Bureau of Local Government Finance Opinion

January 4, 1999 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Atty. William S. Pamintuan Senior Vice President-Legal Services Digital Telecommunications Philippines, Inc. (DIGITEL) 110 E. Rodriguez Jr. Avenue Bagumbayan, Quezon City S i r : This refers to your letter dated October 19, 1998, seeking the assistance of this Bureau to render an opinion affirming its previous position that real properties of DIGITEL which are used in the operation of its franchise are exempt from payment of real property taxes. In this connection, enclosed is a copy of our 2nd Indorsement of the same date addressed thru the Regional Director for Local Government Finance, Department of Finance, Region IV, to the Provincial Assessor of Batangas, the dispositive portion of which states as follows: ". . . in adherence to the aforementioned March 12, 1996 pronouncement of the Office of the President, this Bureau, in its November 9, 1998 letter . . ., likewise maintained the same stand, which in effect expressed that 'the claim for exemption of that company from the payment of real property taxes on the real properties which are used in the operation of . . . (the company's) franchise is hereby deemed meritorious.' "In view thereof, the said Regional Director for Local Government Finance and the Provincial Assessor are hereby enjoined to implement the subject Opinions rendered by the Offices of the President and the Department of Finance, thru the Bureau of Local Government Finance, on matters pertaining to the real property tax exemption covering the real properties of DIGITEL which are used in the operation of its franchise." cCHITA We trust that this will clarify matters. Very truly yours, (SGD.) ANGELINA M. MAGSINO Deputy Executive Director Officer-in-Charge 2nd Indorsement January 4, 1999 Respectfully returned, thru the Regional Director for Local Government Finance, Department of Finance, Region IV, People Mansion Compound, Batangas City, to the Provincial Assessor of Batangas, same city. This pertains to the "contrary opinion" expressed by the said Provincial Assessor concerning the letter dated April 18, 1997 of this Bureau, which held that "the real properties of DIGITEL, which are used in the operation of its franchise, are hereby found to be exempt from the payment of real property taxes." It is worthwhile to note that the stand/opinion expressed in the abovementioned letter dated April 8, 1997 of this Bureau, including those that similarly resolved real property tax exemption controversies of other telecommunication companies, were primarily based on the Opinion dated September 21, 1981 of the Office of the President stating that the phrase "exclusive of this franchise" found in Section 7 of R.A. No. 3662 (RETELCO'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." Apparently, the abovementioned "contrary opinion" of the Provincial Assessor of Batangas was prompted by the claim of DIGITEL for real property tax exemption on its real properties situated in Batangas Province, which are used in the operation of its franchise; and the Court of Appeals Decision, CA-G.R. CV No. 21897, promulgated on January 21, 1992, entitled, " The City Government of Batangas vs. Republic Telephone Company, Inc. (RETELCO), that "RETELCO is liable to pay the real property taxes on its real estate, building and personal property excluding its franchiser ." (Emphasis supplied) Hence, "RETELCO is ordered to pay the City of Batangas . . . the real property tax on said defendants' real estate, buildings and personal property' located at Batangas City, covering the period from 1972 to June, 1980 and the real property tax due thereafter, plus the interest and penalty as provided by law." In a letter dated October 19, 1998 (copy attached), the Senior Vice President Legal Services, Digital Telecommunications, Inc. (DIGITEL), advanced that, while most local government units "recognize and honor they said letter-opinion" of this Bureau, "the province of Batangas . . . rejected our (DIGITEL's) claim and refuses to honor the learned opinion of this (BLGF's) Office," thus, it argued that: 1. "(T)he Court of Appeals Decision cannot be used as basis for the refusal to honor the opinion of this (BLGF's) Honorable Office and the denial of DIGITEL's claim for real property tax exemption" considering that DIGITEL "is not a party to the said case." 2. "(I)t cannot be said that the Court of Appeals decision has established a precedent upon which other telecommunications companies can be compelled to comply with. . . . In the case of Miranda Imperial (77 Phil. 1066), the Supreme Tribunal categorically stated that 'only decision of this Honorable Court establish jurisprudence or doctrines in this jurisdiction.' Consequently, decisions of subordinate courts are only persuasive in nature, and can have no mandatory effect. (Paras, Civil Code of the Philippines annotated)." DAESTI 3. "(R)eal property tax is not imposed on a franchise. (as the said Court of Appeals Decision resolved it to be), . . . because it (the real property tax) is imposed specifically on real properties such as land, buildings and machineries. A franchise is never subject to real property tax. It is subject to a franchise tax." This Bureau finds the foregoing arguments of DIGITEL tenable considering the fact that, actually, even the Office of the President (OP) appears to share the same stand when OP, notwithstanding the subject January 21, 1992 Court of Appeals Decision, reaffirmed its position on the matter under a letter dated March 12, 1996, which categorically declared that "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 arrangement, and royalties derived from sources within the Philippines (Section 2[e][1], NRC); "4. Creditable expanded withholding tax (EWT) on sales, exchanges or transfers of real properties (whether classified as ordinary or capital asset) consummated on or after January 1, 1990 (RMC 7-90); "5. Capital gains tax (CGT) on capital gains realized from sale, exchange 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. " (Emphasis supplied) It is likewise important to note hereon that, in adherence to the aforementioned March 12, 1996 pronouncement of the Office of the President, this Bureau, in its November 9, 1998 letter . . ., likewise maintained the same stand, which in effect expressed that "the claim for exemption of that company from the payment of real property taxes on the real properties which are used in the operation of . . . (the company's) franchise is hereby deemed meritorious." In view thereof, the said Regional Director for Local Government Finance and the Provincial Assessor are hereby enjoined to implement the subject Opinions rendered by the Offices of the President and the Department of Finance, thru the Bureau of Local Government Finance, on matters pertaining to the real property tax exemption covering the real properties of DIGITEL which are used in the operation of its franchise. DTAHEC Be guided accordingly. (SGD.) ANGELINA M. MAGSINO Deputy Executive Director Officer-in-Charge