Bureau of Local Government Finance Opinion

February 27, 2003 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 4th Indorsement Respectfully returned to the Regional Director for Local Government Finance, Department of Finance, Region IV, Peoples' Mansion Compound, Batangas City. This refers to the request of the City Assessor of Calamba City for clarification concerning the declaration of real properties for taxation purposes, particularly on buildings constructed on leased lands and the machineries and equipment being used thereon. The abovementioned request is premised on the following issues, to wit: 1. CITI-MAS Corp. is allegedly the owner of the land located in Carmelray Industrial Park I, Special Economic Processing Zone, Canlubang, Calamba City, with an area of 3,825 sq.m., more or less, embraced in and covered by Transfer Certificate of Title (TCT) No. 192792 and declared under Tax Declaration (TD) No. D-018-00605 in the name of said corporation. EAcIST 2. The Integrated Silicon Technology Corporation Philippines (ISTPC) leased the subject land from CITI-MAS Corp. where the former constructed a "Factory Building" and a "Canteen," as allowed and stipulated in the Loan Agreement entered into by and between CITI-MAS Corp. and ISTPC on March 26, 2001, "without any restriction and time limit." 3. The Certificates of Inspection dated March 20, 2000 were issued by PEZA for the said Factory Building and Canteen in the name of ISTPC. 4. A Permit to Operate for the Electrical Equipment and a Certificate of Inspection for the Mechanical Equipment, both dated April 12, 2000, were also issued by PEZA in the name of ISTPC. 5. A Notice to Declare dated March 3, 2000 was sent to CITI-MAS Corp. by the Municipal Assessor's Office, Calamba, Laguna (now city) for the existing buildings and other structures. 6. Moreover, in the abovementioned letter of the said City Assessor, it was also mentioned that the building plan submitted to the said Office indicates ISTPC as the building owner. However, the said corporation failed to follow-up the declaration of the said properties since operations were stopped when their victories were shut down. 7. On its claim for ownership of the buildings and other structures, CITI-MAS Corp. through its Corporate Secretary's Certificate dated February 22, 2000, submitted Board Resolution No. 99-04, which resolved, among others, "to authorize the corporation to mortgage its real estate property embraced in and covered by TCT No. T-192792 together with the improvements constructed and existing thereon to secure the loan obligation of INTEGRATED SILICON TECHNOLOGY CORPORATION in favor of the Far East Bank & Trust Company." IDTcHa 8. The Real Estate Mortgage dated March 13, 2000 indicates that "the MORTGAGOR does hereby transfer and convey by way of mortgage unto the MORTGAGEE its successor or assignor, the parcels of land which are described . . . , together with all the buildings and improvements now existing or which may hereafter be erected or constructed thereon. . . ." The issue to be resolved, therefore, is to determine under whose name/corporation (ISTPC or CITI-MAS Corp.) the subject buildings, machineries and equipment should be declared for taxation purposes. Under her 1st Indorsement dated May 22, 2002, the Regional Director for Region IV, opines that: "This Office believes that the abovementioned real properties should be declared for taxation purposes in the 'name of the Integrated Silicon Technology Philippines Corporation." In this connection, attention is invited to the 2nd Indorsement of this Bureau, dated January 27, 2003, copy enclosed, treating on a similar subject matter which ruled, in part, as follows: "Relative thereto, attention is also invited to Item 7.0 of Regional Memorandum Circular No. 1-88 dated January 4, 1988, Region IV, re "Uniform Application of Assessment, Computation of Taxes, Tax Discounts, Penalties and Proper Maintenance of Real Property Tax Records," which apparently was made as the basis of the Assessor concerned in the issuance of the questioned two (2) tax declarations. The pertinent portion of the Circular is quoted in part, as follows: '7.0 Documents required for the issuance of Tax Declaration 'xxx xxx xxx. '7.5 Building and Other Structures '7.5.1 Building permit (if any) '7.5.2 Building plan and specification, in case of high rise structure/buildings CHATEa '7.5.3 Bill of materials '7.5.4 Certificate of occupancy' "In view hereof, and inasmuch as the abovementioned requirements provided under Regional Memorandum Circular No. 1-88 are complied with in the issuance of the subject tax declarations in the name of Asian Computer College, this Bureau believes that the action taken by the City Assessor of Calamba is deemed in order, regardless of the issue on ownership, which this Bureau believes should be settled thru a Court of competent jurisdiction. "It may be recalled in this regard that the "issuance of the "Tax Declaration" is for taxation purposes only." The "Tax Declaration" DOES NOT and CANNOT, alone and by itself, confer any legal title of ownership in fee simple to the declarant/assessee over the properties covered thereby unlike the " Certificate of Title " issued by the Register of Deeds in accordance with the Torrens System prevailing in our jurisdiction with the enactment of Act 496, otherwise known as the "Land Registration Act" which is the very "evidence of ownership" itself. The primary function of the "Tax Declaration" is to serve as documentary "evidence of taxability" of the real property covered thereby." (Local Assessment Opinion No. 1-81 dated February 19, 1981) "In view of the foregoing, it is deemed best that for the time being, or until the issue on ownership can be resolved by both parties thru legal means, to make notations on the subject two (2) tax declarations, as follows: "Ownership of this property is also being claimed by the Bank of the Philippine Islands (BPI). Real property taxes due for CYs 2001 and 2002 have been paid by BPI. This is in compliance with the instructions embodied under the 2nd Indorsement dated January 27, 2003 of the BLGF." Similarly, therefore, and if the abovequoted documents required for the issuance of tax declaration, as provided for under Regional Memorandum Circular No. 1-88 of BLGF, Region IV, have indeed been complied with, it is believed that the corresponding tax declarations for the subject real properties be issued, in the name of ISTPC. CaAcSE In the meantime or until the issue on ownership can be resolved by the court, the City Assessor should be instructed to issue the corresponding tax declarations for the buildings, machineries and equipment in the name of ISTPC, with the following notations, to wit: "Ownership of these properties are also being claimed by CITI-MAS Corp. This is in compliance with the instructions embodied under the 4th Indorsement dated February 27, 2003 of the BLGF." Lastly, attention is invited to Section 24 of R.A. No. 7916, entitled: "AN ACT PROVIDING FOR THE LEGAL FRAMEWORK AND MECHANISM FOR THE CREATION, OPERATION, ADMINISTRATION, AND COORDINATION OF SPECIAL ECONOMIC ZONES IN THE PHILIPPINES, CREATING FOR THIS PURPOSE, THE PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA), AND FOR OTHER PURPOSES," amended by R.A. No. 8748, which is quoted hereunder: "SEC. 24. Exemption from National and Local Taxes . Except for real property taxes on Land owned by developers, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu thereof, five percent (5%) of the gross income earned by all business enterprises within the ECOZONE shall be paid and remitted as follows: "(a) Three percent (3%) to the National Government; "(b) Two percent (2%) which shall be directly remitted by the business establishments to the treasurer's office of the municipality or city where the enterprise is located." Clearly, buildings, machineries and equipment owned by ECOZONE registered enterprises are exempt from real property taxes, and, only the land owned by them remains taxable. TaEIcS In view of the foregoing, the said City Assessor should further be instructed to determine as to whether ISTPC is a duly registered ECOZONE enterprise. In the affirmative, the subject real properties of the said corporation should be declared as "Exempt." Be guided accordingly. (SGD.) PRESENTACION R. MONTESA Executive Director