SC denies reversal of tax decision against famous doctor; guidelines outside

MANILA, Philippines — The Supreme Court (SC) has issued guidelines for the prosecution of tax law violations.

In its latest decision, the SC stated that the assessment of deficit taxes is not a prerequisite for the collection of civil liability from the accused taxpayer for unpaid taxes in the criminal case for violations of tax legislation.

The latest directive is contained in a 42-page unanimous decision written by Associate Justice Mario Lopez that denied the petition for review filed by celebrity doctor Joel Mendez seeking a reversal of the 2012 Court of Tax Appeals (CTA) decision finding him guilty of violating article 255 of the Tax Code, by failing to submit an income tax return for the 2002 tax year and by failing to provide correct information in the ITR for the 2003 taxable year.

Although he was found guilty by the Tax Court, it ruled that the Commissioner of Internal Revenue (CIR) first issue a final assessment for deficient taxes before determining his civil liability.

The CTA’s en banc ruling prompted Mendez and the Office of the Attorney General (OSG) to take the case to the Supreme Court.

In the consolidated decision, the SC said that Mendez’s arguments are “mere repetitions” that were “raised and already considered by the CTA”.

On the other hand, it partially granted the OSG’s decision, while establishing the following guidelines for the Court and the Order:

1. When criminal action is filed for infringement of tax legislation, no prior assessment is necessary. Final assessment is also not a precondition for the collection of delinquent taxes in the criminal tax case. The criminal action is considered a charging case. The government must, therefore, prove two things: (a) the guilt of the accused by proof beyond a reasonable doubt; and (b) the defendant’s civil liability for taxes by competent evidence (other than an assessment).

2. If prior to the initiation of the criminal action, the government filed (a) a civil action for collection, or (b) a response to the taxpayer’s petition for review before the CTA, the civil action or resolution of the taxpayer’s petition for review must be suspended before the judgment on the merits until the criminal action becomes final. However, before the judgment on the merits of the civil action is handed down, it may be consolidated with the criminal action. In this case, the judgment of the criminal action will include the finding of the accused’s responsibility for unpaid taxes related to the criminal case.

Applying the guidelines to Méndez’s case, the SC stated that, as the Public Prosecutor’s Office opened a criminal action against him for a tax infraction, the civil action for the collection of deficit taxes is considered to have been initiated. Therefore, a formal assessment issued by the CIR is not necessary to impose civil liability for unpaid taxes.

The SC, while partially granting the OSG’s petition, said that the finding of deficient taxes should have been made at the CTA Division level. Therefore, the case must be referred to the CTA Division to determine Mendez’s civil liability and resolve it with “reasonable dispatch.”