BIR: P420M tax evasion in Alphaland deal
MANILA, Philippines–Bureau of Internal Revenue (BIR) Chief Kim Henares thinks there is a case of tax evasion in the failure to pay income taxes for the shares that Alphaland president Mario Oreta received for his role in allegedly crafting the deal between the company and the Boy Scouts of the Philippines (BSP) to develop a one-hectare BSP property in Makati City.
Former Makati Vice Mayor Ernesto Mercado earlier alleged that the shares worth P200 million, representing 5 percent of the BSP-Alphaland deal, were actually kickbacks for Vice President Jejomar Binay, who also heads the BSP.
Based on testimonies in the Senate, there was an admission of tax evasion, Henares said.
The shares, which were placed in Oreta’s Noble Care company, constituted Oreta’s compensation, which should have been declared as income and the corresponding taxes paid, Henares said at the Senate blue ribbon subcommittee hearing yesterday.
Under the law, failure to do so is fraud, she said.
In a statement issued Thursday, Alphaland said there was neither tax evasion nor tax fraud in the Alphaland-Noble Care transactions.
The shares that Noble Care received were for Silvertown Property Development Corp. These were later exchanged for Alphaland shares.
‘Something illegal’
Alphaland chair Roberto Ongpin and Oreta have denied that Binay got kickbacks. Both executives were absent at the resumption of the Senate blue ribbon subcommittee probe of the deal with the BSP yesterday. Ongpin was out of the country, while Oreta cited medical reasons for his absence.
But whether the P200 million in shares represented Binay’s kickback or Oreta’s compensation, something illegal was committed, said Sen. Alan Peter Cayetano.
“Either way, we have caught something illegal taking place,” Cayetano told reporters. “As of now, it seems that they are giving an excuse, but they did not foresee that it would amount to tax evasion.”
Cayetano pointed out that the shares, which were supposedly compensation for Oreta, were not in the company’s financial statements.
But if the P200 million in shares was Oreta’s compensation, then he owes the government some P420 million, including penalties and surcharges, the senator said.
Alphaland corporate secretary Rodolfo Ponferrada said Oreta’s 5-percent “carried interest” in the Alphaland project was not structured as compensation and was implemented in the “most tax efficient and cost efficient manner.”
Noble Care subscribed to original shares of stock of Silvertown, and the only applicable tax was the documentary stamp tax which was duly paid, Ponferrada said.
He said the shares were only compensation in the “loose sense” and not in the sense defined by the National Internal Revenue Code. He added that “carried interest” was not really defined in the laws.
But Henares did not buy the explanation.
Part of compensation
“Whatever you say, it is part of compensation. You just structured it. You already said it’s structured, so it’s part of compensation. By your own words, you already said it’s being structured that way. So, you have already admitted that’s evading taxes,” Henares said during the hearing.
She noted that Noble Care could not have subscribed to the shares if these were not part of the compensation package. The shares were part of the negotiations to entice Oreta to work for Alphaland, based on testimonies in the Senate, she said.
“I think the whole point is how Noble Care will be able to subscribe to those shares if it was not because of a compensation package. At the end of the day, that is part of the negotiation. Based on what I’m hearing, it’s part of the negotiation for Mr. Oreta to work for Alphaland,” the BIR chief said.
Whether Oreta subscribed or not, that’s still part of his compensation, she said.
“We already came out with a rule that if you allow somebody to have an option to buy the shares at below its book value or fair value, then the difference is actually your income,” she added.
Noble Care got the Silvertown shares at P10 each, when their value was P12,000, said Cayetano.
In such a case, either that’s a donation, the difference, or it’s a compensation, according to Henares.
“The thing there, if this is allowed only to the management, it can be. It will be the company who would pay for the fringe benefit tax or it will be the recipient who would pay for the difference,” she said.
But it’s still part of compensation, she said.
‘Not compensation’
In a statement he issued hours after the hearing, Ponferrada said Noble Care’s 5-percent carried interest in the Alphaland Makati Place project was not compensation.
“For tax efficiency, Noble Care, a company owned by Mr. Mario Oreta, was allowed to invest in Silvertown, which investment is effectively its carried interest,” Ponferrada said.
Silvertown is Alphaland’s project company for the Alphaland Makati Place project.
The Alphaland corporate secretary said the 5-percent carried interest was an investment pursuant to an agreement between Ongpin and Oreta.
“Thus, in August 2008, Noble Care subscribed to 2,031 previously unissued common shares of Silvertown at par value (P10 per share) or a total cash investment of P20,310.
“Since this involved an original issuance of shares, the only tax due was DST [documentary stamp tax] and which tax was duly paid,” he said.
Ponferrada said the 2,031 Silvertown shares represented 5.88 percent of Silvertown, equivalent to 5 percent of Makati Place project.
‘Fraud’
“Two years later, Noble Care transferred its 5.88 percent of Silvertown in exchange for equity in Alphaland Corp. and paid P18 million in capital gains tax (a form of income tax and a final tax) to the BIR and was then issued tax clearance for the transaction,” he said.
Responding to a hypothetical question from Cayetano, Henares said that if someone failed to declare something as income and didn’t pay the fee, there would be fraud. There was a 50-percent surcharge plus 20 percent of whatever amount was due, she said.
Alphaland figured in the Senate blue ribbon subcommittee probe after Mercado alleged there were irregularities in its own joint-venture agreement with the BSP to develop the latter’s prime Makati property.
According to Mercado, the BSP got the short end of the stick in the deal. BSP and Alphaland officials have denied this.
In his testimony in January, Mercado said the BSP and Silvertown entered into a joint-venture deal in June 2008 to develop the property on Ayala Avenue Extension and Malugay Street. The developer would acquire rights, title and interest in 85 percent of the gross floor area, while the BSP, as landowner, would get 15 percent.
Mercado, then BSP senior vice president, said he opposed the sharing and pushed for a 20-percent share for the BSP, but Binay overruled him.
Quoting Binay’s aide Gerardo Limlingan, the former vice mayor said 5 percent, a fourth of the 20 percent, represented Binay’s share to fund his election campaign, and for which the latter got an initial P189 million.
To escape responsibility, Binay asked his then vice mayor, Mercado, to sign the agreement, opposite Oreta, Mercado said.
To allow Binay to collect his share in August 2008, Alphaland granted Noble Care a 5.88-percent stake in Alphaland/Silvertown, equivalent to 2,031 shares at P10 each, or P20,310, he added. It also granted Noble Care a P100.4-million loan.
‘Initial kickback’
After two years, Alphaland bought back Noble Care’s shares for P88.973 million, and wrote off its P100.4-million loan, or a total of P189 million.
Mercado said this amount became Binay’s “initial kickback.” All these transactions were carried out during Binay’s birthday on Nov. 11, 2010.
The agreement was amended after Alphaland acquired Silvertown on June 2, 2011. On the same day, the BSP executed a deed of absolute sale of the property in favor of Alphaland.
‘Side deal’
Cayetano told reporters on Thursday that the evidence was leaning toward the allegation that Binay had a “side deal” with Alphaland.
The senator said he had received information that P100-million debt from Oreta’s account was withdrawn in two days. “If this really did go to Mr. Oreta, where would he use this? Why does he not want to show this?” he asked.
It was also Binay who directed Mercado to have Alphaland partner up with the BSP for the land development project, he said.
Cayetano noted that Noble Care’s P100 million from Alphaland was condoned.
Originally posted as of 8:42 PM | Thursday, March 12, 2015
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