f. Compromise and Tax Amnesty

Compromise and Tax Amnesty

Generally allowed and enforceable when the subject matter thereof is not prohibited from being compromised and the person entering such compromise is duly authorized to do so.

The law allows the following persons to do compromise on behalf of the government:

• BIR Commissioner as expressly authorized by the NIRC subject to certain conditions;
• Collector of Customs with respect to customs duties limited to cases where the legitimate authority is specifically granted such as in the remission of duties (Sec. 709, Tariffs and Customs Code¹); and
• Customs Commissioner, subject to the approval of the Secretary of Finance, in cases involving the imposition of fines, surcharges, and forfeitures (Sec. 2316, Tariffs and Customs Code²).

TAX AMNESTY

It is the general or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law. It partakes of an absolute forgiveness or waiver of the Government of its right to collect. It is a way to give tax evaders who wish to relent and are willing to reform a chance to do so.

It refers to the articulation of the absolute waiver by a sovereign of its right to collect taxes and power to impose penalties on persons or entities guilty of violating a tax law. Tax amnesty aims to grant a general reprieve to tax evaders who wish to come clean by giving them an opportunity to straighten out their records. Amnesty taxpayers may immediately enjoy the privileges and immunities under a Tax Amnesty Law, provided they fulfill the suspensive conditions imposed therein. (CS Garment, Inc. v. CIR, G.R. No. 182399, 24 November 2014)³

A tax amnesty, much like a tax exemption, is never favored or presumed in law. The grant of a tax amnesty, similar to a tax exemption, must be construed strictly against the taxpayer and liberally in favor of the taxing authority. (Asia International Auctioneers, Inc. v. CIR, G.R. No. 179115, 26 September 2012)⁴

Distinguished from tax exemption

When enjoyment of the immunities and privileges begins:

Neither the 2007 Tax Amnesty Law⁷ nor Department of Finance (DOF) Order No. 29-07⁸ (IRR of the Tax Amnesty Law) imposes a waiting period of one year before the applicant can enjoy the benefits of the Tax Amnesty Law.

It can be surmised from the provisions of the law that the law intended the immediate enjoyment of the immunities and privileges of tax amnesty upon fulfillment of the requirements.

The one-year period referred to in the law should thus be considered only as a prescriptive period within which third parties (i.e., "parties other than the BIR or its agents") can question the SALN – not as a waiting period during which the BIR may contest the SALN and the taxpayer prevented from enjoying the immunities and privileges under the law. (CS Garment, Inc. v. CIR)⁹

Suggested Answer:

1) Yes. Taxpayers with pending tax cases may avail themselves of the tax amnesty program under Republic Act No. 9480¹⁰. The exception of issues and cases which were ruled by any court, even without finality, in favor of the BIR prior to amnesty availment of the taxpayer under BIR Revenue Memorandum Circular No. 19-2008¹¹ is invalid for going beyond the scope of the provisions of the 2007 Tax Amnesty Law. Neither the law nor the implementing rules state that a court ruling that has not attained finality would preclude the availment of the benefits of the Tax Amnesty Law. Both R.A. 9480 and DOF Order No. 29-07¹² are precise in declaring that tax cases subject of final and executory judgment by the courts are the ones excepted from the benefits of the law. The BIR’s inclusion of issues and cases which were ruled by any court, even without finality, in favor of the BIR prior to amnesty availment of the taxpayer as one of the exceptions is misplaced. For the exclusion concerning tax cases decided by courts, only cases subject to a final and executory judgment are excluded; the other exceptions in Section 8 of Republic Act No. 9480 remain applicable¹³. Therefore, as long as Bank A complies with the requirements set forth under Republic Act No. 9480, it may avail itself of the tax amnesty. (Ing Bank N.v v. CIR, G.R. No. 167679, 22 July 2015)¹⁴

2) Yes. Under the National Internal Revenue Code¹⁵, taxable compensation paid for services performed by an employee is generally subject to income tax and withholding tax, subject to statutory exclusions and exceptions under Section 79(A). The accrued bonuses at issue gave rise to withholding obligations. The contention that the bonus accruals in 1996 and 1997 were not yet subject to withholding tax because such were actually distributed only in the succeeding years of their accrual is untenable. The tax on compensation income is withheld at source under the creditable withholding tax system wherein the tax withheld is intended to equal or at least approximate the tax due of the payee on the said income. It was designed to enable (a) the individual taxpayer to meet his or her income tax liability on compensation earned; and (b) the government to collect at source the appropriate taxes on compensation. Taxes withheld are creditable in nature. Thus, the employee may need to file an income tax return to report the income and/or pay the difference between the tax withheld and the tax due on the income, unless qualified for substituted filing or otherwise exempt from filing. For over withholding, the employee is refunded. Therefore, absolute or exact accuracy in the determination of the amount of the compensation income is not a prerequisite for the employer's withholding obligation to arise. Section 34(K) of the 1997 National Internal Revenue Code¹⁶ expressly requires, as a condition for deductibility of an expense, that the tax required to be withheld on the amount paid or payable is shown to have been remitted to the Bureau of Internal Revenue by the taxpayer constituted as a withholding agent of the government. The provision of Section 79 of the 1997 National Internal Revenue Code¹⁷ regarding withholding on wages must be read and construed in harmony with Section 34 (K) of the 1997 National Internal Revenue Code on deductions from gross income. Reading together the two provisions, we hold that the obligation of the payor/employer to deduct and withhold the related withholding tax arises at the time the income was paid or accrued or recorded as an expense in the payor's/employer's books, whichever comes first. Petitioner ING Bank accrued or recorded the bonuses as deductible expense in its books. Therefore, its obligation to withhold the related withholding tax due from the deductions for accrued bonuses arose at the time of accrual and not at the time of actual payment. (ING Bank N.V. v. Commissioner of Internal Revenue, G.R. No. 167679, 2015)