Confidentiality of business records

Self-employed professionals, e.g., lawyers, doctors, dentists and accountants, have the right to keep private and confidential the records of their business transactions.

That, in a nutshell, was the ruling of the Supreme Court on some provisions of Revenue Regulation No. 4-2014 of the Bureau of Internal Revenue (BIR) whose validity was questioned by several professional organizations.

The BIR ordered those professionals to submit an affidavit indicating the rates, manner of billings, and the factors they consider in determining their service fees on or before Jan. 31 of every year.

In addition, they were required to register their books of account and official appointment books, which should contain the names of their clients and the date and time of the meeting, before they can use them.

If no professional fees are charged and paid by the client, a BIR-registered receipt duly acknowledged by the latter has to be issued showing a 100-percent fee discount for the pro bono or free service.

The BIR, in effect, wanted them to disclose the business model they’re using in the conduct of their profession so it can check whether or not they are paying the right taxes.

The high court upheld the position of the professional groups and struck down those provisions as invalid because they infringe on and violate the right to privacy of the professionals and their clients.

It also declared the requirement to submit a schedule of fees as an overreach of the BIR’s powers for being irrelevant to its primary duty of assessment and collection of taxes.

Under pressure from the government to collect approximately 70 percent of the revenues needed to fund its operation, the BIR cannot be faulted for imposing strict disclosure or reporting requirements on professionals who work for themselves or independently engage in their business or trade.

On account of minimal registration rules that are aimed at encouraging entrepreneurial initiative, self-employment is a gray area in business that is often associated (although somehow disparaging) with the underground economy.

Monitoring the commercial activities of those business people and making sure they pay the right amount of taxes had been a challenge to the BIR for decades and up to now.

Although their professional work is generally lucrative, they often operate under the radar, so to speak, like small- and medium-scale enterprises.

With the BIR’s hands already full watching over large taxpayers, i.e., businesses with gross annual sales receipts of P1 billion or more and for whom it has created special units, those professionals are able to take advantage of the benign monitoring neglect of their operation.

By requiring them to submit the documents mentioned, they were subtly or indirectly being asked by the BIR to “incriminate” themselves ahead of any possible assessment for unpaid taxes.

Between the need to increase revenue collections and the concerns raised by the professionals about disclosing the financial side of their operation, the high court ruled in favor of maintaining the confidentiality of the business records that the BIR wanted to lay its hands on.

Knowing how porous the custody and safeguarding of private data is in government offices, in spite of public avowals of maintaining their confidentiality, the court’s decision is commendable.

There had been several instances in the past when confidential information about business transactions of companies that were not in the good graces of the then sitting administration were leaked to the media and were used as fodder for political gossip.

With that rebuff from the court, the BIR would have to go back to the drawing board to figure out a way to make those professionals pay the right amount of taxes.

Incidentally, doesn’t that requirement to submit official appointment books look Jurassic? Today, with the ease by which appointments can be made, recorded and monitored in computers and other digital-based instruments, those books would be worthless if they were submitted. INQ

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