REPUBLIC OF THE PHILIPPINES]CITY OF MANILA ] 5.5.

COMPLAINT- AFFIDAVIT

We, AURORA FLOR, MARIA LOURDES SANTE, VIRMACLEMENTE, AMELITA AQUINO, FERDINAND MALONZO, LEONESTOBERNAL and SIXTO JR. DY, a" of legal age, Filipinos and with postaladdress c/o Rm. 411 RATE Room, BIR National Office Building (NOB),Agham Road, Quezon City, after having been duly sworn to in accordancewith law, do hereby depose and state: - THAT -

1. We are duly designated revenue officers of the Bureau of InternalRevenue (BIR) who are currently assigned at the National InvestigationDivision (NID) authorized to conduct a tax investigation on individuals andentities that may have committed violations of the provisions of the NationalInternal Revenue Code (NIRC) of 1997 and to perform such other duties &functions that may be assigned to us pursuant to law.

2. In our official capacities, we are recommending that a criminalaction be taken and initiated against the spouses JUAN MIGUEL M.ARROYO (Mr. Arroyo) and MA. ANGELA M. ARROYO (Mrs. Arroyo) afterit was ascertained that they both violated pertinent provisions of the NIRC of1997, which are contrary to law, in the manner stated in this affidavit.

3. Mr. and Mrs. Arroyo are hereby being charged with Attempt toEvade or Defeat Tax for taxable years 2004 to 2009 under Sections51(A)(1)(a) and 74 in relation to Section 254 of the NIRC of 1997 whichprovide:

"SEC. 254. Attempt to Evade or Defeat Tax. - Any personwho willfully attempts in any manner to evade or defeat any taximposed under this Code or the payment thereof shall, inaddition to other penalties provided by law, upon convictionthereof, be punished by a fine not less than Thirty thousand(P30,OOO)but not more than One hundred thousand pesos(P100,OOO)and suffer imprisonment of not less than two (2)years but not more than four (4) years: Provided, That theconviction or acquittal obtained under this Section shall not bea bar to the filing of a civil suit for the collection of taxes."

4. Mr. and Mrs. Arroyo are also being charged with Failure to FileReturn & Pay Tax for taxable years 2005, 2008 and 2009 under Section255 of the same Code, which provides:

"SEC. 255. Failure to File Return, Supply Correct andAccurate Information, Pay Tax Withhold and Remit Taxand Refund Excess Taxes Withheld on Compensation. -

Any person required under this Code or by rules andregulations promulgated thereunder to pay any tax, make areturn, keep any record, or supply such correct and accurateinformation, who willfully fails to pay such tax, make suchreturn, keep such record, or supply correct and accurateinformation, or withhold or remit taxes withheld, or refundexcess taxes withheld on compensation, at the time or timesrequired by law or rules and regulations shall, in addition toother penalties provided by law, upon conviction thereof, bepunished by a fine of not less than Ten thousand pesos(P10,000) and suffer imprisonment of not less than one (1)year but not more than ten (10) years. "

5. Mr. Arroyo is a registered taxpayer of Revenue District No. 39,South Quezon City with TIN:914-841-267-000. He was the Vice-Governorof Pampanga province for the years 2001 to 2004, and was later elected asCongressman of the 2nd District of Pampanga for two (2) consecutive termsfrom years 2004 to present.

6. Mrs. Arroyo is a registered One Time Transaction (ONETT)taxpayer of Revenue District No. 50, South Makati with TIN:185-405-985-000. She and Mr. Arroyo were married last June 23, 2002. Both may beserved with summons and other processes of this Honorable Office at thefollowing address/es:

Respondent Address/es

#15 Badjao St., La Vista Subd., Katipunan Ave., a.c.

Juan Miguel M. Arroyo House of RepresentativesBatasang Pambansa Complex, Constitution Hills,a.c.

#15 Badjao St., La Vista Subd., Katipunan Ave., a.c.Ma. Angela M. Arroyo

#132 Cambridge Circle, North Forbes Park Subd.Makati City

7. As resident citizens of the Philippines, Mr. & Mrs Arroyo aremandated by law to declare their estimated income for each taxable year aswell as to file the required tax returns and to pay the corresponding taxes

due thereon as required by Sections 24(A)(1)(a)1, 51(A)(1)(a)2 and 74(A)3 ofthe NIRC of 1997.

Moreover, as an elected public official from years 2001 to 2010, Mr.Arroyo is mandated under R.A. No. 6713 to accomplish and annually submitdeclarations under' oath of his Statement of Assets, Liabilities or Networth(SALN), including that of his spouse and children under 18 years of age whoare living in their household.

I Section 24. Income Tax Rates.(A) Rates of Income Tax on Individual Citizen and Individual Resident Alien of the

Philippines.(1) An income tax is hereby imposed:(a) On the taxable income defined in Section 31 of this Code, other than income subject to

~x .under Subsections (8), (C) and (0) of this Section, derived for each taxable year from

allsources within and without the Philippines be every individual citizen of the

Philippinesresiding therein;

xxx xxx xxx

2 Section 51. Individual Return. -(A) Requirements. -(1) Except as provided in paragraph (2) of this Subsection, the following individuals arerequired to file an income tax return: .(a) Every Filipino citizen residing in the Philippines;(b) Every Filipino citizen residing outside the Philippines, on his income from sources

withinthe Philippines;(c) Every alien residing in the Philippines, on income derived from sources within

thePhilippines; and(d) Every nonresident alien engaged in trade or business or in the exercise of

professionin the Philippines.

xxx xxx xxx

3 Section 74. Declaration of Income Tax for Individuals. -(A) In General. - Except as otherwise provided in this Section, every individual subject toincome tax under Sections 24 and 25(A) of this Title, who is receiving self-employmentincome, whether it constitutes the sole source of his income or in combination withsalaries, wages and other fixed or determinable income, shall make and file a declarationof his estimated income for the current taxable year on or before April 15 of the sametaxable year. In general, self-employment income consists of the earnings derived by theindividual from the practice of profession or conduct of trade or business carried on by himas a sole proprietor or by a partnership of which he is a member. Non-resident Filipinocitizens, with respect to income from without the Philippines, and non-resident aliens notengaged in trade or business in the Philippines, are not required to render a declaration ofestimated income tax. The declaration shall contain such pertinent information as theSecretary of Finance, upon recommendation of the Commissioner, may, by rules andregulations prescribe. An individual may make amendments of a declaration filed duringthe taxable year under the rules and regulations prescribed by the Secretary of Finance,upon recommendation of the Commissioner.

xxx xxx xxx

8. Based on the information and documents gathered during ourinvestigation, it was disclosed that Mr. & Mrs. Arroyo were able to acquirereal, personal and other properties for the years 2004 to 2009, which areworth several millions.

8.1. Among those properties are residential houses in Lubao,Pampanga & La Vista Subdivision in Quezon City, motor vehicles,stock shares, jewelries, clothes and other personal effects asenumerated in the Statement of Assets, Liabilities & Net Worth(SALNs) of Mr. Arroyo as of December 310f the years 2002 to 2009.Copies of the said SALNs are hereto attached as Annexes "A" to "G".

9. Verification of Mr. Arroyo's tax records with the BIR shows that heoriginally registered on April 18, 2001 as a One Time Transaction (ONETT)taxpayer with Revenue District No. 21 B, South Pampanga under TIN:210-543-613-000. Later, on June 19, 2002, he again registered with RevenueDistrict No. 39, South Quezon City under TIN:914-841-267-000. Thus, onJuly 22, 2009, the ONETT TIN of Mr. Arroyo was ordered cancelled due tomultiple TIN. A copy of the certification issued by Maria Elena A. Nuguid,Chief of the Taxpayer Service Section of Revenue District No. 21 B, SouthPampanga, certifying the cancellation of the ONETT TIN of Mr. Arroyo ishereto attached as Annex "H".

1O. The tax records of Mrs. Arroyo indicate that she registered as aOne Time Transaction (ONETT) taxpayer of Revenue District No. 50, SouthMakati on September 11, 2002 under TIN:185-405-985-000, and that shefailed to file any Income Tax Return. Copies of the registration of Mrs.Arroyo as ONETT taxpayer and the certification of her non-filing of anyIncome Tax Return are hereto attached as Annexes "I" and "J",respectively.

11. Despite the receipt of. substantial amounts of income, asshown by their acquisition of numerous properties, Mr. & Mrs. Arroyo hadrepeatedly failed to file any Annual Income Tax Return (ITR) and to pay thecorresponding taxes and for the years that Mr. and Mrs. Arroyo filed theirITRs, they understated their income.

12. Verifications made with Revenue District Office No. 39, SouthQuezon City and Revenue District Office No. 21, Pampanga revealed thatMr. and Mrs. Arroyo did not file any ITR for the following taxable years:

Taxpayerls Taxable' YearlsJuan Miquel M. Arroyo 2005, 2008 & 2009Ma. Angela M. Arroyo 2003 to 2009

A copy of the Certifications issued by the said SIR Offices arehereto attached as Annexes "K" and "L", respectively.

13. The fact of non-filing of Annual ITRs by Mr. and Mrs. Arroyofor the said years is confirmed by the Certification issued by Victoria V.Santos, Assistant Commisioner for Information Operations Service of theSIR on March 22, 2011. The same Certification also shows the amount ofincome declared and the corresponding income taxes paid by Mr. and Mrs.Arroyo for taxable years 2004, 2006, and 2007. A copy of the Certificationis hereto attached as Annex "Mil.

14. Through the use of the Net Worth Method of tax investigation,it was ascertained that Mr. Arroyo had substantially underdeclared hisincome for taxable years 2004 to 2009.

15. Using the Net Worth Method, the unreported income of Mr. &Mrs. Arroyo were established by a comparison made between theirincrease in net worth and the reported taxable income over time in order todetermine the legitimacy of the taxpayer's reported income. A table showingthe increase in the networth of the spouses is hereto attached as AnnexUN".

15.1. The Net Worth Method of proof is a long-establishedindirect method of proof regularly used in establishing taxableincome in criminal tax cases. This method of proof is useful inreconstructing taxable income when the government is unable toestablish income through direct evidence.

15.2. The Net Worth Method was first used in the U.S. in thecase of Capone v. United States. In the Philippines, the use of thesaid method as a way of reconstructing income was sanctioned bythe Supreme Court in the cases of Eugenio Perez vs. CTA & CIR(G.R. No. L-10507 dated May 30, 1958); Jose Avelino vs. CIR (G.R.No. L-14847 dated Sept. 19, 1961 and G.R. No. L-17715 dated July31, 1963); CIR vs. William Li Yao (G.R. No. L-11875 datedDecember 28, 1963); and Maria S. Castro vs. CIR (G.R. No. L-12174dated April 20, 1962).

15.3. This method is a re-statement of a basic accountingprinciple which states that assets minus liabilities equalsnetworth. Thus, under this method, "the taxpayer's networth isdetermined both at the beginning and at the end of the same taxableyear. The increase or decrease in networth adjusted by adding allnon-deductible items and subtracting therefrom non-taxable receipts.The resultant figure is the taxable net income before statutorypersonal and additional exemptions. The general theory underlyingthis method is that the taxpayer's money and other assets in excessof liabilities and after accurate and proper adjustment of non-deductible and non-taxable items not accounted for in his tax returnis deemed to be unreported income. Otherwise stated, the theory isthat the unexplained increase in networth of a taxpayer is presumed.

to be derived from taxable income." [see Aban, Benjamin B., Law ofBasic Taxation in the Philippines, 1994, p. 116)].

16. Thus, the difference between the declared income of Mr. &Mrs. Arroyo per ITRs for taxable years 2004, 2006, and 2007 and totalamount of unreported income for the same years constitute a substantialunderdeclaration of more than thirty (30%) percent, and suchunderdeclaration is considered as prima facie evidence of a fraudulentreturn under Sec. 248(B) of the NIRC of 1997. The act of non-filing of ITRfor taxable years 2005, 2008 and 2009 by Mr. and Mrs. Arroyo is evident oftheir fraudulent scheme to defeat payment of taxes. A table showing thecomputation of the tax liabilities of the spouses for taxable years 2004 to2009 is hereto attached as Annex "0".

16.1. The tax liabilities of Mr. and Mrs. Arroyo is summarizedas follows:

2004 2005 2006 2007 2008 2009

BASICTAXDUE 21,717,225.56 101,000.00 3,457,960.00 2,130,129.50 765,000.01 636,999.78

SURCHARGE50% 10,858,612.78 50,500.00 1,728,980.00 1,065,064.75 382,500.01 318,499.89INTEREST(UP TOAPRIL15, 2011) 26,060,670.67 101,000.00 2,766,368.00 1,278,077.70 306,000.00 127,399.96DEFICIENCYINCOME TAX 58,636,509.01 252,500.00 7,953,308.00 4,473,271.95 1,453,500 .02 1,082,899.63

17. Clearly, such continuous and deliberate failure of Mr. & Mrs.Arroyo to file the mandated ITRs for several years and their substantialunderdeclaration of income demonstrate their propensity and willful intent toevade the taxes due the government.

18. The elements of Section 254 of the NIRC of 1997 are:

a. a tax imposed under the NIRC of 1997;

b. a person, natural or juridical, is liable to that tax;and

c. such person willfully attempts in any manner to

evade or defeat such tax.

19. From the foregoing narration, it can be clearly seen that Mr.and Mrs. Arroyo were liable to pay taxes for taxable years 2004 to 2009 butmanaged to evade payment thereof by non-filing of ITRs for taxable years2005, 2008, and 2009, and by substantially underdeclaring their income fortaxable years 2004, 2006 and 2007. Such acts of non-filing of ITR and

underdeclaration of income show a scheme calculated to willfully defeatpayment of correct amount of taxes badly needed by the government.

20. The elements of Section 255 of the NIRC of 1997 are:

a. a person is required under the NIRC of 1997, orby rules and regulations, to pay any tax, make a return,keep any record, or supply correct and accurateinformation;

b. at the time or times required by law or rules andregulations;

c. such person willfully fails to make such return,keep such record, supply such correct and accurateinformation, or withhold or remit taxes withheld, or refundexcess taxes withheld on compensation; and

d. as a result, such person failed to pay the correcttax.

21. As earlier discussed, Mr. and Mrs. Arroyo are required to filetheir annual income tax returns which they willfully failed to do, asevidenced by their repeated non-filing of ITR for taxable years 2005, 2008,and 2009.

22. This Affidavit is being executed to attest to the truth of theforegoing, and to cause the institution of the corresponding criminalcomplaints against JUAN MIGUEL M. ARROYO and MA. ANGELA M.ARROYO for the aforesaid crimes defined and punished under the NIRC of1997.

Affiants further say no more.

City of Manila, __ day of April 2011.

Affiants

CERTIFICATION

Subscribed and sworn to before me this __ day of April 2011, in theCity of Manila. This is to certify that the affiants personally appeared beforeme and verified that they executed this affidavit-complaint, has read thesame and that the contents thereof are true and correct of their ownknowledge and information and based on the available records.

STATE PROSECUTOR