Liability of ALAMAG for Royalty Tax on Mining Activities Covered by RIOPA's Mining Leases in Eastern Samar

September 13, 1985 BIR RULING NO. 160-85 254-h 051-85 160-85 Gentlemen : This refers to your letter dated July 22, 1985 stating that Rio Chico Mining Corporation and Pacific Shore Mining Corporation (hereinafter jointly called "RIOPA") hold mining leases over certain mining areas in the Province of Eastern Samar; that availing of the provisions of the mining decree (Presidential Decree No. 463, as amended), RIOPA entered into a service contract consisting of three agreements duly approved by the Ministry of Natural Resources with Alamag Processing Corporation (hereinafter called "ALAMAG"), a company with access to a unique technology for processing chemical grade chrome ore out of lateritic soil; that under the service contract, RIOPA has engaged the services of ALAMAG as its exclusive mining service contractor to explore, exploit, develop, mine, operate, process and market the products for and on behalf of RIOPA, concerning the latter's mining leases granted or to be granted by the Bureau of Mines and the Minister of Natural Resources; that moreover, ALAMAG shall procure, advance and/or furnish by itself or through others, all the necessary financial, technology, equipment, management and marketing resources required; that by contract and in actuality, it is ALAMAG that explores, exploits, develops, mines and operates the mining area, i.e. extracts the lateritic soil that contains minerals and processes the same into marketable chemical grade chrome ore concentrates; and that under the amendment to the Service Contract between RIOPA and ALAMAG dated February 25, 1985 and approved by Minister of Natural Resources on March 26, 1985, "ALAMAG shall bear the royalty taxes and the real estate taxes on all buildings and other improvements built by ALAMAG, on the mining claims and/or service contract areas. RIOPA shall bear all rentals, performance bonds, and other taxes due to the government on the claims." cdti Based on the foregoing representation, you now request confirmation of your opinion that ALAMAG is solely liable for the payment of royalty tax with respect to the mining activities on the mining areas covered by RIOPA's Mining Leases in the Province of Eastern Samar. In reply, please be informed that this Office confirms your opinion that under the Service Contract as amended Alamag will be solely liable for the royalty tax with respect to the mining activities on the mining areas covered by RIOPA's Mining Leases in the province of Eastern Samar provided that in case of insolvency of Alamag or its willful neglect to abide by the terms of the Service Contract as amended without any legal and valid reason, this Office is not precluded from going after RIOPA. It has been ruled that royalty tax can be assessed and collected not only from lessees or owners but also from the mining operators regardless of whether or not said operators are the lessees or mining claimants, e.g. service contractor, pursuant to Section 254(b) of the Tax Code, as amended by B.P. Blg. 84 and implemented by Revenue Regulations No. 13-80, pertinent portion of which states: "Sec. 3. Who are liable to the Royalty Tax . All lessees, owners or operators of mines, licensee or permittee of quarry mines, whether natural or juridical persons, shall be liable to the payment of the royalty tax due on mineral and quarry resources removed." (BIR Ruling No. 254(b)-000-00-51-85) Besides, ALAMAG assumed the payment of the said royalty tax under the aforesaid contract which was duly approved by the Ministry of Natural Resources. cdtech Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner