Tax offenses and responsible corporate officers and employees

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OWith great power comes great responsibility. In the corporate world, the management team, especially those in leadership positions, have immense responsibility under the law.

Government policy considers the actions of certain companiesIfcer as equivalent to the acts of the company, so that when these corporate officers make certain commitments, they also commit the company. Generally considered as alter egos of the company, the people occupying such positions are, most of the time, responsible in the event of breaches committed by the company. This principle applies when a legal person is criminally charged with an offense punishable by imprisonment, since a legal person, as an artiIfcial being created by the Ifction of the law, cannot be arrested and imprisoned. As early as the 1930s, the Supreme Court ruled that the person responsible forIfcer must bear criminal responsibility personally because a corporation can only act through itsIfcer and agents.

Specifically, in the case of criminal offenses under Article 255 of the Tax Code committed by associations, partnerships or related companies in the failure to file a return, to provide correct and accurate information, to pay the tax withheld and to refund the excess tax withheld from the compensation, the criminal sanction shall be imposed on the company responsible forIfcer, partners or employees. These are the partner, the president, the general manager, the branch manager, the treasurer, the manager and the employees responsible for the tax offenses of the company.

Imposing the criminal penalty on a speciIfc social position will clearly identify a person who should be held accountable. The challenge, however, is when the responsibility is not imposed on a specific position but on the person responsible for the offense due to the latter’s acts or omissions. How do we determine which of the companies inIfor the employees are liable for the tax offence?

To help determine whether a particular person is responsible for the breach, the following must be proven:

(a) A corporate taxpayer is required under the Revenue Code to pay any tax, to make a return, to keep a record or to provide correct and accurate information;

(b) The corporate taxpayer has failed to pay the required tax, to make a return or keep the required record, to furnish correct and accurate information, to withhold or remit the taxes withheld, or to refund the excess taxes withheld on set-off, when or when required by law or rules and regulations; and

(c) The accused, in his capacity as an employee orIfcer, is responsible for the violation, and he/she willfully committed the above acts.

Generally, proving the first two elements is easier than the third. Determine if an individual is a responsible officer who can be charged and convicted for non-payment of taxes and did so voluntarily is contentious, especially if the position held by the individual is not among those specifically identified by the Tax Code as being criminally responsible.

In a criminal case, a Manila city prosecutor indicted an executive vice president of a corporation for violating section 255 in relation to sections 253(d) and 256 of the tax code due to a alleged willful negligence and a refusal by the company to pay its taxes. liabilities despite notices issued by the Bureau of Internal Revenue (BIR). The accusation against the Executive Vice President is mainly due to the fact that she signed a letter to the BIR, requesting an extension to pay the company’s tax debts and indicating her intention as a representative of the company to settle by compromise. The question is whether such an act is sufficient to engage its criminal liability as a legal person ofIfcer. The Supreme Court held that such an act is not an indication of the significant role of the individual in the management of the affairs of the company to be responsible for the tax offense.

The Supreme Court explained that the person’s position as executive vice president does not automatically make them liable for the company’s non-payment of its tax obligations. What the tax code requires is that the individual must have been the employee orIfcer responsible for the violation. The letter signed by the Deputy General Manager is not sufficient to find her guilty beyond a reasonable doubt as it does not prove that she actively participated in or failed to prevent violations of the law by the company.

The Supreme Court noted that the BIR, as a charge, had failed to prove that the duties and responsibilities of the executive vice president had contributed to the company’s non-payment of its tax debts through active participation; nor was there evidence that she had ceded authority to prevent such violation. In the absence of such evidence, the Court cannot convict the deputy general manager for violation of the tax code.

This Supreme Court case could reassure other companiesIfcer (other than the partner, president, general manager, branch manager, treasurer andIfcer-in-charge) that when performing their duties, proof beyond reasonable doubt that they actively participated in or did not prevent tax offenses by the company is required before they can be criminally responsible for these offences. However, being charged with a criminal offense is no easy feat. I can only begin to imagine the weight of responsibility that high-ranking employees of the company andIfendure every time they perform their duties and the pressure and anxiety they experience every time an action is challenged by anything less than the tax authority.

Any views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. or Cabrera & Company. The content is for general information purposes only and should not be used as a substitute for specific information.Ifc advice.

Maria Ysidra May Y. Kintanar-Lopez is a senior manager in the tax services department of Isla Lipana & Co. and senior legal counsel for Cabrera & Company, member firms of the PwC network.

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