Wednesday, June 20, 2012

100 tax evasion cases

by: Olivier D. Aznar
Originally Posted Here

You may have read in news reports that as of June 2012, since the start of the Aquino administration, the Bureau of Internal Revenue (BIR) has filed with the Department of Justice (DoJ) a total of more than 100 tax evasion cases worth almost P40 billion. A number of these cases have already been prosecuted by the DoJ at the Court of Tax Appeals (CTA) and some have already been decided.

It appears that the BIR is trying to send a strong message to the public: that the government will consider all available courses of action to take what it believes has been unlawfully withheld from it by taxpayers. Indeed, the filing of more than 100 tax evasion cases with the Justice Department is not trivial.

A tax evasion case is not a plain tax collection suit against the taxpayers. It is a case, criminal in nature, against a taxpayer who pays a reduced amount of tax or no tax at all through fraudulent means. In a tax evasion case, the state of mind of the taxpayer is being tagged by the BIR as "evil", or in "bad faith", or "willful".

Thus, once the case is prosecuted at the CTA, it requires proof beyond reasonable doubt before the CTA convicts the taxpayer to pay a fine and to serve jail time.

So, who goes to jail?

In the case of issues on individual tax returns, the individual himself will be locked up once found guilty.

In one CTA case in 2011, a doctor was found to be at fault beyond reasonable doubt for substantially under-declaring his income, and was sentenced to one year to two years of imprisonment plus fine.

In another CTA case, a business agent was sentenced to jail due to what the CTA termed as "willful blindness" on obligation to file income tax returns.

On the other hand, for corporate tax returns, the BIR targets the authorized officers of the corporation for incarceration.

Just recently, the BIR filed a criminal complaint with the Justice Department against the president and treasurer of a corporation-supermarket for willful attempt to evade or defeat tax, willful failure to file income tax return and to pay tax thereon, and deliberate failure to supply correct and accurate information in its value-added tax return, in violation of Sections 254 and 255 of the 1997 Tax Code, as amended.

In another case, the BIR is pursuing criminal charges against the president and treasurer of a corporation engaged in the business of emission testing for the alleged substantial under declaration of sales of their corporation. Thus, in these examples, the president and treasurer of the corporation, once convicted, would be confined in jail.

Hence, in a tax evasion case, the probability of jail time cannot be disregarded.

The predicament on the part of the taxpayers, however, is on how the BIR determines whether there is indeed a case for tax evasion. Remember that in a tax evasion case, the mind of the taxpayer must be evil or fraudulent.

If there is an error but there is no intention to defraud the government, then there should be no tax evasion case.

The problem is that the BIR obviously cannot read the minds of the taxpayers, and thus, the tax case just depends on the circumstances that are visible to the eyes of the BIR examiners, which could be affected by the magnitude of the alleged tax deficiency or inputs from third party information.

Then, what should a taxpayer do?

First, acquire sufficient tax knowledge. Remember that in the Philippines, we have the general rule that "ignorance of the law excuses no one". So, try to read the relevant provisions of the Tax Code, be aware of the specific tax rules and regulations, attend tax seminars, and regularly coordinate with tax consultants.

Then, apply the tax knowledge to actual practice. For individuals, be sure to thoroughly review the tax returns before filing. For corporations, hire competent tax personnel, have a regular tax compliance review on corporate tax practices -- on its own or through a tax adviser, and have an effective review process before tax returns are filed with the BIR. The above actions are just the basic ones that taxpayers may consider. These are preventive measures to avoid possible disputes with the BIR. Note that the BIR’s sources of information are too wide to prosecute and to convict a taxpayer; but there is nothing to be anxious about if the taxpayer knows that he/it is in fact compliant with the tax rules. The number of tax evasion cases is rapidly increasing. Definitely, taxpayers are hoping that these are not being pursued by the BIR as a means to harass them, and that these are the result of an intelligent, thorough, and valid tax assessment.

More than 100 tax evasion cases have been filed with the DoJ since the start of the Aquino administration; and certainly, no taxpayer would want to add to that count.

(For more information on Philippine Taxes and Tax Evasion, click here.)