The Bureau of Internal Revenue (BIR) has filed a criminal complaint of tax evasion with the Department of Justice against the Philippine franchise holder of global coffee and donut chain Dunkin Donuts and its key officers, the tax agency said in a press release on Friday, February 23.
The BIR is also seeking to collect Php1.1 billion from Golden Donuts Inc. (GDI), the exclusive franchisor and license grantee of Dunkin’ Donuts of America, Inc. (DDAI), and some of its key executives in a related civil complaint. The amount consists of income tax, value added tax (VAT) and expanded withholding tax deficiencies in 2007, including surcharges and interests.
The tax agency accused GDI and key officers such as President Walter C. Spakowski, Treasurer Miguel H. Prieto, Chief Financial Officer Pedro E. Paraiso, and Vice President for Finance and Administration Jocelyn V. Santos for willful attempt to evade or defeat tax and for deliberate failure to supply correct and accurate information in GDI’s income tax return and quarterly value added tax return.
In its investigation, the BIR found that under its license agreement, GDI pays franchise fees of one percent of the total net sales of Dunkin’ Donuts retail stores, whether owned by GDI or its sub-franchisees, in the Philippines to DDAI. In turn, GDI collects from its sub-franchisees a royalty fee equivalent to 6.6 percent of their gross sales.
The BIR alleged that GDI under-declared its sales by 39 percent. “The under-declaration of sales was noted by comparing the donut sales declared by GDI vis-à-vis sales derived from the grossed-up value of franchise fee paid to Dunkin Donuts of America, Inc. (US),” it explained.
The tax agency further alleged that GDI also under-declared its royalty income by Php38.96 million. “The under-declaration was discovered by comparing the royalties declared by GDI in its 2007 Annual ITR (AITR) vis-à-vis the royalties declared by the Franchisees in their respective 2007 AITRs,” the BIR explained.
Apart from under-declaring sales and royalty income, the BIR also accused GDI and its officers of intentionally altering sales invoices from suppliers to mislead tax auditors. “In the investigation of the case of GDI, sales invoices issued by various suppliers were intentionally altered, in a desperate attempt to conform to substantiation requirements. To aggravate GDI’s non-compliance, some invoices did not contain the tax identification number of GDI,” the BIR said.
GDI is among the companies substantially owned or controlled by the Prieto family, which also owns the Inquirer group, the publisher of the Philippine Daily Inquirer. The English daily broadsheet has caught the ire of President Rodrigo Duterte for its critical reporting on his administration. Duterte has repeatedly criticized the broadsheet for “biased reporting” and has threatened the Prietos that he will file a plunder case against them.
Last year, the family agreed to sell their majority shares in the newspaper to business tycoon and San Miguel Corp. President Ramon Ang for an undisclosed amount.
The family’s Sunvar Realty Development Corp. also vacated the 2.9-hectare Mile Long property in Makati City in August 2017, which is being leased from the government, after Duterte accused the family of using close ties to previous administrations to get a favorable deal on the property.
The BIR said its latest tax evasion case against GDI is the 131st filed under the agency’s Run After Tax Evaders (RATE) program.
Entrepreneur Philippines tried to reach GDI for a comment but the company has yet to respond.
However, Inquirer.net, the online edition of the Philippine Daily Inquirer, ran a story late Friday afternoon quoting a statement issued by GDI denying the BIR’s allegations. The statement said, in part: “Golden Donuts, Inc. (GDI) categorically denies the accusations of tax evasion for the year 2007. As a matter of fact, the tax liabilities of GDI for the said year had been settled with the Bureau of Internal Revenue (BIR) as of 2012. Further, it has always been compliant with all tax laws and regulations, as evidenced by tax clearances issued by the BIR over the years.”
The company added: “GDI is a professionally-managed organization which has been in the food business for more than 37 years. GDI is prepared to answer the tax evasion case in the proper forum.”
Elyssa Christine Lopez is a staff writer of Entrepreneur PH. Follow her on Twitter @elyssalopz