BIR Ruling [DA-068-02]

April 15, 2002 BIR RULING [DA-068-02] Hon. Jose Isidro N. Camacho Secretary of Finance M a n i l a S i r : We are forwarding herewith for your approval the herein claim for informer's reward of Mr. Oscar L. Espinosa under Section 282(A) of the 1997 Tax Code including the entire docket relative to the internal revenue tax case of Two Hundred Forty Four (244) employees of Southeast Asian Fisheries and Development Corporation ("SEAFDEC") in Iloilo City for the taxable years 1997 and 1998. The records show that on August 17, 1999, the informer submitted an Affidavit which was denominated as Confidential Information No. 53-99 denouncing SEAFDEC for "failure to pay the income tax on fringe benefits in the form of income tax paid to the BIR in favor of its employees" for the taxable years 1997 to 1998. (Report of Examiner dated September 3, 2001) This Confidential Information No. 53-99 was forwarded to the Special Investigation Division, Revenue Region No. 11, Iloilo City on September 20, 1999. On the basis of the recommendation of the Revenue Officers of the Special Investigation Division as contained in their investigation report dated September 3, 2001, it was found that no deficiency taxes were collected from SEAFDEC-Aquaculture Department being a tax-exempt international organization pursuant to Presidential Decree No. 292 dated September 13, 1973. As such, SEAFDEC is under no obligation to deduct and withhold taxes from wages and/or remuneration paid to their Filipino employees in the Philippines and they cannot be made as withholding agent of the Philippine Government without their consent (BIR Ruling No. 228-92). However, since there was an admission on the part of SEAFDEC officials as to the fact that the organization pays for the income taxes of their employees for taxable years 1994-1998, the said payments constitute additional compensation income, taxable to the employees in their individual capacity. However, since fraudulent intent on the part of the employees cannot be established and the defense of prescription having been raised, only deficiency taxes for taxable years 1997 and 1998 were re-assessed and subsequently paid voluntarily by SEAFDEC employees in the total amount of P4,481,893.00 representing the collections made from 244 employees of SEAFDEC. Such payments were certified by the Chief, Revenue Accounting Division dated January 29, 2002, that the Collections listed were true and correct as per the records issued by Revenue Region No. 11, Iloilo City. 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. Oscar L. Espinosa 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 10% of P4,481,893.00 or the amount of P448,189.30 as informer's reward pursuant to Section 282(A) of the 1997 Tax Code, the law applicable herein. The said reward shall be subject to the 10% final tax imposed under Sec. 2.57.1(K) of Revenue Regulations No. 2-98. Very truly yours, (SGD.) REN G. BAEZ Commissioner of Internal Revenue