Exemption of Amec Services Ltd. from Payment of Local Business Tax

February 1, 2008 DILG LEGAL OPINION NO. 004-08 Atty. Perfecto E. Mirador, Jr. Bernaldo, Mirador and Directo Law Offices Unit 1807 Cityland Condominium 10- Tower 1 6815 Ayala Avenue corner HV dela Costa St. Makati City Dear Atty. Mirador : This refers to your request for our legal opinion on whether or not your client Amec Services Ltd., a subcontractor of Shell Philippines Exploration B.V. (SPEX), a petroleum service contractor of the Government of the Philippines under Presidential Decree No. 87, as amended, is exempt from the payment of local business tax. In seeking our opinion, you presented to us your arguments as well as the relevant opinions rendered by other agencies on the matter. After going over the same and based on our own independent research, please be informed that we join your understanding and those of the other agencies that, indeed, your client is exempt from payment of local business tax. We are of the view that Section 1 of Presidential Decree 1354 squarely applies, it being unequivocal and self-explanatory. There being no provision in the Local Government Code of 1991 (RA 7160) expressly repealing Section 1 of PD 1354 which grant tax exemption on subcontractors like your client SPEX, we therefore concur with your view and that of the opinion rendered by the Bureau of Local Government Finance-Department of Finance (BLGF-DOF), that the Local Government Code of 1991 did not withdraw the tax exemption previously given to SPEX. Well-settled is the rule in statutory construction that repeal by implication is not favored and before such repeal will be decreed, the intention to repeal must be clear and manifest. We hope that we have addressed your concern accordingly. aSTcCE Very truly yours, (SGD.) AUSTERE A. PANADERO Undersecretary ATTACHMENT BERNALDO MIRADOR & DIRECTO LAW OFFICES 12 February 2007 Honorable RONALDO V. PUNO Secretary Department of Interior and Local Government A. Francisco Gold Condominium EDSA corner Mapagmahal Street Piahan, Diliman Quezon City Attention: Atty. Genaro Jose Emetrio S. Moreno, Jr. Director Legal Service Division Re: Request for Confirmation of our Opinion Dear Sirs: In behalf of our client, Amee Services Ltd. Philippine Branch (the "Company" ),we would like to request for confirmation of our opinion that our client, being a subcontractor engaged in petroleum operations, is exempt from the payment of local business tax. BACKGROUND Our client, Amee Services Ltd. Philippine Branch (the "Company" ), is a foreign corporation duly licensed to do business in the Philippines and it is a subcontractor of Shell Philippines Exploration B.V. (SPEX), a petroleum service contractor of the Government of the Philippines under Presidential Decree (P.D.) No. 87, as amended, otherwise known as the Oil Exploration and Development Act of 1972. The Company derives its income solely from its subcontract agreement with SPEX and it has no income from all other sources within the Philippines. As a subcontractor of SPEX, our client is being taxed and pays EIGHT (8) PERCENT FINAL TAX based on its gross income, which pursuant to the provisions of P.D. No. 1354, is in lieu of all taxes, both national and local. ISSUE Whether or not the final tax of 8% under P.D. No. 1354 covers exemption of our client from the payment of business taxes which local government unit imposes? DISCUSSIONS It is our opinion that our client is exempted from the payment of local business taxes, in lieu of the 8% final tax. Our opinion is based on the provisions of P.D. Nos. 87 and 1354. CcAITa It is worth mentioning that the intendment of the passage of P.D. No. 87, also known as "The Oil Exploration and Development Act of 1972", was to promote the discovery and production of indigenous petroleum as well to provide meaningful incentives to prospective service contractors. This is the forerunner of P.D. No. 1354, the law invoked by our client, in claiming its exemption from the payment of local business taxes. Under Section 1 of PD No. 1354, it provides and we quote: "SEC. 1. Tax on Subcontractors. Every subcontractor, whether domestic or foreign, entering into a contract with a service contractor engaged in petroleum operations in the Philippines shall be liable to a final income tax equivalent to eight percent (8%) of its gross income derived from such contract, such tax to be in lieu of any and all taxes, whether national or local: Provided, however, that any income received from all other sources within and without the Philippines in the case of domestic subcontractors and within the Philippines in the case of foreign subcontractors shall be subject to the regular income tax imposed under the National Internal Revenue Code. The term "gross income" means all income earned or received as a result of the contract entered into by the subcontractor with a service contractor engaged in petroleum operations in the Philippines under Presidential DecreeNo. 87." (emphasis ours) Furthermore, in support of our opinion, please find hereunder our other justifications, to wit: BUREAU OF LOCAL GOVERNMENT FINANCE OPINION DATED 10 AUGUST 2001 Under the above-mentioned legal opinion issued by the Bureau of Local Government Finance (BLGF), it confirmed the exemption of SPEX and its co-venturers from local business tax, real property tax and other local taxes imposed under the Local Government Code of 1991, which we quote hereunder: ". . . We find the claim of SPEX meritorious. Section 10 of the 1987 Constitution provides as follows: Section 10. No law impairing the Obligation of Contracts shall be passed. Admittedly and although the Local Government Code of 1991, specifically paragraph (e) of Section 534 thereof expressly repealed Section 12 of PD No. 87, as amended, such repeal could not rescind the tax exemption privilege already stipulated in the service contract in favor of SPEX and its co-venturers, which contract was executed prior to RA 7160. Relatedly, although Sections 193, 234 and 534 of the LGC made a sweeping withdrawals of business and realty tax exemption privileges, the Code nevertheless recognizes also the Constitutional mandate on the non-impairment of contracts. Section 5 (d) of the Code provides: TCIEcH Section 5. Rules and Interpretation. In the interpretation of the provisions of this Code, the following rules shall apply: (d) ... (d) Rights and obligations existing on the date of effectivity of this Code and arising out of contracts or any other source of prestation involving a local government unit shall be governed by the original terms and conditions of said contracts or the law in force at the time such rights were vested; and xxx xxx xxx (Emphasis Ours)" THE LOCAL GOVERNMENT CODE DID NOT WITHDRAW THE TAX EXEMPTION PRIVILEGES GIVEN BY P.D. NO. 1354 TO SUBCONTRACTORS OF PETROLEUM SERVICE CONTRACTORS It is a well-settled rule in statutory construction that repeals of statutes by implication are not favored (Sta. Ignacia Rural Bank, Inc. vs. Court of Appeals, 230 SCRA 513). Before repeal by implication will be decreed, there must be a sufficient revelation of the legilative intent to repeal; the intention to repeal must be clear and manifest; otherwise, at least as a general rule, the latter act is to be construed as a continuation of, and not a substitute for, the first act and will continue to speak; so far as the two acts are the same, from the time of the first enactment (Lichauco & Co. vs. Apostol, 44 Phil. 138). Hence, in case of doubt as to whether a later statute has impliedly repealed a prior law on the same subject, the doubt should be resolved against the implied repeal (Bacobo vs. Estanislao, 72 SCRA 520). Applying the above jurisprudence to the instant case, there is nothing in the Local Government Code which would indicate that it has repealed the pertinent provisions of P.D. No. 1354. Therefore, it can be concluded that P.D. No. 1354 should prevail over the Local Government Code. Furthermore, it is well established that a general law does not operate to repeal a prior special law, unless it clearly appears that the legislature has intended by the later general act to modify or repeal the earlier special law. The reason for which has been enunciated by the court in De Villa vs. Court of Appeals (195 SCRA 722), to wit: "The reason why a special law prevails over a general law is that the legislature considers and makes provision for all the circumstances of the particular case. The legislature having considered all of the facts and circumstances in the particular case in granting a special charter, it will not be considered that the legislature, by adopting a general charter, and without making any mention of its intention to amend or modify the charter, intended to amend, repeal or modify the special act." DcCIAa Hence, a special law cannot be amended, repealed or altered by a subsequent general law by mere implication. On the other hand, granting out not conceding that P.D. No. 1354 has indeed been repealed by the Local Government Code, such repeal should not destroy or impair rights that accrued and became vested under the statute before its repeal. If any construction is possible, the statute should not be construed so as to affect the rights, which have vested under the old law then in force. Moreover, where a contract is entered into by the parties on the basis of the law then in force the repeal or amendment of the said law will not affect the terms of the contract, nor impair the right of the parties thereunder (Aisporna vs. Court of Appeals, 108 SCRA 481). The rule applies even if one of the contracting parties is the government (Insular Government vs. Frank, 13 Phil. 236). Further to the BLGF ruling, Section 1 of Revenue Regulation No. 6-2001 issued by the Bureau of Internal Revenue (BIR) provides for the implementation of the tax provisions of P.D. No. 1534. Likewise, in BIR Ruling No. 024-2000 issued to SPEX, the BIR made use of P.D. No. 1354 as its legal basis for rendering the aforementioned opinion. These acts of the taxing authority indicate that it recognizes the validity and effectivity of P.D. No. 1354 to this date. aICcHA For your easy reference, we attached herewith the following documents: 1. Legal opinion issued by the Bureau of Local Government Finance dated 10 August 2001; 2. BIR Revenue Regulation No. 6-2001; and 3. BIR Ruling No. 024-2000. PRAYER In view of the foregoing, we pray for the confirmation of our opinion that our client is exempt from the payment of local business taxes in lieu of the 8% FINAL TAX it is paying to the national government pursuant to P.D. No. 1354. Other reliefs are likewise prayed for. Very truly yours, (SGD.) PERFECTO E. MIRADOR, JR. Partner BERNALDO MIRADOR & DIRECTO LAW OFFICES SPECIAL POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS : I, Atty. Perfecto E. Mirador, Jr. of legal age, being the authorized representative of AMEC Services Ltd. Philippine Branch, hereby name, constitute and appoint Atty. Ali Bang-ar M. Crisostomo of Bernaldo Mirador & Directo Law Offices, with office address at Unit 1807 Cityland Condominium 10 Tower I, 6815 H.V. dela Costa Street cor. Ayala Avenue, Makati City, Metro Manila, to pick up the "Letter of Confirmation" from the Department of Interior and Local Government regarding our request for confirmation of our opinion that a subcontractor engaged in petroleum operations is exempt from the payment of local business tax. IN WITNESS WHEREOF, I have hereunto affixed my signature this 13th day of February 2008 in Makati City.