Pieces of a Puzzle

In 2020, an online streaming platform released a documentary-drama film called “The Social Dilemma,” which is essentially an exposé on the dark side of social media technology.

It gives the audience a look at the dangers of having bits and pieces of personal data fed into technology systems. In the documentary, tech geniuses who helped develop major search engines and social media platforms explain that every single thing we do online is carefully monitored and recorded – exactly what image we stop and look at and for how long we look at it.

These different pieces of information are then taken together by the systems to make the best possible predictions about what we like, what actions we will take and ultimately, who we are. Much like a jigsaw puzzle, if you have the necessary pieces, a picture is revealed.

Similar to personal data gathered by technology systems, those gathered by government systems can be used to create profiles of individuals – a danger the Supreme Court has consistently guarded against to protect the people’s right to privacy.

Just recently, the Supreme Court declared Section 2 (2) of Revenue Regulations (RR) No. 4-2014 void for being violative of the constitutional right to privacy.

Section 2 (2) of RR No. 4-2014 required all self-employed professionals to register their official appointment books with the Bureau of Internal Revenue (BIR), including their client’s names and meeting dates and time. In case of any violation of its provisions, a penalty was imposed.

The issuance was challenged by several petitioners (i.e., the Integrated Bar of the Philippines, the Association of Small Accounting Practitioners in the Philippines, the Philippine Medical Association and the Philippine Dental Association) on behalf of their member-professionals, arguing that it forces professionals to divulge privileged information. They highlighted that it violates their code of ethics and that it infringes on the professionals and their clients’ right to privacy.

In their arguments, the respondents (i.e., the Secretary of Finance and the Commissioner of Internal Revenue) claimed that the issuance does not intrude on privacy rights and that there is nothing wrong with the BIR knowing who the self-employed professional met and when they did so.

The Court rejected such an argument, reiterating its statements in a landmark case, to wit: “When seemingly random bits of traffic data are gathered in bulk, pooled together and analyzed, they reveal patterns of activities which can then be used to create profiles of the persons under surveillance.” The Court feared that with enough data, analysts may be able to determine a person’s close associations, religious views, political affiliations and even sexual preferences – data which are well within the realm of privacy.

Ruling in favor of the petitioners, the Court explained that clients and patients may reasonably expect privacy when setting appointments with a lawyer, doctor, accountant, dentist, or any other professional and that the government intrusion is unreasonable, violating such expectation. While names and appointment dates of clients and patients paint no picture, taking together the times a person consults with a professional may illustrate a general pattern of behavior, from which information about a person could be inferred or revealed.

According to the Court, “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 Court added that the mere chance that a person’s information may be subject to government scrutiny is an unreasonable intrusion. Clients and patients may be discouraged from consulting with professionals if their identities can be expected to be in some government record, even more if the government can create a profile on them based on such records.

Indeed, having personal data available to the public can be uncomfortable for many, especially when the data relates to matters as sensitive legal, medical or financial matters. Thankfully, the right to privacy affords us the right not to have private information disclosed and to live freely without surveillance. It has long been considered as one of the most sacrosanct of human rights and is enshrined in no less than the Constitution, demanding its vigilant protection. Thus, while taxes are known to be the lifeblood of the government, taxation must be enforced with due respect for the right to privacy.

Section 2(1) Of RR 4-2014

On an equally important and related note, taxation must also be enforced within the government’s scope of authority. In this regard, Section 2 (1) of RR No. 4-2014 was also struck down by the Court for being issued beyond the respondents’ authority. Section 2 (1) requires self-employed professionals to submit an affidavit of schedule of fees and the factors they consider in determining such fees upon registration with the BIR. The Court explained that tax collectors may obtain information only on concluded transactions, which are taxable services evidenced by receipts. While the affidavit required under the issuance may be likened to receipts, the value of services and fees stated therein are indicative only – determined before the service is performed – and do not appear to be binding on professionals. It is therefore unclear how the affidavit aids the BIR in determining the tax due. Given that the requirement under Section 2 (1) is irrelevant in the respondents’ primary duty of assessment and collection of tax due, it was considered to have been issued in excess of their authority and thus, void.

Tristan Lean Reyes is a Supervisor from the Tax Group of KPMG in the Philippines (R.G. Manabat & Co.), a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The firm has been recognized as a Tier 1 in Transfer Pricing Practice and in General Corporate Tax Practice by the International Tax Review. For more information, you may reach out to Tristan Lean Reyes or Manuel Salvador III through [email protected], social media or visit www.home.kpmg/ph.