Under article 253(d) of the National Internal Revenue Code (NIRC), when an association, partnership or corporation commits an act or omission that violates the Tax Code, the penalty "shall be imposed on the partner, president, general manager, branch manager, treasurer, officer-in-charge, and the employees responsible for the violation". This means that any of the persons enumerated may be criminally prosecuted for the corporation or partnership's criminal act or omission under the code.
In its 6 October 2021 decision in Genoveva S Suarez v People of the Philippines and the Bureau of Internal Revenue,(1) the Supreme Court further clarified and explained the circumstances under which the persons enumerated in article 253(d) of the NIRC may be criminally prosecuted for criminal acts or omissions of their corporation or partnership. In Suarez, the corporate officer involved was the executive vice president of the erring corporation, which is not among the officers specifically enumerated under article 253(d). She was, however, prosecuted by the Bureau of Internal Revenue (BIR) for writing a letter to the BIR on behalf of the corporation, in which she offered to settle the corporation's tax liabilities. For that reason, the BIR identified her as an "employee responsible for the violation".
The commissioner of internal revenue issued final assessment notices and final letters of demand addressed to 21st Century Entertainment Corporation, demanding payment of deficiency taxes for the year 2000.
The corporation filed a protest and requested the BIR to reinvestigate the assessments issued against it. However, due to the corporation's failure to submit the supporting documents, the BIR referred the matter to its collection division. Subsequently, the concerned revenue district office issued notices of delinquent account against the corporation, which eventually led to the issuance of a final notice before seizure to the corporation.
At this point, the corporation, through its executive vice president (petitioner Genoveva Suarez), wrote a letter acknowledging the corporation's tax liabilities and expressed her willingness to settle them. She also requested additional time to secure the services of an external accountant to assist the corporation in organising its accounting records so that it could provide the BIR with supporting documents. The BIR, however, refused petitioner Suarez's request by issuing a warrant of distraint and levy against the corporation.
The BIR was unable to collect the corporation's tax liabilities and the revenue district office recommended the filing of a criminal complaint against the corporation for its failure to pay its tax liabilities.
The city prosecutor filed a criminal information charge against petitioner Suarez for violation of section 255 (failure to pay tax) in relation to sections 253(d) and 256 of the NIRC on the liability of corporate officers and/or employees for acts or omissions of a corporation penalised under the code.
Both the Regional Trial Court of Manila (RTC) and, on appeal, the Court of Tax Appeals (CTA), ruled that petitioner Suarez may be held personally criminally liable for the corporation's failure to pay its tax liabilities, according to section 253(d) of the NIRC, because petitioner Suarez, as executive vice president, may be considered as an officer or employee of the corporation who was "responsible for the violation". Both the RTC and the CTA cited, in particular, the letter that petitioner sent to the BIR acknowledging the corporation's tax liabilities and expressing her willingness to settle those liabilities, stating that the letter proved that petitioner was a responsible officer in relation to the corporation's payment of its tax liabilities.
Petitioner Suarez appealed her case to the Supreme Court.
The Supreme Court reversed the decisions of the RTC and the CTA and acquitted the petitioner.
The Supreme Court first noted that an executive vice president was not one of the specific corporate officers enumerated under section 253 of the NIRC that may be held liable for violations of the NIRC committed by a corporation, as section 253 expressly enumerates only "a partner, president, general manager, branch manager, treasurer, officer-in-charge, and the employees responsible for the violation". The Court then noted that both the RTC and the CTA had held the petitioner liable based on a ruling that, because of her having written the letter to the BIR on behalf of the corporation as its executive vice president in which she acknowledged the corporation's tax liabilities and expressed willingness to settle those liabilities, she may be deemed as an "employee responsible for the violation".
Citing precedents, the Supreme Court adopted prevailing jurisprudence to the effect that to be criminally liable for the acts of a corporation, it must be proved that its officers, directors, and shareholders actively participated in or had the power to prevent the wrongful act.
In this case, the Court said that the petitioner's position as executive vice president did not, by itself, made her liable for the corporation's failure to pay its tax liabilities. The Court added that "in the words of section 253 of the NIRC, petitioner must have been the employee or officer responsible for the violation", which is the basis for the criminal prosecution. Reviewing the evidence, the Supreme Court ruled that the prosecution had failed to prove that it was the petitioner's act or omission that prevented the corporation from paying its tax liabilities in violation of the NIRC, or that it was within the petitioner's power as executive vice president of the corporation to prevent any such violation.
The Court also stated that the petitioner's letter to the BIR expressing her willingness to settle the corporation's tax liabilities through compromise could not be taken as evidence or admission of guilt by the petitioner pursuant to rule 130 section 128 of the Revised Rules of Evidence. This is because the same rule provides for the exception that in criminal cases, an offer of compromise for those involving quasi-offenses (criminal negligence) and those allowed by law to be compromised, cannot be received in evidence as an implied admission of the accused's guilt. Section 204 of the NIRC pertinently provides that "[a]ll criminal violations [of the NIRC] may be compromised except: (a) those already filed in court, or (b) those involving fraud". Thus, the NIRC itself allows compromise even for violations of its penal provisions.
If a corporation is found to have violated section 255 of the NIRC, section 253(d) of the same code provides that the corporation's following persons may be prosecuted for the violation in their capacity as such officers of the corporation:
- general manager;
- branch manager;
- treasurer; or
The importance of the Supreme Court's decision in Suarez relates to a situation where the corporate officer prosecuted is not among those specifically enumerated in section 253(d), in which case, the Supreme Court explained that the following elements must be proven by the prosecution:
- Under the NIRCA, the corporate taxpayer is required to:
- pay any taxes;
- make a return or keep the required record; or
- supply correct and accurate information.
- By the deadlines set out by the relevant laws, rules or regulations, the corporate taxpayer failed to:
- pay the required tax;
- make a return or keep the required record;
- supply correct and accurate information;
- withhold taxes or remit withheld taxes; or
- refund excess taxes withheld on compensation.
- By the same defined deadlines, the accused (as the employee responsible for the violation) had wilfully failed to:
- pay such tax;
- make a return;
- keep such record; or
- supply such correct and accurate information;
- withhold taxes or withheld remit taxes; or
- refund excess taxes withheld on compensation, at the time or times required by law or rules and regulations.
In this case, the prosecution had failed to prove the third element. The Supreme Court found that there was no evidence to prove that the petitioner, as the executive vice president, was an "employee responsible" for paying the corporation's taxes. In other words, unless the corporate officer holds any of the positions specifically enumerated under section 253(d) of the NIRC, it must be shown or proven that the corporate officer or employee concerned is the officer who has the primary responsibility for ensuring the corporation's compliance with the obligations imposed by the NIRC as regards the payment of taxes or making and filing the required tax returns.
For further information on this topic, please contact Ramon G Songco at SyCip Salazar Hernandez & Gatmaitan (SyCipLaw) by telephone (+632 8982 3500, +632 8982 3600, +632 8982 3700) or email ([email protected]). The SyCipLaw website can be accessed at www.syciplaw.com.
Carina C Laforteza, partner and head of tax department, assisted in the preparation of this article.