BY EUAN PAULO C. AÑONUEVO Reporter

The Court of Tax Appeals has denied Pilipinas Shell Petroleum Corp.’s petition against the Bureau of Customs (BOC), which paves the way for the government to seize the oil firm’s imports to cover for its alleged tax deficiencies.

Customs Commissioner Napoleon Morales said they would seize the imports of Shell starting Wednesday despite a threat of domestic oil supply disruptions.

“Fuel shortage cannot be used as a justification because it has no legal basis. We cannot simply stop implementing the law because of such threat,” Morales added.

Shell is the Philippines’ second biggest fuel retailer after Petron Corp.

In a four-page resolution, the tax court found Shell’s petition for a motion for suspension against the Customs bureau lacking in merit.

“A serious consideration of the evidence adduced during the hearings on the incident shows that petitioner failed to establish, to the full satisfaction of the court, its entitlement to a suspension order,” the court said in its decision.

Shell is disputing before the tax court a P7.3-billion tax assessment slapped by the Customs on its importations of catalytic cracked gasoline (CCG) and light catalytic cracked gasoline (LCCG), which the tax agency claimed are finished products, from 2004 to 2009.

The tax court earlier issued a temporary restraining order in favor of Shell after the Customs bureau threatened to seize the company’s imports should it fail to pay its tax liability. The temporary restraining order lapsed Tuesday.

Alleged double taxation
Shell alleged that the Customs bureau’s tax claim is tantamount to double taxation since the contested items are raw materials used for the manufacture of its gasoline products, which are already taxed. The oil firm also alleged the tax claim is tantamount to the retroactive application of tax policy shifts since previous Bureau of Internal Revenue (BIR) rulings have upheld the company’s stand on the matter.

Recently installed BIR Commissioner Joel Tan Torres earlier issued a memorandum order reversing the stand of his predecessors that the oil firm’s CCG and LCCG imports should be tax-free.

In its decision denying Shell’s petition, Justice Erlinda Uy and Esperanza Fabon Victorino of the tax court said that “the damage in [Shell’s] property rights, must in the meantime, take a back seat to the paramount need of the State for funds to sustain governmental functions. Compared to the damage to the State, which may be caused by reduced financial resources, the damage to [Shell] is negligible.”

The tax court, however, was split on its decision as presiding Justice Ernesto Acosta rendered a 13-page dissenting opinion.

“The threatened action of [BOC] are damaging not only to [Shell’s] interests but also to the whole community considering the undesirable effects of rising prices of basic consumer needs, possible unemployment of a large number of people and extinguishment of opportunities for businesses dependent on [Shell’s] operations,” Acosta said.

The dissenting opinion concluded by saying “to deprive [Shell] of the Suspension Order will in effect render naught and useless the statement of Justice Holmes that ‘the power to tax is not the power to destroy while this Court sits.’ For this, Court failed this time.”

Shell to exhaust legal means
Bobby Kanapi, Shell vice president for communications, said that the company will not kowtow to the Custom bureau’s threat and will exhaust all legal remedies.

“The severe consequences of this oppressive measure compels us to exhaust all legal remedies. We will have to stop importing once they seize,” he said.

He added that Shell cannot pay back taxes claimed by the Customs bureau since these are under dispute. This is because Shell has adopted the Foreign Corrupt Practices Act and the Organization for Economic Cooperation and Development as part of its corporate governance principles. This prohibits the payment of assessments that are in dispute, meant to have retroactive effect, or subject of a rewards system to private individuals.

Energy Secretary Angelo Reyes said the country might face a fuel supply problem if Shell stops operating since the oil firm has a hefty share of the number of gasoline stations across the country.

“There are other players but we’re talking about 30 percent of all petroleum products. Even if the other players can absorb [the] additional importation, the distribution—I asked Shell and they said that their distribution channel [is] about 35 percent of the number of stations. They buy only from Shell and sell only Shell products—not only the volume of importation but the distribution might have problems,” he said.

To help find a solution to the standoff between Shell and the BIR and Customs bureau, the Energy department brokered a meeting on Monday. However, the parties failed to arrive at a common ground.

Reyes said that he would be meeting with Finance Secretary Margarito Teves on Tuesday in an apparent last ditch effort to settle Shell’s tax row with the government’s tax collection agencies. The two cabinet officials are still meeting as of press time.

Negative impact on investors
Besides the potential supply problem, business communities and Congress have sounded off the negative effects of the BOC and BIR’s moves against Shell since this may serve as a precedent to other investors in the country.

Last week, the ways and means committee of the House of Representatives released a report based on the hearings it has conducted since last year on the matter.

The report found the reversal by Tan Torres of a series of prior BIR rulings, which Shell relied upon for the tax case “a naked, arbitrary, and whimsical abuse of administrative power by the Commissioner of Internal Revenue and a usurpation of the power to tax solely vested in Congress by the Constitution.”

The Joint Foreign Chambers also expressed concern over the “heavy handed” approach of the government in its tax collection effort against Shell. The European Chamber of Commerce in the Philippines and the Employers Confederation of the Philippines also expressed concern over the flip-flopping of government agencies on the matter.
With report from Chino S. Leyco