BIR Ruling [DA-408-98]

September 7, 1998 BIR RULING [DA-408-98] Hon. Edgardo B. Espiritu The 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 Messrs . Renato Javier and Narciso Pangilinan under then Section 281(1) of the Tax Code, as amended [now Section 282(2) of the Tax Code of 1997] including the pertinent records bearing on the internal revenue tax case of Telengtan Brothers and Sons, Inc . LLphil The records show that on July 20, 1992, Messrs . Rex Ramos and Allan Cruz whose real identities are Renato Javier and Narciso Pangilinan, respectively, filed a written information before the Regional Director of Revenue Region No. 4, San Fernando, Pampanga, denouncing Telengtan Brothers and Sons, Inc., popularly known as La Suerte Cigar and Cigarettes Factory (LSC & CF) for alleged tax evasion thru the connivance of its individual dealers/agents. The said denunciation was later sworn to and recorded as Confidential Information No. 170-93. In their confidential information, the abovenamed informers reported that as early as 1990, LSC & CF imposed an anomalous price increase of P500.00 per case of Marlboro and Philip Morris cigarettes. This so-called unauthorized price increase, known as "Backdoor" system is committed by LSC & CF by charging their dealers as follows: Brand Price per ream Price per case Marlboro King P107.00 P5,350.00 Marlboro Light 107.00 5,350.00 Marlboro Light Menthol 107.00 5,350.00 Philip Morris 100 Menthol 121.00 6,050.00 However, in the sales invoice or so called "Way Bills" issued by LSC & CF the price appearing therein are as follows: Brand Price per ream Price per case Marlboro King P97.00 P4,850.00 Marlboro Light 97.00 4,850.00 Marlboro Light Menthol 97.00 4,850.00 Philip Morris 100 Menthol 111.00 5,550.00 The increase in price of P10.00 per ream of P500 per case was allegedly not declared because the same was reportedly paid by the dealer/s thru the issuance of personal check/s with the indorsement "Pay to Cash". Acting on said confidential information, Letters of Authority were issued to a group of revenue enforcement officers of the Tax Fraud Division to investigate the twenty-eight (28) individual dealers/distributors of LSC & CF to ascertain their income and withholding tax liabilities for the taxable year 1992. However, the investigation was not pursued to its logical and because the said twenty-eight (28) dealers/distributors filed application for Compromise Settlement/Abatement of Penalties under Revenue Memorandum Order No. 45-93, which was approved by this Office and their total payment amounted to P103,504,412.31 as deficiency income tax and VAT for the year 1992. Each payment appearing in the Application for Compromise Settlement/Abatement of Penalties under RMO No. 45-93 (xerox copies attached) has been verified as true and correct by the Chief of our Revenue Accounting Division. Pursuant to Section 28(1) of the Tax Code, as amended, [now Section 282(2)] the same amount of reward shall also be given to an informer where the offender has offered to compromise the violation of the law committed by him and his offer has been accepted by the Commissioner and in such case, the 15% reward shall be based on the amount agreed upon in the compromise and collected from the offender. Such being the case, herein informers are entitled to reward on the total payments made by the twenty-eight (28) individual dealers/agents/distributors of LSC & CF who opted to compromise their respective internal revenue tax cases during the pendency of the investigation. The records further show that the information furnished by the informers was in writing and under oath; that it was not yet in the possession of the Bureau nor are the aforesaid tax liabilities pending or previously investigated by any official or employee of the Bureau or by the Department of Finance; and that the informers are, as represented, not related to any internal revenue official or employee or any public officer within the sixth degree consanguinity. It appearing that the information furnished by Messrs. Renato Javier and Narciso Pangilinan was instrumental in the discovery of a violation of the internal revenue law and in the recovery of taxes which otherwise would not have been effected, it is respectfully recommended that they be paid the amount equivalent to 15% of P103,504,412.31 or the amount of P15,525,661.84 as informer's reward pursuant to then Section 281(1) of the Tax Code, which is the law applicable herein. The said cash reward shall not be subject to the 10% withholding tax under the last paragraph of Section 282 of the Tax Code of 1997 for the reason that R.A. No. 8424, otherwise known as the Tax Reform Act of 1997, does not contain provisions providing for its retroactive application. (Opinion No. 67, S. 1998 of the Secretary of Justice) Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue