Guidelines Governing the Power of Provinces, Cities and Municipalities to Impose Local Taxes, Fees and Charges on Mining Companies

August 20, 2009 DOF LOCAL FINANCE CIRCULAR NO. 02-09 SUBJECT : Prescribing the Guidelines Governing the Power of Provinces, Cities and Municipalities to Impose Local Taxes, Fees and Charges on Mining Companies Pursuant to the Pertinent Provisions of Republic Act No. 7160, Otherwise Known as the Local Government Code of 1991 and its Implementing Rules and Regulations (IRR) TO : All Regional Directors, Bureau of Local Government Finance, District Treasurers of Metropolitan Manila, Provincial, City, and Municipal Treasurers and Others Concerned Pursuant to the pertinent provisions of Republic Act No. 7160, otherwise known as the Local Government Code of 1991 (LGC), as implemented by its Implementing Rules and Regulations (IRR), provinces, cities and municipalities may impose taxes on mining companies. In response to queries/requests of LGUs and to clarify the rules on the taxability of mining companies, the following guidelines are hereby issued in accordance with Article 287 of the IRR, to ensure the proper and effective exercise by provinces, cities and municipalities of their taxing powers under the LGC, as implemented under Rule XXX of the IRR, consistent with the pertinent provisions of Republic Act No. 7942, otherwise known as The Philippine Mining Act of 1995 and other related laws and national policies. SECTION 1. Coverage. This Circular prescribes the guidelines governing the powers of provinces, cities and municipalities to impose taxes, fees and charges on mining companies pursuant to Sections 138, 143, 147, 150, 151, 205 (d) and 234 (e), of the LGC. SECTION 2. Definition of Terms. The following terms shall mean: a) Branch Office means a fixed place in a locality which conducts operations of the business as an extension of the principal office. However, offices used only as display areas of the products or customers service area where no stocks or items are stored for sale, although orders for the products may be received thereat, shall not be considered as branch as herein contemplated. b) Capital investment is the capital which a person employs in any undertaking, or which he contributes to the capital of a partnership, corporation, or any other juridical entity or association in a particular taxing jurisdiction. acCDSH c) Contract Area means land or body of water delineated for purposes of exploration, development, or utilization of the minerals found therein. d) Contractor means a qualified person acting alone or in consortium who is a party to a mineral agreement or to a financial or technical assistance agreement. e) Development means the work undertaken to explore and prepare an ore body or a mineral deposit for mining, including the construction of necessary infrastructure and related facilities. 1 f) Exploration means the searching or prospecting for mineral resources by geological, geochemical or geophysical surveys, remote sensing, test pitting, trenching, drilling, shaft sinking, tunneling or any other means for the purpose of determining the existence, extent, quantity and quality thereof and the feasibility of mining them for profit. 2 g) Gross Receipts include the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged or materials supplied with the services and deposits or advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person excluding discounts if determinable at the time of sales, sales return, excise tax, and value-added tax (VAT). h) Gross Output shall be interpreted as the actual market value of minerals or mineral products, or of bullion from each mine or mineral land operated as a separate entity, without any deduction from mining, milling, refining (including all expenses incurred to prepare the said minerals or mineral products in a marketable state), as well as transporting, handling, marketing, and any other expenses: Provided, That when the minerals or mineral products are sold or consigned abroad by the lessee or owner of the mine under C.I.F. terms, the actual cost of ocean freight and insurance shall be deducted. Provided, however, That in the case of mineral concentrate not traded in commodity exchanges in the Philippines or abroad, such as copper concentrate, the actual market value shall be the world price quotations of the refined mineral product contents thereof prevailing in the said commodity exchange, after deducting the smelting, refining and other charges incurred in the process or converting the mineral concentrates into refined metal traded in those commodity exchanges. i) Principal Office refers to the head or main office of the mining company indicated in pertinent documents submitted to the Securities and Exchange Commission (SEC) and to other appropriate agencies. The city or municipality specifically mentioned in the Articles of Incorporation and official registration papers as being the official address of said "Principal Office" shall be considered as the site thereof. j) Minerals shall mean all naturally occurring inorganic substances (found in nature) whether in solid, liquid, gaseous or any intermediate state. 3 k) Mineral Lands are lands in which minerals, metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials. l) Mineral Product shall mean things produced and prepared in a marketable state by simple treatment processes such as washing or drying, but without undergoing any chemical change or process or manufacturing by the lessee, concessionaire, or owner of mineral lands. 4 ICTDEa m) Mining Area shall mean a portion of the contract area identified by the contractor ( mining company ) for purposes of development, mining, utilization and sites for support facilities or in the immediate vicinity of the mining operations. n) Mining Companies refer to any qualified person/entity engaged in mining activities involving exploration, feasibility, development, utilization, and processing. o) Mining Operation means mining activities involving exploration, feasibility, development, utilization, and processing. p) Process means a series of actions, motions, or occurrences; progressive act or transaction; continuous operation; method, mode or operation, whereby a result or effect is produced; normal or actual course of procedures; regular proceeding, as, the process of vegetation or decomposition; a chemical process; processes of nature. ( Black's Law Dictionary, 5h ed., p. 1042 ). q) Processor as applied in this Circular shall mean a mode, method or operation whereby a result is produced; and means to prepare for market or to convert into marketable form. ( Black's Law Dictionary, 5h ed., p. 1042 ). A process which involves the processing or conversion, operation of an undertaking and process of raw material to come up with a marketable end product. EAHDac r) Pollution Control Devices and Facilities refer to infrastructure, machinery and/or improvements used for impounding, treating or neutralizing, precipitating, filtering, conveying and cleansing mine industrial waste and tailings, as well as eliminating or reducing hazardous effects of solid particles, chemicals, liquids or other harmful by products and gases emitted from any facility utilized in mining operation for their disposal. [Section 5 (bw), DENR Administrative Order No. 96-40 dated December 19, 1996] s) Project Office refers to the mining area or project site. t) Qualified Person means any citizen of the Philippines with capacity to contract, or a corporation, partnership, association, or cooperative organized or authorized for the purpose of engaging in mining, with technical and financial capability to undertake mineral resources development and duly registered in accordance with law at least sixty per centum (60%) of the capital of which is owned by citizens of the Philippines. Provided, That a legally organized foreign-owned corporation shall be deemed a qualified person for purposes of granting an corporation shall be deemed a qualified person for purposes of granting an exploration permit, financial or technical assistance agreement or mineral processing permit. 5 u) Utilization means the extraction or disposition of minerals. 6 SECTION 3. Business Tax on Mining Companies. The tax on mining companies shall be levied on their gross receipts for the preceding calendar year, as follows: a) Mining companies which exclusively operate for the extraction of minerals, metallic or non-metallic, the tax rate shall not exceed two percent (2%) of their gross receipts pursuant to Section 143 (h) of the LGC imposed under the ordinance of the local government unit (LGU) concerned. b) Mining companies whose operations include the processing of extracted minerals to finished products shall be taxed on their gross receipts pursuant to Section 143 (a) of the LGC imposed under the ordinance of the LGUs concerned. SECTION 4. Situs of the Tax. For purposes of collection of the tax, the following shall apply: (a) All sales/transactions made in a locality where there is a branch office shall be recorded therein and the gross receipts derived from said transaction shall be taxable by the city or municipality where such branch office is located. In cases where there is no branch in the city or municipality where the sale or transaction is made, the sale/transaction shall be duly recorded in the principal office and the taxes due shall accrue and shall be paid to such city or municipality. (b) The following sales allocation shall apply to mining companies with project offices/mining areas: (1) Thirty percent (30%) of all sales/transactions 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/transactions recorded in the principal office shall be taxable by the city or municipality where the project office/mining area is located. cIACaT (c) In the case of project offices/mining areas that are geographically located in two (2) or more localities, the allocation of the business tax imposed by LGUs concerned shall be decided by the "Committee" which will be composed of affected LGUs where there are mining operations subject to Section 150, LGC. (d) In case there is a transfer or relocation of the principal office or of any branch office to another city or municipality, the mining company shall give due notice of such transfer or relocation to the local chief executive of the city or municipality concerned within fifteen (15) days after such transfer or relocation is effected. SECTION 5. Termination or Transfer of Office. a) Transfer of Business to Other Location. Any business for which a municipal business tax has been paid by the person conducting it may be transferred and continued in any other place within the territorial limits of such municipality without payment of additional tax during the period for which the payment of the tax was made. b Termination of Business Operation. In case of total stoppage or complete cessation of mining operations, Section 145 of the LGC shall apply. SECTION 6. Liability to Real Property Tax. Any person, grantee, concessionaire who shall undertake and execute mining operations (exploration, development and commercial utilization) of certain mineral deposits existing within the mining area shall be subject/liable to real property tax. EHSTDA In this regard, Real property owned by the Republic of the Philippines, its instrumentalities and political subdivisions, the beneficial use of which has been granted, for consideration or otherwise, to a taxable person, shall be listed, valued and assessed in the name of the possessor, grantee or of the public entity if such property has been acquired or held for resale or lease. 7 Further, the provision of Section 205 (d) of the LGC shall govern the listing, valuation and assessment of real property owned by the Republic of the Philippines, its instrumentalities and political subdivisions granted to a beneficial user, in the name of the possessor, grantee or of the public entity if the property has been acquired or held for resale or lease. SECTION 7. Payment of Mayor's Permit and Other Regulatory Fees. Mayor's permit fee and other regulatory fees shall be collected before the start of the mining operation of a mining company pursuant to Sections 147 and 151 of the LGC and as implemented under a duly-enacted revenue code of the LGU concerned. SECTION 8. Incentives for Pollution Control Devices. Section 91 in relation to Section 91 of R.A. No. 7942 amending Section 234 (e) of the LGC, provide that pollution control devices acquired, constructed or installed by contractors shall not be considered as improvements on the land or building where they are placed, and shall not be subjected to real property and other taxes or assessments; Provided, however, That mine wastes or tailings shall not exempted from regulatory fees imposed under the duly-enacted revenue ordinance of the LGU concerned. SECTION 9. Mobile Equipment Such as Dump Trucks, Excavators, Bulldozers, Payloaders, etc. Used in Mining Operations. Dump trucks, excavators, bulldozers, payloaders, or similar equipments used in mining operations are considered personal properties and, therefore, not subject to payment of the real property tax. (Taganito Mining Corp. and Hinatuan Mining Corp. vs. Provincial Assessors of Surigao del Norte, and LBAA of Surigao del Norte, CBAA Case No. M-14, which embodies the proceedings found on page 414 to 416 of the Journal of Record of the House of Representatives Proceedings and Debates. 4th Regular Session 1990-1991, vol. Two, Sept. 4-Nov. 6, 1990) SECTION 10. Quarrying for Sand, Gravel and Other Quarry Resources. Quarrying for sand, gravel and other quarry resources will not be considered a mining activity for the purpose of this Circular and the tax to such quarrying activity shall be subject to Sections 138 and 151 of the LGC. SECTION 11. Non-Separability of Mining Activities. Activities which are inherent, related, necessary or incidental to mining activities shall be treated as one business activity subject to the same tax hereon, which shall be computed on the basis of the combined gross receipts of all said mining activities as defined above. In view thereof, the provisions of Articles 242 of the IRR requiring a person or entity to get a separate mayor's permit for each business activity shall not apply to the activities which are related, necessary or incidental to the principal business/mining operation. SECTION 12. Time of Payment. The tax on mining companies due and accruing to the LGUs shall be payable within the first twenty (20) days of January or of each subsequent quarter, as the case may be, unless otherwise fixed in the corresponding local tax ordinance. SECTION 13. Examination of Books of Accounts and Pertinent Records of Businessmen by Local Treasurer. (a) The city or municipal treasurer may, by himself or through any of his deputies duly authorized in writing, examine the books, accounts, and other pertinent records of any mining companies subject to local taxes, fees and charges in order to ascertain, assess, and collect the correct amount of the tax, fees, or charge. Such examination shall be made during regular business hours, only once for every tax period, and shall be certified to by the examining official. Such certificate shall be made of record in the books of accounts of the taxpayer examined. (a) In case the examination herein authorized is made by a duly authorized deputy of the local treasurer, the written authority of the deputy concerned shall specifically state the name, address, and business of the taxpayer whose books, accounts, and pertinent records are to be examined, the date and place of such examination, and the procedure to be followed in conducting the same. 8 (b) For this purpose, the records of the revenue district office of the Bureau of Internal Revenue shall be made available to the local treasurer, his deputy or duly authorized representative. 9 SECTION 14. Separability Clause. If for any reason, any provision, section or part of this Circular is suspended, revoked or declared not valid by the Court of competent jurisdiction, such suspension, revocation or judgment shall not affect or impair the remaining provisions, sections, or parts thereof which shall remain or continue to be in full force and effect. SECTION 15. Repealing Clause. All rules, regulations, orders, and/or circulars which are contrary to, or inconsistent with, the provisions of this Circular are hereby repealed or modified accordingly. SECTION 16. Effectivity. This Circular shall take effect immediately. The Regional Directors of the Bureau of Local Government Finance and District Treasurers of Metropolitan Manila Area are hereby instructed to disseminate the contents of this Circular to all Provincial, City and Municipal Treasurers within their respective jurisdiction for their information and guidance. cHAIES (SGD.) MARGARITO B. TEVES Secretary Footnotes 1. Sec. 3 [j], ibid. 2. Sec. 3 (q) R.A. 7942. 3. Sec. 151 (B) (2), NIRC as amended. 4. Sec. 151 (B) ibid. 5. Sec. 3 (aq) R.A. 7942. 6. Sec. 3 [az], ibid. 7. Sec. 205 [d], LGC. 8. Section 171, R.A. 7160. 9. E.O. No. 646 dated 8/3/07.