Are Former Employees Liable to the Bureau of Internal Revenue (BIR) Once the Company is Subjected to an Audit?

Question:

Is a former employee liable to the Bureau of Internal Revenue (BIR) once the company they used to work for is subjected to an audit?

Answer:

The liability of a former employee to the Bureau of Internal Revenue (BIR) in the event of a company audit is generally limited, provided that the employee was not directly involved in any tax evasion or fraudulent financial activities of the company. Audits conducted by the BIR typically target the company as a legal entity, and the responsibility for any tax deficiencies usually rests with the company and its officers.

Under What Circumstances Could a Former Employee Be Liable?

While employees generally do not bear liability for a company’s tax obligations, there are exceptional cases where individuals could be implicated:

Direct Involvement in Fraud or Evasion: If a former employee was actively involved in actions that led to tax evasion or fraud, they could be held personally liable.
Signatory Power: If the employee had the authority to sign tax documents and knowingly submitted false information, they could face penalties or charges.
Failure to Withhold Taxes: If the employee was responsible for payroll and failed to withhold the correct amount of taxes, they might be liable for the discrepancy.
Acting in a Fiduciary Capacity: Employees acting in a fiduciary capacity, such as a Chief Financial Officer, may have heightened obligations and thus, potential liabilities.
Statutory Obligations: Philippine tax laws may impose specific duties or liabilities on certain roles within a company, failure to comply with which could result in individual liability.

What Protections Are Available for Former Employees?

Limited Liability: An ordinary employee generally has limited liability as they usually act under the direction of higher-ups.
Due Diligence: Demonstrating that due diligence was exercised in tax-related duties could offer some protection against liability.
Legal Representation: If implicated, an employee has the right to legal representation and should consult with a lawyer experienced in tax law.
Statute of Limitations: Philippine law sets a statute of limitations for how long after an alleged offense legal proceedings may be initiated, although this may not be applicable in cases of fraud.

Summary:

In general, former employees are not automatically liable to the BIR when the company they used to work for is subjected to an audit. However, if they were directly involved in activities that led to tax irregularities, they could be personally held accountable.

Disclaimer:

This article is intended for informational purposes only and does not constitute legal advice. If you find yourself in a situation where you could potentially be implicated in a tax audit, it is advisable to consult with a legal professional for advice tailored to your specific circumstances.