BIR Ruling No. 074-11

March 14, 2011 BIR RULING NO. 074-11 000-00 Philippine Association of Revenue Informers, Inc. (PARI) 25 Kaunlaran Street, Batasan Hills Quezon City 1126 Attention: Danilo A. Lihaylihay President Gentlemen : This refers to your letter dated December 13, 2010 which was forwarded by the Department of Justice through 1st Indorsement dated December 23, 2010 raising the following issues: 1) The 10% informer's reward under Section 282 (A) of the Tax Code of 1997, as amended is a "clear case of technical malversation for shortchanging the tax informers with 15% of their hard earned/lawful reward monies penalized under Section 2 in relation to Section 1 (d) (1) (5) (6) of RA 7080 (Anti-Plunder Act)" 2) "Only the Supreme Court can modify or reverse the Final Ruling dated April 4, 2006 of former Secretary of Justice Raul M. Gonzales" 3) "R.A. No. 2338, which is a special law, shall prevail over R.A. No. 8424 (the 1997 NIRC), which is a general law. Thus, the 25% monetary award shall still remain as the legal basis of the Government in computing the payment of informer's reward" 4) "The 25% informer's reward under RA 2338 still remains as the legal basis of the reward because the National Internal Revenue Code (NIRC) of 1997 or RA 8424 has NO VALIDITY OR EFFECTIVITY whatsoever for lack of publication of its IRRs (Implementing Rules and Regulations) in the Official Gazette" The 10% informer's reward or the denial thereof is not a crime of plunder. Your allegation that there was shortchanging by 15% of what tax informers are entitled to is considered a crime of plunder is bereft of merit. The provisions of the National Internal Revenue Code of 1997, as amended, particularly in this case, allowing a monetary award "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" under Section 282 (A), is valid. HaAIES In order for one to be charged with the crime of plunder under Republic Act No. 7080, there must be sufficient evidence establishing beyond reasonable doubt that there is a scheme or conspiracy to amass, accumulate or acquire ill-gotten wealth through misappropriation, conversion, misuse or malversation of public funds or raids of public treasury. The change on the entitlement of informer's reward from 25% under Republic Act No. 2338 to 15% under Presidential Decree No. 1773 to the present rate of 10% under Republic Act No. 8454 cannot be considered as a crime of plunder. The 10% informer's reward or the denial thereof would not result in amassing or accumulating ill-gotten wealth because the fund for the payment of the informer's reward is also subject to the procedures of government disbursement under General Appropriations Act. The mere filing of an affidavit denouncing a certain taxpayer does not automatically entitle the informer to the corresponding reward. Established guidelines, rules and procedures must be followed in order to ascertain the validity of an informer's claim for reward. To effectively implement the provisions of the Tax Code, on the grant of informer's reward, the Bureau issued Revenue Memorandum Order No. 12-93 dated February 1, 1993, which provides for the guidelines, rules and procedures in the filing of confidential information for violation of the NIRC pursuant to Department of Finance Regulation No. 1, in relation to Section 282 (A) of the 1997 Tax Code, as amended. The inconsistent provisions of RMO No. 12-93 are now repealed by Revenue Regulations No. 16-2010. However, under the latest regulation, the qualified informer shall be rewarded pursuant to prescribed rate under the 1997 Tax Code. Commissioner of Internal Revenue has the power to interpret tax laws under Section 4 of the 1997 Tax Code, as amended. Your reliance that Opinion dated April 4, 2006 rendered by the Secretary of Justice relative to the appropriate monetary awards given under the 1997 Tax Code, as amended, is a final ruling which only the Supreme Court can modify or reverse, is utterly misleading. Emphasis must be placed on the fact that Section 4 of the 1997 Tax Code, as amended, specifically provides that the power to interpret and decide matters arising under the Tax Code and other tax laws is under the exclusive and original jurisdiction of the Commissioner of the Bureau of Internal Revenue (BIR), subject to review by the Secretary of Finance, who has the power to affirm, revise, modify or set aside rulings and issuances of the Bureau concerning such implementation and application of the provisions of the Tax Code of 1997 and other tax laws. "SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance. The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals." In this regard, under Executive Order No. 292 (Administrative Code), the Department of Justice (DOJ) serves as the government's prosecution arm and administers the government's criminal justice system by investigating crimes, prosecuting offenders and overseeing the correctional system. ESTcIA At the same time, in Section 29 thereof, it provides that as head of the office, the Commissioner shall exercise overall authority in matters within the jurisdiction of the bureau, including those relating to its operations, and enforce all laws and regulations pertaining to it. It bears stressing that the Commissioner is mandated to independently evaluate or assess the merits of the case involving matters or issues under the Tax Code, in particular, the validity and qualification of a confidential informant. Hence, the Commissioner is the one charged with the administration of revenue laws and with the authority to render the interpretation of tax laws, particularly in this case, the applicable rate of informer's reward, subject to the review of the Department of Finance, and not through the interpretation or opinion rendered by the Secretary of Justice. Moreover, the Secretary of Justice is of the same opinion on the authority and jurisdiction of the Commissioner on the interpretation of tax laws under Department Opinion 48, s. 2010 wherein it was ruled therein: "Pursuant to established policy and precedents, and unless there are exceptional circumstance that warrant such step (Sec. of Justice Op. 37, s. 1939), this Department has consistently refrained from entertaining requests for clarification/reconsideration of the opinion of the Secretary of Justice, unless requested by the government functionary for whom the opinion was rendered. (Sec. of Justice No. 49, s. 1984, citing opinions; No. 78, s. 2003; Nos. 44, 40 & 30, s. 2009) Considering the facts and circumstances presented earlier, the unnumbered opinion subject for clarification should not been issued in the first place as there appears to be no exceptional reason to warrant a second look at our Opinion No. 18, s. 2005. It must be stressed, at the outset, that the Opinion was issued upon the request of then Acting Finance Secretary Purisima. Hence, any request for clarification and/or reconsideration thereof should have come from the Finance Secretary. While the policy is not absolute, a reading of the documents on record, does not show that the reasons advanced by Mr. Lihaylihay are exceptional enough as to justify a review of the issued opinion and the issuance of the unnumbered one." The 19 97 Tax C ode, as amended, is a special law, which expressly repealed the inconsistent provisions in the 1977 NI RC and RA 2 338. It appears that you erroneously believe that the Tax Code of 1997, as amended, is a general law. However, it has been consistently held in numerous cases such as Republic vs. Santiago Gancayco (L-18307, June 30, 1964), The Commissioner of Internal Revenue vs. Ilagan Electric and Ice Plant Inc. (29 SCRA 634) and The Guagua Electric Light Co., Inc. vs. CIR (19 SCRA 790) , that the National Internal Revenue Code is not a general law but a special law. Moreover, your argument that Republic Act No. 2338 should prevail over the 1997 Tax Code, as amended, is without factual or legal basis. Republic Act (RA) No. 2338 (An Act to Provide for Reward to Informers of Violations of the Internal Revenue and Customs Laws) was promulgated on June 19, 1959, providing for a 25% informer's reward. The provisions of RA 2338, which were inconsistent with the amended provisions of the 1977 NIRC, regarding informer's reward, were repealed by PD No. 1773. Section 35 of Presidential Decree (P.D.) No. 1773 which amended Section 331 of the Tax Code (Section 281 of the 1977 NIRC, as amended) granted a reward to an informer equivalent to 15% of the revenues, surcharges, or fees recovered, plus, any fine or penalty imposed and collected. The pertinent provisions of PD No. 1773 read as follows: "SECTION 35. Section 331 of the National Internal Revenue Code is hereby amended to read as follows: 'Sec. 331. 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. aHcDEC xxx xxx xxx SECTION 37. Repealing Clause. The provisions of Republic Act Nos. 2338 and 4713, Presidential Decree Nos. 707 and 708, Sections 158-A, 193(c), 259-A and 281-A of the National Internal Revenue Code and all laws, rules and regulations or parts thereof inconsistent with the provisions of this Decree are hereby repealed or amended accordingly. " (Emphasis and underscoring supplied) Section 282 (A) of the Republic Act No. 8424 or the 1997 Tax Code, as amended, on the other hand, states that the reward to be given to informers shall be "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". Likewise, it must be noted that the Tax Code, has a repealing clause under Section 291 which revoked Section 35 of P.D. No. 1773. Considering that the inconsistent provisions of RA 2338 have been repealed by Section 35 of P.D. No. 1773 then subsequently by Section 282 (A) of RA 8424, then the governing law on the matter is RA 8424, which provides only for a 10% of the amount recovered or one million pesos (Php1,000,000.00), whichever is lower, as informer's reward. It is quite surprising that you insist that the National Internal Revenue Code is a general law and that RA 2338 is the prevailing law on informer's rewards when it was already held in your case with the Court of Tax Appeals in Danilo A. Lihaylihay vs. Commissioner of Internal Revenue, C.T.A. Case No. 7515 dated November 23, 2009 that the National Internal Revenue Code is a special law and RA 2338 was already repealed. Furthermore, under Department Order No. 48, s. 2010, the Secretary of Justice concurred with the Bureau's position that the informer's reward amounts to ten percent (10%) of the revenues, surcharges or fees recovered and/or fine or penalty imposed and collected or One Million Pesos (P1,000,000.00) per case, whichever is lower. It was declared therein that the said Order supersedes the unnumbered opinion you relied upon under this letter and that Opinion No. 18, s. 2005 is likewise amended accordingly. It was further ruled that: It must be stressed, at the outset, that contrary to the pronouncement contained in the unnumbered opinion, the Internal Revenue Code is not a general law but, like R .A. No. 23 38, a special law. ( Republic vs. Gancayco, 11 SCRA 380, 386; Guagua Electric Light Co., Inc. vs. CIR, 19 SCRA 790, 796; CIR vs. Ilagan Electric and Ice Plant, Inc., 29 SCRA 634, 637) Thus, and as rightfully held by the Court of Tax Appeals in the case (C.T.A. Case No. 7515, Nov. 29, 2009) involving the same Danilo A. Lihaylihay, R. A. No. 23 38, a special law, being irreconcilable and inconsistent with P.D. No. 1158 (Nation al Internal Revenue Code of 19 77) another special law, may be deemed to have been nullified by the later law. (Agpalo, Statutory Construction, Fifth ed., p. 399, citing cases) For the same reason, and as explicitly stated by the Supreme Court: "An erroneous construction of law cannot give rise to a vested right that can be invoked by a taxpayer. The reason is obvious: a vested right cannot spring from a wrong interpretation. This is to clear to require elaboration." ( Hilado vs. CIR and CTA, 100 Phil. 288, 295) Besides, the Repealing Clause of P.D. No. 1773 (Amending Certain Sections of the National Internal Revenue Code), which further amended certain sections of the 1977 NIRC, is clear and categorical, thus: HEAcDC SEC. 36. Repealing Clause. The provisions of Republic Act Nos. 2338 and 4173, Presidential Decree Nos. 701 and 708, Sections 158-A, 193(c), 259-A and 281-A of the National Internal Revenue Code and all laws, rules and regulations or parts thereof inconsistent with the provisions of this Act are hereby repealed or amended accordingly (Stress added). Undeniably, R.A. No. 2338 had been totally and expressly repealed by the 1977 NIRC, as amended by P.D. No. 1773. Stated differently, in view of provisions Section 36, above-quoted, in relation to Section 331 (The section governs the grant of informer's reward) of the 1977 NIRC, R.A. No. 2338 ceased to exist as part of the law of the land. A total repeal revokes the statute completely while an express repeal declares in the statute, usually in the repealing clause, as the case herein, that a particular and specific law, identified by its number or title, is repealed. (Mecano vs. COA , 216 SCRA 500, 504, citing Agpalo, Statutory Construction, 1989 ed., p. 289) The repealing clause of P.D. No. 1158, as further amended by P.D. No. 1773, is explicit enough that an interpretation is no longer necessary only application. (Sec. of Justice Op. Nos. 39, 28 & 23, current series.)" Memorandum dated January 30, 2007 is without force and effect as it was overturned by Memorandum dated July 23, 2007 The allegation that this Office considers that RA 2338 is a special law which prevails over the Tax Code of 1997 stressing that the Memorandum dated January 30, 2007 is a BIR Ruling is utterly misleading. Memorandum dated January 30, 2007 cannot be considered as a BIR Ruling since the said internal communication does not state the official position of the Bureau to queries raised by taxpayers and other stakeholders relative to clarification and interpretation of tax laws. The said document was issued by the Office of the Assistant Commissioner, Legal Service embodying its recommendations on your claim for informer's rewards which stemmed from the compromise payments made by Bank of America (BA) on its internal revenue tax case for taxable year 1995 and prior years under Confidential Information (CI) No. 76-95. However, despite its recommending approval, the actions taken by the Legal Service was still subject to the review, recommendation and/or approval of the Deputy Commissioner for Legal Group. The Deputy Commissioner exercises the power of direct control and supervision over the Legal Service and its divisions, and may thus affirm, nullify, reverse or modify their rulings, decisions and recommendations. Regardless of the recommendation made by the Legal Service whether an alleged confidential informer shall be entitled to informer's reward or not, the actions taken by the Legal Service shall still subject to the review, recommendation and/or approval of the Deputy Commissioner for Legal Group. Hence, Memorandum dated July 23, 2007 was issued overturning the recommendation under Memorandum dated January 30, 2007. This Office upheld the recommendations made by the Deputy Commissioner by issuing BIR Ruling No. 085-2010 dated October 6, 2010. aSECAD RA 8424 is an effective and valid law Regrettably you assume that RA 8424 is an invalid or ineffective law for lack of publication of implementing rules and regulations in the Official Gazette. Take note that RA 8424 was published in the Manila Bulletin on December 26, 1997 and became effective on January 1, 1998. This alone is sufficient in resolving your doubts as to the validity of the said law. Moreover, Revenue Regulations are issuances specify, prescribe or define rules and regulations for the effective enforcement of the provisions of the National Internal Revenue Code (NIRC) and related statutes. For its validity and effectivity, these regulations are approved and signed by the Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue. In view of the foregoing, we regret to inform you that this Office does not agree with your position for lack of factual and legal basis. Insofar as this Office is concerned, our position on the matters raised is final. No further requests/motions or other pleadings of similar import shall be entertained. Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue