Subpoena Duces Tecum: Compelling erring taxpayers

Taxes are the life-blood of the government. They are necessary to finance the operations of the government and thereby meet the demands and needs of the people. These taxes are what we have to pay in exchange for a civilized society.

The Bureau of Internal Revenue (BIR) has been conferred by law with powers in order to secure the proper generation of funds for the government. Under Section 5 of the National Internal Revenue Code (NIRC), the Commissioner of Internal Revenue (CIR) is granted the power to obtain information, to summon, examine, and take testimony of persons for the purpose of determining the liability of any person for any internal revenue tax, collecting any such liability, or evaluating tax compliance.

On the basis of these granted powers, the BIR can arm itself with a Subpoena Duces Tecum (SDT) in order to facilitate the investigation of possible tax deficiency. Subpoena duces tecum is a Latin phrase which means “to bring with you under penalty”. The issuance of the SDT is a process directing a person to bring with him and present documents described in the SDT. Failure to comply with the SDT shall result in criminal prosecution as provided under Section 266 of the NIRC.

In connection with the said power to issue a SDT, the BIR issued Revenue Memorandum Order (RMO) No. 10-2013 which provides for guidelines and procedures in the issuance and enforcement of SDTs and the prosecution of cases for non-compliance therewith. Recently, BIR issued RMO No. 8-2014 amending portions of RMO No. 10-2013 relative to the issuance of SDT.

Under RMO No. 8-2014, the issuance of a SDT shall now be requested by the revenue officer conducting a verification investigation from the Assistant Commissioner of the Enforcement and Advocacy Service for the BIR National Office, Assistant Commissioner of the Large Taxpayers Service (LTS) for taxpayers under the jurisdiction of the LTS, including Large Taxpayers District Office, Revenue Regional Directors for the Regional Offices and any other officer duly delegated by the CIR.  Previously, under RMO No. 10-2013 the SDT is requested from the abovementioned officers but through the Prosecution Division of the National Office or the Legal Divisions of the Regional Offices.

The process for the issuance of SDT is made simpler under RMO No. 8-2013 since the Prosecution Division or the Legal Division, as the case may be, is no longer involved in the preparation of the SDT which have to be submitted to the Assistant Commissioner or Revenue Regional Directors for their signatures. Instead, the SDT is now directly acted upon by the latter.

Further, RMO No. 8-2014 provides for a more strict process in the service of the SDT, since the BIR now requires that the SDT be “first served to the taxpayer’s registered address before the same is served to the taxpayer’s known address, or simultaneously to the taxpayer’s registered address and known address.”

The RMO further clarifies that the server required to accomplish the SDT and make a written report under oath on how the service of the SDT was made, specifically pertains to either the revenue officers assigned to investigate the case or any other internal revenue officer authorized for the purpose.

In the enforcement of the SDT under RMO No. 8-2014, in case of the failure to comply with the SDT, the issuing office, which may be the Assistant Commissioner, Regional Director or any other duly delegated by the CIR, shall forward the case to the Prosecution Division at the National Office or Legal Division at the Regional Office, as the case may be, for the filing of the case.

The issuance of RMO No. 10-2013 and amendments thereto by RMO No. 8-2014 shortly thereafter reflect the strong determination of the BIR to streamline the investigation process and pursue erring taxpayers. These changes in the procedure and guidelines would hopefully enable the BIR to have a more efficient way of battling tax evasion and of collecting revenues for the government.

There is no doubt that the end goal is the protection of the interest of the government. However, in pursuing such goal, there should also be a consideration on the rights of taxpayers. Nonetheless, given that the amendments made by RMO No. 8-2014 would expedite tax investigations, there would be a balance between achieving government’s goal in punishing the willful erring taxpayers thereby protecting the interest of the government and bringing peace of mind to good taxpayers as investigations finally close.

Alarice L. Yang is a Supervisor from the Tax Group of R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The view and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or RGM&Co. For comments or inquiries, please email [email protected] or [email protected].

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