04/07/2011 | 07:43 PM
The Department of Justice has found probable cause to file a tax evasion case against Macario Lim Gaw, a real estate businessman who is accused of defrauding the government of P5.5 billion through his failure to pay taxes.
Gaw had purchased 10 parcels of land in 2007 and 2008 for P4 billion. Throughout the succeeding eight months after the purchase, he sold the property for P8 billion.
Instead of classifying the sale of the 10 lots as an ordinary asset sale, Gaw declared the transaction as capital asset sale. The sale of ordinary assets carry higher taxes compared with capital assets.
The BIR argued that Gaw's willful evasion of his duty to pay the proper amount of taxes prejudiced the government of P5.5 billion, inclusive of increments.
The bureau also questioned how Gaw was able to acquire the 10 parcels of land worth P4 million when the amount of money he declared in his income tax returns in 2007 and 2008 was insufficient to make a P4-million purchase.
In its resolution, the DOJ found basis in the arguments contained in the BIR's complaint.
"The properties sold by respondent [Gaw]... should have been classified as sale of ordinary assets intended for profits for which he should have declared income of P4 million from said transactions and paid the correct amount equivalent to 32-percent income tax and 12-percent value added tax," said the DOJ.
The Justice department added that such failure violated Section 255 of the National Internal Revenue Code.
The DOJ’s preliminary investigation was led by Senior Assistant State Prosecutor Susan Dacanay and Assistant State Prosecutors Edna Valenzuela and Cesar Calubag. Their resolution was approved by Senior Deputy State Prosecutor Miguel Gudio and Prosecutor General Claro Arellano.
Gaw's defense
In his counter-affidavit filed in response to the BIR complaint, Gaw denied that he evaded his duties to pay the proper amount of taxes.
Gaw said that the funds he used in acquiring the 10 parcels of land came from series of bank loans, and not from undeclared income.
The businessman also argued that the 10 parcels of land he sold in 2008 were indeed capital assets, for which he paid the correct amount of P505 million in capital gains tax.
He also decried that he was not given due process by the BIR because its complaint against him was filed just a day after he received the official letter informing him that he was subjected to an investigation.
DOJ rules in favor of BIR
But in its resolution, the DOJ rejected Gaw's arguments, saying that the businessman's transactions in 2007 and 2008 "make him a person engaged in real estate business under the BIR revenue regulation."
The DOJ noted that Gaw's Agreement to Sell dated April 3, 2008 would show that "he is actually into business of selling real properties for profit."
"Said agreement indicates that as early as the date of the agreement, respondent was already consolidating legal and beneficial title to 23 parcels of land... which includes the 10 parcels of land he acquired [from] November 2007 to June 2008, and there were already ready buyers for said lots who actually bought and paid him on July 11, 2008. Thus, the sale was for business intended for profit," said the DOJ.
As for Gaw's argument that the BIR did not give him due process, the DOJ deemed the issue “moot and academic" because the department-level proceedings gave him enough time and opportunities to address the BIR's complaint.