Ayala Land responds to Agustin column

(The Philippine Star) - May 27, 2021 - 12:00am

We seek to clarify the column published by Mr. Victor C. Agustin in The Philippine STAR on May 25, 2021 entitled “Tale of two Ayala Land: Group suffers, parent prospers.”

In the article, Mr. Agustin highlights the taxes paid by the Ayala Land, Inc. group of companies (ALI Group) and the tax benefit recorded at the parent level (ALI Parent), without providing any further explanation. The ALI Group comprises the ALI parent and all of its subsidiaries and joint ventures and associates.

The Company’s performance as well as the taxes it pays must be looked upon in its totality. The ALI Group’s Provision for Income Tax in 2020 was P4.1 billion which resulted in an effective corporate income tax rate of 27 percent, consistent with prior years. This effective income tax rate emanated from the combined provisions for income tax of ALI Parent and all its subsidiaries, with corporate income taxes applied separately to each juridical entity.

With reference to the effective tax rate of ALI Parent, it registered a Net Income After Tax (NIAT) of P14.7 billion in 2020, higher than the P8.7 billion recorded by the ALI Group. The main difference in the NIAT between the ALI Group and ALI Parent arises from the treatment of two transactions in ALI Parent company books:

1. The P7.8-billion dividend income from subsidiaries and affiliates, and 2. The P7.7-billion gain from the sale of AREIT shares.

In line with and compliant with Philippine Financial Reporting Standards (PFRS) rules on consolidation, these are eliminated, resulting in the lower NIAT at the ALI Group level. If one were to look at ALI Parent’s income statement alone, Mr. Agustin pointed out that its effective income tax in 2020 was -2.41percent. This is due to two main reasons:

1. The P7.8-billion dividend income from subsidiaries and affiliates are exempt from corporate income tax since these are inter-corporate dividends. The entities that declared the dividends have already been subjected to, and have paid, the required corporate income tax.

2. The P7.7-billion gain on the sale of AREIT shares were subjected to a stock transaction tax in lieu of the corporate income tax, in accordance with the Philippine REIT law.

Excluding the two transactions amounting to P15.5 billion (which are not subject to corporate income tax) and other transactions that were subjected to final tax, ALI Parent’s NIAT of P14.7 billion will actually translate to a net taxable loss, hence the P1.45-billion Net Operating Loss Carry Over (NOLCO) registered in 2020. This was the result of the difficult business conditions that were faced by our business units under ALI Parent arising from the pandemic. This explains the “negative 2.41 percent” at ALI Parent, mentioned by Mr. Agustin. It is not because ALI Parent “had managed to squeeze down its effective income tax rate,” as stated in the article, but simply due to the application of accounting principles and the applicable tax regulations in our reporting.

Finally, we wish to highlight ALI Group’s existing prepaid taxes and licenses which stood at P18.2 billion as of end 2020. This is P5.9 billion higher than the P12.3 billion registered in 2019. These pertain to advanced tax payments made in the form of creditable withholding tax (CWT), which will be claimed against the corporate income tax due in future periods, and prepayments on other taxes and licenses.

In Ayala Land, we adhere to and comply with the highest governance standards. We make sure we pay our fair share of taxes. In the future, we would be happy to answer any question or clarify issues in the interest of truth and transparency to ensure balanced reporting. We trust that The Philippine STAR will clarify this matter. – Augusto D. Bengzon, Chief Finance Officer and Chief Compliance Officer, Ayala Land

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