ABS CBN What are the Issues at Hand - Why are they worthy of the License? or Why Not?

ABS CBN was ordered by the NTC National Telecommunication Commission to ceased and desist operation of broadcasting by virtue of an expired license. 

ABC CBN was originally given the license last March 30, 1995 to expire 25 years after or 2020. 

Workers Welfare: 

ABS CBN has been expressing concerns over an 11,000 workers that will be out of jobs. 

There were celebrities who expressed their opinions and appeal to the government. Among them were Coco Martin and Kim Chiu that instantly goes viral over the social media. Other showbiz personalities have also expressed their opinions.

They mainly pointed out the workers who will be out of jobs and their untimely demise in the middle of a world pandemic. On the other hand, other defended the government  

There were also other side support by some celebrities and personalities like Jobert Sucaldito who disputed Kim Chiu, Coco Martin, and turned statements against workers being made as shield of reasons for ABS CBNs cease and desist order.   

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Attack on Press Freedom:

Other critics lamented the actions were an attack on Press Freedom.  FilAm activist and UP College of MassComm aired their side that ABS shutdown was an attack on Press Freedom.

Supporters of the decision of NTC rejects this idea saying a mere closure by one network, even if its the largest does not mean attacking the press freedom when all other press who legally comply government basic franchise license requirement. Other networks still operating were GMA, TV5, PTV4, CNN Philippines, and SMNI. Rappler.com a known critic of the government still operates freely and report whatever they seemed proper for the public to know. Rappler CEO Maria Ressa's answer on one interview was criticize on the number of employees of ABS CBN, the edited video can be viewed on this link. Netizens were still hoping the report on the international media was also edited and properly communicated. Other radio networks also remained operations whilst they comply government requirement.

Tax Issues.

BIR head of large taxpayers division tells the Senate panel that ABS CBN regularly pay tax. This means that tax issues hammered against ABS CBN were cleared by the BIR. A sigh of relief to the ABS company. 

On the other hand, National Tax Research Center archived on 2018 included the ABS CBN tax assessment. The reported archived were reported on Philstar.com report on August 2019. The highlights of the report included the following ABS CBN BIR resolved cases: 

• ABS CBN to pay 16.105 million for tax liabilities assessed on its subsidiary with 2009 original assessment of Php 30.952 million.
• July 8, 2019 the CTA Special First Division also approved a compromise agreement between BIR and ABS-CBN News Channel, another subsidiary company of ABS-CBN.
  
  
  Under the deal, ABS-CBN News Channel (formerly Sarimanok News Network Inc. ) would just have to pay P17.837 million in taxes for 2009, five times less than the original amount of P97.079 million assessed by the BIR.
• Feb 7, 2019 the tax court’s Second Division also approved a compromise deal between ABS-CBN and BIR to settle the media giant’s tax liabilities for 2009.
  
  
  Under the deal, ABS-CBN Corp. would pay P152.44 million equivalent to 40 percent of the assessed income tax, value-added tax and documentary stamp tax defficiencies and 100 percent of the assessed expanded withholding tax, compensation withholding tax, and final withholding tax defficiencies.
  
  
  In turn, the BIR agreed to withdraw and cancel the final letter of demand (FLD) dated July 31, 2014 it earlier issued against the media firm.
  
  
  It was not stated in the resolution the total amount of tax liabilities assessed by the BIR against ABS-CBN.

From the Post of PM Reyes On the tax avoidance scheme of ABS-CBN

It appears that Big Dipper Digital Content and Design, Inc. ("Big Dipper"), a PEZA-registered entity fully owned by ABS-CBN Corporation ("ABS-CBN"), renders services to ABS-CBN for repurposing its film library for digital distribution and to ABS-CBN Global Hungary Kft. - Luxembourg Branch ("ABS-CBN Luxembourg"), for archiving, digitization, warehousing, storage, and maintenance fees of TV programs for transmission on digital media. ABS-CBN Luxembourg is a branch of ABS-CBN Global Hungary Kft.("ABS-CBN Hungary"), a corporation registered in Hungary fully owned by ABS-CBN.

As a PEZA-entity, Big Dipper was granted an income tax holiday, which it enjoyed until October 2013, and a 5% gross income tax in lieu of all other taxes thereafter. Income from Big Dipper's service to ABS-CBN Luxembourg would be subject to this preferential rate.

ABS-CBN receives dividends from Big Dipper which is not subject to tax as it is an intercorporate dividend.

As the Supreme Court puts it, "tax avoidance" is the tax saving device within the means sanctioned by law while "tax evasion" is a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities. Based on the facts, this constitutes a mere case of tax avoidance, which is legal. 

(1) Note that one of the eligible activities for PEZA registration and incentives is IT (Information Technology) Service Export. This pertains to IT service activities of which 70% of total revenues is derived from clients abroad. The 70% threshold is met by revenue received from ABS-CBN Luxembourg. Further, among eligible IT service activities includes (1) data encoding, transcribinig, and processing; (2) programming and adaptation of system softwares and middleware for media and entertainment, among others; and (3) content development for multi-media or internet purposes. Thus, Big Dipper is qualified for PEZA registration as a "IT Enterprise" and may enjoy the tax incentives granted to it by law, i.e. the  5% gross income tax in lieu of all other taxes.

(2) Insofar as the dividend income received by ABS-CBN from Big Dipper is concerned, Section 27(D)(4) of the Tax Code is clear: " Dividends received by a domestic corporation from another domestic corporation shall not be subject to tax." 

(3) The use of ABS-CBN Luxembourg and ABS-CBN Hungary is likewise permissible. Luxembourg does not levy withholding tax on service fees. Thus, no tax is withheld on the service fees paid by ABS-CBN Luxembourg to Big Dipper. 

Further, branches in Luxembourg are taxed on Luxembourg-source income and no withholding tax applies to profit remittances. Thus, no tax is withheld on any profit of ABS-CBN Luxembourg that is remitted to ABS-CBN Hungary. Finally, Hungary has one of the lowest corporate income tax rates in the EU at 9%. Like any tax avoidance arrangement, ABS-CBN merely took advantage of existing tax loopholes, mismatches, and preferential tax regimes. 

To my mind, this is just a portion of the overall tax avoidance strategy of ABS-CBN as I note that its subsidiaries also include two other holding companies, ABS-CBN Global Netherlands B.V. and ABS-CBN Global Ltd in the Cayman Islands. These entities would be good for tax avoidance using royalty arrangements. 

In any case, there is nothing unlawful with ABS-CBN's tax avoidance scheme. 

Now, if there is an issue with Big Dipper being able to register with PEZA and avail of incentives, then that just highlights the need to reform our tax incentives system through the passage of the Corporate Income Tax and Incentives Reform Act (CITIRA). If there is an issue with the whole tax avoidance scheme, then give the Bureau of Internal Revenue the power to disregard tax reduction schemes which have no legitimate business purposes other than to reduce tax. That is found in Section 50 of the House Version of CITIRA. These are policy consideration. 

Until then, insofar as the law is concerned, there is no issue at all.

Another fb post by Vivian Velez to quote,

Interesting! From my inbox... 

From ABS CBN SEC filings (these can be verified in their SEC submission)?

What's with ABS-CBN BIG DIPPER? Why is it registered at PEZA? To avail on paying less taxes, perhaps? Let's dig in some more! 

The Big Dipper Digital Content and Design, Inc. is a subsidiary of ABS-CBN Corporation, in-charge of operating and maintaining the company's Media Asset Management system which includes:

- Converting Analog Video Materials to Digital Format

- Video Quality Checking of Ingested Video

- Cataloging of Ingested Materials

- Providing Transcription/Translation/ Synopsis Writing

- Processing of Multi-Format Dubbing

so why is it registered at peza? To avail paying less taxes?hmm

Franchise License

NTC issues halt on ABS CBN operation on May 5, 2020.