BIR Ruling [DA-482-03]

December 10, 2003 BIR RULING [DA-482-03] Office of the Solicitor General 134 Amorsolo St. Legaspi Village Makati City Attention: Mr. Renan E. Ramos Assistant Solicitor General Gentlemen : This refers to your letter dated November 20, 2003 requesting for the immediate transmittal of the Assessment Report and all related documents regarding the tax payments of the Philippine International Air Terminals Co., Inc. (PIATCO), and our analysis thereof, to be used in the cases filed by PIATCO Joint Venture before the International Court of Arbitration (ICA) and the International Court for the Settlement of International Disputes (ICSID). In reply, please be informed that Section 270 of the 1997 Tax Code, prohibits any officer or employee of the Bureau of Internal Revenue to divulge to any person or make known in any other manner than may be provided by law information regarding the business, income, or estate of any taxpayer, the secrets, operation, style or work, or apparatus of any manufacturer or producer, or confidential information regarding the business of any taxpayer, knowledge of which was acquired by him in the discharge of his official duties. Thus, "SEC. 270. Unlawful Divulgence of Trade Secrets . Except as provided in Section 71 of this Code and Section 26 of Republic Act No. 6388, any officer or employee of the Bureau of Internal Revenue who divulges to any person or makes known in any other manner than may be provided by law information regarding the business, income, or estate of any taxpayer, the secrets, operation, style or work, or apparatus of any manufacturer or producer, or confidential information regarding the business of any taxpayer, knowledge of which was acquired by him in the discharge of his official duties, shall, upon conviction for each act or omission, be punished by a fine of not less than Fifty thousand pesos (P50,000) but not more than One hundred thousand pesos (P100,000), or suffer imprisonment of not less than two (2) years but not more than five (5) years, or both. However, such prohibition is not without exception. Section 71 of the 1997 Tax Code provides that: "SEC. 71. Disposition of Income Tax Returns, Publication of Lists of Taxpayers and Filers . After the assessment shall have been made, as provided in this Title, the returns, together with any corrections thereof which may have been made by the Commissioner, shall be filed in the Office of the Commissioner and shall constitute public records and be open to inspection as such upon the order of the President of the Philippines, under rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner . The Commissioner may, in each year, cause to be prepared and published in any newspaper the lists containing the names and addresses of persons who have filed income tax returns." (Emphasis ours.) Accordingly, the only exception to the rule that BIR officials shall be held criminally liable for divulging information in the income tax return of a taxpayer, which necessarily includes furnishing copies thereof, is if the divulgence or furnishing of copies of the return is made upon the order of the President of the Philippines in accordance with the rules and regulations issued by the Secretary of Finance. Section 10 of Regulations No. 33 dated October 13, 1922 outlines the procedure in the request by an executive department for the inspection of a taxpayer's return. Thus, "Section 10. Inspection of returns at the instance of other executive departments. When the head of an executive department (other than the Department of Finance) or of any other bureau or office of the Philippine Government, desires to inspect or to have some other officer or employee of his branch of the service inspect a return in connection with some matter officially before him, the inspection may, in the discretion of the Secretary of Finance, be permitted upon written application to him by the head of such executive department or other Government bureau or office. The application must be signed by such head and must show in detail why the inspection is desired, the name and address of the taxpayer who made the return, the name and official designation of the one it is desired shall inspect the return. When the head of a bureau or office in the Department of Finance, not a part of the Bureau of Internal Revenue, desires to inspect a return in connection with some matter officially before him, other than an income tax matter, the inspection may, in the discretion of the Secretary, be permitted upon written application to him by the head of such bureau or office, showing in detail why the inspection is desired. The reasons submitted for permission to inspect as provided in this section shall be considered by the Secretary and a decision reached by him whether the reasons are sufficient to permit inspection." Therefore, if a head of an executive department (other than the Department of Finance) or other Government bureau or office requests the Bureau of Internal Revenue to inspect a taxpayer's return, the following must be complied with: 1. A written application by the head of such executive department (other than the Department of Finance) or other Government bureau or office to the Secretary of Finance; 2. The application must be signed by such head and must show in detail why the inspection is desired, the name and address of the taxpayer who made the return, the name and official designation of the one it is desired shall inspect the return; 3. The application and inspection of the return must be in connection with a matter officially pending before him, other than an income tax matter; CaHcET 4. Such application must be approved by the Secretary of Finance. If the head of a bureau or office in the Department of Finance, not a part of the Bureau of Internal Revenue, requests to inspect a taxpayer's return, the following must be complied with: 1. A written application to the Secretary of Finance by the head of such bureau or office; 2. The written application must show in detail why the inspection is desired; 3. The application and inspection of the return must be in connection with a matter officially pending before him; 4. Such application must be approved by the Secretary of Finance. Section 11 of Regulations 33 summarizes the process in obtaining tax returns to be used as evidence subject to certain conditions. Thus, "Sec. 11. Copies of returns furnished for use in legal proceedings . When it becomes necessary for the Bureau of Internal Revenue to furnish returns or copies thereof for use in legal proceedings, inspection of such returns or copies that necessarily result from such use is permitted. The original income tax return of an individual, corporation, joint stock company, partnership, joint account ( cuenta en participacion ), association, insurance company, or fiduciary, or a copy thereof, may be furnished by the Collector of Internal Revenue for use as evidence in litigation in any court, where the Government of the Philippine Islands is interested in the result, or for use in the preparation for such litigation, to provincial or city fiscal or any attorney connected with the Bureau of Justice designated to handle such matters, upon written request of the Attorney-General or an assistant attorney acting on his behalf. When an income tax return or copy thereof is thus furnished, it must be limited in use to the purpose for which it was furnished, and is under no condition to be made public except where publicity necessarily result from such use. In case the original return is necessary, it shall be placed in evidence by the Collector of Internal Revenue or by some other officer or employee of the Bureau of Internal Revenue designated by the Collector for that purpose, and after it has been placed in evidence it shall be returned to the files in the Office of the Collector in Manila. Neither the original or a copy of an income tax return, desired for use in litigation in court where the Government of the Philippine Islands is not interested in the result and where such use might result in making public the information contained therein, will be furnished, except as otherwise provided in the next succeeding section." Accordingly, if a tax return will be used as evidence in litigation in any court, where the Government is interested in the result, the following requisites must concur: 1. A written request must be made by the Attorney-General or an assistant attorney acting on his behalf; 2. The income tax return will be used as evidence in litigation in any court, or in the preparation for such litigation; 3. The Government must be interested in the result of the said litigation; 4. Such return shall be furnished to the provincial or city fiscal or any attorney connected with the Bureau of Justice designated to handle such matters; 5. Such return must be limited in use to the purpose for which it was furnished; 6. The said return shall in no condition to be made public except where publicity necessarily result from such use; and 7. In case the original return is necessary, it shall be placed in evidence by the Collector of Internal Revenue or by some other officer or employee of the Bureau of Internal Revenue designated by the Collector for that purpose, and after it has been placed in evidence it shall be returned to the files in the Office of the Collector in Manila. Considering the foregoing, your request for the transmittal of the Assessment Report and all related documents regarding the tax payments of the Philippine International Air Terminals Co., Inc., (PIATCO) may be acceded or granted provided the above-mentioned conditions are complied with. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group