An easy choice: Make the taxpayers pay twice or collect from the collecting agent bank double?

Over the past week, we have been pre-occupied with a group of taxpayers – mostly multinationals from Japan, Taiwan, China and USA – whose tax payments were diverted after receipt by the BIR’s collection agent – an authorized agent bank which is a wholly owned government bank (the collecting agent bank). These taxpayers paid taxes by issuing their own checks or buying manager’s checks which were payable specifically to the Commissioner of BIR and were crossed checks, invariably, "for payee’s account only." These checks were delivered, received and/or picked up by regular employees of the collecting agent bank. Further, the checks were deposited and presented for clearing and collection by the collecting agent bank. The dorsal sides of all the checks contained the usual clearing stamp "all prior endorsement and/or lack of endorsement are guaranteed" by the collecting agent bank as well as normal markings showing the crediting in favor of, or collection by, the collecting agent bank of said checks. In fact, the drawee banks’ accounts, and correspondingly the taxpayers’ accounts, were debited in favor of the collecting agent bank to evidence actual receipt of the tax payments.

To delay discovery of the scam, the involved employees of the collecting agent bank issued "official receipts" and returned duly stamped tax returns (asserted to be forgeries by the collecting agent bank but looking every bit real and in fact matching authentic official receipts issued by the collecting agent bank on the same day to other taxpayers). It is obvious that the scam could not have been perpetrated without the active cooperation and conspiracy of certain officers and employees of the collecting agent bank. More importantly, there was also no way for the taxpayers to have known or detected that their tax payments were being diverted by the officers and employees of the collecting agent bank (until the BIR made demands for payment against and the scam was then uncovered).

In reply to the claims of the taxpayers that they have already paid the taxes, the collecting agent bank was quick to certify to the BIR that the "official receipts" issued to the taxpayers were forgeries and not issued by it. Relying solely on said assertion, the BIR set final notices to the taxpayers demanding for payment of taxes which were already paid to the collecting agent bank who failed to remit the same to the bureau. Is the BIR correct in so acting?

Initially, even assuming arguendo that the collecting agent bank did not issue the official receipts, the taxes (the BIR intends to collect anew from the taxpayers) have clearly been paid through, and collected by, the collecting agent bank, BIR’s authorized agent bank.

Moreover, the BIR, as principal, is bound by the action of the collecting agent bank, as its authorized agent bank, in accepting delivery, allowing deposit, presentation, clearing, and encashment of the taxpayers’ checks, and receiving the money or credit that the taxpayers’ checks represent.

Under the BIR’s own regulations, its recourse is to run after the collecting agent bank – as its authorized agent bank – for the diversion of the taxpayers’ tax payments. Section 7(b) of Revenue Regulations No. 4-97, thus, provides:

"Sec. 7. – Liability of authorized agent bank (AAB)

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(b) Any diversion, non-remittance or under-remittance of the taxes collected by AABs through fault or negligence of the bank accepting such payment shall subject the bank to civil and criminal liabilities provided for under Sections 248 and 274 of the Tax Code, as amended, and other existing laws, rules and regulations. AABs shall be liable to the BIR for double the amount of taxes diverted and unremitted, plus the increments and penalties prescribed by the Tax Code, as amended."

We stress that the BIR, if so minded, can collect double from the AAB or collecting agent bank.

Furthermore, under the Negotiable Instruments Law and applicable jurisprudence, the collecting agent bank is the party ultimately and solely liable to pay the BIR. The collecting agent bank guaranteed "all prior endorsement and/or lack of endorsement." Section 66 of the Negotiable Instruments Law defines the collecting agent bank’s liability as an indorser of taxpayers’ checks:

"Section 66. Liability of general indorser. – Every indorser who indorses without qualification, warrants to all subsequent holders in due course: x x x that, on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it."

It must be quickly added that the taxpayers were completely without fault or negligence under the circumstances. The taxpayers’ checks were made payable specifically to "Commissioner of BIR" and crossed for the payee’s account only and were delivered to the collecting agent bank as the BIR’s authorized agent bank. Thus, the case of Ford Philippines, Inc. v. Court of Appeals, et. al. (350 SCRA 446), on a taxpayer’s contributory negligence in the diversion of tax payments, does not apply.

The taxpayers cannot understand the BIR’s insistence on making the taxpayers pay twice the taxes that they have already paid. Shouldn’t the BIR be running after the collecting agent bank, its authorized agent bank, which is ultimately and solely liable and is financially able to make good its obligation to the BIR? Unquestionably, the BIR has solid legal basis to do so and can even collect double the unremitted taxes, plus interests and surcharges, from the collecting agent bank.

The taxpayers, particularly the multinational investors, are concerned that the BIR has apparently chosen to shield its clearly errant authorized agent bank – the collecting agent bank – at the risk of further shaking the already fragile investors, confidence in our country by exposing local and foreign investors to the severe consequences of having to pay taxes twice, plus interests and surcharges. The BIR’s iniquitous insistence to collect such a staggering amount from the taxpayers would cripple their business or force their operations to grind to a sudden halt, thereby prejudicing not only the taxpayers and their investors but also their employees, clients, suppliers, creditors, and all those whose livelihood or businesses depend on these taxpayers. The BIR itself would be prejudiced by the slow down, suspension, or closure of the taxpayers’ business operations as it will be deprived of the tax revenues that the taxpayers, which are amount the BIR’s large taxpayers, contribute annually to the country’s coffers.

Under law and equity, the BIR should instead focus its collection efforts on the real and ultimate party liable for the diversion – the collecting agent bank, the BIR’s own authorized agent bank. Why make from the taxpayers (who have already paid) pay twice when the BIR can collect double from the collecting agent bank (who failed to remit the tax collection)? Isn’t that an easy and obvious choice?