Bureau of Local Government Finance Opinion

May 15, 2000 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully referred to the City Assessor, Antipolo City. This refers to the attached letter dated March 16, 1999 of Mr. Edgardo B. Quiogue , Senior Vice President, Liberty Broadcasting Network, Inc., (LBNI), in effect requesting assistance concerning the letter dated November 9, 1998 of this Bureau, which categorically declared, thus: "Accordingly, this Bureau finds no reason why LBNI should not similarly enjoy the privileges afforded to other competitor communication companies in light of the 'ipso facto' or most favored treatment clause which their franchise likewise provides. "In view thereof and in line with previous similar cases, the claim for exemption of that (LBNI's) company from the payment of real property taxes on the real properties which are used in the operation of LBNI's franchise is hereby deemed meritorious." It appears that the abovementioned request of Mr. Quiogue was prompted by the letter dated April 8, 1999 of that Office, the pertinent portion of which is quoted hereunder: "We would like to reiterate that this Office finds no sufficient legal and factual basis to hold that PILTEL or DIGITEL or your company, pursuant to the 'ipso facto' or most favored treatment clause in your respective franchises, shall be subject only to taxes on your real estate, buildings and personal property not used in connection with the conduct of your business under your franchise. It is important to emphasize hereon that the foregoing opinion of this Bureau was made pursuant to the "ipso facto" or most favored treatment clause stipulated under Section 4 of Republic Act No. 4154 (LBNI's franchise), and in consonance with the Opinion dated September 25, 1981 and the letter dated March 12, 1996, both of the Office of the President. Section 4 of the franchise of LBNI (R.A. No. 4154) categorically provides that: "Sec. 4. In the event of any competing individual, partnership or corporation receiving from the congress a similar franchise in which there shall be any term or terms more favorable than those herein granted or tending to place the herein grantee at any disadvantage, then such term or terms shall ipso facto become a part of the terms hereof and shall operate equally in favor of the grantee as in the case of said competing individual, partnership or corporation." Under the September 25, 1981 Resolution, the Office of the President resolved that the phrase "exclusive of this franchise" found in Section 7 of R.A. No. 3662 (RETELCO's franchise, which is similarly found under Section 5 of LBNI's franchise) "has been construed to mean as excluding real estate, buildings and personal property of defendant RETELCO, Inc., directly used in the operation of its franchise, for which the latter is not subject to real estate tax as other persons or corporations are now or hereafter may be required by law to pay." Section 5 of LBNI's franchise is quoted hereunder for ready reference: "SEC. 5. (a) The grantee shall be liable to pay the same taxes on its real estate, buildings and personal property, exclusive of the franchise as other persons or corporations are now or hereafter may be required by law to pay. (b) The grantee shall further be liable to pay all other taxes imposable by the National Internal Revenue Code by reason of this franchise." Moreover, in the abovementioned letter dated March 12, 1996 (copy attached), the Office of the President, again, specifically clarified that: "As clearly spelled out in the above ipso facto provision, it is the intent of the legislature to provide 'equality of treatment in the telecommunications industry.' Equally clear is the fact that the tax exemption being enjoyed by telecommunication companies similarly situated with Digitel or those whose franchises provide similar benefits constitutes an 'advantage, favor, privilege, exemption, or immunity' granted under an existing franchise. "Hence, Section 6, R.A. No. 7293 granting a similar franchise to Pilipino Telephone Corporation (PILTEL) (which, likewise, contains the "exclusive of this franchise" provision) ipso facto became part of Digitel's franchise pursuant to Section 23 of R.A. No. 7925. Digitel, therefore, became entitled to the tax exemptions provided for under Section 6, R.A. No. 7293 immediately upon effectivity of R.A. No. 7925. "Corollarily, as ruled by the BIR in its letter-opinion dated 25 January 1995 regarding PILTEL's tax exemption, Digitel, too, shall be subject only to the following taxes, to wit: "1. Taxes on its real estate, buildings and personal property not used in connection with the conduct of its business under its franchise, as other persons or corporations are now or hereafter may be required to pay;" (emphasis supplied) "2. 35% corporate income tax as provided for under Section 24(a) of the Tax Code, as amended; "3. 20% final withholding tax (FWT) on interest income derived from Philippine currency bank deposits and yield or any other monetary benefit from deposit substitutes, trust funds and similar arrangements, and royalties derived from sources within the Philippines (Section 2[e][1], NIRC); "4. Creditable expanded withholding tax (EWT) on sales, exchanges or transfers of real properties (whether classified as ordinary or capital asset) by Digitel consummated on or after January 1, 1990 (RMC 7-90); "5. Capital gains tax (CGT) on capital gains realized from sale, exchanges or disposition of shares of stock in any domestic corporation under Section 24(e)(2) of the Tax Code, as amended; "6. All other income taxes as provided for and imposed under Title II of the Tax Code, as amended; and "7. The 3% franchise tax on gross which shall be in lieu of all taxes franchise or earnings thereof." It is also worthwhile to mention hereon that the Office of the President, under its letter dated December 11, 1992, made a categorical admission that a telecommunication company (RCPI) and LBNI "are competing outfits." Similarly, therefore, LBNI's real properties used in the operation of its franchise, which falls under the exempt real properties, in line with the September 25, 1981 Resolution of the Office of the President, are undoubtedly still considered exempt from the payment of real property taxes despite the "withdrawal of exemption provisions of R.A. No. 7160 (the Local Government Code of 1991), in view of the 'ipso facto' provision under Section 4 of its franchise (R.A. No. 4154), and further, pursuant to Section 23 of R.A. No. 7925, otherwise known as the Public Telecommunications Policy Act of the Philippines, which provides: "Section 23. Equality of Treatment in the Telecommunications Industry . Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided, however, That the foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise, the life span of the franchise, or the type of service authorized by the franchise." Accordingly, the stand taken by this Bureau under its aforementioned March 16, 1998 letter is hereby reiterated. That Office, therefore, is hereby instructed to transfer the subject real properties of LBNI which are used in the operation of its franchise, from the "Taxable Roll of Real Properties" to the "Exempt Roll". However, those real properties of LBNI which are not used in the operation of its franchise should remain as taxable. Be guided accordingly. (SGD.) ANGELINA M. MAGSINO Deputy Executive Director Officer-in-Charge