“Shell owes the government so we have to hold their shipment,” he said.
The Court of Tax Appeals (CTA) yesterday denied Shell’s petition to stop the BOC from seizing the goods.
Morales said that as soon as the agency receives a copy of the court order, the bureau could start holding the imports of Shell.
In a meeting with officials of the Department of Finance, Shell maintained its position that it should not be paying the amount.
Shell officials said there would be supply problems if the BOC seizes the shipments. The company warned the bureau that a seizure may prompt it to shut down its refinery, one of only two oil refineries in the Philippines.
Headlines ( Article MRec ), pagematch: 1, sectionmatch: Morales dismissed this as “blackmail” and maintained that the BOC is determined to seize the goods.
He said that if Shell agrees to pay the amount, even at a later date, the BOC would not seize the goods.
“But they are not even talking to us,” Morales said.
The issue stemmed from Shell’s refusal to pay import taxes on catalytic cracked gasoline (CCG) and light catalytic cracked gasoline (LCCG) it imported between 2004 and 2009.
Shell cited a previous legal opinion issued in 2004 by then Bureau of Internal Revenue (BIR) Commissioner Jose Mario Buñag, which said that the importation of the two products is exempted from excise tax.
BIR Commissioner Joel Tan-Torres has already reversed the Buñag ruling and agreed with the BOC that the products are subject to tax.
Morales said the BOC is exerting all efforts, including going after Shell’s tax liabilities, in order to meet its revenue goal for 2010 amounting to P278 billion.
In January, the BOC collected P17.602 billion, above its revenue goal for the month of P14.091 billion, latest data from the Treasury showed. In the same month last year, the BOC collected P14.4 billion.
The Department of Finance (DOF), for its part, gave its full backing to the BOC, saying that its mandate is to collect taxes.
“Our mandate is to collect taxes so we are in consonance with the positions of the BOC and the BIR,” said Finance Undersecretary Estela Sales.
Shell warns consumers
Shell spokesman Roberto Kanapi warned consumers of a possible fuel shortage after the CTA denied the firm’s petition for injunction, thus allowing the BOC to seize Shell’s importations starting today.
Kanapi, on the other hand, said the company would exhaust all legal means to prevent the BOC from implementing the seizure order.
“The severe consequence of the oppressive act compels us to exhaust all legal measures,” Kanapi said.
Kanapi said “Shell cannot pay back taxes claimed by BIR and BOC since these are under dispute. This is because Shell has adopted the Foreign Corrupt Practices Act and the OECD (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.”
Shell country chairman Edgar Chua said they are not keen on paying such in any form since they are not amenable to “double taxation.”
Shell, a member of Royal Dutch Shell PLC, also did not discount the possibility of stopping its importations if the CTA decides in favor of the BOC.
“We have been advised that if we do not get the suspension order the BOC is mandated to seize all our imports, and when a seizure happens then we will be forced to stop importations as even if we import, we will not be able to use it until the P76.3-billion liability is extinguished,” Chua said.
Ria Campos, president of the Association of Pilipinas Shell Dealers Inc., expressed dismay over the decision of the CTA, saying that this would greatly affect their business and their employees. PSDI currently has over 960 retail stations nationwide.
“We are saddened by the outcome of the decision of the CTA not to grant the extension of the TRO. Now, we are not assured of what will happen to our businesses and our 17,000 employees nationwide. Most of our employees belong to the lower income bracket,” Campos said.
Campos also doubts if other players would be able to absorb the market of Shell.
“I do not know if other oil players can absorb what Shell is serving right now. I doubt if they have the capability to supply the 30 percent share of Shell in the market,” she said.
“What will happen to our business if Shell refinery will stop importing,” she said, noting that each station normally has 2-4 days of oil supply on inventory.
But Campos is optimistic that the government would be enlightened on the impact of this tax issue on the business community.
In a resolution released yesterday, the CTA was split on whether to issue the suspension order sought by Pilipinas Shell to bar the seizure of its importations by the BOC.
Shell is disputing before the special tax court a P7.34-billion tax assessment slapped by the BOC on Shell importations of CCG and LCCG from 2004 to 2009.
In a four-page resolution, Justices Erlinda Uy and Esperanza Fabon-Victorino said that “the damage in (PSPC’s) property rights must, in the meantime, take a backseat 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 (PSPC) is negligible.”
Presiding Justice Ernesto Acosta, the most senior member of the division hearing the case, rendered a 13-page dissenting opinion stating that “(PSPC) has a right to be protected during the pendency of the case.”
He added that “the threatened action of (the 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.”
The dissent concluded by saying that “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.”
Before Justices Fabon and Uy joined the division hearing the case, the CTA previously issued a 60-day temporary restraining order (TRO) barring the BOC from enforcing the seizures. The TRO lapsed yesterday. Shell previously warned of a looming fuel shortage, job losses and severe economic disruption should the seizures push through.
Energy Secretary Reyes called a stakeholders meeting Monday attended by representatives of Shell, other petroleum players, BIR and BOC. Reyes expressed concerns about the security of the country’s energy supply in the event of such seizures. Reyes is also set to meet today with Finance Secretary Gary Teves on the issue.
“It is unfortunate that this split in the CTA clearly results to unlawful double taxation. Apart from the economic disruption that will be caused by the seizures, the long term consequence of the ruling is that manufacturing in the country will be discouraged and the security of our energy supply will be placed at great risk due to the eventual closure of the Batangas refinery,” said Shell legal counsel John Balisnomo.
Last week, the Ways and Means Committee of the House of Representatives released a report based on hearings it has conducted since last year.
The report found the reversal by the BIR Commissioner Tan-Torres of a series of prior rulings of the BIR relied upon by Shell in its importations as “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.”
Prior to the recent reversal, the BIR has consistently ruled since 2004 that Shell’s CCG and LCCG imports are not subject to excise tax upon importation since they are intermediate or raw materials as found by the DOE. Shell has paid billions of pesos in excise taxes after the imported CCG and LCCG are blended in its refinery to produce unleaded premium gasoline fit for domestic consumption.
The Ways and Means Committee also found that the BIR ruling “is arbitrary as it lacks factual and legal basis.”
The Joint Foreign Chambers has 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 (ECCP) and the Employers Confederation of the Philippines (ECOP) also expressed concern over the flip-flopping of government agencies on the matter.With Donnabelle Gatdula, Evelyn Macairan
By John Donovan
Shell is accused of manipulating an independent environmental audit by AEA Technology to determine whether an oil and gas project would receive bank funding, Guardian 
LEAFLET BEING DISTRIBUTED AT SHELL CENTRE, LONDON, WEEK COMMENCING 26 OCTOBER 2009.
