BIR Ruling

January 31, 1997 Atty. Erwin B. Fernandez 7th Floor, State Condominium I Bldg. 186 Salcedo Street, Legaspi Village City of Makati S i r : This refers to your administrative protest which you filed for and in behalf of your client, SAULOG TRANSIT INC., against the assessment of this Office involving the amount of P2,955,048.18 as deficiency withholding tax on compensation for taxable year 1992, inclusive of increments, and covered by BIR Assessment No. 92-7341 dated August 23, 1994. LexLib After a careful review of the case, this Office has finally ascertained that your client is liable to pay the following deficiency tax assessment, to wit: 1992 Deficiency Withholding Tax On Compensatio n Tax Withheld P1,022,405.52 Less. Remittance 524.531.58 Deficiency Withholding Tax P497,873.94 Add: 25% Surcharge 124,468.48 Interest (4 years) at 20% 497,873.94 Withholding Tax Still Due & Collectible P1,120,216.36 ========== Accordingly, you are requested to urge your client to pay the amount of P1,120,216.36 as deficiency withholding tax on compensation for taxable year 1992, exclusive increments that may still accrue thereon, to the Revenue District Officer, BIR District Office No. 52-Paraaque, within five (5) days from receipt hereof otherwise, this Office will enforce collection through the summary remedies provided by law. This constitute the final decision of this Office on the matter. cdta Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue January 31, 1997 MEMORANDUM FOR: The Commissioner Attn. : Atty . Teresita M . Angeles Technical Assistant, OCIR This refers to your note-instruction dated December 26, 1996, where, in essence, you directed this Office to rule on the propriety (as we as the impropriety) of the proposal to abate the 50% fraud penalty imposed on SAULOG TRANSIT INC. in connection with its 1992 deficiency withholding tax on compensation assessment. LibLex It appears from the records that on August 23, 1994, a demand was made on Saulog Transit Inc. by the Bureau for the payment of the following deficiency withholding tax assessment, viz: 1992 Deficiency Withholding Tax Unremitted Withholding Tax On Compensation P1,020,405.52 Add: 50% Surcharge 510,202.77 Interest 404,034.37 Additional Penalty (Sec. 251 of the Tax Code) 1,020,405.52 Total Amount Due P2,955,048.18 ========== The above assessment eventually culminated in the distraining/seizure of three (3) airconditioned buses owned and operated by herein taxpayer. On September 3, 1996, Saulog Transit Inc. protested the seizure of its buses and requested for a reinvestigation of the case. Conference-hearings were conducted, resulting in the proposed issuance of the following deficiency assessment, to wit: Revised 1992 Deficiency Withholding Tax Assessment on Compensation Total Tax Withheld P1,022,405.52 Less: Amount Remitted 524,531.58 Deficiency Withholding Tax P497,873.94 Add: 25% Surcharge 124,468.46 Interest 466,750.58 Penalty under Sec. 251, Tax Code 497,873.94 Total Amount Due P1,586,966.92 ========== It can be easily detected from the above proposed revised assessment that the 50% fraud penalty was no longer imposed as it was recommended to be abated "for lack of proof of willful neglect to remit on the part of SAULOG TRANSIT, INC.." LLphil (See page 6, Memo-decision of Chief, Legal Division, BIR Regional Office No. 8 Makati City dated November 25, 1996) From the foregoing narration of facts, your office now wants to know whether the proposed abatement of the 50% fraud penalty is sanctioned by law and also by the evidence available on record. RESOLUTION : After a thorough and careful review of the records of the case as well as the existing laws and jurisprudence on the matter, particularly those touching on the issue on penal liabilities of withholding agents, this Office is convinced that the proposed abatement of the above-referred penalty is warranted under the facts and circumstances of the case. In resolving issues similar to the one raised above, this Office always deems it imperative to first lay down the fundamental legal requirements on the imposition of the 50% fraud penalty. Pertinent is the provision of the Tax Code, particularly Section 248 (b), which in essence states that: "If the withholding agent fails to deduct and withhold the tax required by law to be withheld, he shall be liable to pay in addition to the tax required to be deducted and withheld, a surcharge of 50% if the failure is due to willful neglect or with intent to defraud the government." It is submitted that the aforecited provision of the Tax Code would likewise apply if the violation committed by the withholding agent is willful non-remittance of taxes withheld. In a coterie of cases, the Supreme Court has been consistent in its judicial interpretation that to justify the imposition of the 50% fraud penalty, it must be proved by clear and convincing evidence that the withholding agent willfully or fraudulently failed to withhold or remit the tax/es withheld to the government. Having laid down the fundamental legal requirements, this brings us now to a determination of whether or not the herein taxpayer willfully or fraudulently failed to remit the taxes required by law to be remitted to the government. We rule in the negative. Reinvestigation conducted by the Chief, Legal Division of BIR Region No. 8 Makati City, revealed that the taxes were not immediately remitted to the BIR for the reason that the concerned employees did not immediately report for work nor submitted their updated W-4's; that it was only sometime in 1993 when some employees submitted their bio-data when Saulog Transit, Inc. was able to compute the taxes to be remitted; that the taxes withheld from some of the employees awarded back wages in 1992 and whose names are listed in the Withholding Tax Collection List for 1993 were remitted to the BIR in 1993 as reflected in the Annual Return of Income Tax Withheld on Compensation filed by Saulog Transit, Inc. and those whose names are listed in the Withholding Tax Collection List for 1994 were remitted to the BIR in 1994 as reflected in the Annual Return of Income Tax Withheld on Compensation filed by Saulog Transit, Inc. on January 31, 1995; and that it was established that the total amount of taxes withheld by Saulog Transit, Inc. was P1,022,405.52 but what was remitted was only P524,531.58 leaving a deficiency of P497,873.94. LLjur From the foregoing results of reinvestigation, it can be safely assumed that there was an honest and zealous attempt on the part of the taxpayer to comply with the withholding tax requirements but for reasons not entirely of their own making, it failed to successfully do so. Therefore, even in the utmost of tolerance, taxpayer could not be considered to have violated the remittance requirements, willfully or fraudulently. Having put to rest the issue on the propriety of the proposed abatement of the 50% fraud penalty, we would now extend, with your permission, our resolution on the propriety of the imposition of the amount of P497,873.94 as additional penalty under Section 251 of the Tax Code, as amended. Section 251 of the Tax Code provides that any person required to collect, account for and remit any tax imposed by the National Internal Revenue Code who willfully fails to collect such tax, or account for and remit such tax or willfully assists in any manner to evade any such tax or the payment thereof, shall, in addition to other penalties provided for in Title X, Chapter 1 of the Tax Code, be liable to a penalty equal to the amount of the tax not collected, or not accounted for and remitted. A careful scrutiny of the provision above-quoted would at once reveal that the imposition of the above-referred additional penalty is conditioned on the finding that the non-remittance or non-withholding is willful or fraudulent. As previously concluded, the failure of herein taxpayer to completely remit the taxes withheld is not tempered with willful or fraudulent intent. There is therefore, no legal justification for us to impose the additional penalty provided under Section 251 of the Tax Code, as amended. Predicated on all the foregoing discussion of facts, law and jurisprudence, the Legal Service, through its Appellate Division, respectfully submits the following recommendations, to wit: 1. That the 50% fraud penalty imposed against herein taxpayer in connection with its 1992 deficiency withholding tax assessment be abated for want of merit; 2. That the revised 1992 withholding tax assessment proposed by the Chief, Legal Division, BIR Regional Office No. 8 Makati City, be accordingly modified and amended, and the following assessment be issued instead: 1992 Withholding Tax On Compensation Tax Withheld P1,022,405.52 Less: Remittance 524,531.58 Deficiency Withholding Tax P497,873.94 Add: 25% Surcharge 124,468.48 Interest (4 years) at 20% 497,873.94 Withholding Tax Still Due & Collectible P1,120,216.36 =========== 3. That upon payment of the total amount of P1,120,216.36 by herein taxpayer, its 1992 deficiency withholding tax on compensation assessment be considered CLOSED and TERMINATED; and 4. Finally, upon closing and termination of this instant case, the properties (3 buses) which were distrained or seized in favor of the government, as a consequence of the above-referred assessment, be immediately returned to SAULOG TRANSIT INC. as legally and rightfully expected under the circumstances. Respectfully submitted: (SGD.) RODULFO L. SALAZAR Chief, Appellate Division I CONCUR: (SGD.) ALICIA L. TOMACRUZ Head Revenue Executive Assistant Legal Service Recommendation-APPROVED: (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue