BIR Ruling [DA-306-03]

September 16, 2003 BIR RULING [DA-306-03] Sec. 2 RR 10-2001 Estate of Carlos Pedro Martinez Fernandez No. 43 Pili Avenue, Forbes Park, Makati City Attention: Mr. Vicente T. Fernandez Administrator Gentlemen : This refers to your letter dated July 3, 2003 requesting for a clarification regarding the proper interpretation and/or implementation of Section 2 of Revenue Regulations No. 8-2001, which provides, to wit: "SEC. 2. TAXPAYER'S BENEFIT FROM AVAILMENT OF THE VAP. A taxpayer who has availed of this VAP shall not be audited except upon authorization and approval by the Commissioner of Internal Revenue when there is a strong evidence or finding of understatement in the payment of taxpayer's correct tax liability by more than thirty percent (30%): Provided, however, that any VAP payment should be allowed as tax credit against the deficiency tax due, if any, in case the concerned taxpayer has been subjected to tax audit." as further amended by Section 2 of Revenue Regulations No. 10-2001, which provides, to wit: "SEC. 2. TAXPAYER'S BENEFIT FROM AVAILMENT OF THE VOLUNTARY ASSESSMENT PROGRAM (VAP). Sec. 2 of Revenue Regulations 8-2001 is hereby amended to read as follows: 'SEC. 2. TAXPAYER'S BENEFIT FROM AVAILMENT OF THE VAP. A taxpayer who has availed of the VAP shall not be audited except upon authorization and approval of the Commissioner of Internal Revenue when there is strong evidence or finding of understatement in the payment of taxpayer's correct tax liability by more than thirty percent (30%) as supported by a written report of the appropriate office detailing the facts and the law on which such finding is based: Provided, however, that any VAP payment should be allowed as tax credit against the deficiency tax due, if any, in case the concerned taxpayer has been subjected to tax audit. STcAIa xxx xxx xxx.' " particularly on whether the phrase " strong evidence or finding of understatement . . ." if applied in the payment of estate tax through availment of the VAP, shall mean on the basis of legal documents showing proof of ownership or anchored merely on presumptions of ownership. In reply, please be informed that understatement in the payment of taxpayer's correct tax liability is in itself an indicator of fraud which must be developed into a tax fraud case after establishing a clear and convincing evidence that fraud has been actually committed, with respect to civil fraud. While proof beyond reasonable doubt is required in the case of criminal fraud, or that degree of proof which produces conviction in an unprejudiced mind. Tax fraud or evasion means the elimination or reduction of one's correct and proper tax by fraudulent means. "The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give some legal right. . . ." (Aznar vs. CTA and Collector, G.R. No. L-20569, August 25, 1974) In both cases, tax fraud cannot be presumed nor justified by mere speculation nor preponderance of evidence. Mere suspicions and mere doubts on the intention of the taxpayer are not sufficient proof of fraud. Fraud is never presumed; it must be proved by competent evidences. TEcAHI In applying the foregoing discussion, it may be inferred that the strong evidence or findings of understatement contemplated in Revenue Regulations (RR) No. 8-2001 as amended by RR 10-2001, as to authorize the Commissioner of Internal Revenue to conduct an audit even after availing the Voluntary Assessment Program, shall refer to those evidences, object (real) and/or documentary evidence (Rule 130, Rules of Court) that will establish the existence of fraud, such as the act of understating or under-declaring one's correct tax liability. Accordingly, for estate tax purposes, proof of ownership shall be based on documents that can validly prove ownership and not merely on presumptions or inference purporting to show ownership. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group