Globe Mackay Cable and Radio Corp. Not Subject to Corporate Income Tax upon Its Payment of Franchise Tax

September 8, 1986 BIR RULING NO. 160-86 24 000-00 160-86 Gentlemen : This refers to your letter dated July 23, 1986 requesting confirmation of your opinion that under its franchise, (B.P. Blg. 95), your client, Globe Mackay Cable and Radio Corporation (GMCRC) is not liable to pay the corporate income tax. It is represented that under its legislative franchise, B.P. Blg. 95 which took effect on December 24, 1980 GMCRC, a domestic corporation is given "the right and privilege of constructing, maintaining and operating communications system of radio wire, cable, satellites, and any other means now known to science or which in the future may be developed for the reception and transmission of telecommunications between any point in the Philippines to points exterior thereto, including airplanes, airships, or any type of vessel, even though such airplanes, airships, or any type of vessel be located within the territorial limits of the Philippines and the receiving of messages from such exterior points"; that under its franchise, GMCRC shall pay a franchise tax of five percent (5%) of its gross receipts in lieu of income tax. In reply, I have the honor to inform you in the affirmative. Section 9 of Batas Pambansa Blg. 95, which took effect on December 24, 1980, reads as follows: "Sec. 9. In consideration of the franchise and rights hereby granted, the Grantee shall pay to the Commissioner of Internal Revenue during the life of the franchise a tax, of five percent of the gross receipts derived by the Grantee from its operation under this franchise . Such tax shall be due and payable quarterly in accordance with Section 193(a) of the National Internal Revenue Code and shall be in lieu of income tax." (Emphasis supplied) Under the above-quoted provision, starting December 24, 1980, GMCRC is not subject to the corporate income tax imposed by Section 24(a) of the Tax Code upon its payment of the 5% franchise tax. The aforesaid exemption has not been withdrawn by P.D. No. 1955. Ministry Order No. 35-84 provides that the withdrawal of tax exemption under P.D. No. 1955 does not affect "those covered by the non-impairment clause of the Constitution such as franchises ." (Emphasis ours) However, any exemption from or preferential treatment in the tax on interest income from bank deposits and yield or any other monetary benefit from deposit substitutes, trust funds and similar arrangements shall remain withdrawn. (Sec. 2, Ministry Order No. 39-84 further clarifying the scope of P.D. No. 1955) Accordingly, beginning August 1, 1986, GMCRC is subject to the 20% final withholding tax on its interest income from bank deposits and yield from deposit substitutes prescribed by Sec. 24(e)(1) of the Tax Code, as amended by Executive Order No. 37. (BIR Ruling No. 154-85) cdta Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner