Tax court orders MRT-3 private owner to pay P1.73B
The Court of Tax Appeals (CTA) has ordered the private owner of the Metro Rail Transit Line 3 (MRT-3) to pay at least P1.73 billion in income taxes for the year 2007.
In a recent 68-page decision, the court’s Special 2nd Division partially affirmed the Bureau of Internal Revenue’s (BIR) tax assessment against MRT Corp.—imposed after an audit uncovered underreported income from the government’s rental payments.
MRT Corp., it turned out, used different accounting methods that led to only P3.49 billion being reported in its income tax return, despite audited financial statements reflecting a figure of P4.28 billion.
By treating the rentals as an “operating lease,” the company deducted depreciation costs and ordinary expenses so it could report a lower income for tax purposes. This could not otherwise be done for a “financing lease” according to Philippine accounting standards.
MRT Corp. cited Revenue Regulation No. 09-04 when it opted for the more favorable tax treatment for an “operating lease.” But, the court said this was a mistake because the regulation concerned the imposition of gross receipts tax, not income tax.
Similarly, the court found that MRT Corp. erroneously made deductions in reporting interest income earned lfrom the government’s payment of the company’s loans from Czech and Japanese banks.
The court found the total interest income to be P333.68 million, not P269.16 million as reflected in the audited financial statement. It said the company should have fully declared the interest income without deductions under Section 32(A) of the National Internal Revenue Code (NIRC).
The court called out the company for its use of different accounting methods for bookkeeping and tax purposes.
“For tax purposes, petitioner’s lease financing income… should be accounted for in the same way it accounted its lease financing income in its books,” read the decision penned by Associate Justice Catherine Manahan.
Other tax liabilities concerned discrepancies in salary-related expenses, and allegedly “unexplained” disbursements on the dollar purchases for the administrative expenses of owners Robert John and Melissa Louisa Sobrepeña.
Aside from income tax, the amount also included a 25-percent surcharge, a 20-percent deficiency interest and a 20-percent delinquency interest—penalties for late payment— on the aforementioned taxes computed until Dec. 31, 2017.
Because of the Tax Reform for Acceleration and Inclusion (TRAIN) Act, another 12-percent delinquency interest would be imposed on the basic taxes of P968.75 million from Jan. 1, 2018 until full payment.