BIR Ruling No. 134-11

April 15, 2011 BIR RULING NO. 134-11 000-00 Mr. Danilo A. Lihaylihay 25 Kaunlaran Street, Batasan Hills Quezon City Sir : This refers to your letter dated August 18, 2010 which was forwarded by the Department of Finance through 1st Indorsement dated August 24, 2010 and by the General Government Administration Office, Office of the President through letter dated October 29, 2010, raising the following issues: 1) "Republic Act No. 2338, which is a special law that provides 25% reward to informers in the BIR, should prevail over Section 282 of the National Internal Revenue Code (NIRC) of 1997, the latter being a general law." 2) "On January 30, 2007 the Honorable James H. Roldan, ACIR Legal Service, issued a Memorandum approving the payment of my 25% informer's reward pursuant to Section 1 of Republic Act No. 2338 but not 10% or P1M under Section 282 (A) of the NIRC of 1997" 3) "The aforesaid opinion of the Secretary of Justice giving 25% informer's reward pursuant to RA 2338 is valid and binding in all executive agencies of the government and remains as such unless finally reversed by the Honorable Supreme Court. The BIR or DOF Official has no authority to reverse, much less modify, the Opinion of the Secretary of Justice." 4) "Requesting that ALL OF MY PENDING CLAIMS FOR REWARD shall be processed and released to me within ten (10) working days from receipt hereof pursuant to Section 4 (c) in conjunction with Section 8 (b) of RA 9485 (Anti-Red Tape Act of 2007)" 5) "I have a pending claims for unpaid reward in the BIR amounting to ONE BILLION ONE-HUNDRED TWENTY MILLION PESOS (P1,120,000,000.00) already" We reply, as follows: The 1 997 Tax Cod e, as amended, is a special law, which expressly repealed the inconsistent provisions in the 1 977 NIR C and R A 233 8. 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. DCScaT 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 Nati onal Internal Revenue C ode is hereby amended to read as follows: 'Sec. 331. Informer's reward to persons instrumental in the discovery of violations of the Na tional Internal Revenue C ode and in the discovery and seizure of smuggled goods. 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. 75 15, Nov. 29, 2009) involving the same Danilo A. Liha ylihay, R.A. No. 23 38, a special law, being irreconcilable and inconsistent with P. D. No. 1158 (National Inter nal Revenue Code of 1977) another special law, may be deemed to have been nullified by the later law. (Agpalo, Statutory Construction, Fifth ed., p. 399, citing cases) CIHTac 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 N ational Internal Revenue Code), which further amended certain sections of the 1 977 NI RC, is clear and categorical, thus: 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. 23 38 had been totally and expressly repealed by the 1 977 NI RC, as amended by P. D. No. 17 73. 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 NI RC, R.A. No. 2 338 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. (M ecano vs. CO A , 216 SCRA 500, 504, citing Agpalo, Statutory Construction, 1989 ed., p. 289) The repealing clause of P.D. No. 1 158, as further amended by P.D. No. 17 73, 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 approved the payment of your 25% informer's reward based on Memorandum dated January 30, 2007 is utterly misleading. The Memorandum dated January 30, 2007 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. Hence, Memorandum dated July 23, 2007 was issued overturning the recommendation under Memorandum dated January 30, 2007. Based on the recommendation and instruction under Memorandum dated July 23, 2007, you have been duly notified by the Office of the Assistant Commissioner, Legal Service, through Memorandum M-026-2008 dated February 28, 2008 that "your request can not be granted for the following reasons: 1) The information was not instrumental in the collection of the taxes; and 2) The supplemental denunciation did not comply with the requirements of RMO No. 12-93, as it was not subscribed before the Law Division, this Bureau." Assuming arguendo that you are indeed entitled to informer's reward, sufficient proof must be established. ISDCaT Without the Commissioner's recommendation and the Secretary of Finance's approval thereof, you are not entitled to the alleged amount. 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. Your pending claims for rewards clearly exemplifies the necessity of the evaluation and recommendation of the Commissioner and the approval of the Secretary of Finance, as embodied under Section 282 of the 1997 Tax Code, as amended, wherein 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. Section 15 of Finance Regulation No. 1 of the Department of Finance adheres to the mandate of Section 282 of the 1997 Tax Code, as amended (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 and underscoring 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 and underscoring supplied) Hence, prior to the Bureau's payment of your alleged informer's reward, in case you are entitled thereto, the established procedure shall be complied with, which ultimately requires the recommendation of the Commissioner of Internal Revenue and the approval of the Secretary of Finance. Commissioner of Internal Revenue has the power to interpret tax laws under Section 4 of the 1 997 Tax Co de, as amended. Your reliance in the Opinions dated April 19, 2005 and April 4, 2006, respectively, issued by the Secretary of Justice rendering clarificatory ruling/opinion relative to the appropriate monetary awards given under the 1997 Tax Code, as amended, cannot be given weight. 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. 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 n (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. ATcaID 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." BIR offices rendering quasi- judicial functions are excluded from the coverage of R A No. 94 85. The provisions of Republic Act (RA) No. 9485 and its Implementing Rules and Regulations are inapplicable in the processing of claim of informer's reward. Section 3 of RA No. 9485 (otherwise known as the "Anti-Red Tape Act of 2007") particularly excludes those government offices which perform judicial, quasi-judicial and legislative functions. Section 3 provides: SEC. 3. Coverage. This Act shall apply to all government offices and agencies including local government units and government-owned or -controlled corporations that provide frontline services as defined in this Act. Those performing judicial, quasi-judicial and legislative functions are excluded from the coverage of this Act. (emphasis and underscoring supplied) In Midland Insurance Corporation vs. IAC (143 SCRA 458, 462 [1986]) , the Supreme Court has defined the function of a quasi-judicial body as "a term which applies to the action, discretion, etc., of public administrative officers or bodies, who are required to investigate facts, hold hearings, and draw conclusions from them, as a basis for their official actions and to exercise discretion of a judicial nature." It must be stressed that the Office of the Deputy Commissioner for Legal and Inspection Group of the BIR, its Legal Service, divisions and sections are performing quasi-judicial functions, which removes them from the ambit of Section 2 (g) Rule II and Section 2 (4) Rule VI of the Implementing Rules and Regulations (IRR) of RA No. 9485, requiring the processing of requests within the period of ten (10) working days in the case of complex transactions from the time the request or application was received. HESIcT Your claims for informer's reward have been denied for lack of factual and legal basis. The allegation that you have pending claims for unpaid reward amounting to One Billion One Hundred Twenty Million Pesos (P1,120,000,000.00) stemmed from the following internal revenue cases: 1) claiming P900,000,000.00 informer's reward relative to the internal revenue tax case of Bangko Sentral ng Pilipinas for taxable years 2004, 2006 and 2007; 2) claiming P54,000,000.00 informer's reward relative to the compromise payments made by Bank of America on its internal revenue tax case for taxable year 1995 and prior years; 3) claiming P43,000,000.00 informer's reward relative to the collections from Forever Living Products Philippines, Inc. which availed the benefits of Voluntary Assessment Program of the BIR under RMO No. 59-97; 4) claiming P22,000,000.00 informer's reward relative to the internal revenue tax case of the Estate of Benigno P. Toda, Jr.; and 5) claiming P101,000,000.00 informer's reward relative to the Civil Case No. 0109 entitled Republic of the Philippines vs. Fe Roa-Guitierrez, Ignacio Gimenez and Roberto Olanday. BIR Ruling No. 085-2010 dated October 6, 2010 denied your claim for informer's reward relative to the internal revenue tax case of Bangko Sentral ng Pilipinas (BSP) for taxable years 2004, 2006 and 2007 as well as on the compromise payments made by Bank of America (BA) on its internal revenue tax case for taxable year 1995 and prior years. With regards to your claim on the collections from the internal revenue case of Forever Living Products Philippines, Inc., 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. Despite the receipt thereof, you assert that you have only been partially paid and that you are still entitled to the immediate payment of the amount of 25% informer's reward, relying on RA 2338, which was already superseded by the 1997 Tax Code, as amended. Thus, BIR Ruling No. 086-2010 dated October 6, 2010 was issued denying your claim for payment of the alleged informer's reward. BIR Ruling No. 055-2010 dated September 15, 2010 denied your claim for reward relative to the internal revenue tax case of the Estate of Benigno P. Toda, Jr., sustaining the position of this Office in BIR Ruling No. DA-546-07 dated October 18, 2007 wherein it was held therein that the late Nicolas Y. Cervantes alias Rick Hernandez is the true and official confidential informant in the internal revenue tax case of the Estate of Benigno P. Toda, Jr., as covered by Confidential Informations (CI) No. 2458 dated September 15, 1990 and CI No. 113-92 dated December 29, 1992. Regarding Civil Case No. 0190, the case docket was forwarded to the Chairman, Presidential Commission on Good Government (PCGG) as per 1st Indorsement dated July 24, 2009 containing the request of Atty. David Michael O. Gabriel of Gabriel & Mendoza Law offices, relative to his client's claim of informer's reward in connection with the recoveries and/or forfeitures in Civil Case No. 0190, entitled Republic of the Philippines vs. Fe Roa-Guitierrez, Ignacio Gimenez and Roberto Olanday, with the information that no reward shall be granted, as no revenues can be accounted for as a result of the information given by the informer. aCHDAE Aside from your request being denied due to lack of factual and legal basis, the alleged amount that you are claiming is in violation of Section 282 (A) of the NIRC, as amended, which only allows 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". A review of the Toda case, BSP case and BA case show that your claims were denied for lack of factual and legal basis due to your failure to follow the essential requirements set forth under Section 282 (A) of the 1997 Tax Code, as amended, Finance Regulations No. 1 and Revenue Memorandum Order (RMO) No. 12-93. To effectively implement the provisions of the Tax Code, on the grant of informer's reward, the Bureau issued RMO 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 in relation to Finance Regulation No. 1 of the Department of Finance. 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. In your case, being a well-known tax informer who files tax denunciations against certain tax evaders and smugglers in the country and as the supposed president of Philippine Association of Revenue Informers, Inc. (PARI), it can be reasonably presumed that you are educated and knowledgeable with the intricacies of the law and established procedures in filing information, denunciations and claiming for rewards thereafter, and that you are fully aware of the requirements under Section 282 (A) of the 1997 Tax Code, as amended, Finance Regulations No. 1 and RMO No. 12-93, all of which have the force of law and are entitled to great weight. In view of the foregoing, we regret to inform you that your requests for the payment of informer's reward relative the aforementioned tax cases cannot be granted for lack of factual and legal basis. Insofar as this Office is concerned, this denial 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 n Note from the Publisher: Written as "Executive Order No. 232 (Administrative Code) 292" in the original document.