Subpoena Duces Tecum: Bring it on or bring it with you?

Who hasn’t heard of the idiomatic expression “Bring it on”? Most people are familiar with the expression which is usually uttered during times of extreme difficulty or tribulation whereby the person uttering it takes on a challenge willingly.

There are, however, some instances where issuing such a challenge would not be recommended such as in the case of BIR tax audits where the tax authorities have the right to ask you to present certain documents related to the year being audited under pain of penalty. Rather than asking BIR to “bring it on” perhaps it would be prudent to “bring them with you.” Such is the power of a Subpoena Duces Tecum, which in Latin means “under penalty to bring with you.”

The Bureau of Internal Revenue (BIR) recently issued Revenue Memorandum Circular (RMC) No. 111-2016 dated Oct. 21, 2016, reiterating the procedures relative to issuance of Subpoena Duces Tecum (SDT) and submission of reports of investigation/verification on tax cases/dockets to the reviewing office to prevent the issuance of jeopardy assessments, and in the same vein, enforce the conduct of the tax audit. The said RMC reiterates strict observance of the procedures for the issuance and enforcement of SDT as prescribed under Revenue Memorandum Order (RMO) No. 10-2013 and amended by RMO No. 8-2014. Further, the said RMC orders all investigating offices to transmit a tax docket with deficiency tax collections or assessments (the results of the tax audit with the recommended deficiency tax assessments) to the reviewing or approving official not later than six months prior to prescription date.

Under Section 1 of Rule 21 of Revised Rules of Court issued by the Supreme Court, an SDT is the process directed to a person requiring him to bring any books, documents, or other things under his control. An SDT is usually issued by the BIR to compel taxpayers to present their books of accounts and all the necessary documents for the tax audit. On the other hand, a jeopardy assessment (which is sought to be avoided in the course of the tax audit) is a tax assessment made by an authorized revenue officer without the benefit of complete or partial audit, in light of the revenue officer’s belief that the assessment and collection of a deficiency tax will be jeopardized by delay caused by the taxpayer’s failure to: a) comply with audit and investigation requirements to present his books of accounts and/or pertinent records, or b) substantiate all or any of the deductions, exemptions or credits claimed in his return.

Based on Section 5, of the National Internal Revenue Code of 1997, as amended (“Tax Code”) the commissioner of Internal Revenue or his authorized representative are given the power to inspect the taxpayer’s records for the purpose of assessing the correctness of the returns filed, to quantify the liability for any tax due and to collect such. The BIR then has the capacity to compel the taxpayer to present such records legally through SDT. Accordingly, the BIR may invoke the authority of the courts in case of non-compliance with the aforesaid legal processes by filing a criminal case against the taxpayer for violation of Section 5, in relation to Sections 14 and 266 of the Tax Code.

To refresh everyone’s memories, summarized are the guidelines and procedures of issuance and enforcement of SDT based on RMO No. 10-2013 as amended by RMO No. 8-2014 below (Please refer to the copy of the full memo for the detailed information):

An SDT shall be issued to: a) persons liable for tax or required to file a return or b) any person other than the person whose internal revenue tax liability is subject to audit, or officer of the national and local governments.

A written notice from any authorized officers of the BIR shall be issued to the persons covered above to provide information or the pertinent books of accounts. The duplicate copy of this written notice, duly acknowledged/received by the persons being served or their authorized representatives shall form part of the docket of the case

• In case of non-submission or incompleteness, the concerned investigating revenue officer shall request for an SDT through Memorandum Report stating the relevant facts.

• In case the request for issuance of SDT is found to be meritorious, the SDT shall be issued to the person liable for tax or required to file a return, or should the information or records be in the possession of a third party or office, then in that party’s name, requiring the concerned person to appear and submit before the signatory of the SDT the mandated information/ documents at an appointed time, date and place.

• In case of corporations, partnerships or associations, the SDT shall be issued to the partner, president, general manager, branch manager, treasurer, registered officer-in-charge, employee/s or other persons responsible for the custody of the books of accounts and other accounting records mandated to be submitted or information mandated to be provided; or b.) If the concerned party is the government, the SDT shall be issued to the head of such office, agency, instrumentality, political subdivision or GOCC.

• The date of compliance for the submission of books of accounts and other accounting records shall be set on the 14th day from the date when it was officially signed.

• An SDT shall be served through personal service by delivering personally a copy of the SDT to the party at his registered or known address, or wherever he may be found. In case personal service is not practicable, the SDT shall be served by substituted service or by mail. Substituted service can be resorted to when the party is not present at the registered or known address under certain circumstances enumerated in the RMO. The SDT should first be served to the taxpayer’s registered address before the same is served to the taxpayer’s known address or simultaneously.

• A written report to the issuing officer will be prepared by the concerned revenue officer stating that the documents in the SDT have been submitted, or there was either no submission or incomplete presentation. In case of failure to submit or incomplete submission, filing of the criminal case against the erring party shall be processed jointly by the concerned revenue officers and the action lawyer assigned to the case.

• The action lawyer shall prepare a letter-complaint addressed to the office of the prosecutor recommending the criminal prosecution of the taxpayer who disobeyed the SDT for violation of Section 266 (“Failure to Obey Summons”) of the Tax Code together with the complaint-affidavit and its supporting evidentiary documents.

• The penalties for non-compliance with the SDT shall be imprisonment of not less than one year, but not more than two years and a fine of not less than P5,000.00, but not more than P10,000.00. If the taxpayer is a corporation, an association or a general co-partnership, there shall be imposed an additional fine of not less than P50,000.00, but not more than P100,000.00.

Further, to ensure the BIR is not deprived of its right to assess and collect the correct amount of tax or any deficiency taxes so assessed, a tax docket with deficiency tax collections/assessments shall be transmitted by the investigating office to the reviewing/approving official not later than six months prior to the prescription date. To illustrate, assuming Company X’s tax audit will prescribe on April 15, 2018, the docket should be transmitted to the reviewing/approving official on or before Oct. 15, 2017. It was also mentioned that the reviewing official shall not accept any tax docket after the aforesaid period, unless a duly accomplished “waiver form” is attached thereto.

It is clear that the BIR is seriously committed to strictly enforcing our tax laws. Despite the questions being raised on the six-month rule (the period within which a revenue officer must conclude the tax audit), you may expect the BIR to continue conducting tax audits process to collect much-needed revenues to offset government expenditures. Perhaps, as was said, it may be more prudent to “bring the documents” with you rather than have the BIR “bring on” its authority to penalize a taxpayer.