JFC Seeks Philippine Tax Law Consistency In Shell Dispute

by Mary Swire, Tax-News.com, Hong Kong

04 February 2010

With regard to the current tax dispute between the Bureau of Customs (BOC) and Pilipinas Shell Petroleum Corporation (PSPC), the Joint Foreign Chambers of the Philippines (JFCP) has requested that the country’s tax regulations are applied with consistency so as not to discourage future investment.

In December last year, PSPC petitioned the Philippines’ Court of Tax Appeals to prevent the Bureau of Customs (BOC) from enforcing a PHP7.3bn (USD157m) excise tax assessment on its imports of catalytic cracked gasoline (CCG). In its submission to the court, PSPC said that the Bureau of Internal Revenue (BIR) had made a prior ruling that CCG imports were not subject to excise tax, as they are duty-free raw materials subsequently used in the production of unleaded premium petrol in PSPC’s refinery.

At the appeal hearing, PSPC was able to obtain a temporary restraining order. However, that order runs out on February 9 and, if PSPC has not settled the amount due by then, it is believed that the BOC will seize all PSPC's CCG imports in February and March, which could stop PSPC’s oil refining and lead to possible domestic market supply problems.

The JFCP is the joint organisation of the Chambers of Commerce of the US, Canada, Australia-New Zealand, Japan and South Korea, together with the Philippine Association of Multinational Companies. It therefore represents a significant proportion of foreign investors in the country.

In a letter to the Secretary of the Department of Finance, Margarito Teves, the JFCP has asked the government to intervene in the dispute to ensure that there is consistency, predictability and the following of due process, together with no retroactivity, in the application of tax rules in the Philippines.

It said that, in its opinion, the proposed additional excise by the BOC would mean the taxation of both raw materials and finished goods, further discouraging future investors in the manufacturing sector. In addition, it questioned the possible move by the BOC to seize PSPC’s imports, which could have a harmful effect on a vital market in the economy.

Furthermore, the ways and means committee of the House of Representatives has also criticised the decisions of the BOC, requesting it not to seize any of PSPC’s imports after February 9 but to await a final court ruling. It also questioned the legal basis of the reversal of the previous ruling by the BIR that CCG imports, as raw materials, were not subject to excise tax.

The committee, which has a responsibility for all tax regulations, pointed to previous rulings by the Supreme Court and the Department of Energy in support of the opinion that CCG imports were not taxable.

Recommended