Proposed Action Re: Request of Lufthansa Technik Philippines, Inc. (LTP), for Opinion on Whether Vehicle Mounted Equipment are Subject to Real Property Tax

March 10, 2006 BLGF MEMORANDUM FOR : Executive Director M. P. R. Montesa THRU : Channel SUBJECT : Proposed Action Re: Request of Lufthansa Technik Philippines, Inc. (LTP), for Opinion on Whether Vehicle Mounted Equipment are Subject to Real Property Tax This pertains to the attached proposed action regarding the exemption of Airconditioning Unit; Air Start Unit; and Ground Power Unit, all vehicle mounted machinery owned by Lufthansa Technik Philippines, Inc., which we believe are not subject to real property tax, but the City Assessor of Davao believes to be taxable. A reading of the attached Central Board of Assessment Appeals Decision (CBAA Case No. M-14) dated May 10, 2002, in the case of Taganito Mining Corp. and Hinatuan Mining Corp. vs. LBAA of Surigao del Norte, reveals that Congress wanted to confine the definition of Machinery within the meaning of Article 415 of the New Civil Code, because of the ambiguous and sweeping definition of machinery found in Section 199 (o) of the Code as to include all things which are actually, directly and exclusively used to meet the needs of the particular industry, business or activity and which by their very nature and purpose, are designed for, or necessary to its manufacturing, mining, logging, commercial, industrial purposes. The CBAA finds the compelling reason to resort to the legislative intent behind Section 199 (o) of R.A. No. 7160 as contained in the Journal and Records of the House of Representatives Proceedings and Debates 4th Regular Session of Congress, which contain the discussions and deliberations between then Congressmen E. Javier of Antique and A. Aquino of Quezon City, wherein they clarified that mobile machineries like sewing machines, forklifts, cranes, bulldozers and similar equipment could not be classified as real property if they can be mobilized or can be moved from the place of production or from the place of activity. The above CBAA Decision emphasizes that not all things which are actually, directly and exclusively used to meet the needs of a particular industry, business or activity are considered real property for purposes of real property tax. We hope to adopt the said CBAA Decision in our future actions similarly situated. Hence, the proposed action hereby modified, such that these machinery are not subject to real property tax. aIcDCT For your approval/signature and/or further instructions please. (SGD.) M. N. SANTOS