MANILA (2ND UPDATE) - Journalist Maria Ressa and Rappler Holdings, Inc. (RHC) have asked a Pasig court to junk the tax evasion case filed against them by the Department of Justice (DOJ).

RHC is the holding company of Rappler, Inc. which runs news website Rappler.

In a 14-page motion to quash filed on Tuesday but released to the media only on Thursday, Ressa and RHC claimed the court has no jurisdiction over the case because the Bureau of Internal Revenue skipped some procedures before filing the complaint, and the DOJ itself unnecessarily split the filing of 5 cases between a regional trial court in Pasig and the Court of Tax Appeals (CTA).

They also claimed the criminal complaint failed to allege that RHC was regularly engaged in the buying and re-selling of securities so as to be subject to the payment of value-added taxes.

Ressa and RHC asked the court to remand the case to the DOJ for preliminary investigation and to suspend all proceedings, including Ressa’s arraignment.

Ressa, who is being sued in her capacity as president of the company, is due for arraignment on Friday.

If found liable, she faces up to 10 years imprisonment and a fine of not less than P10,000 while RHC could be made to pay between P10,000 to P50,000, aside from paying the taxes due.

In a statement Thursday, Justice Chief Menardo Guevarra said he trusts that the BIR followed the proper procedure before filing the complaint.

"...I’m pretty sure that inasmuch as it’s the BIR who filed the complaint and I have to trust that the BIR followed the proper procedure before filing the criminal complaint for tax evasion. I have to make that assumption," he said.

What happened

The case stemmed from RHC’s purchase of around 119 million common shares from Rappler, Inc. from 2014 to 2015. Against these shares, it issued Philippine depositary receipts (PDRs) to NBM Rappler and Omidyar Network Fund LLC.

The DOJ said in its October 2 resolution that RHC acted as a middleman in buying Rappler, Inc.’s shares for the purpose of underwriting PDRs for resale to interested buyers.

As a dealer in securities, RHC should pay P108 million in taxes because RHC allegedly earned P162.5 million from the transaction, according to the DOJ.

But Rappler maintained, it is not a dealer in security and never hid any transaction from the BIR.

The DOJ filed 4 cases before the CTA - 3 of the charges were for failure to file VAT returns for the 3rd and 4th quarter and income tax return for 2015, in violation of section 255 of the Tax Code and another for violation of section 254 of the Tax Code for attempt to evade payment of taxes.

The fifth case before the Pasig court is for violation of section 255 also for failure to file VAT returns and pay taxes for the 2nd quarter of 2015.

While the CTA has yet to act on the charge, the Pasig court issued a warrant of arrest dated November 28, 2018. Ressa immediately posted bail early this week.

Pasig court Motion to Quash

In their motion to quash, RHC and Ressa said the filing of the case against them was premature because the BIR should have first conducted a preliminary investigation and issued a letter of authority before conducting a formal investigation by looking into RHC’s books of accounts and other accounting documents.

Instead, the BIR filed the criminal complaint 3 days after RHC received the letter of authority.

They also questioned why 4 of the cases were filed before the CTA while another one was filed before the Pasig Regional Trial Court (RTC).

Assuming a crime was committed, they argued that only one case should have been filed because the offense was said to have been caused by a single criminal motive.

“[T]he DOJ itself in its Resolution had considered the transactional activities of RHC to form part of a sequence that constituted securities dealing within a single tax year. Moreover, the tax liability, if any, all arose from the same PDR Transaction. Consequently, RHC should not be charged separately for each taxable quarter for failure to report or supply an accurate return. RHC should have only been charged for one offense of Section 255,” they said.

They also argued that it is the CTA, as a specialized court which had already acquired jurisdiction over the 4 cases, that should also hear the fifth case.

In addition, RHC and Ressa claimed that the facts charged do not constitute a criminal offense.

RHC was described in the criminal complaint filed in the Pasig RTC as having issued and sold PDRs which is different from buying and re-selling of securities.

And because the BIR did not conduct a formal investigation or examination of RHC’s books of accounts, it had not determined what taxes are due from the PDR transactions, thus, Ressa and RHC claimed, the criminal complaint could not allege that RHC owes the BIR VAT.

“Certainly, given that the Accused have been deprived of due process as there was is an obvious haste and lack of objectivity and neutrality of the government through the BIR and the DOJ in affording protection to the Accused herein, this information should be quashed as this is a clear case of persecution rather than prosecution,” they said.

Ressa and RHC also asked the court to take judicial notice of the Securities and Exchange Commission’s revocation of Rappler, Inc.’s and RHC’s certificates of registration and the statements made by the Executive Department against Ressa and Rappler over their coverage of the government’s war on drugs.