“We feel that foreign investors are being short-changed.”
The lament comes from Henry Schumacher, external affairs vice president for the European Chamber of Commerce of the Philippines, who spoke at a roundtable discussion on Wednesday with The Manila Times.
Schumacher discussed the recent Supreme Court ruling rejecting San Roque Power Plant’s claim for a tax refund, on grounds that the plant did not comply with standard procedures.
Schumacher said he was happy with the current “reform-willing government since (former president) Ramos,” but he and his colleagues in the foreign investment community are alarmed by the “retroactive” rulings of the Supreme Court and the Bureau of Internal Revenue (BIR).
He said the San Roque case could turn off investors looking to do business in the Philippines.
Schumacher said the high court and the BIR were “ganging up on foreign investors,” making it difficult for them to receive fiscal incentives such as duty and tax-free imports for capital equipment of priority sectors.
The long process of claiming such refunds is also burdensome to the investors, since they have to go through the BIR only to be forced to go to the Court of Tax Appeals (CTA) and then to the Supreme Court, where long delays cause businesses to claim their refunds only years after. In one case, it took a full decade before a ruling was made.
Schumacher cited three large-scale investment companies which he said have been “short-changed”—San Roque Power Plant Co. which had over P 500 million in tax refunds, Korea Electric Power Corp. (KEPCO) which had over P 1.7 billion in receivables, and the CBK (Caliraya, Botocan, Kalayaan) Power Plant which had over P800 million in tax refunds, after their claims were denied by the high tribunal.
Although foreign investors enjoy such incentives, VAT and other taxes have to be advanced by the companies then later on reimbursed by the BIR.
The Supreme Court ruling denying San Roque Power Plant’s claim was based on the decision in the case of Aichi Forging Company of Asia, Inc. in 2010, that was denied the same refund after the company did not observe the 120-day period that was fatal to the filing of a judicial claim.
San Roque believes the decision was “retroactive,” since it was back in 2003 that the company filed for a refund, only to be told after 10 long years that what it had done was “erroneous and premature,” the same reason cited by the court in its 2010 ruling with Aichi.
Schumacher and his foreign colleagues fear that these “technicalities” could force investors to look at other markets besides the Philippines such as Vietnam, Indonesia and Taiwan, which are more foreign investment-friendly.
He believes that the government must also “treat old investors nicely,” since they serve as “ambassadors for new investors” looking to get into the local market.
Unexpected and drastic changes in internal revenue policies should also be given a “five-year adjustment period” to give local and foreign investors a chance to cope with new policies of the government, Schumacher said.
The German executive also believes that if the government is not open for changes in the constitution, then it should at least look at other areas, such as revising the Internal Revenue code, to create a level playing field for all investors.
Schumacher said that despite his misgiving on the tax refund situation, he has remained in the Philippines for 36 years because he enjoys the country’s “flexibility,” enabling foreign investors to “use your creativity with all its gray areas,” far from the “black and white” business practices offered in European countries such as his homeland Germany.