Primer on the Tax Amnesty Act of 2007 (RA 9480)

Published by Atty. Fred April 17th, 2008 in Corporate and Investments, Obiter/News and Tax and Estate Law.

What is Republic Act No. 9480? It is a law, referred to as the Tax Amnesty Act of 2007, passed by Congress granting amnesty to all unpaid internal revenue taxes imposed by the national government for the taxable year 2005 and prior years. Until when can taxpayers avail of the benefits of this law? The last day to avail of tax amnesty is 5 May 2008, as clarified in Department of Finance (DOF) Department Order No. 11-08. What is its coverage? The tax amnesty covers all national internal revenue taxes for the taxable year 2005 and prior years that have remained unpaid as of 31 December 2005. Who may avail of the tax amnesty and how much is the amnesty tax? Any person may avail himself of the benefits of tax amnesty and pay the amnesty tax based on his networth as of 31 December 2005 as declared in the Statement of Assets, Liabilities and Networth (SALN), in accordance with the following schedule: 1. Individuals (whether resident or nonresident citizens, including resident or nonresident aliens), Trusts and Estates 5% or P50,000, whichever is higher 2. Corporations with subscribed capital of above P50 Million 5% or P500,000 whichever is higher 3. Corporations With subscribed capital of above P20 Million up to P50 Million 5% or P250,000, whichever is higher 4. Corporations With subscribed capital of P5 Million to P20 Million 5% or P100,000, whichever is higher 5. Corporations With subscribed capital of below P5 Million 5% or P25,000, whichever is higher 6. Other juridical entities, including, but not limited to, cooperatives and foundations, that have become taxable as of 31 December 2005 whichever is higher 5% or P50,000, Who are not allowed to avail of the tax amnesty?

The amnesty does not cover the following persons or cases existing as of the effectivity of the law: 1. Withholding agents with respects to their withholding tax liabilities. 2. Those with pending cases falling under the jurisdiction of the Presidential Commission on Good Government. 3. Those with pending cases involving unexplained or unlawfully acquired wealth or under the Anti-Graft and Corrupt Practices Act. 4. Those with pending cases filed in court involving violation of the Anti-Money Laundering Law. 5. Those with pending criminal cases for tax evasion and other criminal offenses under Chapter II of Title X of the National Internal Revenue Code of 1997 (NIRC), as amended, and the felonies of frauds, illegal exactions and transactions, and malversation of public funds and property under Chapters III and IV of Title VII of the Revised Penal Code. 6. Tax cases subject of final and executory judgment by the courts. How to avail of the tax amnesty? The taxpayer shall file with the Bureau of Internal Revenue (BIR) a notice and Tax Amnesty Return accompanied by the SALN as of 31 December 2005, in such form as may be prescribed in the implementing rules and regulations (IRR), and pay the applicable amnesty tax within six months from the effectivity of the IRR. What information are required to be declared in the SALN? The SALN shall contain a declaration of the assets, liabilities and networth as of 31 December 2005, as follows: 1. Assets within or without the Philippines, whether real or personal, tangible or intangible, whether or not used in trade or business. 2. All existing liabilities which are legitimate and enforceable, secured or unsecured, whether or not incurred in trade or business. 3. The networth of the taxpayer, which shall be the difference between the total assets and total liabilities. What are the immunities and privileges under this law?

1. The taxpayer shall be immune from the payment of taxes, as well as addition thereto, and the corresponding civil, criminal or administrative penalties under the NIRC arising from the failure to pay any and all internal revenue taxes for taxable year 2005 and prior years. 2. The taxpayers Tax Amnesty Returns and the SALN as of 31 December 2005 shall be inadmissible as evidence in all proceedings that pertain to taxable year 2005 and prior years, insofar as such proceedings relate to internal revenue taxes, before judicial, quasijudicial or administrative bodies in which he is a defendant or respondent, and it shall not be examined, inquired or looked into by any person or government office, except: (a) for the purpose of ascertaining the networth beginning 1 January 2006; and (b) when the taxpayer uses it as a defense, whenever appropriate, in cases brought against him. 3. The books of accounts and other records of the taxpayer for the years covered by the tax amnesty availed of shall not be examined, except when the Commissioner of Internal Revenue authorize in writing the examination of the said books of accounts and other records to verify the validity or correctness of a claim for any tax refund, tax credit (other than refund or credit of taxes withheld on wages), tax incentives, and/or exemptions under existing laws. 4. Presumption that the SALN as of December 31, 2005 is true and correct, except: (a) where the amount of declared networth is understated to the extent of 30% or more, but the proceedings for such determination must be initiated within 1 year following the date of the filing of the tax amnesty return and the SALN; and (b) when findings of or admission in congressional hearings, other administrative agencies of government, and/or courts prove the 30% under-declaration. What instances are these immunities not applicable? 1. Where the person failed to file a SALN and the Tax Amnesty Return. 2. Where the amount of networth as of 31 December 2005 is proven to be understated to the extent of thirty percent (30%) or more. What happens upon finding of under-declaration of net worth? 1. Any person who willfully understates his networth to the extent of 30% or more shall be subject to the penalties of perjury under the Revised Penal Code. 2. The willful failure to declare any property in the statement and/or in the Tax Amnesty Return shall be deemed in prima facie evidence of fraud and shall constitute a ground upon which attachment of such property may be issued in favor of the BIR to answer for the satisfaction of any judgment that may be acquired against the declarant.

3. In addition, immediate tax fraud investigation shall be conducted to collect all taxes due, including increments, and to criminally prosecute those found to have willfully evaded lawful taxes due. In the case of associations, partnerships, or corporations, who shall be liable for the penalties? The corresponding penalty shall be imposed on the partner, president, general manager, branch manager, treasurer, officer-in-charge and employees responsible for the violation. If I dont avail of this tax amnesty, will there be similar laws in the future? The expressed intent of the law is to put a moratorium on the grant of tax amnesty, including administrative tax amnesty by the BIR. This is to encourage and improve tax compliance by taxpayers.

Philippines Amnesty Act 2007

It must be a jubilee year. In Christian theology the Jubilee is a special year for the remission of sins and universal pardon through plenary indulgence. Forgiveness of all sins di culpa e di pena is granted only to the truly penitent-the ones who make a confession of their sins make the required a pilgrimage to a specified holy place. By analogy, the government of the Philippines is granting its own version of a plenary indulgence through R. A. 9480 only eternal damnation is not at hand, its just tax. In a bold but not unprecedented move to lure wayward taxpayers out of the woodworks and to boost revenue, Philippine lawmakers passed Republic Act 9480 The Tax Amnesty Act of 2007 which essentially grants taxpayers a reprieve for all unpaid internal revenue taxes i.e. those imposed by the National Government for the taxable year 2005 and prior years upon payment of a special amnesty tax. Upon payment of an amnesty tax the law promises that the taxpayer shall be immune from the payment of taxes, as well as additions thereto, and the appurtenant civil, criminal or administrative penalties under the National Internal Revenue Code of 1997, as amended, arising from the failure to pay any and all internal revenue taxes for taxable year 2005 and prior years. The amnesty is remarkable for three major reasons: 1. The amnesty was legislated by the Congress of the Philippines; 2. The coverage of the amnesty is very comprehensive in terms of taxpayer eligibility and taxes covered; and 3. The law provides a moratorium on all future amnesty including administrative amnesty granted by the Bureau of Internal Revenue (BIR)

Its a basic premise of constitutional law that Congress cannot pass irrepealable laws, so the moratorium will obviously last only until the next amnesty grant by Congress. This legislation however, makes it clear that any amnesty may only be by Congressional grant putting an end to the voluntary assessment and abatement programs by the BIR. The moratorium clearly recognizes the Philippine BIRs penchant for amnesty programs with sometimes questionable legal basis. If one can argue that amnesty partakes of the nature of a tax exemption, which arguably it does, then BIR has no authority to grant a general amnesty since under Article VI Section 28 (4) of the 1987 Constitution no law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress. The line is drawn under Section 204 of the Code which allows BIR, through the Commissioner to compromise taxes upon certain conditions: 1) when reasonable doubt as to the validity of the claim against the taxpayer exists; or 2) the financial position of the taxpayer demonstrates a clear inability to pay an assessed tax. In the same manner, BIR is also allowed to cancel a tax liability 1) when the tax or any portion thereof appears to be unjustly or excessively assessed; or 2) the administration and collection costs involved do not justify the collection of the amount due. We can quibble about constitutional issues and violation of the separation of powers all day but why should any taxpayer public complain about amnesty? When unthreatened by collection enforcement measures, the shrewd businessman will normally lay low from the taxman and await the next opportunity to make good on his sins. Amnesty will come around again in the Philippines, wont it? Or it will this one last time. The saying goes however, beware of Greeks bearing gifts. Amnesty programs usually require some form of disclosure return and authorize a carte blanche review of the books. They also usually do not involve all types of taxes and can lead to assessment, which is precisely the opposite objective to be achieved, at least from the taxpayer viewpoint. On paper Republic Act 9480 measures up pretty well. It requires the submission of a SALN or statement of assets and liabilities and an amnesty return. The SALN is the basis for determining the amount of taxes to be paid which in no case is higher than 5% net worth (based on the SALN). Revenue has one year to determine the veracity of the SALN but in general, the implementing regulations provide that the SALN is presumed correct unless: 1. the amount of the declared net worth is understated to the extent of thirty percent (30%) or more as may be established in proceedings initiated within one (1)-year following the date of filing of the Tax Amnesty Return and the SALN, by, or at the instance of parties other than the BIR or its agents, as when any person, entity or government agency informs the BIR, with sufficient evidence, that the amount of the declared networth is understated to the extent of thi!ty percent 30 % or more; or 2. When findings of or admission in congressional hearings or proceedings in administrative agencies of the government, and in courts, prove that there is at least thirty percent (30%) under-declaration.

The willful understatement in the SALN is subject to the penalties of perjury under the Revised Penal Code and constitutes prima facie evidence of fraud and constitutes a ground upon which attachment for such property may be issued in favor of the BIR to answer for the satisfaction of any judgment against the erring declarant who will likewise be subject to a tax fraud investigation. In terms of process the amnesty is relatively simple. The implementing rules require interested taxpayers to secure a notice of availment and a tax amnesty return from the BIR and prepare their SALNs as of December 31, 2005. Then they have to pay the amnesty tax at accredited banks or collection agents, and secure a notice of payment. Once all forms are ready, they must be submitted to the relevant revenue district officer and only then can the above described immunity be effective. Excluded from coverage are withholding agents with respect to their withholding tax liabilities, taxpayers with cases involving ill-gotten wealth or unexplained wealth, taxpayers with cases involving money laundering, pending criminal cases filed in court for felonies of frauds, illegal exactions and transactions, and malversation of public funds and property under Chapters III and IV of Title VII. of the Revised Penal Code, taxpayers facing pending tax evasion and other criminal offenses under the tax code, and tax cases subject of final and executory judgment by the courts. This means that those with pending assessments whether currently being processed administratively or in the courts are eligible for amnesty so long as they do not involve fraud or criminal offenses. This is the bulk of pending assessments with the BIR. For those who are eligible, the bottom line is whether the amnesty, in numbers makes financial sense. Immunity for 2005 and prior years presents a huge benefit. Taxpayers in the Philippines can avail of the amnesty until March 5, 2008. The BIR of the Philippines began accepting applications on Wednesday, September 5, 2007. Without going into policy perspectives, R.A. 9840 provides huge benefits, at least from a taxpayer perspective or its the closest thing to eternal salvation that government can give. Questions on the Tax Amnesty Act
Much has been talked about Republic Act 9480, otherwise known as the Tax Amnesty Act of 2007, since House Bill 2933 lapsed into a law on May 24, 2005, due to the inaction of President Arroyo. Historically, only few legislated tax-amnesty laws were issued, such as Presidential Decree 23 by President Marcos in 1972 and Executive Order 41 by President Aquino in 1986. This only goes to show that this rare opportunity, or perhaps magnanimity on the part of the government, is treated with great caution. Firstly, tax amnesty as fiscal policy is regarded to be indicative of a poor tax administration and enforcement system. Secondly, it can also be perceived as rewarding tax evasion/fraud and, in a way, penalizing the compliant taxpayers. Despite these not-so-popular perceptions regarding tax-amnesty laws, President Arroyo, in certifying HB 2933 as an urgent bill, had expressed the view that the measure will instill upon the general citizenry,

particularly among the errant taxpayers, the value of civil responsibility by providing an option for them to make a truthful and faithful disclosure of their untaxed income or adjust their statement of assets and net worth in order to become an integral part of the national tax base. Apparently, the government is very optimistic that the expected benefits arising from the implementation of RA 9480 will outweigh its demerits. With the law now in effect and with the recent issuance of the muchawaited Department Order 29-07 by the Department of Finance implementing the provisions of RA 9480, taxpayers have shifted their focus on issues affecting the implementation of the law. Under RA 9480, to enjoy the immunities and privileges under its Section 6, such as immunity from paying internal revenue tax liabilities for 2005 and prior years, the taxpayer is required to pay an amnesty tax of 5 percent of his/her net worth (subject to minimum amounts) as of December 31, 2005. In addition, the applicant is required to file the following: a) Notice of Availment; b) Tax Amnesty Return; and c) Statements of Assets, Liabilities and Net worth (SALN) as of December 31, 2005. The submission of SALN proves to be controversial because of the different valuation of the items required to be declared as compared with the balance sheet amounts regularly prepared by the auditors based on accounting standards. Hence, taxpayers need to restate their respective balance sheets to conform to the requirements of RA 9480. As provided in the implementing rules, the assets and liabilities should be valued and presented in the SALN as follows: Real properties shall be accompanied by a description of their classification, exact location and valued at acquisition cost, if acquired by purchase; or the zonal valuation or fair market value, whichever is higher, if acquired through inheritance or donation; Personal properties other than money shall be accompanied by a specific description of the kind and number of assets or other investments, indicating the acquisition cost less depreciation or amortization, if acquired by purchase; or the FMV or value at the time of receipt, if acquired through inheritance or donation; Assets denominated in foreign currency shall be converted into the corresponding Philippine currency equivalent, at the rate of exchange prevailing as of December 31, 2005; Cash on hand and in bank in peso as of December 31, 2005, as well as cash on hand and in bank in foreign currency, converted to peso as of December 31, 2005; and All existing liabilities, which are legitimate and enforceable, secured or unsecured, whether or not incurred in trade or business, disclosing or indicating clearly the name and address of the creditor and the amount of the corresponding liability.

One of the issues that is left unclear by DO 29-07 is on the matter of estate tax. Although the estate is similarly treated as individuals, will it also follow that the estate tax will be covered just like in the previous tax amnesties? In the 1986 tax amnesty, the estate tax is covered if the heirs declared the inherited properties in their own SALN and pay the amnesty tax on the resulting net worth. Would the same rule apply? Equally important to note is the effect of this amnesty law on the target collections of the BIR. Will the Office of the President somehow reduce the revenue target collections at least to a reasonable extent? Or will the BIR officials continue to sit at the edge of their seats trying hard to attain the high collection targets to the detriment of taxpayers?

Questions now loom on whether this Tax Amnesty Act will generate the much-sought revenue to eliminate our burgeoning budget deficit. Past tax-amnesty programs proved to be ineffective insofar as addressing this perennial dilemma of the government. However, if the real objective here is to bring in a large number of errant taxpayers into the fold of national taxation to broaden and update the tax base, which in effect will reduce future noncompliance, then the government may be on the right track in implementing this piece of legislation.