The Lucio Tan tax evasion case

Internal dissent

The BIR confirmed that while the protest was still with the BIRÆs Appellate Division, Commissioner Chato insisted on filing a tax fraud complaint with the DOJ against the advice of the BIRÆs own Appellate Division.

On August 4, 1998, Tan filed a motion for reconsideration, which prayed that the DOJ panel should instead resolve his October 14, 1993 motion.

As you may have noticed, throughout this legal battle, Tan keeps going back to one theme: that the DOJ resolve his October 14, 1993 motion filed five years ago.

Why? Lucio Tan wants the DOJ and any criminal case off his back and to contain the tax cases within the BIR, the Court of Tax Appeals, and finally to the Supreme Court.

TanÆs group reiterated their position that any final resolution of the panel on the cases should be furnished them and that they be given adequate opportunity to appeal such resolution to the Secretary of Justice or to file any appropriate petition for review with the proper court.

In the meantime, on September 1, 1998, BIRÆs Appellate Division informed Tan that it would conduct hearings on Fortune's request for reconsideration/protest. It may be recalled that Fortune had requested then Commissioner Chato to conduct hearings on this protest, which she never did.

BIR drops 1992 assessment

On November 11, 1998, the BIR Appellate Division issued a Memorandum Decision that demolished BIRÆs own arguments.

On the same day, Commissioner Beethoven Rualo addressed a letter to Lucio Tan, informing him that the BIR has canceled the deficiency assessment issued against Fortune for income, ad valorem and value-added taxes for the taxable year 1992. Remember that no deficiency assessment had been issued for taxes corresponding to the years 1991 and 1990. Lucio TanÆs legal mantra: No assessment, no tax, no case.

Note that this is an internal administrative procedure at the BIR and the DOJ is not involved in this tax appeal procedure.

In short, the August 13, 1993 assessment of then BIR Commissioner Vinzons-Chato stating the deficiency ad valorem and income tax assessment for 1992 were withdrawn and cancelled for lack of merit.

On the other hand, with respect to the value-added tax the BIR reduced the deficiency to Ps1.9 billion. Adding up a 25% surcharge and interest of 20% per annum, the total amount assessed found due from Fortune was Ps5.1 billion which Fortune promptly paid.

Now that the BIR has ruled on 1992 assessment, what of the 1991 and 1990 cases?

Criminal case

There were only about 450 cases of tax evasion under investigation at this time. The usual procedure is for the BIRÆs appellate division to resolve tax protests. Failing that, the BIR commissioner may use the power to compromise. The tax case may be elevated to the Court of Tax Appeals, then finally to the Supreme Court.

Yet, on December 1, 1998, the DOJ filed a criminal tax evasion case with the Marikina City MeTC.

The nine informations were filed as criminal cases nos. 98-38181 to 98-38189 entitled ôPeople of The Philippines v. Lucio C. Tan, Fortune Tobacco Corporation, et al.ö

There is a fine line between tax æevasionÆ, which is illegal, and tax æavoidanceÆ, which is legal.

Among the BIRÆs arguments that lend strength to its tax fraud case are the following facts regarding the eight marketing corporations to whom Fortune sells cigarettes at give-away prices:

1. The companies were incorporated almost at the same time from August to September 1996 after Cory Aquino issued Executive Order 22 that shifted the cigarette tax system to ad valorem.
2. They have similar boards of directors.
3. Five of them share the 4^th floor of Lucio Tan's Allied Banking Center as registered address.
4. Three companies share the 112 Aguirre Street Legaspi Village in Makati.
5. The value-added tax (VAT) registration numbers for these companies were in sequence.
6. Marcial Pe Benito is the common notary public for the companies û the same lawyer who prepared the articles of incorporations for Lucio TanÆs beer marketing arms.

The BIR also alleged that Fortune sold cigarettes to ôfictitious individual buyersö.

1. Over 2,000 individual buyers accounted for 89% for 1992 sales, while the nine corporations accounted only for 11%.
2. Some of these buyers have transacted with Fortune only once buying Ps4 million to Ps6 million worth of cigarettes in 1992.
3. Some buyers have addresses ôc/o Officeö some with no street addresses
4. All buyers have provincial addresses yet Fortune reported most of its sales were in Metro Manila. How did the 89% sold to the provincial buyers end up as finally sold in Metro Manila?
5. All buyers are not registered with the BIR.

Lucio Tan et al filed an "urgent opposition to issuance of warrants of arrest", dated December 3, 1998, stating that the issuance of warrants of arrest against them be denied because there is no evidence whatsoever to justify the issuance thereof.

BIR withdraws case

On December 8, 1998, BIR Commissioner Rualo filed a motion before the Marikina MetTC praying for the withdrawal of the informations against Tan.

The DOJ filed on December 9, 1998 with the Marikina MeTC a motion for the issuance of warrants of arrest.

Lucio Tan filed a memorandum to dismiss the case against him for lack of probable cause.

Tan wins again

On January 15, 1999, Judge Ruiz requested the parties to file their manifestations whether arrest warrants against Tan et al may issue.

Tan wants BIR to first produce evidence to support the informations before any warrant of arrest be issued.

On March 22, 1999, Marikina MeTC Judge Alex Ruiz dismissed the case against Tan for 1990 to 1992 tax evasion for lack of probable cause and other procedural lapses including the BIR commissionerÆs lack of approval which was now explicitly required by the newly amended NIRC.

On March 24, 1999, the DOJ panel received their copy of the decision. The running of the period to appeal starts from this date.

On April 5, 1999, the DOJ prepared a motion for reconsideration of the March 22 decision.

On April 7, 1999, the 14th day after its receipt of order of dismissal, the DOJ filed a motion for reconsideration with the Marikina MeTC.

On Monday, May 17, 1999, the Marikina MeTC issued an order denying the motion for reconsideration.

Assuming that the motion for reconsideration did not suffer from a fatal inadequacy and tolled the running of the period, the DOJ had one day within which to appeal the order of dismissal to the RTC.

How hard is it to file an appeal? Appealing the decision did not involve the filing of any extensive pleading but a one-paragraph notice of appeal.

The DOJ panel did not file any notice of appeal. Not having filed any notice of appeal, the order of dismissal by the Metropolitan Trial Court became final.

On May 18, 1999, the DOJ received a copy of the order by Marikina MeTC Judge Enriquez denying their motion for reconsideration.