TAX NEWS - June 2010

Philippines Tax: P104-M tax case poised vs Chingkoes

The Department of Justice (DOJ) has given its go-ahead for the Bureau of Internal Revenue (BIR) to file a P104.5-million tax-evasion case against a fugitive couple involved in the multibillion-peso tax-credit scam in the mid-'90s.

A decision by DOJ Acting Secretary Alberto C. Agra dated May 14 but only released on Wednesday found probable cause for the government to file a criminal case against businessman Faustino T. Chingkoe and his wife Gloria.

The Chingkoes have fled the country and are believed to be in China, although they also own property in Canada.

Faustino, who is known to hold four passports, had sought permission last year to attend a son's graduation in the United States and then flew to China for a business trip, but later told the court through lawyers that he had gotten sick and could not return as scheduled. Efforts by prosecutors to bring him back were in vain, and he has since been regarded as a fugitive from justice.

The cases filed in the antigraft court involved certain officials of the Department of Finance. Most were focused on graft and corruption cases, and the couple was believed to have allowed the use of several of its companies to simulate transactions that would entitle these to tax credits, which were then sold to several other oil and transportation companies. The DOF officials were impleaded because the processing of the fraudulent tax credit certificates (TCCs) were done in the department's one-stop-shop center.

BIR Deputy Commissioner Gregorio V. Cabantac said in a news conference on Wednesday that there are no more obstacles for the BIR to file a criminal case before the proper courts against the couple.

The tax evasion case of the couple only involved P104.47 million, excluding penalties and other surcharges.  The entire tax-credit scam, however, involved some P2.5 billion through the fraudulent use of the certificates. Other estimates earlier said the government's loss in terms of forgone revenue could reach as much as P5 billion.

TCCs serve as a company's claim for tax credits, which are given to firms that import raw materials for processing and then export the finished products.

The Chingkoes owned Diamond Knitting Corp., a company engaged in the garments business, which also imports goods.

The company declared no sales in taxable years 1994 through 1997. When the BIR conducted an investigation after the scam had been discovered, it turned out that Diamond had operations during this period and made purchases and sales that enabled it to earn TCCs.

Holders may use tax credit certificates (TCCs) in paying taxes or sell them at a discount. Fraud is committed when companies acquire the TCCs illegally, or when companies not entitled to tax credit certificates (TCCs) use them. When the fake tax credit certificates (TCCs) are used to pay taxes, the government loses billions in pesos in tax revenues, Cabantac said.

Most of the tax credit certificates (TCCs) were sold by the couple, through their dummy corporations, to Petron Corp. and Pilipinas Shell Petroleum Corp.

Cabantac recalled that separate charges were filed against the two oil giants.

The Chingkoe group of companies is believed to be the single-biggest company that was involved in the tax scam but Cabantac said there are 20 more companies the agency will pursue.

"Dummies of the spouses who are reportedly continuing the [business] affairs of the spouses in the country are the next targets of the BIR for possible warrant of distraint and levy under its Reinvigorated Run After Tax Evaders [RATE] program," said Cabantac, who also heads the RATE Program.