Legal Positions of Former SSS Representatives to the Board of Directors of Its Investee Corporations

DOJ OPINION NO. 093 , s. 2012 November 5, 2012 Vice President Voltaire P. Agas Chief Legal Counsel Social Security System East Avenue Diliman, Quezon City Dear Vice President Agas : This pertains to your request for opinion on the responses or legal positions of the former nominees/representatives of the Social Security System (SSS),namely, Sergio R. Ortiz-Luis, Jr.,Fe Tibalayn, Palileo, Ma. Luz C. Generoso, Bernardino R. Abes, Corazon S. dela Paz-Bernardo, Sergio A. F. Apostol, Romulo L. Neri, Donald G. Dee, Lucito L. Sioson, Arturo G. San Gabriel, and Efren P. Aranza Mendez, to the boards of directors of its investee corporations, Philex Mining Corporation (PMC),Asiatrust Bank, Security Bank, Equitable PCI Bank, Union Bank of the Philippines (UBP),Philippine Long Distance Telephone Company, and Ionica. You mentioned that you sent demand letters for these nominees to remit to the SSS the amounts they received as director's fees, among others, and to endorse to the SSS the stock options they came into possession during their representation of the SSS in the said companies. You likewise, stated that the same matter was essentially subject of our DOJ Opinion No. 57, series 2010, contained in our letter dated 18 November 2010. In said DOJ Opinion, the propriety of receiving per diems, profit-sharing monies, bonuses, and other benefits, in the director's personal capacity, was discussed. Pertinent portions are reproduced, as follows: "Applied in the instant case, per diems given by firms to SSS nominated directors may be accepted directly by the directors the same being in nature of reimbursement or allowance for the expenses incurred by him in the performance of his functions. The same goes with the remuneration provided in the corporation's by-laws or granted pursuant to the action/desire of firm's stockholders . "Anent the money received pursuant to the corporation's profit sharing scheme and the bonuses awarded, the answer would depend upon the nature of the scheme and the purpose of the bonuses granted. cDCaHA " It must be noted that a profit-sharing system or scheme is not limited to investor but may involve an employee of the firm which can, pursuant to the scheme, also be given a share in the profits of the business establishment. If the scheme is grounded upon the investments made, then the director concerned must surrender or remit to the SSS the money received by reason thereof. The same is true with the bonuses and other benefits received by the director: if the reason for the grant is the work performed by the director, unless the same would amount to double compensation, we think the director can directly accept the same: otherwise, no .This is true especially considering Section 54 of the Government Accounting and Auditing Manual which is clear and explicit." (Emphasis Ours) Given that the Department already issued its opinion on the matter, what is left is the application of said opinion. Following the foregoing, the Department respectfully declines from giving an opinion based on the following: First, the request does not present the complete factual situation from which this Department may draw its premises and conclusions. Any opinion that the Secretary of Justice might render on the issue would be purely hypothetical and speculative, and, therefore, not determinative of the question. 1 In the application of the DOJ Opinion No. 57, series of 2010, there must be a determination as to whether the funds in question were (1) remuneration acquired through the investee corporations' by-laws; and (2) monies acquired through work performed by the director, unless the same would amount to double compensation, before the director can directly accept the same. What seems to be the general trend in the responses is that the directors assert ownership over the subject funds, including the stock options, through the corporations' by-laws or through work they personally performed. However, there is no reason given for each grant of the private corporations of the numerous funds in question. There was no copy of board resolutions alluded to, or specifications of the personal work the directors supposedly performed. In the absence of said information, the Department cannot grant your request for opinion. Second, respondents likewise aver that as proofs that they owned the funds, they paid taxes for them. They reasoned that had it been owned by the SSS, no taxes would have been imposed because SSS is a tax-exempt entity. This argument is specious because assuming that there were accounting mistakes when the funds were considered as part of personal income of respondents, the government is not precluded from making corrections under appropriate conditions. cCTIaS Relevant to this, please note that from the records of the Department, it seems that the cases of Mr. Neri, docketed as Crim. Case Nos. O-251 and 252, initiated by the Bureau of Internal Revenue (BIR), are already pending before the Court of Tax Appeals (CTA), allegedly for deliberately failing to declare his correct tax base for taxable years 2008 and 2009 by not declaring his actual income from PMC and UBP. Said underdeclaration is in violation of the National Internal Revenue Code, particularly Section 24 in relation to Sections 74 2 and 255. 3 We request that you coordinate with the BIR to determine whether the monies you are questioning are already subject of the criminal complaint. This is because per Republic Act No. 9282, the CTA, in appropriate cases, has jurisdiction over criminal offenses and the corresponding civil action for the recovery of civil liability for taxes and penalties. The filing of the criminal action is deemed to necessarily carry with it the filing of the civil action, and no right to reserve the filing of such civil action separately from the criminal action will be recognized. Relevant portions are quoted, as follows: "SEC. 7. Section 7 of the same Act is hereby amended to read as follows: "Sec. 7. Jurisdiction . The CTA shall exercise: xxx xxx xxx "(b) Jurisdiction over cases involving criminal offenses as herein provided: DTIaHE "(1) Exclusive original jurisdiction over all criminal offenses arising from violations of the National Internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or the Bureau of Customs: Provided, however, That offenses or felonies mentioned in this paragraph where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than One million pesos (P1,000,000.00) or where there is no specified amount claimed shall be tried by the regular courts and the jurisdiction of the CTA shall be appellate. Any provision of law or the Rules of Court to the contrary notwithstanding, the criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with, and jointly determined in the same proceeding by the CTA, the filing of the criminal action being deemed to necessarily carry with it the filing of the civil action, and no right to reserve the filing of such civil action separately from the criminal action will be recognized ." (Emphasis ours) Hence, it must first be determined whether the monies you are questioning are already subject of a criminal case or, otherwise stated, whether the issue you are raising is already a matter that is subjudice .As a matter of policy, the Secretary of Justice has consistently refrained from rendering opinion on questions which are subjudice or are currently pending with the court. 4 Significantly, the cases of the other nominees, which may or may be already pending before the CTA, should be regarded in similar light. Please be guided accordingly. DCASEc Very truly yours, (SGD.) LEILA M. DE LIMA Secretary Footnotes 1. Op. No. 56, s. 1996, and No. 16, s. 2003, No. 65, s. 2009; No. 64, s. 2008. 2. SEC. 74. Declaration of Income Tax for Individuals . (A) In General. Except as otherwise provided in this Section, every individual subject to income tax under Sections 24 and 25 (A) of this Title, who is receiving self-employment income, whether it constitutes the sole source of his income or in combination with salaries, wages and other fixed or determinable income, shall make and file a declaration of his estimated income for the current taxable year on or before April 15 of the same taxable year. In general, self-employment income consists of the earnings derived by the individual from the practice of profession or conduct of trade or business carried on by him as a sole proprietor or by a partnership of which he is a member. Nonresident Filipino citizens, with respect to income from without the Philippines, and nonresident aliens not engaged in trade or business in the Philippines, are not required to render a declaration of estimated income tax. The declaration shall contain such pertinent information as the Secretary of Finance, upon recommendation of the Commissioner, may, by rules and regulations prescribe. An individual may make amendments of a declaration filed during the taxable year under the rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner. (B) Return and Payment of Estimated Income Tax by Individuals . The amount of estimated income as defined in Subsection (C) with respect to which a declaration is required under Subsection (A) shall be paid in four (4) installments. The first installment shall be paid at the time of the declaration and the second and third shall be paid on August 15 and November 15 of the current year, respectively. The fourth installment shall be paid on or before April 15 of the following calendar year when the final adjusted income tax return is due to be filed. (C) Definition of Estimated Tax . In the case, of an individual, the term 'estimated tax' means the amount which the individual declared as income tax in his final adjusted and annual income tax return for the preceding taxable year minus the sum of the credits allowed under this Title against the said tax. If, during the current taxable year, the taxpayer reasonable expects to pay a bigger income tax, he shall file an amended declaration during any interval of installment payment dates. SEC. 75. Declaration of Quarterly Corporate Income Tax. Every corporation shall file in duplicate a quarterly summary declaration of its gross income and deductions on a cumulative basis for the preceding quarter or quarters upon which the income tax, as provided in Title II of this Code, shall be levied, collected and paid. The tax so computed shall be decreased by the amount of tax previously paid or assessed during the preceding quarters and shall be paid not later than sixty (60) days from the close of each of the first three (3) quarters of the taxable year, whether calendar or fiscal year. 3. SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation. Any person required under this Code or by rules and regulations promulgated thereunder to pay any tax make a return, keep any record, or supply correct the accurate information, who willfully fails to pay such tax, make such return, keep such record, or supply correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times required by law or rules and regulations shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine of not less than Ten thousand pesos (P10,000) and suffer imprisonment of not less than one (1) year but not more than ten (10) years. . . . 4. Memorandum n Circular No. 026, s. 2012. n n Note from the Publisher: Written as "Department Circular No. 026, s. 2012" in the official document. n Note from the Publisher: Written as "Department Circular No. 026, s. 2012" in the official document.