BIR Ruling No. 056-10

September 15, 2010 BIR RULING NO. 056-10 000-00 Mr. Danilo A. Lihaylihay 25 Kaunlaran Street, Batasan Hills Quezon City Sir : This has reference to your letters dated January 4, 2010, January 5, 2010 and January 13, 2010, respectively, submitted to various offices, which questions the validity of Revenue Memorandum Order (RMO) No. 12-93, in connection with your claim for payment of your alleged informer's reward. In reply, please be informed that, contrary to your allegation that Revenue Memorandum Order (RMO) No. 12-93 "has no effectivity or validity because it was not approved by the Secretary of Finance and was never published in the Official Gazette", the aforementioned revenue issuance is valid and effective. Emphasis must be placed on the difference between Revenue Regulations (RRs) and Revenue Memorandum Orders (RMOs). RRs are issuances signed by the Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, that specify, prescribe or define rules and regulations for the effective enforcement of the provisions of the National Internal Revenue Code (NIRC) and related statutes; while RMOs are issuances that provide directives or instructions; prescribe guidelines; and outline processes, operations, activities, workflows, methods and procedures necessary in the implementation of stated policies, goals, objectives, plans and programs of the Bureau in all areas of operations, except auditing. Unlike RRs, RMOs need not be approved and signed by the Secretary of Finance. Only the approval and signature of the Commissioner of Internal Revenue is required for the validity and effectivity of RMOs. SIcCEA Thus, your contention that "RMO No. 12-93 is a total nullity or void" is misconstrued since you have presumed that the signature of the Finance Secretary is necessary in order for RMOs issued by the Bureau to be valid. Moreover, contrary to your position, the Department of Finance is the proper office approving the recommendation made by the Commissioner of the Bureau of Internal Revenue with regard to the payment of informer's reward. This authority of the Secretary is embodied under Section 282 of the 1997 Tax Code, as amended, which states that: "Section 282. Informer's Reward to Persons Instrumental in the Discovery of Violations of the National Internal Revenue Code and in the Discovery and Seizure of Smuggled Goods. (A) For Violations of the National Internal Revenue Code. Any person, except an internal revenue official or employee, or other public official or employee, or his relative within the sixth degree of consanguinity, who voluntarily gives definite and sworn information, not yet in the possession of the Bureau of Internal Revenue, leading to the discovery of frauds upon the internal revenue laws or violations of any of the provisions thereof, thereby resulting in the recovery of revenues, surcharges and fees and/or the conviction of the guilty party and/or the imposition of any of the fine or penalty, shall be rewarded in a sum equivalent to ten percent (10%) of the revenues, surcharges or fees recovered and/or fine or penalty imposed and collected or One Million Pesos (P1,000,000) per case, whichever is lower. The same amount of reward shall also be given to an informer where the offender has offered to compromise the violation of law committed by him and his offer has been accepted by the Commissioner and collected from the offender: Provided, That should no revenue, surcharges or fees be actually recovered or collected, such person shall not be entitled to a reward: Provided, further, That the information mentioned herein shall not refer to a case already pending or previously investigated or examined by the Commissioner or any of his deputies, agents or examiners, or the Secretary of Finance or any of his deputies or agents: Provided, finally, That the reward provided herein shall be paid under rules and regulations issued by the Secretary of Finance, upon recommendation of the Commissioner." (emphasis supplied) Thus, pursuant to Section 282 of the Tax Code of 1997 (then Section 281 of the 1977 Tax Code, as amended), the Bureau has issued Revenue Memorandum Order (RMO) No. 12-93 dated February 1, 1993 ("Guidelines in the Filing of Confidential Information for Violations of the National Internal Revenue Code (NIRC) and Investigation by Authorized Revenue Officer.") , Part VII thereof provides, to wit: VII. Basis of Reward to be given the informer The taxes assessed and paid as a result of the valid information given shall be the basis of the reward of 15% (now 10%) (of the tax, surcharge and fees paid) pursuant to Section 231 of the Tax Code, the claim for which shall be processed by the Legislative, Ruling and Research Division. The Commissioner of Internal Revenue shall recommend the payment of reward to the informer, based on the actual amount collected, subject to approval by the Secretary of Finance. Otherwise, the claim shall be denied. " (emphasis supplied) Also, Section 15 of Finance Regulation No. 1 of the Department of Finance adheres to the mandates of Section 282 of the Tax Code of 1997 (then Section 281 of the 1977 Tax Code, as amended), that must be complied with prior to the payment of informer's reward, to wit: "SECTION 15. Approval of the Secretary of Finance necessary to payment of reward. In no case shall any amount be paid to the informer without prior approval of the Secretary of Finance. (emphasis supplied) IHSTDE It must be stressed that your reliance on the provisions of Executive Order No. 338 and Presidential Decree No. 115 is misplaced since nowhere in the aforementioned laws consider the informer's reward as trust receipts to which the Bureau is liable. Hence, prior to the Bureau's payment of your alleged informer's reward, in case you are entitled thereto, the appropriate procedures shall be complied with, which ultimately requires the recommendation of the Commissioner of Internal Revenue and the approval of the Secretary of Finance. Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue