Bureau of Local Government Finance Opinion

November 15, 2017 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 2nd Indorsement Respectfully returned to the Regional Director , BLGF Region IV-A, Calamba City, Laguna, is the herein attached indorsement pertaining to the letter dated 17 August 2017 of Ms. CONCEPCION R. VIRAY , Municipal Assessor, Taytay, Rizal, relative to her request for opinion pertaining to the taxability of the National Grid Corporation of the Philippines (NGCP). Republic Act (RA) No. 9511, otherwise known as "An Act Granting the National Grid Corporation of the Philippines a Franchise to Engage in the Business of Conveying or Transmitting Electricity through High Voltage Back-Bone System of Interconnected Transmission Lines, Substations and Related Facilities, and for Other Purposes," enacted on 1 December 2008, granted the NGCP a legislative franchise as TRANSCO's concessionaire. NGCP's tax provision contained under Section 9 of the law provides for an "in lieu of all taxes" clause, which is hereby quoted as follows: " Section 9. Tax Provisions. In consideration of the franchise and rights hereby granted, the Grantee [NGCP], its successors or assigns, shall pay a franchise tax equivalent to three percent (3%) of all gross receipts derived by the Grantee [NGCP] from its operation under this franchise. Said tax shall be in lieu of income tax and any and all taxes, duties, fees and charges of any kind, nature or description levied, established or collected by any authority whatsoever, local or national, on its franchise, rights, privileges, receipts, revenues and profits, and on properties used in connection with its franchise, from which taxes, duties and charges, the Grantee is hereby expressly exempted: Provided, That the Grantee, its successors or assigns, shall be liable to pay the same taxes on their real estate, buildings and personal property, exclusive of this franchise, as other corporations are now or hereby may be required by law to pay: Provided, further, That payment by Grantee of the concession fees due to PSALM under the concession agreement shall not be subject to income tax and value added tax (VAT) ." The Supreme Court, in National Grid Corporation of the Philippines vs. Ofelia M. Oliva (G.R. No. 213157, August 10, 2016), ruled that: " Section 9 of RA 9511 provides that NGCP shall pay 'a franchise tax equivalent to three percent (3%) of all gross receipts derived by the Grantee from its operation under this franchise.' This franchise tax is 'in lieu of income tax and any and all taxes, duties, fees and charges of any kind, nature or description levied, established or collected by any authority whatsoever, local or national, on its franchise, rights, privileges, receipts, revenues and profits, and on properties used in connection with its franchise, from which taxes, duties and charges, the Grantee is hereby expressly exempted. " " It is very clear that NGCP's payment of franchise tax exempts it from payment of real property taxes on properties used in connection with its franchise. However, NGCP's tax exempt status on real property due to the 'in lieu of all taxes' clause is qualified: NGCP shall be liable to pay the same tax as other corporations on real estate, buildings and personal property exclusive of their franchise. The phrase 'exclusive of this franchise' means that real estate, buildings, and personal property used in the exercise of the franchise are not subject to the same tax as other corporations. " " The CBAA should determine whether the subject properties are properties used in connection with NGCP's franchise. If the subject properties are used in connection with NGCP's franchise, then NGCP is exempt from paying real property taxes on the subject properties. If the subject properties are not used in connection with NGCP's franchise, then the assessment level should be based on actual use, in accordance with Section 218(a-c) of the Local Government Code ." (emphasis supplied) In light of the aforementioned Supreme Court decision, attached for your information and perusal is BLGF Memorandum Circular No. 10-02-2017, dated 10 October 2017, pertaining to the taxability of the NGCP, pertinent portion of which is quoted as follows: " Premises considered, the payment of NGCP of the 3% franchise tax clearly exempts it from payment of real property taxes on properties used in connection with its franchise. The exemption and imposition of taxes on real estate, buildings and personal properties of NGCP are clear and categorical on the basis that the subject properties of NGCP shall be used in connection with its franchise, unless otherwise provided. The guidelines under BLGF MC No. 48-2012 are, thus, hereby modified, as follows : 1. NGCP shall not be subject to taxes, duties, and fees and charges of any kind on their real estate, buildings and personal properties that are used in connection with its franchise ; 2. The real properties of NGCP not used in connection with its franchise shall be classified, valued, and assessed based on its actual use in accordance with Section 218(a-c) of the LGC; and 3. The Assessment Level, as applicable to lands, buildings and other structures, and machineries of NGCP not used in connection with its franchise, shall be fixed through a duly enacted ordinance of the local Sanggunian. " Be guided accordingly. (SGD.) NIO RAYMOND B. ALVINA OIC Executive Director