Franchise Grantee Engaged in Satellite Communications Business is Subject to 3% Franchise Tax

December 4, 1991 BIR RULING NO. 261-91 117 (b) 000-00 261-91 Gentlemen : This refers to your letters dated May 16 and November 4, 1991, requesting for confirmation of your opinion that as a franchise grantee engaged in satellite communications business, you are subject to 3% franchise tax prescribed by Section 117 (b) of the Tax Code, as amended by Executive Order No. 72. cdti It appears that PHILCOMSAT is a grantee of a legislative franchise under Republic Act No. 5514 effective on June 21, 1969, engaged in satellite communication business; that it was designated by the President of the Philippines as the operating entity in representation of and as signatory of the Republic of the Philippines to the International Telecommunications Satellite Organization (INTELSAT) an international organization composed of 112 member nations, of which the Philippines is a signatory member; that as a carrier's carrier, PHILCOMSAT provides satellite circuits for international telecommunications carriers, such as PLDT, GMRC, ETPI, CAPWIRE, and PHILCOM, for their telephone, telex, facsimile, and telegraph services, as well as satellite circuits for television, but it does not operate as a television station. In reply, please be informed that your above opinion is hereby confirmed. Section 2 of PHILCOMSAT's franchise provides that it is subject to the 5% franchise tax on the gross receipts derived from its satellite transmission business which percentage "shall be in lieu of all other taxes". Accordingly, PHILCOMSAT was then exempt from income tax. Considering that Executive Order No. 72 prescribes a new franchise rate structure, which was effected by amending Section 227 (note Section 117) of the Tax Code prescribing varying rates of 2%, 3% or 5% franchise taxes depending on the business of the franchise grantee; that franchise grantees are now subject to corporate income tax, pursuant to Section 2 of Executive Order No. 72; and that under Section 12 of the franchise, provisions thereof are subject to amendment, alteration or repeal by the Congress when public interest so requires, this Office agrees with your opinion that indeed the aforesaid 5% franchise tax as provided in PHILCOMSAT's franchise is inconsistent with and, therefore, has been superseded by Executive Order No. 72 by amending Section 227 (now Section 117 of the Tax Code). Accordingly, based on the foregoing facts constituting PHILCOMSAT's business of satellite transmission, as provided in Section 1 of Republic Act No. 5514, this Office believes, and so holds, that said business falls within the purview of telephone and/or telegraph systems. Hence, as the 5% rate of franchise tax prescribed in PHILCOMSAT's franchise has been superseded by Executive Order No. 72, PHILCOMSAT became subject to the 3% franchise tax on the gross receipts derived from all its satellite transmission business prescribed by Section 117 (b) of the Tax Code starting February 10, 1987, the date of the effectivity of Executive Order No. 72. PHILCOMSAT also became subject to the corporate income tax imposed by Section 24 (a) of the same Code on the same date. This Office takes cognizance of your willingness not to file a claim or refund/tax credit of whatever excess franchise tax payments PHILCOMSAT has made from February 10, 1987 and onward. Very truly yours, (SGD.) VICTOR A. DEOFERIO, JR. Deputy Commissioner