Criminal Action as a Government Remedy under the National Internal Revenue Code (NIRC), TRAIN Law, and the Ease of Paying Taxes Act

1. Overview

Criminal action as a remedy under Philippine taxation law is a judicial recourse available to the government in enforcing tax laws against individuals and entities accused of violating provisions under the National Internal Revenue Code (NIRC), as amended by Republic Act No. 10963 (TRAIN Law) and further amended by Republic Act No. 11976 (Ease of Paying Taxes Act). Criminal action is pursued to penalize tax offenses, ensure compliance, and deter violations. The criminal provisions in the NIRC target tax evasion, fraud, and other offenses that undermine tax collection and revenue generation.

2. Legal Basis

The legal foundation for criminal actions in tax law is found in Chapter II of Title X of the NIRC. The TRAIN Law and the Ease of Paying Taxes Act amended and expanded some provisions, especially in defining offenses and penalties. Specifically, these laws reinforce the government’s commitment to efficient and stringent tax enforcement.

3. Purpose and Nature of Criminal Actions in Taxation

Criminal actions in taxation serve as punitive measures against violators. They differ from administrative remedies (e.g., assessment and collection of taxes) in that they focus on the imposition of criminal penalties such as imprisonment, fines, or both. The objective is to punish offenders and dissuade others from committing similar violations. A criminal action does not directly aim to recover taxes due but instead serves as an enforcement mechanism to uphold tax laws and protect government revenue.

4. Instances Where Criminal Action is Applied

Under the NIRC and amendments, criminal actions can be instituted for the following tax-related violations:

Willful Failure to Pay Taxes: Deliberate non-payment or underpayment of taxes.
Tax Evasion: Schemes or actions specifically designed to misrepresent income, deductions, or exemptions to reduce tax liabilities.
Willful Failure to File Tax Returns, Supply Correct Information, or Keep Records: Non-compliance with documentation requirements as specified by the NIRC.
Making False or Fraudulent Statements: Willfully providing incorrect information or documents to evade taxes.
Failure to Withhold or Remit Withholding Taxes: Non-compliance with withholding tax obligations as required by the NIRC.
Obstruction of BIR Functions: Hindering or obstructing Bureau of Internal Revenue (BIR) officers in the performance of their duties.
Unauthorized Use of Invoices, Receipts, or Accounting Entries: Use of false or unauthorized documents or tampering with accounting records.
Other Violations Specified Under the NIRC, TRAIN Law, or Ease of Paying Taxes Act: Any other violation that falls under the enumerated criminal offenses.

5. Elements of Criminal Offenses in Taxation

To successfully prosecute a criminal action under taxation law, the following elements are generally required:

Existence of a Law: The NIRC, TRAIN Law, and Ease of Paying Taxes Act must expressly provide for the offense.
Commission of an Act: The taxpayer must have committed a specific act or omission, as defined by law, that constitutes a violation.
Intent or Willfulness: In most tax offenses, intent to evade tax or a willful failure to comply is essential. This differentiates tax evasion from mere negligence or oversight.

6. Procedures in Criminal Actions

Investigation and Filing of Complaint: Criminal tax cases are initiated by the Bureau of Internal Revenue (BIR) after conducting a thorough investigation. The BIR prepares and files a complaint against the taxpayer before the Department of Justice (DOJ) or the Office of the Ombudsman, depending on the offense.
Preliminary Investigation: The DOJ conducts a preliminary investigation to determine probable cause. If probable cause is found, an information (formal charge) is filed before the Regional Trial Court (RTC) or the Court of Tax Appeals (CTA), depending on the jurisdictional amount and nature of the offense.
Court Proceedings: The criminal case proceeds through arraignment, trial, and presentation of evidence by both the prosecution and defense.
Judgment and Penalties: If found guilty, the taxpayer may face penalties, including imprisonment, fines, or both, as prescribed by the NIRC and other applicable laws.

7. Specific Judicial Forums for Tax-Related Criminal Actions

Regional Trial Courts (RTCs): RTCs generally have jurisdiction over tax cases with penalties of imprisonment or fines below a specific threshold.
Court of Tax Appeals (CTA): The CTA has jurisdiction over appeals and higher-stakes cases involving tax evasion and large amounts of tax deficiency. The CTA also hears appeals from decisions of the RTC in criminal cases involving tax offenses.
Supreme Court: Final appellate jurisdiction lies with the Supreme Court if questions of law are involved.

8. Penalties and Sanctions for Criminal Tax Offenses

Penalties for criminal tax offenses vary, including imprisonment, fines, or both, depending on the offense’s severity. The following penalties are generally applicable:

Tax Evasion: Imprisonment for 2 to 4 years, plus fines not exceeding P100,000.
Failure to File Return or Supply Correct Information: Imprisonment ranging from 1 to 10 years and fines depending on the amount of tax evaded or not paid.
Unauthorized Use of Receipts, Invoices, or Accounting Records: Imprisonment for 6 months to 2 years, plus fines.
Obstruction of BIR Functions: Imprisonment of up to 6 months and additional penalties for repeat offenses.
Other Violations: Penalties vary based on the specific offense and its corresponding legal provision.

9. Distinction Between Civil and Criminal Actions

Civil and criminal actions can proceed simultaneously. While civil actions are primarily for the collection of taxes, criminal actions focus on punishing the act or omission violating tax laws. Civil cases seek to recover taxes due, whereas criminal cases are punitive, aiming to address intentional acts of non-compliance or evasion. The government may pursue both remedies to ensure tax compliance and penalize offenses.

10. Role of Compromise in Criminal Actions

Under Section 204 of the NIRC, the Commissioner of Internal Revenue has the authority to compromise tax liabilities. However, criminal actions for tax offenses are generally non-compromisable, particularly where fraud, tax evasion, or willful failure to comply with tax laws is involved. Nonetheless, certain tax offenses may be compromised under the conditions specified in the NIRC and only with the approval of the Secretary of Finance.

11. Key Amendments Introduced by the TRAIN Law and Ease of Paying Taxes Act

Higher Penalties: The TRAIN Law increased the penalties for specific tax violations to enhance deterrence.
Expanded Definition of Tax Evasion: The TRAIN Law broadened tax evasion’s scope to cover various schemes, including deceptive schemes to evade taxes.
Ease of Paying Taxes Act: This Act aimed to simplify tax compliance but also clarified offenses and penalties for willful non-compliance, underscoring the government’s resolve in enforcing tax laws stringently.

12. Practical Considerations and Defense

Taxpayers facing criminal charges may invoke defenses, including:

Lack of Intent: The taxpayer may argue that there was no willful intent to evade taxes, especially in cases of misinterpretation of tax law or clerical errors.
Lack of Probable Cause: During the preliminary investigation, the defense may argue that there is no probable cause for filing a criminal case.
Compromise: In applicable cases, the taxpayer may seek a compromise agreement with the BIR.

13. Recent Developments and Case Law

Recent cases underscore the judiciary’s emphasis on the willfulness and deliberate intent to evade tax obligations. Courts have emphasized that tax offenses require proof of intent, and mere negligence is generally insufficient for criminal liability. Landmark cases have clarified that criminal tax offenses focus on willful actions or omissions that deprive the government of revenue.

Conclusion

Criminal actions under the NIRC, TRAIN Law, and Ease of Paying Taxes Act are essential to the Philippines' tax enforcement framework. By imposing penalties and incarceration for severe tax offenses, the government upholds the integrity of its taxation system, deters willful violations, and safeguards its revenue. These measures reinforce the importance of compliance with tax laws and provide a robust judicial mechanism for addressing deliberate violations.