Tax evasion case intentionally not filed by the liar BIR Commissioner Kim Henares

Golden Donuts, Inc. (GDI), the exclusive Philippine Franchisee of the global brand "Dunkin' Donuts", flagrantly perpetrated fraudulent acts or criminal tax violations that culminated to deficiency tax assessment amounting to P1.56 billion, including increments, for year 2007, discovered and documented by Othello Dalanon in his official capacity as former BIR Examiner.

Dalanon personally reported GDI's omissions to Commissioner Henares and recommended to her the criminal prosecution for tax evasion under the much-vaunted "Run After Tax Evaders" program of the Bureau; but she intentionally did not pursue fraud case against the company because its secretary - Marixi Prieto who also happens to be the chairperson of the Philippine Daily Inquirer - is President Aquino's friend, according to Deputy Commissioner Estela Sales.

Ms. Prieto talked to Henares and BIR Regional Director (now Assistant Commissioner of Internal Revenue) Nestor Valeroso, on different occasion, who both gave leniency to GDI.

The aforesaid deficiency tax assessment obtained finality because GDI failed to file a VALID PROTEST against the Formal Letter of Demand and Assessment Notice (FAN).

However, Henares intentionally did not collect it, purportedly because representatives of GDI complained to her that Dalanon's assessment was faulty. Thus, she ordered two (2) re-investigations.

There is no LAW that authorizes the commissioner to order two (2) re-investigations of a FINAL, EXECUTORY and DEMANDABLE assessment.

Once the deficiency tax assessment obtained finality, the right of the government to collect the deficiency tax becomes absolute; thus, precludes the taxpayer from questioning the correctness of the assessment and from raising any justification or defense that would pave the way for a re-investigation.

She also claims that the authority to decide and declare finality of a certain assessment is a function vested by law upon the Commissioner of Internal Revenue.

Her assertion does not find basis in LAW.

It is the LAW that determines finality of a certain assessment as clearly provided under Revenue Regulations No. 12-99 as amended by Revenue Regulations No. 18-2013 which the commissioner herself promulgated, in relation to Section 228 of the 1997 National Internal Revenue Code (1997 Tax Code), as amended.

Her claim that Dalanon's assessment was faulty is WRONG.

In fact, she was not able to dispute Dalanon's assessment. What is very clear is that, while she sows fears among taxpayers, bullies private and government workers, marginal income earners, and insists on probing Supreme Court Justices; she fears, coddles and lawyers for Dunkin' Donuts' local seller – a big-time tax evader.

Just to reiterate. The P1.56 billion tax deficit of Dunkin' Donuts' franchisee has become DUE and DEMANDABLE, thus, it already legally belongs to the FILIPINO people whom PRESIDENT AQUINO considers as his "bosses", and therefore, Henares is duty-bound to enforce collection thereof - but she refuses to.

GDI’s OMISSIONS THAT CULMINATED TO DEFICIENCY TAX ASSESSMENT AMOUNTING TO P1.56 BILLION, INCLUDING INCREMENTS, FOR YEAR 2007 – DOCUMENTED BY OTHELLO DALANON:

1. GDI has two (2) sets of books of accounts – one was the duly-registered hardbound computer-generated books of accounts which were the bases of Dalanon’s assessment; and the other was the unregistered not-permanently-bound “manually-posted from original books of accounts”, records which GDI claims as the bases of its Trial Balance for Financial Statements and Income Tax Return purposes;

2. It supplied false information on the tax return – the duly-registered books of accounts reflected a net income amounting to P135.2 million while the tax return showed a net loss of P44.9 million;

3. It substantially under-declared sales on the tax return in two (2) instances:

3.1 Sales per duly-registered books was P1.928 billion while the amount reflected on the tax return was P1.031 billion – a substantial discrepancy (under-declaration) amounting to P897 million;

The SUPREME COURT ruled in the case of Paper Industries Corporation of the Philippines vs. Court of Appeals, et al., 250 SCRA 434 that “where the books of accounts reflected a sales or receipts higher than that reflected on the return, the books of accounts should prevail. This is so, because the books of accounts are kept by the taxpayer and are prepared under its control and supervision; and they reflected what may be deemed to be admissions against interest.”

The representations made by GDI in the CD and duly-registered books submitted and presented by it to the Bureau for audit and examination amounted to admissions against its own interest which it cannot disown or change at its convenience of pleasure.

3.2 Other independent relevant documents, such as, but not limited to: Franchise Agreement between Dunkin’ Donuts of America, Inc. and GDI, BIR returns, etc., further revealed that GDI’s sales topped P2.366 billion but recorded per duly-registered books was only P1.928 billion – a substantial unrecorded and consequently undeclared sales amounting to P438 million.

The information contained in the aforesaid documents were utilized in further determining GDI’s sales on the basis of the provisions of Section 5(A) of the 1997 Tax Code.

The method of validation used by Othello Dalanon was already upheld by the COURT OF TAX APPEALS in the case of Asia Coal Corporation vs. CIR (CTA Case No. 6803, February 13, 2008), that “the respondent may utilize any kind of document, x x x to determine the correct sales of the petitioner…”

All the above enumerations are fraudulent acts or criminal tax violations covered by the RATE (Run After Tax Evaders) Program of the Bureau; but Henares intentionally did not pursue tax evasion case against the company.

Henares, in her position paper submitted to the Office of the Ombudsman in connection with the formal complaint filed against her by Othello Dalanon, failed to dispute the above-enumerated irregularities perpetrated by GDI.

THE DEFICIENCY TAX ASSESSMENT AGAINST GDI OBTAINED FINALITY.

The deficiency tax assessment against GDI amounting to P1.56 billion, including increments, for year 2007, obtained finality because GDI’s letter of protest against the Formal Letter of Demand and Assessment Notice (FAN) was INVALID.

The alleged letter of protest of GDI merely states “protest against PAN adopted in toto”. It does not state the facts, the applicable law, rules and regulations, or jurisprudence on which its protest was based. It is neither a request for reconsideration nor reinvestigation.

The rules on protesting an assessment is found in Section 3 subsection 3.1.5 of RR No. 12-99, as amended, that reads:

“Disputed Assessment. – The taxpayer or his duly authorized representative may protest administratively against the aforesaid formal letter of demand and assessment notice within thirty (30) days from date of receipt thereof.

                                                     x  x  x

The taxpayer shall state the FACTS, the applicable LAW, RULES and REGULATIONS or JURISPRUDENCE on which his protest is based, otherwise, his protest shall be considered VOID and WITHOUT FORCE AND EFFECT.

                                                     x  x  x

If the taxpayer fails to file a VALID PROTEST against the formal letter of demand and assessment notice within thirty (30) days from date of receipt thereof, the assessment shall become FINAL, EXECUTORY and DEMANDABLE.”

The said Regulations must be taken in relation to Section 228 of the 1997 Tax Code, as amended, which reads:

“Protesting an assessment. – Such assessment may be protested administratively by filing a REQUEST FOR RECONSIDERATION or REINVESTIGATION within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. x x x otherwise, the assessment shall become FINAL.”

Clearly, what the law demands is a VALID administrative protest against the formal letter of demand and assessment notice which required the taxpayer to comply with the following:

(a)  The protest must be through a REQUEST FOR RECONSIDERATION or REINVESTIGATION;

(b)  The protest must be in the form and manner as prescribed under RR No. 12-99, as amended, which provides that said protest must state the FACTS, the LAW, RULES and REGULATIONS, or JURISPRUDENCE on which the protest is based; and

(c)  Must be filed within thirty (30) days from receipt of the assessment.

The COURT OF TAX APPEALS in the case of Allied Banking Corporation vs. Commissioner of Internal Revenue (CTA Case No. 4581, March 25, 1992, cited that, “[f]ailure to comply with any or all of these requirements results in the assessment against the taxpayer becoming final and unappealable.”

The letter of protest should not just state “protest against PAN adopted in toto” because the administrative protest required to be filed as an answer to the formal letter of demand and assessment notice is distinct and not the same as the protest filed against the PAN.

The COURT OF TAX APPEALS emphasized in the case of Security Bank Corporation vs. Commissioner of Internal Revenue (CTA Case No. 6564, November 8, 2006) and further accentuated in the case of Bank of the Philippine Islands vs. Commissioner of Internal Revenue (CTA Case No. 7397, April 9, 2008) that:

“[A] protest to the preliminary assessment notice is not the same as the protest required to be filed as an answer to the final assessment notice. In fact, a preliminary assessment notice may or may not even be protested to by the taxpayer, and the fact of non-protest shall not in any way make the preliminary assessment notice final and unappealable. What is clear from Section 319-A of the Tax Code of 1977, as amended, is that failure on the part of the taxpayer to protest or reply to a preliminary assessment notice paves the way for the issuance of a final assessment notice. However, evident under said Section (now Section 228 of the 1997 Tax Code) is that failure on the part of the taxpayer to file a VALID administrative protest through a REQUEST FOR RECONSIDERATION or REINVESTIGATION on the final assessment notice, shall result in the finality of the said FAN.”

The SUPREME COURT in the case of Allied Banking Corporation vs. Commissioner of Internal Revenue (G.R. no. 175097, February 5, 2010) heightened that:

“It is the Formal Letter of Demand and Assessment Notice that must be administratively protested or disputed within 30 days, and not the PAN.”

GDI, in its INVALID letter of protest against the FAN, likewise claimed that the assessments are null and void ab initio because it was allegedly issued in rampant violation of the due process requirements prescribed under Section 228 of the Tax Code as implemented by RR No. 12-99.

GDI’s claim is not true. Records will show that the due process requirements were promptly observed. There were at least five (5) notices served to GDI either thru personal delivery or by mail before the formal letter of demand and assessment notice (FAN) was issued. In fact, it even contested the PAN as clearly admitted in GDI’s invalid letter of protest against the FAN.

The COURT OF TAX APPEALS in the case of Bank of the Philippine Islands vs. Commissioner of Internal Revenue (CTA Case No. 7397, April 9, 2008), has had the occasion to say: “[W]hen the petitioner received the final assessment notice and duly protested the same, petitioner’s right to due process was properly protected and observed.”