The difficulty in proving tax evasion beyond a reasonable doubt
By Stefan Miguel Raymundo Del Rosario on July 13, 2023
THE Bureau of Internal Revenue (BIR), pursuant to its powers to collect taxes, is empowered to institute criminal prosecution cases, including tax evasion cases, against erring taxpayers for criminal violations under the National Internal Revenue Code of 1997 (Tax Code).
To achieve its mandate, the BIR implemented several initiatives. For instance, in 2005, the BIR, together with the Department of Finance, established the Run Against Tax Evaders (RATE) program.
Prior to the RATE program, the BIR’s emphasis was on the administrative assessment and collection of taxes, and it rarely pursued criminal actions against taxpayers. The RATE program, on the other hand, emphasizes the investigation and prosecution of criminal violations of the Tax Code to deter tax evasion and encourage voluntary compliance with the tax laws.
BIR Commissioner Romeo Lumagui continued the thrust of pursuing criminal prosecutions against erring taxpayers. According to the BIR’s Media Release, in February of this year alone, the BIR filed a total of 74 criminal complaints for tax evasion. Additionally, it was reported that tax evasion charges were filed against three businesses last June after discovering that the firms bought fake receipts from syndicates, which may result in P17,000,000,000 in total tax liability.
Although there has been a reported overall increase in the number of filed criminal complaints for tax evasion, an upturn in actual convictions has yet to be seen. The BIR’s RATE statistics from 2005 to 2018 show that out of 1,064 cases filed, there had only been 10 convictions. Thus, it is apparent that the number of criminal convictions, as compared to the number of cases filed, has been very low.
The problem may lie in the inherent difficulty in proving guilt beyond reasonable doubt, which is required to support a conviction for criminal tax evasion.
The three factors to be established in tax evasion cases were enumerated by the Supreme Court in Commissioner of Internal Revenue v The Estate of Benigno P. Toda Jr., et al. (GR 147188, Sept. 14, 2004), namely:
(1) The end to be achieved, that is, the payment of less than that known by the taxpayer to be legally due, or the nonpayment 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.
In Aznar v CTA and Collector (GR L-20569, Aug. 25, 1974), “tax evasion” was defined as the elimination or reduction of one’s correct and proper tax by fraudulent means.
The fraud contemplated by law is actual fraud and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted.
Fraud is also never presumed and must always be proven. Mere suspicion and doubt regarding the intention of the taxpayer is not sufficient proof of fraud. Moreover, in the establishment of fraud, the burden of proof to prove its case beyond a reasonable doubt is on the BIR. The presumption that an officer of the government has performed his duty regularly, which is used in the case of the deficiency tax assessments, is not applicable in fraud cases.
Thus, in many cases, the courts dismiss tax evasion cases due to failure to prove the taxpayer’s guilt beyond reasonable doubt.
In People v Court of Tax Appeals (CTA) (GR 248802, June 21, 2021), the BIR argued that since the accused was able to purchase a Lamborghini worth P26,000,000.00 in 2007, he had undeclared income of the same amount for the same year considering that he declared having no income in his 2007 income tax returns (ITR). The CTA, however, pointed out that it is essential to identify the likely source of the unreported or undeclared income of the accused to sustain a conviction. If the undeclared income was passive in nature, the accused would not be required to declare the same in his ITR. The CTA additionally held that the use of any pretense or forbidden device to lessen or defeat taxes or any evidence to illustrate any accompanying state of mind which could be described as evil, in bad faith, willful, deliberate or not accidental, must also be shown.
In People v United Travel Consultants Inc., (CTA Crim. Case O-164, Jan. 17, 2018), the CTA also dismissed the case due to the prosecution’s failure to present the original income tax returns since a copy of the same was denied admission in evidence. As a result, the prosecution was deemed to have failed to prove that there was any income tax due from the accused, creating reasonable doubt as to the guilt of the accused.
In People v Santos, CTA Crim. Case O-012, Jan. 16, 2013, the tax evasion case against Judy Ann Santos was dismissed. Although the BIR proved the existence of undeclared income, it failed to dispute Santos’ claim that she had no intention of evading taxes and that it was her manager who was handling her accounts.
Considering the difficulty in overcoming the burden of proving fraud beyond reasonable doubt in tax evasion cases, it is evident why conviction rates remain low, and why many of these cases are possibly settled.
Stefan Miguel Raymundo A. del Rosario is a junior associate of Mata-Perez, Tamayo and Francisco.