Dear PAO,
Does the acquittal of the taxpayer in the criminal case result in the extinguishment of the civil liability of the corporation for the associated deficiency taxes? For reference, the acquittal was based on the failure of the prosecution to prove the taxpayer’s active participation in the violation of tax laws.
Gerry
Dear Gerry,
No. The acquittal of the taxpayer in the criminal case does not, by itself, extinguish the corporation’s liability for deficiency taxes. This principle was elucidated by the Supreme Court in the case of E & D Parts Supply, Inc. vs. Margaret L. Uy (G. R. No. 259284, 24 January 2024, Ponente: Associate Justice Jhosep Y. Lopez), to wit:
“Here, the prosecution did not only fail to prove Margaret’s active participation in the non-payment of E & D’s alleged deficiency income tax and VAT for taxable year 2006. It also failed to prove Margaret’s role in the corporation when the crime was supposedly committed. The CTA found that the prosecution did not present proof to identify any of the officers of E & D. Absent any evidence that Margaret had any direct and active participation in the alleged criminal violation, the CTA correctly acquitted her of the crimes charged.
“Likewise, the CTA aptly held that Margaret was not civilly liable for the deficiency taxes assessed by the BIR. xxx Taxes are personal to the taxpayer. In the case of corporations, liability for deficiency taxes cannot generally be imposed on the corporate officers or its stockholders for this will violate the principle that a corporation has a personality separate and distinct from the persons constituting it. Here, the prosecution failed to prove the existence of an exception to the general rule.
“xxx
“However, Margaret’s acquittal does not necessarily result in the obliteration of the civil liability of E & D for unpaid income tax and VAT for taxable year 2006.
“It is well-settled that the acquittal of the accused does not automatically preclude a judgment against him on the civil aspect of the case. The extinction of the penal action does not carry with it the extinction of the civil liability where: (a) the acquittal is based on reasonable doubt as only preponderance of evidence is required; (b) the court declares that the liability of the accused is only civil; and (c) the civil liability of the accused does not arise from or is not based upon the crime of which the accused is acquitted.” (Emphasis supplied)
The high court explained that the obligation to pay taxes is created by law and does not arise from the criminal act of violating tax laws. Thus, the dismissal or acquittal in the criminal case extinguishes only the civil liability arising ex delicto (arising from the crime), and not the taxpayer’s independent obligation to pay the taxes imposed by law.
The taxpayer’s obligation to pay the tax is created by law; it does not arise from the offense of tax evasion. Accordingly, acquittal of the accused or the dismissal of the criminal case for tax laws violation will not result in the extinction of their civil liability for deficiency taxes. Hence, the prosecution’s failure to prove the taxpayer’s active participation in the criminal violation does not necessarily negate the corporation’s tax liability.
We hope that we were able to answer your queries. This advice was solely based on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.
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Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to dearpao@manilatimes.net.
