G.R. No. 213394 - Spouses Pacquiao vs. Court of Tax Appeals

Case Summary (G.R. No. 213394)

Petitioner

Spouses Emmanuel D. Pacquiao and Jinkee J. Pacquiao.

Respondent

Court of Tax Appeals, First Division; Commissioner of Internal Revenue.

Key Dates

· March 25, 2010 – Letter of Authority (LA) issued for 2008 records by RDO No. 43.
· July 27, 2010 – National Investigation Division LA covering 1995–2009 issued by CIR.
· January 31, 2012 & February 20, 2012 – Notice of Initial Assessment (informal) and Preliminary Assessment Notice.
· May 14, 2013 – Final Decision on Disputed Assessment (FDDA) issued to Pacquiao only.
· July 19 & August 7, 2013 – Preliminary Collection Letter and Final Notice Before Seizure demanding P2.261B.
· October 18, 2013 – Urgent motion filed in CTA to lift distraint, levy, garnishment and suspend collection.
· April 22 & July 11, 2014 – CTA resolutions granting suspension subject to cash deposit of P3,298,514,894.35 or bond of P4,947,772,341.53.
· April 6, 2016 – Supreme Court decision.

Applicable Law

· 1987 Constitution – due process and equal protection.
· National Internal Revenue Code (NIRC): Sections 5(B), 6 (audit powers), 203 (assessment prescriptive period), 207–208 (summary remedies).
· Republic Act No. 1125, as amended by RA 9282, Section 11 – appeals to CTA do not automatically suspend collection; court may suspend upon deposit or bond.
· Revenue Regulation No. 12-99 – due process in deficiency assessments (notice for informal conference).
· Revenue Memorandum Order No. 27-10 – fraud investigation procedure under RATE program.
· Rule 65, Rules of Court – certiorari jurisdiction.

Facts

2008 return filed April 15, 2009; later amended to include U.S.-sourced income. 2009 return filed April 15, 2010 omitted U.S.-sourced income and omitted VAT returns for 2008–2009.
BIR issued March LA for 2008, then July LA (electronic) for 1995–2009, citing established fraud under RATE program. Petitioners contested duplication of investigations and reliance on “best evidence” without supporting documents.
Petitioners submitted 2007–2009 documents; years 1995–2006 records unavailable due to disposal under Section 235 of Tax Code. CIR maintained full fraud reinvestigation justified.
CIR issued NIC and PAN, assessing deficiency income tax of P714M (2008) and P1.446B (2009) plus VAT liabilities. Protest denied; FLD dated May 2, 2012 confirmed liabilities of P766.9M (2008) and P1.433B (2009).
FDDA of May 14, 2013 to Pacquiao imposed total of P2.261B. BIR-ARMD demanded payment; Petitioners paid P32.2M deficiency VAT in installments but did not challenge VAT assessment. Warrants of distraint, levy, garnishment followed.
Petitioners filed CTA petition for review, arguing:
• Fraud assessment lacked evidentiary support;
• Due process violated (no informal conference, no FDDA to Jinkee, premature summary remedies, improper service of garnishment);
• VAT already paid;
• Bond requirement under Section 11 RA 1125 was excessive given net worth of P1.185B.
CTA granted suspension of collection but required cash deposit of P3.298B or surety bond of P4.947B; refused reduction, granted 30-day extension to post.

Issue

Did the CTA act with grave abuse of discretion in requiring petitioners to deposit or post bond under Section 11, RA 1125, despite alleged procedural and substantive defects in the CIR’s assessment and collection processes?

Ruling

The petition is partially granted. A writ of preliminary injunction enjoins enforcement of the CTA’s April 22 and July 11, 2014 resolutions insofar as they impose the cash deposit or bond. The case is remanded to the CTA, First Division, to conduct a preliminary hearing to determine whether dispensation or reduction of security under Section 11, RA 1125 is warranted and to compute any required bond.

Reasoning

Section 11, RA 1125, generally requires a taxpayer to deposit or post bond to suspend collection, but courts may dispense with that requirement when collection methods are “patently in violation of law” and jeopardize the taxpayer’s interest (Collector v. Avelino; Collector v. Zulueta).
The CTA did not conduct any preliminary fact-finding on alleged due process violations: lack of informal conference notice (RR 12-99, Sec. 3.1.1), audit beyond three-year prescriptive period (Sec. 203 NIRC), sufficiency and regularity of fraud investigation (RMO 27-10), basis of “best evidence” assessments, and validity and service of FDDA, PCL, FNBS, and warrants (Secs. 207–208 NIRC).

Case Syllabus (G.R. No. 213394)

Facts

Emmanuel “Manny” Pacquiao derived income from international boxing purses (Top Rank, Inc.) and domestic talent fees (endorsements, commercials, appearances).
Filed 2008 income tax return (April 15, 2009) reporting Philippine-sourced income; later amended to include U.S.-sourced income.
March 25, 2010: BIR RDO No. 43 issued Letter of Authority (“March LA”) to examine 2008 records.
April 15, 2010: Pacquiao’s 2009 return omitted U.S. earnings; neither spouse filed 2008–2009 VAT returns.
July 27, 2010: CIR issued national Letter of Authority (“July LA”) covering 1995–2009 to BIR National Investigation Division; electronically re-issued September 21–22, 2010.
Petitioners’ counsel protested duplication and questioned fraud basis; NID replied (December 13, 2010) that fraud was established and procedural rights preserved.

BIR Audit, Assessment and Collection

January 5 & 21, 2011: Petitioners submitted documents for 2007–2009; unable to produce pre-2007 records disposed under Tax Code § 235.
June 21, 2011: CIR subpoena duces tecum for 1995–2009 documents.
January 31, 2012: Notice of Initial Assessment (“NIC”)—deficiency income tax P714 M (2008) and P1.446 B (2009), including interest and surcharges.
February 20, 2012: Preliminary Assessment Notice—added VAT deficiencies P4.1 M (2008) and P24.9 M (2009).
Protest denied; May 2, 2012 Formal Letter Demand—deficiency income tax & VAT P766.9 M (2008) and P1.433 B (2009).
May 14, 2013: Final Decision on Disputed Assessment (“FDDA”) addressed only to Pacquiao—total P2.261 B.
July 19, 2013: Preliminary Collection Letter demanding P2.261 B.
August 7, 2013: Final Notice Before Seizure; petitioners paid P32.2 M VAT deficiency in installments.

Proceedings Before the CTA

Petition for review filed with CTA Case No. 8683 challenging:
• Fraud assessment lacking evidentiary support,
• Due process violations (FDDA addressed to Pacquiao only, summary remedies),
• Inclusion of paid VAT in assessment.
October 18, 2013: Urgent Motion for suspension of distraint, levy,