BIR sues advertising company for tax evasion

From the Department of Finance

The Bureau of Internal Revenue (BIR) today filed a criminal complaint with the Department of Justice against PHD MEDIA NETWORK 2006, INC. (PMNI), together with its responsible corporate officers—President/Chief Executive Officer Herminia de Leon, and Chief Financial Officer/Treasurer Rowena M. Nardo—for willful attempt to evade or defeat tax, and for deliberate failure to supply correct and accurate information in its income tax returns (ITRs) and value added tax (VAT) Returns for taxable years 2009, 2010 and 2011, in violation of Sections 254 and 255, in relation to Sections 27, 105, and 256, of the National Internal Revenue Code of 1997, as amended (Tax Code).

PMNI is a domestic corporation registered with the BIR and the Securities and Exchange Commission (SEC) with a registered address in Ayala Avenue, Makati City. It is engaged in the business of advertising.

Records of investigation showed that PMNI was issued Letter of Authority (LOA) No. 211-2014-00000059 for the examination of its books of accounts and other accounting records for all internal revenue taxes from January 1, 2009 to December 31, 2011.

In order to determine the true income received by PMNI for taxable years 2009 to 2011, access letters were sent to business entities that engaged its services. Replies to said access letters revealed that PMNI received from its withholding agents/payors income payments amounting to P294.82 million (DMCI – P12.73 million, & Foodsphere – P282.09 million) in 2009, P282.73 million (DMCI – P10.82 million, Foodsphere – P269.41 million, & Pharm Asia-Cuvest, Inc. – P2.50 million) in 2010, and P226.3 million (DMCI – P11.3 million, Foodsphere – P207.6 million, & Pharm Asia-Cuvest, Inc. – P7.4 million) in 2011.

Records of investigation, however, showed that PMNI declared in its ITRs filed with the BIR gross sales of only P71.09 million in 2009, P78.51 million in 2010, and P101.40 million in 2011. A comparison of the gross income declared by PMNI in 2009 to 2011 as against the income it received in the same years as certified by its aforementioned clients disclosed that PMNI deliberately failed to declare its correct taxable base by substantially underdeclaring its taxable income by P223.73 million or 314.69% in 2009, by P204.23 million or 260.15% in 2010, and by P124.88 million or 123.16% in 2011.

Under Sec. 248 (B) of the Tax Code, an under-declaration of taxable income by more than 30% is considered substantial and constitutes a prima facie case of fraud tantamount to tax evasion.

PMNI, together with its responsible corporate officers, was sued for an aggregate tax liability amounting to P532.6 million, inclusive of surcharges and interests, broken down into: 2009 – P222.95 million (Income Tax – P156.07 million & VAT – P66.88 million); 2010 – P194.45 million (Income Tax – P130.21 million & VAT – P64.24 million); and 2011 – P115.20 million (Income Tax – P71.9 million & VAT – P43.3 million).

The case against PHD MEDIA NETWORK, INC. (PMNI), and its responsible corporate officers is the 257th filed under the RATE program of the BIR under the leadership of Commissioner Kim S. Jacinto-Henares.