Proof of Pacquiao's US taxes would cancel out part of PHL tax liability

 

“It's best to just show proof, like a tax credit certificate, that taxes were already paid,” Atty. Alexander Cabrera, a leading tax expert, said in a telephone interview, echoing the position of Bureau of Internal Revenue (BIR) Commissioner Kim Henares.

 

Cabrera heads Isla Lipana & Co. Inc., which is the Philippine member of PricewaterhouseCoopers global network. 

Under a tax treaty between the US and the Philippines, a Filipino citizen's taxes paid in the US for income earned there can cover the same amount of his Philippine taxes. But Pacquiao would still have to pay the balance, if any, of his tax liability of P2.2 billion.

Pacquiao is being asked to show US tax documents that would prove that he paid taxes on income from matches he fought in Las Vegas in 2008 and 2009, one of the most illustrious and lucrative periods in Pacquiao's career.

• March 15, 2008, a rematch against Juan Manuel Márquez

• June 28, 2008, against David Diaz

• December 6, 2008, against Oscar de la Hoya

• May 2, 2009, against Ricky Hatton

• November 14, 2009, against Miguel Cotto

According to the US Internal Revenue Service, a foreign athlete must pay a 30 percent income tax on earnings made in the US including compensation for a game, endorsements, sale of merchandise, royalty or other income related to an athletic event.

 

Individually, the foreign athlete may opt to pay using his income tax through debit or credit card, or via check or money order payable to the US Treasury.

 

On Tuesday, Pacquaio, the Forbes' list's 14th highest paid athlete in the world, claimed in a surprise press conference that his bank accounts were frozen over P2.2 billion in tax liabilities. 

 

The issue stemmed from a BIR Warrant to Garnish on Pacquiao's bank accounts in an effort to collect supposedly unpaid taxes from 2008 to 2009. It turned out that the frozen accounts amounted to only P1.1 million.

 

Pacquiao's camp has claimed they sent the BIR documentary proof, but Henares said it was a mere letter from his promoter, Top Rank Promotions.

 

"It would appear that they [the BIR] have frozen the accounts already when the legality of the assessment was still in question," Court of Tax Appeals Clerk of Court Margarette Guzman told GMA News Online on Wednesday. "Wala pa talagang order ang court whether to lift the warrant of destraint and garnishment," she added.

 

The CTA is hearing a civil case elevated by the boxer to the tax appellate court, which in turn stemmed  from a P2.2 billion tax deficiency claimed by the BIR against the Pacquiaos. 

 

Freezing bank accounts 

Cabrera said freezing bank accounts are among the “collection and enforcement powers” of the BIR.  

 

A warrant takes effect when “a final assessment from the BIR was not appealed, prompting the court to side with the BIR or the taxpayers appeal did not beat the 30-day deadline,” the court official said.

 

The BIR-issued warrant is a demand to pay taxes within 30 days after a series of assessments that the agency conducted with the taxpayer, Cabrera explained.

When the deadline lapses and no legal recourse was sought, the BIR can distrain – or enforce future payment – by freezing bank accounts, stocks, real estate and other interest in properties, the tax expert noted. 

 

On August 1, Pacquiao asked the CTA to review the claims made against him by the BIR.

 

Spouses Manny and Jinkee Pacquiao then filed on October 18 an urgent plea to lift the warrant issued by the BIR and ask the CTA to stop the bureau from further issuing any warrant against them.

 

"BIR ang nag-issue nun sa mga bangko. The banks put on hold the account of the spouses to withdraw from those accounts," Guzman said.

 

On Tuesday, two days after winning a boxing match against Mexican-American Brandon Rios in Macau, Pacquiao said his bank accounts were frozen.

 

According to the National Internal Revenue Code, “distraint... of personal property of whatever character” is among the BIR's remedies to collect delinquent taxes. The other is filing of civil or criminal cases.  

 

In June, the bureau issued a warrant but only 11 banks responded and the BIR learned from two banks that Pacquiao had about P1.1 million in deposits.

 

“Bank accounts are usually the first to be frozen because these are easier to liquidate. If these are not sufficient to cover tax liabilities, comes other properties,” said Cabrera. 

 

A radio report Wednesday noted the BIR has secured Pacquiao's $9 million house and lot in Forbes Park, arguably home to the Philippines' richest. 

 

But the bureau has yet confirm the report to GMA News Online. 

 

No secrecy laws violated

Cabrera stressed that issuing a garnishment on bank accounts does not violate any provision under the Bank Secrecy Law. 

 

“There wasn't information that was shared. The BIR wasn't asking for information, it randomly sends letters to banks telling them to secure deposits if there are any,” he added. 

 

“The banks probably only told the BIR that they have secured this amount,” Cabrera noted. 

 

The Bank Secrecy Law or Republic Act 1405 only prohibits inquiry or examination of bank accounts. 

 

CTA's Guzman said the BIR commissioner has the authority to issue the garnishment to protect government's interest. "That power belongs to the BIR commissioner but the taxpayer has a right to question by filing the proper motion," she added.

 

The tax appellate court will first hear “incidental matters to the main case,” including the Pacquiao's motion to lift the warrants. “This is just an incident to the main case which is whether the BIR assessment is valid... It just so happened that there was a warrant issued during the case...” Guzman said.

 

The CTA was done with two hearings – on Oct. 22 and on Nov. 5. The next hearing for the urgent motion is set Dec. 5, where the BIR will present its counter evidence against Pacquiao's motion to lift the warrant of garnishment.

 

Pacquiao's camp has already submitted documents – some of which are financial statements, Guzman stated.

 

“This is a civil case. Not all of these papers are open... these are very crucial documents that are not to be exposed to the public because some of which are financial statements,” Guzman said.

 

“After both parties have submitted pertinent documents, we'll see if there will be additional hearing days that they will request and we'll give them time to complete the testimonies of their witnesses,” she added. – With a report by Rouchelle Dinglasan/VS/HS, GMA News