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Court tells Petron to pay P601M in taxes

May 18, 2007

BY PAUL C.H. HOW, Reporter
BusinessWorld, May 18, 2007

THE Court of Tax Appeals has ordered Petron Corp. to pay P600.8 million in deficiency excise taxes for the years 1995 to 1998, which it had previously paid with fraudulent tax credit certificates (TCCs).

The court’s second division ruled that the Finance department’s subsequent cancellation of the TCCs in 1999 effectively meant that the oil firm had not paid excise taxes corresponding to the value of the certificates.

“It bears stressing that a valueless instrument, even if delivered to and accepted by the creditor, not knowing that the same is worthless, would not produce payment,” the decision written by Associate Justice Erlinda P. Uy stated.

Sec. 222 of the National Internal Revenue Code allows the Bureau of Internal Revenue (BIR) to collect tax liabilities within 10 years of discovering the fraudulent nature of the taxpayer’s returns. The court pointed out that the bureau filed an assessment for the deficiency tax on Jan. 30, 2002, well within the prescriptive period.

The tax court also cited a Supreme Court decision dated Oct. 12, 2006 that had required Proton Pilipinas Corp. to pay its liability to the Bureau of Customs after the TCCs the automaker had used were found to be spurious.

The ruling had stated that the taxpayer “should not make the government suffer for its own misfortune.”

The tax court also noted that the cancellation of the TCCs by the Finance department’s One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center, which had earlier approved these, was based on the agency’s findings of fraudulent assignment and transfer of the certificates.

“Whether or not petitioner was actually involved in the fraudulent transfers, the same resulted in the nonpayment by petitioner of its excise taxes for the period covering 1995 to 1998.”

Petron was also ordered to pay a 25% late payment surcharge and 20% delinquency interest on the tax liability, until fully paid.

The court, however, ruled that a 50% fraud surcharge should not be imposed. “Respondent did not produce evidence to directly prove that there was a willful intention on the part of petitioner to evade the payment of taxes. At the utmost, petitioner appears to have been merely negligent in its acquisition of the controversial TCCs by failing to trace and investigate the validity of the same before obtaining them from the transferor/assignor entities,” it said.

Petron Vice-President for Legal and External Affairs Jose Jesus G. Laurel said the company will file a motion for reconsideration. “Petron remains confident of its position in the subject case, and we reiterate that the company will continue to pursue all legal remedies available, including an appeal to the Supreme Court,” he said.

Petron is one of 64 companies affected by a tax credit scam allegedly perpetrated by businessman Faustino T. Chingkoe from 1992 to 1998, depriving the government of a total of P5.3 billion. Mr. Chingkoe and his wife had fled to Canada in 2001.

In a separate case involving different TCCs, the tax court had earlier ordered the oil firm to pay P580.2 million for taxes it had paid for the period of 1995 to 1997 using the fake certificates.

From 1995 to 1998, Petron had been an assignee of the TCCs which came from Mr. Chingkoe’s various companies registered with the Board of Investments, and these certificates were used as payment of the oil firm’s excise taxes for the period.

Meanwhile, the Finance department, after an investigation on the matter, issued Resolution no. 03-05-99 that led to the cancellation of the controversial TCCs. The BIR issued an assessment to Petron, initially finding the company liable for P739 million, inclusive of surcharges and other penalties. This was protested by Petron, alleging that the TCCs had been approved by the Finance department, and that some of the items in the assessment were included in the other tax case.

Petron filed its petition with the tax court on April 2, 2002. The BIR later manifested to the court that, after recomputing the assessment, it had reduced the amount of deficiency taxes to P720.9 million.

In issuing its decision, the tax court separated the basic excise tax liability from the additional charges, arriving at the figure of P600.1 million.

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