BIR Ruling [DA-088-01]

May 16, 2001 BIR RULING [DA-088-01] Sec. 27 (C); Sec. 32 (E) (7) (6) BIR Ruling #018-2000 Diaz Murillo Dalupan 5th Floor, Don Jacinto Building Dela Rosa corner Salcedo Streets Legaspi Village, Makati Attention: Atty . Millardo M . Manseguiao Director, Tax & Corporate Services Gentlemen : This refers to your letter dated December 13, 2000 in relation to your letter dated May 24, 2000, requesting on behalf of your client, Metropolitan Waterworks and Sewerage System (MWSS), for a clarificatory ruling as to whether or not Section 27(C) in relation to Section 32(B)(7)(b), both of the Tax Code of 1997, has withdrawn the tax exemption privilege of MWSS under Section 18 of RA 6234; and that the concession fees paid by the two (2) concessionaires under the Concession Agreement entered into by and among MWSS, Benpress-Lyonnaise Waterworks, Inc. and Ayala Corporation for the former corporate operating budget, debt servicing to foreign/local creditors and progress billings are subject to income tax. MWSS is a government-owned corporation engaged in providing public utility services. AaEDcS In reply thereto, please be informed that Section 27(C) of the Tax Code of 1997 provides that the provisions of existing special or general laws to the contrary notwithstanding, all corporation, agencies, or instrumentalities owned or controlled by the Government, except the Government Service Insurance System (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO) and the Philippine Amusement and Gaming Corporation (PAGCOR), shall pay such rate of tax upon their taxable income as are imposed by Section 27 upon corporations or associations engaged in a similar business, industry, or activity. Moreover, Section 7(B), Title (XIV) - Final Provisions of RA 8424 (Tax Reform Act of 1997) provides: "xxx xxx xxx "(B) The provision of the National Internal Revenue Code, as amended, and all other laws, including charters of government-owned or controlled corporation, decree orders or regulations or parts thereof, that are inconsistent with this Act are hereby repealed or amended accordingly." Nonetheless, Section 32(B)(7)(b) of the National Internal Revenue Code of 1997, provides as follows: "SEC. 32. Gross Income . . . . "(A) . . . "(B) Exclusions from Gross Income . . . . xxx xxx xxx "(7) Miscellaneous Items . . . . "(a) . . . "(b) Income Derived by the Government or its Political Subdivisions . Income derived from any public or from the exercise of any essential government function accruing to the Government of the Philippines or to any political subdivision thereof." thus, the concession fees paid by the concessionaires to MWSS, if at all they are in the nature of income of the latter, shall be excluded from the gross income. Similarly situated is BIR Ruling No. 018-2000 dated January 20, 2000, where this Office ruled that xxx xxx xxx "In view thereof, pursuant to Section 32(B)(7)(b) of the Tax Code ( supra ), the income of the National Power Corporation (NPC) from its operations as a public utility shall be exempt from corporate income tax." IN VIEW OF THE FOREGOING, his Office is of the opinion as it hereby holds that since MWSS is a public utility, it remains exempt from income tax on its operation as a public utility pursuant to Section 32(B)(7)(b). (See "Central Bank of the Philippines vs. Court of Appeals and Ablaza Construction and Finance Corporation, G.R. No. L-33022, April 22, 1975" on the meaning of the term "Government of the Philippines"). This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group