BIR’S POWER TO OBTAIN INFORMATION
By Aziza Hannah Bacay on September 16, 2021
The Bureau of Internal Revenue (BIR) has the power to ascertain the correctness of the returns filed by the taxpayers and to determine any liability for internal revenue tax. Corollary to such power, the BIR is empowered and has the authority to obtain information, examine documents, and take testimonies of any person.
Pursuant to Section 5 of Republic Act (RA) 8424, as amended (Tax Code), the BIR may inspect the books, records, or other documents of the taxpayer and may collect information such as names, addresses, financial statements, among others. The BIR may also obtain information from any person other than the person whose internal revenue tax is being audited or investigated.
Validity of obtaining information from taxpayers
In its Privacy Police Office Advisory Opinion 2021-028 (July 16, 2021), the National Privacy Commission’s (NPC) confirmed that a condominium corporation’s submission of certain documents- such as list of tenants, contracts of sale with unit owners, statements of account, official receipts etc. – as requested by the BIR, shall not violate the provisions of RA 10173, or the Data Privacy Act of 2012 or DPA. The NPC also confirmed that the BIR has a valid legal basis to obtain such information pursuant to Section 5(b) of the Tax Code.
In this advisory, a condominium corporation sought NPC’s confirmation whether it may appropriately refuse BIR’s request to provide the documents mentioned, invoking the right to privacy under the DPA. The BIR indicated that the documents requested shall be used for its Tax Verification Drive, to enhance tax compliance, and boost its collection effort.
In addressing the matter, the NPC cited Section 5 of the DPA which provides for a list of specified information which do not fall within the scope of the law. This list includes information necessary to carry out public functions. In this regard, the NPC enumerated the requirements for the information requested by the BIR to be exempt from the coverage of the DPA:
· The information is necessary in order to carry out the law enforcement or regulatory function of a public authority;
· The processing is for the fulfillment of a constitutional or statutory mandate;
· There is strict adherence to all due process requirements;
· Applies only to the minimum extent of the collection, access, use, disclosure, or other processing necessary to the purpose, function, or activity concerned; and
· Only the specified information falls outside the scope of the DPA.
The public authority, considered as a personal information controller under the DPA, must still comply with the other requirements of the DPA.
Accordingly, pursuant to Section 5(b) of the Tax Code, the NPC opined that the taxpayer’s submission of the documents to the BIR was proper and had legal basis.
What happens to information obtained
As part of its mandate, the BIR may use the information it obtained from the taxpayers and other persons as the basis for its assessments. In Prudential Bank v. Commissioner of Internal Revenue (CTA Case No. 7372, August 7, 2007), the Court of Tax Appeals (CTA) affirmed the sufficiency of BIR’s assessment which was based on the taxpayer’s audited financial statements, even without conducting an actual audit on the specific transaction. In its decision, the CTA cited Section 5 of the Tax Code and stated that the BIR is acting within its power when it used the taxpayer’s financial statements as a basis for the assessment for such data is relevant or material to the investigation.
The NPC reiterated the application of the principle of proportionality wherein processing of information shall be “adequate, relevant, suitable, necessary, and not excessive in relation to a declared specified purpose.” The NPC then recommended posting a redacted or pseudonymized version of the decision or ruling.
The power of the BIR to obtain information must be read hand in hand with the provisions of the DPA. The DPA was implemented to protect the individual taxpayers who have a fundamental human right to privacy. However, such right to privacy should not be used to frustrate or hinder the government in carrying out its functions, particularly those involving matters of public interest.