Submitted by: Nacino, Allana Marie P.

Arellano University School of Law

Tax 2
Atty. Gerry Sebastian, CPA

Question 1

Under RMC 12-2018, the BIR states that Section 5, NIRC is an exception to the attorney-
client and accountant-client privilege because of the following reasons: (1) Rule 21.01 of the
Lawyer’s Code of Professional Responsibility provides that a lawyer shall not reveal the confidence
or secrets of his client except, among others, when required by law; (2) the Supreme Court in Genato
vs. Silapan, stressed that the said privilege doesn’t extend to those made in contemplation of a crime
or perpetration of fraud; (3) Section 29 of RA 9298 states that the accountant-client privilege does not
apply if the production of documents is through a subpoena issued by any court, tribunal, or
government regulatory or administrative body; (4) Section 140. 1 of the Code of Ethics of
Professional Accountants provides an exception to the accountant-client privilege on the ground of
legal right or duty to disclose; and (5) taxes are the lifeblood of our nation so it should be collected
without unnecessary impediment.

The BIR is incorrect.

First, while it is true that Rule 21.01 of the Lawyer’s Code of Professional Responsibility
provides an exception to the attorney-client privilege when required by law, it’s important to note that
this provision assumes the said law to be valid and not contrary to public policy, customs, and morals.
In this case, Section 5, NIRC cannot be said to fit the criterion of validity because it is against the
public policy and interest involved in the protection of the attorney-client privilege, which is to
encourage the client to make full disclosure to his attorney to avoid suppression of relevant evidence
that may help in the just and proper treatment of the client’s case. 1

Second, the ruling of the Supreme Court in Genato vs. Silapan cannot be applied in this case
because the line “or in determining the liability of any person for any internal revenue tax” 2 of
Section 5, NIRC allows the Commissioner of Internal Revenue (CIR) to fish for liability even if there
is no probable cause to do so in the first place. This goes beyond the purpose of preventing
perpetration of fraud, and rather encroaches on the rights of persons to due process.

Third, Section 29 of RA 9298 does not apply in this case. While the Bureau of Internal
Revenue has the power under its regulations 3 to issue Subpoena Duces Tecum, such rules and
regulations should stem from a valid law since administrative agencies are merely granted subordinate
legislation.4 However, since Section 5 of the NIRC, which is the basis of such power, is invalid for
violating due process by allowing the CIR to fish for liability without probable cause and for violating
1
Coquia, Jorge R., Attorney and Client Privileged Communication, 262 SCRA 194
2
Section 5, NIRC
3
BIR Revenue Memorandum Order No. 45-2010, May 12, 2010
4
Abakada Guro Party List v. Purisima, supra note 155, at 288
Submitted by: Nacino, Allana Marie P.

public policy, it follows that the power of BIR to issue Subpoena Duces Tecum to enforce Section 5,
NIRC is also not valid.

Fourth, Section 140. 1 of the Code of Ethics of Professional Accountants may not be used to
assert the legality of Section 5, NIRC because under the said provision, such power is given to the
CIR in the following instances: “in ascertaining the correctness of any return, or in making a return
when none has been made, or in determining the liability of any person for any internal revenue tax,
or in collecting any such liability, or in evaluating tax compliance” 5. None of these instances are
imminent or glaring enough to show probable cause of fraud or tax evasion to make it the legal right
or duty of the accountant to disclose or provide such information and documents provided under
Section 5, NIRC.

Lastly, while taxation is the lifeblood of the State, the power of taxation must be balanced
with the taxpayer’s right to substantial and procedural due process. The Supreme Court in various
instances, recognized that, between the power of the State to tax and an individual’s right to due
process, the scale favors the right of the taxpayer to due process. 6 Thus, if Section 5, NIRC violates
due process by allowing the CIR to fish for liability even without probable cause, the principle that
taxation is the lifeblood of the State cannot be used to defend the validity and enforceability of such
provision.

Question 2

(a) What is tax mapping?

In general, tax mapping is the activity where a tax map, a document showing the location,
dimension, and other information pertaining to a parcel of land subject to property taxes 7, is used
to verify compliance of different establishments to existing internal revenue laws.

In the Philippines, Tax Mapping, otherwise known as Tax Compliance Verification Drive
(TCVD), is a program introduced by the Bureau of Internal Revenue in 2003 to further expand the
tax base and enhance tax compliance of businesses in the country. 8

In terms of coverage, the BIR usually checks the following:

(1) Taxpayer’s registration of head office and branches (BIR Form No. 2303) along with related
updates thereto and posting the same in a conspicuous place;
(2) Payment of annual registration fee (BIR Form No. 0605) and posting the same in a
conspicuous place;
(3) Authority to print receipts and invoices, issuance of such receipts and invoices of every sale
of services and goods, and contents of receipts and invoices under the rule on invoicing
requirements.
(4) Registration of cash register machines (CRM), point-of-sale (POS) machines, and
computerized accounting system (CAS);

5
Section 5, NIRC
6
Commissioner of Internal Revenue vs Fitness by Design Inc., GR 215957, 9 November 2016
7
Tax Mapping retrieved at https://scp-ph.com/blogsite/tax-mapping/
8
BIR Revenue Memorandum Order No. 31-2003, September 18, 2003
Submitted by: Nacino, Allana Marie P.

(5) Display of registration notices and other related requirements; and

(6) Registration of books of accounts in the Philippines to manual and simplified books or BIR
approval on loose-leaf books of accounts and compliance with bookkeeping regulations. 9

(b) Does the BIR have a basis in conducting such an activity under the Tax Code?

Yes, the BIR has basis in conducting tax mapping in the country under the Tax Code. As provided
under Section 2 of the NIRC, “The Bureau of Internal Revenue shall be under the supervision and
control of the Department of Finance and its powers and duties shall comprehend the assessment and
collection of all national internal revenue taxes, fees, and charges, and the enforcement of all
forfeitures, penalties, and fines connected therewith, including the execution of judgments in all cases
decided in its favor by the Court of Tax Appeals and the ordinary courts. The Bureau shall give effect
to and administer the supervisory and police powers conferred to it by this Code or other laws” 10.

In relation thereto, the Tax Code provides that “it shall be the duty of every Revenue District
Officer or other internal revenue officers and employees to ensure that all laws, and rules and
regulations affecting national internal revenue are faithfully executed and complied with, and to aid
in the prevention, detection, and punishment of frauds of delinquencies in connection therewith” 11.

Further, Section 10 of the NIRC provides the following powers and authority to the Revenue
Regional Director:
(a) Implement laws, policies, plans, programs, rules and regulations of the department or
agencies in the regional area;
(b) Administer and enforce internal revenue laws, and rules and regulations, including the
assessment and collection of all internal revenue taxes, charges and fees;
(c) Issue Letters of authority for the examination of taxpayers within the region;
(d) Provide economical, efficient and effective service to the people in the area;
(e) Coordinate with regional offices or other departments, bureaus and agencies in the area;
(f) Coordinate with local government units in the area;
(g) Exercise control and supervision over the officers and employees within the region; and
(h) Perform such other functions as may be provided by law and as may be delegated by the
Commissioner.12

(c) What are the activities conducted in the Tax Mapping activity?

The following are the activities conducted in Tax Mapping: (1) Mission orders of revenue
officers; (2) Issuance of reminder letter; (3) Apprehension and confiscation of unauthorized items;
and (4) Tax mapping sticker13.

To start, a mission order shall be issued by the Regional Director authorizing specific revenue
officers to sign Taxpayer Information Sheet and apprehension slip. Afterwards, a reminder letter
shall be issued to all establishments that will be tax mapped. Such letter shall include the

9
A Complete Guide to Tax Mapping for Local and Foreign Enterprises in the Philippines retrieved at
https://ahcaccounting.com/tax-mapping-for-businesses-in-the-philippines/
10
Section 2, NIRC
11
Section 11 paragraph 1, NIRC
12
Section 10, NIRC
13
Garry S. Pagaspas, CPA, Features of Tax Mapping or Compliance Verification Drive Philippines
retrieved at https://taxacctgcenter.ph/tax-mapping-compliance-verification-drive-philippines/
Submitted by: Nacino, Allana Marie P.

following content: (a) enumeration of what every taxpayer/business establishment is required to

do; (b) a short list of the BIR requirements prior to, during, and after operations of a business; and
(c) commonly filed BIR forms and deadlines for their filing and payment of corresponding taxes
due thereon14.
Once the necessary apprehension and confiscation of unauthorized items has been done, the
tax mapping team shall, before leaving the taxpayer, post a tax mapping sticker as proof that the
establishment has been tax mapped with the following color coding 15:
 Yellow – first visit
 Red – second visit
 Green – third visit

(d) Is Tax Mapping a violation of the No LOA rule?

No. Tax Mapping is not a violation of the No LOA rule because the latter has an entirely
different purpose that that of tax mapping. Unlike tax mapping which aims to ensure compliance
with registration, bookkeeping, and invoicing regulations of the BIR, the No LOA rule
contemplates an assessment of tax.

(e) Is Tax Mapping a violation of the assessment notice rule?

No. Tax mapping does not violate the assessment notice rule because there is no assessment for
tax deficiencies in the case of tax mapping. Instead, said activity only apprehends establishments
for none compliance with registration, bookkeeping, and invoicing regulations of the BIR.

14
BIR Revenue Memorandum Order No. 31-2003, September 18, 2003
15
ID