Bureau of Local Government Finance Opinion

June 13, 2001 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. E. C. Alcantara Tax Division SGV and Co. 6760 Ayala Avenue 1226 Makati City Sir : This refers to your letter dated May 18, 2001, requesting in behalf of your client, Philippines Clearing House Corporation (PCHC) confirmation of your opinion that its extension office in Makati is not and should not be treated as a branch office as defined under the Local Government Code (LGC) of 1991, thus, it should only be liable for local business tax in the City of Manila where its principal office is located. Representations are made that PCHC is a domestic corporation primarily engaged in providing facilities for interbank clearing and sorting of checks and other clearing items such as treasury warrants and settlement of interbank balances. In furnishing such services and facilities, PCHC charges the various banks which participate in said clearing operations minimal sums in accordance with public interest. PCHC has its principal office in Manila which is the site of the Operation Center. It is there that the above-described primary business activity of the corporation is conducted. It, however, also maintains an office in Makati City which merely houses supplementary offices and employing additional staff who could no longer be accommodated in the principal office. Specifically, the Makati office space is being leased for the purpose of housing the accounting department and a few executive offices. The operations of said office are limited to purely corporate and administrative matters, including accounting activities and no part of the principal operations of the company are conducted therein. HaECDI That Office invoked the general rule that the principal office making and recording the sale shall pay the local business tax in the city or municipality where the principal office is located. Thus, PCHC has been paying its local business taxes to the City of Manila, the place where the principal office is located as indicated from the amended Articles of Incorporation. In view of the foregoing, that Office contends that being a mere supplementary office that houses PCHC/s accounting section and personnel that performs purely administrative functions, the Makati Office does not at all conduct operations of the business pursuant to the corporations primary purpose as provided in its Article of Incorporation, such as checks processing and sorting for purposes of clearing the same. Said activity is conducted solely in the principal office located at the BSP in Manila, thus the Makati Office may not be construed as a "branch office". To support the above claim that Office cited several rulings of this Bureau bearing on issues similarly situated as PCHC. In addition, it may be stated that the LGC specifically provides that a local government units may impose a business tax based on the gross sales/or receipts of a business entity for the preceding year. Accordingly, and if as represented by PCHC that no receipts are made nor recorded in the Makati office upon which the tax is to be based, it may not be considered as a branch office, thus, the corporation will not be subject to, or liable to pay, any business tax to said city. However, PCHC may be required to pay the Mayors permit and other regulatory fees for maintaining said office in Makati. The gross receipt realized by PCHC shall be 100% taxable by the City of Manila. The City Treasurers of Manila and Makati in separate letters of even date are being furnished with a copy hereof for their information and guidance. It is hoped that this will help clarify matters. ECSaAc Very truly yours, (SGD.) BENJAMIN A. GERONIMO Executive Director <www.blgf.gov.ph/downloads/opinion/localtax/2001/a2001-0509.pdf> last visited January 16, 2014.