Application of doctrine “piercing the corporate veil”

The stockholders and/or officers of a corporation cannot be held directly liable for corporate tax liabilities, except for certain circumstances when the doctrine “piercing the corporate veil” may be applied; hence, the stockholders and/or the officers of the corporation may be directly liable for the tax liabilities of the corporation.

After having affirmed the deficiency tax assessment against the company, the CTA ordered the company’s president (who was likewise found guilty for failure to file return and supply information under Section 255 of the Tax Code) to pay for the civil liability of the company arising from its tax assessment. The company president appealed the ruling with the CTA and argued that the civil liability of the corporation should not be collected from him since he himself is not the corporation, but merely a responsible officer.

In its amended decision, the CTA held that the taxpayer is correct in pointing out that the corporation is a separate and distinct entity. Thus, while the accused is the president of the corporation, he himself is not the corporation, but merely a responsible officer. As ruled by the CTA, only in circumstances such as when the corporation was used merely as an adjunct, business conduit or alter ego of another corporation or by its officers or stockholders, or the corporation was used to perpetuate fraud in violation of the tax laws can the doctrine of “piercing the corporate veil” be applied. Considering that no allegation was made that the corporation was used by its president in the aforementioned circumstances, the fiction that the stockholders and/or officers are separate and distinct entities from the corporation cannot be disregarded. Hence, the CTA held that the company president cannot be made to pay the civil liability of the corporation arising from the deficiency assessment issued to it by the BIR.

(People of the Philippines v. Wong Yan Tak, Geralyn Bobier and Pic N’ Pac Mart, Inc., CTA Criminal Case No. 0-090, January 8, 2013)

Tax Brief – February 2013

Punongbayan and Araullo