The Philippine unit of Royal Dutch Shell probably never expected to be called “a sacred cow” even though it is one of the country’s best-known companies. But neither did Pilipinas Shell Petroleum think that it might be accused of tax dodging or “technical” smuggling.
But that’s what’s happened. The company has become the first multinational to be hit by President Benigno Aquino III’s high-profile campaign against alleged tax-dodgers. And it may not be the last.The country’s bureau of customs announced on Thursday that its “campaign against tax dodgers shifted to a much higher gear with the filing of a 24-billion peso technical smuggling complaint against the multinational Pilipinas Shell Petroleum Corp.
Angelito Alvarez, the customs chief, said the criminal complaint against Shell “should prove to everyone that President Aquino’s campaign against smuggling, corruption and other economic crimes respect no sacred cows.”
The complaint against Shell, which runs one of two petroleum refineries in the Philippines, is part of a public assault on suspected tax evaders and smugglers launched shortly after Aquino’s inauguration on June 30. He vowed not to impose new taxes during the election campaign. Instead, he is doing all he can to curb tax evasion that swallows as much as 250bn pesos a year. The budget deficit this year is seen to grow to a record 325bn pesos.
At least once a week since July, tax and customs authorities have been filing complaints against companies and wealthy individuals suspected of failing to pay the correct taxes. Shell is the first multinational company caught in the drive that has so far targeted a wealthy pawnshop operator, a waste management company and other medium-scale businesses.
The customs bureau alleged that Pilipinas Shell evaded 2.7bn pesos in excise taxes and value added taxes by misclassifying or misdeclaring unleaded gasoline imports as tax-exempt substances to escape tax payments. It is seeking additional penalties of 21.8bn pesos.
The complaint has been submitted to the Department of Justice, which will decide whether or not to file a suit before a court after an investigation. The company’s spokesman did not reply to a request for comment. One of Shell’s external counsels downplayed the complaint, saying it was a desperate move by the customs bureau to boost collections that have been falling short of target.
The customs bureau has a separate case against Shell seeking to collect 7.3bn pesos in unpaid excise taxes on imports of petroleum products used for the production of unleaded premium gasoline. The bureau tried to seize some of Shell imports in December to enforce the collection but was blocked by an injunction from a court.
Ironically, Shell’s tax troubles partly stem from a decision to make petrol products in the country rather than import them like most others do. It brings in tax-exempt intermediate products, which authorities are keen treat as a finished product, thus, subject to tax. Of the three oil majors in the country that set up shop in the country after World War II, Shell is the only one still operating a refinery. Chevron closed its manufacturing facility in 2003 while Exxon sold its refinery in the early 1970s to Petron Corp, a Philippine state oil company that was later privatised. It runs the country’s other oil refinery.
On September 6, the Philippine energy secretary said one of the country’s two remaining petrol refineries will likely shut down because it is becoming less and less viable. No prizes for guessing which.
Source: blogs.ft.com
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