THE MULTI-MILLION TAX EVASION CASE INTENTIONALLY NOT PURSUED BY FORMER CIR KIM HENARES

INTRODUCTION

I am a former revenue officer of the Bureau of Internal Revenue (BIR) where I served for more than 28 long years.

In 2008, as then revenue officer of the said agency, I was tasked to conduct an investigation of the 2007 financial records of GOLDEN DONUTS, INC. (GDI), the exclusive Philippine Franchisee of the global brand “Dunkin’ Donuts”, for internal revenue tax purposes.

My investigation disclosed several fraudulent acts or criminal tax violations deliberately perpetrated by GDI that culminated in the P1.56-B deficiency tax assessment against the said company.

I personally reported GDI’s omissions to BIR Commissioner Kim Henares and recommended to her the criminal prosecution of the company for tax evasion under the much-vaunted Run After Tax Evaders (RATE) program of the Bureau; but Henares intentionally failed to either pursue tax evasion case against the company or enforce collection of its deficiency tax because the company’s secretary – Ms. Marixi Rufino-Prieto who also happens to be the Philippine Daily Inquirer’s chairperson – is President BS Aquino’s friend.

At first, she promptly had the case evaluated by the RATE team, under Deputy Commissioner Estela Sales, to determine existence of fraud which resulted in the affirmative as relayed to me by a BIR official who requested anonymity. In fact, the RATE team was then already preparing the memorandum to recommend the criminal prosecution of GDI for tax evasion but discontinued as per instruction from a high-ranking official of the Bureau whose name my informant did not disclose.

I conferred with Deputy Commissioner Estela Sales about the status of the case but she told me – “assessment na lang daw kasi kaibigan ni PNoy ang taxpayer at nakakadirekta ito kay comm”, (referring to CIR Henares). So, the case was referred to the BIR Regional Office in Quezon City headed then by Regional Director Nestor S. Valeroso.

I was also informed by Mr. Gregorio S. Tumanguil, my former group supervisor, that Ms. Prieto met with Mr. Valeroso and informed the latter that she had already talked to CIR Henares about the tax assessment against GDI and expressed that they cannot afford to lose their franchise with Dunkin’ Donuts of America.

Both Henares and Valeroso, who are supposed to execute tax laws fairly and reasonably to protect the interest of the Filipino people, deliberately failed to at least enforce collection of the afore-said tax deficiency, sans fraud charges, giving undue advantage to the taxpayer and undue injury to the Philippine Government.

On June 24, 2013, I resigned from the service as a result of my dissatisfaction and disenchantment with Henares over her selective and insincere anti-tax evasion drive that spared the said company for political patronage.

On March 17, 2014, after several reminders sent to CIR Henares and in order to protect the interest of the Filipino people to whom the P1.56-B tax deficit of GDI already legally belong, I filed administrative and criminal charges against Henares and Deputy Commissioner Estela Sales, before the Office of the Ombudsman; but it dismissed the case without conducting a thorough investigation and without requiring respondents Henares and Sales to submit GDI’s tax case docket and copy of its actual “protest” which are necessary in the investigation.

The Ombudsman, in its dismissal resolution, did not discuss the merits of the case and did not state the facts and law upon which the conclusion given were drawn.

I feel in my layman’s understanding that the Ombudsman gravely erred in dismissing the case; thus, on December 4, 2015, within the period to file an appeal, I filed a Petition for Review before the Court of Appeals which also dismissed the case for lack of jurisdiction and affirmed the Ombudsman’s resolution.

I express my firm stance that both the Ombudsman and CA have gravely erred in dismissing the case without fairly considering the primary and serious issues raised in my complaint. Thus, I am considering the filing of an appeal before the SUPREME COURT as final recourse.

I pray that the SC will consider each and every crucial issue which were disregarded by both the Ombudsman and the Court of Appeals.

FACTS OF GDI’s TAX CASE

As mentioned earlier, my tax investigation resulted in the P1.56-B deficiency tax assessment against GDI. The said tax assessment was the resultant of the several irregularities which I have properly documented, that include, among others, the following:

1.    GDI’s duly registered books of accounts (hardbound computer-generated), as I have appropriately validated, reflected a Net Income amounting to P135.2-M while its Annual Income Tax Return (AITR) showed a Net Loss amounting to P44.9-M;

2.    GDI’s sales as reflected in the said books was P1.928-B while the total amount of sales as reflected in its AITR was only P1.032-B. This shows a huge discrepancy (under-declaration) amounting to P897-M.

According to the SUPREME COURT in the case of Paper Industries Corporation of the Philippines vs. Court of Appeals, et al., 250 SCRA 434 – the books of accounts prevail over tax return when they reflect higher sales, because they are kept and prepared under control and supervision of the taxpayer; and they embody what must appear to be admission against interest.

3.    Other independent relevant documents, such as but not limited to: Franchise Agreement, Technical Service Agreement, and Final Withholding Tax Returns, indicate that GDI’s sales topped P2.366-B but the amount recorded in its books was only P1.928-B. This again shows an unrecorded and undeclared sales amounting to P438-M.

The above-enumerated issues were clearly stated in my Formal Complaint filed before the Office of the Ombudsman and also in my Petition for Review filed before the Court of Appeals.

Henares and Sales, in their counter-affidavits, and even the supporting affidavits of Atty. Rommel Curiba, RATE team leader, and Mr. Wilfredo Reyes, the Pioneer CAATTs user, did not give any justifications or explanations to dispute the above-enumerated glaring and crucial issues.

THE AFORESAID P1.56-B TAX ASSESSMENT ATTAINED FINALITY; BUT HENARES INTENTIONALLY FAILED TO ENFORCE COLLECTION THEREOF.

Kim Henares, in her counter-affidavit, states: “Mr. Dalanon, as then Revenue Officer, has no authority – and could not arrogate upon himself – to decide and declare that a certain assessment is already final, executory, and demandable. This is a function vested by law upon the Commissioner of Internal Revenue or her duly authorized representatives.”

The foregoing statement does not find basis in law. I submit that Henares’s claim is erroneous, because it is the law that determines finality of an assessment as clearly provided under Revenue Regulations (RR) No. 12-99 in relation to Section 228 of the 1997 National Internal Revenue Code (1997 NIRC), as amended.

The afore-said deficiency tax assessment attained finality based on the following facts and law, and regulations:

A.   GDI FAILED TO FILE A VALID PROTEST.

GDI’s alleged letter of protest merely stated “protest against PAN [Preliminary Assessment Notice] adopted in toto”. It did not state the facts, the applicable law, rules and regulations, or jurisprudence on which the protest was based. It is neither a request for reconsideration nor reinvestigation.

What GDI filed instead was a Request for Cancellation and Withdrawal of the tax assessment. A request for cancellation or withdrawal is significantly different from a request for reconsideration or reinvestigation which is what the law requires.

The rules on protesting an assessment is found in Section 3 subsection 3.1.5 of RR No. 12-99, 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.”

“The taxpayer shall state the FACTS, 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.”

“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 NIRC, 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:

1.    The protest must be through a request for reconsideration or reinvestigation;

2.    The protest must be in the form and manner as prescribed under RR No. 12-99, which provides that said protest must state the facts, the law, rules and regulations, or jurisprudence on which the protest is based; and

3.    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, “failure to comply with any or all of these requirements results in the assessment against the taxpayer becoming final and unappealable.”

The letter 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 28, 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 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.” (Annotation supplied)

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.”

B.    GDI FAILED TO SUBMIT THE REQUIRED DOCUMENTS WITHIN THE PERIOD REQUIRED BY LAW.

That GDI filed its invalid protest against the Formal Letter of Demand and Assessment Notices (FANs) on November 30, 2010 but it submitted documents only on March 24, 2011. Hence, it was already 114 days after the date of its filing of the protest.

Section 228 of the 1997 National Internal Revenue Code (1997 NIRC), as amended, provides:

“Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final.”

In the instant case, when GDI submitted documents in support of its protest, it was already beyond the sixty (60)-day period in violation of the above-cited provisions of the 1997 NIRC.

Either of the above-cited grounds, the assessment against GDI attained finality. These grounds were clearly stated in my Formal Complaint and Motion for Reconsideration filed with the Ombudsman to justify the reversal of its dismissal resolution, but were disregarded.

In a meeting held sometime on April, 2011 at the National Office in connection with the instant case which was attended to by Atty. Claro Ortiz, Head Revenue Executive Assistant (now ACIR); Atty. Sixto Dy, Chief, National Investigation Division; Atty. Abegail Gamboa, Chief of Staff of DCIR Estela Sales; and myself, it was ascertained that the tax assessment has become final, executory and demandable, in view of GDI’s failure to comply with the requirements as prescribed. “These are scraps of paper”, that’s Atty. Ortiz saying.

Atty. Ortiz knows so well that the P1.56-B tax assessment against GDI has become final, executory and demandable. And here is Kim Henares, the Philippines’s internal revenue head tagged as the “unyielding tax collector”, lawyering for GDI “Dunkin’ Donuts” – a bigtime tax cheat!!!

Once the deficiency tax assessment attained finality, it is no longer appealable; and there is now no reason why the BIR cannot continue with the collection of the said tax.

THE HOCUS-POCUS RE-INVESTIGATION.

Henares, in her counter-affidavit, denied that she ordered “two re-investigations. SHE LIED.  

In a telecast interview by GMA-7, she said that representatives of GDI complained to her that my tax assessment against the company was faulty, that is why she had it re-investigated for several times (twice), conducted by different groups of revenue officers who supposedly arrived at the same results, purportedly finding my tax assessment to be incorrect.

Just to reiterate. The PhP 1.56 billion deficiency tax assessment against GDI attained finality. Thus, re-investigations are no longer warranted.
 

Once the deficiency tax assessment attained finality, the right of the government to collect the deficiency tax becomes absolute; thus, it 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.

  

There is no LAW that authorizes the Commissioner to order several re-investigations of a FINAL, EXECUTORY and DEMANDABLE assessment.

However, notwithstanding the ensuing finality of the afore-said deficiency tax assessment against GDI, Henares had it re-investigated for several times (twice).

The “first re-investigation”, which is no longer warranted because my tax assessment which remained undisturbed after review and evaluation by high-ranking officers in the district and regional levels of the Bureau and already covered by Final Assessment Notices (FANs) bearing Demand No. 41-B072-07 and all dated October 29, 2010 obtained finality, was assigned to Revenue Officer STANLEY ONG, under Group Supervisor GREGORIO S. TUMANGUIL. Mr. Stanley Ong was the same revenue officer who conducted the review of the case and recommended for the issuance of the statutory notices of assessment (PAN and FANs) when he was yet with the Assessment Division of the Regional Office in Quezon City.

I am not a lawyer though I believe that Revenue Officer Stanley Ong who conducted the “first re-investigation” could no longer disturb my tax assessment by himself for reasons of principle of estoppel. The equitable principle of estoppel forbids the revenue officer who conducted the “first re-investigation” from taking inconsistent position against his concurrence to my original audit findings that culminated in the deficiency tax assessment amounting to P1.56 billion which is already FINAL, EXECUTORY and DEMANDABLE but which was re-investigated by no other than him.
 
The result of the “first re-investigation” conducted by Revenue Officers Stanley Ong and Gregorio Tumanguil, both of BIR Revenue District Office (RDO) No. 41, Mandaluyong City, was a HOCUS-POCUS.

The “second re-investigation”, which again is no longer necessary because my tax assessment obtained finality, was referred to Atty. GRACE CRUZ of the National Investigation Division, BIR National Office in Diliman, Quezon City. I strongly admire Atty. Cruz of her investigative expertise in administrative cases. Lest I be misconstrued.  I am not saying that Atty. Cruz is short of proficiency in tax accounting and tax auditing. No result of re-investigation was submitted by Atty. Cruz.

So, how can BIR Commissioner Kim Henares claim that her groups of revenue officers who conducted the two (2) separate re-investigations came up with the same findings that my tax assessment against GDI was incorrect?

 
HENARES’s OTHER ‘PALUSOT’ IN NOT FILING FRAUD CASE VS GDI.

Henares and her minions claimed that the compact disc (CD), which I presented to the RATE “Run after Tax Evaders” team,  was allegedly not compliant with the requirements prescribed under Revenue Memorandum Order (RMO) No. 29-2002.

The RATE coordinator, members, and Mr. Wilfredo Reyes, the pioneer CAATTs (Computer-Assisted Audit Tools and Techniques) user, failed to consider and evaluate the documents attached to the docket of GDI case and the findings for deficiency tax assessment which were based on entries per duly-registered books of accounts (hardbound computer-generated), as I have appropriately validated; and other independent relevant documents, such as but not limited to, Franchise Agreement; Technical Service Agreement, and other BIR returns filed by GDI, such as: VAT returns and Final Withholding Tax Remittance Returns.

The CD, which was neither mentioned nor objected to by GDI in its INVALID protest, is used by Henares and her minions as scapegoat in not filing tax evasion case against GDI by claiming that said CD is not compliant with the requirements prescribed under RMO No. 29-2002 - that it should be properly labeled with the name of the taxpayer, taxable year and serial no. and volume no. and signed by the taxpayer and RDO.

I pointed out that GDI adopts a “computer-assisted accounting system” wherein it is still required to register a “hardbound computer-generated books of accounts” which were the bases of my audit findings. Thus, the CD, which they used as scapegoat in not filing fraud case against GDI, need not be strictly compliant with the requirements provided under the aforesaid RMO in regards to the markings to be inscribed thereon.

RMO No. 29-2002 clearly provides that in case the taxpayer has no capability to submit in CD-ROM form, procedures under the MANUAL SYSTEM shall prevail. In other words, if the taxpayer adopts a computer system of accounting but has no capability to integrate the different components of accounting system (i.e., books of accounts and other related accounting records) in a CD-ROM form, it shall still be required to register a “hardbound computer-generated books of accounts”, as in the case of GDI.

I suggested to the RATE team that they may recommend for the issuance of a Subpoena Duces Tecum (SDT) to compel GDI produce its duly-registered hardbound computer-generated books of accounts, but the suggestion was just ignored.

What is crystal clear is that, Henares deliberately deceived the FILIPINO people by making excuses to conceal the real truth about this bigtime tax evasion case.

Othello Dalanon