Bureau of Local Government Finance Opinion

May 2, 2013 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Andreas W. Rosenthal SVP-Finance & C.F.O. The Philippine American Life and General Insurance Company Philam Life Building United Nations Avenue Ermita, Manila Sir : This refers to your letter dated April 17, 2013 relative to the application for retirement of business of The Philippine American Life and General Insurance Company's (Philamlife for brevity) branch in Angeles City. HSDaTC The above letter is in connection with your letter dated May 2, 2012 requesting confirmation of your position that: a) it is not required to pay additional local business tax upon closure of its branch in Angeles City on September 28, 2009; b) it is not liable for penalty for late submission of the Board Resolution authorizing the closure of the branch. Information on the above issue was submitted as follows: 1. Philamlife formally closed its Angeles City branch on September 28, 2009. 2. On November 18, 2009, Philamlife Angeles City branch attempted to file a notice of closure with the Business Permit and Licensing Division (BPLD). 3. BPLD refused to accept the said notice and insisted that a Board Resolution be submitted to support the branch closure. 4. For the period January to September 2009, gross premium income of the branch amounted to P21,398,467.25. This is lower than the P28,438,581.27 gross premium income for CY 2008 for which local business taxes (LBT) of P217,162.05 was paid. 5. On November 25, 2009, Philamlife received a billing assessment from the City Treasurer of Angeles in the amount of P160,563.50. 6. In a letter dated February 4, 2010, Philamlife through its Tax Office contested the assessment and cited Section 145 of the Local Government Code (LGC) as basis. 7. In a letter dated April 12, 2010, the City Treasurer of Angeles City informed Philamlife that based on its records, there was no application for retirement of business filed by Philamlife Angeles branch. 8. A second billing assessment from the City Treasurer of Angeles was received by the Philamlife on May 21, 2010. The amount assessed increased to P193,651.34 to include surcharges and interests due to late submission of the Board Resolution. Under a 1st Indorsement dated June 4, 2012, this Bureau referred the letter dated May 2, 2012 to the City Treasurer of Angeles for comment. In reply, under a 1st Indorsement dated September 3, 2012, the City Treasurer forwarded the letter dated August 28, 2012 of the Chief, Business Permit and Licensing Division, informing that Philamlife failed to submit a copy of their Board Resolution, which is a requirement in retiring a Branch of a Corporation. SHTaID This Bureau under its letter dated September 3, 2012 requested Philamlife to submit a copy of the application for the termination or retirement of business filed and received by the Office of the City Treasurer and other pertinent documents regarding the said termination or retirement of business in the said City. In reply, under a letter dated April 17, 2013, Philamlife informed that it made numerous attempts to file the application for retirement of business of its branch in Angeles City. However, the local government of Angeles City repeatedly refused to accept the application and has continued to do so unless Philamlife pays additional business taxes. In support of its position, Philamlife submitted a copy of affidavit executed by Ms. Susette Tomelden, former RA Cashier of Philamlife's Angeles City branch, as well as the Certificate of Closure issued by Barangay Sto. Rosario, same City. Philamlife's Angeles City branch is no longer required to pay additional LBT. As mentioned above, Philamlife's Angeles City branch recognized gross premium collections of P28,438,581.27 in 2008 and paid the corresponding local business tax of P217,162.05 in January 27, 2009. When its branch operations ceased in September 29, 2009, its gross premium collections was only P21,398,467.25. Thus, it is contended that the branch is no longer required to pay additional LBT in accordance with Section 145 of the LGC, 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 ." (Underscoring for emphasis) Moreover, Philamlife cited the case of Mobil Philippines, Inc. v. The City Treasurer of Makati, et al. , G.R. No. 154092 dated July 14, 2005, wherein the Supreme Court explained as follows: ". . ., 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 . SCaTAc "For the year 1998, petitioner paid a total of P2,262,122.48 to the City Treasurer of Makati as business taxes for the year 1998. The amount of tax as computed based on petitioner's gross sales for 1998 is only P1,331,638.84. Since the amount paid is more than the amount computed based on petitioner's actual gross sales for 1998, petitioner upon its retirement is not liable for additional taxes to the City of Makati. Thus, we find that the respondent erroneously treated the assessment and collection of business tax as if it were income tax, by rendering an additional assessment of P1,331,638.84 for the revenue generated for the year 1998." (Emphasis supplied) Philamlife likewise cited that the above principle was applied by this Bureau in its Opinion dated August 19, 2005 when it ruled that: "Considering therefore that the LBT (P15,629,991.25) based on the gross sales realized by TMPC at the time of retirement is less than the LBT (P3.8 Million) paid during the current year, TMPC is no longer liable to pay for additional LBT at the time of retirement." In view of the foregoing, and assuming that the figures and information supplied herein are correct, it appears that the LBT (P160,563.50) based on the gross premium income realized by Philamlife at the time of retirement is less than the LBT (P217,162.05) paid during the current year. Therefore, it is our view that Philamlife is no longer liable for additional LBT at the time of retirement. No penalty should be imposed for failure to submit a Board Resolution authorizing Closure of the branch. Philamlife cited Section 3-H-12-F of the Revenue Code of Angeles City, Series of 2005, quoted as follows: "(F) Retirement of Business: Any person natural or juridical, subject to the tax on business under this Article shall, upon termination of the business, submit a sworn statement of the gross sales or receipts for the current year or quarter within thirty (30) days following the closure. Any tax due shall first be paid before any business or undertaking is finally terminated. "xxx xxx xxx." In view of the aforequoted provisions of Section 145 of the LGC and Revenue Code of Angeles City, Philamlife claims that there is no requirement for the submission of a Board Resolution, and granting that a Board Resolution is required, this is not a ground for the BPLD to refuse acceptance of the Notice of Closure which the branch attempted to file on November 198, * 2009. TCAHES We agree. Nowhere in the aforequoted provisions of law and the Revenue Code of Angeles City which require a retiring business to submit a Board Resolution providing for the ceasing of business operation, in this case Philamlife's Angeles City branch. What is being required for a retiring business is the submission of a sworn of statement of its gross sales or receipts for the current year, purposely to determine whether or not a retiring business is still liable to pay additional business tax as provided for in the abovecited Section 145 of the LGC. It is worth noting however, that the aforequoted provision of the Revenue Code of Angeles City provides that ''[A]ny tax due shall first be paid before any business or undertaking is finally terminated" , which is not clear whether the condition refers to the LBT computed based on the current gross receipts or the difference between the tax paid during the year and the tax due based on the gross sales or receipts of the current pursuant to said Section 145. Nevertheless, in view of the foregoing, we concur with your position that Philamlife is not liable for penalty for late submission of the Board Resolution authorizing the closure of the branch. The City Treasurer of Angeles City is being furnished a copy of this letter for her information and guidance. We hope that this will help clarify matters. AcIaST Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director