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What constitutes tax evasion

what constitutes tax evasion

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TAX-FILES. What constitutes tax evasion?

Antonette C. Tionko and Eugene M. Pulga, SGV & Co.

Inquirer News Service / Jun. 24, 2005

WITH the many tax evasion cases being filed by the

Bureau of Internal Revenue against corporations and

individuals under the Run After Tax Evaders (RATE)

program, many still wonder, "What constitutes tax


In general, tax evasion is a scheme used outside

lawful means and when availed of, usually subjects the

taxpayer to further or additional civil or criminal

liabilities. (Jose C. Vitug and Ernesto D. Acosta,

Tax Law and Jurisprudence 44). Thus, any person who

willfully neglects to file a return within the period

prescribed by the National Internal Revenue Code (NIRC)

or willfully files a false or fraudulent return will be

liable to a penalty of 50 percent of the tax or of

the deficiency tax.

A substantial under declaration, of sales, receipts or

income or a substantial overstatement of deductions

as determined by the BIR commissioner constitutes

prima facie evidence of false or fraudulent return.

Failure to report sales, receipts or income by

at least 30 percent of that declared in the return

constitutes substantial under declaration, and a claim

of deductions in an amount exceeding 30 percent of

actual deductions will be considered an overstatement

of deductions. (Section 248(B), 1997 Tax Code)

The NIRC imposes additional penalties for

certain crimes and offenses, such as:

a. Willful attempt to evade or defeat tax-a fine of

not less than P30,000 but not more than P100,000

and suffer imprisonment of not less than two years

but not more than four years; (Section 254, NIRC)

b. Willful failure to file return, supply correct

and accurate information, pay tax, withhold and

remit tax and refund excess taxes withheld on

compensation-a fine of not less than P10,000 and

imprisonment of not less than one year but not

more than 10 years; (Section 255, NIRC)

All the above acts or omissions constitute tax evasion

which connotes the integration of three factors:

(1) the end to be achieved, i.e.

the payment of less

than that known by the taxpayer to be legally due, or the

non-payment 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. (De Leon, Fundamentals of

Taxation, 1998 edition, cited in CIR v. The Estate of

Benigno Toda Jr. G.R. No. 147188 dated Sept. 14, 2004).

Recently, the Supreme Court ruled that a certain scheme was

tainted with fraud and therefore constituted tax evasion.

In the said case, Company A sold a piece of property for

P100 million to an individual, who was a close business

associate of Company A's primary shareholder. The individual

purchaser, in turn, sold the same property on the same day

to Company B for P200 million. Company A paid, among

others, its tax on gain from the sale of the property

at the rate of 35 percent as corporate income tax for 1989.

On the other hand, the individual paid the 5 percent capital

gains tax (CGT) on the same year.

The Supreme Court ruled in this case that the scheme

resorted to by Company A and its primary shareholder

cannot be considered legitimate tax planning. Such scheme

is tainted with fraud. Fraud, in its general sense,

is deemed to comprise anything calculated to deceive,

including all acts, omissions and concealment involving

a breach of legal, or equitable duty, trust or confidence

justly reposed, resulting in the damage to another, or by

which an undue and unconscionable advantage is taken

of another.

The intermediary transaction which prompted more on

mitigation of tax liabilities than for legitimate business

purposes constitutes one of tax evasion. Moreover,

the three factors constituting tax evasion exist in this

case. (CIR v. The Estate of Benigno Toda Jr. id).

To summarize, to determine whether in fact someone

can be held liable for tax evasion, the three factors

enumerated must be present. Absence of just one will

mean the case will not prosper.


This was published on page B8 of the June 24, 2005 issue

of the Philippine Daily Inquirer.

Category: Taxes

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