Piercing the Veil of Corporate Fiction

A doctrine that disregards the separate personality of a corporation if this separate personality is used
as an alter ego of another entity and was used to justify wrong, protect fraud, perpetrate deception, or
defeat public convenience. This doctrine may also be used to achieve equity. Here, there are some
instances where we can disregard separate personality of the corporation from its owner. The doctrine
of piercing the veil of corporate fiction has only a res judicate effect to prevent wrong or fraud and is not
available for other purposes. The doctrine is based on judicial prerogatives and must be used only with
necessary and factual basis. This doctrine may be only availed of if the wrong that is committed warrants
the piercing of the veil and the wrong which warrants the piercing the veil must be clearly and
convincingly established and cannot be presumed. However, even if the veil is pierced in one case for
one transaction which is the subject of the case, then the separate corporate personality or the
corporation will still be presumed to have separate juridical personality in other cases. Here, its only for
one transaction which is the subject of the case that may take away the corporate veil and hold the
people who are responsible that is liable for wrong. But for other legitimate purposes, the corporate
fiction will still exist.

The Piercing the Veil of Corporate Fiction can be used when the corporation used its status as a
corporation to defeat public convenience, justify wrong, protect fraud, define crime, shield a violation of
the proscription against forum shopping, work inequities among members of the corporation internally
that is involving no rights of the public or third persons, and evade the lawful obligations of the
corporation such as judgement credit. However, the piercing the veil of corporate fiction applies to
determine of liability and NOT to determine of jurisdiction. This is because the court must have
jurisdiction over the corporation before the doctrine can be applied.

Illustration:

When Company Y establishes Company X to evade taxes. In this case, the courts have the authority to
lift Company X's corporate veil and hold the genuine owner (Company Y) accountable for legal taxes.
Company X's personality was merely used as an alter ego of Company Y's in order for Company Y to
avoid paying taxes. Company X was given all of Company Y's transaction records. Here, if the BIR needs
to collect taxes from Company X in this circumstance, Company X may not pay taxes due to tax evasion.
However, if the BIR is aware that Company X and Company Y are as one corporation, the BIR will now
collect their taxes. However, because the transactions are under Company X, Company Y would refuse
to pay taxes and instruct the BIR to collect taxes from Company X instead. As a result, Company X was
exploited to commit the fraud as an alter ego of Company Y.