It is said that tax operates from womb to tomb, cradle to grave and from erection to resurrection. In fact, part of what we pay for almost everything in our lifetime starting when we were in the belly of our mother until our death, is tax.
We pay VAT – value-added tax – for every food and goods we buy before we are born and estate tax when we die. It is part of our obligation as citizens and an act of patriotism to pay our taxes toward a peaceful, orderly and progressive society. It is the lifeblood of our government and the reason why the law penalizes the mere failure to pay taxes.
The reluctance of some to pay tax is due to graft and corruption. In fact, one of our corporate clients was assessed and paid P700,000 VAT deficiency even during the pandemic. But, despite the payment, the corporation’s President was criminally charged for a tax violation. The reason – the BIR lawyers asked for more ‘under the table’.
The liability of a corporate taxpayer reached our Honorable Supreme Court in the case of Suarez v. People and BIR, G.R. No. 243429 dated 06 October 2021.
In 2004, the Bureau of Internal Revenue [BIR] issued a Final Assessment Notice [FAN] to a corporation [21st Century Entertainment Corp.] demanding the payment of deficiency income tax of P747,964.49 for 2000. A Protest and Reinvestigation was filed, but it was denied.
In 2005, the BIR issued the First Notice of Delinquent Account. In 2006, the corporation asked for additional time and expressed its willingness to settle through compromise. The BIR issued a Warrant of Levy and filed a criminal case against the company Vice-President for failure of the corporation to pay its delinquent tax liabilities.
At the Regional Trial Court, the BIR presented three witnesses, proving the issuances of demand letter, assessment notices and warrant of levy received by the corporation and the admission of its vice-president Suarez, asking for time to settle its tax liabilities. Suarez, after denial of his Demurrer [Motion to Dismiss], did not present evidence. The RTC convicted him. On appeal, the Court of Tax Appeals [CTA] affirmed the RTC decision. On second appeal, the CTA en banc affirmed the CTA decision and took note of the admission of Suarez to settle the tax. He appealed to the Supreme Court .
Is the vice-president, the responsible officer of a corporation, criminally liable for non-payment of tax?
The SC ruled that the government must prove three elements to convict an accused for tax liability of corporate taxpayer: first, the law requires the payment of tax; second, failure to pay tax and third, the accused as responsible officer willfully failed to pay the tax. The first and second elements were proven. The issue boils down to the third element.
Section 253, National Internal Revenue Code, expressly identified the following corporate officers who may be held liable for tax violation: partner, president, general manager, treasurer, officer-in-charge and employee responsible for the violation. Obviously, the Executive Vice-President is not included in the NIRC.
Are the RTC and CTA correct that the act of VP Suarez in signing an admission letter for settlement shows his significant role in the corporation and proves his criminal liability? A corporation is an artificial entity created by law. As abstract being and not human, it cannot be arrested and imprisoned; it cannot be penalized for a crime punishable by imprisonment. It was ruled in 1930 People v. Tan Boon Kong, that crimes committed by a corporation, the responsible officers, will personally bear the criminal liability. This is because a corporation can act only through its officers and agents.
When the criminal law defines a crime that may be committed by a corporation but prescribes the penalty to be suffered by the officers, directors, employees or responsible officers of such corporation, only such individuals will suffer such penalty. It applies to corporate agents who themselves commit the crime and to those, who, by virtue of their position or relation to the corporation, could be deemed responsible for its commission, if they had the power to prevent the act.
The offer of compromise cannot also be received in evidence as an implied admission of guilt. To be criminally liable for the acts of a corporation, there must be a showing that its officers, directors and shareholders actively participated in or had the power to prevent the wrongful act. Thus, the SC reversed the RTC and CTA decisions and acquitted the corporate vice-president Suarez.
