SC Issues Guidelines in the Prosecution of Criminal Actions for Tax Law Violations
November 21, 2023
An assessment for deficiency taxes is not a prerequisite for collection of the taxpayer-accused’s civil liability for unpaid taxes in the criminal prosecution for tax law violations.
Thus ruled the Supreme Court En Banc, in a Decision penned by Associate Justice Mario V. Lopez, as it denied the petition for review on certiorari filed by Joel C. Mendez and partly granting the petition for review on certiorari filed by the Office of the Solicitor General (OSG). Mendez challenged the ruling of the Court of Tax Appeals (CTA) finding him guilty of violating the National Internal Revenue Code, as amended (NIRC), while the OSG assailed the CTA’s non-imposition of civil liability on Mendez.
Mendez is a single proprietor doing business under several trade names and businesses. In 2006, he was criminally charged for violation of Section 255 of the NIRC for (1) not filing his 2002 Income Tax Return (ITR) in the estimated amount of PhP1,522,152.14 and (2) willfully failing to supply correct and accurate information in his 2003 ITR, to the government’s prejudice, in the estimated amount of PhP2,107, 023.65.
The CTA Division found Mendez guilty of both criminal charges. However, as to his civil liability, the CTA Division held that a final assessment issued by the Commissioner of Internal Revenue (CIR) is required before the taxpayer can be held civilly liable for deficiency taxes. Mendez’s conviction and the non-imposition of deficiency taxes were affirmed by the CTA En Banc, prompting both Mendez and the OSG to file separate petitions before the Supreme Court.
The Court denied Mendez’s petition and affirmed his conviction, finding his contentions a mere rehash of the arguments which were raised and already considered by the CTA.
Jurisdiction over tax cases
On the other hand, the OSG’s petition was partly granted by the Court, ruling that the CTA Division had jurisdiction over Mendez’s cases since his potential liability in each are more than PhP1,000,000, in accordance with Republic Act No. (RA) 9282, the law in force when the criminal charges were filed.
The Court, however, clarified that following the effectivity of RA 11576 on August 21, 2021, for tax cases filed upon such date, jurisdiction shall be as follows:
(a) Exclusive original jurisdiction over tax collection cases involving PhP1,000,000 or more remains with the CTA;
(b) Exclusive original jurisdiction over tax collection cases involving less than PhP1,000,000 shall be exercised by the proper first-level courts;
(c) Exclusive appellate jurisdiction over tax collection cases originally decided by the first-level courts shall be exercised by the Regional Trial Court;
(d) Exclusive original jurisdiction over criminal offenses or felonies where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is PhP1,000,000 or more remains with the CTA;
(e) Exclusive original jurisdiction over criminal offenses or felonies where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than PhP1,000,000 shall be exercised by the proper first-level courts; and
(f) Exclusive appellate jurisdiction over criminal offenses or felonies originally decided by the first-level courts remains with the RTC.
Guidelines in the prosecution of criminal tax law violations
and the corresponding civil liability
To resolve the issue on Mendez’s civil liability, the Court first laid down the following guidelines for the guidance of the Bench and the Bar in the prosecution of criminal tax law violations and the corresponding civil liability for unpaid taxes:
(1) When a criminal action for violation of the tax laws is filed, a prior assessment is not required. Neither is a final assessment a precondition to collection of delinquent taxes in the criminal tax case. The criminal action is deemed a collection case. The government must thus prove two things: (a) the guilt of the accused by proof beyond reasonable doubt; and (b) the accused’s civil liability for taxes by competent evidence (other than an assessment).
(2) If before the institution of the criminal action, the government filed (a) a civil suit for collection, or (b) an answer to the taxpayer’s petition for review before the CTA, the civil action or the resolution of the taxpayer’s petition for review shall be suspended before judgment on the merits until final judgment is rendered on the criminal action. However, before judgment on the merits is rendered on the civil action, it may be consolidated with the criminal action. In such a case, the judgment in the criminal action shall include a finding of the accused’s liability for unpaid taxes relative to the criminal case.
Applying the foregoing rules to Mendez, the Court held that since the prosecution filed a criminal case for tax violation against him, the civil action for collection of deficiency taxes is deemed instituted. Thus, a formal assessment issued by the CIR is not required for the imposition of civil liability for unpaid taxes.
However, the finding of deficiency taxes should have been done at the level of the CTA Division. Hence, the case must be remanded to the CTA Division to determine the civil liability of Mendez.
Mendez was thus sentenced to imprisonment for one to two years with a fine of PhP10,000. As to his civil liability for taxes and penalties, the CTA Division was directed to determine the same with reasonable dispatch. [Courtesy of the Supreme Court Public Information Office]
Full text of G.R. Nos. 208310-11 and 208662 (People v. Joel C. Mendez; Joel C. Mendez v. People) at: https://sc.judiciary.gov.ph/208310-11-208662-people-of-the-philippines-vs-joel-c-mendez-joel-c-mendez-vs-people-of-the-philippines/
Full text of the Concurring Opinion of Chief Justice Alexander G. Gesmundo at: https://sc.judiciary.gov.ph/208310-11-208662-concurring-opinion-chief-justice-alexander-g-gesmundo/
Full text of the Concurring Opinion of Associate Justice Alfredo Benjamin S. Cagiuoa at: https://sc.judiciary.gov.ph/208310-11-208662-concurring-opinion-justice-alfredo-benjamin-s-caguioa/
Full text of the Separate Concurring Opinion of Associate Justice Rodil V. Zalameda at: https://sc.judiciary.gov.ph/208310-11-208662-separate-concurring-opinion-justice-rodil-v-zalameda/