CTA stops BIR from imposing P2.6 B tax on FTC

Published October 6, 2020, 1:34 PM

by Jun Ramirez

The Court of Tax Appeals (CTA) en banc  has recently stopped the Bureau of Internal Revenue (BIR) from imposing P2.6 billion in improperly accumulated earnings tax (IAET) against Fortune Tobacco Corporation (FTC) for the year 2009.

Court of Tax Appeals (MANILA BULLETIN)
Court of Tax Appeals

The BIR slapped the tax which included interest and surcharges when it discovered that FTC had more than P14 billion accumulated earnings or profits which were not distributed to shareholders when it merged with Philip Morris Philippines in February, 2010.

The Tax Code imposes the penalty tax to compel corporations to distribute profits to shareholders so that the BIR can collect dividend or income tax from recipients.

The full  court, however,  affirmed the earlier decision of its First Division that FTC was able to substantiate fully the reasons for the non-distribution of the profits as prescribed under Revenue Regulations No. 02-01.

It said the tobacco company needed the fund for the amortization of its more than P20 billion syndicated loan with seven local banks.

The court also sided with the position of the FTC that it retained the earning as stand-by capital for anticipated investment in a joint venture with Philip Morris.

The 22-page resolution was written by Associate Justice Juanito Castaneda, Jr.