Digested Cases in Taxation (on criminal prosecution and taxpayers' suits)

UNGAB vs. CUSI

97 SCRA 877
GR No. L-41919-24 May 30, 1980
"An assessment of a deficiency is not necessary to a criminal prosecution for wilful attempt to defeat and evade the income tax."

FACTS: The BIR filed six criminal charges against Quirico Ungab, a banana saplings producer, for allegedly evading payment of taxes and other violations of the NIRC. Ungab, subsequently filed a motion to quash on the ground that (1) the information are null and void for want of authority on the part of the State Prosecutor to initiate and prosecute the said cases; and (2)that the trial court has no jurisdiction to take cognizance of the case in view of his pending protest against the assessment made by the BIR examiner. The trial court denied the motion prompting the petitioner to file a petition for certiorari and prohibition with preliminary injunction and restraining order to annul and set aside the information filed.

ISSUE: Is the contention that the criminal prosecution is premature since the CIR has not yet resolved the protest against the tax assessment tenable?

HELD: No. The contention is without merit. What is involved here is not the collection of taxes where the assessment of the Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals, but a criminal prosecution for violations of the National Internal Revenue Code which is within the cognizance of courts of first instance. While there can be no civil action to enforce collection before the assessment procedures provided in the Code have been followed, there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code.
   An assessment of a deficiency is not necessary to a criminal prosecution for wilful attempt to defeat and evade the income tax. A crime is complete when the violator has knowingly and wilfully filed a fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the government's failure to discover the error and promptly to assess has no connections with the commission of the crime.

 

CIR vs. CA
257 SCRA 200
GR No. 119322 June 4, 1996
"Before one is prosecuted for willful attempt to evade or defeat any tax, the fact that a tax is due must first be proved."

FACTS: The CIR assessed Fortune Tobacco Corp for 7.6 Billion Pesos representing deficiency income, ad valorem and value-added taxes for the year 1992 to which Fortune moved for reconsideration of the assessments. Later, the CIR filed a complaint with the Department of Justice against the respondent Fortune, its corporate officers, nine (9) other corporations and their respective corporate officers for alleged fraudulent tax evasion for supposed non-payment by Fortune of the correct amount of taxes, alleging among others the fraudulent scheme of making simulated sales to fictitious buyers declaring lower wholesale prices, as allegedly shown by the great disparity on the declared wholesale prices registered in the "Daily Manufacturer's Sworn Statements" submitted by the respondents to the BIR. Such documents when requested by the court were not however presented by the BIR, prompting the trial court to grant the prayer for preliminary injuction sought by the respondent upon the reason that tax liabiliity must be duly proven before any criminal prosecution be had. The petitioner relying on the Ungab Doctrine sought the lifting of the writ of preliminary mandatory injuction issued by the trial court.

ISSUE: Whose contention is correct?

HELD: In view of the foregoing reasons, misplaced is the petitioners' thesis citing Ungab v. Cusi, that the lack of a final determination of Fortune's exact or correct tax liability is not a bar to criminal prosecution, and that while a precise computation and assessment is required for a civil action to collect tax deficiencies, the Tax Code does not require such computation and assessment prior to criminal prosecution.

    Reading Ungab carefully, the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted from Guzik v. U.S.: "The crime is complete when the violator has knowingly and wilfully filed a fraudulent return with intent to evade and defeat a part or all of the tax." In plain words, for criminal prosecution to proceed before assessment, there must be a prima facie showing of a wilful attempt to evade taxes. There was a wilful attempt to evade tax in Ungab because of the taxpayer's failure to declare in his income tax return "his income derived from banana sapplings." In the mind of the trial court and the Court of Appeals, Fortune's situation is quite apart factually since the registered wholesale price of the goods, approved by the BIR, is presumed to be the actual wholesale price, therefore, not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes, the taxpayer should not be placed in the crucible of criminal prosecution. Herein lies a whale of difference between Ungab and the case at bar.

 

CIR vs. PASCOR
309 SCRA 402
GR No. 128315 June 29, 1999
 "An assessment is not necessary before a criminal charge can be filed."

FACTS: The BIR examined the books of account of Pascor Realty and Devt Corp for years 1986, 1987 and 1988, from which a tax liability of 10.5 Million Pesos was found. Based on the recommendations of the examiners, the CIR filed an information with the DOJ for tax evasion against the officers of Pascor. Upon receipt of the subpoena, the latter filed an urgent request for reconsideration/reinvestigation with the CIR, which was immediately denied upon the ground that no formal assessment has yet been issued by the Commisioner. Pascor elevated the CIR's decision to the CTA on a petition for review. The CIR filed a Motion to Dismiss on the ground of lack of jurisdiction of CTA as there was no formal assessment made against the respondents. The CTA dismissed the motion, hence this petition.

ISSUE: Is a formal assessment necessary in the filing of a criminal complaint?

HELD: No. Section 222 of the NIRC states that an assessment is not necessary before a criminal charge can be filed. This is the general rule. Private respondents failed to show that they are entitled to an exception. Moreover, the criminal charge need only be supported by a prima facie showing of failure to file a required return. This fact need not be proven by an assessment.

    The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted. If the commissioner is unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically and clearly that an assessment has been made against him or her. In contrast, the criminal charge need not go through all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed against him, not that the commissioner has issued an assessment. It must be stressed that a criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.

MACEDA vs. MACARAIG, JR.
197 SCRA 771
GR No. 88291 May 31, 1991
"A taxpayer may question the legality of a law or regulation when it involves illegal expenditure of public money."

FACTS: Senator Ernesto Maceda sought to nullify certain decisions, orders, rulings, and resolutions of respondents Executive Secretary, Secretary of Finance, Commissioner of Internal Revenue, Commissioner of Customs and the Fiscal Incentives Review Board FIRB for exempting the National Power Corporation (NPC) from indirect tax and duties. RA 358, RA 6395 and PD 380 expressly grant NPC exemptions from all taxes whether direct or indirect. In 1984, however, PD 1931 and EO 93 withdrew all tax exemptions granted to all GOCCs including the NPC but granted the President and/or the Secretary of Finance by recommendation of the FIRB the power to restore certain tax exemptions. Pursuant to the latter law, FIRB issued a resolution restoring the tax and duty exemption privileges of the NPC. The actions of the respondents were thus questioned by the petitioner by this petition for certiorari, prohibition and mandamus with prayer for a writ of preliminary injunction and/or restraining order. To which public respondents argued, among others, that petitioner does not have the standing to challenge the questioned orders and resolution because he was not in any way affected by such grant of tax exemptions.

ISSUE: Has a taxpayer the capacity to question the legality of the resolution issued by the FIRB restoring the tax exemptions?

HELD: Yes. In this petition it is alleged that petitioner is "instituting this suit in his capacity as a taxpayer and a duly-elected Senator of the Philippines." Public respondent argues that petitioner must show that he has sustained direct injury as a result of the action and that it is not sufficient for him to have a mere general interest common to all members of the public. The Court however agrees with the petitioner that as a taxpayer he may file the instant petition following the ruling in Lozada when it involves illegal expenditure of public money. The petition questions the legality of the tax refund to NPC by way of tax credit certificates and the use of said assigned tax credits by respondent oil companies to pay for their tax and duty liabilities to the BIR and Bureau of Customs.

GONZALES vs. MARCOS
65 SCRA 624
GR No. L-31685 July 31, 1975
"With the absence of any pecuniary or monetary interest owing from the public, a taxpayer may not have the right to question the legality of an issuance creating a trust for the benefit of the people but purely funded by charity."

FACTS: The petitioner questioned the validity of EO No. 30 creating the Cultural Center of the Philippines, having as its estate the real and personal property vested in it as well as donations received, financial commitments that could thereafter be collected, and gifts that may be forthcoming in the future. It was likewise alleged that the Board of Trustees did accept donations from the private sector and did secure from the Chemical Bank of New York a loan of $5 million guaranteed by the National Investment & Development Corporation as well as $3.5 Million received from President Johnson of the United States in the concept of war damage funds, all intended for the construction of the Cultural Center building estimated to cost P48 million. The petition was denied by the trial court arguing that with not a single centavo raised by taxation, and the absence of any pecuniary or monetary interest of petitioner that could in any wise be prejudiced distinct from those of the general public.

ISSUE: Has a taxpayer the capacity to question the validity of the issuance in this case?

HELD: No. It was therein pointed out as "one more valid reason" why such an outcome was unavoidable that "the funds administered by the President of the Philippines came from donations [and] contributions [not] by taxation." Accordingly, there was that absence of the "requisite pecuniary or monetary interest." The stand of the lower court finds support in judicial precedents. This is not to retreat from the liberal approach followed in Pascual v. Secretary of Public Works, foreshadowed by People v. Vera, where the doctrine of standing was first fully discussed. It is only to make clear that petitioner, judged by orthodox legal learning, has not satisfied the elemental requisite for a taxpayer's suit. Moreover, even on the assumption that public funds raised by taxation were involved, it does not necessarily follow that such kind of an action to assail the validity of a legislative or executive act has to be passed upon. This Court, as held in the recent case of Tan v. Macapagal, "is not devoid of discretion as to whether or not it should be entertained." The lower court thus did not err in so viewing the situation.

ABAYA vs. EBDANE, JR.
515 SCRA 720
GR No. 167919,  February 14, 2007
"A taxpayer need not be a party to the contract to challenge its validity."

FACTS: The petitioners, Plaridel M. Abaya who claims that he filed the instant petition as a taxpayer, former lawmaker, and a Filipino citizen, and Plaridel C. Garcia likewise claiming that he filed the suit as a taxpayer, former military officer, and a Filipino citizen, mainly seek to nullify a DPWH resolution which recommended the award to private respondent China Road & Bridge Corporation of the contract for the implementation of the civil works known as Contract Package No. I (CP I). They also seek to annul the contract of agreement subsequently entered into by and between the DPWH and private respondent China Road & Bridge Corporation pursuant to the said resolution.

ISSUE: Has petitioners the legal standing to file the instant case against the government?

HELD: Petitioners, as taxpayers, possess locus standi to file the present suit. Briefly stated, locus standi is a right of appearance in a court of justice on a given question. More particularly, it is a party’s personal and substantial interest in a case such that he has sustained or will sustain direct injury as a result of the governmental act being challenged.  Locus standi, however, is merely a matter of procedure and it has been recognized that in some cases, suits are not brought by parties who have been personally injured by the operation of a law or any other government act but by concerned citizens, taxpayers or voters who actually sue in the public interest. Consequently, the Court, in a catena of cases, has invariably adopted a liberal stance on locus standi, including those cases involving taxpayers.

    The prevailing doctrine in taxpayer’s suits is to allow taxpayers to question contracts entered into by the national government or government- owned or controlled corporations allegedly in contravention of law. A taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed, or that public money is being deflected to any improper purpose, or that there is a wastage of public funds through the enforcement of an invalid or unconstitutional law. Significantly, a taxpayer need not be a party to the contract to challenge its validity.