Policies on Penalties for Resident and Non-Resident Taxpayers
- Certain tax violations commonly committed by non-resident taxpayers are imposed the same compromise penalties as those applicable to resident taxpayers.
Guidelines and Instructions for Application and Collection of Compromise Penalties
- Internal revenue officers must apply the Revised Schedule of Compromise Penalties for uniform action.
- Compromise penalties cannot differ from the Schedule except if approved by the Commissioner or Regional Directors.
- Compromise penalties should be itemized separately in assessment notices or demand letters and should not be included as part of the total tax assessed or demanded.
- Payment of compromise penalties is voluntary and serves as a settlement of criminal liability; refusal leads to referral for criminal prosecution.
- Non-resident taxpayers must pay the compromise penalty in Philippine Pesos or its U.S. Dollar equivalent, following a prescribed uniform exchange rate.
Repealing Clause and Effectivity
- All previous orders inconsistent with this Memorandum Circular are repealed or revoked.
- The order takes effect immediately upon issuance.
Enforcement and Publicity
- All revenue officers and officials are enjoined to comply and enforce the Circular.
- Officials are urged to give the Circular wide publicity to ensure awareness.
Schedule of Compromise Penalties: Specific Violations and Penalties
- Section 253: Willful tax evasion involving fraud cannot be compromised.
- Section 254:
- Willful failure to pay taxes at the time required may be compromised at Commissioner’s discretion; no fixed compromise penalty.
- Failure to pay taxes within specified amounts incurs fixed compromise penalties ranging from P200 to P25,000 based on the unpaid amount tiers.
- Willful failure to file returns, keep records, or supply information has no fixed penalty but subject to Commissioner’s discretion.
- Failure to file returns or supply information in relation to gross sales, earnings, estates, or gifts triggers compromise penalties from P200 up to P25,000 depending on the scale.
- Misrepresentation or withdrawal of returns involving fraud cannot be compromised.
- Section 274: Violations without specific penalties are subject to a P1,000 compromise penalty.
- Section 277: Unauthorized disclosure or publication of confidential taxpayer information is not compromiseable due to public policy; requires formal written report for action.
Important Legal Concepts
- Compromise penalties serve as suggested settlements of criminal tax liabilities without waiving the government’s right to pursue prosecution if unpaid.
- Uniform exchange rates applied to non-resident taxpayers for penalty payments ensure fairness and consistency.
- Transparency and separation of compromise penalties in tax notices prevent confusion with other tax liabilities and surcharges.
- Fraudulent acts, particularly involving evasion and misrepresentation, are excluded from compromise options to uphold integrity in tax administration.
- Confidential information protection is paramount, and violations thereof are strictly non-negotiable under the penalty framework.