Bureau of Local Government Finance Opinion

February 23, 2015 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Ms. Editha Roxas Building Administrator SANDOZ Realty Corporation 2nd Floor, ARCC Building Salcedo St. corner Gamboa St. Legaspi Village, Makati City Madam : This refers to your letter dated February 12, 2015 in connection with the application for renewal of business permit filed by Sandoz Realty Corp. ("Sandoz Realty") . Representations are made that Sandoz Realty is a real estate land lessor in Canlubang (Calamba City), Laguna. Its Head Office is located in Makati City where its lease transactions are being recorded and where invoices and official receipts are being issued. It is claimed that Sandoz Realty is required to secure business permits both from the Local Government Units of Makati and Calamba. Moreover, Sandoz Realty was advised by the Calamba Business License Office ("BPLO-Calamba") to declare (i) in Calamba City 70% of its gross revenues as basis for the computation of the relevant tax on revenues from land leasing and (ii) the balance of 30% of its gross revenues in Makati City. On the other hand, the Makati Business License Office ("BPLO-Makati") is not amenable to this arrangement. Instead, BPLO-Makati is requiring Sandoz Realty to declare in Makati City 100% of its gross revenues as basis for the computation of the relevant real estate lessor's tax. The position taken by the BPLO-Makati is consistent with the ruling issued by the Bureau of Local Government Finance, on issues similarly situated, confirming that 100% of the gross receipts of a company that leases properties in various localities shall be taxed by the locality where its principal place of business is situated. It informed that a copy of this ruling has already been provided to BPLO-Calamba but said Office maintains its position as described above. Both Makati and Calamba Business License Offices suggested that in the meantime, Sandoz Realty should pay the amount of tax due for the first quarter of 2015 to each of them to avoid any penalty while the issue is being resolved and to facilitate the issuance of the requited business permits. Hence, the request to clarify which of the Makati and Calamba Business License Offices should impose the business tax on Sandoz Realty and to what extent so that Sandoz Realty may be guided accordingly. Based on the above representations, it appears that Sandoz Realty does not maintain any branch or sales office in Canlubang (Calamba City), Laguna where the properties subject of lease are located and that all its lease transactions are being recorded in the principal office and where invoices and official receipts are being issued. In this connection, Section 150 of the LGC, quoted hereunder shall apply: "Section 150. Situs of the Tax . (a) For purposes of collection of the taxes under Section 143 of this Code, manufacturers, assemblers, repackers, brewers, distillers, rectifiers and compounders of liquor, distilled spirits and wines, millers, producers, exporters, wholesalers, distributors, dealers, contractors, bank and other financial institutions, and other businesses, maintaining or operating branch or sales outlets elsewhere shall record the sale in the branch or sales outlets making the sale or transaction, and the tax thereon shall accrue and shall be paid to the municipality where such branch or sales outlet is located. In cases where there is no such branch or sales outlet in the city or municipality where the sale or transaction is made, the sale shall be duly recorded in the principal office and the taxes due shall accrue and shall be paid to such city or municipality . (Underscoring supplied) "(b) The following sales allocation shall apply to manufacturers, assemblers, contractors, producers, and exporters with factories, project offices, plants, and plantations in the pursuit of their business: "(1) Thirty percent (30%) of all sales recorded in the principal office shall be taxable by the city or municipality where the principal office is located; and "(2) Seventy percent (70%) of all sales recorded in the principal office shall be taxable by the city or municipality where the factory, project office, plant, or plantation is located. "xxx xxx xxx." Accordingly, and based on the preceding provisions of the LGC, Sandoz Realty is not liable for local business tax to the City of Calamba for the simple reason that the real properties being leased may not be considered either as a factory, project office, plant, and plantation. To support this view, enclosed for information is a copy of our opinion dated July 10, 2007, in the case of Golden Arches Realty Corporation (GARC), the pertinent portion of which is quoted hereunder: "The above quoted provision of law is clear that a business entity, like GARC, which does not maintain any branch or sales outlet elsewhere, shall record the sales in the principal office and that the taxes due shall accrue and shall be paid 100% to the City of Makati where the principal office is located, to the exclusion of other LGLUs where GARC's real properties subject of lease agreements with Lessee-companies are situated." cHDAIS We hoped that this will help clarify matters. Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director