Power to Issue Subpoena Duces Tecum

THE POWER and duties of the Bureau of Internal Revenue (BIR), being the prime tax collection agency of the government, comprehend the assessment and collection of all national internal revenue taxes, fees, and charges, and the enforcement of all forfeitures, penalties and fines related thereto, including the execution of judgments in all cases decided in its favor by the courts.

The supervisory and police powers conferred to the BIR are clearly spelled out in Section 2 of the 1997 Tax Code, as amended.

In the exercise of this inherent power, Section 5 of the Tax Code grants the Commissioner of Internal Revenue (CIR) investigative power which generally covers the power to examine the books and records of taxpayers or other data which may be relevant or material to such inquiry; and to obtain such materials and information not only from the taxpayer but also from other persons who may have possession of such data or information.

Obtaining relevant documentary information involves the process of issuing a subpoena duces tecum or known as the "SDT".

Under Rule 21 of the Rules of Court, an SDT is a document directing the person to whom it is issued to bring any books, documents, or other data and information under his control to the issuing authority.

It is a Latin word which means "under penalty to bring with you." As such, non-compliance with an SDT would technically result to a criminal offense.

An SDT may be issued not only to the person liable to the tax and under investigation, but also to any person who has possession, control, or custody of the relevant records, data, and information which includes any officer or officer of the national or local governments, government agencies and instrumentalities, and government-owned or controlled corporations (GOCCs).

The power to issue an SDT, however, is not a blanket authority. Essentially, this power can only be exercised within the parameters allowed by law, i.e., for the purpose of ascertaining the correctness of any tax return, or in determining the tax liability of any person, or in collecting any such liability, or in evaluating tax compliance.

In addition, restrictions imposed under special laws such as the Bank Secrecy Law, must also be generally observed in the issuance of an SDT, except in cases allowed by law, e.g., to determine the gross estate of the decedent or to evaluate the qualification of a taxpayer applying for compromise of tax liability based on financial incapacity.

To ensure that the issuance of SDTs is done properly and in accordance with law, the BIR has provided specific procedures to be followed under Revenue Memorandum Order (RMO) No. 88-2010.

STRINGENT PROCEDURES
This RMO was recently amended by RMO 10-2013, which provides for more detailed and stringent procedures, which I have summarized below:

• An SDT shall be issued to the following: a) person liable for tax or required to file a return or to any officer or employee of such person, or any person having possession, custody, or care of the books of accounts and other accounting records relating to the business of the taxpayer; or b) any office or officer of the national or local governments, government agencies and instrumentalities, including the Bangko Sentral ng Pilipinas and GOCCs.

• An SDT shall be preceded by a notice issued by authorized officers of the BIR to the above-named persons, requiring them to provide information or the pertinent books of accounts, accounting records and particular or specific documents.

• If the information or records requested are not furnished within the period stated in the notice, or when the information or records submitted are incomplete, the investigating officer shall prepare a memorandum report recommending the issuance of an SDT.

• If upon evaluation, the memorandum report is found to be meritorious, an SDT shall be prepared in three copies for signature of the Assistant Commissioner for Enforcement and Advocacy Service, Assistant Commissioner for Large Taxpayers Service, Revenue Regional Director, or any other officer duly delegated by the CIR, as the case may be. The SDT shall be in a standard form (BIR Form No. 0713) with a corresponding serial number, to be placed on the upper right portion of the SDT following a prescribed format.

• The person concerned to whom the SDT is issued shall be required to appear and submit before the signatory of the SDT the mandated information/documents at an appointed time, date, and place. The time indicated in the SDT shall be during regular business hours 8 a.m. to 5 p.m. during the work week, excluding holidays. The venue shall be in the BIR office of the signatory of the SDT.

• In case of corporations, partnerships, or associations, the SDT shall be issued to the partner, president, general manager, branch manager, treasurer, registered officer-in-charge, employee/s or other persons responsible for the custody of the books of accounts, and other accounting records mandated to be submitted or information mandated to be provided. If the concerned party is the government, the SDT shall be issued to the head of the office, agency, instrumentality, political subdivision, or GOCC.

• The compliance date for the submission of the documents and information shall be set on the 14th day from the date of issuance of SDT, i.e., the date when the SDT is officially signed.

• SDT may be delivered personally by the revenue officers assigned to investigate the case or by any authorized internal revenue officer, to the concerned party at his registered or known address or wherever he may be found. If personal service is not practicable, the SDT shall be served by substituted service or by mail. Substituted service can be done in various forms enumerated in the RMO. Service by mail, on the other hand, is done by sending a copy of the SDT by registered mail to the registered or known address of the party. Delivery may also be made through reputable professional courier service. If no registry or professional courier service is available in the locality of the addressee, service may be done by ordinary mail.

• The concerned revenue officers must be present during the appointed time, date , and place set for submission of the documents and information as stated in the SDT, and failure to comply will subject them to administrative penalties.

• The concerned revenue officer shall submit a written report to the issuing office that the documents/information stated in the SDT have been submitted or that there was either no submission or that the documents presented were incomplete. In case of failure to submit or incomplete submission, filing of the criminal case against the erring party shall be processed jointly by the concerned revenue officers and the action lawyer assigned to the case.

• Payment of the administrative penalty shall not excuse the taxpayer/person summoned from complying with the SDT.

• The filing of the criminal case will require the preparation of the letter-complaint addressed to the office of the prosecutor, recommending the criminal prosecution of the erring party for violation of Section 266 ("Failure to Obey Summons") of the 1997 Tax Code, as amended, together with the complaint-affidavit and other supporting evidentiary documents.

• The penalties for non-compliance with the SDT shall be imprisonment of not less than one year but not more than two years and a fine of not less than P5,000 but not more than P10,000. If the taxpayer is a corporation, an association or a general co-partnership, there shall be imposed an additional fine of not less than P50,000 but not more than P100,000.

STRICT RULE
A very critical feature of the process is the prohibition against withdrawal or dismissal of the criminal case by any prosecuting officer of the BIR once the complaint-affidavit has already been filed with prosecutor’s office, notwithstanding the subsequent submission by the taxpayer or concerned party of documents indicated in the SDT.

This strict rule is based on the premise that the concerned party has been accorded full notice and opportunity to comply with the SDT under the procedures set forth in the RMO.

In other words, belated submission of the requested documents/information stated in the SDT will no longer be honored since the SDT procedures set forth in the RMO are assumed to be adequate and in compliance with due process.

While I understand the rationale for this rule, I personally believe that the provision on non-withdrawal of cases in the RMO seems to be a bit harsh on the part of the parties to whom the SDT is issued.

Certain practical problems which may prevent such parties from complying with the SDT requirements were apparently not considered in the SDT procedures.

For example, service of the SDT to a barangay official in case no person can be found in the taxpayer’s registered or known address, is not equivalent to a full notice. A taxpayer cannot be fully informed in this manner.

Also, the time frame of 14 days from date of SDT issuance may not be sufficient to afford the persons concerned full opportunity to comply with the SDT, especially if the documents/information requested are voluminous and very detailed, e.g., summary list of sales and purchases, monthly working trial balance ( before and after adjustments), tax returns filed for the taxable year and corresponding attachments, invoices, official receipts, vouchers (i.e., check/cash and journal vouchers) and relevant supporting documents.

In meritorious cases, the persons concerned should be allowed to request for extension of time to comply with the SDT.

In addition, the prohibition on withdrawal of criminal case should be given a little bit of flexibility depending on the circumstances of each case.

Criminal prosecution of a person acting in good faith and with valid reasons for failure to timely comply an SDT, does not seem to be fair and equitable.

As a taxpayer and resident of our country, I do recognize the indispensability of BIR’s effort to improve tax collection. But there are certain rights that need to be respected and recognized and one such right enshrined in our Constitution is the fundamental right of every person to be accorded due process in the protection of his life, liberty and property. That is the beauty of democracy.


The author is a senior manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of PricewaterhouseCoopers global network. Readers may send feedback at sylvia.r.salvador@ph.pwc.com.

Views or opinions presented in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from such article; the author will be personally liable for any consequent damages or other liabilities.

source:  Businessworld