The government and Pilipinas Shell Petroleum Corp. have reached a compromise in connection with the P7.34-billion in alleged unsettled tax obligations of the oil refinery, averting a possible fuel shortage and pull out of its operations in the country.

Through the Office of the Solicitor General (OSG), the government accepted Shell’s counter-proposal to post a bond in lieu of cash to secure the claim of the Bureau of Customs (BoC) in the event that a final judgment will be rendered against the oil firm in the tax case.

“There was nothing legally objectionable to that. We are not interposing any objection,” Solicitor General Alberto C. Agra told reporters via phone patch Tuesday.

Agra said his office found the compromise as a “peaceful way” in resolving the controversy.

He said a copy of the OSG-Shell agreement will be submitted to the Court of Tax Appeal (CTA), which is handling the case.

Last February 9, the CTA decided not to extend the 60-day temporary restraining order (TRO) that barred the BoC from seizing Shell’s imports to satisfy its alleged tax deficiency. The TRO lapsed on February 8.

The government’s acceptance of Shell’s bond offer was the outcome of talks between the oil firm and the Executive Department to avert an oil shortage crisis due to the BoC’s earlier threat to seize or hold Shell’s incoming imports.

Last Monday, Shell posted the surety bond with the CTA as security for its alleged tax deficiency.

In a letter dated February 19 to Shell, Agra, acting as counsel for the Department of Finance (DoF) and BoC, said the surety bond offer was accepted by the two government agencies “owing to the undeniable paramount public interest involved.”

“With the posting of the surety bond, the BOC shall not seize or hold PSPC’s importations during the pendency of the CTA Case No. 8004 and until the issue on PSPC’s excise tax liability is resolved with finality,” Agra said.

The BoC was trying to collect from Shell for the importation of catalytic cracked gasoline (CCG) which, the oil firm said, is a component of unleaded premium gasoline but which, the government said, is unleaded gasoline already.

Components for gasoline are not subject to excise taxes since they will be used for blending with gasoline; once the gasoline is withdrawn for sale to the public, however, excise taxes are paid.

The BoC and BIR said Shell paid excise taxes on its CCG importations before 2004. But after that year up to the present, Shell has not paid excise taxes on its CCG imports, although other oil companies do. The uncollected taxes now amount to P7.34 billion, excluding interest and penalties.

The BoC has demanded payment of the amount or else it would seize Shell imports and sell them at public auction until the amount is paid. Shell, on the other hand, threatened to pull out from the Philippines.

In a statement, Shell’s vice president for communications Bobby Kanapi said the agreement will be implemented during the pendency of the tax case.

“The interim arrangement between the government and Shell provided a positive resolution, thus, averting a shortage in oil supply that would have adversely affected the public and the economy,” Kanapi said.