Bureau of Local Government Finance Opinion

January 17, 2012 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Ariel Evangelista Tax Manager CYPRESS PERFORM CYPRESS Semiconductor Philippine Headquarters, LTD. Regional Operating Headquarters 2nd Flr. Net One Center 26th St. Cor. 3rd Avenue Crescent Park West Fort Bonifacio Taguig, Metro Manila Sir : This refers to your letter dated November 23, 2011 requesting confirmation of your opinion on the following issues: 1. Cypress Semiconductor Philippines Headquarters Ltd. (CSPHL) Regional Operating Headquarters (ROHQ) is exempted from paying all kinds of local taxes, fees or charges like but not limited to: Business License Taxes Mayor's Permit Fee Sanitary Inspection Fee Medical/Health Fees Environment Impact Fee Building Inspection Fee Electrical Inspection Fee Plumbing Inspection Fee Mechanical Inspection Fee Fire Permit Fee Business Plate/Sticker Forms Fee, and Signboard Fee STECAc 2. CSPHL-ROHQ is entitled to cash refund for the erroneous payments made to City of Taguig. Since CSPHL-ROHQ is exempted from all kinds of local taxes, fees or charges and not liable to pay real property tax, cash refund may be more appropriate than tax credit certificate. Representations are made that CSPHL is a multinational company organized and existing under the laws of the Cayman Islands. It was registered with the Securities and Exchange Commission (SEC) under Certificate of Registration and License No. A200114939 on October 3, 2001, which was amended on April 28, 2006. CSPHL was established as a Regional Operating Headquarters (ROHQ) in the Philippines pursuant to the Omnibus Investment Code of 1987 as amended by Republic Act No. 8756 and its Implementing Rules and Regulations to engaged in general administration and planning, business planning and coordination, sourcing/procurement of raw materials and components, corporate finance advisory services, marketing control and sales promotion, training and personnel management, logistic services, research and development services and product development, technical support and maintenance, data processing and communication, and business development. Ever since CSPHL-ROHQ was established, it has been paying the local business tax and other charges and fees to the City of Taguig. Article 66 of R.A. 8756 otherwise known as the "The Omnibus Investment Code of 1987" provides as follows: IaDTES "Article 66. Exemption from all kinds of local taxes, fees or charges. The regional or area headquarters and regional operating headquarters of multinational companies shall be exempt from all kinds of local taxes, fees or charges imposed by a local government unit except real property tax on land improvements and equipment." In view of Article 66 of R.A. 8756, CSPHL-ROHQ is exempted from the payment of all kinds of local taxes, fees and charges except real property tax on land improvements and equipment. Furthermore, this Bureau has made a ruling on similar query dated December 13, 2005 address to Mr. Pascual R. de Guzman, Director, Legal Services Department, Board of Investments. The dispositive portion is quoted hereunder: ". . . . Well-entrenched is the rule that when the new provision and the old provision relating to the same subject cannot be reconciled, the former shall prevail as it is the latter expression of the legislative will. Conformably, the Local Government Code of 1991 has to yield to R.A. 8756 which took effect on November 23, 1999. . . . ." As regards the claim of cash refund of the taxes, fees or charges erroneously collected by the City of Taguig, the applicable provision of law is Article 286 of the Implementing Rules and Regulations (IRR), implementing Section 196 of the Local Government Code (LGC) of 1991, quoted hereunder: "Art. 286. Claim for Refund or Tax Credit. All taxpayers entitled to a refund or tax credit under this Rule shall file with the local treasurer a claim in writing duly supported by evidence or payment ( e.g. , official receipts, tax clearance, and such other proof evidencing overpayment) within two (2) years from payment of the tax, fee or charge. No case or proceeding shall be entertained in any court without this claim in writing, and after the expiration of two (2) years from the date of payment of such tax, fee or charge, or from the date the taxpayer is entitled to a refund or tax credit. "The tax credit granted a taxpayer shall not be refundable in cash but shall only be applied to future tax obligations of the same taxpayer for the same business. If a taxpayer has paid in full the tax due for the entire year and he shall have no other tax obligation payable to the LGU concerned during the year, his tax credits, if any, shall be applied in full during the first quarter of the next calendar year on the tax due from him for the same business of said calendar year. " Any unapplied balance of the tax credit shall be refunded in cash in the event that he terminates operations of the business involved within the locality ." (Underlining supplied) DcTaEH From the abovequoted provision of the IRR of the LGC, it is clear that the claim for refund or tax credit shall be filed with the local treasurer's office in writing supported by the evidence of payment, within two (2) years from payment of tax, fee or charge. The law also provides that the claim "shall not be refundable in cash but shall only be applied to future tax obligations of the same taxpayer for the same business", which means that if the refund and/or tax credit is for local business tax, the same shall be applied to the same nature of obligation which CSPHL may incur in the future. However, considering the unqualified exemption granted to the ROHQs under the aforecited law (Art. 66, R.A. 8756), CSPHL will no longer incur any future obligation pertaining to said impositions, therefore, only cash refund applies in this case. Nevertheless, CSPHL is still required to secure permits, licenses and clearances but remain EXEMPT from paying the fees corresponding to such permits, licenses and clearances. We hope that we have clarified matters. Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director