Philippine Court Voids Manny Pacquiao’s $55.8 Million Tax Bill

By: William Hoke

A Philippine court has voided PHP 3.3 billion (about $55.8 million) in assessments issued to boxing legend Manny Pacquiao, saying the tax agency lacked sufficient basis for the claim and violated his due process rights.

In Pacquiao v. Commissioner, the Court of Tax Appeals (CTA) ruled that Pacquiao and his wife, Jinkee, were not properly informed about the basis of the assessment, which had been issued only in the boxer’s name. The decision, which was dated September 29 and made public October 7, covers tax assessments for 2008-2009.

Pacquiao, whose first name is Emmanuel, earned income in those years from boxing matches in the United States and from talent fees paid by Philippine corporations for product endorsements, advertising commercials, and television appearances. He made a timely filing of his 2008 Philippine income tax return to report his domestic income and later amended the return to include his U.S.-source income. He also filed an income tax return for 2009 on a timely basis, reporting his Philippine-source income but not his U.S. earnings for the year. He failed to file VAT returns for 2008 and 2009.

In 2012 the Bureau of Internal Revenue (BIR) issued preliminary assessments to the Pacquiaos based on third-party information. It also filed a criminal complaint against the couple for failing to supply documents related to an investigation into alleged discrepancies on the Pacquiaos’ tax returns. Although the Pacquiaos eventually agreed that VAT was due, they protested to the CTA in 2013 that the income tax assessments were defective because they were predicated on what the couple described as mere allegations that they had committed tax fraud. They also said that Jinkee Pacquiao had been denied due process because the final tax assessment was only in the name of her husband. Further, the assessments failed to reflect both the taxes that Manny Pacquiao had paid in the United States and deductions he had claimed against his income, they said.

In 2018 the CTA ordered the BIR to stop trying to collect from the Pacquiaos while their separate challenge of the assessments proceeded through the courts. The tax agency claimed the couple owed PHP 2.26 billion in income tax and VAT. Penalties and interest brought the total assessments to about PHP 3.3 billion.

In its most recent decision, which can be appealed, the CTA said the BIR lacked sufficient basis to issue the assessments because they were based primarily on news articles that were not detailed in the formal letter of demand (FLD) issued to the taxpayers. “It is evident from the foregoing testimony . . . that the newspaper articles and clippings which form the basis for the subject assessment were not mentioned in the FLD and that petitioners were not even furnished with copies of the said documents,” the court said. “Considering that the FLD failed to indicate the factual basis of the assessment and that petitioners were not duly informed of the source documents used as basis in computing the assessed deficiency taxes, the subject assessment should be declared invalid for violation of petitioners' due process rights.”

Under Revenue Regulation 7-2018, the BIR is required to provide the taxpayer with a Notice for Informal Conference, which includes the tax agency’s internal findings, before issuing an FLD. “No proof of service was presented by respondent to show that it was actually received by petitioners,” the court said.

Pacquiao, the only professional boxer to have won titles in eight international weight divisions, also won a seat in the Philippine Congress in 2010 and was elected to the Senate in 2016. His term expired June 30. Pacquiao came in a distant third in May 9 balloting for president in an election won by Ferdinand Marcos Jr., who has had issues of his own concerning inheritance taxes owed on the estate of his father, Ferdinand Marcos Sr. The elder Marcos was president of the Philippines from 1965 to 1986.