Taxes, taxes, taxes everywhere!

Filipinos who plan to buy property in the United States had better familiarize themselves with US tax laws and the applicable taxes in places where they plan to buy real estate  with Wilmington in Delaware imposing the highest taxes followed by Detroit in Michigan.

According to latest reports, property taxes are one of the most burdensome especially in cities rated as having the top 10 highest property taxes. In 1980, the US Congress passed the Foreign Investment in Real Property Tax Act or FIRPTA amid fears that foreigners are increasing control over US real estate. FIRPTA requires foreigners/non-US taxpayers buying real estate to withhold 10 percent of the purchase price, while those selling property have to pay income tax rates applicable to American citizens.

FIRPTA critics however say the law has prevented the entry of more foreign investment in the US real estate market because it imposes hefty penalties on domestic real estate, in contrast with other types of investments such as stocks and bonds. Last year, Republican Congressman Kevin Brady from Texas filed a proposal to amend FIRPTA to increase foreign investment in US real estate by relaxing rules on real estate investment trusts or REITs – a move that many believe is timely considering the economic circumstances facing the US.

While the proposal has been received positively, there are concerns that a repeal of FIRPTA would mean reduced tax revenues – which could make it difficult to pass the proposed bill given the US budget deficit which could eventually rise despite a slight reduction which analysts project to be short lived, given the sluggish economic growth compounded by volatile unemployment figures.

The fact of the matter is, many countries especially those that are going through a slowdown, and whose economies are hurting, have resorted to increased taxation to raise more funds. Spain for instance slapped higher taxes for higher income earners, taking over 50 percent for those earning $200,000 or more. France on the other hand takes 54 percent, and just recently announced that it will impose a 75 percent tax rate on those earning $1.3 million in income starting from 2013. Even the UK recently imposed an additional six percent increase in taxes for “non-doms” or foreigners.

UK citizens have been complaining about the perceived preferential treatment of non-British individuals, but government has been firm saying it is one of the reasons to attract foreign investors. A report by a global accountancy network underscores the fact that low tax regimes attract foreign direct investments, disclosing that the favorable tax systems in Singapore, Ireland and Belgium have made them top performers as far as FDIs are concerned.

BIR commissioner Kim Henares is following her mandate to increase tax revenues, but her biggest handicap is the perception many Filipino taxpayers have that widespread government corruption continues unabated. When Filipinos – especially those working abroad – hear about pork barrel shenanigans where trillions of pesos are lost to corruption and bogus projects, they begin to ask – why should we pay our taxes?

Ongpin scores legal win

Businessman Roberto “Bobby” Ongpin scored a legal win after a Makati Regional Trial Court upheld Alphaland Corporation’s position that a so-called shareholder’s agreement allegedly executed by the Ashmore Group and Alphaland’s shareholders in 2012 was “invalid and unenforceable.” In its ruling, the Makati RTC said the agreement contains provisions that violate the Securities Code and the Constitution. The ruling solidifies the control of Ongpin over Alphaland with 50.57 percent of the outstanding capital as of Jan. 2, 2014.

In a letter to the Philippine Stock Exchange, Alphaland noted the importance of the “element of good faith on one hand and also bad faith on the other” with regard to the issue. It can be recalled that Ashmore reportedly supplied Alphaland – in which the UK-based group was a major shareholder – with wrong information, stating that it sold a 2.5 percent stake to Credit Suisse for a deal worth P942 million in December 2012 when in fact, Ashmore retained ownership of the said shares.

When the misrepresentation was discovered in early 2013, the Alphaland Board of Directors made a resolution to disclose the same to the PSE “knowing fully well that it may result in the PSE suspending Alphaland from trading,” adding that for them there was no question that disclosure was “the right thing to do,” stressing that the good faith showed by Alphaland should not be taken against it.

As for the issue on the delayed disclosure of the Jan. 2 board resolutions adopted by the directors only on January 20, Alphaland is asking the Exchange to take cognizance of the fact that commercial reasons, as between the two major shareholders of Alphaland rather than a deliberate effort to deceive the public, was the principal consideration. The reason for the delayed disclosure, the company explained, was because of Ashmore’s request to hold it because they wanted to negotiate an amicable settlement. However, one of the conditions Ashmore wanted was the resignation of Bobby Ongpin from Alphaland – which was roundly rejected for obvious reasons, again underscoring the “bad faith” from the UK group, the letter noted.

Spy tidbit

Our friend, Philippines Australia Business Council chairman Albert Garcia, informed us the government will be hosting the Philippines-Australia Ministerial Meeting on February 19-21, with the joint sessions to be participated in by Foreign Secretary Albert del Rosario, Trade Secretary Gregory Domingo, Australian Foreign Minister Julie Bishop and Australian Minister for Trade Andrew Robb. The bilateral talks will include the PABC and its counterpart, the Australia Philippines Business Council, with participation by the ANZCHAM.

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