Strengthening the RATE program
Strengthening the RATE program
by Kristine S. Casa-Siervo
For the past several years, the Bureau of Internal Revenue (BIR) has focused their attention on the assessment and collection of taxes in order to meet its quota and do its share in contributing to the nation’s economic growth and development.
Recently, it has discovered the efficacy of the threat of criminal prosecution as a means of ensuring that each and every individual and corporation files their respective returns and pays the corresponding taxes due thereon.
In realizing the usefulness of this tax tool, the BIR has recently issued Revenue Memorandum Order No. 24-08 which defines the policies and guidelines for the development, investigation, and prosecution of cases under the Run After Tax Evaders (RATE) Program. This issuance reinforces the fact that the BIR is serious in its campaign to collect taxes, by investigating and subsequently prosecuting those taxpayers who they believe are violating tax laws.
In this program, before a taxpayer may be prosecuted under the RATE program the following conditions must be met:
There must be violation or an alleged violation of the National Internal Revenue Code of 1997, which includes, among others, the attempt to evade or defeat tax laws, the failure to file a return, supply the correct information, and pay, withhold and remit tax, and making false entries, records or reports or using falsified or fake accountable forms;
The taxpayer is a high-profile or well-known entity within the community or industry; and
The estimated basic tax deficiency is at least P1M per year and tax type, but priority is given to tax cases where the aggregate basic tax deficiencies for all tax types per year is P50 million or more.
Under the RATE program, a preliminary investigation must first be conducted to establish the prima facie existence of fraud.
The various schemes used by the taxpayer and the extent of the fraud perpetrated shall be verified by the revenue officer concerned. For cases within the jurisdiction of the National Office, this shall be the responsibility of the National Investigation Division (NID) and the Policy Cases Division (PCD). Those falling within the jurisdiction of the various Revenue Regions shall be conducted by the Special Investigation Division (SID).
If a prima facie existence of fraud is established after the preliminary investigation, a formal investigation will then be conducted. The formal investigation will involve an examination of the taxpayer’s books of accounts, accounting records and third party records after the issuance of a Letter of Authority (LA).
In cases where the taxpayer who is determined to be under the RATE Program is already subject of an ongoing regular audit, a new LA shall be issued which shall automatically supersede all previously issued LAs. No other LA shall be issued to a taxpayer already covered by one issued for a RATE case.
In addition, the internal revenue office appointed to make the regular audit shall, upon receipt of a copy of the new LA, cease from continuing with examination and shall transmit to the NID, PCD or SID, all the records and documents in their possession relative to the taxpayer involved.
If the formal investigation results in a recommendation for criminal prosecution all findings of the NIR, PCD and SID together with all documents and evidences pertinent to the case, shall be forwarded to the appropriate offices for the preparation of the Complaint Affidavit, and the Referral Letter — to the Special Prosecution Division, for cases pending before the National Office, and to the Legal Division for cases before the Revenue Regions.
The complaint is then filed with the Department of Justice where another preliminary investigation shall be conducted to establish the merits of the case and to determine if there is enough evidence to file a case with the Court of Tax Appeals.
If the ev
idence gathered is not sufficient to pr ove beyond reasonable doubt the guilt of the taxpayer although there exists clear and convincing evidence that fraud has been committed, a criminal case may not be filed, but a corresponding 50% surcharge shall nevertheless be imposed on the taxpayer.
It is important for taxpayers to be aware of the various programs of the BIR particularly those which carry with them criminal prosecutions so that taxpayers may arm themselves with the proper tools to protect and safeguard themselves.
This should likewise serve as a warning to taxpayers to pay the correct taxes to avoid the full and avenging force of the law.
(The author is a senior tax manager at Punongbayan & Araullo, a member firm within Grant Thornton International Ltd. For comments and inquiries, please E-mail the author or call 886-5511.)