The Lucio Tan tax evasion case

Crusader

Probably nobody in the Philippines doubts the resolve of the Ramos-appointed BIR commissioner as a tax crusader. The country needed enforcers of her intelligence, incorruptibility, and determination. Hence, when in 1993 she slapped Lucio Tan and Fortune Tobacco with a Ps25.6 billion tax suit, the media frenzy that followed reverberated throughout the world.

The Lucio Tan tax evasion case began when in a letter dated August 13, 1993, Liwayway Vinzons-Chato assessed on Fortune Tobacco Corporation the total amount of P7.7 billion representing alleged deficiency ad valorem, income, and value-added taxes for the year 1992.

On September 7, 1993, the BIR commissioner filed with the secretary of justice a complaint for tax evasion for alleged non-payment by Fortune of the correct amounts of income tax, ad valorem tax and value-added tax for the year 1992.

Named in the complaint together with Fortune were nine of its officers and nine corporations who sell cigarettes manufactured by Fortune and 59 of their officers. The same was docketed as I.S. No. 93-508 in the DOJ.

Fortune moved for reconsideration of the assessments on September 17, 1993.

Lucio Tan prepared a "verified motion to dismiss; alternatively, motion to suspend," dated October 14, 1993, praying that the complaint against them be dismissed; or alternatively, that the proceedings with the DOJ be suspended.

The said motion to dismiss is based principally on these grounds, inter alia: The Court of Tax Appeals still had to finally determine whether Fortune had incurred any tax liability; exclusive jurisdiction to make such determination is vested in the Court of Tax Appeals; and the commissioner's complaint is not supported by any documentary evidence. TENSE!

The alternative motion to suspend was based on the existence of a prejudicial question û the request for reconsideration/protest filed by Fortune with regard to the tax assessment.

Lucio TanÆs motion contained almost all the possible defects of the BIRÆs and the DOJÆs actuations, especially his allegation of prejudicial questions that must be resolved first.

At the scheduled preliminary investigation on October 15, 1993, the original DOJ panel of prosecutors that investigated these cases announced in open hearing that Lucio TanÆs verified motion to dismiss was to be regarded as their counter-affidavits; in effect, denying it as a motion to dismiss and the alternative motion to suspend.

On October 20, 1993, Lucio Tan filed a motion for reconsideration of the foregoing order of the panel of prosecutors.

In effect, in treating the motion as counter-affidavits, the DOJ was dictating how the defense panel conducted its legal strategy.

Yet, where were the supporting documents for the BIRÆs complaint?

On October 21, 1993, Lucio Tan filed a "motion to require submission by BIR of certain documentsö requiring the commissioner to produce before the DOJ prosecutors the "daily manufacturer's sworn statements" submitted to the BIR by Fortune and by other cigarette companies, including La Suerte Cigar & Cigarettes, Associated American Anglo Tobacco, Sterling Tobacco, La Campana Tobacco, and Mighty Tobacco Corp, and their corresponding payments for ad valorem taxes.

The defense hoped these statements would have shown that the manner in which the other cigarettes companies paid their ad valorem taxes had been on the same basis and in the same manner as Fortune.

On October 26, 1993, the commissioner filed with the secretary of justice a second complaint for tax evasion against Fortune and its officers, together with the same 59 corporations and their officers, with respect to Fortune's ad valorem tax, income tax, and value-added tax for the year 1991. The same was docketed as I.S. No. 93-584 in the DOJ.

After receiving subpoenas, Lucio Tan filed on December 10, 1993 a "motion to suspend proceedings," stating that "it is best and appropriate to suspend the instant proceedings until the resolution of I.S. No. 93-508 on the merits, or at least, until the resolution of all pending incidents therein".

On December 20, 1993, the DOJ prosecutors issued an omnibus order denying the three motions that Tan had filed with the DOJ.

On December 21, 1993, the commissioner filed a third complaint for tax evasion against Fortune and its officers, and the 59 corporations and their officers, with respect to Fortune's ad valorem tax, income tax, and value-added tax for the year 1990.

At this stage, Lucio Tan was facing three distinct tax fraud complaints namely, I.S. 93-508 (for 1992 taxes), I.S. 93-584 (for 1991 taxes), and I.S.93-17942 (for 1990 taxes).

Tan goes to court

On January 4, 1994, Tan filed in the RTC of Quezon City a petition for certiorari and prohibition with application for issuance of restraining order and writ of preliminary injunction, which was docketed thereat as Civil Case No. Q-94-18790.

Its principal purpose was to prohibit, alternatively to suspend, the preliminary investigation being conducted by the original DOJ panel of prosecutors of the case for non-payment by Fortune of the correct amounts of income tax, ad valorem tax and value added tax due for the year 1992, filed against them by the former Commissioner of Internal Revenue.

Regarding the 1990 taxes Lucio Tan received subpoenas on January 21, 1994. No copy of the complaint and its supporting affidavits, or documents, if any, were attached to, or sent with, the subpoenas.

The Tan defense team objected. The subpoenas peremptorily required Tan et al "to submit controverting evidence" at the hearing on February 1, 1994 even before they had been furnished with copies of the complaint and supporting affidavits and documents thereof.

Meanwhile, on January 25, 1994, TanÆs defense team scored its first legal victory.

Quezon City RTC Judge Tirso Velasco issued a writ of preliminary injunction directing the prosecutors to refrain and desist from taking further cognizance of, and conducting preliminary investigation on the 1992 taxes.

At this time, the RTC had consolidated the issues regarding 1992, 1991, and 1990 taxes.

Remember that Tan went to the RTC first, not to dispute the taxes as there was no deficiency assessment to dispute except for 1992, but to prohibit the DOJ from conducting a preliminary investigation.

Tan maintains that the assessment issues must be settled first within the BIR, then appealed to the Court of Tax Appeals. The prejudicial question must be resolved first before the BIR can go to the DOJ who in turn can go to the trial courts.

On February 14, 1994, after hearing, the Quezon City RTC issued an order authorizing the issuance of a supplemental writ of preliminary injunction ordering both the DOJ and the city prosecutor to stop the preliminary investigation on the 1991 and 1990 tax cases.

Thus, the RTC had issued preliminary injunctions against the preliminary investigation conducted by the DOJ on all three tax fraud cases against Lucio Tan.