Problem: Power of the BIR to gather information on taxpayers through the withholding agents (third party information)

I.

Factual antecedents
TRO on PCD nominee blah blah blah

II.

Power of the BIR to require information

a. NIRC Sec. 5
b. NIRC Sec. 6
c. NIRC Sec. 235
d. Obligations of withholding agents under RR 2-98, as amended by RR 10-2008 and RR 1-2014 to disclose
the following information
Contrary to the contention of the petitioner, it is not RR 1-2014 that inserted the requirement of
requiring the submission of the alphabetical (Alpha List). RR 1-2014 was an amendment of RR 102008, which was also an amendment of RR 2-98 and it can be seen that the requirement of the
submission of the alpha list had been required even prior to RR 1-2014. The amendment introduced by
RR 1-2014 are the following:
(a) electronic filing of the alpha list as opposed to the previous manual filing
(b) prohibition against lumping of payees/employees into a single account
(c) failure to comply with the prescribed format precludes the withholding agent from claiming
such amount as deductible expense

III.

power of the state of search and seizure

a. Extent or limitations
b. On information and privacy

IV.

Rights of taxpayer
a. data privacy act
b. Sectors/ entities affected by RR 1-2014
(a) Banks
(b) PCD Nominee

ARGUMENTS:
AGAINST BIR:
FISHING EXPEDITION
The requirement on withholding agents to disclose information on the payees/employees is essentially
equivalent to a fishing expedition. Concededly the BIR has the power to
(B) To Obtain on a regular basis from any person other than the person whose internal revenue tax liability
is subject to audit or investigation, or from any office or officer of the national and local governments,
government agencies and instrumentalities, including the Bangko Sentral ng Pilipinas and governmentowned or -controlled corporations, any information such as, but not limited to, costs and volume of
production, receipts or sales and gross incomes of taxpayers, and the names, addresses, and financial
statements of corporations, mutual fund companies, insurance companies, regional operating headquarters
of multinational companies, joint accounts, associations, joint ventures of consortia and registered
partnerships, and their members
Through RR 1-2014, the BIR is gathering information on the taxpayer-payee from the withholding agent,
equivalent to third party information gathering. However, it is clear from the provision that it is a power
exercisable if the taxpayer-payee is under audit or investigation.
VIOLATION OF BANK SECRECY LAW

One of the entities affected by the RR are banking institutions, since they are withholding agents of FWT on
interest income. The disclosure of the amount of withholding taxes may be used to work back and get the
principal amount deposited. This is a possible work around on the Bank secrecy law which prohibits the
disclosure of the amount of the deposit. (http://www.punongbayanaraullo.com/pnawebsite/pnahome.nsf/section_docs/DJ773V_23-9-14)
Undermines Scripless trading
The business structure of PCD revolves around paperless transactions or scripless trading, wherein there are
no stock certificates issued to the stockholders, and PCD is the registered shareholder in the corporations
books. Requiring the disclosure of the names of the payees could undermine investments under scripless
trading. Moreover, the re

FOR BIR: