Bureau of Local Government Finance Opinion

February 22, 2005 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 3rd Indorsement Respectfully returned to the City Assessor, Pasig City, his within preceding Indorsement dated October 12, 2004, relative to the letter dated July 16, 2004 of the OIC-Director IV, DOF Privatization Office and Executive Director Privatization Council, Department of Finance (DOF), requesting opinion on the real property tax liability of the two (2) subjoining parcels of land with a total area of One Hundred Eighty Four Thousand Eight Hundred Ninety One (184,891) square meters, allegedly owned by the Presidential Commission on Good Government/Independent Realty Corporation (PCGG/IRC). In her letter of July 16, 2004, the Executive Director, Privatization Council submitted the following information, to wit: 1. The "Payanig sa Pasig" property is one of the assets of the IRC Group of Companies surrendered to the National Government (NG) by virtue of a Compromise Agreement between Mr. Jose Y. Campos and the NG, through the PCGG on March 21, 1986; 2. The subject property is registered under the name of Mid-Pasig Land Development Corporation (MPLDC), a subsidiary corporation of the IRC Group of Companies, with an area of 184,891 sq.m. under TD Nos. 030-01185 and 030-00186; 3. In September 2002, PCGG/IRC leased out approximately six (6) hectares of land of the total 18.5 hectares to various leases for a period ranging from 3 to 4 years, allegedly to defray the costs for maintenance and reservation but not as a business operation; and cHSTEA 4. On September 2002, the Pasig City Treasurer's Office sent a Notice of Delinquency to MPLDC amounting to P256,858,555.86 for the 1st quarter of 1979 to the 4th quarter of 2001. tax2005 In his response to our Indorsement, the City Assessor of Pasig made the following clarifications on the above information: a. The two (2) parcels of land are originally and up to the present titled and declared in the name of Mid-Pasig Land Development Corporation (MPLDC). However, that office is raising doubts as to why the parcels of land are administered/supervised by PCGG officials but managed by IRC and the Contracts of Lease being executed by the MPLDC. b. PCGG/IRC did not execute the Contract of Lease but the MPLDC; and the leased area is not approximately six (6) has; but approximately the whole area of Payanig sa Pasig. Almost all of the area is occupied by several business establishments, such as Gold Park Inc.; Rockland Construction Co., Inc., West Point Industrial Sales Co. Inc., Pasig Printing Corporation etc. (photos attached) and several rented commercial stalls, while the remaining small portion of the two (2) parcels are used or developed as access roads of these business establishments, and c. The contention of the Privatization Council that the leasing out of the area to defray the costs for the maintenance and preservation of the two (2) parcels of land and not as a business operation, is unacceptable because the Payanig sa Pasig property is an enclosed/fenced property where no maintenance or preservation is needed. Further on the issue of taxability of the subject property the City Assessor submitted that: 1. Assets of government corporation transferred to Asset Privatization Trust (APT) shall be exempt from payment of real property tax starting from the time that title to the property is consolidated in the name of the APT (July 8, 1991 Opinion of the DOF); 2. Based on the transfer, IRC and MPLDC changed their status from private to government corporations and as such, the exemption from the payment of real property tax has already been withdrawn in pursuance of the last paragraph of Section 234 of R.A. No. 7160; cDCIHT 3. Granting Arguendo that these properties are titled and declared in the name of the National Government, the provision of Section 234 (a) of the same Code, applies. We agree with the City Assessor. It is important to note that although the two (2) parcels of land consisting of 184,891 sq.m., have allegedly been surrendered to the government by Jose Y. Campos thru a compromise agreement, records show that these properties still continue to be titled and declared for real property taxation purposes in the name of MPLDC. Section 35 of Proclamation No. 50, and the opinion of this Bureau with respect to exemption from payment of real property tax of government corporation assets transferred to APT embodied and cited under this Bureau's 2nd Indorsement dated January 21, 1993 (copy attached), are quoted hereunder: Section 35, Proclamation No. 50 : "SEC. 35. Exemption from Taxes, Fees and Other Charges . The provisions of any law to the contrary notwithstanding, the Trust as well as the corporations and assets held by it, shall be exempt from all taxes, fees, charges, impost, and assessments arising from or occasioned by the passing of title over such corporations or assets from the government institutions to the Trust and or from the Trust to a private acquisitor or buyer imposed by the National Government or any subdivision thereof including but not limited to stock transfer taxes, capital gains taxes, documentary stamps, registration fees and the like, Provided, that in case the said government institutions acquired the said assets by foreclosure, the non-payment of similar taxes, fees, charges, imposts and assessments shall not be a bar to the consolidation of title in the foreclosing institutions and the subsequent passing of title to the Trust or the corporations held by the Trust. (Emphasis supplied) "The Department of Finance, dealing on similar subject matter issued a ruling under its letter dated July 8, 1991, copy attached, that: 'The properties are tax-exempt for purposes of registration to facilitate the transfer or passing of titles from DBP to the National Government through the Asset Privatization Trust. Inasmuch as DBP had retrieved said properties without the registration of the titles as required under Section 24 in relation to Section 35 of the said Proclamation, it has not enjoyed the tax-exempt character because the event or condition in the passing of titles as spelled out in the Proclamation has not arisen.' "On the basis of the said ruling, it is clear that assets of government corporations to be tax exempt must be titled in the name of APT and it is not enough for such properties to be transferred to the Trust solely through the execution of a Deed of Transfer (between the Government of the Republic of the Philippines and Philippine National Bank, dated February 27, 1987). Subject properties shall commence to be tax exempt effective only upon the passing of title over such assets to APT. Stated otherwise, assets of government corporations transferred to APT shall be exempt from the payment of real property tax starting from the time that title to the same is consolidated in the name of APT'." (Emphasis ours) EHSTDA This Bureau has likewise taken notice of the fact that the attached Contracts of Lease were executed not by PCGG nor IRC but by and between MPLDC, as Lessor, and Pasig Printing Office and West Point Industrial Sales Co. Inc. to name a few, as Lessees. It is worth mentioning that even the Privatization Council, thru its Executive Director admitted that the subject property is still registered in the name of MPLDC. Further, no mention was made on whether a Deed of Transfer in favor of APT was executed. Corollarily, and granting for the sake of argument that the property has indeed been titled in the name of the national government, Section 234 (a) of the Local Government Code (LGC) of 1991, with respect to the "beneficial use concept" provides the following: "SEC. 234. Exemptions from Real Property Tax . The following are exempted from payment of the real property tax. "(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person ;" (Emphasis supplied) In view of the foregoing discussions, and in the absence of documentary proof that ownership of the properties was transferred in the name of APT, this Bureau is of the considered view that MPLDC as registered owner, is liable to pay the real property tax on the two (2) adjoining parcels of land, comprising an area of 184,891 sq.m. declared under TD Nos. 130-01185 and 030-01186. DaTISc Be guided accordingly. (SGD.) MA. PRESENTACION R. MONTESA Executive Director