Bureau of Local Government Finance Opinion

August 15, 2003 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION The Provincial Assessor of Albay Legaspi City S i r : This refers to your letter dated June 17, 2003, relative to the letter of Mr. Roderick D. Watt, Vice President of Rapu-Rapu Minerals, Inc. (RRMI for brevity) dated January 27, 2003, requesting the cancellation of Tax Declaration ARP 99-15027-0115 and ARP 99-15027-0127, issued by the Office of the Municipal Assessor of Rapu-Rapu, Albay, covering the contract areas stipulated under Mineral Production Sharing Agreement (MPSA) 122-98-V and MPSA 163-200-V, executed by and between the Republic of the Philippines and Ungay Malobago Mines, Inc. and Rapu-Rapu Minerals Inc. as contractors. The letter of Mr. Watt was prompted by the Statement of Real Property Tax Delinquencies covering the period from 1999-2002 issued by the Municipal Treasurer of Rapu-Rapu in MPSA areas namely MPSA 122-98-V, with an area of 144.20 has. and MPSA 1632000-V, with an area of 167.8625 has. He argued that Rapu-Rapu Minerals, Inc. is not subject to real property tax on the MPSA areas for the following reasons: 1. Rapu-Rapu Minerals, Inc. (RRMI) does not own the surface rights over the area which the Municipal Assessor has included in his assessments. Under the Philippine Law, Real Property Tax is payable by the registered owner. 2. The lands within the contract mining areas are mostly private lands with individual tax declarations issued to the respective individuals. Prior to any acquisition by the company (the contractor) of the land surface, the real property taxes must be paid by the respective landowner. 3. As of the issuance of the Statement of Real Property Tax Delinquencies, RRMI has not embarked on acquiring the lands (surface rights) from the individual lot owners, hence, taxes are the liability of the individual lot owners/claimants. In the attached Evaluation Report dated March 14, 2003, that Office submitted the following arguments: 1. The Mineral Production Sharing Agreement (MPSA) cannot be used as basis much less sufficient supporting document to merit the issuance of Tax Declaration; 2. There was no actual permanent occupation/possession of the entire contract area during the exploration period of the project, except for parcels of land found to contain probable underground mineral deposits and subsequently acquired and occupied by Rapu-Rapu Minerals, Inc. for actual mining operations; 3. The Tax Declarations issued by the Municipal Assessor of Rapu-Rapu, Albay is not yet perfected or valid as there was no approval by the Provincial Assessor, which is in violation of BLGF Memorandum Circular No. 1-98 dated January 27, 1998, which prohibits the issuance of an unapproved Tax Declaration and likewise the collection of real property tax based on an invalid (unapproved) Tax Declaration ; 4. The issuance of Tax Declarations in the name of Rapu-Rapu Minerals, Inc., Ungay Malobago Mines, Inc. and TVI Resource Development (Phils.) Inc. covering the contract area is tantamount to duplication of assessment and double taxation, considering that there are current Tax Declarations issued to individual lot owners presently occupying and in possession of the same parcels of land. A reading of the MPSA No. 163-2000-V reveals the following: "1.1 This Agreement is a Mineral Production Sharing Agreement entered into pursuant to the provisions of the Act and its implementing rules and regulations. The primary purpose of this Agreement is to provide for the sustainable development and commercial utilization of certain gold, copper, silver and other mineral deposits existing within the Contract Area, with all necessary services, technology and financing to be furnished or arranged by the Contractor in accordance with the provisions of this Agreement. The Contractor shall not, by virtue of this Agreement, acquire any title over the Contract/Mining Area without prejudice to the acquisition by the Contractor of the land/surface rights through any mode of acquisition provided for by law. "1.2 The Contractor shall undertake and execute, for and on behalf of the Government sustainable mining operations in accordance with the provisions of this Agreement, and is hereby constituted and appointed, for the purpose of this Agreement, as the exclusive entity to conduct mining operations in the Contract Area. "1.3 The Contractor shall assume all the exploration risk such that if no minerals in commercial quantity are developed and produced, it will not be entitled to reimbursement; "1.4 During the term of this Agreement, the total value of production and sale of minerals derived from the mining operations contemplated herein shall be accounted for and divided between the Government and the Contractor in accordance with Section VIII hereof. "xxx xxx xxx "8.4 Share of the Government The Government Share shall be the excise tax on mineral products at the time of removal and at the rate provided for in Republic Act No. 7729 amending Section 151 (a) of the National Internal Revenue Code, as amended, as well as other taxes, duties, and fees levied by existing laws. "xxx xxx xxx' "The Government Share shall be allocated in accordance with Section 290 and 292 of Republic Act No. 7160, otherwise known as "The Local Government Code of 1991." The above provisions of Sections 290 and 292 mentioned in the said MPSA are reproduced herein for your ready reference: "Section 290. Amount of Share of Local Government Units . Local government units shall, in addition to the internal revenue allotment, have a share of forty percent (40%) of the gross collection derived by the national government from the preceding fiscal year from mining taxes, royalties, forestry and fishery charges, and such other taxes, fees, and charges, including related surcharges, interest, or fines and from its share in any co-production, joint venture or production sharing agreement in the utilization and development of the national wealth within their territorial jurisdiction." "xxx xxx xxx "Section 292. Allocation of Shares. The Share in the preceding Section shall be distributed in the following manner: (a) Where the natural resources are located in the province: (1) Province Twenty percent (20%); (2) Component City/Municipality Forty-five percent (45%); and (3) Barangay Thirty-five percent (35%); "xxx xxx xxx" Before this Bureau can comment on the propriety of the requested cancellation of Tax Declarations issued by the Municipal Assessor of Rapu-Rapu, this Bureau believes that the issue to be resolved is whether Rapu-Rapu Minerals, Inc./Ungay Malobago Mines Inc., as contractors, are liable to pay the real property tax. Under the 1st Indorsement dated April 13, 1998, the Department of Finance has ruled in the case of Celestial Nickel Mining Exploration Corp., the following: "In view of the foregoing, it is clear that Celestial, being merely a Contractor, which primary obligation to undertake and execute mining operations (for the exploration, development and commercial utilization of certain nickel ore deposits existing within the contract area (land) 'in behalf of the Government' is deemed not liable to real property taxes on its area of operations as stipulated in the abovementioned MPSA considering that the said corporation could not be considered as beneficial user of the subject land." (Emphasis supplied) There is a similarity between the above opinion of the DOF and the herein case. Both companies are covered by MPSA as contractor for the commercial utilization of certain mineral deposits for and in behalf of the government, with the agreement that the total value of production and sale of minerals derived from the mining operations should be divided between the Government and the contractor. caAICE Being a mere contractor therefore, Rapu-Rapu Minerals, Inc./Ungay Malobago Mines, Inc. is not deemed liable to real property tax on the subject contract areas for undertaking mining operations "for and in behalf of the government" as stipulated under MPSA 122-98-V and MPSA 163-2000-V, but is liable instead to the government share as provided under Sections 290 and 292 of the Local Government Code of 1991. Relatedly, attention is also invited to Section 205 of the Local Government Code of 1991, which provides as follows: "Section 205. Listing of Real Property in the Assessment Rolls . (a) In every province and city, including the municipalities within the Metropolitan Manila Area, there shall be prepared and maintained by the provincial, city or municipal assessor an assessment roll wherein shall be listed all real property, whether taxable or exempt, located within the territorial jurisdiction of the local government unit concerned. Real property shall be listed, valued and assessed in the name of the owner or administrator, or anyone having legal interest in the property. "xxx xxx xxx "(d) Real property owned by the Republic of the Philippines, its instrumentalities and political subdivisions, the beneficial use of which has been granted, for consideration or otherwise, to a taxable person, shall be listed, valued and assessed in the name of the possessor, grantee or of the public entity if such property has been acquired or held for resale or lease." Lastly, BLGF Memorandum Circular No. 01-98 dated January 27, 1998 provides that "only provincial assessors are authorized to (a) approve/issue tax declaration; (b) delegate to the municipal assessors within his jurisdiction the approval/issuance of tax declarations with certain limitations." This accordingly confirms your opinion, declaring TD Nos. ARP 99-0115 and ARP 99-15027-0127 issued by the Municipal Assessor of Rapu-Rapu, Albay, "as not yet perfected, valid and applicable and still subject to the final evaluation and approval" of the Provincial Assessor thereat. Tax declarations issued/approved by Municipal Assessors without authorization/proper delegation from the Provincial Assessors, are not valid and considered as official assessment records, hence, collection of real property taxes cannot be based therefrom. DSAEIT That Office and the Provincial Treasurer thereat are, therefore, hereby instructed to rectify the assessment and real property tax records pertaining to the subject real property in accordance hereof. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director