Taxability of Real Properties of Telecommunications Companies Pursuant to the En Banc Supreme Court Decision in the Case of "Digital Telecommunications Philippines, Inc. vs. City Government of Batangas, et al. (G.R. No. 156040)", Promulgated on December 11, 2008

September 10, 2012 BLGF MEMORANDUM CIRCULAR NO. 070-12 TO : All Regional Directors for Local Government Finance; Provincial, City and Municipal Assessors and Treasurers; and Others Concerned SUBJECT : Taxability of Real Properties of Telecommunications Companies Pursuant to the En Banc Supreme Court Decision in the Case of "Digital Telecommunications Philippines, Inc. vs. City Government of Batangas, et al. (G.R. No. 156040)", Promulgated on December 11, 2008 Pursuant to the En Banc Decision of the Supreme Court in the case of Digital Telecommunications, Inc. vs. City of Batangas, et al. promulgated on Dec. 11, 2008, (EN BANC Digitel Decision, for brevity) real properties of Digitel and similarly situated telecommunications companies are hereby declared taxable. aSDCIE For the information and guidance of all concerned, quoted hereunder are the pertinent and dispositive portions of the said Decision as well as other decisions related to the subject matter: Interpretation of "Exclusive of this Franchise" Phrase "xxx xxx xxx. "The issue in this case involves the interpretation of the phrase " exclusive of this franchise " in the first sentence of Section 5 of RA 7678. Section 5 of RA 7678 (Digitel Legislative Franchise) states: " Sec. 5. Tax Provisions. The grantee shall be liable to pay the same taxes on its real estate, buildings, and personal property exclusive of this franchise as other persons or corporations are now or hereafter may be required by law to pay . In addition thereto, the grantee shall pay to the Bureau of Internal Revenue each year, within thirty (30) days after the audit and approval of the accounts, a franchise tax as may be prescribed by law of all gross receipts of the telephone or other telecommunications businesses transacted under this franchise by the grantee; Provided, That the grantee shall continue to be liable for income taxes payable under Title II of the National Internal Revenue Code pursuant to Section 2 of Executive Order No. 72 unless the latter enactment is amended or repealed, in which case the amendment or repeal shall be applicable thereto. "xxx xxx xxx." "The first sentence of Section 5 of RA 7678 is the same provision found in almost all legislative franchises in the telecommunications industry dating back to 1905. It is also the same provision that appears in the legislative franchises of other telecommunications companies like Philippine Long Distance Telephone Company, Smart Information Technologies, Inc., and Globe Telecom. Since 1905, no telecommunications company has claimed exemption from realty tax based on the phrase "exclusive of this franchise," until petitioner filed the present case on 3 July 1999. "The first sentence of Section 5 clearly states that the legislative franchisee shall be liable to pay the following taxes: (1) "the same taxes on its real estate, buildings, and personal property exclusive of this franchise as other persons or corporations are now or hereafter may be required by law to pay"; (2) "franchise tax as may be prescribed by law of all gross receipts of the telephone or other telecommunications businesses transacted under this franchise"; and (3) "income taxes payable under Title II of the National Internal Revenue Code." aIAHcE "xxx xxx xxx. "We rule that the phrase "exclusive of this franchise" simply means that petitioner's franchise shall not be subject to the taxes imposed in the first sentence of Section 5. The first sentence lists the properties that are subject to taxes, and the list excludes the franchise . Thus, the first sentence provides: "The grantee shall be liable to pay the same taxes on its real estate, buildings, and personal property exclusive of this franchise as other persons or corporations are now or hereafter may be required by law to pay. (Emphasis supplied) "xxx xxx xxx. "The first sentence of Section 5 imposes on the franchisee the " same taxes " that non-franchisees are subject to with respect to real and personal properties. The clear intent is to put the franchisees and non-franchisees in parity in the taxation of their real and personal properties. Since non-franchisees have obviously no franchises, the franchise must be excluded from the list of properties subject to tax to maintain the parity between the franchisees and non-franchisees. However, the franchisee is taxable separately from its franchise. Thus, the second sentence of Section 5 imposes the "franchise tax" on gross receipts, which under Republic Act No. 7716 has been replaced by the 10% Value-Added Tax effective 1 January 1996. "xxx xxx xxx. "Second, there is no language in the first sentence of Section 5 expressly or even impliedly exempting petitioner from the realty tax . The phrases "exemption from real estate tax," "free from real estate tax" or "not subject to real estate tax" do not appear in the first sentence. No matter how one reads the first sentence, there is no grant of exemption, express or implied, from realty tax. In fact, the first sentence expressly imposes taxes on both real and personal properties, excluding only the intangible personal property that is the franchise. "A tax exemption cannot arise from vague inference. The first sentence of Section 5 does not grant any express or even implied exemption from realty tax. On the contrary, the first sentence categorically states that the franchisee is subject to the " same taxes currently imposed, and those taxes that may be subsequently imposed, on other persons or corporations," taxpayers that admittedly are all subject to realty tax. The first sentence does not limit the imposition of the "same taxes" to realty tax only but even to those taxes" that may in the future be imposed on other taxpayers, which future taxes shall also be imposed on petitioner. Thus, the first sentence of Section 5 imposes on petitioner not only realty tax but also other taxes. ICHDca "xxx xxx xxx. Bayantel vs. Quezon City Govt. and Digitel vs. The Province of Pangasinan Cases 'In City Government of Quezon City v. Bayan Telecommunications, Inc., (Bayantel, for brevity) this Court's Second Division held that "all realties which are actually, directly and exclusively used in the operation of its franchise are 'exempted' from any property tax." The Second Division added that Bayantel's franchise being national in character, the "exemption" granted applies to all its real and personal properties found anywhere within the Philippines. The Second Division reasoned in this wise: "The legislative intent expressed in the phrase ' exclusive of this franchise ' cannot be construed other than distinguishing between two (2) sets of properties, be they real or personal, owned by the franchisee, namely, (a) those actually, directly and exclusively used in its radio or telecommunications business, and (b) those properties which are not so used. It is worthy to note that the properties subject of the present controversy are only those which are admittedly falling under the first category. "xxx xxx xxx. "In Digital Telecommunications Philippines, Inc. (Digitel) v. Province of Pangasinan, (Digitel, for brevity) this Court's Third Division ruled that Digitel's real properties located within the territorial jurisdiction of Pangasinan that are actually, directly and exclusively used in its franchise are exempt from realty tax under the first sentence of Section 5 of RA 7678. The Third Division explained thus: "The more pertinent issue to consider is whether or not, by passing Republic Act No. 7678, Congress intended to exempt petitioner DIGITEL's real properties actually, directly and exclusively used by the grantee in its franchise. "The fact that Republic Act No. 7678 was a later piece of legislation can be taken to mean that Congress, knowing fully well that the Local Government Code had already withdrawn exemptions from real property taxes, chose to restore such immunity even to a limited degree. Accordingly: CScTDE 'The Court views this subsequent piece of legislation as an express and real intention on the part of Congress to once again remove from the LGC's delegated taxing power, all of the franchisee's . . . properties that are actually, directly and exclusively used in the pursuit of its franchise. "xxx xxx xxx. "Nowhere in the language of the first sentence of Section 5 of RA 7678 does it expressly or even impliedly provide that petitioner's real properties that are actually, directly and exclusively used in its telecommunications business are exempt from payment of realty tax. On the contrary, the first sentence of Section 5 specifically states that the petitioner, as the franchisee, shall pay the "same taxes on its real estate, buildings, and personal property exclusive of this franchise as other persons or corporations are now or hereafter may be required by law to pay." "The heading of Section 5 is "Tax Provisions," not Tax Exemptions. To reiterate, the phrase "exemption from real estate tax" or other words conveying exemption from realty tax do not appear in the first sentence of Section 5. The phrase "exclusive of this franchise" in the first sentence of Section 5 merely qualifies the phrase "personal property" to exclude petitioner's legislative franchise, which is an intangible personal property. Petitioner's franchise is subject to tax in the second sentence of Section 5 which imposes the "franchise tax." Thus, there is no grant of tax exemption in the first sentence of Section 5. " The interpretation of the phrase "exclusive of this franchise" in the Bayantel and Digitel cases goes against the basic principle in construing tax exemptions . In PLDT v. City of Davao, the Court held that " tax exemptions should be granted only by clear and unequivocal provision of law on the basis of language too plain to be mistaken . They cannot be extended by mere implication or inference." (Underscoring supplied) DcTAIH "Tax exemptions must be clear and unequivocal. A taxpayer claiming a tax exemption must point to a specific provision of law conferring on the taxpayer, in clear and plain terms, exemption from a common burden. Any doubt whether a tax exemption exists is resolved against the taxpayer. "xxx xxx xxx. "THUS, DIGITEL MOBILE IS SUBJECT TO TAX ON ITS REAL ESTATE AND PERSONAL PROPERTIES, WHETHER OR NOT USED IN ITS TELECOMMUNICATIONS BUSINESS." (Capitalized for Emphasis) Doctrines of the Law of the Case and Stare Decisis "xxx xxx xxx. These rulings may be said to be the law of the case. In the case of Ayala Corporation vs. Rosa-Diana Realty and Development Corporation , (December 1, 2000), the Court had the occasion to discuss the distinctions between the law of the case and stare decisis , to wit: "The doctrine of the law of the case has certain affinities with, but is clearly distinguishable from, the doctrines of res judicata and stare decisis, principally on the ground that the rule of the law of the case operates only in the particular case and only as a rule of policy and not as one of law. At variance with the doctrine of stare decisis, the ruling adhered to in the particular case under the doctrine of the law of the case need not be followed as a precedent in subsequent litigation between other parties, neither by the appellate court which made the decision followed on a subsequent appeal in the same case, nor by any other court. The ruling covered by the doctrine of the law of the case is adhered to in the single case where it arises, but is not carried into other cases as precedent . On the other hand, under the doctrine of stare decisis, once a point of law has been established by the court, that point of law will, generally, be followed by the same court and by all courts of lower rank in subsequent cases where the same legal issue is raised. Stare decisis proceeds from the first principle of justice that, absent powerful countervailing considerations, like cases ought to be decided alike." (Italics supplied) AaEcDS Considering the foregoing, the Decisions in the Bayantel and Digitel Pangasinan cases shall be made applicable insofar as the aforementioned telecommunication companies are concerned. It cannot be considered as a precedent for other telecommunications companies similarly situated. Also, in the said En Banc Digitel vs. City of Batangas Decision, the High Court affirmed the May 2 and November 19, 2002 Orders of the Regional Trial Court, Branch 8, Batangas City in Civil Case No. 5343, to wit: Wherefore, we DENY THE PETITION, We AFFIRM the 2 May 2002 and 19 November 2002 Orders of the Regional Trial Court, Branch 8, Batangas City, in Civil Case No. 5343, to wit: "xxx xxx xxx. "DECLARING that the plaintiff Digitel Telecommunications Philippines, Inc. under its legislative franchise RA No. 7678, is not exempted from the payment of real property tax being collected by the defendant City of Batangas and, accordingly, " ORDERING said plaintiff to pay the City of Batangas real estate taxes in the amount of Ph4,620,683.33 which was due as of January, 2000, as well as those due thereafter, plus corresponding interest and penalties. It is clear in the above discussions that the Supreme Court did not take into account the rulings in the earlier decisions when it ordered Digitel to pay the City of Batangas real property taxes "due as of January, 2000, as well as those due thereafter." Under the Principle of Stare Decisis , the rulings enunciated by the Supreme Court's Second and Third Divisions in the Bayantel and the earlier Digitel case did not become a doctrine or a principle of law where reliance upon it in good faith can constitute a vested right which cannot be impaired. A judicial decision becomes a doctrine or a principle of law when the same is adhered to in future cases where the facts are substantially the same. It is worth mentioning that said decisions were merely promulgated in 2006 and 2007 respectively, and that, in fact, have not been cited in any case except in this Supreme Court En Banc Decision where the latter had ruled "The interpretation of the phrase "exclusive of this franchise" in the Bayantel and Digitel cases goes against the basic principle in construing tax exemptions . (italics supplied). aSIDCT As discussed in said Supreme Court En Banc Decision, historically real properties of these telecommunications companies do not enjoy tax exemption, to wit: "The historical usage of the phrase "exclusive of this franchise" in franchise laws enacted by Congress indubitably shows that the phrase is not a grant of tax exemption. . . . "Thus, the franchises of telecommunication companies . . . contain the following common provision : ' The grantee shall be liable to pay the same taxes, unless exempted therefrom , on Its business, real estate, buildings and property " exclusive of this franchise ," as other persons or corporations are now or hereafter may be required by law to pay. (emphasis supplied) "The phrase " unless exempted therefrom " in the common provisions clearly clarifies that the phrase "exclusive of this franchise" does not grant any tax exemption but an exclusion of one type of personal property subject to taxes, and the excluded personal property is the franchise. . . ." Moreover, under the law, equity is not a basis for tax exemption. Exemptions are not favored and are construed in strictissimi juris (by the most strict right or law) against the taxpayer. Pursuant therefore to the abovementioned EN BANC Digitel Decision and the foregoing discussion, the real properties of other telecommunications companies with similar tax provisions as that of Digitel are taxable and shall take effect January of the year following the effectivity of their respective franchises. However, the Supreme Court Decisions pertinent to the Quezon City Government vs. Bayantel and Digitel vs. the Province of Pangasinan , remain valid and effective only as between the parties to the said cases, i.e., Bayantel's real properties which are actually, directly and exclusively used pursuant to its franchise, are exempt from real property tax, effective 1993. However, with the promulgation of the EN BANC Supreme Court Decision, all real properties of Bayantel shall now become taxable, effective the year 2010. On the other hand, all real properties of Digitel (Pangasinan) , which are actually, directly and exclusively used pursuant to its franchise are exempt from real property tax beginning 1995, (the year following the effectivity of its franchise in 1994), until 2009, (pursuant to Bayantel vs. Quezon City case); and shall become taxable effective the year 2010, pursuant to the aforementioned SC EN BANC Decision. SIAEHC All real properties of other telecommunications companies shall be taxable immediately following the effectivity of their respective franchises. Henceforth, all BLGF's opinions/rulings rendered with regard to the exemption of other Telecommunications Companies on the basis of the BAYANTEL and Digitel (Pangasinan) cases, and other subsequent contrary opinions/rulings of this Bureau that are similarly situated, are hereby recalled accordingly. 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. This Circular shall take effect immediately. (SGD.) SALVADOR M. DEL CASTILLO Executive Director