MANILA, Philippines – After four years and 10 months of trial, Pasig City Regional Trial Court Branch 157 moved to acquit Nobel Peace Prize laureate and Rappler chief executive officer Maria Ressa and Rappler Holdings Corporation (RHC) of their fifth and last tax evasion case.

In a verdict handed down on Tuesday, September 12, Presiding Judge Ana Teresa Cornejo-Tomacruz acquitted Ressa and Rappler after the court found that they did not commit the offense alleged in the charge filed during the time of former president Rodrigo Duterte. The civil aspect of the case was also dismissed by the court in its 18-page decision.

The case was filed two months after the Philippines’ Securities and Exchange Commission (SEC) issued a closure order against Rappler based on the claim of the Duterte administration that the company is foreign-owned. Rappler is, however, a 100% Filipino-owned company, which was asserted by the newsroom in its appeal against the SEC order pending before the Court of Appeals (CA).

Case background

The case decided by the Pasig court stemmed from the Duterte government’s allegations that Rappler evaded tax payments when it transacted using Philippine Depositary Receipts (PDR) with North Base Media (NBM) and Omidyar Network (ON).

PDRs are financial instruments that grant their holder the right to the delivery or sale of underlying shares, but do not grant ownership rights to the holder. Essentially, PDRs are used to raise capital and while not exercised, they “will continue to be registered in the name of, and owned by, and all rights pertaining to the shares shall be exercised by the issuer.”

• In filing the case in November 2018, the government alleged that Ressa and RHC violated section 255 of the tax code, over alleged and willful failure to supply correct information in Rappler’s second quarter value-added tax (VAT) return for taxable year 2015.
• The prosecution claimed that RHC was allegedly involved in the issuance and sale of securities since it allegedly received sales receipts. With this, the government claimed, RHC should have paid VAT.
• On several occasions, Francis Lim, lead counsel of Rappler and former head of the Philippine Stock Exchange, reiterated that Rappler did not sell PDRs, and that the PDR transactions were only meant to raise capital. He added there was no buying nor selling of securities in the transactions being questioned.
• The prosecution also alleged that RHC acted as a “dealer in securities” in relation to the PDR transactions “when it regularly and continually subscribed to RI’s (Rappler, Inc.) shares and subsequently issued and sold PDRS to NBM and Omidyar on a one-for-one basis.” The government wanted to label RHC as a dealer in securities because a dealer is required to pay certain taxes.

Court’s decision

Majority of the points raised by Judge Cornejo-Tomacruz in the decision were almost identical to the grounds cited in the Court of Tax Appeal’s (CTA)January acquittal of Ressa and RHC in four tax cases.

• The Pasig court said the prosecution failed to prove that RHC “habitually and consistently engage[d] in the purchase of RI’s shares and resale of PDRS to customers.” It added that RHC entered into PDR transactions in accordance with its purpose as a holding company. The court also noted that the purchase of Rappler’s shares of issuance of PDRs to NBM and ON “appears to be an isolated series of transactions that were undertaken within a limited period of time.”
• Section 22 of the tax code defines a dealer in securities as “a merchant of stocks or securities, whether an individual, partnership or corporation, with an established place of business, regularly engaged in the purchase of securities and the resale thereof to customers xxx with a view to the gains and profits that may be derived therefrom.”
• In the decision, Judge Cornejo-Tomacruz said RHC did not gain any profit from the PDR transactions. She added that the PDR transaction cannot be regarded “as a gain, income or profit,” on RHC’s part.
• The judge added that the PDRs were not given as consideration for the sales of shares of stock, but were only intended as capital investment. “It (PDR transaction) was a ‘capital’ obtained by RHC to generate revenue, but is not the revenue itself,” the judge noted.
• The court added: “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.”
• In the ruling, the court concluded that Ressa and RHC did not violate the tax code, adding that it cannot be said that they “willfully filed an inaccurate VAT return or that (they are) liable for any deficiency VAT” in relation to the PDR transactions.

Why this matters

The acquittal in the last tax case filed against Ressa and Rappler laid to rest the tax evasion charges hurled by the Duterte administration.

• The latest acquittal means all the five tax cases against Rappler have already been junked – four were dismissed by the CTA in January. The acquittals in these tax-related cases prove that Rappler did not evade any tax obligations when it entered into PDR transactions with NBM and ON.
• As of writing, Rappler has two active cases pending in courts: (1) Ressa and former Rappler researcher Reynaldo Santos Jr.’s appeal in the cyber libel conviction before the Supreme Court, and (2) Rappler’s appeal on the SEC closure order pending before the CA. (Aside from the two active cases, there was also an anti-dummy case filed against Ressa and Rappler directors pending before Pasig RTC Branch 159. However, the trial of the said charge has been suspended.)
• Answering questions from reporters on Tuesday, Lim said the latest acquittal is also a win for the Philippines, especially in attracting foreign investments. The acquittals – both from the CTA and the Pasig court – “will send a very strong signal to the international business community” that the country is open for business. – Rappler.com