Duty to pay in case of tax evasion


UNDER the Rules of Court, the civil action deemed brought with a criminal action is only the action to recover civil liability arising from the crime. In a criminal action for tax evasion, such as those brought under sections 254 and 255 of the tax code, the defendant’s obligation to pay the unpaid tax is not deemed to have arisen in the action.

Jurisprudence has established that liability to tax is that which derives from the law and not from the offense of tax evasion. A tax evasion case filed by the state against a taxpayer is intended to impose criminal liability.

Thus, in the Republic of the Philippines v Patanao case of 1967, the Supreme Court held that “the obligation to pay taxes arises from the fact, for example, that one has engaged in a business, and not due to a criminal act committed by him.” Similarly, in Proton Pilipinas Corp. against the Republic of the Philippines in 2006, the Supreme Court clarified that the payment of taxes was an obligation created by law.

It is the law that creates the obligation to pay. This obligation is not created as a result of a crime charged in criminal proceedings. Moreover, the obligation to pay is not a simple civil liability capable of being erased by a judicial decision establishing that no criminal offense really existed.

As decided in the Patanao case, an acquittal does not exempt the taxpayer from the obligation to pay tax. Acquittal in criminal proceedings cannot have the effect of relieving the taxpayer of the obligation to pay taxes. This is because the obligation to pay is not due to the attempt to evade payment but because it is a duty independently imposed by law.

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Equally important are the provisions of the Tax Code. Article 205 provides remedies for the collection of overdue taxes. Under this, there are two remedies for the recovery of internal taxes, levies or fees and any increases resulting from non-payment: first, by seizure of property or other personal property and by levy on property real estate, and secondly, by civil or criminal action. Section 205 further provides that the judgment in the criminal case shall not only impose the penalty, but also order the payment of the taxes which are the subject of the case, as ultimately decided by the Commissioner of Taxes ( CIR).

Thus, the obligation to pay tax can only be imposed if there is a final determination of this obligation. Such determination by the CIR is what is contemplated in the context of a formal assessment governed by Section 228 of the Tax Code and Tax Regulation 12-1999, as amended.

It should be emphasized that a tax deficiency assessment is not necessary in the prosecution of tax evasion cases. In the 1980 Ungab v. Cusi case, the Supreme Court held that “although there can be no civil action to enforce recovery prior to the assessment procedures provided for in [Tax] Code have been followed, there is no requirement for the accurate computation and assessment of tax before there can be a criminal prosecution under the Code.” This finding was echoed in CIR v Pascor Realty and Development Corp., et.al. (GR 128315, June 29, 1999), in which the Supreme Court held that filing a criminal complaint for tax evasion should not be preceded by taxation.

Meanwhile, in Lim Gaw Jr. v CIR (GR 222837, July 23, 2018), the Supreme Court said offenses under Sections 254 and 255 of the Internal Revenue Code are committed when the taxpayer knowingly and willfully files a fraudulent return in intend to evade and defeat the tax or part thereof. Therefore, there is no need for a tax assessment before the tax evasion case can prosper. Finally, the court clarified that, even when the tax evasion case is pending, the tax authority is not prevented from issuing a final tax decision.

Nica Marsha V. Gasapo is a junior associate of Mata-Perez, Tamayo and Francisco (MTF Counsel). This article is provided for general information only and does not replace professional advice when the facts and circumstances warrant it. If you have any questions or comments, you can email the author at [email protected] or visit the MTF website at www.mtfcounsel.com.

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