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Philippine Court Acquits Nobel Prize Winner of Tax Evasion

Posted on Jan. 19, 2023

The Philippine Court of Tax Appeals has acquitted media company Rappler Holdings Corp. (RHC) and its Nobel Prize-winning editor, Maria Ressa, of tax evasion charges.

In its January 18 decision in Philippines v. Rappler Holdings (Case nos. 0-679 to 0-682), the court held that neither defendant evaded tax when RHC raised capital in 2014-2015 by issuing Philippine Depositary Receipts (PDRs) to North Base Media (NBM) and Omidyar Network (ON), both of which are foreign entities.

RHC and Ressa, who won the Nobel Peace Prize in 2021 for her efforts to preserve the freedom of expression, were harsh critics of former Philippine President Rodrigo Duterte and his campaign against drug dealers and users, which allegedly resulted in thousands of extrajudicial killings by police and vigilantes. Duterte, who left office in June 2022, was constitutionally barred from reelection because of term limits.

In 2014 Rappler Inc. (RI) established RHC, which then acquired 98.8 percent of RI’s shares. The following year, RHC issued the PDRs, based on its subsidiary’s shares, to NBM and ON to fund the expansion of the company’s media services, particularly in Indonesia and Singapore. Both Ressa and RHC were indicted for tax evasion in 2018. The government told the court that the transactions resulted in the PDR holders obtaining economic rights similar to those that an RI shareholder would have in the company’s stock.

“The plaintiff views the foregoing transactions as income-generating activities on the part of RHC, which claims to have derived gains and profits from the sales of the PDRs,” the court said.

The government claimed that RHC realized a taxable gain of PHP 162.4 million (about $2.97 million). “The plaintiff goes on to pursue its theory that [the] accused, RHC, is a dealer in securities, as seen from the large volumes of repeated, successive, and continual purchases of RI’s shares and the subsequent reselling for profit,” the court said. “The criminal aspect of the case stems from the plaintiff’s allegation that there was willfulness in the non-reporting of gains from the PDR transactions, characterized by a conscious disregard of their tax obligations in the face of substantial profits earned.”

The court said there is nothing in the text of the PDR instruments or the PDR subscription agreements indicating that NBM and ON would become owners of RI. “Paragraph 4 of the PDR instrument stipulates that the ownership of the shares of stock of RI remains with the issuer, RHC,” it said. The court said it found no legal basis for "the imputed gain of RHC in the amount of PHP 162,412,783.67, allegedly treated as trading income" by the plaintiff, because "the acquisition cost of a different security (i.e. RI’s shares of stock) is being used to attribute an alleged gain in the sale/issuance of another security (i.e. PDR).”

The government failed to meet its legal burden, the court said. Because RHC is not required to pay income tax and VAT on the PDR transactions for tax year 2015, the relevant provisions of sections 254 and 255 of the 1997 National Internal Revenue Code, as amended, "are rendered nugatory and without legal support,” it said. “The plaintiff, therefore, failed to prove the guilt of accused beyond reasonable doubt," it added.

Ressa thanked the court and her company’s shareholders in a series of tweets January 18. “These charges were a brazen abuse of power, political harassment vs. journalists trying to hold power to account,” she said. “This is where business, capital markets, and press freedom meet. Today, facts win. Truth wins. Justice wins.”

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