BIR-Del Monte tax issue: More questions than answers

MANILA, Philippines – Big questions remain in the controversial tax settlement case between the Bureau of Internal Revenue (BIR) and Del Monte Philippines Incorporated (DMPI).

The controversy has necessitated two congressional committee hearings so far, as well as a plunder case against top BIR officials including Commissioner Caesar Dulay.

At the heart of the controversy is the BIR’s swift acceptance of a P65.4 million tax settlement from DMPI to account for the firm’s tax deficiencies from 2011 to 2013 which the government agency originally valued at P8.7 billion.

The P65.4 million settlement was paid on February 1 of this year, one day after the firm received the BIR’s Final Decision on Disputed Assessment (FDDA) on January 31 for tax year 2013, along with Preliminary Tax Assessment (PAN) for tax year 2011, and Final Assessment Notice (FAN) for tax year 2012.

Swift settlement

So far, DMPI has only addressed the issue of why the settlement was paid so swiftly after years of protracted arguing over the amount of the tax deficiencies.

Both the BIR and DMPI acknowledged it had taken years to come up with these assessments due to a combination of delays on both sides.

“Since this issue has been hanging for many years, our auditors already told us that if we do not resolve this we will have to make a disclosure to both the Philippine Stock Exchange and the Singapore Stock Exchange,” said DMPI’s Chief Operating Officer Luis Alejandro said at the second hearing by the House Ways and Means committee on Monday, July 31.

DMPI is a subsidiary of Del Monte Pacific Limited and is dual-listed on the both the Philippine Stock Exchange and the Singapore Stock Exchange.

“Given the magnitude of the assessment, we couldn’t let that happen as it would affect our share price, and secondarily, it would trigger certain provisions in outstanding loans and we could be at default,” he added.

Alejandro also noted that the firm had a "ballpark settlement number" which it would deem reasonable and agree to based on its previous tax cases.

“If you look at our history from 2006, the settlements were in the range from P10 to P30 million. Of course [the tax amount] was growing because the business was growing, so we already had an idea of where the possible settlements would be,” he explained.

Further complicating matters was the fact that the BIR Makati office, which DMPI had been transacting with, was set to move to Davao in January of this year, which Alendandro pointed out would have prolonged the process.

“So when we got [the settlement offer], we decide to pay it and we wanted to because the BIR office was going to close and I guess they also wanted it on their books,” he explained.

No clarity so far

The crucial matter of why the settlement amount was much lower than BIR’s original assessment remains unclear to the committee at this point.

DMPI’s explanation centers on the fact that the BIR did not take into proper account the tax holidays the company holds as a Philippine Economic Zone (PEZA) accredited agency.

“There were [tax items] that the BIR picked up wrongly so we had to clarify it with them. That was the crux of it. If a firm isn’t PEZA accredited you are charged 30% tax but if you are in PEZA you’re only charged 5%,” Alejandro said.

The House Ways and Means committee, however, is so far unconvinced.

Committee chairman Rep. Dakila Cua noted the end of 2nd hearing that he received a letter on July 30 of this year from DMPI’s chief legal counsel explaining that the BIR issued the assessments of P3.43 billion for tax year 2012 and P5.2 billion for tax year 2013 prior to its actual audit of DMPI’s actual records.

“Its confusing because in October 6, 2016 the PAN was issued by BIR for taxable year 2013 and then you replied on October 21, 2016 and then the FAN was issued again on November 3, 2016 wherein the amount didn’t change at P5.2 billion,” Cua said

“Is the process correct? From preliminary to final it was in the billions but in the settlement the amount paid for 2013 was P30.39 million… If that’s the case, how can the final assessment be different from the collected amount?” he said.

Teresita Angeles, BIR Assistant Commissioner for the Large Taxpayers’ Service, said that the huge discrepancy is due to raw data matching but she was not able to adequately explain her point due to time constraints at the hearing. 

Plunder case

Part of the reason the committee was not able to get an adequate answers at the second hearing was due to a plunder case connected to the controversy looming over senior BIR officials.

Jesus Aranas, BIR Deputy Commissioner for legal services, told the committee that he was conducting an internal investigation into the controversy and had issued show cause orders to 14 BIR officials, but the investigation was stopped by a letter from BIR commissioner Caesar Dulay on July 10.

The reason behind this was that the Department of Finance, of which the BIR is an attached agency, convened a larger investigation.

Dulay for his part told the committee that “there is a complaint filed against the commissioner and [other] BIR officials for alleged conspiracy and connivance to commit plunder regarding the Del Monte case, filed with the Office of the President and the Office of the Ombudsman”.

The BIR commissioner continued: “Since the complaint refers to me and to the other employees of BIR as having committed plunder, I deemed it proper to throw it to [Finance Secretary Carlos Dominguez] for investigation because it involved me, and I ordered the deputy commissioner to stop his investigation.”

“Even if he was investigating the employees and did not include me, the ultimate result is that, because the claim is conspiracy and connivance to commit plunder, he will in effect be investigating me,” he added.

The discussion of the plunder case convinced the committee that the briefing session be officially turned into a full-blown inquiry in aid of legislation with the participants now under oath.

Dulay also requested that the individual who filed the plunder complaint also be invited to testify.

With the escalation, the committee decided to adjourn with the next hearing set for Monday, August 7 wherein officials will be under oath.

They will be allowed legal representation and a representative from PEZA to shed some light on tax issues will also be invited to attend. – Rappler.com