Monday, May 10, 2021

The limited liability of OPCs in tax evasion cases


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It is an established rule in our jurisdiction that a corporation has a separate and distinct legal personality from that of its shareholders and officers. As an artificial being created by law, a corporation can act only through its people, such as directors, officers, agents, and representatives.

A separate corporate personality shields corporate officers acting in good faith and within their scope of authority from personal liability, except in situations expressed by law and jurisprudence (Pioneer Insurance Surety Corporation v. Morning Star Travel & Tours Inc., G.R. 198436 [2015]).

Fundamental is the rule that corporate officers cannot be held personally liable for the consequences of their acts, as long as these are for and on behalf of the corporation, within the scope of their authority, and in good faith (Solidbank Corporation v. Mindanao Ferroalloy Corporation, G.R. 153535 [2005], citations omitted). Nevertheless, the separate legal fiction of the corporation may be disregarded if it is used to perpetrate fraud or any other illegal act; evade an existing obligation; circumvent statutes; or confuse legitimate issues (Heirs of Fe Tan Uy v. International Exchange Bank, G.R. 166282 [2013], citations omitted). This is consistent with the provisions of the Revised Corporation Code (RCC), which states:

“Sec. 31. Liability of directors, trustees or officers. Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.”

In tax evasion cases brought against corporations, the penalty shall be imposed on the partner, president, general manager, treasurer, officer in charge, and employees responsible for the violation. If the corporation fails to comply with Section 255 of the Tax Code, which penalizes the “Failure to File Returns, Supply Correct and Accurate Information, Pay Taxes, Withhold and Remit Tax and Refund Excess Taxes.” The responsible officers shall be the ones to answer for the penal liability meted upon the corporation. Corporations incur no criminal liability, for the same is personal upon its officers (People of the Philippines v. Lim & Encarnacion, Court of Tax Appeals Criminal Case O-113 [2011]).

To hold a taxpayer liable under Section 255 of the Tax Code, the prosecution must prove beyond reasonable doubt that the accused was required to pay tax, failed to pay it at the time required by law, and willfully did so.


Before a director or officer of a corporation can be held personally liable for corporate obligations, however, the complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and he or she must clearly and convincingly prove such unlawful acts, negligence or bad faith (Francisco v. Mallen Jr., G.R. 173169, [2010]).

Several new provisions have been inserted in the RCC aimed at improving the ease of doing business in the country. One of the significant inclusions in the RCC is the introduction of one-person corporations (OPCs), or corporations formed with a single stockholder. The introduction of OPCs came with the removal of the minimum capital stock requirements, which significantly reduced the barrier to operate a corporation in the Philippines.

It is worth noting that in OPCs, the stockholder shall be the sole director and president with the option of assuming the role of a treasurer upon posting a surety bond.

Even though OPCs operate with only a single stockholder at the helm, the protection afforded to regular corporations still apply to such companies, regardless of the proximate relation it has with its stockholder. The proximate unity of operation and function of the OPC, together with its single shareholder, must not diminish the separate and distinct
personality afforded to OPCs solely due to its single ownership.

Failure to pay tax under Section 255 of the Tax Code is defined by the element of “willfulness” of not paying the tax. This, in turn, requires the showing of “knowledge” and “voluntariness,” which must be proven beyond reasonable doubt pursuant to the rules of evidence. In these cases, the prosecution must still prove that the failure to pay the taxes was willful on the part of the officer/s of the OPC.

In this regard, the mere fact an OPC operates with a single stockholder as both president and sole director does not undermine the established rule that corporations have a distinct and separate personality from its shareholders and officers, regardless of their number. An OPC is treated similarly as a regular corporation and enjoys a separate personality from its stockholder. What is required is that the prosecution show, with moral certainty and through its own evidence, that the tax evasion was willfully done by the officer charged.

Ramon Vaughn F. Dy 3rd is a legal assistant at Mata-Perez, Tamayo & Francisco (MTF Counsel). This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment about this article, email the author at or visit



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