December 11, 2013

Manny Pacquiao battles BIR and IRS

Filipino boxing phenom Manny Pacquiao is hard to beat in the ring. Named the “fighter of the decade” in 2010 he’s a force to be reckoned with. Now, he can’t seem to catch a break. He’s in the ring with two formidable foes, the Bureau of Internal Revenue (BIR)in the Philippines as well as the IRS. The BIR says he owes 2.2 billion pesos (equivalent to $50.2 million) for income earned in 2008 and 2009.

Paquiao says that money was earned in bouts that occurred in the United States, and maintains he paid the taxes he owed on those amounts, to the IRS, as required. Thanks to a tax agreement between the two countries, taxpayers are not subject to double taxation, which is Pacquiao’s defense.

Tax commissioner Kim Henares, however, says that in two years, the boxer has provided no documentation, proving that he made U.S. payments. She told ABS-CBN television news, “2.2 billion (pesos) is what Pacquiao owes now because of surcharges and interest.” She added, even if he did pay the taxes due in the United States, he would owe more to the Philippines because their tax rate was higher at the time.

While he works to clear up the mess, his accounts in the Philippines have been frozen and a lien has been placed on his property worth millions, leaving him unable to pay his staff. If he does not pay the taxes owed, said Henares, the authorities could take the payments by stripping away his assets.

Now to the IRS

Pacquiao’s promoter, Bob Arum and his attorney, Tranquil Salvador maintain the U.S. taxes was paid and that proof is on the way. But in recent days, the IRS states he failed to pay income tax on his earnings from 11 fights in 2006 to 2010, leaving a tax debt of $18,313,668.79.

Pacquiao’s representatives say certified documents are on the way, which prove his U.S. tax liabilities were paid (at least for 2008 and 2009, the years in question by Filipino authorities). But they say they will not give the proof to the BIR, preferring to fight the charges in court.

To fight back against the tax authorities he went on a public campaign on all of the major TV networks in the Philippines, accusing the BIR of harassment. “I’m not a criminal or a thief. I am not hiding anything. I will face my problems as they come.”

Avoiding the U.S.?

As Pacquiao fights this battle on two fronts, the only thing that is clear is that he needs serious legal help to untangle the tax mess. Meanwhile, Arum has told reporters his client may never fight in the U.S. again because the tax burden is too heavy. Whatever he earns in the United States, 39.6 percent comes off the top. And depending on the state where the fight is held, another tax bite might be taken.

“Manny can go back to Las Vegas and make $25 million, but how much of it will he end up with — $15 million?” His client can fight in China for a smaller purse, $20 million, and keep all of it.” Arum added, “He’d have to be a lunatic” to fight in the United States and let his winnings disappear that way.

Tax matters can be complex even for those without foreign income issues. Toss in foreign tax agreements and the issues grow sticky pretty fast. Individuals with who have foreign income issues are advised to seek tax representation from professionals with vast experience untangling the tax web.