By: Atty. Xela Leona D. Laqui on June 20,2024

In the recent case Integrated Bar of the Philippines v. Purisima, (G.R. Nos. 211772 and 212178, April 18, 2023) (the “IBP Case”), the Supreme Court invalidated portions of Sections 2(1) and 2(2) of Bureau of Internal Revenue (“BIR”) Revenue Regulations (“RR”) No. 4-2014 or the Guidelines and Policies for the Monitoring of Service Fees of Professionals for violating the right to privacy of the Professionals and their clients.

RR No. 4-2014 required all self-employed professionals to (1) submit to the BIR an affidavit of rates, manner of billing, and the factors that they consider in determining service fees (Section 2(1)); (2) register with the BIR the books of accounts and appointment books containing the names of their clients, and their meeting date and time (Section 2(2)); and (3) issue a receipt registered with the BIR showing 100% discount if no professional fees are charged.

Several organizations representing lawyers, doctors, accountants, and dentists assailed the validity of RR No. 4-2014 on the ground of violation of right to privacy.

The Supreme Court ruled that the BIR overstepped its authority under the National Internal Revenue Code, as amended (Tax Code). The Supreme Court found that the BIR’s requirement for self-employed professionals to submit an affidavit detailing their rates, billing methods, and fee considerations is not authorized by the Tax Code. The Supreme Court clarified that the BIR can only request information on completed transactions, which represent the taxable services rendered. Disclosing fee structures and factors used for determining fees is irrelevant to the BIR’s primary function of assessing and collecting taxes due.

The Supreme Court ruled that the affidavit that the RR No. 4-2014 requires may be akin to receipts, which are written evidence of the value of services. However, the affidavit required is only indicative of the rates and services to be performed and should not bind professionals or prevent them to ultimately charge higher or lower rates.  

The Supreme Court further ruled that it is vague as to how the affidavit aids the tax collectors in ascertaining the payable tax. Also, there appears no compelling need for sworn statements of the rates and manner of billing among professionals. Thus, the Supreme Court found it to be irrelevant and baseless, as well as to serves no legitimate purpose.

Although requiring professionals to submit affidavits of rates, manner of billing, and considerations regarding fees neither encroaches the rule-making power of the Supreme Court nor violates ethical norms of the professionals, Section 2(1) of RR No. 4- 2014 is unconstitutional for going beyond the mandates of the Tax Code.

In addition, the Supreme Court held that the mandatory registration of appointment books under Section 2(2) of RR No.  4-2014 is an unconstitutional intrusion into the fundamental rights of professionals and their patients and clients. It violates privacy rights and the ethical norms of the professionals.

Section 3, Article III of the 1987 Constitution of the Philippines provides that the privacy of communication and correspondence is inviolable except only when there is a court order, or as the law prescribes when public safety or order requires otherwise.

Jurisprudence has since pointed out that the right to privacy enjoyed in this jurisdiction does not only concern correspondence and communication. Certain fundamental rights create penumbras where corresponding privacy rights lie, otherwise known as “zones of privacy.”

Clients and patients have a reasonable expectation of privacy when they set appointments with the professionals. The case of Disini, Jr. v. Secretary of Justice (727 Phil. 28-430, February 18, 2014) held that bundling together all the time a person consults with a professional may illustrate a general pattern of behavior, from which information about a person could be revealed, or inferences from information that should have remained private may be drawn. It is this pattern of behavior, which can be extracted from the appointment book, that a person has a reasonable expectation of privacy over, and which must be protected.

The Supreme Court also pointed out that client’s identity (in proper cases), patient-physician communication, correspondence between physician and patients and certified public accountants’ working papers, schedules, and memoranda are privileged communication and may not be divulged.

Thus, the appointment books of professionals, such as lawyers, doctors, accountants, or dentists, contain their clients’ names and the date and time of consultation, information over which they reasonably expect privacy. Mandating the registration of appointment books to monitor tax compliance would be an unreasonable State intrusion into their right to privacy.

In the end, the Supreme Court held that Section 2(1) of RR No. 4-2014 is valid only insofar as it mandates self-employed individuals, as proper subjects of taxation, to register and pay annual registration fees. Section 2(2), which obligates the registration of books of accounts, is likewise valid as it simply implements the Tax Code.

In partly granting the petition and declaring portions of Section 2(1) and 2(2) of RR 4-2014 as invalid, the Supreme Court also discussed the issues of whether there was an actual controversy, the legal standing of petitioners and principle of hierarchy of courts.

Xela Leona D. Laqui is a Junior Associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com