BIR sues PHD for tax evasion

The Bureau of Internal Revenue (BIR) has filed a tax evasion case against Omnicom-owned media agency PHD Philippines for allegedly under declaring its taxable income for three years.A news release in the Official Gazette last 19 June said that the agency, registered in the Philippines as PHD Media Network 2006 Inc., has declared a gross income of P251 million covering 2009 to 2011. But an investigation found that PHD should have filed P 803.85 million, a deficit of 220.25%.The country’s Tax Code states that “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.”BIR is demanding PHD and its officers, which includes former PHD president and CEO Herminia de Leon and current CFO Rowena Nardo, to pay an aggregate tax liability amounting to P532.6 million. De Leon moved to Havas Media Ortega last May 2012.In its official response to the issue, PHD explained that the BIR may have confused payments for media suppliers as part of the agency’s taxable income – a “lingering issue” about the proper treatment of payments that should already have been addressed by the BIR back in 2012.The 2012 ruling states that under a split payment scheme, advertisers may engage or contract directly with a media entity/supplier and an advertising agency for media advertising placements, making the income payments limited to the cost of the service provided by each entity.Nic Gabunada Jr., president and CEO of OmnicomMediaGroup Philippines, shared with Marketing that PHD has yet to receive a copy of the complaint. Below is the official statement of PHD about the tax issue.PHD’s Official Statement on the Tax IssueIt came to our knowledge that BIR has filed a tax evasion case against PHD Media Network 2006 Inc., Herminia De Leon (previous CEO) and Rowie Nardo (CFO and Treasurer) for tax liabilities amounting to P532 million from 2009 to 2011. Based on online reports, BIR claimed that PHD failed to declare the correct taxable base by underdeclaring PHD’ s taxable income from 2009- 2011.No further details are available to us at the moment regarding this case.We relate this issue, however, to the Letter of Authority (LoA) we received on Feb 18, 2014 covering taxable years 2009 to 2011. We have asked the help of a local reputable auditing firm in dealing with this issue.In our ongoing discussions with BIR on this issue, BIR alleged that payments for media suppliers that passed through PHD are part of the taxable base. PHD’s contention is that this is not PHD’s income and therefore not part of the taxable base.The issue on the proper treatment of the payments has been a lingering problem for all advertising and media agencies. In 2012, the BIR have acted on the appeal of ad agency practitioners and implemented the “Direct Payment Scheme” viaBIR RMC 91-2012. Under this ruling, all Advertisers are mandated to issue payments directly to the media suppliers.We reiterate that PHD has always been a responsible corporate citizen and has been diligently paying its taxes following standard industry practices and the tenets of fair assessment and the truth.