The Bureau of Internal Revenue (BIR) has filed an P1.11-billion tax evasion case against Prieto-owned Golden Donuts Inc. (GDI), the local franchise holder of the Dunkin’ Donuts brand.
The company, whose owners have been the target of verbal attacks from President Rodrigo Duterte, denied the accusation.
Charged before the Department of Justice were Golden Donuts officials Walter Spakowski, Miguel Prieto, Pedro Paraiso and Jocelyn Santos.
The Mandaluyong-based company is the exclusive franchisor and license grantee of Dunkin’ Donuts of America, Inc. (DDAI), which granted it the license to develop and operate donut outlets in the Philippines.
In a statement, the BIR said Golden Donuts and its corporate officers were civilly liable for income, value-added (VAT) and expanded withholding tax deficiencies, all covering taxable year 2007, amounting to over P1 billion inclusive of surcharges and interests.
It said the company was liable for over P840 million in income taxes, VAT of over P270 million and expanded withholding taxes of over P7 million.
“The case arose when a confidential information was received by the BIR that GDI made substantial under-declaration on its sales. To check the veracity of said information, a Letter of Authority was issued by the Commissioner of Internal Revenue for the examination of its books of accounts and other accounting records pursuant to the Run After Tax Evaders (RATE) Program of the BIR,” the tax bureau said.
The BIR said the license agreement between DDAI and Golden Donuts provides for the payment of a franchise fee equivalent to 1 percent of total net sales of all Dunkin’ Donuts retail stores.
The company’s agreements with franchisers, meanwhile, states that Golden Donuts is entitled to a 6.6 percent continuing royalty of the gross sales.
The tax agency explained that in the investigation of the case, sales invoices issued by various suppliers were found to have been intentionally altered in an attempt to conform to substantiation requirements.
“To aggravate GDI’s non-compliance, some invoices did not contain the TIN (tax identification number) of GDI.
Through this scheme, GDI was able to claim the altered invoices as deductions from its income and as input VAT credits in the amount of P99,297,036.47 and PP11,915,644.38, respectively,” the BIR said.
It claimed that Golden Donuts under-declared its sales by 39 percent based on a comparison of donut sales declared by the company vis-à-vis sales derived from the grossed-up value of the franchise fee paid to DDAI.
Golden Donuts was also said to have under-declared its royalty income by over P38 million, which was discovered by comparing royalties declared by the company in its 2007 annual income tax return vis-à-vis the royalties declared by franchisees in their own tax returns.
Moreover, the BIR said royalty income amounting to over P133 million should have been subject to regular corporate income tax.
“Analysis of the royalty income shows that by the nature or source of royalty income, it should not be treated as passive income subject to final withholding tax as what GDI did,” the agency said.
Under-declarations of income or overstatements of deductions that exceed 30 percent are deemed substantial and constitute prima facie evidence of a false or fraudulent return under the Tax Code, it added
The case against Golden Donuts is the 131st filed under the RATE program, the BIR said.
The company, meanwhile, said it “categorically denies the accusations of tax evasion for the year 2007. As a matter of fact, the tax liabilities of GDI for the said year had been settled with the Bureau of Internal Revenue as of 2012”.
“While GDI has yet to receive a copy of the complaint filed on Friday, it appears from the news reports that the complaint was filed based on an alleged 39 percent underdeclaration of sales which arose from the attribution of sales of franchises to GDI,” it said in a statement.
The company stressed that all its franchisees were separate business entities responsible for paying their own taxes.
“GDI is a professionally-managed organization which has been in the food business For more than 37 years. GDI is prepared to answer the tax evasion case in the proper forum,” it said.
The case against Golden Donuts is the latest setback for the Prietos, who have been forced to give up the Mile Long property in Makati — leased from the government — and are also in talks to give up control of the Philippine Daily Inquirer to businessman Ramon Ang, said to be a confidante of Duterte.