BDB Laws Tax Law For Business appears in the opinion section of BusinessMirror every

Thursday. BDB Law is an affiliate of Punongbayan & Araullo (P&A).

Subpoena duces tecum: A powerful tool in tax
investigations
To revenue officers and taxpayers, the examination of taxpayers books of accounts and
records may be considered the groundwork of every tax investigation. The letters of
authority/tax-verification notices/mission orders normally include a checklist of
documents that must be submitted for inspection.
Compliant taxpayers would make available copies of such records to the Bureau of
Internal Revenue (BIR) office requesting the same. There are many occasions, however,
when revenue officers require taxpayers to present additional and/or unspecified
documents or inform those concerned that the audit be conducted within the BIR
business premises. The inconvenience posed by such additional demands often makes
taxpayers reluctant to cooperate any further with the tax-investigation process. In such
instances, does the examination process become every revenue examiners headache?
No, not really.
The BIRs authority to examine the books of accounts and other records of taxpayers
stems from Section 5 of the 1997 Tax Code. The Commissioner of Internal Revenue or
his authorized representatives are empowered to inspect the taxpayers records to
ascertain the correctness of any return, to determine liability for any internal-revenue tax,
and to collect such liability or evaluate tax compliance. The same Code imposes a
concomitant duty on the taxpayers part to preserve the books of accounts and other
accounting records for the period within which the commissioner is authorized to make
an assessment. With these legal bases, the BIR is able to wield its power to compel the
production of such records through a mighty swordthe subpoena duces tecum.



The issuance of the subpoena duces tecum (SDT) facilitates the immediate investigation
and assessment of possible deficiency taxes that can be uncovered in the conduct of a
tax investigation. A taxpayer to whom a SDT is served is required to present the
documents particularly described in the subpoena. Should the taxpayer fail, refuse, or
neglect to comply with the commands of the SDT, he may be proceeded against either
by: (a) a criminal prosecution for violation of Section 5 in relation to Sections 14 and 266
of the 1997 Tax Code; or (b) indirect contempt under Section 3(f) Rule 71 of the Revised
Rules of Court (Revenue Memorandum Order 35-90). In this way, the tax investigation is
not jeopardized by the inaction of the unyielding taxpayer.
Fortunately, the taxpayer may curb the effects of his failure to obey the SDT by
subjecting his violation to compromise. However, once the complaint is filed in court, it
can no longer be subject to compromise (Revenue Regulations 30-02). The court shall
assume full control of the case until it is finally disposed of.
For its rather punitive consequence, can wary taxpayers be justified in refusing to obey
the SDT? Absolutely, when, for instance, the SDT is signed by an unauthorized officer.
Tax regulations identify the revenue officials who are authorized to issue the SDT,
namely, the commissioner of Internal Revenue (CIR), Deputy Commissioners and the
Assistant Commissioner of the Legal Service for the National Office; and the Director
and Assistant Director for the Regional Offices.
To further expedite tax investigations, the BIR recently issued Revenue Memorandum
Order 2-2008 extending the authority to issue the SDT to the following officials:
a. National Office
Assistant Commissioner of the Legal Service
Head, Revenue Executive Assistants (HREA) of the Legal Service and the
Large Taxpayers Service
Chief, Large Taxpayers Audit Division/District Office as may be specifically
authorized in writing by the CIR
b. Regional Office
Chief of the Legal Division and the Revenue District Officer as may be
authorized by the Regional Director through a Regional Delegation Order
Besides the lack of authority of the issuing officer, the SDT may also be questioned
when it does not particularly describe the documents sought to be produced.
Compliance with such kinds of SDT may allow unscrupulous officers to engage in fishing
expeditions, a scenario which the purpose of the SDT did not envision.
The compulsory process of the SDT is an effective tool of tax administration. Through
this, revenue officers are given leverage in the conduct of tax investigations. However,
resort to this device is not at all necessary for taxpayers who, certain that their tax
obligations are paid correctly as they fall due, can confidently say, I have nothing to
hide!