Letter-Request for Opinion on LBP Service Corporation's Liability to Pay Business Tax and Other Regulatory Fees and Its Obligation to Secure a Permit to Operate

April 8, 2016 BLGF OPINION NO. 007-2016 CO-LGUOS-PPPSD Ms. Lydia P. Fernandez President LBP Service Corporation Unit C & D 21/F Petron Megaplaza Bldg. 358 Sen. Gil Puyat Ave., Makati City SUBJECT : Letter-Request for Opinion on LBP Service Corporation's Liability to Pay Business Tax and Other Regulatory Fees and Its Obligation to Secure a Permit to Operate Madam : This has reference to your letter-query dated April 1, 2016, requesting this Bureau to shed some light on whether or not LBP Service Corporation (LBPSC) is required to secure a permit to operate and pay business tax and other regulatory fees in Tagaytay City despite the fact that LBPSC allegedly does not have an office in said area. The factual antecedents as chronicled in your letter are as follows: 1. LBP Service Corporation (LBPSC) is a private corporation duly registered with Securities and Exchange Commission and with Department of Labor and Employment engaged in providing manpower outsourcing services nationwide; 2. The principal place of business of LBPSC is Makati City; 3. Makati City already subjects LBPSC to local business tax and other regulatory fees; 4. LBPSC was awarded a contract by PAGCOR-Tagaytay; 5. Tagaytay City requires LBPSC to secure a permit to operate and pay the business tax for the service income earned from said contract and other regulatory fees with the local government; 6. LBPSC allegedly has no office in Tagaytay City. The threshold question in the instant petition is whether a business establishment awarded with a contract in a place separate and distinct from where its principal office is located is still required to obtain a business permit and to pay regulatory fees in the place stated in the contract in order to execute its functions despite the fact that it allegedly maintains no office therein. AIDSTE In order to resolve the issues at hand, attached is a copy of our letter dated January 27, 2015 addressed to the Managing Director for STERIX Incorporated bearing on similar matters, the pertinent portions of which is quoted as follows: "Based on the representation made above, STERIX's principal office is located in Muntinlupa City where it is paying its business taxes based on its 100% gross sales. All sales invoices are recorded in the principal office and there are no other registered branches or warehouses in other local government units being maintained by the Company. In view thereof and since STERIX has no branch office, sales outlet or warehouse in said localities the 70%-30% allocation mentioned by Atty. Telan in her letter of January 7, 2015 is not applicable to the issue at hand. Such allocation scheme provided under Article 243(b)(3) of the Implementing Rules & Regulations (IRR) implementing Section 150(b) of the Local Government Code (LGC) of 1991 is applicable only in cases where the business maintains a factory, project office, plant or plantation. In the instant case, the applicable provisions of law is Article 243(b)(2), quoted as follows: "ARTICLE 243. Situs of the Tax . (a) . . . . xxx xxx xxx (b) Sales Allocation (1) . . . (2) In cases where there is no such branch, sales office, or warehouse in the locality where the sale is made, the sale shall be recorded in the principal office along with the sales made by said principal office and the tax shall accrue to the city or municipality where said principal office is located ." (Emphasis ours) With regard to the required business permit, this Bureau, based on the information submitted, believes that there is no need for STERIX to secure business permit from local government units concerned as the presence of its personnel to said localities is merely to fulfill its contractual obligation to its clientele and their presence to carry out this obligation contracted by the business from their clients is only temporary. This opinion is expressed in view of the tenets embodied in Section 147 which provides that the imposition and collection of such regulatory fee (business permit fee) "commensurate with the cost of regulation, inspection and licensing before any person may engage in such business." To elucidate and affirm our stand on the issue and as viewed from a different perspective, the absence of any branch office, sales outlet or warehouse of STERIX repudiate the requirement of securing business permit as, in the first place, there is no fixed business establishment to regulate, inspect, and issue license to justify the imposition. For after all how can a regulating authority impose its authority to regulate when the very subject of the regulation is non-existent. Lastly, on the issue of business permit fee being computed based on the entire revenue of the operations of STERIX, Article 233 of the Implementing Rules & Regulations (IRR) implementing Section 147, in relation to Section 151, all of the LGC, is quoted as follows: " ARTICLE 233. Fees and Charges. The municipality may impose and collect such reasonable fees and charges on businesses and occupations and, except as reserved to the province in Article 229 of this Rule, on the practice of any profession or calling before any person may engage in such business or occupation, or practice such profession or calling provided that such fees or charges shall only be commensurate to the cost of issuing the license or permit and the expenses incurred in the conduct of the necessary inspection or surveillance. No such fee or charge shall be based on capital investment or gross sales or receipts of the person or business liable therefor ." (Emphasis ours) It is hoped that we have clarified matters. Very truly yours, (SGD.) JOCELYN T. PENDON OIC-Executive Director ATTACHMENT LGU Operations Service Tracking Slip LBP SERVICE CORPORATION Beyond People . . . April 1, 2016 MS. JOCELYN T. PENDON OIC-Executive Director Bureau of Local Government Finance Bangko Sentral ng Pilipinas Complex, Roxas Boulevard, Manila Dear Ms. Pendon, LBP Service Corporation (LBPSC) is a private corporation duly registered with the Securities and Exchange Commission and with the Department of Labor and Employment (under DOLE Order 18-A) engaged in providing manpower outsourcing services nationwide. AaCTcI Our principal place of business is Makati City, thus, we are subjected to the local ordinance of the City Government of Makati for local business tax and other regulatory fees. LBPSC is also registered with the Large Taxpayer Division of the Bureau of Internal Revenue in Makati City. Lately, LBPSC was awarded a contract by PAGCOR-Tagaytay and is now being required by the City Treasurer of Tagaytay to secure a permit to operate and pay the business tax for the service income earned from said contract and other regulatory fees with the local government despite the fact that we do not have an office in the said area. In view of the above, may we request for an opinion from your good office if LBPSC is still required to secure a permit to operate and pay the business tax and other regulatory fees in Tagaytay City because of stated contract. We hope for your immediate response on the above matter. Thank you very much. Very truly yours, (SGD.) LYDIA P. FERNANDEZ President Handwritten Note: 4/7 Marz, Pls. prepare our draft action. Per info LBPSC has no office in Tagaytay City and their presence is purely the deployment of service personnel at PAGCOR-Tagaytay. Thanks, Kuya Tom