MANILA, Philippines – Rappler Holdings Corporation and its president Maria Ressa have been charged with tax evasion before the Court of Tax Appeals (CTA), the court’s record’s division confirmed. 

On the basis of a Bureau of Internal Revenue (BIR) complaint, the Department of Justice (DOJ) filed on November 26 and 28 three counts of failure to file returns, and one count of tax evasion against Rappler and Ressa. 

The department moved ahead with the filing of the cases despite respondents’ motion for reconsideration filed last week with the DOJ.

Through their lawyers, Rappler and Ressa said the department deprived them of a full preliminary investigation even if the DOJ’s own manual guarantees them such a right.

There is no reason for the hasty filing of the criminal informations in court except to harass Rappler, the lawyers added.

Ressa said these cases are part of government’s desperate efforts to harass and silence independent media such as Rappler. (READ: Journalists, media groups slam attempt to ‘silence’ Rappler)

“We continue to tell the story of the nation. These cases will not intimidate nor distract us from holding public officials to account through our stories,” Ressa said. (READ: Maria Ressa receives journalism award, appeals to tech giants, gov’t officials)

Bailable

DOJ Prosecutor General Richard Fadullon said the 3 charges of failure to file returns have bails set at P60,000 ($1,100) each, while the bail for tax evasion was set at P24,000 ($500) – or a total of P204,000 (about $4,000) for all charges.

After the charges are raffled to a division, the CTA will then decide whether there is probable cause to arrest Ressa, after which she can pay bail.

In its original complaint with the DOJ, the BIR accused Rappler Holdings and Ressa of tax evasion amounting to P133 million. Rappler Holdings is the holding company of Rappler Inc. (READ: The Rappler story)

Rappler legal counsel Francis Lim said that the DOJ should not have filed the cases without attending to the motion for reconsideration “as this is an integral part of preliminary investigation.”

Moreover, “the due process clause of the Constitution demands that a respondent’s right to preliminary investigation be fully respected,” Lim emphasized in a statement.

He added that “even if an information is filed, the Court of Tax Appeals must suspend its proceedings” until the motions for reconsideration are resolved by the DOJ. 

On November 9, the DOJ announced  in a statement that it was indicting Rappler Holdings and Ressa. The department issued the statement without informing Rappler’s lawyers who were in the department on the same day to inquire about the status of the case.

Questioning PDRs

The charges stem from Rappler’s Philippine Depositary Receipts (PDRs), a mechanism with which Filipino companies can have foreign investments.

Rappler issued PDRs to Omidyar Network, which the government said amounted to foreign ownership for violating the constitutional rule that media companies should be 100% Filipino-owned.

The PDRs were the basis of the Securities and Exchange Commission’s (SEC) order last January revoking Rappler’s license, an order that the Court of Appeals did not uphold.

In its ruling in July, the Court of Appeals (CA) said that the defect had been cured when Omidyar donated the PDRs to Rappler’s Filipino managers. It remanded the case back to SEC for review. (READ: Business as usual for Rappler, CA urges review of shutdown order)

Rappler has maintained the company is owned fully by Filipinos, and that PDRs are valid and legal financial means to fund Philippine companies.

The BIR said, which the DOJ upheld, that by issuing PDRs, Rappler earned taxable income.

In the charges, the DOJ also considered another PDR issued to North Base Media, an investor not covered by the SEC and CA rulings.

According to the DOJ’s resolution signed by Assistant State Prosecutor Zenamar Machacon-Caparros, Rappler allegedly earned a taxable profit worth P181.658 million ($3,462) from the PDRs issued to Omidyar and North Base Media. 

The taxes allegedly evaded are worth P162,412,783.67 ($3,095), which they computed by subtracting Rappler’s P19.25 million ($362,588) worth of aggregate book value of underlying stocks from the P181.658 million ($3,462) alleged taxable income from PDRs.

“The foregoing PDR transactions triggered taxable events. For failing to recognize the profit it derived totaling P162,412,783.67 ($3,095), respondent Rappler Holdings Corporation resultantly committed substantial under-declaration in the pertinent tax returns, tantamount to willful attempt to evade and defeat tax, and willful failure to supply correct and accurate information,” said the DOJ in its resolution.

The first 3 charges are for violation of Section 255 of the Tax Code or failure to file Value Added Tax (VAT) returns for the 3rd and 4th quarters of tax year 2015, and failure to file an Income Tax Return (ITR) for 2015. The 4th and last charge is for violation of Section 254 or tax evasion.

The charges under Section 255 are all worth P162.41 million, while the tax evasion charge is worth P70.18 million ($1,334), which pertains to the PDR issued to Omidyar.

Not a dealer of securities

Rappler’s counsel said this has no legal leg to stand on because “it presumes – wrongly – that Rappler is a dealer in securities that profited from a sale.”

Lim reiterated his warning that the case will have a “chilling effect” on those who have raised and will raise capital through the issuance of PDRs and is a “blow to the development of our already laggard capital markets.”

Lim had earlier pointed out that network giants GMA and ABS-CBN have similar PDRs with similar agreements as Rappler’s, which the government has not at all investigated.

The SEC faulted Rappler’s PDR for a clause in the agreement which said Rappler must have a prior good faith discussion with Omidyar before it alters or modifies the company’s by-laws. 

According to DOJ, that clause also made Rappler a dealer of securities. 

Citing Section 22(U) of the Tax Code which defines dealer in securities as an entity that has “regularly engaged on the purchase of securities and the resale thereof to customers,” the DOJ said Rappler’s PDRs can now be classified as securities dealing.

“Respondent Rappler Holdings Corporation clearly fit the mold of a merchant or middleman who transacted with customers within the meaning of the test, confirming its status as a dealer in securities,” the DOJ said.

This adds to the string of cases the government has filed against Rappler and Ressa, which include cyber libel and anti-dummy law violation. – Rappler.com