BIR loses P2.4 billion tax case vs Fortune Tobacco

Published September 3, 2018, 8:35 PM

by Roel Tibay

By Jun Ramirez

The Court of Tax Appeals (CTA) has canceled the P2.4 billion deficiency tax assessment of the Bureau of Internal Revenue (BIR) against Fortune Tobacco Corporation (FTC)arising from non-distribution of its profits to shareholders.

BIR logo and building (Manila Bulletin file photo)
(Manila Bulletin File Photo)

The BIR imposed the so-called improperly accumulated earnings tax (IAET) for the failure of FTC to divide portion of its 2011 to 2014 earnings to individual shareholders so that income tax could be collected from them.

But the court’s First Division in a 24-page resolution sided with the position of FTC that the assessment has no legal basis.

It said 99 percent of FTC is owned by another domestic corporation and has no individual stockholders to receive dividends.

The resolution also stated that the tobacco company needed the accumulated profits as reserve funds for expansion projects and service maturing debts, including the P20 billion syndicated loans.

It also said that Revenue Regulations No. 02-02 “is explicit that compliance with the covenant of loan agreement is allowed, stressing that the tax agency cannot collect revenues outside of its legislative mandate.