G.R. No. 210238 - Sze vs. Bureau of Internal Revenue

The Bureau of Internal Revenue (BIR) issued Revenue Regulation 8-2001, known as the Voluntary Assessment Program (VAP), to grant taxpayers the privilege of last priority during audits and investigations for the taxable year December 31, 2000, and for all prior years, subject to certain conditions.
Chiat Sing Cardboard Corporation (Chiat Corp.) availed itself of the VAP and was issued a certificate of qualification for the years 1999 and 2000.
The BIR clarified that participation in the VAP did not serve as a shield against fraudulent or illegal acts committed by the taxpayer.

On March 25, 2003, the BIR issued a Letter of Authority (LOA) to examine Chiat Corp.’s accounting books and records for the taxable years 1999 and 2000.
Despite repeated requests—with a second and final notice issued on May 5, 2003—Chiat Corp. failed to present the required documentation.
The investigation revealed multiple discrepancies, including:

Underdeclaration of sales amounts (P160,588,321.63 for one year and P113,578,182.69 for the other).
Underdeclared income (P10,663,130.96 for 1999 and P5,678,909.13 for 2000).
Revenue derived from undeclared importation of raw materials.
Failure to subject the underdeclared sales and income to applicable VAT and income tax.
Deliberate misdeclaration of the taxable base to evade the payment of correct internal revenue liabilities.
Failure to withhold taxes on labor costs amounting to P427,010,000.00, and
Non-compliance in rectifying tax returns to reflect the actual taxable base, resulting in an understatement of correct tax liabilities by over 30%.

The BIR proceeded with a series of administrative notices: Notice of Informal Conference (NIC), Preliminary Assessment Notice (PAN), Formal Letter of Demand (FLD), and Final Assessment Notice (FAN).
Chiat Corp. did not file any protest against these notices. Consequently, the assessment for deficiency taxes for 1999 and 2000, amounting to P33,847,574.18, became final, executory, and demandable.
On May 19, 2005, the BIR charged the officers of Chiat Corp.—petitioners Imelda T. Sze, Sze Kou For, and Teresita A. Ng—with tax evasion and/or tax fraud under various sections of the National Internal Revenue Code of 1997 (NIRC).

There was no factual or legal basis for the charges.
The filing of the charges was premature and violated their due process rights.
They did not receive the requisite notices.
They were not responsible for the alleged underdeclaration, misdeclaration, or importation issues.
They were not involved in the preparation or filing of tax returns.
Chiat Corp. had no assets to satisfy the assessed taxes.
Chiat Corp. had already notified the BIR of the termination of its business as of December 2004.
The BIR erroneously presumed that Chiat Corp. was involved in manufacturing raw materials into final products for sale.

The State Prosecutor dismissed the complaint on July 12, 2006. Subsequent motions for reconsideration by the BIR and the Department of Justice (DOJ) were also denied.
The case was elevated to the Court of Appeals (CA) by the BIR through a petition for certiorari.

In its May 31, 2012 decision, the CA found sufficient evidence in the records to establish probable cause for tax evasion and violations of the NIRC.
The CA noted that Chiat Corp. failed to produce countervailing evidence to challenge the documentary evidence, including various importation records from government agencies.
The CA criticized the DOJ for allegedly abusing its discretion by not considering documents from multiple agencies and found that Chiat Corp.’s move to retire its business was suspicious.
The CA ultimately determined that probable cause existed and ordered the DOJ to file the corresponding criminal information.

Petitioners later filed a petition for review on certiorari before the Court. Concurrently, they challenged the filing of an Amended Information in Criminal Cases Nos. O-385 to O-392 before the Court of Tax Appeals (CTA) on grounds of prescription and double jeopardy.
On July 8, 2015, the CTA dismissed all cases on the ground of prescription.
The BIR confirmed that the DOJ had complied with the CA’s decision by filing criminal information.
The dismissal by the CTA rendered the issues in the petition moot and academic, as no further legal relief was available or necessary.

Whether or not the Court of Appeals erred in its finding of probable cause for tax evasion and violation of the NIRC.

The central question revolved around the propriety and sufficiency of the evidence that established probable cause against the petitioners.
A related issue concerned whether the subsequent CTA resolution dismissing the case for prescription nullified the need to assess the substance of the CA’s findings.
The petitioners argued that the dismissal and the established prescription rendered any further adjudication on the merits both moot and academic.