Bureau of Local Government Finance Opinion

July 5, 2013 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Atty. Garth F. Castaeda SYMECS Law 3109 One Corporate Center Julia Vargas cor. Meralco Avenue Ortigas, Quezon City Sir : This refers to your letter March 8, 2013 in behalf of Metro Pacific Investments Corporation (MPIC) and other holding companies requesting confirmatory ruling on the non-taxability for local business tax purposes of passive income earned by a holding company. It is claimed that when MPIC applied for renewal of its business permit in 2011, the Makati City Business Permit Office issued Billing Assessment Form No. 0021644 dated January 21, 2011 assessing various fees inclusive of Local Business Tax (LBT) which was computed based on the aggregate interest, rental and dividend income including gain on sale of fixed assets reported in its financial statements for the year ending December 31, 2010. MPIC was likewise issued Billing Assessment Form No. 0056663 dated January 20, 2012 and Billing Assessment Form No. 08952 dated January 18, 2013 assessing various fees inclusive of LBT based on income earned reported in its financial statements for the year ending December 31, 2011 and December 31, 2012, respectively. It is submitted that the aggregate interest, rental and dividend income including gain on sale of fixed assets reported in its financial statements do not constitute gross receipts as the term is defined in Section 131 (n) of the Local Government Code (LGC) of 1991, or Section IB.01 (g) of the Makati City Revenue Code, as amended thus, the City Treasurer of Makati erred in assessing and collecting the LBT. SaICcT Said letter was referred to the City Treasurer of Makati for comment under a 1st Indorsement dated March 19, 2013. Under a letter dated May 29, 2013, the City Treasurer of Makati informed this Bureau that the above letter was forwarded to the Law Department of said City for appropriate action. The Officer-in-Charge, Law Department, under a letter dated May 31, 2013, copy enclosed, submitted the following comments: 1. The Makati City Treasurer posits that the above-mentioned companies were taxed based on Section 3.A.02 (p) which states that Holding Companies are levied an annual tax on the business rates that may either be based on Section 3.A.02 (g) or sec. 3.A.02 (h) of the Makati Revenue Code. 2. Anent the invoked Orleyte Case promulgated by the Court of Appeals on November 14, 2012, it is rather doubtful that the companies base their argument on a decision the circumstances of which are in no way similar to their proposed truth. The petitioner therein was a geothermal power plant, the circumstances of which are in no may similar to that of any of the abovementioned companies. 3. The questioned legislation was the then Makati Revenue Code and not City Ordinance No. 2004-A-025 or what is now known as Makati Revised Revenue Code. Included in the amendments are the sections imposing business tax on holding companies and the rates thereof. Therefore, the invoked stare decisis by these companies cannot hold water and should therefore be disregarded in resolving the issue at hand. HScaCT 4. Still, should the aforementioned companies insists on their own interpretation of the Makati Revised Revenue Code, we submit that such issue best be left for juridical determination. In this connection enclosed is a copy of the 2nd Indorsement of even date wherein this Bureau invited the attention of the City Treasurer to the opinion of the Department of Finance embodied in the 1st Indorsement dated January 17, 2001 in the case of Sysmart Corp., a holding company. It is the view of this Bureau that said opinion still holds until such time that the same is modified or rescinded accordingly by the same administrative agency. However, it is worth noting that Makati City has enacted City Ordinance No. 2004-A-025, otherwise known as the Makati Revised Revenue Code imposing business tax on holding companies and the rates thereof. Hence, the City Treasurer of Makati was advised to make a representation with the Sangguniang Panlungsod thereat for the purpose of amending said provision of the Ordinance to conform with the provisions of the LGC and its Implementing Rules and Regulations (IRR). IcaHTA In the meantime, unless declared by competent authority that the specific provision of the City Ordinance, supra , imposing business tax on holding companies as illegal or unconstitutional, the City Treasurer has no other recourse but to collect the business tax imposed thereon on said companies to avoid being charged of remission and/or dereliction of duty for not implementing said City Ordinance, invoking the principle of "presumption of regularity". On your part, MPIC and the other holding companies may either agree to pay the tax or protest the assessments which should be resolved pursuant to the provisions of Section 195 of the LGC. IcaHTA Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director