BIR Ruling No. 086-10

October 6, 2010 BIR RULING NO. 086-10 Section 282 (A); 000-00 Mr. Danilo A. Lihaylihay 25 Kaunlaran Street, Batasan Hills Quezon City Sir : This refers to your December 28, 2009 letter requesting for the disbursement or payment of your informer's reward based on the collections from Forever Living Products Philippines, Inc. (FLPPI) which availed the benefits of Voluntary Assessment Program of the BIR under RMO No. 59-97. In support thereof, you attached your Formal Demand Letter dated July 19, 2005 claiming for the immediate payment of the balance amount of the 25% informer's reward, citing as basis Section 1 of Republic Act (R.A.) No. 2338 in relation to DOJ Opinion No. 18 Series of 2005 dated April 19, 2005. In reply, we regret to inform you that your request cannot be granted for lack of legal basis. Please be informed that, per your letter, you have already received your informer's reward as evidenced by Land Bank of the Philippines Check No. 00005394444-VV dated February 24, 2005 in the amount of Php273,320.23 under Disbursement Voucher No. 05-01-0139, relative to the internal revenue case of FLPPI. The Disbursement Voucher, which you have signed prior to your receipt of the check payment, clearly states: "To payment of 10% informer's reward pursuant to Section 281(1), as amended, now [Section 282(A) of the Tax Code of 1997], based on the recommendation of the Commissioner of Internal Revenue which was approved by the Undersecretary of Finance and concurrently Chairman, Committee on Reward, in her 1st Indorsement to BIR Commissioner Guillermo Parayno dated September 30, 2004." (emphasis supplied) Despite your receipt thereof, you now assert that you have only been partially paid your reward and that you are still entitled to the immediate payment of the amount of 25% informer's reward, relying on RA 2338. Your reliance of entitlement to 25% informer's reward is without factual or legal basis. TcDAHS Republic Act 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. 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. PD 1773 has a repealing clause which states that, to wit: "Section 36. 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 supplied) Section 282 (A) of the 1997 National Internal Revenue Code, as amended, (Tax Code) embodies 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". It must be noted that the Tax Code, likewise has a repealing clause under Section 291. Thus, Section 35 of P.D. No. 1773 was repealed. The state of law on the matter provides only for a 10% of the amount recovered or one million pesos (Php1,000,000.00), whichever is lower. Your trust in the Opinion dated April 4, 2006 issued by the Secretary of Justice stating that "Section 1 of Republic Act No. 2338 still prevails over Section 282 (A) of the National Internal Revenue Code of 1997 (RA 8424)", thus cannot be given weight. Emphasis must be placed on the fact that Section 4 of the Tax Code specifically provides that the power to interpret the Tax Code and other tax laws will be under the exclusive and original jurisdiction of the Commissioner of the Bureau of Internal Revenue (BIR), subject to review by the Secretary of Finance. As head of the office, the Commissioner, under Section 29 of Executive Order No. 292 (Administrative Code), 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. Hence, the Commissioner is the proper office charged with the administration of revenue laws and with the authority to render the interpretation of tax laws, particular 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. Assuming arguendo that you are indeed entitled to 25% informer's reward, sufficient proof must be established. The Department of Finance is the appropriate 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 National Internal Revenue Code, as amended, which states that: aETASc "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) This has traditionally been the rule under the 1977 Tax Code, as amended, as embodied in Revenue Memorandum Order (RMO) No. 12-93 which covers the "Guidelines in the Filing of Confidential Information for Violations of the National Internal Revenue Code (NIRC) and Investigation by Authorized Revenue Officer", 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) Without the Commissioner's recommendation and the Secretary of Finance's approval thereof, you are still not entitled to the alleged amount of Php43,143,991.32, as additional informer's reward. This recommendation and approval is essential not only because it is required by law, but moreso, in order to determine the factual and legal basis of the claim for informer's reward. The instant case clearly exemplifies the necessity of the evaluation and recommendation of the Commissioner and the approval of the Secretary of Finance. In view of the foregoing, we regret to deny your claim for payment of the alleged informer's reward for lack of legal and factual basis. DAEIHT Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue