Taxability of the National Grid Corporation of the Philippines

October 10, 2017 BLGF MEMORANDUM CIRCULAR NO. 10-002-17 TO : All BLGF Regional Directors; All Provincial, City and Municipal Assessors and Treasurers; and All Others Concerned SUBJECT : Taxability of the National Grid Corporation of the Philippines This Memorandum Circular is issued to inform and enjoin the compliance by all concerned of the herein attached Supreme Court Decision entitled National Grid Corporation of the Philippines (NGCP) vs. Ofelia M. Oliva (G.R. Nos. 213157 and 213558, dated 10 August 2016) and to clarify BLGF Memorandum Circular (MC) No. 48-2012, dated 22 June 2012, discussing the taxability of the NGCP. Republic Act (RA) No. 9511 1 granted the NGCP a legislative franchise as a National Transmission Corporation's concessionaire, and Section 9 thereof provides for an "in lieu of all taxes" clause, which is hereby quoted as follows: "Section 9. Tax Provisions. In consideration of the franchise and rights hereby granted, the Grantee [NGCP],its successors or assigns, shall pay a franchise tax equivalent to three percent (3%) of all gross receipts derived by the Grantee [NGCP] from its operation under this franchise. Said tax shall be in lieu of income tax and any all taxes, duties, fees and charges of any kind, nature or description levied, established or collected by any authority whatsoever, local or nation, on its franchise, rights, privileges, receipts, revenues and profits, and on properties used in connection with its franchise, from which taxes, duties and charges, the Grantee is hereby expressly exempted: Provided, that the Grantee, its successors or assigns, shall be liable to pay same taxes on their real estate, buildings and personal property, exclusive of this franchise, as other corporations are now or hereby may be required by law to pay: provided, further that payment by Grantee of the concession fees due to PSALM under the concession agreement shall not be subject to income tax and value added tax (VAT)." In light of the aforementioned Supreme Court decision, this Bureau adheres to the following pronouncements in the said case, as follows: "Section 9 of RA 9511 provides that NGCP shall pay 'a franchise tax equivalent to three percent (3%) of all gross receipts derived by the Grantee from its operation under this franchise.' This franchise tax is ' in lieu of income tax and any and all taxes ,duties, fees and charges of any kind, nature or description levied, established or collected by any authority whatsoever, local or national ,on its franchise, rights, privileges, receipts, revenues and profits, and on properties used in connection with its franchise, from which taxes ,duties and charges, the Grantee is hereby expressly exempted ." "It is very clear that NGCP's payment of franchise tax exempts it from payment of real property taxes on properties used in connection with its franchise. However, NGCP's tax exempt status on real property due to the 'in lieu of all taxes' clause is qualified: NGCP shall be liable to pay the same tax as other corporations on real estate, buildings and personal property, exclusive of their franchise. The phrase 'exclusive of this franchise' means that real estate, building, and personal property used in the exercise of the franchise are not subject to the same tax as other corporations ." "The CBAA should determine whether the subject properties are properties used in connection with NGCP's franchise. If the subject properties are used in connection with NGCP's franchise, then NGCP is exempt from paying real property taxes on the subject properties; if the subject properties are not used in connection with NGCP's franchise, then the assessment level should be based on actual use, in accordance with Section 218(a-c) of the Local Government Code ." (emphasis supplied) Premises considered, the payment of NGCP of the 3% franchise tax clearly exempts it from payment of real property taxes on properties used in connection with its franchise. The exemption and imposition of taxes on real estate, buildings and personal properties of NGCP are clear and categorical on the basis that the subject properties of NGCP shall be used in connection with its franchise, unless otherwise provided. The guidelines under BLGF MC No. 48-2012 are, thus, hereby modified, as follows: 1. NGCP shall not be subject to taxes, duties, fees and charges of any kind on their real estate, buildings and personal properties that are used in connection with its franchise; 2. The real properties of NGCP not used in connection with its franchise shall be classified, valued, and assessed based on its actual use in accordance with Section 218 (a-c) of the LGC; and 3. The Assessment Level, as applicable to lands, buildings and other structures, and machineries of NGCP not used in connection with its franchise, shall be fixed through a duly enacted ordinance of the local Sanggunian. Be guided that the valuation and assessment of NGCP properties, and the effectivity thereof, shall be consistent with and in accordance with the existing laws, the above cited jurisprudence, and applicable rules, regulations and guidelines of the Department of Finance and this Bureau. In view hereof, all circulars issued by this Bureau, or part or parts thereof which are inconsistent with any of the provisions of this Memorandum Circular are hereby repealed or modified accordingly. This Circular is issued without prejudice to the resolution of pending cases of local governments against the NGCP. All BLGF Regional Directors are hereby instructed to immediately and widely disseminate the contents of this Circular to all Provincial, City and Municipal Assessors and Treasurers and all others concerned within their respective jurisdictions for information and guidance. For strict compliance. (SGD.) NIO RAYMOND B. ALVINA OIC Executive Director ATTACHMENT G.R. No. 213157 NATIONAL GRID CORPORATION OF THE PHILIPPINES, Petitioner, versus OFELIA M. OLIVA, IN HER OFFICIAL CAPACITY AS THE CITY TREASURER OF CEBU CITY, Respondent. G.R. No. 213558 OFELIA M. OLIVA, IN HER OFFICIAL CAPACITY AS THE CITY TREASURER OF CEBU CITY, Petitioner, versus NATIONAL GRID CORPORATION OF THE PHILIPPINES, Respondent. ENTRY OF JUDGMENT This is to certify that on August 10, 2016 a decision rendered in the above-entitled cases was filed in this Office, the dispositive part of which reads as follows: " WHEREFORE ,we GRANT the petitions. The Decision promulgated on 13 November 2013 and the Resolution promulgated on 23 June 2014 by the Court of Tax Appeals En Banc in CTA EB Case No. 849 are SET ASIDE . We REMAND this case to the Central Board of Assessment Appeals which is directed to determine the following: 1. Whether the properties covered by RPT-DS-FNOD0909-16-020, RPT-DS-FNOD0909-21-030, and RPT-DS-FNOD0909-21-002 belong to the special classes of real property described in Section 216 of the Local Government Code, and assess the appropriate amount of real property taxes for the years 2001 to 2008; and 2. Whether the properties covered by RPT-DS-FNOD0909-16-020, RPT-DS-FNOD0909-21-030, and RPT-DS-FNOD0909-21-002 are used by the National Grid Corporation of the Philippines in connection with its franchise. If the subject properties are not used in connection with NGCP's franchise, then the CBAA should assess the appropriate amount of real property taxes for the year 2009. The City Treasurer of Cebu City shall refund to the NGCP any payment which it made in excess of the correct amount. SO ORDERED ." and that the same has, on September 26, 2016 become final and executory and is hereby recorded in the Book of Entries of Judgments. Manila, Philippines. Clerk of Court By: (SGD.) PAGWADAN S. FONACIER SC Assistant Chief Judicial Records Office Footnotes 1. An Act Granting the National Grid Corporation of the Philippines a Franchise to Engage in the Business of Conveying or Transmitting Electricity Through High Voltage Back-Bone System of Interconnected Transmission Lines, Substations and Related Facilities, and for Other Purposes ,enacted on 01 December 2008.