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Tax avoidance allegations vs ABS-CBN unfair for regulators: Tax expert

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Bruce Rodriguez, ABS-CBN News

<div class="embed-wrap"><figure data-feedback="fb:likes,fb:comments"><img src="https://sa.kapamilya.com/absnews/abscbnnews/media/2020/business/05/06/20200505-abs-cbn-closure-fsj-5875-2.jpg"/><figcaption>The ABS-CBN ELJ building lights up with its signature colors as it went off-air in compliance with the cease and desist order of the National Telecommunications Commission for the network to broadcast on air. Fernando G. Sepe Jr., ABS-CBN News</figcaption></figure></div>MANILA - &quot;Unfair for Philippine corporate and tax regulators.&quot;That&#x27;s how tax expert Mon Abrea, founding chairman of the Asian Consulting Group, described the tax avoidance allegations circulating online against the Philippines&#x27; top broadcaster, ABS-CBN Corporation, which has been ordered to stop broadcast operations after the government allowed its franchise to expire.Critics have alleged that the media giant used questionable tax credits, and employed domestic and foreign-owned subsidiaries to avoid paying higher taxes.But Abrea said this questioned the credibility of corporate and tax regulators.&quot;Whether this subsidiary is legitimate or not, we have the Securities and Exchange Commission (SEC). Whether ABS-CBN paid all the taxes or not, (The Bureau of Internal Revenue) BIR is checking on ABS-CBN every year,&quot; Abrea said.<ul class="op-related-articles">	<li><a href="https://news.abs-cbn.com/business/02/24/20/abs-cbn-paying-taxes-regularly-bir-tells-senate-panel">ABS-CBN pays taxes regularly, BIR tells Senate panel</a></li>	<li><a href="https://news.abs-cbn.com/business/02/24/20/abs-cbn-pdrs-compliant-with-law-as-sec-says-ownership-rules-evolving">ABS-CBN PDRs &#x27;compliant&#x27; with law, as SEC says ownership rules evolving</a></li></ul>He also pointed out that the company gets audited by a third party.&quot;In fact, the auditor is a big firm which has credibility and established reputation,&quot; he further explained.ABS-CBN&#x27;s independent auditor is SGV &amp; Co., one of the largest auditing firms in the country. Likewise, the company&#x27;s financial reports are also yearly checked by the BIR to determine its tax compliance.<h3> &#x27;Misleading&#x27; Tax Avoidance Accusations</h3>Critics have argued that ABS-CBN has been avoiding paying the correct taxes as shown by its financial statements filed at the SEC.One post, which has been shared on social media over 11,000 times as of the time of writing, alleged, &quot;consolidated financial reports of ABS-CBN as parent company showed their effective income tax rate in 2017 was only 11 percent. In 2018, their effective tax rate was -5 percent! In other words, they didn’t pay tax in 2018.&quot;&quot;In layman’s terms, ABS-CBN was able to use tax credits in order to reduce (or avoid) tax payments by declaring in their financial reports that they are operating at a loss,&quot; the post added.But Abrea retorted that most of the points raised are &quot;misleading&quot;&quot;None of these large taxpayers can ever have a negative tax rate, because they are all subject to withholding taxes. It&#x27;s like the situation of the employee (wherein) before they receive their salaries it&#x27;s already net of taxes,&quot; he said.Abrea also said the effective tax rates discussed in the viral post all prove ABS-CBN has been a compliant taxpayer.&quot;You don&#x27;t do financial analysis by grabbing a number and getting a calculator, that&#x27;s not it. And even the effectivity tax rate. Just for the information of the public, 5 percent effective tax rate is like you are a saint, you are a holy taxpayer already,&quot; he said.<h3> ABS-CBN Subsidiaries as Tax Shields?</h3>Critics also said ABS-CBN has been using one of its subsidiaries, Big Dipper Digital Content and Design, Inc., to legally avoid paying the correct taxes.According to the posts, while the company declared a net operating loss in 2018, it was still able to turn in a profit thanks to &quot;tax-free&quot; dividend income from Big Dipper.But because of the operating loss, they allege ABS-CBN was still able avoid paying taxes for that year.To this, Abrea said, ABS-CBN did pay taxes in 2018.He added, it&#x27;s normal that, &quot;because of the investments made by the corporation there will be losses due to depreciation and a lot of unusual or not part of the normal operations but bulk of these expenses were charged to the income that created the losses which will be carried over for the next three years.&quot;He added, dividends from domestic subsidiaries are tax-free as stated in the National Internal Revenue Code.There are also insinuations online that ABS-CBN was abusing the law through Big Dipper since it&#x27;s registered under the Philippine Economic Zone Authority (PEZA) which allowed it a tax holiday until October 2013, and 5 percent income tax thereafter.One post alleged, &quot;Big Dipper &#x27;exports&#x27; its services to a foreign Hungary-registered company, which is also a fully-owned subsidiary of ABS-CBN.&quot;But Abrea said, &quot;It&#x27;s easy to say that you have a subsidiary to avoid taxes. If that is the case then why is ABS-CBN a top taxpayer, if their mere intention is to avoid taxes. It&#x27;s contradictory, it doesn&#x27;t make sense.&quot;He added, most large corporations employ tax-saving measures, including other media companies. &quot;Who among the parent companies, do not have a foreign subsidiary or companies registered abroad, not necessarily to avoid taxes, but because it is more beneficial in terms of resources, in terms of labor, or other infrastructure not available in the Philippines?&quot;In fact, the BIR has also earlier went on record saying the broadcaster has no liabilities with the agency.<h3> ABS-CBN Shutdown: Government&#x27;s Legal Way to Shut Down This Immoral, Unfair Tax Practice</h3>Posts that are critical of ABS-CBN have also argued, &quot;there&#x27;s a lot fixing and cleaning up to do in order to get that new franchise. If ABS-CBN thinks they have found a legal way to avoid paying the right taxes, then I guess finally the government also found a legal way to shut down this immoral, unfair practice.&quot;But for Abrea, what&#x27;s immoral is bringing this issue up in the middle of the country&#x27;s fight against the new coronavirus disease.<ul class="op-related-articles">	<li><a href="https://news.abs-cbn.com/business/05/04/20/timeline-will-abs-cbn-get-a-new-broadcast-franchise">TIMELINE: Will ABS-CBN get a new broadcast franchise?</a></li></ul>&quot;Lives are being compromised, people are going hungry and dying. It&#x27;s not the virus that will kill us. It&#x27;s our being entitled and this, exactly this, we are fighting and we are divided,&quot; he said.Abrea also gave a reminder to netizens sharing the posts online.&quot;These 11,000 people should be reminded as well that you are misleading the public. And by the way, I don&#x27;t have shares of ABS-CBN so I really don&#x27;t have vested interest. There is nothing that will benefit me in doing this. It&#x27;s really educating the public.&quot;He emphasized, &quot;tax avoidance is not illegal. Having a foreign subsidiary is not illegal. And there&#x27;s nothing immoral about it other than us putting malice or crucifying (ABS-CBN) just because we don&#x27;t like these people.&quot;Davao City Rep. <a href="https://news.abs-cbn.com/news/05/11/20/paolo-duterte-eric-yap-file-resolution-seeking-probe-on-alleged-abs-cbn-franchise-violations" target="_blank">Paolo Duterte</a>, son of President Rodrigo Duterte on Monday filed a resolution seeking an investigation on the alleged violations of ABS-CBN Corporation of its legislative franchise.

Critics have alleged that the media giant used questionable tax credits, and employed domestic and foreign-owned subsidiaries to avoid paying higher taxes.

Critics have alleged that the media giant used questionable tax credits, and employed domestic and foreign-owned subsidiaries to avoid paying higher taxes.

Tax avoidance allegations vs ABS-CBN unfair for regulators: Tax expert

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Tax avoidance allegations vs ABS-CBN unfair for regulators: Tax expert

Bruce Rodriguez,

ABS-CBN News

Published May 11, 2020 10:55 PM PHT

Read More:

ABS-CBN franchise renewal

ABS-CBN tax compliance

SEC

BIR

Mon Abrea

PDR

press freedom

Paolo Duterte

ANC

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