Proper Sales Allocation of Therma Mobile, Inc.

October 27, 2017 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Anthony Mark A. Gutierrez Gatmaytan Yap Patacsil Gutierrez & Protacio Counsel for TMO 30/F 88 Corporate Center Sedeo corner Valero Streets Salcedo Village, Makati City SUBJECT : Proper Sales Allocation of Therma Mobile, Inc. Dear Mr. Gutierrez : This refers to your request for an opinion on the proper sales allocation for purposes of computing and paying the local business tax (LBT) of Therma Mobile, Inc. (TMO) to the local government units (LGUs) where its offices are located, namely Cebu City (principal office), Navotas City (power plant), and Malabon City (administrative office). Representations were made that TMO is a corporation organized and existing under Philippine law, with principal office at Aboitiz Corporate Center, Gov. Manuel A. Cuenco Ave., Kasambagan, Cebu City. In addition, TMO is a power generation company primarily engaged in the business of bidding, owning, acquiring and operating power generation assets acquired from government or private entities. Further, TMO acquired and operates four (4) barge-mounted power plants which have an installed generating capacity of 242 MW at the Navotas Fish Port, Navotas City. However, TMO had difficulties in hiring competent administrative officers and personnel willing to work in the said location due to incessant flooding. In line with this, TMO was constrained to establish an administrative office in Malabon City, in which this office is not engaged in generating sales orders or receiving collections from sales of power of TMO, but rather purely on administrative work. Further, TMO states that it does not operate or maintain any branch or sales outlet in Navotas City, Malabon City, or elsewhere, and that their gross receipts are recorded only in its principal office in Cebu City. In treating the matter, reference is made to Section 150 (a) of Republic Act No. 7160, otherwise known as the Local Government Code (LGC), and Article 243 (b) of the Implementing Rules and Regulations (IRR) of the LGC, which state: "xxx xxx xxx Section 150. Situs of the Tax. (a) For purposes of collection of the taxes under Section 143 of this Code, manufacturers, assemblers, repackers, brewers, distillers, rectifiers and compounders of liquor, distilled spirits and wines, millers, producers, exporters, wholesalers, distributors, dealers, contractors, banks and other financial institutions, and other businesses, maintaining or operating branch or sales outlet elsewhere shall record the sale in the branch or sales outlet making the sale or transaction, and the tax thereon shall accrue and shall be paid to located. In cases where there is no such branch or sales outlet in the city or municipality where the sale or transaction is made, the sale shall be duly recorded in the principal office and the taxes due shall accrue and shall be paid to such city or municipality . (emphasis supplied) xxx xxx xxx." "xxx xxx xxx Article 243. Situs of the Tax. x x x (b) Sales Allocation. (1) All sales made in a locality where there is a branch or sales office or warehouse shall be recorded in said branch or sales office or warehouse and the tax shall be payable to the city or municipality where the same is located . (emphasis supplied) (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. xxx xxx xxx." From the representations made, the Malabon Office is not a branch office since it does not generate sales orders, receive collections from customers, or records sales; rather, it is represented to be merely operating purely administrative matters, and that the gross receipts are recorded only in its principal office in Cebu City. Withal, it may not also be considered as a project office of TMO as stated in Section 150 (b), (d), and (e) of the LGC, regarding the place of payment of LBT, to wit: "xxx xxx xxx Section 150. Situs of the Tax. x x x (b) The following sales allocation shall apply to manufacturers, assemblers, contractors, producers, and exporters with factories, project offices, plants, and plantations in the pursuit of their business: 1. Thirty percent (30%) of all sales recorded in the principal office shall be taxable by the city or municipality where the principal office is located; and 2. Seventy percent (70%) of all sales recorded in the principal office shall be taxable by the city or municipality where the factory, project office, plant, or plantation is located. xxx xxx xxx (d) In cases where a manufacturer, assembler, producer, exporter or contractor has two (2) or more factories, project offices, plants, or plantations located in different localities, the seventy percent (70%) sales allocation mentioned in subparagraph (b) of subsection (2) above shall be prorated among the localities where the factories, project offices, plants, and plantations are located in proportion to their respective volumes of production during the period for which the tax is due. (e) The foregoing sales allocation shall be applied irrespective of whether or not sales are made in the locality where the factory, project office, plant, or plantation is located. xxx xxx xxx." While the LGC does not specifically define a "project office," the Court of Tax Appeals (CTA) interpreted a "project office" as the "equivalent to the factory of a manufacturer" 1 such that the office must be indispensable to the main purpose of the business. Otherwise, it is merely an administrative office. It is clear that the Malabon Office should not be subjected to LBT and therefore no gross receipts should be allocated to the same. Malabon City, however, may collect Mayor's permit and other regulatory fees or service charges imposed, pursuant to Section 147 2 of the LGC, in relation to Section 151 3 thereof. Thus, on the basis of the representations made and the above discussion, this Bureau is of the opinion that TMO should only pay LBT, pursuant to Section 150 (b) of the LGC, based on the following sales allocation: LGU Business/Function Sales Allocation Cebu City Principal office 30% of all sales recorded in the principal office Navotas City Power Plant 70% of all sales recorded in the principal office This Opinion is issued based on the information provided and to guide local treasurers in the collection of local taxes and other authorized impositions. If upon subsequent verification by the concerned local treasurer or submission of information proves the contrary, this Opinion will be deemed null and void. We hope we have provided clarity on the matter. Very truly yours, (SGD.) NIO RAYMOND B. ALVINA OIC Executive Director ATTACHMENT Mr. ANTHONY MARK A. GUTIERREZ Ms. SOFIA P. INOTURAN GATMAYTAN YAP PATACSIL GUTIERREZ & PROTACIO Counsel for TMO 30/F 88 Corporate Center, Sedeo corner Valero Streets, Salcedo Village, Makati City Acknowledgment Receipt The Bureau of Local Government Finance (BLGF) hereby acknowledges the receipt of your Letter dated July 7, 2017 to OIC Executive Director-BLGF and uploaded in the BLGF 12ms System. Please be informed of the following details/status: Barcode: Records 2017-04764 Date Received: July 7, 2017 Subject Matter: Administrative/Liaison offices and allocation of gross sales/receipts for purposes of determining Local Business Taxes ("LBT") Sender: Mr. Anthony Mark A. Gutierrez and Ms. Sofia P. Inoturan Routed to: Ms. Ma. PAMELA P. QUIZON OIC Director, Local Fiscal Policy Service (LFPS) Tel. No. (02) 522-87-71 CC: None No. of copies and pages received: 1 document (9 pages-3 copies) The determination of the appropriate action on your concern or the completeness of the documentary requirements of your submission will be subject for evaluation of the action officer in charge or the appropriate signatory. In following up, please cite the barcode as your subject. Thank you. (SGD.) ROSALIA B. NARANJO Administrative Officer V Date Issued July 13, 2017 Footnotes 1. Section 5 (a) (3) of Local Finance Circular No. 03-95. Situs of Tax Project Office shall mean the field office in the construction site. It is equivalent to the factory of a manufacturer. 2. Section 147. Fees and Charges . The municipality may impose and collect such reasonable fees and charges on business and occupation and, except as reserved to the province in Section 139 of this Code, on the practice of any profession or calling, commensurate with the cost of regulation, inspection, and licensing before any person may engage in such business or occupation, or practice such profession or calling. 3. Section 151. Scope of Taxing Powers . Except as otherwise provided in this Code, the city, may levy the taxes, fees and charges which the province or municipality may impose: Provided, however, that the taxes, fees and charges levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of this Code.