San Miguel Gets $15 Million Tax Refund in Philippines Case

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By Lien Hoang

For the Philippines’ biggest brewer, deciding if San Mig Light was a new beer, or just a new spin on an old can, became a 761 million-peso ($15 million) question.

That was the amount San Miguel Brewery Inc. won in a tax refund earlier this month, when it convinced the Court of Tax Appeals that the lager drink was a new brand among the 10 that it brews, thus qualifying for a lower excise rate.

Encouraging for Litigants

San Miguel didn’t respond to Bloomberg BNA’s call for comment June 20, but tax practitioners consider the June 9 ruling an encouraging sign for tax litigants.

Garry Pagaspas, managing partner at accounting firm G. Pagaspas Partners & Co. in Metro Manila, said the dispute shows businesses “should not lose hope” but could “put their trust” in the judicial system.

“This seems to be a good precedent to other taxpayers that tax court is a fair, just, and equitable venue for battling with the tax authority,” Pagaspas, also a professor at the Polytechnic University of the Philippines, told Bloomberg BNA June 27.

Dispute

The dispute boiled down to whether San Miguel Brewery—a subsidiary of one of the Southeast Asian country’s largest and oldest conglomerates, the Mandaluyong City-based San Miguel Corporation—was introducing a new product when it started bottling San Mig Light in 1999.

The Bureau of Internal Revenue (BIR) argued “it is clear that ‘San Mig’ is a mere modified root name of ‘San Miguel’ with the mere affixation ‘Light’ ... it can be concluded that petitioner intended San Mig Light to ride on the popularity of its original variant,” according to the court decision.

If the tax authority’s assessment had been accepted, the company, which makes nine of every 10 beers imbibed in the country, would have owed an excise tax of 20.57 pesos per liter. But the court found that the revenue bureau had labeled San Mig Light a new brand at some points, and a variant at others.

The court ruled in San Miguel’s favor, saying it owed the lower tax, for new products, of 15.49 pesos per liter. There had been “an erroneous, excessive and/or illegal assessment and collection,” the ruling said.

This restriction on the revenue board’s ability to change its classifications was “one of the highlights” of the judicial case, said Jude Ocampo, a partner at Ocampo & Suralvo Law Offices in Metro Manila specializing in tax and corporate law.

“This is to deter the potential for abuse if the power to reclassify is delegated and much discretion is given to the BIR,” Ocampo, who formerly worked in the Philippines’ trade and finance departments, told Bloomberg BNA June 27.

Tax Reform to Pay for Welfare

The archipelago nation is preparing to more than double spending on welfare, infrastructure, education, and health care between 2016 and 2022. To pay some of those bills, it is restructuring personal, corporate, and consumption taxes, including with a new levy on sugary drinks and more taxes on cars and oil.

“Paying taxes is an indispensable obligation of the taxpayers,” Pagaspas said, but tax officials are sometimes “aggressive” as they are “pressed to collect more taxes because of high collection targets for national internal revenue.”

To contact the reporter on this story: Lien Hoang in Ho Chi Minh City at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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