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Who is misdeclaring the facts?

The Bureau of Customs (Customs) filed a complaint against officers and employees of Pilipinas Shell Petroleum Corporation (Shell) last week, alleging that the latter intentionally misdeclared its 2005-2009 Catalytic Cracked Gasoline (CCG) and Light Catalytic Cracked Gasoline (LCCG) importations by using the tariff heading “Tetrapropylene” to evade the payment of the proper taxes and duties. Worse, Customs officials held a press conference and distributed media releases, where it publicly accused Shell of "technical smuggling" and made it appear that Shell evaded the payment of excise taxes and the VAT thereon.

 To shed light on these baseless charges, we wish to share more salient facts about this issue:

  • Firstly, as a responsible corporate citizen, Shell has paid all appropriate taxes and duties on all its imports. Even if the tariff heading number of tetrapropylene (2710.11.30) was used for CCG/LCCG importations, Shell consistently declared that the product imported was CCG/LCCG in the documents it submitted to Customs. Customs then reviewed and assessed proper tariffs and taxes to be paid by Shell, based on the product declaration of CCG and LCCG. Therefore, Shell accordingly paid the tariff duty assessed by Customs and, as such, there was never any revenue loss to the government since it collected either the higher duty of 3% or the relevant tariff rate for CCG and LCCG based on the applicable Executive Orders;
  • Secondly, and more importantly, there were no excise taxes due on these 2005-2009 CCG and LCCG imports since each importation is covered by a Bureau of Internal Revenue (BIR) directive to the Customs not to assess Shell excise taxes on these imports. CCG and LCCG are not subject to excise taxes, since these are not final products but raw materials used by Shell's refinery to produce Clean Air Act-compliant petroleum products. From 2004 until December 2009, the BIR did not assess excise taxes on these imported raw materials upon importation, but collected the excise taxes from Shell upon the withdrawal of the finished products from Shell's refinery.

The issue of double taxation, i.e., whether CCG and LCCG imports are excisable by Customs upon importation, in addition to BIR assessment upon withdrawal of the finished products, is already pending before the Court of Tax Appeals (CTA).

Based on the above, it is very clear that Customs Commissioner Angelito Alvarez has been misled by holdovers from the previous administration to believe that:

  • Shell committed fraud by misdeclaring its CCG/LCCG importations;
  • There was evasion of the payment of taxes and loss of revenue to government; and
  • The facts of this criminal complaint are different from the current case pending in the CTA.

We view this development as reinforcement of President Aquino’s assessment that the biggest challenge facing his administration is trying “to replace a system that has been in the country in its worst form for practically the last 10 years”.

Shell has always acted according to its business principles, and has built and protected its reputation for many years. Accordingly, we will be filing cases for gross negligence, gross incompetence, and defamation against those who had misled this government.

Shell, however, remains hopeful and committed to help the present administration in the continued fight to change the system and to expose corrupt and incompetent government officials. 

[Published in the October 19, 2010 main section of the Philippine Daily Inquirer and Philippine Star]