Tax Articles

Your Right to Privacy and BIR’s Subpoena Powers

By Atty. Irwin C. Nidea Jr.

Once upon a time, the BIR issued a revenue regulation (RR) that requires broker dealers to divulge personal information of their clients such as TIN, birthdate, and address. It anchored its directive from the Tax Code where the Commissioner may mandate anyone to reveal information necessary in the performance of his functions. The said RR is a test on how far the Commissioner can stretch this power. If upheld, the floodgates will be open, and everyone’s personal information will be out in the cold.

But the BIR failed the test. Recently, the Supreme Court (GR No. 213860) held that the questioned regulations violate taxpayer’s right to privacy. According to the SC, the information, particularly the TINs of the investors, sought to be collected and provided to the listed companies and eventually the BIR, are sensitive personal information. The SC stated that sensitive personal information includes personal information issued by government agencies peculiar to an individual which includes, but is not limited to, social security numbers, previous or current health records, licenses or its denials, suspension or revocation, and tax returns. It added that TINs are issued by the BIR for the facilitation of filing of tax returns and payment of taxes. Thus, in processing the TINs of investors, the regulatory enactments must guarantee the protection of the sensitive personal information and the privileged information.

The SC ruled that the questioned regulations failed to include guarantees to protect the sensitive information to be collected. The BIR cannot simply rely on other laws and regulations such as the Tax Code regarding this requirement. The SC added that the Data Privacy Act is clear that it must be the subject issuance itself-not the other laws or regulations-that should provide the guarantee.

According to the SC, the right to privacy does not bar all incursions into individual privacy. The right is not intended to stifle scientific and technological advancements that enhance public service and the common good. It merely requires that the law be narrowly focused, and a compelling interest justify such intrusions. Intrusions into the right must be accompanied by proper safeguards and well-defined standards to prevent unconstitutional invasions. In this case, the BIR did not show that safeguards were in place.

The SC added that government bears the burden to show and prove that its action serves a compelling state interest and is narrowly drawn to prevent abuses. The BIR failed to show and prove that the questioned regulations were narrowly drawn as the least restrictive means for effecting the invoked interest. The SC is concerned and according to it here may be abuses because of the enforcement of the questioned regulations. There is no assurance that the information gathered and submitted to the listed companies will be protected, and not be used for any other purposes outside the stated purpose. The SC also observed that the investors provided their information to the brokers presumably without the intention of sharing such with any other entity, including the investee companies and the BIR.

This SC decision is a welcome development since some taxpayers are being forced by the BIR to reveal sensitive information of their clients. There are instances when the BIR requests the financial information of taxpayers from financial institutions. These companies in quandary because their officers are threatened that subpoena will follow if they do not accede to the requests.

Failure to obey a subpoena is a criminal offense. But does it mean that taxpayers have no choice but to crumble into submission every time they receive one? The answer is no. Taxpayers must only obey a valid subpoena. Is there such a thing as an invalid subpoena that taxpayers must not obey? Absolutely, yes. In a recent case for example, the Court of Tax Appeals (CTA) ruled that a subpoena is not valid because the taxpayer had already been investigated on the taxable year in question. The CTA ruled that taxpayers can only be investigated once in a taxable year. A subpoena is also invalid if it violates a law, like the Data Privacy Act.

It is clear that taxpayers’ right to privacy must be protected. If the BIR issue a subpoena to secure sensitive information, do not give in. Keep in mind that it can be quashed.