CTA clears Mikey Arroyo in P27-M tax evasion case

The Court of Tax Appeals (CTA) has acquitted former presidential son and former Rep. Juan Miguel “Mikey” Arroyo in his P27.305-million tax evasion cases.

In a 69-page decision dated March 21, the CTA’s First Division said Department of Justice (DOJ) prosecutors have failed to establish that Arroyo underdeclared his wealth in his income tax returns for the years 2004 and 2006 due to a rushed tax audit.

The Bureau of Internal Revenue (BIR), which filed the complaint before the DOJ in 2011, claimed that Arroyo’s taxable income was understated when it was compared to the value of the numerous properties—including two houses, motor vehicles, shares of stock and jewelries—that he had acquired with his wife Angela.

But, the CTA said the BIR’s investigators “failed to consider the books of the accused [Arroyo], which is a vital pre-requisite for the use of the net worth method” of computing tax liabilities.

It pointed out that the audit had been rushed. While the BIR’s letter of authority was dated April 4, 2011 and served on April 5, the complaint was immediately brought to the DOJ on April 7.

The CTA cited the admission of BIR National Investigation Division assistant chief Aurora Flor that they no longer waited for the expiration of the 10-day period for Arroyo to present his books.

This was because the agency had already concluded in its preliminary investigation that Arroyo cannot justify the increase in his net worth simply by relying on his income tax returns (ITRs) and Statements of Assets, Liabilities and Net Worth (SALNs).

The CTA also noted the prosecution failed to specifically point out the particular sources of the income that Arroyo was accused of failing to declare in his ITR.

It noted that Flor merely spoke of Arroyo’s “discrepancy, unreported income,” when asked about the specifically omitted income items during the trial. She also admitted there was no evidence of unrecorded purchases or use of false documents on Arroyo’s part.

The court also noted that prosecutors failed to rule out the possibility that instead of undeclared taxable income, Arroyo’s net worth increased because of donations, gifts, inheritance or earnings not subject to the income tax (including dividends and capital gains).

“Without evidence on the likely source of income and the corresponding income derived therefrom by the accused during the concerned taxable years, the Court casts a serious doubt as to the veracity of the offenses charged against the accused,” read the decision.

Arroyo was also indicted for failing to file his income tax return altogether for the year 2007, but the CTA said the DOJ prosecutors also failed to prove this too.

The court cited Assistant Commissioner Victoria Santos’ testimony that Arroyo was actually included in the alphalist of the House of Representatives’ employees. He was “not required to file a separate ITR” that year because he had no other sources of income.

Since Arroyo was acquitted of the criminal charges, he was also cleared of civil liability regarding the payment of the alleged back taxes.

The decision was penned by Associate Justice Roman G. del Rosario and concurred in by Associate Justice Erlinda P. Uy and Cielito N. Mindaro-Grulla.