The Lucio Tan tax evasion case

A criminal case against a billionaire is a rarity in relation to the tens of thousands of cases filed each year with the Philippine courts.

A criminal case arising out of tax evasion is another rarity where most tax assessment cases are settled by the internal revenue commissionerÆs power to compromise, or failing that, are instituted with the Court of Tax Appeals; not as criminal cases.

But a Ps25.3 billion (US$) tax criminal case against Lucio Tan is not a mere rarity ù it is a sensational media event. He is, after all, Lucio Tan.

Richest man

Lucio Tan, of course, is the PhilippinesÆ richest man. He owns 70% of AsiaÆs oldest airline and Philippine flag carrier Philippine Airlines (PAL). He owns over 80% the countryÆs erstwhile government depository, the semi-privatized Philippine National Bank (PNB). He owns Asia Brewery which bottles Carlsberg and Budweiser in the country.

However, it is TanÆs flagship company, Fortune Tobacco Corporation which controls 74% of the market, that is the heart of the Ps25.3 billion case.

Lucio TanÆs tentacular reach is manifested by the Bureau of Internal RevenueÆs 1999 top 10 list of corporate taxpayers.

Tan owns three of the top 10 taxpaying firms ù Fortune Tobacco, Asia Brewery, and Tanduay Distillery ù which, together with another Tan company Asian Alcohol Corp paid out Ps12.775 billion in taxes.

Together with his other companies, Tan undoubtedly is the PhilippinesÆ biggest taxpayer.

Synopsis

The Lucio Tan tax evasion case is a battle of legal strategies that echoes mastery of remedial law rather than substantive law. And when the action finally settled on substantive law, the governmentÆs position was debatable.

It is easy to get lost in the maze of the biggest tax evasion case in Philippine history. It took seven years to reach the Court of Appeals level. The case already saw three BIR commissioners, five secretaries of justice, four solicitors-general, four secretaries of finance, and two presidents of the republic.

In 1993 under the administration of Fidel Ramos, the Bureau of Internal Revenue (BIR) assessed Fortune Tobacco with an alleged deficiency for three types of taxes namely, ad valorem, value-added, and income taxes. Fortune filed a motion for reconsideration under the tax code but the BIR commissioner did not act on the motion, which is very surprising. This disregard for remedial procedure will/was to beset the governmentÆs case going forward.

Instead, the BIR filed with the Department of Justice (DOJ) a complaint for tax evasion. In the same year, the BIR filed two more complaints with the DOJ, this time for similar tax evasion charges for 1991 and 1990. Total tax allegedly owed: Ps25.6 billion.

Note that the BIR issued a deficiency tax assessment for 1992 under protest by Fortune that remain unresolved, but did not issue similar assessments for 1991 and 1990. The BIR went directly to the DOJ with formal complaints. This lack of assessments would become a principal axis of Lucio TanÆs defense: No assessment, no tax, no case.

Lucio Tan filed a motion to dismiss with the DOJ (the case has not reached the courts yet at this time) or to suspend proceedings because the BIR commissioner and the Court of Tax Appeals (CTA) have not decided with finality any alleged tax liability. There was not even any documentary evidence produced to support the BIRÆs claim. The DOJ dismissed TanÆs motion.

Forthwith, Fortune went to the trial court in early 1994 with a petition for certiorari and prohibition under Rule 65 of the Rules of Court of the Philippines.

The Regional Trial Court (RTC) sided with Fortune and ordered the DOJ to stop the investigation and require the BIR to produce documentary evidence.

The Court of Appeals (not to be confused with the Court of Tax Appeals) affirmed the RTCÆs decision. Again, the DOJ was not satisfied with the decision and elevated the case to the Supreme Court.

The court of last resort affirmed with finality Lucio TanÆs motion to suspend the preliminary investigation.

At this stage, which was in early 1997, four years after the BIR initiated the tax complaint, the only thing that was resolved was that the DOJ should create a new panel of prosecutors, require the BIR to provide documentary evidence, and give Fortune Tobacco reasonable time to examine the documents. It eventually took the BIR three months to photocopy the 66,000 pages of documents.

The parties had gone all the way to the Supreme Court just to obtain these dispositions? Still unresolved: lack of deficiency tax assessment for 1991 and 1990; whether the BIR had documentary evidence; and BIR action on FortuneÆs protest for the 1992 assessment.

In short, the contending parties were substantially no better than four years before.

When President Joseph Estrada came to office in 1998, the new BIR commissioner cancelled the deficiency assessment for 1992. Bear in mind that the BIR did not issue deficiency assessments for 1991 and 1990.

The DOJ filed nine informations (not to be confused with complaints) with the metropolitan trial court (MeTC) of Marikina in December 1998.

A complaint is a sworn written statement charging a person with an offense, subscribed by the offended party, any peace officer or the republic officer charged with the enforcement of the law violated.

An information is an accusation in writing charging a person with an offense subscribed by the fiscal and filed with the court.

In a surprising move, the new BIR commissioner filed a motion before the trial court praying for the withdrawal of the informations. The DOJ is now in a quandary: The original complainant has withdrawn the case.

On March 22, 1999 the trial judge dismissed the case against Tan and Fortune Tobacco for lack of probable cause. The DOJ filed a motion for reconsideration, which the judge denied on May 17. The judgment was entered on June 28.

On July 14 the DOJ filed a petition for certiorari with the Marikina RTC. The RTC judge dismissed the appeal because it was filed 11 days late.

Complaining that it had lost on mere technicalities the DOJ panel assailed the RTCÆs decision in the Court of Appeals. On August 29, 2000 or seven years after the BIR started the case (which it later on withdrew), the CA affirmed the RTC finding that the appeal was filed late.

A more detailed chronology written below reveals the legal genius ù and the lack thereof ù of the contending parties.

Throughout the case, Lucio TanÆs defense team consistently relied on impeccable remedial law while the government team consistently stumbled on remedial procedure.

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