THE buzz in professional circles lately involves a significant Supreme Court decision that struck down a Bureau of Internal Revenue (BIR) regulation that requires self-employed professionals — such as accountants, lawyers, doctors, and dentists — to register their appointment books and submit their service rates as part of tax compliance monitoring. This ruling marks a pivotal change in the landscape of professional tax obligations and has sparked widespread discussion among affected sectors.
This ruling stemmed from a consolidated petition filed by associations representing self-employed professionals, namely the Integrated Bar of the Philippines, the Association of Small Accounting Practitioners in the Philippines, the Philippine College Physicians, the Philippine Medical Association, and the Philippine Dental Association. The petition questioned BIR Revenue Regulation (RR) 4-2014 and said the requirements would cause professionals to violate confidentiality agreements with clients.
As described by the BIR, RR 4-2014 is part of a campaign to promote transparency and to eradicate tax evasion among self-employed professionals. Key aspects of the regulation require these professionals to register and pay an annual fee and provide an affidavit detailing their rates and billing practices. The regulation also highlighted the need for the registration of an official appointment book containing the names of clients and the dates and times of meetings.
The purpose of the issuance was to enjoin self-employed professionals to comply with requirements set out in the National Internal Revenue Code regarding registration with the BIR and the issuance of official receipts and invoices in the format required by law. Lastly, the BIR said that the issuance would help in monitoring fees charged and also aid the conduct of tax audits. It was also said that compliance would help the BIR boost revenue collections from the self-employed sector.
Can a BIR issuance with the ultimate purpose of increasing revenue collections for public welfare win over the constitutionally granted right to privacy? The Supreme Court did not think so. In its decision, the court discussed the concept of zones of privacy as defined in jurisprudence and how citizens are generally granted the right to determine what, how much, to whom and when information about themselves is disclosed.
It was also held that even the mere chance of a person's private information being subject to the scrutiny of the state was already an unreasonable intrusion. The Supreme Court held that the section under RR 4-2014 that required the registration of appointment books containing clients' names and dates and times of meetings was void for being in excess of jurisdiction.
In relation to the nature of the relationship between a client and a professional providing a service, the Supreme Court agreed that such is privileged information that is covered by the right to privacy. The trust and confidence reposed upon a professional rendering a service compels the professional to keep any privileged information under wraps. The BIR cannot compel professionals to violate their client's trust just so the agency can have evidence of any suspected tax violation.
The BIR is granted the right to examine the books of accounts and other accounting records containing entries relating to the business of the person liable for the tax. The BIR can also release issuances that can help in carrying out the provisions of the National Internal Revenue Code more effectively and ultimately collect higher revenue for state coffers. These powers, however, can be subject to limitations. As seen in the Supreme Court's decision, issuances that may cause an encroachment in the fundamental rights of citizens may be rendered unconstitutional and ineffective.
The author is a senior at the Tax & Corporate Services practice of Deloitte Philippines, a member of the Deloitte Asia Pacific Network. For comments or questions, email phcm@deloitte.com.
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