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TAX-FILES. What constitutes tax evasion?
Antonette C. Tionko and Eugene M. Pulga, SGV & Co.
Inquirer News Service / Jun. 24, 2005
WITH the many tax evasion cases being filed by the
Bureau of Internal Revenue against corporations and
individuals under the Run After Tax Evaders (RATE)
program, many still wonder, "What constitutes tax
In general, tax evasion is a scheme used outside
lawful means and when availed of, usually subjects the
taxpayer to further or additional civil or criminal
liabilities. (Jose C. Vitug and Ernesto D. Acosta,
Tax Law and Jurisprudence 44). Thus, any person who
willfully neglects to file a return within the period
prescribed by the National Internal Revenue Code (NIRC)
or willfully files a false or fraudulent return will be
liable to a penalty of 50 percent of the tax or of
the deficiency tax.
A substantial under declaration, of sales, receipts or
income or a substantial overstatement of deductions
as determined by the BIR commissioner constitutes
prima facie evidence of false or fraudulent return.
Failure to report sales, receipts or income by
at least 30 percent of that declared in the return
constitutes substantial under declaration, and a claim
of deductions in an amount exceeding 30 percent of
actual deductions will be considered an overstatement
of deductions. (Section 248(B), 1997 Tax Code)
The NIRC imposes additional penalties for
certain crimes and offenses, such as:
a. Willful attempt to evade or defeat tax-a fine of
not less than P30,000 but not more than P100,000
and suffer imprisonment of not less than two years
but not more than four years; (Section 254, NIRC)
b. Willful failure to file return, supply correct
and accurate information, pay tax, withhold and
remit tax and refund excess taxes withheld on
compensation-a fine of not less than P10,000 and
imprisonment of not less than one year but not
more than 10 years; (Section 255, NIRC)
All the above acts or omissions constitute tax evasion
which connotes the integration of three factors:
(1) the end to be achieved, i.e.
the payment of less
than that known by the taxpayer to be legally due, or the
non-payment of tax when it is shown that a tax is due;
(2) an accompanying state of mind which is described as
being "evil," in "bad faith, " "willful," or "deliberate
and not accidental"; and (3) a course of action or failure
of action which is unlawful. (De Leon, Fundamentals of
Taxation, 1998 edition, cited in CIR v. The Estate of
Benigno Toda Jr. G.R. No. 147188 dated Sept. 14, 2004).
Recently, the Supreme Court ruled that a certain scheme was
tainted with fraud and therefore constituted tax evasion.
In the said case, Company A sold a piece of property for
P100 million to an individual, who was a close business
associate of Company A's primary shareholder. The individual
purchaser, in turn, sold the same property on the same day
to Company B for P200 million. Company A paid, among
others, its tax on gain from the sale of the property
at the rate of 35 percent as corporate income tax for 1989.
On the other hand, the individual paid the 5 percent capital
gains tax (CGT) on the same year.
The Supreme Court ruled in this case that the scheme
resorted to by Company A and its primary shareholder
cannot be considered legitimate tax planning. Such scheme
is tainted with fraud. Fraud, in its general sense,
is deemed to comprise anything calculated to deceive,
including all acts, omissions and concealment involving
a breach of legal, or equitable duty, trust or confidence
justly reposed, resulting in the damage to another, or by
which an undue and unconscionable advantage is taken
The intermediary transaction which prompted more on
mitigation of tax liabilities than for legitimate business
purposes constitutes one of tax evasion. Moreover,
the three factors constituting tax evasion exist in this
case. (CIR v. The Estate of Benigno Toda Jr. id).
To summarize, to determine whether in fact someone
can be held liable for tax evasion, the three factors
enumerated must be present. Absence of just one will
mean the case will not prosper.
This was published on page B8 of the June 24, 2005 issue
of the Philippine Daily Inquirer.