Mighty to proceed with P3.5-B initial payment on tax case settlement offer

July 20, 2017 - 6:53 PM
File photo from the DOF shows boxes of cigarettes stored in one of Mighty Corp.’s warehouses in the Philippines. Fake Mighty cigarettes, unearthed in recent NBI raids, are eating into the government's revenues and the bottomline of the real Mighty cigarette makers, Japan Tobacco Inc. Philippines. FILE PHOTO FROM D.O.F.

MANILA – The Department of Finance (DOF) will receive the initial payment of P3.5 billion from tobacco giant Mighty Corp. as part of the firm’s tax liabilities, Finance Secretary Carlos Dominguez III said.

Dominguez stressed, however, that such acceptance does not mean the DOF agrees to the company’s settlement offer.

The finance chief also reiterated that even if the government accepts Mighty’s settlement offer, this does not preclude any criminal charges that the Bureau of Internal Revenue (BIR) may file against the company in connection
with its tax-related cases, as these cannot be compromised.

“We will accept the initial payment,” Dominguez said.

In its letter to BIR Commissioner Caesar Dulay dated July 10, Mighty Corp. offered to settle its tax liabilities for P25 billion by July 20. The amount represents the deficiency excise taxes (P3.5 billion) and the internal revenue taxes of the company and its shareholders (P21.5 billion).

The letter signed by Mighty President and Director Oscar Barrientos, said that it was confirming “the Company’s willingness to settle all such excise and tax issues and respectfully offer as settlement of the Company’s shareholders’ and its officers’ liability in this regard the total sum of P25 billion.”

Interim loan from JTI

Barrientos said in his letter that this settlement sum would be funded by means of an “interim loan” from JT International Philippines (JTI) and the sale by Mighty and its affiliates of its manufacturing and distribution business and assets, along with the intellectual property rights associated with these assets, “including those owned by the company, Wong Chu King Holdings Inc., and other affiliates to JTI or any of its affiliates for a total purchase price of P45 billion exclusive of VAT.”

The DOF was informed that a manager’s check amounting to P3.44 billion, covering Mighty’s excise tax liabilities, will be issued Thursday by JTI and deposited at the SSS branch of the Land Bank of the Philippines in Quezon City.

In his July 10 letter to Dulay, Barrientos said “The initial payment of P3.5 billion will be paid by the company on the company’s behalf on or before July 20, 2017. A binding Memorandum of Agreement in relation to the Proposed Transaction (with JTI) will be concluded shortly (and prior to July 20, 2017) subject to finalizing terms with JTI and JTI completing its due diligence.”

The balance of P21.5 billion will be paid on or after the closing of the proposed deal with JTI.

Three tax cases filed by the BIR against Mighty Corp. are now pending before the Department of Justice (DOJ). These cases cover the firm’s non-payment of excise taxes due its cigarette products and use of counterfeit tax stamps on its cigarette packs, which correspond to excise taxes valued by the BIR at a combined P37.88 billion.

Barrientos also requested the BIR in its letter for a reinvestigation of its pending criminal complaints before the DOJ following the initial payment of the P3.5 billion, along with a certificate of payment.

“We also respectfully request the BIR to issue to the Company and its shareholders and officers following closing of the proposed transaction (with JTI) and the payment of the P21.5 billion the relevant Certificate of Availment of Compromise, a final tax assessment for all the Company’s excise and other tax issues described above, and relevant tax clearances to the Company, its shareholders and officers,” the letter said.

Barrientos committed to retire the operations of Mighty Corp. following the conclusion of its deal with JTI.

Based on its settlement offer, the total amount that Mighty Corp. will remit to the government includes:
1) P3.5 billion in deficiency excise taxes on its cigarette products that are now the subject of the three tax cases pending before the DOJ, and
2) P21.5 billion representing the liabilities of the company and its shareholders, as well as the company officers for all internal revenue taxes, including income tax from 2010 to 2016 and the tax period up to the closing of the proposed transaction with JTI, and all transaction taxes related to the agreement with JTI.