Filsyn Corporation Receives Final Assessment Notice from BIR Due to P280 M Tax Deficiencies

​The Management of Filsyn Corporation notified its Board of Directors that it had received from the BIR a Final Assessment Notice / Formal Letter of Demand (FAN/FLD) dated September 17, 2024 for calendar year 2022 on September 25, 2024.

The BIR assessed deficiency taxes, interests, surcharges, and penalties (“Tax Deficiencies”) against the Corporation in the total amount of P280,437,440.06, broken down as follows:

1. Final Withholding Tax (FWT) – P178,404,709.37
2. Final Withholding Value Added Tax (FWVAT) – P86,039,553.64
3. Documentary Stamp Tax (DST) – P15,859,177.05
4. Compromise Penalties – P134,000.00

As background, to wipe out the Corporation’s deficit, the Corporation restructured its capital accounts and converted its liabilities into equity (Equity Restructuring). Particularly, the Corporation increased its authorized capital stock from P120,000,000.00 to P647,306,477.72. Pursuant to the increase in the Corporation’s authorized capital stock, Malaysia Garment Manufacturers (Pte) Ltd (MG) subscribed to 33,426,498 preferred shares of stock in exchange for the conversion of the Corporation’s outstanding loan (principal and interest) amounting to P1,419,325,800.00 (Subject Loan) to equity as payment for the subscription, with the excess recorded as Additional Paid in Capital (APIC) to wipe out the Corporation’s accumulated deficit (Debt-to-Equity Conversion).

The BIR alleges that the Deed of Assignment for the Debt-to-Equity Conversion resulted in a constructive receipt of income on the part of MG, which should be subject to final withholding tax.

The Corporation is of the position that the Equity Restructuring and Deed of Assignment are separate events, and both are not subject to income tax, VAT, and DST.

The Corporation, through its legal counsel, is taking the appropriate legal steps to assail the assessment on the grounds of lack of factual and legal basis. The Corporation will file a Protest against the FAN/FLD before the October 25, 2024 deadline.

FILSYN Corporation (Filsyn) was incorporated and registered with the Philippine Securities and Exchange Commission (SEC) on 22 July 1968 as Filipinas Synthetic Fiber Corporation to promote and support the polyester fiber and yarn requirements of the country’s textile industry. The Company changed its name to Filsyn Corporation in 1987 to reflect its wider range of activities.
 
The Company’s primary purpose is to carry on the business of making, manufacturing, preparing, dyeing, processing, treating, finishing, and converting all kinds of fibers, filaments, and materials, whether polyester, nylon, acrylic, rayon, cotton, wool, silk, hemp, flex and jute, and to make, manufacture, produce, raise, prepare, process, purchase, or otherwise acquire, and to hold, own, use, sell at wholesale, import, export, dispose of or otherwise trade or deal in with, such fibers, filaments and materials, any  and all kinds of yarns, threads, textiles, fabrics, cloth, and other goods and components spun, woven, knit or made in whole or in part of such fibers, filaments, or materials, or any of them, and all other articles, products, chemicals and substances related thereto or of a like or similar nature or which may enter into manufacture of any of the foregoing or which may be used in connection therewith.

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