04 October 2011

Department of Justice ("DOJ") Task Force on Bureau of Internal Revenue Cases ("TFBIR") or the RATES Cases, in a Resolution released today, found probable cause to charge Ang Galing Pinoy Party-List Representative Juan Miguel "Mikey" M. Arroyo and his spouse, Mrs. Ma. Angela M. Arroyo, with multiple counts of violations of Section 255 of the National Internal Revenue Code.

In April 2011, the Bureau of Internal Revenue (BIR) tiled a case before the DOJ alleging that the spouses willfully and, with intent to evade paying the correct amount of taxes due to the government, substantially underdeclared their income for taxable years 2004, 4006 and 2007, and altogether failed to file the required tax returns for the period 2003 to 2009 for Mrs. Arroyo, and for the years 2005, 2008 and 2009 for Rep. Arroyo, resulting in deficiency income tax in the estimated total amount of PHP73.85M (broken down, as follows: PHP58,636,509.01 for the year 2004; PHP252,500 for 2005; PHP7,953,308 for 2006; PHP4,473,271.95 for 2007; Q1,453,500.02 for 2008; and PHP1,082,89Q.63 for 2009).

The complaint was filed after the BIR conducted a tax investigation against the former Vice—Governo1· and Representative of Pampanga and, thereby, discovered the underdeclaration of income and non-filing of tax l returns by the spouses. The results of the investigation were based on information and documents gathered from, among others, the Office of the Ombudsman for Luzon and the Provincial Human Resource Management Office of the Province of Pampanga.

Based on the spouses’ Statement of Assets, Liabilities and Net Worth ("SALN"), their net worth- for the period 2004 to 2009 considerably (increased, as indicated by the acquisition of several real and personal properties —including residential houses and lots in Lubao, Pampanga, LaVista Subdivision in Quezon City and in the United States of America, motor vehicles, stock shares and other personal effects — that are altogether worth several millions of pesos.

Using the Net Worth Method (“NWM") of tax investigation, which compared the difference between the increase in their net worth and their reported taxable income for the same period, it was determined that there has been underdeclaration of the total amount of income by more than 30%, which constitutes prima facie evidence of the employment of a fraudulent scheme to defeat payment of taxes.

Rep. Arroyo, who claims to have earned "purely compensation income from one employer, i.e., the House of Representatives, for the years 2005, 2008 and 2009," basically argued in his defense that there is "ample justification" to explain the alleged unexplained increase in their net worth, such as: (1) interest income that has already been subjected to final tax; (2) income that are exempt from income tax, such as 13th month pay and other benefits received pursuant to Republic Act No. 6686, which are required to be reported in the income tax returns; (3) gifts from relatives that are tax - exempt and need not be reported in their income tax returns; and (4) the alleged erroneous use of their net worth as stated in their SALN for 2002, instead of what was stated in their SALN for 2003.

The DOJ -TFBIR, after consideration of the arguments of both parties, found probable cause to indict the spouses for several counts of tax evasion, noting that Rep. Arroyo’s claims of having derived purely compensation income is clearly contradicted by their SALNS, which show both he and his spouse as having "existing business interests in corporations and enterprises where they hold positions as officers, shareholders and/or directors which, are, indeed, likely sources of incorne."

As to the possible explanations for the increase in net worth adverted to by the Respondents, the TFBIR held that “aside from their bare and self-serving allegations, respondents miserably failed to present proofs or evidence that such other sources of income were already subjected to final tax or those gifts from relatives are tax exempt."

Since it appears that he did not earn purely compensation income from one employer, neither is Rep. Arroyo qualified for "substituted filing under Revenue Memorandum Circular (RMC) No. 01-03, as amended".

As to the use of the NWM of tax investigation, the TFBIR found that resort to the same is justifiable "whenever the records and documents of a taxpayer relative to his declared income are inadequate and does not correctly reflect their true income. The BIR, it was found, made its best effort to get a copy of the respondents SALN for 2003, but both the Ofiice of the Ombudsman for Luzon and the Provincial Human Resource Management Office of Pampanga found no available records of said document. The document presented by respondents, which purports to be said 2003 SALN, was further found to be "unreliable and deserve scant consideration" as it lacks its second page, where the signatures of the Respondents- spouses and the notarization ought to be found.

Hence, the DOJ approved the filing of appropriate charges in the proper courts for seven (7) counts of failure to file income tax return against Mrs. Arroyo, and three (3) counts of failure to file income tax return and three (3) counts of failure to supply correct and accurate information in the income tax returns against Rep. Arroyo.

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