Bureau of Local Government Finance Opinion

May 29, 1995 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. E. C. Alcantara Tax Division SGV & Co. 6760 Ayala Avenue Makati, Metro Manila S i r: This refers to your letter dated February 1, 1995 in behalf of your client, Reynolds Philippines Corporation (REYPHIL),requesting confirmation that said corporation is only liable to pay the City (then municipality) of Makati local business taxes corresponding to its export sales. Representations are made that REYPHIL is a domestic corporation, organized and existing under the laws of the Republic of the Philippines. It is engaged in the manufacture of aluminum foils, sheets and extrusions and sells said products to both local and foreign markets. It is also represented that said corporation maintains manufacturing facilities in Dasmarias, Cavite, which the same time, serves as its principal office, where all domestic sales are transacted. Moreover, all the export sales to Taiwan, Thailand, Singapore, Japan, Hongkong, Malaysia and South Korea are coursed through its export sales liaison office located in Makati. However, the city (then municipality) of Makati is insistent that REYPHIL is liable to the payment of 30% of its total sales (export and local sales),claiming that said corporations principal office of business is in Makati. It is noted that when REYPHIL started its business operations, its manufacturing facilities as well as its principal place of business were then located in the municipality (now city) of Mandaluyong. Later, the same was transferred to Dasmarias, Cavite, as evidenced by its Amended Articles of incorporation duly approved by the Securities and Exchange Commission (SEC).The office, therefore, in Makati is only a sales office. In this connection, the law applicable is Article 243 of the Implementing Rules and Regulations (IRR)of Section 150 of the Local Government Code of 1991 (LGC) as implemented by Sec. 3A.06(b) (1) of the Makati Revenue Code, which is quoted as follows: "SEC. 3.A.06. Situs of the Tax. .... "(b) Sales Allocation. (1) All sales made by a branch or sales office or warehouse located in the municipality shall be taxable herein. "xxx xxx xxx Moreover, Sec. 5(b) (1) of Local Finance Circular No. 4-93 dated July 30, 1993 provides as follows: "Sec. 5. Situs of the Tax. .... "(b) Sales Allocation For purposes of collection of the tax, the following shall apply "(1) All export transactions made by the branch shall be recorded in said branch and the gross sales or receipts derived from said transactions shall be taxable by the city or municipality where such branch is located. xxx xxx xxx" Accordingly, for so long as the sales office in Makati handless only export sales and no domestic sales whatsoever, REYPHIL shall, in addition to the Mayors permit fee and other regulatory fees, be subject only to the business tax on export sales imposed by the City of Makati under a duly-enacted ordinance. Very truly yours, (SGD.) LORINDA M. CARLOS Executive Director