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1) The document discusses two cases - People v. Gloria Kintanar and People v. Judy Ann Santos - regarding the application of the "willful blindness doctrine" in tax evasion cases.
2) In Kintanar, the Court of Tax Appeals applied willful blindness and found Kintanar guilty for failure to ensure her taxes were filed correctly despite relying on others, given her experience as a businesswoman.
3) In Santos, the CTA seemed to change course and acquitted Santos despite similar circumstances, finding no evidence of intent given her complete reliance on others from a young age.
4) There is a need for clearer standards in applying willful blindness to avoid arbitrary
1) The document discusses two cases - People v. Gloria Kintanar and People v. Judy Ann Santos - regarding the application of the "willful blindness doctrine" in tax evasion cases.
2) In Kintanar, the Court of Tax Appeals applied willful blindness and found Kintanar guilty for failure to ensure her taxes were filed correctly despite relying on others, given her experience as a businesswoman.
3) In Santos, the CTA seemed to change course and acquitted Santos despite similar circumstances, finding no evidence of intent given her complete reliance on others from a young age.
4) There is a need for clearer standards in applying willful blindness to avoid arbitrary
1) The document discusses two cases - People v. Gloria Kintanar and People v. Judy Ann Santos - regarding the application of the "willful blindness doctrine" in tax evasion cases.
2) In Kintanar, the Court of Tax Appeals applied willful blindness and found Kintanar guilty for failure to ensure her taxes were filed correctly despite relying on others, given her experience as a businesswoman.
3) In Santos, the CTA seemed to change course and acquitted Santos despite similar circumstances, finding no evidence of intent given her complete reliance on others from a young age.
4) There is a need for clearer standards in applying willful blindness to avoid arbitrary
MERE RELIANCE on another person in preparing, filing and paying income taxes is not a justification for failure to file the right information on income taxes.
In People v. Gloria Kintanar (CTA EB Crim. No. 006, Dec. 3, 2010), Ms. Kintanar was charged with failure to make or file her income tax returns (ITR), violating Section 255 of the 1997 National Internal Revenue Code (NIRC), as amended. She claimed that she did not actively participate in the filing of her joint ITR with her husband since she entrusted such duty to the latter who, in turn, hired an accountant to perform their tax responsibilities. She testified that she did not know how much her tax obligation was; nor did she bother to inquire or determine the facts surrounding the filing of her ITRs. Despite several notices and subpoena received by the accused, only an unsupported protest letter made by her husband was filed with the Bureau of Internal Revenue (BIR). The Court of Tax Appeals (CTA) En Banc found her neglect or omission tantamount to deliberate ignorance or conscious avoidance. As an experienced businesswoman, her reliance on her husband to file the required ITR without ensuring its full compliance showed clear indication of deliberate lack of concern on her part to perform her tax obligations. This ruling was sustained by the Supreme Court (SC) in 2012.
Based on the foregoing, the willful blindness doctrine was applied by the CTA, as sustained by SC on cases where there is a natural presumption that the taxpayer knows his/her tax obligations under the law considering the factual circumstances of the case, such as being a businesswoman or official of a company. This case set a precedent that mere reliance on a representative or agent (i.e., accountant or husband) is not a valid ground to justify any noncompliance in tax obligations. The taxpayer must inquire, check and validate whether or not his/her representative or agent has complied with the taxpayers tax responsibilities.
However, in the recent case of People v. Judy Ann Santos (CTA Crim. Case no. 012, Jan. 16, 2013), the CTA Division seemed to have a change of heart and acquitted Ms. Santos despite having almost the same circumstances as that of the case of Ms. Kintanar. In this case, Ms. Santos was accused of failure to supply correct and accurate information in her ITR. She claimed that by virtue of trust, respect and confidence, she has entrusted her professional, financial and tax responsibilities to her manager since she was 12 years old. She participated and maintained her intention to settle the case, and thus provided all the documents needed as well as payment of her taxes. The element of willfulness was not established and the CTA found her to be merely negligent. The CTA also noted the intention of Ms. Santos to settle the case, which negates any motive to commit fraud. This was affirmed by the SC in its resolution issued April 2013.
THE DIFFERENCES
Willful blindness is defined in Blacks Law Dictionary as deliberate avoidance of knowledge of a crime, especially by failing to make a reasonable inquiry about suspected wrongdoing, despite being aware that it is highly probable. A willful act is described as one done intentionally, knowingly and purposely, without justifiable excuse.
Willful in tax crimes means voluntary, intentional violation of a known legal duty, and bad faith or bad purpose need not be shown. It is a state of mind that may be inferred from the circumstances of the case; thus, proof of willfulness may be, and usually is, shown by circumstantial evidence alone. Therefore, to convict the accused for willful failure to file ITR or submit accurate information, it must be shown that the accused was (1) aware of his/her obligation to file annual ITR or submit accurate information, but that (2) he/she, or his/her supposed agent, nevertheless voluntarily, knowingly and intentionally failed to file the required ret urns or submit accurate information. Bad faith or intent to defraud need not be shown.
As can be observed in the first case, the accused knew that she had to timely file and supply correct and accurate information of the joint ITR with the BIR in relation to the profession or the position she holds. The knowledge was presumed based on the fact that Ms. Kintanar is an experienced businesswoman, having been an independent distributor of a product for several years. However, despite this knowledge, the CTA found that she voluntarily, knowingly and intentionally failed to fulfill her tax responsibilities by not participating in the filing of the ITR and ensuring that everything was filed correctly and accurately. As compared with the Santos case, which the SC affirmed, the element of voluntarily, knowingly and intentionally was taken differently by the CTA in consideration of the facts of the case. Ms. Santos fully entrusted her tax obligations and finances to her manager since she was a child. It can be said that she is not an experienced manager of her finances and taxes since she never handled such task, as compared with the situation of Ms. Kintanar, who is considered an experienced businesswoman who manages her business as well as her financial and tax responsibilities -- which is expected of somebody in her position (i.e., president and/or businessperson).
The concept of willful blindness doctrine is new in Philippine jurisprudence. The application of this doctrine by the CTA in the said cases was guided by the appreciation of the facts and the pieces of evidence produced by the prosecution and accused to prove the non-existence of willfulness. However, defined and clear standards in its application must be done as guidance for future application. This is necessary to avoid arbitrary application and to encourage proper use of the doctrine by both parties in the case.
The BIR anchored its case against Santos on Sections 254 and 255 of the National Internal Revenue Code, as amended, which impose criminal liability for willful failure to supply correct and accurate information on tax returns, and failure to pay the correct tax due. In relation thereto, Section 248 (B) of the Tax Code provides that a substantial underdeclaration of taxable income constitutes prima facie case of false or fraudulent return. Failure to report income in an amount exceeding 30 percent of that declared per return constitutes substantial underdeclaration, for which 50-percent surcharge is being imposed, in addition to interest and other penalties.
The Tax Code is clear on the presumption of fraud in case of substantial underdeclaration of income. In the case of Santos, however, the Tax Court seems to have put a distinction between substantial underdeclaration, which amounts to fraud, and substantial underdeclaration, which is not considered fraudulent, considering the BIRs claim that Santoss undeclared income in 2002 exceeded 100 percent of the income she declared in her income-tax return (ITR).
The decision also reversed the previous ruling of the CTA, which was upheld by the Supreme Court, in the landmark case of People v. Gloria Kintanar, resulting in the first conviction by final judgment for tax evasion in the Philippines. It was in this case that the doctrine of willful blindness became part of jurisprudence and a precedent in future tax-evasion cases. Under that doctrine, the taxpayers deliberate refusal or avoidance to verify the contents of the ITR and other documents and inquire into the authenticity thereof constitutes willful blindness on his part. It is by reason of such doctrine that taxpayers can no longer refute the presumption of deliberate failure to pay their correct tax liabilities by simply invoking reliance on mere representations of their accountants or representatives. To be liable, it is enough that the taxpayer knows his obligation to file the required return and has failed to comply thereto in the manner required by law. If we are to harmonize the ruling in this case and the previous rulings, there is a need to draw a clear line between the opposite doctrines so that in future cases, there wont be too much confusion in determining if the taxpayer willfully evaded his tax liabilities, or if he only underdeclared his tax liability.
Is the willful blindness doctrine still in place? That, we hope to see when the decision in this case attains finality. The commissioner said that the BIR will file a petition for review to insist that the court find Santos criminally liable. So for now, Santos may claim her victory, but only up until the BIRs petition is filed with the court and the next phase of the legal battle starts. And for future tax-evasion cases, this is a precedent-in- progress. The criminal aspect of non-filing of tax returns In addition to payment of taxes and civil penalties, the Tax Code imposes penalties - including imprisonment - to crimes defined under Chapter II. Section 253 of the Tax Code provides the general principles governing the crimes, other offenses and forfeitures provided in Chapter II. It specifically provides that any person convicted of a crime penalized therein, in addition to being liable for the payment of the tax, shall be subject to the penalties imposed for the crime committed, and the payment of the tax due after apprehension shall not constitute a valid defense in any prosecution for violation of any provision of the Tax Code.
Just this August, in the consolidated cases of People of the Philippines vs. Gloria Kintanar (CTA Criminal Case No. 0-033 promulgated August 26, 2009) [Kintanar Cases], the Second Division of the Court of Tax Appeals convicted a taxpayer for the violation of Section 255 of the Tax Code, as amended. Section 255 of the Tax Code covers four different situations, each of which constitutes a failure to perform, in a timely manner, an obligation imposed under the Tax Code, namely: (1) to pay an estimated tax or taxes; (2) to make (file) a return; (3) to keep records, and (4) to supply correct and accurate information. The identical charges against the accused in the Kintanar Cases were based on her alleged failure to make or file a return for two consecutive taxable years on her supposed taxable income.
To establish the offense of failure to make or file a return under Section 255 of the Tax Code, the prosecution must prove three essential elements beyond reasonable doubt, to wit: (1) the accused was a person required to make or file a return; (2) the accused failed to make or file a return at the time required by law; and (3) the failure to make or file the return was willful.
In the Kintanar Cases, the majority of the Second Division found that all these essential elements were shown and proven beyond reasonable doubt by the prosecution.
The discussion of the Court on the third essential element is worth noting. On the requirement of willfulness of the omission, the Court held that to convict an accused for failure to file a tax return, it must be shown that such failure was done knowingly, intentionally and with the specific intent not to file the said return. The prosecution must show that the accused was aware of his obligation to file the tax return, but nevertheless, voluntarily, knowingly and intentionally failed to file the required return.
However, the Court also clarified that since non-filing of a tax return is a violation of a special law, it is considered mala prohibita. Thus, except for the requirement under Section 255 that the omission must be willful, proof of criminal intent, i.e. bad motive or intent to defraud the government, is unnecessary.
In the instant case, while the accused admitted that she earned income for the taxable years concerned and that she is aware of her legal obligation to file income tax returns therefor, the accused claimed that it was her husband who took charge of the filing of their required income tax returns. Her husband, on the other hand, claimed that he hired an accountant to handle their tax concerns, who apparently failed to file the income tax returns for the spouses.
On the accused defense, the Court held that she is bound by the acts or omission of her agent (her husband or the alleged accountant) and therefore, cannot interpose as a valid defense their internal arrangements. Importantly, the Court found her reliance on her husband to file the required income tax returns without ensuring full compliance thereon to constitute a willful act to delegate the performance of her legal duty tantamount to deliberate ignorance or conscious avoidance on her part to determine the facts surrounding the filing of the required income tax returns.
The Court further noted that even the accused husband, who allegedly caused the hiring of an agent for the preparation and filing of their income tax returns admitted that he merely browsed over the contents of their income tax returns. According to the Court, the evident lack of concern on the part of the Kintanar spouses appear to be voluntary and should be considered as intentional disregard of their tax responsibilities to the government.
It was further found by the Court that the accused even presented fabricated and flawed income tax returns purporting to have been received by a revenue district of which she is not a resident. The Court also said that even assuming that those income tax returns were actually filed, such were still misfiled and the accused would still be remiss in her duty of ensuring appropriate filing at the proper revenue district office.
In a nutshell, the Court held that the accused utter lack of participation in preparing and filing her income tax returns is a clear indication of deliberate lack of concern on her part to learn how she is to perform her tax obligations under the Tax Code, thereby meeting the requirement of willfulness of the omission under Section 255. After taking into consideration all testimonial and documentary evidence presented by both parties, the Court found the accused guilty beyond reasonable doubt on both information filed against her.
Thus, Kintanar was sentenced to suffer an indeterminate penalty of one year to two years and a fine in the amount of P10,000 for each charge, in addition to the payment of her basic income tax deficiencies with penalties, surcharges and interests.