The Supreme Court ruled that a taxpayer is entitled to the benefits of a tax amnesty program upon demonstrating full compliance with the requirements set forth in Republic Act (R.A.) No. 9480, including the submission of a Statement of Assets, Liabilities, and Net Worth (SALN). The Court emphasized that if the government cannot prove an underdeclaration of net worth exceeding 30%, the taxpayer’s SALN is presumed true and correct, allowing immediate enjoyment of the tax amnesty’s immunities and privileges. This ruling clarifies the conditions for availing of tax amnesty and protects taxpayers from arbitrary disqualification based on minor technicalities.

Navigating Tax Amnesty: Did Missing SALN Details Nullify Covanta’s Deal?

This case, Commissioner of Internal Revenue v. Covanta Energy Philippine Holdings, Inc., revolves around Covanta Energy Philippine Holdings, Inc.’s (CEPHI) availment of the tax amnesty program under Republic Act No. 9480 (R.A. No. 9480). The Commissioner of Internal Revenue (CIR) challenged CEPHI’s eligibility for tax amnesty, arguing that CEPHI’s Statement of Assets, Liabilities, and Net Worth (SALN) was incomplete because it lacked information in the “Reference” and “Basis of Valuation” columns. This omission, according to the CIR, should disqualify CEPHI from enjoying the benefits of the tax amnesty program. The core legal question is whether minor omissions in a SALN can invalidate an otherwise compliant application for tax amnesty under R.A. No. 9480.

The factual backdrop begins with deficiency tax assessments issued by the CIR against CEPHI for value-added tax (VAT), expanded withholding tax (EWT), and minimum corporate income tax (MCIT) for the taxable year 2001. CEPHI protested these assessments, eventually leading to petitions before the Court of Tax Appeals (CTA). Subsequently, CEPHI availed itself of the tax amnesty program under R.A. No. 9480 and submitted the required documents, including the SALN. The CTA Second Division partially granted CEPHI’s petitions, canceling the VAT and MCIT assessments but holding CEPHI liable for the deficiency EWT assessment. The CIR appealed this decision to the CTA en banc, arguing that CEPHI’s SALN deficiencies invalidated its tax amnesty availment. The CTA en banc, however, denied the CIR’s appeal, affirming the validity of CEPHI’s tax amnesty, leading the CIR to elevate the matter to the Supreme Court.

At the heart of the legal framework is R.A. No. 9480, which governs the tax amnesty program for national internal revenue taxes for the taxable year 2005 and prior years. The law allows taxpayers to avail of tax amnesty by complying with documentary submission requirements to the Bureau of Internal Revenue (BIR) and paying the applicable amnesty tax. Department of Finance (DOF) Department Order No. 29-07, the implementing rules and regulations of R.A. No. 9480, specifies the procedure for availing of the tax amnesty, including the filing of a Notice of Availment, a SALN, and a Tax Amnesty Return. Section 6(3) of the implementing rules explicitly states that completion of these requirements is deemed full compliance with the provisions of R.A. No. 9480.

The Supreme Court’s analysis hinged on the principle of substantial compliance and the presumption of correctness afforded to SALNs under R.A. No. 9480. While the CIR argued that the omissions in CEPHI’s SALN were fatal to its tax amnesty application, the Court found that CEPHI had, in fact, substantially complied with the requirements of the law. CEPHI attached schedules to its SALN that provided the information required under R.A. No. 9480 and its implementing rules. The Court noted that the information required in the “Reference” and “Basis for Valuation” columns was essentially the specific description of the taxpayer’s declared assets, which were provided in the attached schedules. On this basis, the Supreme Court determined that the CIR could not disregard or simply set aside the SALN submitted by CEPHI.

Building on this principle, the Court emphasized the presumption of correctness afforded to SALNs under Section 4 of R.A. No. 9480. This presumption can only be overturned if the CIR establishes that the taxpayer understated its net worth by at least 30%. The Court found that the CIR presented no evidence, aside from bare allegations, to prove that CEPHI understated its net worth. There were no proceedings initiated by parties other than the BIR or its agents within one year from the filing of the SALN, nor were there findings or admissions in congressional, administrative, or court proceedings that CEPHI understated its net worth by 30%.

The Court also cited its previous ruling in CS Garment, Inc. v. CIR, which clarified the suspensive and resolutory conditions in the 2007 Tax Amnesty Law. The Supreme Court stated:

A careful scrutiny of the 2007 Tax Amnesty Law would tell us that the law contains two types of conditions one suspensive, the other resolutory. Borrowing from the concepts under our Civil Code, a condition may be classified as suspensive when the fulfillment of the condition results in the acquisition of rights. On the other hand, a condition may be considered resolutory when the fulfillment of the condition results in the extinguishment of rights. In the context of tax amnesty, the rights referred to are those arising out of the privileges and immunities granted under the applicable tax amnesty law.

This clarification reinforced the point that while taxpayers are eligible for tax amnesty upon fulfilling the suspensive conditions, their enjoyment of the immunities and privileges is subject to a resolutory condition. These immunities cease upon proof that they underdeclared their net worth by 30%. In CEPHI’s case, the Supreme Court found no such proof of underdeclaration. The tax amnesty is in the nature of a tax exemption which is strictly construed against the taxpayer. The court ruled in favor of CEPHI, as the law clearly stated the requirements and CEPHI complied with them.

The Supreme Court ultimately denied the CIR’s petition, affirming the decisions of the CTA en banc and the CTA Second Division. By completing the requirements and paying the corresponding amnesty tax, CEPHI was considered to have fully complied with the tax amnesty program and was entitled to the immediate enjoyment of its immunities and privileges. This case underscores the importance of adhering to the specific requirements of tax amnesty laws while recognizing the principle of substantial compliance and the presumption of correctness in SALNs. The decision also highlights the burden on the CIR to prove any underdeclaration of net worth by the taxpayer to disqualify them from the tax amnesty program.

FAQs

What was the key issue in this case?	The key issue was whether CEPHI’s tax amnesty availment was valid despite alleged omissions in its Statement of Assets, Liabilities, and Net Worth (SALN). The CIR argued that these omissions should disqualify CEPHI from enjoying the benefits of the tax amnesty program under R.A. No. 9480.
What is R.A. No. 9480?	R.A. No. 9480 is the law that governs the tax amnesty program for national internal revenue taxes for the taxable year 2005 and prior years. It provides taxpayers with an opportunity to settle unpaid taxes by complying with certain requirements and paying an amnesty tax.
What are the requirements for availing tax amnesty under R.A. No. 9480?	To avail of tax amnesty, taxpayers must file a Notice of Availment, a Statement of Assets, Liabilities, and Net Worth (SALN), and a Tax Amnesty Return with the Bureau of Internal Revenue (BIR), and pay the applicable amnesty tax. Full compliance with these requirements entitles the taxpayer to the immunities and privileges of the program.
What is a Statement of Assets, Liabilities, and Net Worth (SALN)?	A SALN is a document that contains a declaration of the assets, liabilities, and net worth of a taxpayer as of a specific date. It is a requirement for availing tax amnesty under R.A. No. 9480.
What happens if a taxpayer understates their net worth in the SALN?	If the amount of net worth as of December 31, 2005, is proven to be understated to the extent of 30% or more, the taxpayer will not be able to avail of the immunities and privileges under R.A. No. 9480. They may also be liable for perjury and subject to tax fraud investigation.
Who has the burden of proving that a taxpayer understated their net worth?	The burden of proving that a taxpayer understated their net worth by the required threshold of at least 30% lies with the party challenging the SALN, typically the Commissioner of Internal Revenue (CIR).
What does “substantial compliance” mean in the context of tax amnesty?	“Substantial compliance” means that the taxpayer has met the essential requirements of the tax amnesty program, even if there are minor omissions or defects in their documentation. The Court may consider attached schedules or other supporting documents in determining whether substantial compliance has been achieved.
What was the Supreme Court’s ruling in this case?	The Supreme Court ruled in favor of Covanta Energy Philippine Holdings, Inc. (CEPHI), holding that CEPHI was entitled to the immunities and privileges of the tax amnesty program. The Court found that CEPHI had substantially complied with the requirements of R.A. No. 9480, and the CIR failed to prove that CEPHI had understated its net worth by the required threshold.

This case serves as a reminder of the importance of carefully complying with the requirements of tax amnesty programs. While the courts recognize the principle of substantial compliance, taxpayers should strive to provide complete and accurate information in their SALNs and other required documents. The decision also highlights the government’s burden to substantiate claims of underdeclaration of net worth to disqualify taxpayers from amnesty benefits.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: COMMISSIONER OF INTERNAL REVENUE VS. COVANTA ENERGY PHILIPPINE HOLDINGS, INC., G.R. No. 203160, January 24, 2018