Bureau of Local Government Finance Opinion

November 24, 2010 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 2nd Indorsement Respectfully returned to the OIC-Regional Director of Local Government Finance, Region VII, Cebu City, the herein preceding indorsement relative to the letters of Ms. Elenita S. Catagcatag, City Treasurer of Lapu-Lapu and Ms. Ma. Conchita Paz V. Lucero, OIC-Cebu Branch of Philippine Estates Corporation (PHES for brevity), dated October 8, 2010, and October 13, 2010, respectively. The issue raised in both letters pertains to the payment of business tax of PHES. It is represented that PHES is a duly registered domestic corporation with principal office at Ortigas Center, Pasig City, with a branch office in Cebu City and a site office at Lapu-Lapu City. In a letter dated September 9, 2010, Ms. Ofelia M. Oliva, City Treasurer of Cebu, quoting the provisions of Section 150 of R.A. 7160, on situs of taxation, opined that PHES is liable to pay business tax to the City Government of Cebu the pertinent portion of which is quoted as follows: "Stated otherwise, 30% of all sales recorded in the principal office shall be subject to tax by the City of Pasig, where the principal office is located, and the remaining 70% sales recorded shall be taxable to Cebu City and Lapu-Lapu City at the rates of 40% and 60% respectively." However, the City Treasurer of Lapu-Lapu contended that Section 150 of the LGC, is not applicable in the above matter allegedly because the said provision is applicable only in case of a plantation located in a locality other than where the factory is located. It is the position of the City Treasurer of Lapu-Lapu that inasmuch as the Pacific Grand Villas are located in the City of Lapu-Lapu, seventy percent 70% of all sales shall be taxable to the said City. Upon review of the documents submitted, this Bureau gathered that in a letter dated July 4, 2010 of the Internal Legal Counsel of PHES, addressed to the City Treasurer of Cebu, it was clarified that the Cebu office regularly performs the following limited functions as follows: 1. Marketing and coordination with buyers and agents; 2. Administration of delegated functions and inventory in coordination with head office; 3. Land management in coordination with head office; 4. Processing of titles in coordination with head office; 5. Liaison activities with different government agencies, brokers, agents and other third parties; 6. Management of the property or inventory of the project and appropriate endorsement of requests from client/s to the head office. It was likewise mentioned in the said letter that books of accounts are maintained by the head office, while official receipts are also registered at the principal place of business of the corporation. TCAScE For easy reference that Office quoted Section 150 of the LGC to wit: "Section 150. Situs of the Tax. (a) For purposes of collection of the taxes under Section 143 of this Code, manufacturers, assemblers, repackers, brewers, distillers, rectifiers and compounders of liquor, distilled spirits and wines, millers, producers, exporters, wholesalers, distributors, dealers, contractors, bank and other financial institutions, and other businesses, maintaining or operating branch or sales outlets elsewhere shall record the sale in the branch or sales outlets making the sale or transaction, and the tax thereon shall accrue and shall be paid to the municipality where such branch or sales outlet is located. In cases where there is no such branch or sales outlet in the city or municipality where the sale or transaction is made, the sale shall be duly recorded in the principal office and the taxes due shall accrue and shall be paid to such city or municipality. "(b) The following sales allocation shall apply to manufacturers, assemblers, contractors, producers, and exporters with factories, project offices, plants, and plantations in the pursuit of their business: "(1) Thirty percent (30%) of all sales recorded in the principal office shall be taxable by the city or municipality where the principal office is located; and "(2) Seventy percent (70%) of all sales recorded in the principal office shall be taxable by the city or municipality where the factory, project office, plant, or plantation is located. "(c) In case of a plantation located at a place other than the place where the factory is located, said seventy percent (70%) mentioned in subparagraph (b) of subsection (2) above shall be divided as follows: "(1) Sixty percent (60%) to the city or municipality where the factory is located; and "(2) Forty percent (40%) to the city or municipality where the plantation is located. "(d) In cases where a manufacturer, assembler, producer, exporter or contractor has two (2) or more factories, project offices, plants, or plantations located in different localities, the seventy percent (70%) sales allocation mentioned in subparagraph (b) of subsection (2) above shall be prorated among the localities where the factories, project offices, plants, and plantations are located in proportion to their respective volumes of production during the period for which the tax is due. "(e) The foregoing sales allocation shall be applied irrespective of whether or not sales are made in the locality where the factory, project office, plant, or plantation is located. In this connection, it is informed that this Bureau has consistently expressed the view that an administrative/liaison office shall not be subject to the local business tax considering that it is merely maintained for following purposes: 1. serves as a showroom, display area; 2. houses supplementary offices to perform purely corporate and administrative matters; 3. monitoring bases of orders placed by prospective buyers. In view of the foregoing and considering the limited functions of PHES's Office in Cebu City as enumerated above, it appears that no sales are made and recorded at the said office in Cebu City, hence, there is no basis for the imposition of the local business tax. Said office may be considered as a liaison/administrative office and, therefore, subject only to the payment of Mayor's permit and other regulatory fees or service charges that the city may impose under a duly enacted tax ordinance. However, it is worth mentioning that Article 243 (a) (2) of the Implementing Rules and Regulations (IRR) implementing the aforequoted Section 150 provides as follows: "Article 243. Situs of the Tax. (a) For purposes of collection of the taxes under Article 232 of this Rule, the following definition of terms and guidelines shall be strictly observed: "xxx xxx xxx. "(2) Branch or sales office a fixed place in a locality which conducts operations of the business as an extension of the principal office. Offices used only as display areas of the products where no stocks or items are stored for sale, although orders for the products may be received thereat, are not branch or sales offices as herein contemplated. A warehouse which accepts orders and/or issues sales invoices independent of a branch with sales office shall be considered as a sales office. (Emphasis supplied) DTIACH "xxx xxx xxx. It must be pointed out that in the aforequoted provision, the use of the conjunction and/or in the statement connotes that a warehouse may be considered as a sales office under the following scenarios: (1) if the warehouse accepts orders only but does not issue sales invoices; (2) if the warehouse does not accept orders but issues sales invoices; and (3) if the warehouse accepts orders and issues sales invoices. Similar to a warehouse a liaison/administrative office that accepts orders and receives collections shall be considered as a sales office. In such cases, a liaison/administrative office shall be subject to the payment of the local business tax. Accordingly, the 70%-30% sales allocation pursuant to Section 150 (b), (1) & (2), shall apply to the City of Lapu-Lapu City and Pasig City where the site office and principal office are located, respectively. On the other hand, the 60%-40% allocation from the 70% shall not apply to Cebu City considering that a liaison/administrative office is not among those mentioned in the law and the IRR such as a factory or plantation, which is entitled to an allocation of the tax. Be guided accordingly. (SGD.) MA. PRESENTACION R. MONTESA, CESO III Executive Director ATTACHMENT BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Regional Office No. 7 Cebu City 1st Indorsement November 3, 2010 Respectfully forwarded to Hon. Ma. Presentacion R. Montesa, Executive Director, Bureau of Local Government Finance, Department of Finance , for opinion and/or appropriate action, the herein letter dated October 8, 2010 of Ms. Elenita S. Catagcatag, City Treasurer of Lapu-lapu and the letter dated October 13, 2010 of Ma. Conchita Paz V. Lucero, OIC-Cebu Branch of Philippine Estates Corporation. DaTEIc The issue raised in both letters are with regards to the payment of business tax of Philippine Estate Corporation. It is represented that Philippine Estate Corporation is a duly registered domestic corporation with principal office at Ortigas Center, Pasig City, and a branch office in Cebu City and a site office at Lapu-lapu City. In a letter dated September 9, 2010, Ms. Ofelia M. Oliva, City Treasurer of Cebu, quoting the provisions of Sec. 150 of R.A. 7160, on situs of taxation, is of the opinion that Philippine Estates Corporation is liable to pay business tax to the City Government of Cebu. In the same letter, she further explained that: "Stated otherwise, 30% of all sales recorded in the principal office shall be subject to tax by the City of Pasig, where the principal office is located, and the remaining 70% sales recorded shall be taxable to Cebu City and Lapu-lapu City at the rates 40% and 60% respectively. For easy reference quoted hereunder is Sec. 150 of the Local Government Code to wit: Sec. 150. Situs of the Tax. (a) For purposes of collection of the taxes under Section 143 of this Code, manufacturers, assemblers, repackers, brewers, distillers, rectifiers and compounders of liquor, distilled spirits and wines, millers, producers, exporters, wholesalers, distributors, dealers, contractors, banks and other financial institutions, and other businesses, maintaining or operating branch or sales outlet elsewhere shall record the sale in the branch or sales outlet making the sale or transaction, and the tax thereon shall accrue and shall be paid to the municipality where such branch or sales outlet is located. In cases where there is no branch or sales outlet in the city or municipality where the sale or transaction is made, the sale shall be duly recorded in the principal office and the taxes due shall accrue and shall be paid to such city or municipality. (b) The following sales allocation shall apply to manufacturers, assemblers, contractors, producers, and exporters with factories, project offices, plants, and plantations in the pursuit of their business: (1) Thirty percent (30%) of all sales recorded in the principal office shall be taxable by the city or municipality where the principal office is located; and (2) Seventy percent (70%) of all sales recorded in the principal office shall be taxable by the city or municipality where the factory, project office, plant, or plantation is located. (c) In case of a plantation located at a place other than the place where the factory is located, said seventy percent (70%) mentioned in subparagraph (b) of subsection (2) above shall be divided as follows: (1) Sixty percent (60%) to the city or municipality where the factory is located; and (2) Forty percent (40%) to the city or municipality where the plantation is located. (d) In cases where a manufacturer, assembler, producer, exporter or contractor has two (2) or more factories, project offices, plants, or plantations located in different localities, the seventy percent (70%) sales allocation mentioned in subparagraph (b) of subsection (2) above shall be prorated among the localities where the factories, project offices, plants, and plantations are located in proportion to their respective volumes of production during the period for which the tax is due. (e) The foregoing sales allocation shall be applied irrespective of whether or not sales are made in the locality where the factory, project office, plant, or plantation is located. DCcTHa However, Ms. Catagcatag, is of the contention that Sec. 150 of the Local Government Code is not applicable in this matter, allegedly because the said provision is applicable only in cases of plantation located at a place other than the place where the factory is located. In her letter dated July 23, 2010, Ms. Catagcatag is of the position that the fact that the Pacific Grand Villas are located in the City of Lapu-lapu, then the seventy percent (70%) of all sales shall be taxable to the City of Lapu-lapu. In view of the above conflicting assertions, opinion and final resolution on this matter is hereby respectfully requested. (SGD.) LORNA C. ATEGA OIC-Regional Director