DILG Legal Opinion No. 178-02

November 15, 2002 DILG LEGAL OPINION NO. 178-02 Mayor Tomas R. Osmea City Hall, Cebu City Dear Mayor Osmea : This pertains to your letter requesting our legal opinion on the legality of a Compromise Agreement between the City of Cebu and Globe Telecom, Inc.,concerning the latter's tax liabilities. As stated, for nearly a decade now, local government units, on one hand, and business and/or corporations enjoying a franchise from government, on the other, have been locked in a seemingly endless debate and legal battle to try and resolve whether or not local government units do have the authority to impose a tax on business enjoying a franchise and whether these businesses are liable to pay real property taxes levied and imposed by provinces and cities. Recently, Globe Telecom, Inc. and other telecommunications companies expressed their willingness to enter into a compromise with the city government for the above-subject tax liabilities. Relative thereto, you raise the following queries, to wit: 1. Is it legally feasible for the City of Cebu and Globe Telecom, Inc.,to enter into a Compromise Agreement involving the latter's business tax and real property tax?;and 2. If in the affirmative, can the tax liability of the Globe Telecom, Inc.,in terms of amount, be stipulated in the Compromise Agreement? In reply to your first and second queries, please be informed that we find no legal impediment for the City of Cebu to enter into a Compromise Agreement with Globe Telecom, Inc., regarding the latter's abovesaid tax liabilities. Firstly, Section 151 of the Local Government Code provides that "except as otherwise provided in this Code, the city may levy the taxes, fees and charges which the province or municipality may impose" . Corollary thereto, Section 137 of the same Code provides that the provincial government may impose a franchise tax on businesses enjoying a franchise. Also, pursuant to Section 200 of the Local Government Code, cities are mandated to efficiently and effectively administer the real property taxes imposed under the Local Government Code. Clearly, therefore, the above-subject tax liabilities are within the power of the city to impose. Secondly, compromises are allowed and enforceable when the subject matter thereof is not prohibited from being compromised and the person entering into it is duly authorized to do so. Tax liability and the amount thereof, as can be gleaned from Articles 2034 and 2035 of the New Civil Code of the Philippines, are not among those subject matters enumerated therein which are prohibited to be subject of any compromise agreement. For the purpose, and since a compromise agreement partakes of the nature of a contract, the local chief executive who is tasked to represent the local government unit in all its business transactions, must be duly authorized by the Sangguniang Panlungsod pursuant to Sections 22 [c] and 455 [b] [1] [vi] of the Local Government Code. We hope to have enlightened you on the matter. Very truly yours, (SGD.) JOSE D. LINA, JR. Secretary Department of Interior and Local Government