Corporate veil not an absolute shield
Corporate veil not an absolute shield by: Charity Mandap
ALTHOUGH a corporation is not a person, the legal fiction of treating it
as an artificial person was created to determine the legality of
As a rule, a corporation has a juridical
personality distinct and separate from the persons owning or composing
it. Thus, the owner or stockholders of a corporation may not generally
be made to answer for the liabilities of a corporation and vice versa.
The veil of corporate fiction, however, may sometimes be abused to avoid liability for taxes.
a result, tax authorities have in several occasions pierced the veil of
corporate fiction in order to hold directors, officers, and employees
In taxation, piercing the veil of corporate
fiction means that stockholders or officers of a corporation can be held
directly liable for corporate tax liabilities and vice versa when the
corporation is formed or used for illegitimate purposes, particularly,
as a shield to perpetuate fraud, defeat public convenience, justify
wrong, evade a just and valid obligation or defend a crime.
the recent case of People of the Philippines vs. Wong Yan Tak, Geralyn
Bobier, and Pic N’ Pac Mart, Inc., CTA Criminal Case No. 0-909, Jan. 8,
2013, the Court of Tax Appeals (CTA) ordered the company’s president as
its responsible officer to pay for the civil liability of the company
arising from its tax assessment.
Upon appeal, however, the CTA
reversed its decision considering that no allegation was made that the
corporation was used to perpetrate fraud.
Thus, only in
circumstances when the corporation was used merely as an adjunct,
business conduit or alter ego of another corporation or by its officers
or stockholders, or the corporation was used to perpetrate fraud in
violation of the tax laws can the doctrine of "piercing the corporate
veil" be applied and the fiction of the corporation’s separate and
distinct personality is disregarded.
The same rule applies in
case of penal liability. In People of the Philippines vs. Katherine M.
Lim, and Edelyn Coronacion, CTA Criminal Case No. 0-113, Dec. 12, 2011,
the Court discussed the element of willfulness to make the responsible
If a taxpayer is a corporation, Section 256
of the Tax Code imposes the penal liability upon the corporate
taxpayer’s responsible officers enumerated in Section 253 (d). The crime
of failure to pay tax under Section 255 is defined by the element of
"willfulness" of not paying the tax. The offender is aware or knows the
existence of obligation to pay a tax liability voluntarily and
intentionally failed to pay it. The court further explained that a
corporate taxpayer incurs no criminal liability for the same is personal
upon its officers taking into consideration that a crime cannot be
imputed to a corporation, being a mere artificial being without a mind,
therefore the criminal intent as an essential ingredient of a crime
would be missing.
However, as clarified in the case of Ching vs.
Secretary of Justice, GR No. 164317 dated Feb. 6, 2006, a corporation
cannot be arrested and imprisoned, hence, cannot be penalized for a
crime punishable by imprisonment. Nevertheless, a corporation may be
charged and prosecuted for a crime if the penalty is a fine. Even if the
statute prescribes both fine and imprisonment as penalty, a corporation
may be prosecuted and, if found guilty may be fined. When a criminal
statute designates an act of a corporation a crime and prescribes
punishment, it creates a criminal offense which, otherwise, would not
exist and such can be committed only by the corporation. But when a
penal statute does not expressly apply to corporations, it does not
create an offense for which a corporation may be punished. On the other
hand, if the State, by statute, defines a crime that may be committed by
a corporation but prescribes the penalty to be suffered by the
officers, directors, or employees of such corporation or other perso
ns responsible for the offense, only such individuals will suffer such
The principle applies to those corporate agents who
themselves commit the crime and to those, who, by virtue of their
managerial positions could be deemed responsible for its commission, if
by virtue of their relationship to the corporation, they had the power
to prevent the act. Whether such officers or employees are benefited by
their delictual acts is not a touchstone of their criminal liability.
has been held in a number of cases that personal liability of a
corporate director, trustee, or officer may validly attach when:
He assents to the (a) patently unlawful acts of the corporation, (b)
bad faith or gross negligence in directing its affairs, or (c)
conflict of interest, resulting in damages to the corporation, its
stockholders, or other persons;
2. He consents to the issuance of
watered down stocks or, having knowledge thereof, does not forthwith
file with the corporate secretary his written objection thereto;
3. He agrees to hold himself personally liable and solidarily liable with the corporation; or
4. He is made, by specific provision of law, to personally answer for his corporate action.
foregoing tax cases should serve as a caveat to stockholders,
directors, officers, employees of corporations that although the
corporation has distinct and separate juridical personality, the court
may pierce the corporate veil and hold them liable together with the
corporation for any tax deficiency.