Bureau of Local Government Finance Opinion

February 4, 2013 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Ms. Maria Adoracion R. Go FVP and Controller The Philippine American Life and General Insurance Company Philam Life Building United Nations Ave., Ermita Manila Madam : This refers to your letter dated December 7, 2012 requesting on behalf of The Philippine American Life and General Insurance Company ("Philam Life") , confirmation of your position that: a) Philam Life is not yet required to pay local business taxes upon transfer of its head office to Taguig City in the second quarter of CY 2013; and b) Upon closure of its Manila head office, Philam Life shall pay local business tax to the City of Manila covering the period January-March 2013 subject to Section 145 of the Local Government Code (LGC) of 1991. SEcTHA Representations are made that Philam Life is a corporation duly organized and existing under and by virtue of the laws of the Philippines, with principal office at Philam Bldg., U. N. Avenue, Ermita, Manila. It will formally transfer its head office from Manila to Taguig City in the second quarter of CY 2013. As an additional information, for CY 2013, Philam Life will still renew its business permit with the City of Manila and pay local business taxes based on gross receipts of CY 2012. Philam Life is expected to effect physical transfer of its head office from Manila to Taguig by the second quarter of 2013. A. No local business tax shall be imposed on Philam Life by the City of Taguig in 2013 It is claimed that the tax on business provided for in Section 143 (f) of the LGC which is imposed by a city/municipality on life insurance companies is based on gross receipts derived from the preceding calendar year. Thus Section 143 (f) provides: "(f) On banks and other financial institutions, at a rate not exceeding fifty percent (50%) of one percent (1%) on the gross receipts of the preceding calendar year derived from interest, commissions and discounts from lending activities, income from financial leasing, dividends, rentals on property and profit from exchange or sale of property, insurance premium. (underscoring supplied) Thus, it is contended that since no gross receipts were derived by Philam Life from Taguig City for CY 2012, it is your position that no local business tax should be imposed on it when it applies for a business permit in the second quarter of 2013. To support the above contention, the Ruling issued by this Bureau to the Philippine National Bank (PNB) dated August 21, 1995 was cited, wherein PNB transferred its head office from Escolta, Manila to Pasay City in May 1995. It was ruled that "PNB shall start paying its business tax to the City of Pasay in 1996 on the basis of its gross receipts for the year 1995 at the rate of 75% of 1%." ASETHC Based on the above, it is also contended that upon transfer of its head office from Manila to Taguig City, Philam Life shall become liable for the local business tax in Taguig City in January 2014 based on gross receipts for the period April-December 2013. However, upon transfer, Philam Life shall be liable to pay mayor's permit fees and other regulatory fees to the Taguig City Treasurer's Office. B. Prior to its transfer, Philam Life is liable to pay local business tax to the City of Manila based on gross receipts covering the period January-March 2013, pursuant to Section 145 of the Local Government Code It is claimed that Philam Life has been paying its local business taxes on annual basis. Thus, for gross receipts derived in CY 2012, Philam Life is expected to pay local business taxes on or before January 20, 2013 to Manila. Upon closure of its head office in Manila, it will pay local business taxes based on gross receipts for the period January to March 2013 pursuant to the Section 145 of the LGC which quoted as follows: "Section 145. Retirement of Business . A business subject to tax pursuant to the preceding sections shall, upon termination thereof, submit a sworn statement of its gross sales or receipts for the current year. If the tax paid during the year be less than the tax due on said gross sales or receipts of the current year, the difference shall be paid before the business is considered officially retired." Based on the above, it is contended that should Philam Life's gross receipts for the period January-March 2013 be higher than that for CY 2012, then it shall pay local business tax based on the difference. However, if gross receipts for the period January-March 2013 is less than gross receipts for CY 2012, then Philam Life is not liable to pay any additional business tax. Again to support the above contention, BLGF Ruling dated September 20, 2004 was cited where it embodied an earlier BLGF Ruling dated May 10, 2001 quoted below: "We agree. A retiring business is liable to pay the LBT when the tax due on the gross sales or receipts realized at the time of retirement is more than the LBT paid for the current year. . . . . It is necessary therefore that the tax due be more than the tax paid in order to hold a retiring business liable to pay the 'difference' in LBT, otherwise, there will be no 'difference' to speak of and therefore, the retiring business is not liable." On the basis of the situation laid-out above, the Philam Life case appears to be similarly situated in the case of the transfer of PNB Manila to Pasay City, hence the view embodied in the letter dated August 21, 1995 addressed to PNB is applicable in the said Philam Life case. aSITDC On the first issue, considering that Philam Life shall transfer to Taguig City on the 2nd Quarter of 2013, this Bureau concurs with your stand that Philam Life shall start paying its business tax to Taguig City in January 2014 based on gross receipts for the period April-December 2013. However, upon transfer, Philam Life shall be liable to pay mayor's permit fees and other regulatory fees to the Taguig City Treasurer's Office. As to the second issue, we agree with your position that Philam Life shall be liable to local business tax to the City of Manila only if the actual gross receipts for the period January to March 2013 will be higher than the total gross receipts declared for CY 2012 pursuant to Section 145 of the LGC quoted above. This premise is also consistent with the decision of the Supreme Court in Mobil Philippines, Inc. v. City Treasurer of Makati and the Chief of the License Division of the City of Makati , G.R. No. 154092, dated July 14, 2005. In the said case, the Petitioner moved its principal place of business from Makati City to Pasig City. Consequently, it filed an application for retirement of its business in Makati City in August 1998. Notwithstanding petitioner's gross receipts for the period January-July 1998 was lower than total gross receipts declared for CY 1997, the City of Makati assessed Petitioner additional local business taxes which the latter paid under Protest. In granting the refund, the Supreme Court stated that, "on the year an establishment retires or terminates its business within the municipality, it would be required to pay the difference in the amount if the tax collected, based on the previous year's gross sales or receipts, is less than the actual tax due based on the current year's gross sales or receipts ." Thus, the Supreme Court ruled that since the amount paid as business taxes for the year 1998 was higher than the amount computed based on actual gross receipts for the period January to July 1998, petitioner should not have been liable for additional taxes to the City of Makati. (Emphasis ours) We hope that this will help clarify matters. cADEIa Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director