Tax appeals court upholds acquittal of Ressa, Rappler

The Court of Tax Appeals (CTA) en banc has upheld its earlier decision to dismiss four tax evasion charges against Rappler news website CEO Maria Ressa and Rappler Holdings Corporation (RHC) due to their lack of merit.

In a 37-page decision dated February 21, the CTA en banc upheld the CTA First Division’s May 2023 ruling, which found no tax deficiency for Ressa and RHC because RHC is not habitually or regularly engaged in the purchase and resale of securities.

Likewise, the tax court noted that Rappler’s issuance of Philippine Depositary Receipts (PDR) was done for a legitimate business purpose, such as to raise capital for its subsidiary Rappler Inc., consistent with one of the purposes of RHC as a holding company.

The Bureau of Internal Revenue (BIR) defines securities as “shares of stock in a corporation and rights to subscribe for or to receive such shares.” 

The PDR is defined as “a document that gives the holder a right, but not an obligation, to purchase the underlying shares at a specified price, or the right to the delivery of the sales proceeds of the underlying share.” 

“RHC's issuance of PDRs is in accordance with its uses as a holding company and cannot be considered as a dealer in securities. We sustain the findings of the Court in Division that the issuance of PDRs to NBM Rappler L.P. and Omidyar Network is not a sale of stock but an investment transaction,” the CTA said. 

“Nothing in the PDR Investment Agreement and PDR Subscription Agreements would show that the foreign entities will become owners of the shares of stock of Rappler Inc. upon the issuance of PDRs,” the CTA added.

In addition, the CTA said that the PDR holders only retain the option to purchase the underlying shares of Rappler Inc. subject to certain conditions, such as the absence of a law restricting foreign ownership in the business of the operating entity. 

“This [limitation for PDR holders] is consistent with RHC's Articles of Incorporation which does not include RHC [being allowed] to act as a dealer of securities or stockbroker,” the tax court said. 

Further, the CTA said that there was no transfer of economic rights or beneficial ownership of Rappler Inc. shares which may constitute a taxable event, and that the RHC is not required to report the amount received pursuant to the PDR issuance to NBM Rappler L.P. and Omidyar Network. 

“VAT (Value Added Tax) and income tax are imposed when there is sale and income, respectively. In the absence of sale of shares and the absence of a gain, there is no VAT or income tax to speak of. While said PDRs have corresponding underlying shares of stocks of RI, the issuance thereof was not subject to VAT and income tax,” the CTA said. 

“Hence, there was no willful failure to supply correct information in RHC's [tax] returns. The petitioner (BIR) failed to establish that respondents are required to report any income in its returns, nor are they required to pay VAT or income tax for the issuance of the PDRs,” the CTA added. — BM, GMA Integrated News