One of the frequently asked question that we get is this:

Pwede po ba silipin ni BIR yung bank accounts namin?

(Can the BIR look into our bank accounts?)

-Anonymous Unregistered Business Owner (but will register later on…)

The answer to that is a big resounding

Yes! But on certain instances only.

Let us get into the details.

Power of the Commissioner

Section 6(F) of the National Internal Revenue Code (NIRC/Tax Code), gives the Commissioner the “Authority of the Commissioner to Inquire into Bank Deposit Accounts and Other Related information held by Financial Institutions.“

Summarily stated the Commissioner is ONLY allowed to inquire into bank deposit:

-A decedent to determine his gross estate

(because when you die you need to pay estate taxes, well generally)

-Any taxpayer who has filed an application for compromise of his tax liability under Section 204(A)(2) of this Code by reason of financial incapacity to pay his tax liability.

(to sufficiently prove you are not able to pay the your tax liabilities)

-A specific taxpayer or taxpayers subject of a request for the supply of tax information from a foreign tax authority pursuant to an international convention or agreement on tax matters to which the Philippines is a signatory or a party of: Provided, That the information obtained from the banks and other financial institutions may be used by the Bureau of Internal Revenue for tax assessment, verification, audit and enforcement purposes.

(since the BIR is obliged to cooperate with foreign tax authority of other signatory countries)

So if you are not yet dead, you are still financially capable of paying taxes, or if you don’t have any foreign tax agencies watching then you are:

SAFE!

Why is this so? Because of :

Bank Secrecy Law

As stated in Republic Act 1405 or Bank Secrecy Law(Sec. 2), that:

All deposits of whatever nature with banks or banking institutions in the Philippines including investments in bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities, are hereby considered as of an absolutely confidential nature and MAY NOT be examined, inquired or looked into by any person, government official, bureau or office, except upon written permission of the depositor, or in cases of impeachment, or upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or invested is the subject matter of the litigation.

So thank you to Bank Secrecy Law we are totally safe!

Case study

This was tested in a recent 2019 Court of Tax of Appeals case in People v. Spouses Jacinto and Erlinda Ligot (Sps. Ligot) where the BIR thru the Anti – Money Laundering Council (AMLC) was able to look into the deposits of Sps Ligot. They saw that the Sps. Ligot had 12M deposits and was able to make amortizations to properties however have not reported the same amount or any amount income in the income tax return.

Banking on the evidence gathered from the AMLC, the BIR filed a criminal case against the Sps. Ligot.

However, the CTA Third Division decided in favor and ACQUITED the Spouses Ligot since the court did not admit the evidence gathered especially from the bank deposits as it was not within the exception given by the Bank Secrecy Law and not within the Powers of the Commissioner (enumerated above).

Personally, we were also able to use this kind of defense when one of our clients was subpoenaed and a copy of the bank statements was one of the requested documents. Using the Bank Secrecy Law and the Sps. Ligot Case, we were able to argue our side why we are not required to present such documents and eventually the BIR officer did not insist on it anymore 😉

So that settles it!

The BIR cannot inquire or look into your bank accounts unless and until you fall into these exceptions:

• You waived or permitted the BIR to look into your account
• You are already dead
• You are asking for a compromise on your the tax liabilities because financial incapability
• A foreign tax authority is asking for it

Resources:

Section 6 (F) of the National Internal Revenue Code

Republic Act 1405 – Bank Secrecy Law

People vs. Sps. Ligot (CTA Crim Case O-241)

No part of this article should be taken as an advice and does not form any attorney – client privilege.