BIR Ruling [DA-408-03]

November 12, 2003 BIR RULING [DA-408-03] 281; DOJ Opinion No. 67 Memo-030-03 Ongkiko Kalaw Manhit & Acorda Law Offices 4th Floor, Cacho-Gonzalez Bldg., 101 Aguirre St., Legaspi Village, Makati City Attention: Attys. Mindamar Somera and George O. Ortha, II Counsels Gentlemen : This refers to your letter dated September 30, 2003 requesting on behalf of your client, Ms. Rose Gonzaga, for a confirmation of your opinion that Informer's Reward on account of information given prior to the effectivity of the 1997 Tax Code is not subject to withholding tax. The facts as represented, are as follows: 1. On July 9, 1992, Ms. Rose Gonzaga filed an affidavit recorded as Confidential Information No. 63-92 where she denounced Pacific Banking Corporation ("PBC") for alleged tax evasion practices. 2. Through the said information, BIR assessed PBC in the total amount of Four Hundred Seven Million One Hundred Fifty-Seven Thousand Nine Hundred Eighty and 53/100 Pesos (P407,157,980.53) representing deficiency income, percentage and expanded withholding taxes inclusive of surcharge and interest for the years 19861991. 3. The government was able to initially collect from PBC the amount of One Hundred Ninety-Three Million Nine Hundred Eighteen Thousand Three Hundred Eighteen & 88/100 Pesos (P193,918,318.88) representing deficiency percentage and withholding taxes. Ms. Gonzaga was duly paid her informer's reward. 4. The balance of the assessment of Two Hundred Thirteen Million Two Hundred Thirty-Nine Thousand Six Hundred Sixty-One & 65/100 Pesos (P213,239,661.65) was further contested by PBC. On November 19, 2001, the Supreme Court finally ruled that PBC is liable to the assessed income tax, hence, the latter paid the P213,239,661.65 balance. 5. In accordance with Section 2.81(1) of the National Internal Revenue Code of 1977, which was the law in force at the time the information was given, the informer (Ms. Gonzaga) shall be rewarded in a sum equivalent to fifteen per centum of the revenues, surcharges and fees recovered and/or fine or penalty imposed and collected. This reward is not subject to tax. 6. Pursuant to the above-provision, your client should receive as informer's reward the amount of Thirty-One Million Nine Hundred Eighty-Five Thousand Nine Hundred Forty-Nine & 15/100 Pesos (P31,985,949.15) representing 15% of the collected amount of P213,239,661.65) caCEDA 7. The Department of Finance, through the Committee on Reward, issued 1st Indorsement dated November 26, 2002 which approved the recommendation of the BIR to pay Ms. Rose Gonzaga the amount of P31,985,949.15 pursuant to Section 281(1) of the Tax Code as amended. 8. The Department of Budget and Management transmitted to the BIR the Advice of NCA Issued dated August 21, 2003 advising the latter that the amount of Thirty Two Million Four Hundred Thirty Four Thousand One Hundred Thirty Nine Pesos (P32,434,139) was credited to its account for payment of informer's reward. Of this amount, the sum of P31,985,949.15 represents the 15% reward to Ms. Rose Gonzaga. 9. The BIR prepared Disbursement Voucher No. 03082749 with the amount of P31,985,949.15 and with Ms. Rose Gonzaga as the claimant. However, this voucher was altered, deducting therefrom 10% of the original amount as final withholding tax. Hence, our client received only Twenty Eight Million Seven Hundred Eighty-Seven Thousand Three Hundred Fifty-Four & 23/100 Pesos (P28,787,354.23) on September 12, 2003, or P3,198,594.92 less than what she was entitled to under the law. 10. In support of your request, you submitted the following documents: (1) DOF 1st Indorsement dated November 26, 2002; (2) Letter of then Commissioner of Internal Revenue, Hon. Rene G. Baez, to Finance Secretary Jose Isidro Camacho dated April 4, 2002 recommending the payment to Ms. Rose Gonzaga of informer's reward in the amount of P31,985,949.15; (3) Advice of NCA Issued dated August 21, 2003; (4) Disbursement Voucher No. 03082749; (5) Advice of Checks Issued and Cancelled and the Check payable to Ms. Rose Gonzaga in the amount of P28,787,354.23; and (5) DOJ Opinion No. 67, Series of 1998. In reply, please be informed that in Department of Justice Opinion No. 67, Series of 1998 dated June 10, 1998, which refers to the request of the Hon. Milwilda M. Guevara, then Undersecretary and Chairperson of the Committee on Rewards of the Department of Finance, for an opinion on the correct interpretation of Section 282 of the Tax Code of 1997, then DOJ Secretary Silvestre Bello, III opined, to wit: "At the outset, we wish to express that the retroactive application of a law should generally be expressly provided for therein. In the absence of such express provision, the rule is that the law should have prospective application. This is in accordance with Article 4 of the Civil Code of the Philippines, which provides "that laws shall have no retroactive effect, unless the contrary is provided". Thus, as held in Nilo vs. Court of Appeals , 128 SCRA 579 (1984): 'It is a rule of statutory construction that all statutes are to be construed as having only a prospective operation unless the purpose and intention of the Legislature to give them a retrospective effect is expressly declared or is necessarily implied from the language used. In every case of doubt, the doubt must be solved against the retrospective effect. The cases supporting this rule are almost without number. (at p. 525, quoting Ancajas vs. Jakosalem , 24 Phil. 220)' 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. 8424, cannot be subject to its provisions." (Emphasis supplied) It is a fundamental postulate in statutory construction that "laws shall have no retroactive effect, unless the contrary is provided." (Baltazar vs. Court of Appeals, 104 SCRA 619, 628 (1981) A statute operates prospectively and never retroactively unless the legislative intent to the contrary is made manifest either by express terms of the statute or by necessary implication. (Segovia vs. Noel, 47 Phil. 543 (1925) The Tax Code of 1997 took effect only in January 1, 1998, while the information furnished by Ms. Rose Gonzaga that led to the collection of additional revenue to the government was given in 1992. Section 282 of the Tax Code of 1997 does not contain provisions providing for its retroactive application, thus the same should not be applied to the information filed prior to the effectivity of the Tax Code of 1997. acIASE The foregoing being considered, this Office hereby confirms your opinion that the provisions of the Tax Code of 1997 cannot be given retroactive effect, thus the informer's reward due to Ms. Rose Gonzaga is not subject to the ten percent (10%) final withholding tax on informer's reward imposed under Section 282 of the Tax Code of 1997, as implemented by Revenue Regulations (RR) No. 2-98, as amended. This ruling is being issued on the basis of the foregoing facts as represented, However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group