PACQIUAO v COURT OF APPEALS

Although fraud had been established in the instant case as determined by the
G.R. No. 21339 - April 6, 2016
Commissioner, your clients would still be given the opportunity to present
Ponencia: MENDOZA, J.
documents as part of their procedural rights to due process with regard to the civil
SPOUSES EMMANUEL D. PACQUIAO and JINKEE J. PACQUIAO, petitioners, v s . THE COURT
aspect thereof. Moreover, any tax credits and/or payments from the taxable year
OF TAX APPEALS-FIRST DIVISION and THE COMMISSIONER OF INTERNAL REVENUE,
2007 & prior years will be properly considered and credited in the current
respondents.
investigation. [Emphasis Supplied]

FACTS: Prior to their election as public officers, Pacquiao was able to amass income from
The CIR informed the petitioners that its reinvestigation of years prior to 2007 was justified
both the Philippines and the United States of America (US) from his claim to fame as a
because the assessment thereof was pursuant to a "fraud investigation" against the
world-class professional boxer. His income from the US came primarily from the purses he
petitioners under the "Run After Tax Evaders" (RATE) program of the BIR.
received for the boxing matches he took part under Top Rank, Inc. On the other hand, his
income from the Philippines consisted of talent fees received from various Philippine
On January 5 and 21, 2011, the petitioners submitted various income tax related
corporations for product endorsements, advertising commercials and television
documents for the years 2007-2009. Petitioners failed to furnish the bureau with the books
appearances.
of accounts and other tax related documents for the years 1995-2006 as they had already
been disposed of, in accordance with Section 235 of the Tax Code.19 Even if they wanted
To comply with his duty to his home country, Pacquiao filed his 2008 income tax return on
to, they could no longer find copies of the documents because during those years, their
April 15, 2009 reporting his Philippine-sourced income, and was subsequently amended to
accounting records were then managed by previous counsels, who had since passed
include his US-sourced income.
away. Lastly, petitioners pointed out that their tax liabilities for the said years had already
been fully settled with then CIR Jose Mario Buñag, who after a review, found no fraud
Controversy began on March 25, 2010 when Pacquiao received a Letter of Authority (March
against them.
LA) from the Regional District Office No. 43 (RDO) of the Bureau of Internal Revenue (BIR)
for the examination of his books of accounts and other accounting records for the period
On June 21, 2011, on the same day that the petitioners made their last compliance in
covering January 1, 2008 to December 31, 2008. Pacquiao then filed his 2009 income tax
submitting their tax-related documents, the CIR issued a subpoena duces tecum, requiring
return on April 15, 2010 which although reflecting his Philippines-sourced income, failed to
the petitioners to submit additional income tax and VAT-related documents for the years
include his income derived from his earnings in the US as well as his Value Added Tax (VAT)
1995-2009.
returns for the years 2008 and 2009.
The CIR, after having conducted its own investigation, made its initial assessment finding
To determine the tax liabilities of the petitioners, respondent Commissioner on Internal
that the petitioners were unable to fully settle their tax liabilities. Thus, the issuance of its
Revenue (CIR) issued another Letter of Authority, dated July 27, 2010 (July LA), authorizing
Notice of Initial Assessment-Informal Conference (NIC), dated January 31, 2012, directly
the BIR’s National Investigation Division (NID) to examine the books of accounts and other
addressed to the petitioners, informing them that based on the best evidence obtainable,
accounting records of both Pacquiao and Jinkee for the last 15 years, from 1995 to 2009.11
they were liable for deficiency income taxes in the amount of P714,061,116.30 for 2008
On September 21, 2010 and September 22, 2010, the CIR replaced the July LA by issuing to
and P1,446,245,864.33 for 2009, inclusive of interests and surcharges.
both Pacquiao and Jinke separate electronic versions of the July LA pursuant to Revenue
Memorandum Circular (RMC) No. 56-2010.1
On February 20, 2012, the CIR then issued the Preliminary Assessment Notice (PAN),
informing the petitioners that based on third-party information allowed under Section 5(B)
In light of these developments, petitioners through their counsel wrote a letter questioning
and 6 of the National Internal Revenue Code (NIRC), they found the petitioners liable not
the propriety of the CIR investigation. According to the petitioners, they were already
only for deficiency income taxes in the amount of P714,061,116.30 for 2008 and
subjected to an earlier investigation by the BIR for the years prior to 2007, and no fraud was
P1,446,245,864.33 for 2009, but also for their non-payment of their VAT liabilities in the
ever found to have been committed. They added that pursuant to the March LA issued by
amount P4,104,360.01 for 2008 and P 24,901,276.77 for 2009, to which the petitioners filed
the RDO, they were already being investigated for the year 2008.
their protest against.

In its letter, dated December 13, 2010, the NID informed the counsel of the petitioners that
After denying the protest, the BIR issued its Formal Letter Demand (FLD), dated May 2,
the July LA issued by the CIR had effectively cancelled and superseded the March LA issued
2012, finding the petitioners liable for deficiency income tax and VAT amounting to
by its RDO. It also stated that:

ANDAYA, AGNES YSABEL D.V. - 1A

 SPS. PACQUIAO v COURT OF APPEALS FIRST DIVISION
P766,899,530.62 for taxable years 2008 and P1,433,421,214.61 for 2009, inclusive of Petitioners filed the subject Urgent Motion for the CTA to lift the warrants of distraint, levy
interests and surcharges. Again, the petitioners questioned the findings of the CIR. and garnishments issued by the CIR against their assets and to enjoin the CIR from
collecting the assessed deficiency taxes pending the resolution of their appeal.
On May 14, 2013, the BIR issued its Final Decision on Disputed Assessment (FDDA),
addressed to Pacquiao only, informing him that the CIR found him liable for deficiency On April 22, 2014, the CTA issued the first assailed resolution granting the petitioner's
income tax and VAT for taxable years 2008 and 2009 which, inclusive of interests and Urgent Motion, ordering the CIR to desist from collecting on the deficiency tax assessments
surcharges, amounted to a total of P2,261,217,439.92. against the petitioners.

Seeking to collect the total outstanding tax liabilities of the petitioners, the Accounts The CTA noted further that the amount sought to be collected was way beyond the
Receivable Monitoring Division of the BIR (BIR-ARMD), issued the Preliminary Collection petitioners' net worth, which, based on Pacquiao's Statement of Assets, Liabilities and Net
Letter (PCL), dated July 19, 2013, demanding that both Pacquiao and Jinkee pay the Worth (SALN), only amounted to P1,185,984,697.00. Considering that the petitioners still
amount of P2,261,217,439.92, inclusive of interests and surcharges. needed to cover the costs of their daily subsistence, the CTA opined that the collection of
On August 7, 2013, the BIR-ARMD sent Pacquiao and Jinkee the Final Notice Before Seizure the total amount of P3,298,514,894.35 from the petitioners would be highly prejudicial to
(FNBS), informing them of their last opportunity to make the necessary settlement of their interests and should, thus, be suspended pursuant to Section 11 of R.A. No. 1125, as
deficiency income and VAT liabilities before the bureau would proceed against their amended.
property.
The CTA, however, saw no justification that the petitioners should deposit less than the
Although they no longer questioned the BIR’s assessment of their deficiency VAT liability, disputed amount. They were, thus, required to deposit the amount of P3,298,514,894.35 or
the petitioners requested that they be allowed to pay the same in four (4) quarterly post a bond in the amount of P4,947,772,341.53. The petitioners sought partial
installments. Eventually, through a series of installments, Pacquiao and Jinkee paid a total reconsideration of the April 22, 2014 CTA resolution, praying for the reduction of the
P32,196,534.40 in satisfaction of their liability for deficiency VAT. amount of the bond required or an extension of 30 days to file the same.

The petitioners sought redress and filed a petition for review with the CTA to which On July 11, 2014, the CTA issued the second assailed resolution denying the petitioner's
contended that the assessment was defective because it was predicated on its mere motion to reduce the required cash deposit or bond, but allowed them an extension of
allegation that they were guilty of fraud. They also questioned the validity of the attempt by thirty (30) days within which to file the same. Hence, this petition.
the CIR to collect deficiency taxes from Jinkee, arguing that she was denied due process
being that as all previous communications and notices from the CIR were addressed to both ISSUES:
petitioners, the FDDA was void because it was only addressed to Pacquiao. Moreover,
considering that the PCL and FNBS were based on the FDDA, the same should likewise be 1. W/N petitioners’ appeal to CTA will suspend the collection of tax: NO
declared void. Additionally, petitioners stat that the CIR assessment, which was not based 2. Whether or not petitioners’ case falls within the exception provided under Section
on actual transaction documents but simply on “best possible sources,” was not 11, RA 1125: NO
sanctioned by the Tax Code. They also argue that the assessment failed to consider not 3. W/N the Court can make a preliminary determination on whether the CIR used
only the taxes paid by Pacquiao to the US authorities for his fights, but also the deductions methods not sanctioned by law; NO
claimed by him for his expenses. 4. W/N the case should be remanded to the CTA for the conduct of preliminary
hearing; YES
Pending the resolution by the CTA of their appeal, the petitioners sought the suspension of
the issuance of warrants of distraint and/or levy and warrants of garnishment. RATIO:

On October 14, 2013, the BIR-ARMD informed the petitioners that they were denying their 1. NO. Section 11 of R.A. No. 1125, as amended by R.A. No. 9282, embodies the rule
request to defer the collection enforcement action for lack of legal basis. The same letter that an appeal to the CTA from the decision of the CIR will not suspend the
also informed the petitioners that despite their initial payment, the amount to be collected payment, levy, distraint, and/or sale of any property of the taxpayer for the
from both of them still amounted to P3,259,643,792.24, for deficiency income tax for satisfaction of his tax liability as provided by existing law. When, in the view of the
taxable years 2008 and 2009, and P46,920,235.74 for deficiency VAT for the same period. A CTA, the collection may jeopardize the interest of the Government and/or the
warrant of distraint and/or levy against Pacquiao and Jinkee was included in the letter. taxpayer, it may suspend the said collection and require the taxpayer either to
deposit the amount claimed or to file a surety bond.

ANDAYA, AGNES YSABEL D.V. - 1A

 SPS. PACQUIAO v COURT OF APPEALS FIRST DIVISION
dispense with the deposit of the amount claimed or the filing of the required bond,
The application of the exception to the rule is the crux of the subject controversy. whenever the method employed by the CIR in the collection of. tax jeopardizes the
Specifically, Section 11 provides: interests of a taxpayer for being patently in violation of the law. Such authority
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely emanates from the jurisdiction conferred to it not only by Section 11 of R.A. No.
affected by a decision, ruling or inaction of the Commissioner of Internal Revenue, 1125, but also by Section 7 of the same law, which provides:
the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade
and Industry or the Secretary of Agriculture or the Central Board of Assessment Sec. 7. Jurisdiction. - The Court of Tax Appeals shall exercise:
Appeals or the Regional Trial Courts may file an appeal with the CTA within thirty a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
(30) days after the receipt of such decision or ruling or after the expiration of the l. Decisions of the Commissioner of Internal Revenue in cases involving
period fixed by law for action as referred to in Section 7(a)(2) herein. xx x x disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising
No appeal taken to the CTA from the decision of the Commissioner of Internal under the National Internal Revenue or other laws administered by the
Revenue or the Commissioner of Customs or the Regional Trial Court, provincial, Bureau of Internal Revenue; xx x x [Emphasis Supplied]
city or municipal treasurer or the Secretary of Finance, the Secretary of Trade and From all the foregoing, it is clear that the authority of the courts to issue injunctive
Industry, and Secretary of Agriculture, as the case may be shall suspend the writs to restrain the collection of tax and to dispense with the deposit of the
payment, levy, distraint, and/or sale of any property of the taxpayer for the amount claimed or the filing of the required bond is not simply confined to cases
satisfaction of his tax liability as provided by existing law: where prescription has set in. As explained by the Court in those cases, whenever it
is determined by the courts that the method employed by the Collector of Internal
Provided, however, that when in the opinion of the Court the collection by the Revenue in the collection of tax is not sanctioned by law, the bond requirement
aforementioned government agencies may jeopardize the interest of the under Section 11 of R.A. No. 1125 should be dispensed with. The purpose of the
Government and/or the taxpayer, the Court at any stage of the proceeding may rule is not only to prevent jeopardizing the interest of the taxpayer, but more
suspend the said collection and require the taxpayer either to deposit the amount importantly, to prevent the absurd situation wherein the court would declare "that
claimed or to file a surety bond for not more than double the amount with the the collection by the summary methods of distraint and levy was violative of law,
Court. and then, in the same breath require the petitioner to deposit or file a bond as a
prerequisite for the issuance of a writ of injunction.”
The Court said, “Section 11 of Republic Act No. 1125 is therefore premised on the
assumption that the collection by summary proceedings is by itself in accordance 2. NO; The Court finds no sufficient basis in the records for the Court to determine
with existing laws; and then what is suspended is the act of collecting, whereas, in whether the dispensation of the required cash deposit or bond provided under
the case at bar what the respondent Court suspended was the use of the method Section 11, R.A No. 1125 is appropriate. It should first be highlighted that in
employed to verify the collection which was evidently illegal after the lapse of the rendering the assailed resolution, the CTA, without stating the facts and law, made
three-year limitation period. The respondent Court issued the injunction in question a determination that the illegality of the methods employed by the CIR to effect
on the basis of its findings that the means intended to be used by petitioner in the the collection of tax was not patent. Though it may be true that it would have been
collection of the alleged deficiency taxes were in violation of law. It would certainly premature for the CTA to immediately determine whether the assessment made
be an absurdity on the part of the Court of Tax Appeals to declare that the against the petitioners was valid or whether the warrants were properly issued and
collection by the summary methods of distraint and levy was violative of the law, served, still, it behooved upon the CTA to properly determine, at least preliminarily,
and then, on the same breath require the petitioner to deposit or file a bond as a whether the CIR, in its assessment of the tax liability of the petitioners, and its
prerequisite of the issuance of a writ of injunction. Let us suppose, for the sake of effort of collecting the same, complied with the law and the pertinent issuances of
argument, that the Court a quo would have required the petitioner to post the bond the BIR itself. The CTA should have conducted a preliminary hearing and received
in question and that the taxpayer would refuse or fail to furnish said bond, would evidence so it could have properly determined whether the requirement of
the Court a quo be obliged to authorize or allow the Collector of Internal Revenue providing the required security under Section 11, R.A. No. 1125 could be reduced
to proceed with the collection from the petitioner of the taxes due by a means it or dispensed with pendente lite.
previously declared to be contrary to law?” 3. NO; Absent any evidence and preliminary determination by the CTA, the Court
cannot make any factual finding and settle the issue of whether the petitioners
Thus, despite the amendments to the law, the Court still holds that the CTA has should comply with the security requirements under Section 11, R.A. No. 1125. The
ample authority to issue injunctive writs to restrain the collection of tax and to even determination of whether the methods employed by the CIR in its assessment,

ANDAYA, AGNES YSABEL D.V. - 1A

 SPS. PACQUIAO v COURT OF APPEALS FIRST DIVISION
jeopardized the interests of a taxpayer for being patently in violation of the law is Moreover, the CTA should.also consider the claim of the petitioners that they
a question of fact that calls for the reception of evidence which would serve as already paid a total of P32,196,534.40 deficiency VAT assessed against them.
basis. In this regard, the CTA is in a better position to initiate this given its time
and resources. The remand of the case to the CTA on this question is, therefore, RULING: The Petition is PARTIALLY GRANTED. The Writ of Preliminary is issued
more sensible and proper. For the Court to make any finding of fact on this point to enjoin CTA from implementing its April 22, 2014 and July 11, 2014 Resolution.
would be premature. The petitioners were ordered to deposit a cash bond in the amount of
4. YES; As the CTA is in a better, position to make such a preliminary determination, a P3,298,514,894.35 or post a bond of P4,947,772,341.53, as a condition to restrain
remand to the CTA is in order. To resolve the issue of whether the petitioners the collection of the deficiency taxes assessed against them. The case is
should be required to post the security bond under Section 11 of R.A. No. 1125, REMANDED to the CTA which is ordered to conduct preliminary hearings to
and, if so, in what amount the CTA must take into account, among others, the determine whether the dispensation or reduction of the required cash deposit or
following: bond provided under Section 11, Republic Act No. 1125 is proper to restrain the
a. Whether the requirement of a Notice of Informal Conference was collection of deficiency taxes assessed against the petitioners. CTA shall compute
complied with; the amount of the bond in accordance with A.M. No. 15-02-01-CTA and should also
b. Whether the 15-year period subject of the CIR's investigation is arbitrary take into account the amounts already paid by the petitioners.
and excessive;
c. Whether fraud was duly established;
d. Whether the FLD issued against the petitioners was irregular;
e. Whether the FDDA, the PCL, the FNBS, and the Warrants of Distraint
and/or Levy were validly issued. In its hearing, the CTA must also
determine if the following allegations of the petitioners have merit:

i. The FDDA and PCL were issued against petitioner Pacquiao only.
The Warrant of Distraint and/or Levy/Garnishment issued by the
CIR, however, were made against the assets of both petitioners;
ii. The warrants of garnishment had been served on the banks of
both petitioners even before the petitioners received the FDDA
and PCL;
iii. The Warrant of Distraint and/or Levy/Garnishment against the
petitioners was allegedly made prior to the expiration of the
period allowed for the petitioners to pay the assessed deficiency
taxes;
iv. The Warrant of Distraint and/or Levy/Garnishment against
petitioners failed to take into consideration that the deficiency
VAT was already paid in full; and
v. Petitioners were not given a copy of the Warrants. Sections
207[68] and 208[69] of the Tax Code requires the Warrant of
Distraint and/or Levy/Garnishment be served upon the taxpayer.

In case the CTA finds that the petitioners should provide the necessary
security under Section 11 of R.A. 1125, a recomputation of the amount thereof
is in order. If there would be a need for a bond or to reduce the same, the CTA
should take note that the Court, in A.M. No. 15-92-01-CTA, resolved to approve
the CTA En Banc Resolution No. 02-2015, where the phrase "amount claimed"
stated in Section 11 of R.A. No. 1125 was construed to refer to the principal
amount of the deficiency taxes, excluding penalties, interests and surcharges.

ANDAYA, AGNES YSABEL D.V. - 1A