More and more like a ‘trapo’

I may help to get the basic facts correct in the appreciation of the issues surrounding the controversy involving Manny Pacquiao and the Bureau of Internal Revenue with regard to the taxes he paid (or did not). The following is a background and a time line of events:

In 2008 Pacquiao paid some P125 million (roughly $2.5 million) in taxes. He reported all his income including the income he earned from abroad, and he claimed taxes paid in the United States as a credit against his taxes due in the Philippines, which is his right under the law. So what was the problem? Well, the BIR assessed his tax liability (what he should have paid) to be close to P400 million. He failed to substantiate some expenses and he failed to pay his value-added tax.

The discrepancy between P125 million and P400 million is much more than 30 percent, which means, again by law, that there is a presumption of fraud. So he was slapped with a 50-percent surcharge, and interest of 20 percent per annum computed up to Dec. 31, 2012.  Everything done according to Hoyle. Thus, his tax liability was P767 million.

In 2009 he paid P7.4 million in income taxes. Why the sudden drop? Because he did not report any income earned from the United States, or any taxes paid to it. He was assessed P1.4 billion in taxes, resulting from his total income from the United States, plus his undeclared income from the Philippines, plus the disallowed expenses (he did not present the supporting documents), plus the VAT, plus the 50-percent surcharge, plus the 20 percent per annum computed to Dec. 31, 2012.

(Please realize, Reader, that anytime your tax liability drops between one year and the next (especially from P125 million to P7.4 million), that is like a red flag waved before the BIR bull. You have to be ready for an audit, and that is what happened.)

On July 27, 2010, a Letter of Authority (LOA) was served on Pacquiao, informing him that the taxman was coming. That is, he was informed that his tax returns of 2008 and 2009 were to be audited.

On Sept. 21, 2010, that LOA was converted to another LOA, and this time Jinkee Pacquiao was included. For some reason, the couple received this only on Dec. 1, 2010.

Then a long hiatus. On June 21, 2011, six months after Manny and Jinkee received the LOA, a subpoena duces tecum was issued, requiring them to submit a list of documents to the BIR on July 15, 2011. (A subpoena is usually issued when a taxpayer, after being served the LOA, fails to present documents. Among the documents being required for submission is their US income tax return.)

The spouses submitted a sworn affidavit stating that they had received the subpoena and would submit the documents on July 29, 2011. (P.S. They did not submit their US income tax return, nor did they submit their books of accounts, receipts, and contracts.)

On Jan. 20 2012, Pacquiao received a notice of informal conference, which was subsequently held.

On March 22, 2012, a preliminary assessment notice (PAN) dated Feb. 20, 2012, was served, which Pacquiao protested.

His protest was denied, and on June 28, 2012, Pacquiao received the formal letter of demand with final assessment notice (FLD/FAN) dated May 2, 2012.

On July 20, 2012, Pacquiao filed a protest against the FLD/FAN, essentially invoking the same arguments raised against the PAN.

On May 20, 2013, the final decision on disputed assessment dated May 14, 2013, was received by Pacquiao at his congressional office.

On July 1, 2013, warrants of distraint and levy were issued to companies and banks who may be holding cash for Pacquiao. (Thirty warrants were issued; 22 answered and eight have not yet replied. Of the 22, two banks said they held P300,000 and P800,000 of his money.)

On July 23, 2013, Pacquiao received a copy of the preliminary collection letter (PCL) dated July 19, 2013. NOTE: The final decision on disputed assessment became final after 30 days, when the BIR did not receive any protest from Pacquiao, hence the issuance of the PCL.

On Aug. 1, 2013, Pacquiao went to the Court of Tax Appeals and filed a petition for review. He has filed (in October 2013) an urgent motion to lift the warrants of distraint and/or levy and garnishment, for the issuance of an order to suspend the collection of tax (praying for the issuance of a temporary restraining order).  The BIR is fighting it tooth and nail. The next court hearing is on Dec. 5.

What does this all tell us?  First, there was an audit of Manny Pacquiao’s tax returns when the taxes he paid fell from P125 million to P7 million. Please to remember: This was in 2009 when he was at his peak (in 2008 he had Marquez, Diaz, and De la Hoya under his belt, while in 2009 he had Hatton and Cotto). Would you believe that his income fell that much when he was pound-for-pound champion, plus the darling of the world?

Second, he was already a congressman when all this started (July 2010).

Third, the BIR seemed to lean backward on its treatment of him. Look at the timeline and see where the BIR gave him every opportunity (short of breaking the law). No tax evasion case was filed; the BIR did not try to name and shame him.

Pacquiao even went on the offensive. He went to the Court of Tax Appeals. He could have produced his US income tax returns anytime. He didn’t. He could have sought compromise or abatement. He didn’t. He acted like a spoiled brat.

And he is still acting like one, putting all the onus on the BIR for everything, including his failure to pay his staff and borrowing to help the “Yolanda” survivors. The BIR just garnished P1.1 million of his money.

He is acting more and more like a trapo.  For shame.