IT is good to know that incoming President Rodrigo Duterte is focusing on the alleged corruption at the Bureau of Internal Revenue (BIR). A concerned BIR former insider told Due Diligencer that the camp of the newly elected president, the first to come from Mindanao, suggested that they review the financial performance of certain companies to determine if they have been paying the correct taxes.
Due Diligencer also learned that people close to President Duterte have already been told how Golden Donuts Inc. (GDI) has succeeded in underpaying the taxes due the company’s sales. Due Diligencer’s “Dunkin Donuts must be Henares’ favorite” appeared in this space on Nov. 28, 2013. It is reproduced – minus readers’ comments – to provide the public a basis for comparing the tax collections under the Duterte presidency with those of Malacanang’s outgoing temporary occupants led by their chief.
CAUTION. This piece is especially written for the eyes of BIR Commissioner Kim Henares, since she has proudly proclaimed she would go after tax evaders, as well as those who paid taxes less than what they should have paid the BIR.
She has singled out Filipino boxing champion Manny Pacquiao in her tax collection drive. Has she not missed anyone else?
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 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 questions revolve around the use of percentages in GDI’s 2006-2007 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 by Mister Donut and the few “small others” such as Country Style, a Canadian brand.
But before we look into the story behind the percentages GDI used in computing franchise fees and royalties, Due Diligencer will try to analyze the company’s 2007 financial filing, which shows its total revenue climbed 12.92 percent to P1.17 billion from P1.04 billion in 2006. Of that total revenue, the 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 a tax expense which increased 11.6 percent to P31.987 million from P28.66 million, and a net income which rose 52.31 percent to P64.792 million 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. Together as “birds of the same feather,” they all go after “other people’s untaxed money,” and they might want to explain the percentages contained in the 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 the note listed a franchise fee of P23.67 million for 2007 and P20.99 million for 2006. Computed at 1 percent as stated in the agreement, that must have given GDI and its sub-licensees a gross of P2.37 billion in 2007 and P2.1 billion in 2006, for 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 over the two-year period.
Subtracting GDI’s total sales from the grand total of P4.47 billion would result in a combined P2.52 billion for the retailers.
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 will be waiting for Henares’ response 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.