CAUTION.This piece is specially written for the eyes of Commissioner Kim Henares of the Bureau of Internal Revenue, since she has proudly proclaimed she would go after tax evaders and those who paid taxes less than what they should have paid the BIR.
She has singled out though Filipino boxing champion Manny Pacquiao in her tax collection drive. Has she not missed anyone yet?
The limitation, of course, applies only to readers of The Manila Times who are not as curious as Due Diligencer in how much Golden Donuts Inc. (GDI) earned for their every bite of Dunkin Donuts. GDI is the local franchise holder of the American food brand.
Due Diligencer is posing here a few queries that only Henares and her chosen expert, and hopefully honest, tax examiners could properly explain. She need not worry about the repercussion of any explanation she could provide Due Diligencer. She is assured that the queries revolve around the use of percentages in GDI’s 2007-2007 financial reports.
Did Due Diligencer pick GDI in random for this piece? To tell Henares the truth, it did not. Having been told that GDI has been making over a billion pesos a year in selling Dunkin’ Donuts, it got curious how on earth a company could make billions selling donuts despite the competition posed to it by Mister Donut and the few “small others” such as Country Style, a Canadian brand which Due Diligencer first tasted while vacationing in Canada in 2001.
But before the story behind the percentages GDI used in computing franchise fees and royalties, Due Diligencer would try to analyze the company’s 2007 financial filing that shows its revenues climbed 12.92 percent to P1.17 billion from P1.04 billion in 2006. Of said revenues, sale of goods—meaning Dunkin Donuts—topped P1 billion at P1.03 billion, up 13.17 percent from P911.49 million. The other contributors to GDI’s revenues in 2007 and 2006 were royalties, P133.19 million, up 18.4 percent from P112.492 million; and franchise income, which dropped 39.30 percent from P16.22 million.
In 2007, GDI reported tax expense which increased 11.6 percent to P31.987 million from P28.66 million, resulting in net income of P64.792 million, up 52.31 percent from P42.54 million.
Until here, everything appears in order and does not need elaboration.
But Henares and her favorite examiners, who probably belong to the same yellow fever tribe, may be riding only on Pacquiao’s popularity to boost their tax drive. As “birds of the same feather” because they are all after “Other People’s Untaxed Money,” they might want to explain the percentages contained in notes to GDI’s financial reports such as the following:
Note 21.2 on “License Agreement” provides for the “payment to DBI (Dunkin’ Brands Inc.) equivalent to 1 percent of the total net sales of the company and those of its sub-licensees.”
Then said note listed franchise fee of P23.67 million in 2007 and P20.99 million in 2006. Computed at 1 percent as stated in the agreement, GDI and its sub-licensees must have grossed P2.37 billion in 2007 and P2.1 billion in 2006, or a total of P4.467 billion. These numbers, of course, do not appear in GDI’s financial statements.
GDI, on the other hand, reported “sale of goods” of P1.03 billion and P911.490 million in 2007 and 2006, or total sales of P1.94 billion in two years.
Subtracting GDI’s total sales from the grand total of P4.47 billion would result in the retailers combining for P2.52 billion.
On the other hand, GDI reported royalties of P133.19 million in 2007 and P112.49 million in 2006. These translate to P4.46 billion worth of Dunkin’ Donuts at 3 percent and P2.02 billion at 6.6 percent of sub-franchisees’ sales in 2007 and 2006.
Will Henares, as the government’s chief tax collector, not limit her efforts to collect more taxes from Pacquiao but include others as well. For a start, she might want to explain the discrepancies in the results of Due Diligencer’s computations and those contained in GDI’s audited financial reports.
Due Diligencer is giving Henares a chance to respond before it analyzes BIR’s own findings on GDI’s alleged P1.5-billion tax deficiency and the stockholders of the company that holds Dunkin Donuts’ Philippine franchise.