Philippines' BIR Defends Its Ruling Change In Shell Tax Dispute

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

01 February 2010

The Philippines’ Bureau of Internal Revenue (BIR) has justified the change in its tax ruling, and its retroactivity, in the continuing tax dispute with Pilipinas Shell Petroleum Corporation (PSPC) over its imports from 2004 of catalytic cracked gasoline (CCG).

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 those imports. In its submission to the court, PSPC questioned the jurisdiction of the Bureau of Customs over the imposition of the tax, given that, it was said, the BIR has responsibility for interpreting the provisions of the Philippine revenue regulations.

It also said that the BIR had made a prior ruling that the 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 by then, it is believed that the Bureau of Customs 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 BIR has now said, as the BOC was able to utilize new information not previously available to the BIR, it believes the change in ruling was lawfully made by the BOC, to whom the BIR has mandated responsibility for collecting domestic taxes on imports. The BIR has also said that the tax regulations allowed for retroactivity in certain circumstances.

Business groups in the country, including the Philippine Chamber of Commerce and Industry and the European Chamber of Commerce in the Philippines, have expressed the view that the ruling, if maintained, could set a harmful precedent and discourage further productive investment in the country.

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