The Supreme Court En Banc, in a decision dated 18 April 2023 (IBP et al. v. Secretary of Finance and Commissioner of Internal Revenue), addressed the challenges thrown by pertinent professional organizations and associations against BIR Revenue Regulation 4-2014 (the RR), or the Guidelines and Policies for the Monitoring of Service Fees of Professionals.
On 3 March 2014, the RR was issued requiring all self-employed professionals to: (a) submit to the BIR an affidavit of rates, manner of billing, and the factors that they consider in determining their service fees; (b) register with the Bureau their books of accounts and appointment books containing the names of their clients, and their meeting dates and times; and (c) issue receipts registered with the Bureau showing the 100-percent discount if no professional fees were charged.
Petitioner Integrated Bar of the Philippines (IBP) claimed that compliance with the RR violated their respective ethical standards, norms and practices, and usurped the authority of their respective regulators by unduly regulating their respective professions.
Accordingly, requiring lawyers to submit affidavits of fee structures and to issue receipts for pro bono services added regulations to the practice of law, which the Commissioner of Internal Revenue had no authority to do. On the other hand, the BIR countered that the regulation did not affect the practice of law but merely enforced the BIR’s primary jurisdiction to determine the amount and manner of collection of internal revenue taxes.
The SC ruled that Article VIII, Section 5 (5) of the Constitution places the promulgation of rules in the practice of law within the Court’s exclusive domain. “Practice of law” means “any activity, in or out of court, which requires the application of law, legal procedure, knowledge, training and experience.”
A regulation on the practice of law pertains to regulating activities relevant to the dispensation of justice. It concerns a lawyer’s actions on the protection and enforcement of rights, which extend beyond court litigation. Here, the requirements outlined in Revenue Regulations No. 4-2014 are not the activities that may be deemed as the practice of law. Mere disclosure of how much a lawyer charges has nothing to do with the orderly administration of justice.
For the same reasons, the BIR did not usurp the supervisory and regulatory powers of the Professional Regulatory Commission over physicians, dentists, and certified public accountants in issuing Revenue Regulations No. 4-2014.
The SC further explained that an affidavit of fees is not the “unethical advertisement” that violates norms in petitioners’ professions. Law is a profession, not a trade. Respondents correctly pointed out that executing a public document does not equate to publicly advertising one’s trade.
Lastly, petitioners asserted that the issuance of receipts for pro bono services was baseless. Accordingly, under the Tax Code, receipts, sales invoices, or commercial invoices for each sale or transfer of merchandise are issued for services worth P100 or more, not when services are rendered for free.
To this, the SC pointed out that for entities that may be subject to the value-added tax, like self-employed professionals who choose to register under this, their tax base is the gross selling price, or more appropriately, the gross fees that they charge the client.
When professionals render services pro bono, this does not mean their services have no value; it means they are offering them at a 100-percent discount, making the gross selling price zero. Every pro bono service is taxed at 12 percent. Since the tax base is the gross selling price, i.e., zero, then the tax due on the service is 12 percent of zero, which is zero.
Indeed, the value of the services of self-employed professionals varies. In any case, respondents may validly require them to issue receipts for services rendered pro bono to monitor their tax compliance.
With the foregoing, the SC succinctly stated that the directive to submit an affidavit describing payment schedules does not equate to regulating the practice of the profession and does not raise serious ethical concerns.
Requiring the issuance of receipts is a valid measure that the tax collector may employ to ascertain the correct amount of taxes payable by self-employed professionals.
The SC, however, found the specific affidavit to be submitted under the RR to be unconstitutional and this will be discussed in the next part of this series.
