MANILA, Philippines – The Court of Tax Appeals (CTA) has acquitted former Pampanga 2nd District representative Juan Miguel “Mikey” Arroyo in his P27 million tax evasion case.

The court said it found insufficient the investigators’ dependence on a computation method to charge the son of former president now Pampanga 2nd District Representative Gloria Macapagal-Arroyo.

“Juan Miguel Arroyo is acquitted of the offenses charged in CTA Criminal Case Nos. O-247, O-248 and O-249 for failure of the prosecution to prove his guilt beyond reasonable doubt,” the CTA First Division said in a decision promulgated on March 21, and released to media on Wednesday, March 28.

This concludes 7 years of investigation that started in 2011 under the Kim Henares-led Bureau of Internal Revenue (BIR).

After 7 years, the CTA said the BIR had “mere speculations and probabilities” which “cannot substitute for the required proof to establish the guilt of an accused beyond reasonable doubt.”

What’s the case? In 2011, the BIR recommended tax evasion charges against Arroyo after it found discrepancies between his net worth and his declared income.

In the 3 charges filed before the CTA, the BIR accused Arroyo of evading P27.4 million worth of taxes in 2004, 2006 and 2007.

It based its allegation on the “net worth method” which determines unreported income. It is a recognized method in the accounting world, and institutionalized by the BIR.

For example in 2006, Arroyo’s net worth increased by P12.65 million based on his Statement of Assets, Liabilities and Net Worth (SALN).

His joint Income Tax Return (ITR) with his wife, Angela, in 2006 declared an income of P1.7 million.

The difference between the net worth increase and the declared income, which amounted to P10.9 million, was considered his unreported income. Based on the tax table, a P10.9 million income has a corresponding tax of P3.4 million.

The BIR then accused Arroyo of evading P3.4 million in taxes in 2006. They used the same method for his 2004 net worth and taxes.

For 2007, the BIR did not find an ITR from Arroyo. The tax deficiencies from those 3 years totaled to P27 million.

What’s wrong with the method? The CTA said that for the net worth method to be accepted in a criminal case, the prosecution must be able to identify a likely source of the unreported income.

During the trial, BIR National Investigation Division Assistant Chief Aurora Flor admitted to the court that she didn’t check Arroyo’s books.

Flor also admitted that she could not find any permits or licenses showing that Arroyo had other businesses.

The prosecution was working on the theory that Arroyo did not properly disclose millions worth of residential properties, and thus, did not pay corresponding taxes.

The court said that there was an equal probability that the increase in net worth was due to “donations, gifts, inheritance and/or from other items of income subjected to final tax, such as dividends, royalties, interests, capital gains.”

As for the alleged non-filing of ITR in 2007, the CTA said it was sufficient proof of innocence that the House of Representatives – as Arroyo’s only employer that year – withheld his income.

“Accused cannot be convicted for the crime of failure to file ITR as he was not required to file a separate ITR for the year 2007,” the court said.

The CTA also did not find basis to file a civil case to recover assets.

Presiding Justice Roman Del Rosario penned the decision, with concurrences from Associate Justices Erlinda Uy and Cielito Mindaro-Grulla. – Rappler.com