• CIGARETTE FIRM SELLS OUT TO JAPAN TOBACCO

    DoF studying Mighty’s P25-B settlement offer

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    The Department of Finance (DoF) said it was studying local cigarette manufacturer Mighty Corp.’s offer of a P25-billion settlement for its tax liabilities.

    This is after Mighty sold its manufacturing and distribution business and assets, along with the intellectual property rights associated with these assets, to Japan Tobacco International (JTI) Philippines Inc. for P45 billion.
    “We are studying the offer,” Finance Secretary Carlos Dominguez 3rd said in a statement on Wednesday.

    Three tax cases filed by the Bureau of Internal Revenue (BIR) against Mighty Corp. are pending before the Department of Justice (DOJ). These cases cover the firm’s non-payment of excise taxes due its cigarette products and the use of counterfeit tax stamps on its cigarette packs, which correspond to excise taxes valued by the BIR at a combined P37.88 billion.

    Mighty’s offer was higher than the P3-billion settlement offered by President Rodrigo Duterte in March.
    If approved, Dominguez explained that the settlement—which Mighty targets to happen by July 20—will only cover the deficiency excise taxes and internal revenue taxes of the company and its shareholders, and will be separate from the criminal charges that might be filed in court by the BIR against the company.

    In a letter to BIR Commissioner Caesar Dulay dated July 10, 2017, Mighty President and Director Oscar Barrientos said he was confirming “the Company’s willingness to settle all such excise and tax issues and respectfully offer as settlement of the Company’s shareholders’ and its officers’ liability in this regard the total sum of P25 billion.”

    Barrientos was quoted as saying in the letter that this settlement sum would be funded by means of an “interim loan” from JTI Philippines and the sale by Mighty and its affiliates of its manufacturing and distribution business and assets, along with the intellectual property rights associated with these assets, “including those owned by the company, Wong Chu King Holdings Inc., and other affiliates to JTI or any of its affiliates for a total purchase price of P45 billion exclusive of VAT.”

    Based on its settlement offer, the total amount that Mighty would remit to the government include: the P3.5 billion in deficiency excise taxes on its cigarette products that are now the subject of the three tax cases pending before the Department of Justice; P21.5 billion representing the liabilities of the company and its shareholders, as well as the company officers for all internal revenue taxes, including income tax from 2010 to 2016 and the tax period up to the closing of the proposed transaction with JTI; and all transaction taxes related to the agreement with JTI.

    “The initial payment of P3.5 billion will be paid by the company on the company’s behalf on or before July 20, 2017. A binding Memorandum of Agreement in relation to the Proposed Transaction (with JTI) will be concluded shortly (and prior to July 20, 2017) subject to finalizing terms with JTI and JTI completing its due diligence,” the letter read.

    The balance of P21.5 billion will be paid on or after the closing of the proposed deal with JTI, it added.

    Barrientos also requested the BIR in its letter for a reinvestigation of its pending criminal complaints before the DOJ following the initial payment of the P3.5 billion, along with a certificate of payment.

    “We also respectfully request the BIR to issue to the Company and its shareholders and officers following closing of the proposed transaction (with JTI) and the payment of the P21.5 billion the relevant Certificate of Availment of Compromise, a final tax assessment for all the Company’s excise and other tax issues described above, and relevant tax clearances to the Company, its shareholders and officers,” the letter said.

    Barrientos committed to retire the operations of Mighty Corp. following the conclusion of its deal with JTI.

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