PSPC STATEMENT ON THE REVERSAL OF BIR’S RULING ON CCG
Pilipinas Shell Petroleum Corporation expressed concern at reports that Bureau of Internal Revenue (BIR) Commissioner Joel Tan-Torres has reversed the 2004 BIR Memorandum that held that Shell’s importation of Catalytic Cracked Gasoline (CCG) and Light Catalytic Cracked Gasoline (LCCG) raw materials are not subject to excise taxes.
The BIR reversal came soon after Shell filed a case with the Court of Tax Appeals (CTA) questioning the jurisdiction of the Bureau of Customs (BOC) to collect P7.3 Billion for its alleged tax deficiency on the importation of CCG and LCCG. Shell asserts that since excise taxes are internal revenue taxes, it is the BIR and not the BoC that has jurisdiction over the same.
The latest BIR position abandons the series of rulings issued since 2004 exempting from excise taxes all importations of raw materials used by Shell to produce unleaded premium gasoline. BIR Commissioner Jose Mario Buñag previously ruled that CCG and LCCG are “not finished gasoline products intended for use by end consumers” and are not subject to excise tax upon importation. This position was also affirmed by BIR Commissioner Guillermo Parayno. In a Memorandum issued in June 2009, former BIR Commissioner Sixto Esquivias IV reiterated these prior rulings confirming that CCG and LCCG are not subject to excise tax.
The 2004 BIR ruling was uniformly implemented by several BIR Commissioners and the BOC including the current BOC Commissioner Napoleon Morales when he was the Batangas Port Collector.
The BIR reversal also runs counter to 4 settled rulings of the Supreme Court on the matter, the first ruling having been established 80 years ago in the 1929 Asiatic Petroleum case, reiterated by the high court in the Petron and SilkAir cases decided in 2008 where it held that excise tax is not imposed on the act of importation but is levied on the consumption of specified products.
The latest BIR position likewise contradicts findings of the Department of Energy (DOE), the agency which has specialized expertise in this issue, in 2003 and 2009 that imported CCG and LCCG are raw materials used by Shell for the production of unleaded gasoline.
Newly appointed BIR Commissioner Joel Tan-Torres explained the sudden reversal by claiming that factual findings of the BOC which were previously not disclosed or given by Shell provide basis for reversing the previous BIR position. In response, Shell cites a 2009 BOC investigation report that found no evidence that Shell was selling CCG and LCCG to the public to refute the claim of misrepresentation. Furthermore, Commissioner Tan-Torres’ claims of misrepresentations have already been previously considered and rejected by former BIR Commissioner Esquivias when he issued his Memorandum in June 2009 upholding Shell’s position.
Shell also maintains that while it does not pay excise taxes to the BOC when CCG/LCCG is imported, it has paid billions in corresponding excise taxes after the imported CCG and LCCG have been processed into unleaded gasoline and withdrawn from its Batangas refinery.
Even the BOC Verification Committee Reports of August 17, 2009 and November 11, 2009 recognized the unjustness of the double taxation when it recommended that Shell should be allowed to credit any excise taxes paid on its imports by deducting it from the excise taxes due when it withdraws its finished products from its refinery. However, Commissioner Tan Torres does not provide for the crediting system when he reversed the 2004 BIR Memorandum which effectively results in double taxation. Note that finished product importers pay excise taxes on entry to BOC but do not pay excise taxes to the BIR when the product is withdrawn from their import facilities for sale to the market.
The BOC had intended to seize US$400 Million worth of future importations by Shell to enforce the disputed assessment but Shell filed a case before the Court of Tax Appeals (CTA) earlier this month to dispute the assessment and, last December 09, the CTA issued a 60-day temporary restraining order barring the BOC from implementing the seizures.
“The BIR and BOC should not resort to unlawful double taxation as this implies that we are discouraging manufacturing in the country and putting at risk the supply security of our energy requirements. The threatened seizures will also result in work stoppage in the Shell refinery and a nationwide fuel shortage,” Edgar Chua, PSPC Chairman and President said.
PSPC will continue to seek legal remedies to contest the recent BIR ruling.
“Beyond the immediate impact to our economy, this reversal of the BIR results in an unpredictable regulatory environment that sends a negative signal to investors. We are hopeful that this matter will be resolved soon,” Chua added.