BIR Ruling [DA-004-02]

January 11, 2002 BIR RULING [DA-004-02] Honorable Jose Isidro N . Camacho Secretary of Finance Manila S i r : We are forwarding herewith for approval the claim for informer's reward of Messrs. Renato Javier and Narciso Pangilinan under Section 281 (1) of the Tax Code, as amended [now Section 282 (2) of the Tax Code of 1997], including the pertinent records bearing on the internal revenue tax case of Telengtan Brothers & Sons, Inc., popularly known as La Suerte Cigar & Cigarette Factory (LSC & CF) . This claim is in addition to the P15,525,661.84 which was previously approved by the Department of Finance under 1st Indorsement dated October 25, 1999. It will be recalled that on July 20, 1992, the informers, using the aliases of Rex Ramos and Allan Cruz, respectively, filed a written sworn information later denominated as Confidential Information No. 170-93, denouncing LSC & CF for alleged tax evasion with the connivance of its individual dealers/agents nationwide, thru the use of the so-called "Backdoor" system whereby the actual prices at which LSC & CF's cigarette products; sold by its dealers/agents are higher by P10 per ream and P500 per case than what are reflected in the sales invoices or so-called "Way Bills" which accompany the products when removed from the factory. According to the informers, the difference of P10 per ream or P500 per case are not reported for tax purposes because these are being remitted and delivered on a weekly basis by the dealers/agents thru the issuance of personal checks with indorsement pay to cash to Mr. Yap and Mr. Jun Villanueva, both believed to hold key positions in LSC & CF. Acting on the said confidential information, Letters of Authority were issued to a group of Revenue Enforcement Officers of the Tax Fraud Division to investigate an initial twenty-eight (28) dealers/distributors of LSC and CF to ascertain their income and withholding tax liabilities for taxable year 1992. However, the investigation was aborted because said twenty-eight (28) dealers/distributors filed applications for compromise settlement/abatement of penalties under Revenue Memorandum Order No. 45-93, which were approved by this Office and their total payments have been verified to be P102,496,202.76, representing deficiency income tax and VAT for the year 1992. This amount was the basis of the previously approved claim for reward of herein informers in the sum of P15,374,430.42. The originals of the document supporting the original claim are attached to the docket now with the Commission on Audit (COA); hence, only xerox copies are attached hereto. The revenue enforcement officers on the case had likewise recommended the issuance of Letters of Authority to investigate forty-nine (49) other dealers/distributors of LSC & CF. However, even before this Office can issue the corresponding L/As, the said forty-nine (49) dealers/distributors paid the deficiency income tax and VAT for 1992. Pursuant to Section 281 of the Tax Code; as amended [now Section 282 (2)], the same amount of reward shall also be given to an informer where the offender has offered to compromise the violation of the law committed by him and his offer has been accepted by the Commissioner and in such case, the 15% reward shall be based on the amount agreed upon in the compromise and collected from the offender. Such being the case, herein informers are also entitled to reward on the total payments made by the forty-nine (49) individual dealers/agents/distributors of LSC & CF who opted to compromise their respective internal revenue tax cases during the pendency of the investigation. However, upon verification by this Office thru the Chief, Revenue Accounting Division, of the Application for Compromise Settlement/Abatement of Penalties under RMO 45-93, photocopies attached, the total payment per records only amounted to P81,566,564.95 and not P81,653,319.67 as alleged by the Counsel for the informers. Nevertheless, the Counsel for the informers has already executed a waiver/quitclaim in affidavit form (original copy attached) that the remaining amount of informer's reward which Messrs. Renato Javier and Narciso Pangilinan can claim from this office as informer's reward on the subject tax case is 15% of P81,566,564.95 or P12,234,984.74 and not P12,399,291.59 as originally alleged. In view of the foregoing, it is respectfully recommended that Messrs. Renato Javier and Narciso Pangilinan be rewarded the amount equivalent to 15% of P81,566,564.95 or P12,234,984.74 as additional informer's reward under then Section 281(1) of the Tax Code, as amended, the law applicable herein. The said reward shall not be subject to the 10% withholding tax under the last paragraph of Section 282 of the Tax Code of 1997 for the reason that R.A. No. 8424, otherwise known as the Tax Reform Act of 1997, does not contain provisions providing for its retroactive application (opinion 67, S. 1998 of the Secretary of Justice). Very truly yours, (SGD.) REN G. BAEZ Commissioner of Internal Revenue