BIR Ruling [DA-191-96]

June 6, 1996 BIR RULING [DA-191-96] Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati City Attention: Atty . E . C . Alcantara Gentlemen : This refers to your letter dated December 13, 1995, requesting in behalf of your client, Toledo Power Company (TPC), for confirmation of your opinion that the sale by TPC of electricity generated from its Sangi Thermal Power Plant and Carmen Diesel Power is subject to 2% franchise tax under Section 117 of the Tax Code, as amended. cdt It is represented that Toledo Power Company (TPC) is a duly registered partnership with electric power generations as its main business; that at present, it owns and operates two (2) electric generating plants, the Sangi Thermal Power Plant and the Carmen Diesel Power Plant; that the power plants were originally owned and operated by Atlas Consolidated Mining and Development Corporation (ACMDC) and are accredited by the National Power Corporation (NPC) as qualified Private Sector Generation Facility (PSGF) under Executive Order (EO) No. 215; that ACMDC had entered into a Power and Fuel Supply Agreement with NPC wherein the former committed to supply electric power to the latter for a period of ten (10) years beginning from February 26, 1993; that in 1994, ACMDC sold the power plants to TPC; that TPC continued to supply electric power to NPC pursuant to the terms of the said agreement between ACMDC and NPC; and that about ninety percent (90%) of the electricity generated from said plants are sold to NPC and the rest are sold to Cebu Electric Company, ACMDC and its subsidiaries. In reply, please be informed that Section 1(b), Article II of the Implementing Rules and Regulations of E.O. No. 215 provides, viz: "Private corporations, cooperatives and similar associations primarily engaged in the generation or sale of electric power, referred to in these implementing rules as electric utilities, may own, construct and operate generating facilities but shall be subject to electric utility regulations concerning rates, financial limitations, taxes and other laws applicable to their operations as electric utilities." It is clear from the foregoing that private corporations, cooperatives and similar associations primarily engaged in the generation or sale of electric power which may own and operate qualified PSGFs are subject to taxes applicable to their operations as electric utilities. Since TPC is a partnership primarily engaged in electric power generation, it is subject to taxes applicable to electric utilities. Accordingly, your opinion that the sale by TPC of electricity generated from its Sangi Thermal Power Plant and Carmen Diesel Power Plant is subject to 2% franchise tax under Section 117 of the Tax Code, as amended, is hereby confirmed. 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. (VAT Ruling Nos. 59-90 and 222-90, dated February 28, 1990 and December 12, 1990, respectively) cdtech Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)