Clarification on the Issue of Real Property Tax Exemption/Taxability of GLOBE Telecommunications, Inc.

May 2, 2006 BLGF MEMORANDUM CIRCULAR NO. 004-06 TO : All Regional Directors for Local Government Finance; Provincial, City and Municipal Assessors and Treasurers; and Others Concerned SUBJECT : Clarification on the Issue of Real Property Tax Exemption/Taxability of GLOBE Telecommunications, Inc., citing the Recent Supreme Court Decision in the Case of RCPI vs. Provincial Assessor of South Cotabato (G.R. No. 144486) Dated April 13, 2005 For the information and guidance of all concerned, quoted hereunder are the pertinent portions of the opinion/ruling rendered by this Bureau embodied under its letter dated October 26, 2005, citing the recent Supreme Court Decision in the case of RCPI vs. Provincial Assessor of South Cotabato (G.R. No. 144486) dated April 13, 2005, to wit: "The dispositive portion of the RCPI case subject of the Court of Appeals Decision in CA-G.R. No. SP No. 47446 dated March 2000, which was affirmed by the Supreme Court under G.R. No. 144486 promulgated on April 13, 2005, is quoted hereunder: 'WHEREFORE, the decision of the Central Board of Assessment Appeals is hereby MODIFIED. Petitioner is declared exempt from paying the real property taxes assessed upon its machinery and radio equipment mounted as accessories to its relay tower. The Decision assessing taxes upon petitioner's radio station building, machinery shed, and relay station tower is, however, AFFIRMED .' (Emphasis supplied) "It may be recalled that the Central Board of Assessment Appeals (CBAA) ruled that RCPI was liable for the real property tax on the assessed properties such as radio station building, machinery shed, radio relay station tower and accessories (100 ft. high) and two (2) generating sets. "The Court of Appeals explained that RCPI's exemption covers only the radio equipment, machinery, and spare parts essential to its business. Apparently, the machinery referred to are various types of radio equipment, such as UHF communication equipment, power distribution unit board, and battery charger. However, the tower upon which these different types of radio equipment are mounted or attached, is subject to real property tax. "xxx xxx xxx. "Applying the RCPI decision to the herein case, it is believed that the machinery referred to are machinery and radio equipment mounted as accessories to its relay tower but not the relay station tower itself. The above exemption is specifically provided under Section 11 of R.A. No. 7229, which in turn was entirely reenacted and adopted under Section 3 of R.A. No. 4540 (GLOBE'S legislative franchise) which we quote hereunder: "Sec. 3. Section nine of the same Act is hereby amended to read as follows: "Sec. 9(a). The grantee shall be liable to pay the same taxes on its real estate, buildings, and personal property, exclusive of the franchise, as other persons or corporations are now hereafter may be required by law to pay, except radio equipment, machinery and spare parts needed in connection with the business of the grantee, which shall be exempt from customs duties, tariffs and other taxes , as well as those declared exempt in this section. (Emphasis supplied) "Relatedly and with regard to the impact of other laws such as R.A. No. 7925 (Equality of Treatment Clause), attention is invited to the following discussion under the subject RCPI case: 'xxx xxx xxx. 'RCPI cannot also invoke the equality of treatment clause under Section 23 of Republic Act No. 7925. The franchises of Smart, Islacom, Teletech, Bell, Major Telecoms, Island Country, and Islatel, all expressly declare that the franchise shall pay the real estate tax, using words similar to section 14 of R.A. 2036, as amended. The provisions of these subsequent telecommunication franchises imposing the real estate tax on franchises only confirm that RCPI is subject to the real estate tax. Otherwise, RCPI will stick out like a sore thumb, being the only telecommunications company exempt from the real estate tax, in mockery of the spirit of equality of treatment that RCPI is invoking, not to mention the violation of the constitutional rule on uniformity of taxation .' (Emphasis supplied) "Inasmuch as GLOBE's legislative franchise categorically states its liability to pay the real property tax, GLOBE shall be liable to real property tax effective on the date the franchise of GLOBE took effect. Provided that if the subject property of GLOBE was declared for the first time, the subject property shall be assessed for the period during which it would have been liable but in no case exceeding ten (10) years prior to the date of initial assessment pursuant to Section 222 of the Local Government Code of 1991. "The tax exemption must be expressed in the statute in clear language that leaves no doubt on the intention of the legislature to grant such exemption. Even if it is granted, the exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority [( Commissioner of Internal Revenue vs. Court of Appeals, 298 SCRA 83 (1998)]. "In the light of all the foregoing, GLOBE is therefore liable to pay real property tax on its radio station building, machinery shed, and radio relay station tower, while radio equipment, accessories and spare parts needed in the business are exempt therefrom ." (Emphasis supplied) In view hereof, and considering GLOBE's legislative franchise (R.A. No. 4540), which exemption shall continue to be in full force and effect despite the passage in March 19, 1992 of R.A. No. 7229 (An Act Approving the Merger between Globe Mackay Cable and Radio Corporation and Clavecilla Radio Systems, and considering further the provision of Section 221 of R.A. No. 7160, also known as the Local Government Code of 1991, the taxability of the subject real properties (land, buildings and other improvements including its machinery shed and radio relay station tower) shall take effect on January 1 of the year following the effectivity of the franchise of GLOBE. However, if the said real properties of GLOBE were declared for the first time, the same shall be assessed for the period during which it would have been liable but in no case exceeding ten (10) years prior to the date of initial assessment pursuant to Section 222 of the same Code. Provided, however, that such taxes shall be computed on the basis of the applicable Schedule of Market Values in force during the corresponding period. Provided, further, that the total liability shall include the current year in addition to the ten (10) years back taxes. This Circular shall only be applicable to telecommunication companies with the same exemption provisions as that of RCPI and GLOBE in their franchises, otherwise, this Circular shall not apply. BLGF Memorandum Circular No. 15-2004, dated October 25, 2004, is partly modified with regard to the exemption of GLOBE from payment of real property tax with respect to the radio equipment, accessories and spare parts needed in the business as provided in their franchise. The Provincial Assessors and Treasurers are hereby instructed to disseminate the contents of this Circular, including the attachments, to the Municipal Assessors and Treasurers within their respective jurisdiction. (SGD.) MA. PRESENTACION R. MONTESA Executive Director