BIR Ruling No. 161-11

May 19, 2011 BIR RULING NO. 161-11 Danilo A. Lihaylihay 25 Kaunlaran St., Batasan Hills Quezon City Sir : This refers to your letter dated April 27, 2011 contesting that BIR Ruling No. 134-2011 dated April 15, 2011 is "Void Ab Initio and no binding effect for being contrary to law and the rules." The said ruling is disputed for rendering the following decisions: 1) The 1997 Tax Code, as amended, is a special law, which expressly repealed the inconsistent provisions in the 1977 NIRC and RA 2338; 2) Memorandum dated January 30, 2007 is without force and effect as it was overturned by Memorandum dated July 23, 2007; 3) Commissioner of Internal Revenue has the power to interpret tax laws under Section 4 of the 1997 Tax Code, as amended; 4) BIR offices rendering quasi-judicial functions are excluded from the coverage of RA 9485; and 5) Claims for informer's reward have been denied for lack of factual and legal basis. Based on the foregoing, you now raise the following arguments: DTaSIc 1) "The Special Provisions No. 3 of BIR GAA's for CY 2002 and onwards (RA 9162, etc.) state that informer's reward is recorded as trust receipt and deposited to the National Treasury. Disbursement from trust receipts or informer's reward is subject to the issuance of NCA by the DBM pursuant to EO No. 338 series 1996 but not subject to the ruling or judgment of the Commissioner of Internal Revenue." 2) "The law (RA 9485 and its IRR's) provided that the PROCESSING of REWARD shall no longer than ten (10) working days from receipt of the REQUEST. The law also requires all government offices to put up a FRONTLINE SERVICE for this purpose. Clearly, the rule is to PROCESS the reward in ten (10) days only but not to delay or deny it. The law commands the BIR to process but not to adjudicate/litigate the claim for reward of informers." 3) "In the case of Commissioner of Internal Revenue vs. Central Luzon Drug Corporation, 456 SCRA 419 (2005), provides that the Tax Code is a general law which cannot prevail over special law. Hence, the Tax Code of 1997 (RA 8424) cannot prevail over Republic Act No. 2338. The latter being a special law." We reply as follows: There is no recording as trust receipts and depositing with the National Treasury as there is no reward granted. The alleged informer's reward, having been denied for utter lack of factual and legal basis and no appeal was made to the proper forum, have not been recorded as trust receipts and deposited with the National Treasury pursuant to the GAA. The recording as a trust receipt and deposit with the National Treasury of the informer's reward is a regular provision (under the item Specific Provision) contained in the General Appropriations Act. In the recent R.A. No. 10147, or the "General Appropriations Act for Fiscal Year 2011", that provision reads: "3. Informer's Reward. Pursuant to Section 282(A) of R.A. No. 8424, ten percent (10%) of the revenues, surcharges or fees recovered and/or fines or penalties imposed for violations of the NIRC or One Million Pesos (P1,000,000) per case, whichever is lower, shall be recorded as trust receipts by the BIR and deposited with the National Treasury. Such amount may be released and used for the payment of informer's reward to persons instrumental in the discovery of such violations, . . . Implementation of this provision shall be subject to guidelines to be jointly issued by the DBM, BIR and BTr. " (emphasis supplied) IACDaS A reading of the aforesaid provision would readily disclose that the informer's rewards to be recorded as trust receipts and deposited with the National Treasury are those that had already been approved by the Secretary of Finance upon recommendation of the BIR Commissioner. This certainly does not to apply to your claim for informer's reward that had been denied by the BIR. With the denial of his claim for informer's rewards, Complainant's proper recourse is to elevate the same to the Secretary of Finance, who is mandated by law to approve or grant informer's reward upon recommendation of the Commissioner of Internal Revenue. 1 The claims for informer's reward had already been duly acted upon and denied by the BIR within the authority to interpret tax laws under Section 4 of the 1997 Tax Code, as amended, and for being in accord with existing laws, rules and regulations on informer's reward. It is well to note that the mere filing of an affidavit denouncing a certain taxpayer does not automatically entitle an 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, such as Revenue Memorandum Order (RMO) No. 12-93 and the latest Revenue Regulations (RR) No. 16-2010. 2 The Commissioner of Internal Revenue 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 qualifications of confidential information, as what she did in the aforesaid cases. Section 4 3 of R.A. 8424 or the National Internal Revenue Code of 1997 (NIRC of 1997), 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 Internal Revenue, subject to review by the Secretary of Finance. Revenue Administrative Order (RAO) No. 011-09 4 provides that the claims for informer's reward shall be processed by the Law Division of the BIR National Office. The Law Division is tasked to process the informer's reward and to initiate the action for the payment thereof if the informer is entitled thereto. The Legal Service, under the direct supervision of the Deputy Commissioner for Legal and Inspection Group, is authorized to review, recommend and/or approve the actions taken by the Law Division relative to the entitlement of an informer to reward. Upon the Deputy Commissioner's recommendation and/or approval, the Commissioner of Internal Revenue shall make the recommendation for or of denial of the payment of reward to the informer. Should the Commissioner recommend the payment thereof, the said recommendation shall be passed upon by the Committee on Rewards of the Department of Finance and the same shall be approved by the Secretary of Finance, pursuant to RMO No. 12-93 and DOF Regulations No. 1, in relation to Section 282 of the 1997 Tax Code, as amended. Notwithstanding the Commissioner of Internal Revenue's recommendation for payment, the Secretary of Finance shall have the final decision on the matter. The Secretary may either adopt the Commissioner of Internal Revenue's recommendation of payment of reward or overturn and deny the claim pursuant to Department Order No. 7-02 5 dated May 7, 2002. HIETAc Under the Section 2 thereof, BIR Ruling No. 134-2011 shall be presumed valid until overturned or modified by the Secretary of Finance through a properly filed request for review in accord with the requirements set forth under Section 5 thereof. Hence, your contention that BIR Ruling No. 134-2011 is "Void Ab Initio and no binding effect for being contrary to law and the rules" is without merit. We reiterate that Section 3 of RA No. 9485 (otherwise known as the "Anti-Red Tape Act of 2007") explicitly excludes those government offices which perform judicial, quasi-judicial and legislative functions. 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. 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, such as the preparation and interpretation of revenue laws, implementing regulations/issuances, decisions on administrative protests involving questions of law and/or fact and claims for tax credit/refund of taxes erroneously paid, tax treaties, international tax policies and agreements and other legal matters, hence, removing 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. The pronouncement in CIR vs. Central Luzon Drug Corporation is inapplicable with the claim for informer's reward. To elucidate your off-beam stance on the decision rendered by the Supreme Court in Commissioner of Internal Revenue vs. Central Luzon Drug Corporation, 456 SCRA 419 (2005), the case pertains, not to informer's reward, but a claim for tax refund/credit in the amount of P904,769.00 allegedly arising from the 20% sales discount granted by respondent to qualified senior citizens in compliance with RA 7432. The pronouncement in the said case cannot be applied to support your argument since the case involves matters or issues totally different from your claim for informer's reward. In view of the foregoing, we sustain our earlier view in BIR Ruling No. 134-2011 dated April 15, 2011 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. You are advised to request for review of the said ruling by the Secretary of Finance pursuant to Department Order No. 7-02. Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Section 282 of the NIRC, as amended, provides "[T]hat the reward provided herein shall be paid under rules and regulations issued by the Secretary of Finance upon recommendation of the Commissioner". Section 15 of Finance Regulation No. 1 of the Department of Finance also provides that, "[I]n no case shall any amount be paid to the informer without prior approval of the Secretary of Finance." 2. "Guidelines, Rules & Procedures in the Filing of Confidential Information & the Investigation of Cases Arising Therefrom". 3. "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." 4. "Organization and Functions of the Legal Service Including the Divisions Under it Down to Section Level". 5. "Providing for the Implementing Rules of the First Paragraph of Section 4 of the National Internal Revenue Code of 1997. Repealing for this Purpose Department Order No. 005-99 and Revenue Administrative Order No. 1-99".