BIR Ruling No. 178-14

June 9, 2014 BIR RULING NO. 178-14 Danilo A. Lihaylihay 24-A Don Gregorio Street Don Antonio Heights Subdivision Holy Spirit, Commonwealth Avenue Quezon City Sir : This refers to your letter dated 1 August 2012 "requesting for the immediate disbursement by the Bureau of Internal Revenue of my unpaid informer's reward monies amounting to P6,433,020.25" relative to the internal revenue tax case of Filipino Metals Corporation ("Filmetals") for the years 1994, 1995 and 1996. Records show that on 17 July 1997, an affidavit which was recorded as Confidential Information No. 41-97 was filed by the above-named informer denouncing Filmetals for allegedly evading the payment of 10% VAT on steel bars sold and the 1% excise tax on gross purchases of metal materials for the years 1994, 1995 and 1996. On the basis of said confidential information and documents submitted by the informer, Letter of Authority (LA) No. 165610 was issued to the investigating examiners of the Tax Fraud Division, authorizing them to investigate Filmetals for all the internal revenue taxes for the period from January 1995 to December 1996. The case was assigned to Revenue Officer Orola who reported on July 31, 1998 that for the taxable years 1994 and 1995, Filmetals had already been investigated by Revenue District Office No. 24, Valenzuela City, while for taxable year 1996, Filmetals availed of the Voluntary Assessment Program under Revenue Memorandum Order (RMO) No. 59-97 and on 28 November 1997, Filmetals paid the amounts of Php5,530,436.21 and Php569,649.98 representing deficiency expanded withholding tax and value-added tax, respectively. ISAaTH It is now your contention that you are entitled to 15% informer's reward pursuant to Section 281 (1) of the Tax Code, as amended by P.D. No. 1773, claiming that Filmetals paid the following deficiency taxes based on the denouncement that you made under Confidential Information No. 41-97: List of BCS No. Date Bank Amount Dishonored Code Checks Verified 95-80032 05-25-95 021-010 Php208,275.53 05/95-09/95 95-80011 02-23-95 021-010 27,174.86 02/95-06/95 96-80063 09-26-96 021-010 115,855.30 09/96-01/97 96-80080 11-22-96 021-010 876,208.36 11/96-03/97 94-80003 04-20-94 010-083 622,313.22 04/94-08/94 94-80046 10-20-94 010-083 1,216,968.93 10/94-02/95 94-80053 11-25-94 010-083 995,336.76 11/94-03/95 94-80060 12-23-94 010-083 2,598,990.76 12/94-04/95 95-80018 04-20-95 010-083 5,484,577.59 04/95-08/95 95-80003 02-26-96 010-083 4,182,182.57 02/96-06/96 96-80013 03-25-96 010-083 878,568.30 03/96-07/96 96-80017 04-22-96 010-083 4,110,131.05 04/96-08/96 96-80023 05-27-HO* 010-083 3,895,372.71 05/96-09/96 96-80028 06-25-96 010-083 3,754,924.84 06/96-10/96 96-80031 07-22-96 010-083 1,931,911.60 07/96-11/96 96-80046 10-21-96 010-083 56,364.79 10/96-02/97 94-20204 03-25-94 010-083 3,255,572.26 03/94-07/94 Total Php34,210,729.43 ============== In reply, we regret to inform you that your request cannot be granted for lack of factual and legal basis. Section 281 (1) of the 1977 NIRC, as amended, the applicable provision in the instant case, now Section 282 (A), states that: "SEC. 281. 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. (1) For violation of the National Internal Revenue Code. Any person, except an internal revenue official or employee, or other public official, 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 fine or penalty, shall be rewarded in a sum equivalent to fifteen per centum of the revenues; surcharges or fees recovered and/or fine or penalty imposed and collected. 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 in such a case, the fifteen per centum reward fixed herein shall be based on the amount agreed upon in the compromise 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, agent 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 regulations issued by the Commissioner of Internal Revenue with the approval of the Secretary of Finance." (Emphasis supplied) From the above law, the determining factor to entitle petitioner to a reward is that he gave information "leading to the discovery of frauds" by internal revenue officers. Further, in order for the above section to be operative, it is sufficient that the person or entity concerned is subject to, and violated revenue laws, and the informer's report thereon resulted in the recovery of revenues. ( Commissioner of Internal Revenue vs. Commission on Audit , G.R. No. 101976, January 29, 1993) ECaAHS Applying the foregoing, since it appears that the aforesaid tax payments were voluntarily made by taxpayer Filmetals and not because of an investigation under LA No. 165610. Note that the payments were made in 1994, 1995 and 1996 while your confidential information was executed only in 1997. The payments therefore preceded the investigation. Thus, you are not entitled to reward on these payments. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue