Bureau of Local Government Finance Opinion

February 1, 2012 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Rafael Ma. C. Vinzon Tax Services Reyes Tacondong and Co. PHINMA Plaza 39 Plaza Drive, Rockwell Center Makati City Sir : This has reference to the request of your office seeking clarification from this Bureau as to the property type of leasehold improvements. Further, you are requesting confirmation of your definition of the term "Leasehold improvement" which reads as follows: HADTEC "Fixed improvements or additions to the land or buildings such as finishings or fittings, partitions, or outlets constructed on site" Based on the definition submitted, it is the view of your office that the same may, therefore be classified as personal property and as such should not be subject to real property tax. As regards the definition and classification of leasehold improvements, Attention is invited to Item 3.2.2 of Department Order No. 037-09 dated October 19, 2009, which reads: "3.2 Examples of personal property includes interest in: HADTEC xxx xxx xxx "3.2.2 Non-Realty Fixtures, also called trade fixtures or tenant's Fixtures (fixtures and fittings), are attached to the property by the tenant and used in conducting the trade or business. Leasehold improvements , or tenant's improvements are fixed improvements or additions to the land or buildings, installed and paid for by the tenants to meet the tenant's needs. Trade or tenants fixtures are removable by the tenant upon expiration of the lease. Their removal causes no serious damage to the real estate. Leasehold or tenants improvements are finishings or fittings, such as partitions and outlets constructed on site. The useful life of tenant's improvements may be shorter or longer than the term of the lease. If longer than the lease term, the tenant may be entitled to compensation reflecting the extent to which the leasehold improvements have increased the value of the rented premises." HADTEC "3.2.2.1 By extension, the above category may include specialized, non-permanent buildings, machinery and equipment." Since the definition submitted does not conform with the above quoted provision, the Bureau deems it best not to deviate from what is provided for by law, for to do so would only cause confusion as to its interpretation and application. In view thereof, reference should instead be made on the above quoted provision for your guidance and information. HADTEC Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director