.36 million, inclusive of surcharges and interests, broken down as follows: 2008—P69.14 million [Income Tax—P50.08 million; and VAT—P19.06 million]; and 2010—P13.22 million [Income Tax—P7.56 million; and VAT—P5.66 million],” the DOF said.