Philippine Daily Inquirer (INQUIRER.net) chairperson MARIXI PRIETO's Dunkin' Donuts firm is a BIGTIME TAX CHEAT!!!

BIR’s KIM HENARES INTENTIONALLY FAILED TO EITHER COLLECT DUE AND DEMANDABLE TAX DEFICIT OF GOLDEN DONUTS, INC. (GDI) OR SUE IT FOR FRAUD FOR UNDER-DECLARING REVENUE ON THE TAX RETURN.

Golden Donuts, Inc. (GDI), the exclusive Philippine Franchisee of the global brand “Dunkin’ Donuts”, flagrantly perpetrated fraudulent acts or criminal tax violations that culminated to deficiency tax assessment amounting to P1,564,426,808.08, including increments, for year 2007, discovered and documented by Othello Dalanon in his official capacity as former BIR Examiner.

Dalanon personally reported GDI’s omissions to Commissioner Henares and recommended to her the criminal prosecution for tax evasion under the much-vaunted “Run After Tax Evaders” program of the Bureau; but she intentionally did not pursue fraud case against the company because its secretary – Marixi Prieto who also happens to be the chairperson of the Philippine Daily Inquirer – is President Aquino’s friend, according to BIR Deputy Commissioner Estela Sales.

Ms. Prieto talked to Henares and BIR Regional Director (now Assistant Commissioner of Internal Revenue) Nestor Valeroso, on different occasion, who both gave leniency to GDI.

The aforesaid deficiency tax assessment obtained finality because GDI failed to file a VALID PROTEST against the Formal Letter of Demand and Assessment Notice (FAN).

However, Henares intentionally did not collect it, purportedly because representatives of GDI complained to her that Dalanon’s assessment was faulty. Thus, she ordered two (2) re-investigations.

There is no LAW that authorizes the Commissioner to order two (2) re-investigations of a FINAL, EXECUTORY and DEMANDABLE assessment.

Once the deficiency tax assessment obtained finality, the right of the government to collect the deficiency tax becomes absolute; thus, precludes the taxpayer from questioning the correctness of the assessment and from raising any justification or defense that would pave the way for a re-investigation.

She also claims that the authority to decide and declare finality of a certain assessment is a function vested by law upon the Commissioner of Internal Revenue.

Her assertion does not find basis in LAW.

It is the LAW that determines finality of a certain assessment as clearly provided under Revenue Regulations (RR) No. 12-99 as amended by RR No. 18-2013 which the Commissioner herself promulgated, in relation to Section 228 of the 1997 National Internal Revenue Code (1997 Tax Code), as amended.

Her claim that Dalanon’s assessment was faulty is WRONG.

In fact, she was not able to dispute Dalanon’s assessment. What is very clear is that, while she bullies small taxpayers, constantly pesters Congressman Manny Pacquiao, and actively prosecutes those are not allies of the current administration; she fears, coddles and lawyers for Dunkin’ Donuts local seller – a bigtime tax evader!!!

Just to reiterate. The P1.56 billion tax deficit of Dunkin’ Donuts franchisee has become DUE and DEMANDABLE, thus, it already legally belongs to the FILIPINO people whom PRESIDENT AQUINO considers as his “BOSSES?”, and therefore, Henares is duty-bound to enforce collection thereof – but she refused to.

GDI’s OMISSIONS

1.   GDI has two (2) sets of books of accounts – one was the duly-registered hardbound computer-generated books of accounts which were the bases of Dalanon’s assessment; and the other was the unregistered not-permanently-bound “manually-posted from original books of accounts”, records which GDI claims as the bases of its Trial Balance for Financial Statements and Income Tax Return purposes;

2.   It supplied false information on the tax return – the duly-registered books of accounts reflected a net income amounting to P135.2 million while the tax return showed a net loss of P44.9 million;

3.   It substantially under-declared sales on the tax return in two (2) instances:

3.1    Sales per duly-registered books was P1.928 billion while the amount reflected on the tax return was P1.031 billion – a substantial discrepancy (under-declaration) amounting to P897 million;

The SUPREME COURT ruled in the case of Paper Industries Corporation of the Philippines vs Court of Appeals, et al., 250 SCRA 434 that “where the books of accounts reflected a sales or receipts higher than that reflected on the return, the books of accounts should prevail. This is so, because the books of accounts are kept by the taxpayer and are prepared under its control and supervision; and they reflected what may be deemed to be admissions against interest.” The representations made by GDI in the CD and duly-registered books submitted and presented by it to the Bureau for audit and examination amounted to admissions against interest which it cannot disown and change at its convenience of pleasure. Emphasis supplied.

3.2    Other independent relevant documents, such as, but not limited to: Franchise Agreement between Dunkin’ Donuts of America, Inc. and GDI; Technical Service Agreement between GDI and its affiliate-Antares Management, Inc. (AMI); BIR returns, etc., further revealed that GDI’s sales topped P2.366 billion but recorded per duly-registered books was only P1.928 billion – a substantial unrecorded and consequently undeclared sales amounting to P438 million.

The information contained in the aforesaid documents were utilized in further determining GDI’s sales on the basis of the provisions of Section 5(A) of the 1997 Tax Code.

The method of validation used by Othello Dalanon was already upheld by the COURT OF TAX APPEALS in the case of Asia Coal Corporation vs Commissioner of Internal Revenue (CTA Case No. 6803, February 13, 2008), that “the respondent may utilize any kind of document, x x x to determine the correct sales of the petitioner…”

All the above enumerations are fraudulent acts or criminal tax violations covered by the RATE (Run After Tax Evaders) Program of the Bureau; but Henares intentionally did not pursue tax evasion case against the company.

Henares, in her position paper submitted to the Office of the Ombudsman in connection with the formal complaint filed against her by Othello Dalanon, failed to dispute the above-enumerated irregularities perpetrated by GDI.

THE DEFICIENCY TAX ASSESSMENT OBTAINED FINALITY

The deficiency tax assessment against GDI amounting to P1.56 billion, including increments, for year 2007, obtained finality because GDI’s letter of protest against the Formal Letter of Demand and Assessment Notice (FAN) was INVALID.

The alleged letter of protest of GDI merely states “protest against PAN adopted in toto”. It does not state the facts, the applicable law, rules and regulations, or jurisprudence on which its protest was based. It is neither a request for reconsideration or reinvestigation.

The rules on protesting an assessment is found in Section 3 subsection 3.1.5 of RR No. 12-99, as amended, that reads:

“Disputed Assessment. – The taxpayer or his duly authorized representative may protest administratively against the aforesaid formal letter of demand and assessment notice within thirty (30) days from date of receipt thereof.”

“The taxpayer shall state the FACTS, the applicable LAW, RULES and REGULATIONS or JURISPRUDENCE on which his protest is based, otherwise, his protest shall be considered VOID and WITHOUT FORCE AND EFFECT.”

“If the taxpayer fails to file a VALID PROTEST against the formal letter of demand and assessment notice within thirty (30) days from date of receipt thereof, the assessment shall become FINAL, EXECUTORY and DEMANDABLE.”

The said Regulations must be taken in relation to Section 228 of the 1997 Tax Code, as amended, which reads:

“Protesting an assessment. – Such assessment may be protested administratively by filing a REQUEST FOR RECONSIDERATION or REINVESTIGATION within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. x x x otherwise, the assessment shall become FINAL.”

Clearly, what the law demands is a VALID administrative protest against the formal letter of demand and assessment notice which required the taxpayer to comply with the following:

(a)     The protest must be through a REQUEST FOR RECONSIDERATION or REINVESTIGATION;

(b)     The protest must be in the form and manner as prescribed under RR No. 12-99, as amended, which provides that said protest must state the FACTS, the LAW, RULES and REGULATIONS, or JURISPRUDENCE on which the protest is based; and

(c)     Must be filed within thirty (30) days from receipt of the assessment.

The COURT OF TAX APPEALS in the case of Allied Banking Corporation vs Commissioner of Internal Revenue (CTA Case No. 4581, March 25, 1992), cited that, “[f]ailure to comply with any or all of these requirements results in the assessment against the taxpayer becoming final and unappealable.”

The letter of protest should not just state “protest against PAN adopted in toto” because the administrative protest required to be filed as an answer to the formal letter of demand and assessment notice is distinct and not the same as the protest filed against the Preliminary Assessment Notice (PAN).

The COURT OF TAX APPEALS emphasized in the case of Security Bank Corporation vs Commissioner of Internal Revenue (CTA Case No. 6564, November 8, 2006) and further accentuated in the case of Bank of the Philippine Islands vs Commissioner of Internal Revenue (CTA Case No. 7397, April 9, 2008) that:

“[A] protest to the preliminary assessment notice is not the same as the protest required to be filed as an answer to the final assessment notice. In fact, the preliminary assessment notice may or may not even be protested to by the taxpayer, and the fact of non-protest shall not in any way make the preliminary assessment notice final and unappealable. What is clear from Section 319-A of the Tax Code of 1977, as amended, is that failure on the part of the taxpayer to protest or reply to a preliminary assessment notice paves the way for the issuance of a final assessment notice. However, evident under said Section (now Section 228 of the 1997 Tax Code) is that failure on the part of the taxpayer to file a VALID administrative protest through a REQUEST FOR RECONSIDERATION or REINVESTIGATION on the final assessment notice, shall result in the finality of the said FAN.

The SUPREME COURT in the case of Allied Banking Corporation vs Commissioner of Internal Revenue (G.R. No. 175097, February 5, 2010) heightened that:

“It is the Formal Letter of Demand and Assessment Notice that must be administratively protested or disputed within 30 days, and not the PAN.”

GDI, in its INVALID letter of protest against the FAN, likewise claimed that the assessments are null and void ab initio because it was allegedly issued in rampant violation of the due process requirements prescribed under Section 228 of the Tax Code as implemented by RR No. 12-99.

GDI’s claim is not true. Records will show that the due process requirements were promptly observed. There were at least five (5) notices served to GDI either thru personal delivery or by mail before the formal letter of demand and assessment notice (FAN) was issued. In fact, it even contested the PAN as clearly admitted in GDI’s invalid letter of protest against the FAN.

The COURT OF TAX APPEALS in the case Bank of the Philippine Islands vs Commissioner of Internal Revenue (CTA Case No. 7397, April 9, 2008), has had the occasion to say:

“[W]hen the petitioner received the final assessment notice and duly protested the same, petitioner’s right to due process was properly protected and observed.”

OTHER FACTS TO SHOW PRIMA FACIE EVIDENCE OF ACTUAL FRAUD

         

1.   The scheme of the taxpayer to evade payment of correct taxes is very clear. It substantially under-declared its Sales with the end view of evading payment of correct taxes.

Computation of percentage ratio of under-declaration of sales:

1.1    Based on sales per CD and duly-registered books –

Sales per CD and duly-registered books	P  1,928,770,398.68
Add: Discrepancy in reconciliation of Central W’hse accts	53,378,730.98
Total sales per CD and duly-registered books	1,982,149,129.66
Less: Sales reflected per Annual Income Tax Return (AITR)	1,031,528,917.00
Undeclared sales based on CD and duly-registered books	950,620,212.66
Divide by total sales per CD and duly-registered books	1,982,149,129.66
Percentage ratio of under-declaration	47.96%

1.2    Based on franchise fee –

Franchise fee per CD, duly-registered books and FS	P      23,668,908.00
Divide by franchise fee rate	1%
Grossed-up sales (or should be sales based on franchise fee)	2,366,890,800.00
Less: Sales reflected per AITR	1,031,528,917.00
Undeclared sales	1,335,361,883.00
Divide by grossed-up sales/should be sales based on franchise fee	2,366,890,800.00
Percentage ratio of under-declaration	56.42%

1.3    Based on management fee –

Management fee per CD, duly-registered books and FS	P      47,337,817.00
Divide by management fee rate	2%
Grossed-up sales (or should be sales based on mgt. fee)	2,366,890,850.00
Less: Sales reflected per AITR	1,031,528,917.00
Undeclared sales	1,335,361,933.00
Divide by grossed-up sales/should be sales based on management fee	2,366,890,850.00
Percentage ratio of under-declaration	56.42%

1.4    Based on VAT on franchise fee paid to DBI (BIRF No. 1600) –

VAT payments on purchase of services from non-resident	P        2,840,123.69
Divide by VAT rate	12%
Franchise fee based on VAT payments	23,667,697.42
Divide by franchise fee rate	1%
Grossed-up sales/should be sales based on VAT on franchise fee	2,366,769,741.67
Less: Sales reflected per AITR	1,031,528,917.00
Undeclared sales	1,335,240,824.67
Divide by grossed-up sales/should be sales based VAT on FF	2,366,769,741.67
Percentage ratio of under-declaration	56.42%

Is it not that omission or substantial understatement or under-declaration of sales a fraudulent act or criminal tax violation?

2.   GDI keeps two (2) sets of books of accounts.

2.1    The duly-registered hardbound computer-generated books of accounts registered with the BIR on January 15, 2008, which were the bases of the audit findings; and

2.2    The unregistered not-permanently-bound “manually-posted from original books of accounts” records which GDI claims as the basis of its trial balance for financial statements and income tax return purposes.

To these, a third set of books of accounts may be added: Records of RDO No. 41, Mandaluyong City, showed that GDI registered another set of bound books of accounts (General Journal and General Ledger) on May 30, 2007.

Is it not that keeping two (2) set of books of accounts a fraudulent act or criminal tax violation?

3.   GDI’s duly-registered books of accounts reflected a net income of P135.2 million for year 2007. Its AITR for the same period reflected a net loss of P44.9 million as well as that of the prior years, as follows:

Year                  Net Loss

                                      2002           P62,919,525.00

                                      2003             44,902,187.00

                                      2004             46,995,142.00

                                      2005             67,077,226.00

                                      2006             57,254,963.00

Notwithstanding the continuous incurrence of losses, it was able to acquire and accumulate properties and presented under Property, Plant and Equipment in its Financial Statements, as follows:

Year                Acquisitions

                                      2005           P16,819,089.00

                                      2006             20,755,205.00

                                      2007             34,654,371.00

                                      2008             47,019,061.00

How can it afford such gargantuan amount of acquisitions if it has really been continuously incurring losses? Is this not indicative of under-declaration of sales, as a business has a very least prospect to exist if it is continuously incurring losses?

4.   In 2008, it appropriated Retained Earnings amounting to P100 million for future renovation of facilities and expansion of production center and outlets.

How can the Board of Directors of the corporation have the audacity to appropriate such huge amount of Retained Earnings for future expansion of its center and outlets if the corporation is really continuously incurring losses without infusing additional capital?

GDI’s financial records (the CD and the duly-registered books of accounts) and other independent relevant documents, such as but not limited to: License Agreement between GDI and DBI; Technical Service Agreement between GDI and its affiliate-Antares Management Inc. (AMI); VAT payments on purchases of services from non-resident (BIRF No. 1600); Monthly Remittance Returns of Final Taxes Withheld at Source (BIRF No. 1601F); etc., submitted by it to the Bureau for audit and examination evidently revealed existence of actual fraud.

Habang ang Dunkin Donuts ni Marixi Prieto ay lumalago at yumayaman, walang kahit isang kusing na binabayarang buwis

Kim Henares, hindi ba maliwanag na tax evader itong Dunkin Donuts ni Marixi Prieto. Umiral lang ang nerbiyos at takot mo kay Marixi Prieto na kaibigan ni PNoy. Baka kasi ipasipa ka dyan sa puwesto mo, kaya ka natakot, bagkus ay pinagtanggol mo pa.

Ang ordinaryong empleyado ng gobyerno at pribadong sector ay nagbabayad ng buwis dahil ito ay kinakaltas na sa buwanang sahod, ngunit ang mayaman at lumalagong Dunkin' Donuts ni Marixi Prieto na mandaraya na nga, ay walang binabayarang buwis. As in zero, nada, nothing, none, wala talaga.

Tama bang protektahan at ipatanggol mo ang Dunkin Donuts, Ginang Kim Henares?

MAGKANO BA ANG DAHILAN, COMMISSIONER?

On another note.

The news article published in INTERAKSYON.COM on March 31, 2015 captioned “PROBE BIR ON ‘FLAWED’ IMPLEMENTATION OF TAX LAWS – PARTYLIST” substantiates Othello Dalanon’s contention that BIR’s Kim Henares promulgates tax rules and regulations that are in conflict with the terms and provisions of a pre-existing law, like:

I - Revenue Regulations (RR) 6-2013 –

On April 11, 2013, she promulgated RR No. 6-2013 that took effect on May 14, 2013, amending certain provisions of RR No. 006-08 on the methodology in determining the Fair Market Value (FMV) of shares of stock not traded in the local stock exchange for internal revenue tax purposes.

The aforesaid amending Regulations provide that in determining the FMV of unlisted shares, the real property, if any, of the issuing corporation shall be adjusted to its appraised value at the time of disposition of the unlisted shares of stock. That the appraised value of the real property shall be the higher of –

1.   The FMV as determined by the Commissioner, or

2.   The FMV as shown in the schedule of values fixed by the Provincial and City Assessors, or

3.   The FMV as determined by Independent Appraiser.

Section 6(E) of Republic Act (RA) No. 8424 otherwise known as the 1997 National Internal Revenue Code of the Philippines, as amended, provides:

“Authority of the Commissioner to prescribe real property values. – The Commissioner is hereby authorized to divide the Philippines into different zones or areas and shall, upon consultation with competent appraisers both from private and public sectors, determine the fair market value of real properties located in each zone or area. For purposes of computing any internal revenue tax, the value of the property shall be whichever is the higher of –

1.   The FMV as determined by the Commissioner; or

2.   The FMV as shown in the schedule of values of the Provincial and City Assessor.”

It may be noted that the afore-quoted provisions of RA No. 8424, as amended, provide for only two (2) conditions in determining the FMV of real property. However, RR No. 6-2013 provides for three (3) circumstances in determining such FMV.

The term “fair market value as determined by the Commissioner” as provided under Section 6(E) of the aforesaid Act is based on the zonal values of real properties commonly termed as “zonal valuation” which already includes the Independent Appraisers’ appraisal, given that the different Sub-Technical Committees on Real Property Valuation (STCRPV) created pursuant to Department of Finance Order No. 6-2010 as circularized under Revenue Memorandum Circular (RMC) No. 027-10, relative to the establishment of zonal values, already includes real property appraisers/real estate practitioners representing the private sectors as members.

However, in RR No. 6-2013, the “independent appraisers’ appraisal” is added as a separate condition in computing for the FMV of real property for purposes of determining the FMV of unlisted shares of stock.

II – Revenue Regulations No. 2-2014 – On Optional Standard Deduction (OSD).

Section 34(L) of RA No. 8424 (1997 NIRC), as amended, reads:

“Optional Standard Deduction (OSD). – In lieu of the deductions allowed under the preceding Subsection, an individual subject to tax under Section 24, other than a non-resident alien, may elect a standard deduction in an amount not exceeding forty percent (40%) of his gross sales or gross receipts, as the case maybe. In the case of a corporation subject to tax under Sections 27(A) and 28(A)(1), it may elect a standard deduction in an amount not exceeding forty percent (40%) of its gross income as defined in Section 32 of this Code. Unless the taxpayer signifies in his return his intention to elect the optional standard deduction, he shall be considered as having availed himself of the deductions allowed in the preceding Subsections. Such election when made in the return shall be irrevocable for the taxable year for which the return is made: Provided, that an individual who is entitled to and claimed for the optional standard deduction shall not be required to submit with his tax return such financial statements otherwise required under this Code: Provided, further, That except when the Commissioner otherwise permits, the said individuals shall keep such records pertaining to this gross sales or gross receipts, or the said corporation shall keep such records pertaining to his gross income as defined in Section 32 of this Code during the taxable year, as may be required by the rules and regulations promulgated by the Secretary of Finance, upon recommendation of the Commissioner.”

On January 24, 2014, Henares promulgated RR No. 2-2014, which provides:

“SECTION 5 – Mandatory Itemized Deductions.

A.   Corporations, partnerships and other non-individuals are mandated to use the itemized deductions in the following cases:

1.   Those exempt under the Tax Code, as amended [Section 30 and those exempted under Section 27(C) and other special laws, with no other taxable income;

2.   Those with income subject to special/preferential tax rates; and

3.   Those with income subject to income tax rate under Section 27(A) and 28(A)(1) of the Tax Code, as amended, and also with income subject to special/preferential tax rates.

Juridical entities whose taxable base is the gross revenue or receipts (e.g., non-resident foreign international carriers) are not entitled to the itemized deductions nor to the optional standard (OSD) under Section 34(L) of the Tax Code, as amended.

B.   Individual taxpayers who are not entitled to avail of the OSD and thus use only the itemized deduction method are as follows:

1.   Those exempt under the Tax Code, as amended, and other special laws with no other taxable income [e.g., Barangay Micro Business Enterprises (BMBE)];

2.   Those with income subject to special/preferential tax rates; and

3.   Those with income subject to income tax rate under Section 24 of the Tax Code, as amended, and also with income subject to special/preferential tax rates.”

It may be noted that while Section 34(L) of the Tax Code allows taxpayers to choose between OSD and itemized deductions; RR No. 2-2014 made it mandatory upon all taxpayers, except juridical entities whose taxable base is the gross revenue or receipts, to use only itemized deductions.

In Othello Dalanon’s layman’s understanding, he feels that the provisions of RR Nos. 6-2013 and 2-2014 have gone beyond the ambit of the Tax Code.

The COURT OF APPEALS in the case of Commissioner of Internal Revenue vs. Tikicraft Industries, Inc., et al., (CA-G.R. SP No. 24488, August 16, 1991) has had the occasion to say that:

“There is no gainsaying that regulations are entitled to great respect from the courts especially if followed for some considerable period of time (Molina vs. Rafferty, 39 Phil. 169; People vs. Hernandez, 59 Phil. 272). While rules and regulations promulgated by the administrative authorities are entitled to great respect and weight from the courts, it is a well-ingrained through principle that the rules and regulations issued by administrative officials to implement a law in order to be valid must not go beyond the terms and provisions of the latter. Thus in the case of Juan vs. Musngi (155 SCRA), the Supreme Court held:

“Article 7 of the Civil Code embodies the basic principle that administrative or executive acts, orders and regulations shall be valid only when they are not contrary to the laws or the Constitution. In further amplification this Court had consistently ruled that administrative regulations under legislative authority by a particular department must be in harmony with the provisions of the law, and should be for the purpose of carrying into effect its general provisions. By such regulation, of course, the law itself cannot be extended.”

“In fine, the power of the Secretary of Finance to promulgate rules and regulations, upon recommendation of the Commissioner of Internal Revenue, for the effective enforcement of internal revenue laws, is subject to the limitation that said rules and regulations should not be in conflict with the terms and provisions of a pre-existing law.”

Thank you