Clarity on tax audits sought after BIR-Megaworld issue
By Luisa Maria Jacinta C. Jocson, Reporter
LAWMAKERS are seeking clarity on handling tax disputes and audits after the confusion created by the closure order issued last week by the Bureau of Internal Revenue (BIR) on Megaworld Corp.
On May 17, the BIR released an advisory regarding the issuance of a closure order against the listed property developer. But on the same day, the agency announced that the closure order would be on hold until further notice.
In a hearing led by the House Ways and Means Committee on Monday, BIR Regional Director Eduardo L. Pagulayan, Jr. said that the bureau received reports from condominium owners on discrepancies with their taxes.
“There have been reports that condominium owners who already deposited their payments with real estate developers but [said] that they did not see their taxes being remitted,” Mr. Pagulayan said.
He also said some buyers reported that in their final deed of sale, a different name is on the property documents, and not the name of original buyer.
Mr. Pagulayan said that the BIR saw the issue of potential tax leakages, so it was authorized to conduct an investigation.
In October, a special audit tax force was formed to investigate real estate developers’ tax issues. BIR Deputy Commissioner Arnel SD. Guballa said that the task force’s investigation involved other real estate developers, and not just Megaworld.
“In the case of Megaworld, they refused to receive the LoA (letter of authority). Mr. Pagulayan resorted to exert pressure because he saw there was a joint venture with the Bases Conversion and Development Authority (BCDA), which was not registered with the BIR,” Mr. Guballa said.
“He used this as a weapon or tool to add pressure to audit Megaworld,” he added.
However, as the BIR was about to serve the closure order, Mr. Guballa said that “for some unknown reason, it got leaked to the media.”
“Megaworld then said they would cooperate, so the [BIR] set aside the closure order to begin the verification of the audit,” he added.
In the same hearing, Megaworld top officials Kevin Andrew L. Tan and Andrew L. Tan said in their opening statement that they were in “complete surprise, disbelief, and dismay over the actions done last week.”
“It’s our desire to resolve this a soon as possible. Our company has always been a compliant company. We have also been committed to sound corporate governance,” Kevin said.
“We were surprised by the media advisory,” he said, citing continuing correspondence with the BIR. “We do not believe this order was warranted, as no audit was done prior to that.”
He said that as news of the supposed closure order came out, there was a selldown of more than P400-million worth of Megaworld shares.
Andrew said that when the LoA was issued, the company wrote back to the regional office.
“We wrote a letter to the commissioner and before it was even resolved, here comes the action. We [were] waiting for the commissioner to resolve this issue because we believe this is unnecessary,” he added.
Regarding the joint venture, he said that Megaworld had only managed property for BCDA, a government-owned and controlled corporation.
“Megaworld managed the property for [them]. If the [BIR] is questioning the land transfer, who is the taxpayer? It’s not Megaworld, it’s the BCDA. If there are tax issues, they should approach BCDA,” he said.
He also said that reports of name changes in the final deeds were “petty issues.”
“That is really a non-issue. The question is, can we tax them again because of the change of name? The answer is no, because the time the name was changed, the property was not even there. There is no turnover, no occupancy. There is no property ownership to speak of,” he said.
House Ways and Means Chairperson Jose Clemente S. Salceda said that the government would seek clarity on due process on tax disputes to avoid issues related to the Megaworld and BIR case.
“As I said before, this was not an investigation for its own sake but for the benefit of the taxpaying public, and in aid of legislation. So, while we sought facts on the matter, the aim was really to know how policy can be changed to avoid similar incidents,” Mr. Salceda said.
“I am thus pleased to report to the public that we now have a way forward, which the committee will recommend to the tax agencies,” he added.
Mr. Salceda said that the main recommendations were a need for a promulgated common procedure on taxpayer dispute, codifying the rights and responsibilities, as well as timelines and procedures, for resolving taxpayer disputes on jurisdiction, coverage, applicability and other matters.
“Second, we recommend simplifying and finalizing the rules on whether joint ventures should be registered as separate entities for tax purposes. The situation seemed to arise primarily out of a confusion as to whether Megaworld or the BCDA should settle the taxes on their joint venture. The best solution is to just require joint ventures to be registered as separate taxpayers,” he said.
Last week, Finance Secretary Carlos G. Dominguez III had also ordered the BIR to halt the creation of special audit task forces despite being authorized by the BIR commissioner.
Mr. Salceda said that taxpaying entities need to know what can get them closed, what to expect during an audit proceeding, and what dispute mechanisms are available.
“The BIR did follow a process, to be fair to them. On the other hand, Megaworld deserved an answer on jurisdiction from the BIR commissioner because the clarification would have had implications on other companies as well. And of course, as I said earlier, the press conference organized on the closure was very bizarre,” he said.
“Conflict comes out of violated expectations. Both parties had expectations that the other party violated. So, let’s just clarify what the expectations are so we can avoid conflict between tax agency and taxpayer,” he added.
