BIR Ruling No. 620-12

November 16, 2012 BIR RULING NO. 620-12 Sec. 282 (A) NIRC; RMO No. 12-93; BIR Ruling No. 074-11; BIR Ruling No. 134-11; BIR Ruling No. 085-10 Danilo A. Lihaylihay 25 Kaularan Street Batasan Hills, 1126 Quezon City Dear Mr. Lihaylihay, This is refers to your last and final demand letter dated March 29, 2010 requesting delivery of your Informer's Reward relative to your Confidential Information (C.I.) No. 43-97 against ORIENTAL TIN CAN & METAL SHEET MANUFACTURING CO., INC. or CHUA TEE AND COMPANY. Aside from your claim, you also raised the following issues: 1. Republic Act No. 2338 or The Informer's Reward Law, 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; and that 2. DOJ Opinion No. 18, Series of 2005 dated April 19, 2006 clarifying DOJ Opinion No. 18 Series of 2005 dated April 19, 2005 issued by Honorable Secretary of Justice Raul M. Gonzalez declared that the "25% monetary award as provided for under Section 1 of RA 2338 shall be the legal basis of the Government in computing the payment of informer's reward." We reply as follows: On the first two issues raised in your letter, this Office has had the occasion to extensively discuss the same considering that the same issues have been raised in BIR Ruling Nos. 074-11 dated March 14, 2011 and 134-11 dated April 15, 2011 which were all addressed and issued to you in relation to your other claims for reward. CAETcH We reiterate our position. Excerpts from BIR Ruling Nos. 074-11 dated March 14, 2011 and 134-11 dated April 15, 2011 are hereunder reproduced in toto : " The 1997 Tax Code, as amended, is a special law, which expressly repealed the inconsistent provisions in the 1977 NIRC and RA 2338 . 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 . HIaTDS 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: SHADEC 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. 2338, 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. 2338, a special law, being irreconcilable and inconsistent with P.D. No. 1158 (National Internal 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) 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: 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). SDITAC 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.)" xxx xxx xxx Commissioner of Internal Revenue has the power to interpret tax laws under Section 4 of the 1997 Tax Code, 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. 232 (Administrative Code) 292, 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. CSTEHI 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. IaHDcT 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." It is noted that notwithstanding Court's decision on your case and the receipt of various BIR Rulings which finally settled these issues, you persist and insist on your arguments with this Office in your claims for informer's reward. Coming now to the main issue of your claim of informer's reward under C.I. Nos. 43-97, please be informed as follows: C.I. No. 43-97 was filed on August 1, 1997 alleging that ORIENTAL TIN CAN & METAL SHEET MANUFACTURING CO., INC. AND/OR ITS PRESIDENT, MR. RAMON L. CHUA committed tax evasion/fraud for taxable years 1994, 1995 and 1996 through under declaration of gross sales/receipts. Results of investigation and records of the case of the Tax Fraud Division disclosed that a preliminary investigation was conducted on the basis of the confidential information and Letter of Authority (LA) No. 165608 dated May 29, 1998 was issued pursuant to the recommendation of the revenue officers who conducted the preliminary investigation. However, in the course of investigation and upon verification of records, the said taxpayer was already investigated by the Tax Fraud Division pursuant LA No. 71625 dated May 31, 1995 for taxable year 1994 and a report of investigation thereon was already submitted for evaluation and final approval per notice to the taxpayer dated October 15, 1996. As for taxable year 1995, the subject taxpayer was already investigated by Revenue District Office (RDO) No. 28-Novaliches, Quezon City under LA No. 86956 dated July 2, 1996 for that taxable year and that such investigation has been terminated. A report of investigation thereon was already submitted for evaluation and final approval per notice to the taxpayer dated August 14, 1996. For taxable year 1996, the taxpayer availed of the Voluntary Assessment Program under Revenue Memorandum Order (RMO) No. 59-97 as amended by RMO No. 63-97 and paid deficiency taxes in 1996. ESDHCa Section 4 of Finance Regulations Order No. 1 provides in part that to be deserving of a reward, the information given by the informer must lead to or be instrumental in the discovery of fraud or violation of any of the provisions of the National Internal Revenue Code and results in the recovery or collection of revenues or collection of compromise in case of amicable settlement. (BIR Ruling No. 085-10 dated October 6, 2010) Revenue Memorandum Order (RMO) No. 12-93 1 dated February 1, 1993 likewise provides: "V. Kinds of Information entitled to record: SIcEHC In order to entitle an informer to a reward, his information must not yet be in the possession of the Bureau of Internal Revenue nor shall it refer to a case of fraud or violation already pending or previously investigated or examined by the Commissioner of Internal Revenue or any of his deputies, agents or examiners , as the case may be, or by the Secretary of Finance or any of his deputies or agents. (Section 1, Republic Act 2338)." (Emphasis supplied) Inasmuch as audit investigations have been previously conducted on the denounced taxpayer covering taxable years 1994, 1995, and 1996, which are the same taxable years subject of C.I. No. 43-97, the denunciation you provided cannot be deemed to have been instrumental in the discovery of frauds on the internal revenue laws or violations of any of the provisions thereof, and which resulted in the recovery of revenues, surcharges and fees. Although an LA was issued after preliminary investigation by the Tax Fraud Division, the investigation pursuant to the LA did not result to the collection of deficiency taxes because the subject taxpayer has already been investigated before you furnished the Bureau with the C.I. More importantly, on November 4, 1998, you already furnished this Office an "Affidavit of Desistance, Waiver, Quitclaim and Undertaking" executed on October 16, 1998 and was duly notarized on October 21, 1998. In your Affidavit of Desistance, Waiver, Quitclaim and Undertaking , you expressly admitted the following: "2) That after a thorough inquiry and investigation on my part, and after consultation with tax experts both in the Bureau of Internal Revenue and in private sector, I realize that I was greatly mistaken in complaining or reporting that Oriental Tin Can & Metal Sheet Manufacturing Co., Inc. committed fraud in not paying the correct taxes; 3) That in view of the foregoing, I am hereby desisting from further complaining against the said corporation/company . . . and I am requesting the Bureau of Internal Revenue to cause and effectuate the closing or termination of my Confidential Information No. 43-97 against Oriental Tin Can & Metal Sheet Manufacturing Co., Inc. ; 4) That, further, I hereby forever waive and quit any and all claims that I may have against Oriental Tin Can & Metal Sheet Manufacturing Co., Inc. . . ." ESCcaT Thus, your execution of an Affidavit of Desistance, Waiver, Quitclaim and Undertaking contradicts, if not, negates your claim for informer's reward. In view of the foregoing, this Office hereby denies your claim for informer's reward in relation to C.I. No. 43-97 against ORIENTAL TIN CAN & METAL SHEET MANUFACTURING CO., INC. AND/OR ITS PRESIDENT, MR. RAMON L. CHUA, for lack of legal and factual basis. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Guidelines in the Filing of Confidential Information for Violations of the National Internal Revenue Code (NIRC) and Investigation by Authorized Revenue Officer.