This was not just a tax case but at stake also was freedom of expression
Last September, the Pasig Regional Trial Court exonerated Nobel Peace Prize laureate and Rappler CEO Maria Ressa along with Rappler Holdings Corporation from prosecutors’ allegations of tax evasion. (Disclosure: I am a member of the Board of Directors of Rappler Inc.)
The case originated from a 2018 accusation by the government of Maria Ressa and Rappler Holdings Corporation with violating section 255 of the National Internal Revenue Code when the accused failed to supply accurate and correct information in the quarterly value added tax return for 2015 and failing to report sales receipts coming from the issue and sale by RHC of Philippine Depository Receipts to NBM Rappler.
The lawsuit was initiated two months following the issuance of a shutdown order by the Philippines’ Securities and Exchange Commission against Rappler.
This order was grounded on the Duterte administration’s assertion the company had foreign ownership.
The prosecution presented two witnesses, namely: Ed Al Salles and Editha Quilanting.
In his judicial affidavit, Salles said the investigation into the RHC’s was brought about by a ruling issued by the Security Exchange Commission revoking the RHC’s Certificate of Incorporation for allegedly violating the foreign equity restrictions in mass media.
Salles also stated the investigating team was able to confirm transactional activities which indicated that RHC acted as a dealer in securities.
RHC supposedly sold securities that gave rise to sales receipts which it failed to declare.
He stated the shares of stock issued by RI and the PDRs issued and sold by RHS are securities as defined in the Tax Code.
In an 18-page decision delivered by Presiding Judge Ana Teresa Cornejo-Tomacruz, of Pasig RTC Branch 157, both Ressa and Rappler were declared “innocent” of the tax evasion accusations lodged against them.
This decision follows an earlier ruling in January by the Court of Tax Appeals, which similarly absolved Ressa and Rappler of four other tax evasion charges related to the 2015 sale of Philippine depositary receipts, a fundraising mechanism involving foreign investors.
This is one of the five cases filed by the government in relation to the PDR (Philippine Depositary Receipts) transactions of Rappler.
This is the fifth and final tax case that finally puts an end to the tax evasion allegations brought against Ressa and Rappler by the Duterte administration.
It was alleged that Ressa and RHC failed to disclose taxable income in the second quarter of 2015 when they issued Philippine depositary receipts to the investment firms NBM and Omidyar Network Fund were widely perceived by observers as a retaliation for their critical reporting on President Duterte’s anti-drug campaign.
The government accused Rappler and its executives of intentionally failing to provide accurate information in their income tax and value-added tax returns for the year 2015.
However, Rappler maintained the issuance of PDRs was intended to raise capital and not for profit.
PDRs are financial instruments that provide their holder with the right to receive or sell underlying shares, but they do not confer ownership rights.
It is a financial instrument that bestows upon its possessor the privilege to receive or sell the underlying shares, yet it does not confer ownership rights to the holder.
When acquired by a foreign entity, it entitles the holder to all the dividends owed for the underlying shares.
In acquitting RHC and Ressa, Judge Tomacruz sided with the accused and determined that the PDR transactions were simply investment activities aimed at raising capital.
The court said that RHC did not act as a dealer in securities when it issued Philippine Depositary Receipts to North Base Media, and the PDR transactions were just in line with the RHC’s purpose as a holding company.
“RHC did not sell the PDRS to NBM in the regular course of its business to gain profit, but issued the PDRS as part of a larger scheme to legally raise capital for its subsidiary. It is thus not liable to pay VAT on these transactions under Section 105 of the Tax Code,” the court explained.
This was not just a tax case but at stake also was freedom of expression.
Thankfully, the Court made the right decision.