BIR Ruling [DA-152-99]

March 12, 1999 BIR RULING [DA-152-99] MEMORANDUM TO: Ms. Myrna E. Sobremonte Chief, Accounting Division This refers to the request of Mr. Tristan DL Flores (alias Quicksilver) for the refund of the amount of P600,472.70 representing income tax collected as final withholding tax (not VAT) from the cash reward given to him as the informer in Confidential Information No. 96-93. The claim of Mr. Flores is anchored on Opinion No. 67, S. of 1998 of the Secretary of Justice which was issued in response to the query of Undersecretary Milwida M. Guevara of the Department of Finance regarding the correct interpretation of Section 282 of the Tax Code of 1997, which amended then Section 281 of the Tax Code, as amended, not only by putting a cap on the amount of the informer's reward but also subjects the cash reward of informers to income tax, collected as final tax at the rate of 10%. In a nutshell, the issue raised by USEC Guevara is whether or not said Section 282 will cover cases already endorsed to the Committee on Rewards prior to 1998. In answer thereto, the Secretary of Justice opined that "Considering that R.A. 8424 does not contain provisions providing for retroactive application, we believe that the said law should not be given retroactive effect. Therefore, the pending cases that have been endorsed to the Committee on Rewards, assuming that the information on which they are based have led to the realization of taxes/duties, prior to the effectivity of R.A. No. 8424, cannot be subject to its provisions." In the instant case, Confidential Information No. 96-93 was filed by Quicksilver on July 6, 1993, as a result of which deficiency income and value-added taxes were recovered from the corporation denounced on March 20, 1995. The case was endorsed to the Committee on Rewards of the Department of Finance on May 14, 1996 which approved the recommendation for payment of 15% reward to Quicksilver on January 6, 1998. Clearly then, the informer's cash reward in the amount of P6,004,727.00 (after deducting the amount of P300,000.00 donated by the informer to the Government) should not been subjected to final withholding tax of 10%. This is also the view of Undersecretary Milwida M. Guevara of the Department of Finance in her Memorandum to the undersigned dated February 22, 1999 (herewith attached) the dispositive portion of which is hereby quoted, viz: "In view thereof, the BIR may wish to consider that since the approved claim of Mr. Quicksilver was filed prior to the effectivity of R.A. No 8424, his reward money should not be imposed a 10% withholding tax. It should however, be exclusive of the amount of P300,000 which he voluntarily donated to the Debt Service Funds of the National Government." Accordingly, you are hereby directed to prepare the voucher for the refund of the amount of P600,474.70 to Mr. Tristan DL Flores (a.k.a. Quicksilver) representing erroneous deduction of 10% final withholding tax on his informer's reward. (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue