What went wrong?: BIR, Megaworld face off in House inquiry

In a statement, the property giant owned by billionaire Andrew Tan said the company has been regularly audited and that previous deficiencies have already been paid for by the firm and cleared by the BIR.
Megaworld Corp.

MANILA, Philippines — Congressional lawmakers mounted a special inquiry in the aftermath of the Bureau of Internal Revenue's "closure order" against Megaworld Corp., revealing a communication breakdown that led to last week's fiasco.

On Monday, Albay Rep. Joey Salceda, chairman of the ways and means committee, led an inquiry attended by officials from BIR, Bases Conversion and Development Authority, Department of Finance and executives from Megaworld.

Breakdown?

A back-and-forth ensued between public officials and Megaworld officials, with each side alleging wrongdoing throughout the investigation.

BIR officials, led by deputy commissioners Marissa Cabreros and Arnel Guballa, explained that the issuance of the order stemmed from an investigation of possible errant tax payments of real estate developers and firms.

Also present at the inquiry was BIR regional director Eduardo Pagulayan Jr., who said there were possible "tax leakages" after some condominium owners complained that their tax payments for their properties were not remitted by real estate developers.

A task force was set up in October last year to investigate these tax issues of real estate developers, according to the tax agency. The BIR also said they found out that the BCDA, a state-owned company, and Megaworld entered into an unincorporated joint venture, wherein the latter will develop swaths of land owned by the government. The joint venture was not registered with the BIR. 

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Salceda wondered why the BIR sent the closure order only to Megaworld. BCDA and BIR officials said the BCDA paid their taxes promptly.

"The violation is by a joint venture, both partners should be held to account," Salceda quipped.

'Miscommunication'

In the course of BIR's investigation, Megaworld officials in attendance, helmed by Andrew and Kevin Tan, were surprised that they were not given ample time to respond to the BIR's demands, nor was the company accorded "due process."

BIR officials confirmed in the hearing that it issued letters of authority (LOA) to Megaworld demanding a tax audit and they be shown the company’s accounting books. These letters were only sent on April 17. The BIR also said it has sent similar LOAs to other real estate firms in the course of its investigation.

According to Megaworld, it wrote back to the BIR days later, calling out an issue of "jurisdictional overlap" since the letters were not directed towards the joint venture of BCDA and Megaworld, which was created after the Tan-led firm won a public bidding back in 2009.

Cracks in their correspondence became visible as Megaworld has not agreed to be audited while BIR sought to exercise all legal options to secure an audit and access to Megaworld's accounting records. Ma. Clara Uykim, head of Megaworld's corporate advisory and compliance division, said the BIR “denied our claim”.

Megaworld submitted another protest letter on May 5 but was surprised that a media advisory pertaining to a closure order to be issued against the firm was already in the works, saying it was "like a gun to our head."

The BIR's advisory to the news media about the issuance of a closure order against Megaworld caused mayhem for the company’s shares. The younger Tan lamented that the backlash was swift, resulting in a sell-off of more than 400 million shares on May 17.

"Obviously, we don’t believe this warranted as no audit was done prior to that. No due process was conducted," said Kevin Tan, company executive vice president and chief strategy officer.

"If the BIR can do it against a publicly listed company? What else could they do to other businesses?" Tan added.

BIR’s Guballa said in the inquiry that director Pagulayan sought to use the closure order as a tool to audit Megaworld. In turn, the elder Tan branded BIR's investigation as a "petty issue" since they entered into a deed of trust with BCDA to develop taxpayer-owned land.

By the end of the inquiry, lawmakers lamented miscommunication that transpired between the property giant and the taxman. “What we are seeing is a mix of miscommunication between private sector and the government. This will have a negative effect on our economy,” Iloilo Rep. Janette Garin (first district), said,

Before this Monday appearance, Megaworld officials rushed to BIR's regional office and discussed the matter a day before the closure order was supposed to be publicly issued. This compelled BIR to "hold in abeyance" investigation for the meantime.

The Department of Finance issued a memo to the BIR last week instructing that all regional special orders related to any special audits are suspended, with all audits redirected to their units. In this case, the Large Taxpayers Service will take over the Megaworld case.

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