BIR Ruling [DA-524-04]

October 8, 2004 BIR RULING [DA-524-04] Hon. Juanita D. Amatong Secretary of Finance Manila M a d a m : We are forwarding herewith for your approval, the herein claim for informer's reward of NICK CERVANTES alias RICARDO HERNANDEZ, of 37 Jerusalem St., Victoriaville Homes, Sumulong Highway, Antipolo City, under Section 282 (A) of the Tax Code of 1997, together with the entire docket relative to the internal revenue tax case of the ESTATE OF BENIGNO TODA, JR. for taxable year 1990. The records show that there are two (2) Confidential Informations filed pertaining to the aforesaid case, the latter reiterating the former. Confidential Information (CI) No. 2458 was filed by the above-named informer on September 18, 1990 denouncing Cibeles Insurance Corporation (CIC) over its two interrelated sales transactions of certain real properties on the same day (August 30, 1989) for the amounts of P100 million and P200 million, respectively. The first transaction was between CIC and Mr. Rafael A. Altonaga and subsequently between Mr. Altonaga and Royal Match, Inc. Further in the same information, he denounced the sale of 99,991 shares of stocks of Benigno Toda, Jr. to Lee Hun L. Choa for P13,750,000.00. On the other hand, Confidential Information No. 113-92 was filed on December 23, 1992 as a supplementary to CI #2458. On the basis of the said Confidential Informations and documents submitted by the informer, Letter of Authority No. 0437265 RR dated October 12, 1990 against CIC covering its 1989 taxable year for all taxes. It was ascertained in the investigation that Benigno Toda Jr. (now deceased), is the owner of 9,991 shares of stock constituting 99.991% of the issued and outstanding capital stocks of Cibeles Insurance Corporation (CIC). On July 12, 1990, Mr. Toda, through its Attorney-in-Fact, Quirino J. Muoz, sold the aforesaid shares of stock through a public instrument of Deed of Sale of Shares of Stocks. On August 10, 1990, Mr. Toda, Jr. was assessed Two Hundred Fifty Thousand Pesos (P250,000.00) for Capital Gains Tax (CGT) and Thirty-One Thousand Two Hundred Fifty Pesos (P31,250.00) for Documentary Stamp Tax (DST) which he paid on August 15, 1990 for which he was issued CR Nos. 20390710, 20390711 and 20389719. aEAcHI This notwithstanding, on April 26, 1994, then Intelligence and Investigation Service, in a Memorandum to the Commissioner, recommended the issuance of an assessment notice on the estate of Mr. Toda, Jr. for the non-payment of CGT and DST in the sale of CIC. The Memorandum was based on an affidavit executed by a confidential informer denouncing that Mr. Toda Jr. transferred his shares in CIC for Thirteen Million Five Hundred Thousand Pesos (P13,500,000.00) and did not pay a single centavo for DST and CGT. Hinged on this denunciation, the estate of Mr. Toda, Jr. was issued an unnumbered assessment on June 17, 1997 amounting to a basic assessed tax of Seven Hundred Forty Thousand and One Hundred Eighty Pesos (P740,180.00) for allegedly unpaid CGT and Twenty Four Thousand Nine Hundred Ninety Seven Pesos and Seventy-Five Centavos (P24,997.75) for DST. While the estate is pending settlement, Special Court Administrators Loma Patajo Kapunan and Manuel Cruz were authorized by the Court to make this compromise offer of 40% of the basic tax due. They made the offer on September 21, 2000. The heirs of Mr. Toda, Jr. bewails the assessment as being arbitrary, not in conformity with Section 228 of the NIRC, or is not accompanied by an explanation in writing explaining the facts or the law upon which the assessment is based as illegal, because the right to assess has already prescribed when the assessment was made, and unjust, considering that the assessment did not deduct the payments on CGT and DST made on August 15, 1990. The Technical Working Group created under Revenue Special Order No. 264-2003, on August 13, 2003 recommended the approval of the Offer of Compromise by the heirs of Mr. Toda, Jr. to the National Evaluation Board, which the latter had eventually approved on October 13, 2003, stating among other things that the Offer of Compromise under doubtful validity will be to the best interest of the government. Thus in a letter of the Commissioner to the heirs of Benigno Toda, Jr. dated October 27, 2003, the latter was directed to pay the amount of THREE HUNDRED SIX THOUSAND SEVENTY ONE PESOS (P306,071.00) equivalent to 40% of the basic tax assessed within ten (10) days upon receipt of the letter to any authorized agent bank (AAB) under the RDO having jurisdiction in the collection of tax payments, which payment was made at the LandBank of the Philippines (Pasong Tamo Branch) Makati on December 5, 2003, and the same was certified by the Chief, Revenue Accounting Division, that the collection was verified and found included in the Makati RDC data file as representing payment of taxes as remitted per CRDC and Central Bank Credit Advice. (Certification is attached hereto as Annex "A" hereof.) 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 BIR nor is the aforesaid tax liability pending or previously investigated by any official or employee of this Bureau or by the Department of Finance, and that the informer is, as represented, not related to any internal revenue official or employee or to any public officer within the sixth degree of consanguinity. HSIDTE It appearing that the information furnished by the informer was instrumental in the discovery of a violation of the internal revenue laws and in the recovery of taxes which otherwise would not have been effected, it is respectfully recommended that he be paid the amount equivalent to 15% of P306,071.00 or the amount of P45,910.65 as informer's reward pursuant to Section 282 (A) of the Tax Code of 1997, the law applicable herein. The said reward shall not be subject to the 10% final tax imposed under Section 2.57.1 (K) of Revenue Regulations No. 2-98, as the information was filed before the effectivity of the Tax code of 1997, which is January 1, 1998. Very truly yours, (SGD.) GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue