Professional Documents
Culture Documents
5 Pacquiao vs. CTA
5 Pacquiao vs. CTA
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* SECOND DIVISION.
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21
Same; Same; Same; Same; Same; The Court of Tax Appeals (CTA)
should have conducted a preliminary hearing and received evidence so it
could have properly determined whether the requirement of providing the
required security under Section 11, Republic Act (RA) No. 1125 could be
reduced or dispensed with pendente lite.—Though it may be true that it
would have been premature for the CTA to immediately determine whether
the assessment made against the petitioners was valid or whether the
warrants were properly issued and served, still, it behooved upon the CTA to
properly determine, at least preliminarily, whether the CIR, in its
assessment of the tax liability of the petitioners, and its effort of collecting
the same, complied with the law and the pertinent issuances of the BIR
itself. The CTA should have conducted a preliminary hearing and received
evidence so it could have properly determined whether the requirement of
providing the required security under Section 11, R.A. No. 1125 could be
reduced or dispensed with pendente lite.
Taxation; Assessment; The determination of whether the methods,
employed by the Commissioner of Internal Revenue (CIR) in its assessment,
jeopardized the interests of a taxpayer for being patently in violation of the
law is a question of fact that calls for the reception of evidence which would
serve as basis.—Absent any evidence and preliminary determination by the
CTA, the Court cannot make any factual finding and settle the issue of
whether the petitioners should comply with the security requirement under
Section 11, R.A. No. 1125. The determination of whether the methods,
employed by the CIR in its assessment, jeopardized the interests of a
taxpayer for being patently in violation of the law is a question of fact that
calls for the reception of evidence which would serve as basis. In this
regard, the CTA is in a better position to initiate this given its time and
resources. The remand of the case to the CTA on this question is, therefore,
more sensible and proper.
Same; Same; In the conduct of its preliminary hearing, the Court of
Tax Appeals (CTA) must balance the scale between the inherent power of the
State to tax and its right to prosecute perceived transgressors of the law, on
one side; and the constitutional rights of petitioners to due process of law
and the equal protection of the laws, on the other.—In the conduct of its
preliminary hearing, the CTA must balance the scale between the inherent
power of the State to
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tax and its right to prosecute perceived transgressors of the law, on one
side; and the constitutional rights of petitioners to due process of law and
the equal protection of the laws, on the other. In case of doubt, the tax court
must remember that as in all tax cases, such scale should favor the taxpayer,
for a citizen’s right to due process and equal protection of the law is amply
protected by the Bill of Rights under the Constitution.
MENDOZA, J.:
Before this Court is a petition for review on certiorari1 under
Rule 65 of the Rules of Court filed by petitioner spouses, now
Congressman Emmanuel D. Pacquiao (Pacquiao) and Vice
Governor Jinkee J. Pacquiao (Jinkee), to set aside and annul the
April 22, 2014 Resolution2 and the July 11, 2014 Resolution3 of the
Court of Tax Appeals (CTA), First Division, in CTA Case No. 8683.
Through the assailed issuances, the CTA granted the petitioners’
Urgent Motion to Lift Warrants of Distraint & Levy and
Garnishment and for the Issuance of an Order to Suspend the
Collection of Tax with Prayer for the Issuance of a Temporary
Restraining Order4 [Urgent Motion], dated October 18, 2013, but
required them, as a condition, to deposit a cash bond in the amount
of P3,298,514,894.35 or post a bond of P4,947,772,341.53.
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1 Rollo, pp. 3-55.
2 Id., at pp. 82-91.
3 Id., at pp. 92-100.
4 Id., at pp. 635-654.
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The Antecedents
The genesis of the foregoing controversy began a few years
before the petitioners became elected officials in their own right.
Prior to their election as public officers, the petitioners relied heavily
on Pacquiao’s claim to fame as a world-class professional boxer.
Due to his success, Pacquiao was able to amass income from both
the Philippines and the United States of America (US). His income
from the US came primarily from the purses he received for the
boxing matches he took part under Top Rank, Inc. On the other
hand, his income from the Philippines consisted of talent fees
received from various Philippine corporations for product
endorsements, advertising commercials and television appearances.
In compliance with his duty to his home country, Pacquiao filed
his 2008 income tax return on April 15, 2009 reporting his
Philippine-sourced income.5 It was subsequently amended to include
his US-sourced income.6
The controversy began on March 25, 2010, when Pacquiao
received a Letter of Authority7 (March LA) from the Regional
District Office No. 43 (RDO) of the Bureau of Internal
Revenue (BIR) for the examination of his books of accounts and
other accounting records for the period covering January 1, 2008 to
December 31, 2008.
On April 15, 2010, Pacquiao filed his 2009 income tax
return,8 which although reflecting his Philippines-sourced income,
failed to include his income derived from his earnings in the
US.9 He also failed to file his Value-Added Tax (VAT) returns for the
years 2008 and 2009.10
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11 Id., at p. 547.
12 Id., at p. 550.
13 Id., at p. 551.
14 Dated June 28, 2010.
15 Rollo, pp. 552-554.
16 Id., at pp. 555-556.
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17 Id., at p. 558.
18 Id., at pp. 559-561.
19 SEC. 235. Preservation of Books and Accounts and Other Accounting
Records.—All the books of accounts, including the subsidiary books and other
accounting records of corporations, partnerships, or persons, shall be preserved by
them for a period beginning from the last entry in each book until the last day
prescribed by Section 203 within which the Commissioner is authorized to make an
assessment.
The said books and records shall be subject to examination and inspection by
internal revenue officers: Provided, That for income tax purposes, such examination
and inspection shall be made only once in a taxable year, except in the following
cases:
(a) Fraud, irregularity or mistakes, as determined by the Commissioner; (b) The
taxpayer requests reinvestigation; (c) Verification of compliance with withholding tax
laws and regulations; (d) Verification of capital gains tax liabilities; and (e) In the
exercise of the Commissioner’s power under Section 5(B) to obtain information from
other persons in which case, another or separate examination and inspection may be
made.
Examination and inspection of books of accounts and other accounting records
shall be done in the taxpayer’s office or place of business or in the office of the
Bureau of Internal Revenue.
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They added that even if they wanted to, they could no longer find
copies of the documents because during those years, their
accounting records were then managed by previous counsels, who
had since passed away. Finally, the petitioners pointed out that their
tax liabilities for the said years had already been fully settled with
then CIR Jose Mario Buñag, who after a review, found no fraud
against them.20
On June 21, 2011, on the same day that the petitioners made their
last compliance in submitting their tax-related documents, the CIR
issued a subpoena duces tecum21 requiring the petitioners to submit
additional income tax and VAT-related documents for the years
1995-2009.
After conducting its own investigation, the CIR made its initial
assessment finding that the petitioners were unable to fully settle
their tax liabilities. Thus, the CIR issued its Notice of Initial
Assessment-Informal Conference (NIC),22 dated January 31,
2012, directly addressed to the petitioners, informing them that
based on the best evidence obtainable, they were
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All corporations, partnerships or persons that retire from business shall, within ten
(10) days from the date of retirement or within such period of time as may be allowed
by the Commissioner in special cases, submit their books of accounts, including the
subsidiary books and other accounting records to the Commissioner or any of his
deputies for examination, after which they shall be returned.
Corporations and partnerships contemplating dissolution must notify the
Commissioner and shall not be dissolved until cleared of any tax liability.
Any provision of existing general or special law to the contrary notwithstanding,
the books of accounts and other pertinent records of tax-exempt organizations or
grantees of tax incentives shall be subject to examination by the Bureau of Internal
Revenue for purposes of ascertaining compliance with the conditions under which
they have been granted tax exemptions or tax incentives, and their tax liability, if any.
20 Rollo, pp. 562-564.
21 Id., at pp. 566-572.
22 Id., at pp. 574-578.
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failure to file a return shall not prevent the Commissioner from authorizing the
examination of any taxpayer.
Any return, statement of declaration filed in any office authorized to receive the
same shall not be withdrawn: Provided, That within three (3) years from the date of
such filing, the same may be modified, changed, or amended: Provided, further, That
no notice for audit or investigation of such return, statement or declaration has in the
meantime been actually served upon the taxpayer.
(B) Failure to Submit Required Returns, Statements, Reports and other
Documents.—When a report required by law as a basis for the assessment of any
national internal revenue tax shall not be forthcoming within the time fixed by laws or
rules and regulations or when there is reason to believe that any such report is false,
incomplete or erroneous, the Commissioner shall assess the proper tax on the best
evidence obtainable.
In case a person fails to file a required return or other document at the time
prescribed by law, or willfully or otherwise files a false or fraudulent return or other
document, the Commissioner shall make or amend the return from his own
knowledge and from such information as he can obtain through testimony or
otherwise, which shall be prima facie correct and sufficient for all legal purposes.
(C) Authority to Conduct Inventory-taking, surveillance and to Prescribe
Presumptive Gross Sales and Receipts.—The Commissioner may, at any time during
the taxable year, order inventory-taking of goods of any taxpayer as a basis for
determining his internal revenue tax liabilities, or may place the business operations
of any person, natural or juridical, under observation or surveillance if there is reason
to believe that such person is not declaring his correct income, sales or receipts for
internal revenue tax purposes.
The findings may be used as the basis for assessing the taxes for the other months
or quarters of the same or different taxable years and such assessment shall be
deemed prima facie correct.
When it is found that a person has failed to issue receipts and invoices in violation
of the requirements of Sections 113 and 237 of this Code, or when there is reason to
believe that the books of accounts or other records do not correctly reflect the
declarations made or to be made in a return required to be filed under the provisions
of this Code, the Commissioner, after taking into account the sales, receipts, income
or other taxable base of other persons engaged in similar businesses under similar
situations or circumstances or after
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they found the petitioners liable not only for deficiency income
taxes in the amount of P714,061,116.30 for 2008 and
P1,446,245,864.33 for 2009, but also for their nonpayment of
their VAT liabilities in the amount P4,104,360.01 for 2008 and
P24,901,276.77 for 2009.
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38 Id., at p. 793.
39 Id., at p. 792.
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D.
Respondent Court acted with grave abuse of discretion
amounting to lack or excess of jurisdiction when it
imposed a bond requirement which will effectively prevent
Petitioners from continuing the prosecution of its appeal
from the arbitrary and bloated assessments issued by
Respondent Commissioner.41
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48 Rollo, p. 1238.
49 Id., at pp. 1296-1298.
50 Id., at p. 1298.
51 Id., at pp. 1298-1310.
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52 Id., at pp. 1313-1317.
53 Entitled “An Act Expanding the Jurisdiction of the Court of Tax Appeals
(CTA), Elevating its Rank to the Level of a Collegiate Court with Special Jurisdiction
and Enlarging its Membership, Amending for the Purpose Certain Sections or
Republic Act No. 1125, as amended, Otherwise Known as the Law Creating the Court
of Tax Appeals, and for Other Purposes.”
40
41
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56 Id., at p. 828.
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57 Id., at p. 829.
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58 Id.
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59 Rollo, p. 98.
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46 SUPREME COURT REPORTS ANNOTATED
Pacquiao vs. Court of Tax Appeals, First Division
Petition to be remanded to
the CTA; CTA to conduct
preliminary hearing
As the CTA is in a better, position to make such a preliminary
determination, a remand to the CTA is in order. To resolve the issue
of whether the petitioners should be required to post the security
bond under Section 11 of R.A. No. 1125, and, if so, in what, amount,
the CTA must take into account, among others, the following:
First. Whether the requirement of a Notice of Informal
Conference was complied with.—The petitioners contend that the
BIR issued the PAN without first sending a NIC to petitioners. One
of the first requirements of Section 3 of Revenue
Regulation (R.R.) No. 12-99,60 the then prevailing regulation
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report whether or not the taxpayer agrees with his findings that the taxpayer is
liable for deficiency tax or taxes. If the taxpayer is not amenable, based on the said
Officer’s submitted report of investigation, the taxpayer shall be informed, in writing,
by the Revenue District Office or by the Special Investigation Division, as the case
may be (in the case Revenue Regional Offices) or by the Chief of Division concerned
(in the case of the BIR National Office) of the discrepancy or discrepancies in the
taxpayer’s payment of his internal revenue taxes, for the purpose of “Informal
Conference,” in order to afford the taxpayer with an opportunity to present his side of
the case. If the taxpayer fails to respond within fifteen (15) days from date of receipt
of the notice for informal conference, he shall be considered in default, in which case,
the Revenue District Officer or the Chief of the Special Investigation Division of the
Revenue Regional Office, or the Chief of Division in the National Office, as the case
may be, shall endorse the case with the least possible delay to the Assessment
Division of the Revenue Regional Office or to the Commissioner or his duly
authorized representative, as the case may be, for appropriate review and issuance of
a deficiency tax assessment, if warranted.
x x x x
61 While R.R. No. 12-99 was recently amended by R.R. No. 18-2013 on
November 28, 2013, the same should not be deemed to have retroacted effect and
cure the otherwise fatal defect committed by the CIR. R.R. No. 18-2013 is bereft of
any indication that the revenue regulation shall operate retroactively.
62 Commissioner of Internal Revenue v. Metro Star Superama, Inc., 652 Phil.
172, 186; 637 SCRA 633, 646 (2010).
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A. x x x x
B. Issuance of Letters of Authority in RATE cases.—
1. In all RATE cases, a preliminary investigation must first be conducted to
establish prima facie evidence of fraud or tax evasion. Such investigation shall
include the verification and determination of the schemes employed and the extent of
fraud perpetrated by the subject taxpayer;
2. In the event that, following the conduct of the required preliminary
investigation, the NID/SIDs should determine that there is prima facie evidence of tax
fraud, it shall submit the case, together with a memorandum justifying the issuance of
a Letter of Authority (LA) to the Deputy Commissioner-Legal and Inspection Group
(DCIR-LIG), through the Assistant Commissioner (Enforcement Service)/the
concerned Regional Director, for evaluation;
The DCIR-LIG shall then evaluate the request, and determine whether the same
shall be recommended for approval by the Commissioner of Internal Revenue. If the
DCIR-LIG finds a request meritorious, the docket of the case, together with the
memorandum-request bearing the concurrence of the DCIR-LIG, shall be forwarded
to the Commissioner, for final review and approval.
3. The DCIR-LIG shall likewise conduct the appropriate verification with the
Letter of Authority Monitoring System (LAMS), to ascertain whether a LA for a
taxpayer for a particular taxable year has already been issued to the concerned
taxpayer.
In the event that, following such verification, it is ascertained that no LA has been
previously issued against the concerned taxpayer, a printout of the LAMS search
results must be included in the docket of the case, to support the issuance of the
requested LA.
4. If, however, it is disclosed that an LA was previously issued for the concerned
taxpayer, and that the corresponding investigation has already been commenced or
concluded, the DCIR-LIG shall include in the request for issuance of an LA a
recommendation and justification for the reassignment to, or reopening of the
investigation by, the NID/SID concerned. The Commissioner shall then decide
whether the investigation shall be continued by the present investigating office, or if
the investigation shall be reassigned to/re-opened by the NID/SID concerned.
5. In the event that the Commissioner should rule in favor of the reassignment
to/reopening of the tax investigation by the NID/SID, the DCIR-LIG shall inform the
RDO/LT District Office or
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66 Commissioner of Internal Revenue v. Reyes, 516 Phil. 176, 186; 480 SCRA
382, 385 (2006).
67 Collector of Internal Revenue v. Benipayo, 114 Phil. 135, 138; 4 SCRA 182,
185 (1962).
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Fifth. Whether the FDDA, the PCL, the FNBS, and the Warrants
of Distraint and/or Levy were validly issued.—In its hearing, the
CTA must also determine if the following allegations of the
petitioners have merit:
a. The FDDA and PCL were issued against
petitioner Pacquiao only. The Warrant of Distraint
and/or Levy/Garnishment issued by the CIR, however,
were made against the assets of both petitioners;
b. The warrants of garnishment had been served on
the banks of both petitioners even before the
petitioners received the FDDA and PCL;
c. The Warrant of Distraint and/or Levy/
Garnishment against the petitioners was allegedly
made prior to the expiration of the period allowed
for the petitioners to pay the assessed deficiency
taxes;
d. The Warrant of Distraint and/or Levy/
Garnishment against petitioners failed to take into
consideration that the deficiency VAT was already
paid in full; and
e. Petitioners were not given a copy of the
Warrants. Sections 20768 and 20869 of the
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increment thereto incident to delinquency, and the expenses of the distraint and the
cost of the subsequent sale.
A report on the distraint shall, within ten (10) days from receipt of the warrant, be
submitted by the distraining officer to the Revenue District Officer, and to the
Revenue Regional Director: Provided, That the Commissioner or his duly authorized
representative shall, subject to rules and regulations promulgated by the Secretary of
Finance, upon recommendation of the Commissioner, have the power to lift such
order of distraint: Provided, further, That a consolidated report by the Revenue
Regional Director may be required by the Commissioner as often as necessary.
(B) Levy on Real Property.—After the expiration of the time required to pay the
delinquent tax or delinquent revenue as prescribed in this Section, real property may
be levied upon, before simultaneously or after the distraint of personal property
belonging to the delinquent. To this end, any internal revenue officer designated by
the Commissioner or his duly authorized representative shall prepare a duly
authenticated certificate showing the name of the taxpayer and the amounts of the tax
and penalty due from him. Said certificate shall operate with the force of a legal
execution throughout the Philippines.
Levy shall be affected by writing upon said certificate a description of the property
upon which levy is made. At the same time, written notice of the levy shall be mailed
to or served upon the Register of Deeds for the province or city where the property is
located and upon the delinquent taxpayer, or if he be absent from the Philippines, to
his agent or the manager of the business in respect to which the liability arose, or if
there be none, to the occupant of the property in question.
In case the warrant of levy on real property is not issued before or simultaneously
with the warrant of distraint on personal property, and the personal property of the
taxpayer is not sufficient to satisfy his tax delinquency, the Commissioner or his duly
authorized representative shall, within thirty (30) days after execution of the distraint,
proceed with the levy on the taxpayer’s real property.
Within ten (10) days after receipt of the warrant, a report on any levy shall be
submitted by the levying officer to the Commissioner or his duly authorized
representative: Provided, however, That a consolidated report by the Revenue
Regional Director may be required by the Commissioner as often as necessary:
Provided, further, That the
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Additional Factors
In case the CTA finds that the petitioners should provide the
necessary security under Section 11 of R.A. No. 1125, a
recomputation of the amount thereof is in order. If there would be a
need for a bond or to reduce the same, the CTA should take
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