November 21, 2023

SC Issues Guidelines in the Prosecution of

Criminal Actions for Tax Law Violations

An assessment for deficiency taxes is not a prerequisite for collection of

the taxpayer-accused’s civil liability for unpaid taxes in the criminal
prosecution for tax law violations.

Thus ruled the Supreme Court En Banc, in a Decision penned by

Associate Justice Mario V. Lopez, as it denied the petition for review on
certiorari filed by Joel C. Mendez and partly granting the petition for review on
certiorari filed by the Office of the Solicitor General (OSG). Mendez challenged
the ruling of the Court of Tax Appeals (CTA) finding him guilty of violating the
National Internal Revenue Code, as amended (NIRC), while the OSG assailed the
CTA’s non-imposition of civil liability on Mendez.

Mendez is a single proprietor doing business under several trade names

and businesses. In 2006, he was criminally charged for violation of Section 255
of the NIRC for (1) not filing his 2002 Income Tax Return (ITR) in the estimated
amount of PhP1,522,152.14 and (2) willfully failing to supply correct and
accurate information in his 2003 ITR, to the government’s prejudice, in the
estimated amount of PhP2,107, 023.65.

The CTA Division found Mendez guilty of both criminal charges. However,
as to his civil liability, the CTA Division held that a final assessment issued by
the Commissioner of Internal Revenue (CIR) is required before the taxpayer can
be held civilly liable for deficiency taxes. Mendez’s conviction and the non-
imposition of deficiency taxes were affirmed by the CTA En Banc, prompting
both Mendez and the OSG to file separate petitions before the Supreme Court.

The Court denied Mendez’s petition and affirmed his conviction, finding
his contentions a mere rehash of the arguments which were raised and already
considered by the CTA.

Jurisdiction over tax cases

On the other hand, the OSG’s petition was partly granted by the Court,
ruling that the CTA Division had jurisdiction over Mendez’s cases since his
potential liability in each are more than PhP1,000,000, in accordance with
Republic Act No. (RA) 9282, the law in force when the criminal charges were
filed.

The Court, however, clarified that following the effectivity of RA 11576 on

August 21, 2021, for tax cases filed upon such date, jurisdiction shall be as
follows:

(a) Exclusive original jurisdiction over tax collection cases involving

PhP1,000,000 or more remains with the CTA;
 (b) Exclusive original jurisdiction over tax collection cases involving less
than PhP1,000,000 shall be exercised by the proper first-level courts;

(c) Exclusive appellate jurisdiction over tax collection cases originally

decided by the first-level courts shall be exercised by the Regional Trial
Court;

(d) Exclusive original jurisdiction over criminal offenses or felonies where

the principal amount of taxes and fees, exclusive of charges and
penalties, claimed is PhP1,000,000 or more remains with the CTA;

(e) Exclusive original jurisdiction over criminal offenses or felonies where

the principal amount of taxes and fees, exclusive of charges and
penalties, claimed is less than PhP1,000,000 shall be exercised by the
proper first-level courts; and

(f) Exclusive appellate jurisdiction over criminal offenses or felonies

originally decided by the first-level courts remains with the RTC.

Guidelines in the prosecution of criminal tax law violations

and the corresponding civil liability

To resolve the issue on Mendez’s civil liability, the Court first laid down
the following guidelines for the guidance of the Bench and the Bar in the
prosecution of criminal tax law violations and the corresponding civil liability
for unpaid taxes:

(1) When a criminal action for violation of the tax laws is filed, a prior
assessment is not required. Neither is a final assessment a precondition to
collection of delinquent taxes in the criminal tax case. The criminal action is
deemed a collection case. The government must thus prove two things: (a) the
guilt of the accused by proof beyond reasonable doubt; and (b) the accused’s
civil liability for taxes by competent evidence (other than an assessment).

(2) If before the institution of the criminal action, the government filed (a)
a civil suit for collection, or (b) an answer to the taxpayer’s petition for review
before the CTA, the civil action or the resolution of the taxpayer’s petition for
review shall be suspended before judgment on the merits until final judgment
is rendered on the criminal action. However, before judgment on the merits is
rendered on the civil action, it may be consolidated with the criminal action. In
such a case, the judgment in the criminal action shall include a finding of the
accused’s liability for unpaid taxes relative to the criminal case.

Applying the foregoing rules to Mendez, the Court held that since the
prosecution filed a criminal case for tax violation against him, the civil action
for collection of deficiency taxes is deemed instituted. Thus, a formal
assessment issued by the CIR is not required for the imposition of civil liability
for unpaid taxes.

However, the finding of deficiency taxes should have been done at the
level of the CTA Division. Hence, the case must be remanded to the CTA
Division to determine the civil liability of Mendez.

Mendez was thus sentenced to imprisonment for one to two years with a
fine of PhP10,000. As to his civil liability for taxes and penalties, the CTA
Division was directed to determine the same with reasonable dispatch.
[Courtesy of the Supreme Court Public Information Office]
Full text of G.R. Nos. 208310-11 and 208662 (People v. Joel C. Mendez; Joel C.
Mendez v. People) at: https://sc.judiciary.gov.ph/208310-11-208662-people-
of-the-philippines-vs-joel-c-mendez-joel-c-mendez-vs-people-of-the-
philippines/

Full text of the Concurring Opinion of Chief Justice Alexander G. Gesmundo at:
https://sc.judiciary.gov.ph/208310-11-208662-concurring-opinion-chief-
justice-alexander-g-gesmundo/

Full text of the Concurring Opinion of Associate Justice Alfredo Benjamin S.

Cagiuoa at: https://sc.judiciary.gov.ph/208310-11-208662-concurring-
opinion-justice-alfredo-benjamin-s-caguioa/

Full text of the Separate Concurring Opinion of Associate Justice Rodil V.

Zalameda at: https://sc.judiciary.gov.ph/208310-11-208662-separate-
concurring-opinion-justice-rodil-v-zalameda/