Mr. Compromise

Written by Lala Rimando
Monday, 19 June 2006 Digg!

When current Bureau of Internal Revenue (BIR) Commissioner Jose Mario Buñag joined the bureau in Dec.16, 2002 as deputy commissioner for the legal and inspection group, one of the first cases he looked into was the tax case of the estate of the late Benigno “Beni” Toda Jr.

In January 9, 2003, he met with the collection officer handling the tax cases of the estate of Toda. By mid-year, a compromise settlement was already in the works, and by December 2003, the case was closed. Toda had been fighting charges that he had underestimated the payment of capital gains tax and documentary stamps in the sale of his shares in Cibeles Insurance Corp. (CIC) in 1990.

The BIR was originally aiming to collect about P2.4 billion, but the heirs of Toda paid only about P306,000. The compromise was based on the “doubtful” validity of the assessment of the taxes due because BIR filed the tax case in 1995, five years after the transaction, and after the three-year prescribed period for tax assessments.

On the surface, it may seem that as a public official, Buñag was just doing his job. At that time, he headed the BIR’s Evaluation Board, which was tasked, among others, to appraise and recommend which of the pending tax cases could be resolved through a compromise agreement rather than letting them languish in litigation proceedings.

However, before joining BIR, Buñag was a hotshot lawyer and was co-managing partner of the late Sen. Raul Roco in the Roco, Buñag, Kapunan law firm. This law firm has been the counsel for the estate of Toda. Toda was married to Rose Marie Tuason, a cousin of the mother of First Gentleman Mike Arroyo although they separated in the 1970s.

For expediting the resolution of one of the tax cases he had handled, Buñag’s role in the compromise agreement raises questions of ethics and conflict of interest.

In an interview, Buñag told NEWSBREAK that “I inhibited myself from acting on any matter related to the tax case of the estate of Benigno Toda Jr. considering that when I was in private practice, I represented the Estate of Benigno Toda Jr. as counsel.”

Buñag is only partially telling the truth.

BIR VS. TODA

The BIR has a number of tax cases against the estate of Toda. The case mentioned above pertains only to the sale of the insurance company’s (CIC) shares of stock in 1990. The bigger tax case is on the sale of the real estate properties of CIC, which was completed in 1989. At that time, Toda decided to separate the transactions—the sale of the company and the real estate assets—so that the selling price of the company would not be bloated by the cost of the building and the lot it owned.

The BIR fought the tax case on the sale of the real estate assets all the way to the Supreme Court (SC). Finally in September 2004, the Supreme Court ruled in favor of the BIR, declaring the transaction fraudulent.

In 1989, CIC sold its head office in Ayala Avenue in Makati and the land it stands on to a dummy who is a close business associate of Toda. After paying P100 million to CIC, the dummy then turned around and sold the properties for P200 million—on the same day. The final buyer was Royal Match, Inc. (RMI), a company associated with Sen. Juan Ponce Enrile.

The SC said: “It is obvious that the objective of the sale… was to reduce the amount of tax to be paid especially that the transfer from him (Toda) to RMI would then be subject to only 5 percent individual capital gains tax, and not the 35 percent corporate income tax…. Doubtless, the execution of the two sales was calculated to mislead the BIR with the end view of reducing the consequent income tax liability.” The SC said that the scheme resorted to by Toda, who owned 99.99 percent of Cibeles, cannot be considered a legitimate tax plan, but was instead “tainted with fraud,” thus was a tax evasion case.

The tax deficiency, then amounting to P79 million, has since grown to more than P265 million as of January 2006, because of interest and penalties. In May 2005, the Court of Tax Appeals issued a writ of execution to the BIR enforcing the SC decision. The writ states that the heirs pay the full amount and use the estate’s assets, specifically the Hermana Mayor Island in Zambales, to do so.

BIG BUSINESSMAN

Toda was a business tycoon who used to own Philippine Airlines (PAL) in the 1960s before it was taken over again by the government under President Ferdinand Marcos. In fact, what used to be called PAL Building along Ayala Avenue in the commercial business district of Makati, housed the head office of Cibeles, his insurance company.

Beni passed away in 1994; so with his wife. They have two children, Benjamin Toda III and Rose Marie Toda Delgado, now the heirs of the estate.

Beni was the famed owner of Hermana Mayor, a 500-hectare island near the South China Sea, off the coast of Zambales province. Hermana Mayor is also known as the “Miss Universe island” for hosting the photography sessions for the 1974 beauty pageant held for the first time in the Philippines. Besides the sprawling guest house where the contestants and the pageant’s winner, Amparo Muñoz of Spain, stayed, the island also has a helipad and other amenities.

According to several accounts, the value of the island ranges from P500 million to more than P1 billion. It is more than enough to settle the P265-million tax liability of the estate.

The auction of Hermana Mayor, which was already levied by the BIR, was scheduled last May 11, 2006. It did not push through after the heirs of Toda were favored with a temporary restraining order by the Zambales regional trial court. The title to the property has apparently been transferred from the estate to the heirs in 2003, or before the Supreme Court decision came out.

SLAIN WHISTLEBLOWER

It seems that the heirs want to spare Hermana Mayor from the payment of the tax liability of their father’s estate. (Augusto Perez Jr., counsel for Benigno Toda III wrote in a faxed reply to NEWSBREAK’s request for interview, that because of a pending case with a local court, “we cannot give comments… as this may expose us to possible contempt of court….”)

Earlier, the administrator of the estate, the law firm of Lorna Kapunan and Mario Bautista, former colleagues of Buñag, said the heirs were willing to offer other properties to BIR in exchange for the lifting of BIR’s lien on Hermana Mayor. These offers were not pursued because the heirs were still questioning some aspects of the tax liability computation. Also, the value of the other properties they were offering is not enough to cover the P265 million which the BIR was asking them to pay in full.

One of those eager to finally settle the case and collect the tax deficiency was Nicolas Cervantes, a former columnist who was shot dead recently (see sidebar). He used to work for Cibeles Insurance and was the whistleblower who helped BIR build the tax case on the sale of the real estate properties. Since the tax case was filed in 1995, he had regularly followed up the status of the case and the collection proceedings with BIR officials. His main motivation was money. As the whistleblower, he was entitled to 10 percent of the amount to be collected by BIR.

Cervantes wrote several letters to various commissioners of the BIR. Buñag was not spared.

When Buñag was still deputy commissioner, his legal opinions regarding the Toda case, as communicated to Cervantes, showed he did not totally inhibit himself from the case of his former clients.

For example, Buñag, in one of his replies to Cervantes, said the BIR could not go after the heirs’ properties in Forbes Park as payment of the estate’s tax liabilities because these were inherited by the heirs from their mother in 1991, or even before their father died in 1994. Thus, Buñag wrote, “the properties are not part of the estate of Benigno Toda Jr.”

Buñag explained to NEWSBREAK that he was initially replying to Cervantes’s letters “to help him.” But when Cervantes became impatient and after a verbal tussle between them, “I stayed out of it completely.” Cervantes’s succeeding letters to Buñag were endorsed to the Collection and Enforcement Division, which is headed by Teresita Angeles.

Angeles said Buñag inhibited himself when the Toda case was discussed during

BIR’s management committee meeting. However, Angeles was still basing some of her replies to the queries of Cervantes on the legal opinions of Buñag. For example, in her March 1, 2005 letter to Cervantes, Angeles quoted Buñag’s opinion that the BIR cannot push the garnishment of the bank accounts of the heirs.

When Cervantes filed a case at the Office of the Ombudsman against Buñag for conflict of interest last February, Buñag said, “The opinion I issued was pursuant to the query pertaining to procedures on distraint and levy, but it did not at all pertain to the merit of the case of the BIR against the Estate of Benigno Toda Jr.”

Last May 2, Cervantes was gunned down in broad daylight by several gunmen, and the police are looking into this case as one of the possible angles behind his murder.

Meanwhile, BIR officials in charge of collecting on Toda’s tax liability told NEWSBREAK that they will pursue this case until every cent due to the government is paid.

Buñag said, “Let them handle it. I’m out of it.”- with reports from Kristine Servando and Felisa Sanchez