BIR Ruling [DA-034-06]

February 9, 2006 BIR RULING [DA-034-06] Hon. Margarito B. Teves Secretary of Finance Manila S i r : We are forwarding herewith for your approval the herein claim for informer's reward of Mr. Tirso B. Savellano of #161 Scout Gandia Street, Diliman, Quezon City, under Section 281(1) of the Tax Code, as amended, including the pertinent records of the case bearing on the internal revenue tax case of Philippine National Oil Company ("PNOC", for brevity). The records show that on June 25, 1986, an affidavit, which was recorded as Confidential Information No. 1853, was filed by the above-named informer denouncing, among others, PNOC, for failure to pay taxes on its money placement with the Philippine National Bank ("PNB" for brevity) covering the period from October 15, 1984 to August 31, 1986. Acting on the said information, examiners of this Office conducted investigation as a result of which, final withholding taxes on interest earning and/or yield from money placements of PNOC covering the period from October 15, 1984 to July 31, 1986 were found due and collectible from it. Based on the said findings, PNOC was assessed the total amount of P310,775,081.10 representing final withholding tax on interest earnings for the period covering October 14, 1984 to July 31, 1986 and deficiency interest at 20% of final withholding tax from January 1, 1986 to May 20, 1987. However, PNOC settled its withholding tax liability by way of a compromise agreement with the Bureau of Internal Revenue Under Executive Order (EO) No. 44 and paid only 30% of P303,343,766.29, which is the basic tax due, or equivalent to P91,003,129.89, the last installment payment having been trade on June 22, 1987. The informer, Mr. Tirso B. Savellano, was paid his informer's reward in the total amount of P14,093,321.89 representing 15% of the P93,955,479.12 tax collected by the BIR. On January 7, 1988, the informer wrote the BIR demanding payment of the balance of his informer's reward amounting to P44,243,764.00. BIR denied the claim of the informer on the ground that the compromise agreement it entered into with the PNOC is in accordance with EO No. 44. On April 8, 1988, herein informer filed a petition with the Court of Tax Appeals claiming that the Commissioner of Internal Revenue acted with grave abuse of discretion and/or whimsical exercise of jurisdiction in entering into a compromise agreement resulting to a diminution of his informer's reward. DCcHIS On April 26, 2005, the Supreme Court, in affirming the decision of the Court of Tax Appeals and the Court of Appeals, has ruled and declared that the compromise agreement under EO 44 executed between the PNOC and the BIR dated June 22, 1982 is void and contrary to law and public policy and is without force and effect (SC, G.R. Nos. 109976 and 112800, dated April 26, 2005). Earlier, on October 19, 1992, PNB paid the amount of P294,958,450.73, the balance of the tax assessed after crediting the compromise payment of P91,003,129.89, as certified by the Revenue Accounting Division, this Bureau, per Certification dated January 9, 2006. The Supreme Court also ordered that Mr. Savellano be paid the amount of P44,243,767.61, equivalent to 15% of P294,958.450.73, as informer's reward. The records further show that the information furnished by the informer was in writing and under oath; that it was not yet in the possession of the Bureau of Internal Revenue nor is the aforesaid tax liability pending or previously investigated by any official or employee of this Bureau or by the Department of Finance; and that the informer is, as represented, not related to any internal revenue official or employee or to any public officer within the sixth degree of consanguinity. It appearing that the information furnished by Mr. Tirso B. Savellano was instrumental in the discovery of a violation of the internal revenue laws and in the recovery of taxes which otherwise would not have been effected, it is respectfully recommended that he be paid the amount equivalent to 15% of P294,958,450.73 or the amount of P44,243,767.61, as informer's reward pursuant to then Section 281(1) [now 282(A)] of the Tax Code, as amended, and the decision of the Supreme Court. Very truly yours, (SGD.) JOSE MARIO C. BUAG Commissioner of Internal Revenue