Tan tobacco firm wins P90-M case in tax court

The Court of Tax Appeals has whittled down the nearly P90-million tax bill of a tobacco company owned by tycoon Lucio Tan to less than a quarter of 1 percent of the amount sought by the government.

In a 36-page decision dated Feb. 23, the tax court’s Third Division partially granted the petition of Northern Tobacco Redrying Co. Inc. (NTRCI) to declare null and void the tax liability assessment made by the Bureau of Internal Revenue (BIR) through a letter of demand on Dec. 6, 2013.

The tax court ruled that NTRCI’s should just pay the government P199,415.80, plus interest, instead of the P89.82 million originally billed by the BIR.

The BIR had no immediate comment.

The bulk of the disallowed tax arose from NTRCI’s Feb. 25, 2010, deed of transfer where it swapped some of its real estate properties in Ilocos Norte for 5,722 common shares (a 0.6-percent stake) in Fortune Landequities and Resources Inc., another Tan company.

The court agreed with NTRCI that the property-share swap was a tax-free transaction.

It rejected the government’s claim that the company should have first secured a BIR certification that it could enjoy the benefit of nonrecognition of gain or loss under a National Internal Revenue Code provision that covers corporate exchange of property.

“There is nothing explicitly requiring a party, in exchanging property for shares of stocks, to first secure a BIR confirmatory certification or tax ruling before it can avail itself of tax exemption,” the court said.

Since the swap was declared tax-free, this meant the cancellation of P10.55 million in value-added tax and P61.6 million in improperly accumulated earnings tax.

The decision to declare the swap tax-free also greatly reduced the income tax assessment of P14.91 million to only P157,663.18 covering miscellaneous expenses and disallowed untaxed salaries.

The withholding tax on compensation and expanded withholding tax on various employee benefits amounting to P368,726.10 was reduced to just P1,869.46 because the assessment of most of the tax was not made within the required three-year period.

The court ruled that, in all,  NTRCI has to pay a tax liability of only P199,415.80, inclusive of a 25-percent surcharge.

The company was also liable for 20-percent deficiency interest on the basic tax excluding the surcharge and 20-percent delinquency interest on the total imposition.

The government earlier lost its P25-billion tax evasion case against Tan and 54 coaccused when the Marikina Metropolitan Trial Court dismissed the case for insufficient evidence in October 2006.

Six years later, the government lost a forfeiture case against Tan in the Sandiganbayan after the Presidential Commission on Good Government failed to prove that the tycoon and late dictator Ferdinand Marcos and other defendants collaborated to amass ill-gotten wealth. —WITH A REPORT FROM INQUIRER RESEARCH