Nature and Character of the Philippine National Police Service Store System (PNPSSS)

DOJ OPINION NO. 010 , s. 2011 February 21, 2011 Atty. Raul M. Bacalzo, Ph.D. Police Director General Chief, Philippine National Police Camp Crame, Quezon City Dear Police Director General Bacalzo : This refers to your request for opinion on the nature and character of the Philippine National Police Service Store System (PNPSSS). cDAISC In particular, you seek legal opinion on the following issues, to wit: 1. Can Presidential Decree No. 875, as amended by Presidential Decree No. 998, be considered as the charter of the PNPSSS to classify it as a government-owned or controlled corporation (GOCC)? 2. Is the PNPSSS a mere unit/office under the PNP similar to the Armed Forces of the Philippines Commissary and Exchange Services (AFPCES) which had been declared by the Supreme Court as a mere entity of the AFP in the case of Hidalgo, et al. v. Republic of the Philippines (G.R. No. 179793, July 5, 2010)? 3. Depending on the true nature and character of the PNPSSS, should it be exempted from payment of taxes? You state that PNPSSS claims that it is a GOCC, heavily relying on P.D. No. 875, as amended by P.D. No. 998, as basis for its corporate existence. You also inform us that the National Police Commission (NAPOLCOM), along with other government agencies including the Securities and Exchange Commission (SEC), the Civil Service Commission (CSC), the Government Service and Insurance System (GSIS), the Social Security System (SSS) and the Office of the Government Corporate Counsel (OGCC), had already expressed opinion on the matter albeit conflicting. In this regard, let it be pointed out that the Secretary of Justice, time and again, has desisted from passing upon issues that have already been the subject of official action by other officials/offices over whose actuations she possesses no revisory authority. This rule arises not only from practical considerations but also out of due respect and deference for the competence and expertise of the offices, in this case, the NAPOLCOM, which has administrative control and operational supervision over the Philippine National Police (PNP) 1 and the OGCC, which is the principal law office of all GOCCs, 2 that have the primary jurisdiction to resolve the matter for their familiarity with the policy repercussions of the questions raised as well as from the logical recognition of the lawful exercise of authority conferred by law. 3 Moreover, being essentially advisory in nature, the opinion of the Secretary of Justice need not bind the NAPOLCOM and the OGCC, if that be their pleasure. As the government agency empowered to develop policies and promulgate rules and regulations for the efficient organization, administration, and operation of the PNP, the NAPOLCOM may, if it so decides, formally adopt a position on the issues raised and assume responsibility therefor. 4 The same goes true in the case of OGCC. Finally, the request, it appears, amounts to "opinion-shopping" since the same had already been referred to a number of offices, which have already expressed their respective views on the matter. Sound administrative practice, more than official courtesy, demands that the request for opinion of this Department should be founded upon more significant considerations. 5 Nonetheless, for your information and guidance only , we would like to invite your attention to the following: First. Section 2 of Presidential Decree No. 2029 (Defining Government-Owned or Controlled Corporations and Identifying their Role in National Development) , dated February 4, 1986, defines the term "government-owned and controlled corporation," as follows: CIaDTE "Section 2. Definition. A government-owned or controlled corporation is a stock corporation or a non-stock corporation , whether performing governmental or proprietary functions, which is directly chartered by a special law or if organized under the general corporation law is owned or controlled by the government directly or indirectly through a parent corporation or subsidiary corporation, to the extent of at least a majority of its outstanding capital stock, or of its outstanding voting capital stock; . . ." (Emphasis supplied.) On the other hand, Section 2 on Introductory Provisions of Executive Order No. 292, or the Administrative Code of 1987, provides: "Section 2. General Terms Defined. Unless the specific words of the text, or the context as a whole, or a particular statute, shall require a different meaning: xxx xxx xxx "(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation , vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) per cent of its capital stock: Provided, That government-owned or controlled corporations may be further categorized by the Department of the Budget, the Civil Service Commission, and the Commission on Audit for purposes of the exercise and discharge of their respective powers, functions and responsibilities with respect to such corporations." Administrative Order No. 59 (Rationalizing the Government Corporate Sector) , dated February 16, 1988, also provides substantially the same definition of GOCC, to wit: "Section 2. Definition of Terms. "(a) Government-owned and/or controlled corporation, hereinafter referred to as GOCC or government corporation, is a corporation which is created by special law or organized under the Corporation Code in which the Government, directly or indirectly, has ownership of the majority of the capital or has voting control . . ." Thus, in order for an entity to be considered as a GOCC, it must first be either a stock or a non-stock corporation. Section 3 of Batas Pambansa Blg. 68, or the Corporation Code of the Philippines defines a stock corporation, as follows: "Section 3. Classes of corporations. . . . Corporations which have capital stock divided into shares and are authorized to distribute to the holders of such shares dividends or allotments of the surplus profits on the basis of the shares held are stock corporations. All other corporations are non-stock corporations." SCADIT Meanwhile, Section 87 of the same Code defines a non-stock corporation in this wise: "Section 87. Definition. . . . a non-stock corporation is one where no part of its income is distributable as dividends to its members, trustees, or officers, subject to the provisions of this Code on dissolution: Provided, That any profit which a non-stock corporation may obtain as an incident to its operations shall, whenever necessary or proper, be used for the furtherance of the purpose or purposes for which the corporation was organized . . . ." In the case of Manila International Airport Authority (MIAA) v. Court of Appeals, et al. (G.R. No. 155650, July 20, 2006), where the true nature of MIAA was raised as an issue, the Supreme Court had the occasion to elaborate on the concept of GOCC, thus: " A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting shares. . . . xxx xxx xxx "MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a non-stock corporation as "one where no part of its income is distributable as dividends to its members, trustees or officers." A non-stock corporation must have members. Even if we assume that the Government is considered as the sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the National Treasury. This prevents MIAA from qualifying as a non-stock corporation." (Emphasis supplied.) The matter was further elucidated in the more recent case of Philippine Fisheries Development Authority v. Court of Appeals (G.R. No. 169836, July 31, 2007) where the Court held: ". . . for an entity to be considered as a GOCC, it must either be organized as a stock or non-stock corporation. Two requisites must concur before one may be classified as a stock corporation, namely: (1) that it has capital stock divided into shares, and (2) that it is authorized to distribute dividends and allotments of surplus and profits to its stockholders. If only one requisite is present, it cannot be properly classified as a stock corporation. As for non-stock corporations, they must have members and must not distribute any part of their income to said members. " (Emphasis supplied.) Prescinding from the foregoing, the PNPSSS cannot be considered as a GOCC if it is neither a stock corporation with capital stock divided into shares and is authorized to distribute dividends to its stockholders nor a non-stock corporation with members who are not entitled to receive any part of its income. Further, as can be gleaned from the definitions of the term "government-owned or controlled corporation" in the afore-cited laws, for an entity to be considered as a GOCC, it must be owned or controlled by the Government directly or indirectly. At this juncture, it is significant to quote the pertinent portions of this Department's Opinion No. 36, s. 1990, and reiterated in Opinion No. 080, s. 1997, which explains what constitutes a government-owned or controlled corporation, thus: HTCAED "This Department has had the occasion to rule that the criterion applied in determining whether a corporation is owned or controlled by the government is the extent of the government's ownership of stocks therein. Thus, a stock corporation is deemed owned by the government when all of its stocks are owned or controlled by the government and it is deemed controlled by the government when majority of its voting stocks are owned by the government" (Emphasis supplied; Secretary of Justice Op. No. 94, s. 1981; Opinion dated August 2, 1968; Op. No. 312, s. 1954; Opns. Nos. 206 and 208, s. 1953). Second. Under the afore-cited definitions of the term "government-owned and controlled corporation," particularly in P.D. No. 2029 and A.O. No. 59, s. 1988, it is made clear that a GOCC may be created either by a special law or under the Corporation Code. The PNPSSS claims the status of a GOCC, holding that P.D. No. 875, as amended, is its charter. In DOJ Opinion No. 043, s. 1993, this Department explained the so-called "charter test" to determine whether an entity is a government corporation, thus: "Moreover, under the called 'charter test', if a government entity (a) is created by special law, (b) acquires a juridical personality exclusively on the basis of that special law, and (c) is endowed under that special law with the corporate form of organization, then such entity may automatically be considered a government corporation" (Sec. of Justice Opn. No. 79, s. 1975). In the case of PNPSSS, while P.D. No. 875, as amended, can be considered a special law, in the context of the "charter test," as it has been issued by then President Ferdinand Marcos in the exercise of the legislative powers vested in him under the 1973 Constitution, it did not, however, bestow upon PNPSSS a juridical personality separate and distinct from the PNP, nor did it endow PNPSSS with corporate form of organization. There is nothing in P.D. No. 875, as amended, that shows that PNPSSS has been endowed with corporate features and powers. Third. Section 42, Chapter 9 of Book IV of the Administrative Code of 1987 provides: "Section 42. Government-Owned or Controlled Corporation. Government-owned or controlled corporations shall be attached to the appropriate department with which they have allied functions , as hereinafter provided, or as may be provided by executive order, for policy and program coordination and for general supervision provided in pertinent provisions of this Code. HSaCcE "In order to fully protect the interests of the government in government-owned or controlled corporations, at least one-third (1/3) of the members of the Boards of such corporations, should either be a Secretary, or Undersecretary, or Assistant Secretary. " (Emphasis supplied.) It may be observed that in the case of PNPSSS, there is no showing that it is directly attached to the Department of the Interior and Local Government (DILG) to which the Philippine National Police (PNP) is a part of 6 nor that at least one-third of the members of its Board is either the Secretary or any Undersecretary or Assistant Secretary of the DILG, in line with the policy of the government to fully protect its interest in a GOCC. Fourth. Republic Act No. 7656 or "An Act Requiring Government-Owned or Controlled Corporations to Declare Dividends Under Certain Conditions to the National Government, and for Other Purposes," which adopts substantially the same definition of GOCC as that found under the Administrative Code , provides in its Section 3: "Sec. 3. Dividends. All government-owned or -controlled corporations shall declare and remit at least fifty percent (50%) of their annual net earnings as cash, stock or property dividends to the National Government. This section shall also apply to those government-owned or -controlled corporations whose profit distribution is provided by their respective charters or by special law, but shall exclude those enumerated in Section 4 hereof: Provided, That such dividends accruing to the National Government shall be received by the National Treasury and recorded as income of the General Fund." Meanwhile, Section 4 of R.A. No. 7656, providing for exemptions from the requirement of declaration and remittance of dividends to the National Government states: "Sec. 4. Exemptions. The provisions of the preceding section notwithstanding, government-owned or -controlled corporations created or organized by law to administer real or personal properties or funds held in trust for the use and the benefit of its members, shall not be covered by this Act such as, but not limited to: the Government Service Insurance System, the Home Development Mutual Fund, the Employees Compensation Commission, the Overseas Workers Welfare Administration, and the Philippine Medical Care Commission." The "Dividends Law" explicitly requires all GOCCs to declare and remit at least fifty per cent (50%) of their annual net earnings as dividends to the National Government. If the PNPSSS is a GOCC as it claims to be, then it must comply with the aforesaid requirement, unless it be shown that it falls within the exemptions provision of the law. Fifth. Section 1 of Memorandum Circular No. 9, dated August 27, 1998, issued by the President states: "Section 1. All legal matters pertaining to government-owned or controlled corporations , their subsidiaries, other corporate off-springs and government acquired asset corporations (GOCCs) shall be exclusively referred to and handled by the Office of the Government Corporate Counsel (OGCC)." (Emphasis supplied) Thus, if PNPSSS is truly a GOCC, then all its legal matters should be exclusively referred to and handled by the OGCC. However, PNPSSS is not even included in the list of clients-government corporations of OGCC. More importantly, the OGCC has already opined that "the PNPSSS is under the PNP which is a line agency of the Department of the Interior and Local Government but not within the purview of the OGCC's mandate. " (Emphasis supplied.) TSEHcA Sixth. The Supreme Court held in the case of Hidalgo, et al. v. Republic of the Philippines (G.R. No. 179793, July 5, 2010) that the AFP Commissary and Exchange Services (AFPCES), organized pursuant to Letter of Instruction No. 31, dated October 23, 1972, issued by then President Ferdinand Marcos, is a mere unit/facility of the AFP. The Court held: ". . . The historical background of its creation and establishment indicates that AFPCES is an agency under the direct control and supervision of the AFP as it was established to take charge of the operations and management of all commissary facilities in military establishments all over the country. . . ." On the other hand, P.D. No. 875, dated January 15, 1976, as amended, which is claimed by PNPSSS as its charter, specifically provides in its "whereas clauses" that: "xxx xxx xxx "WHEREAS, pursuant to Presidential Decree No. 765 dated August 8, 1965, the city and municipal police forces, fire departments and jails became components of the Integrated National Police, with the Philippine Constabulary as nucleaus with the latter remaining as a Major Service of the Armed Forces of the Philippines; "WHEREAS, by virtue of the establishment of the Integrated National Police under the Department of National Defense, the aforesaid city and municipal police forces, fire departments and jails have become vital partners of the Armed Forces of the Philippines in the discharged of the aforementioned responsibilities; xxx xxx xxx" It is clear from the foregoing that at the time of the issuance of P.D. No. 875 establishing a commissary and post exchange (PX) system for the Integrated National Police (INP), whose members, along with the officers and enlisted personnel of the Philippine Constabulary (PC), later became part of the PNP by virtue of R.A. No. 6975, 7 the INP was still part of the Department of National Defense (DND) and was considered a partner of the AFP in discharging its functions. Hence, when P.D. No. 875 provided for the establishment of a commissary and PX system for INP, it can be safely presumed that it envisions a commissary and PX system of the same character and purpose as that provided for the AFP itself, that is, the AFPCES. This is further bolstered by the fact that in the first "whereas clause" of P.D. No. 875, it specifically made reference to AFPCES, thus: "WHEREAS, among the beneficiaries of the commissary and the post exchange (PX) privileges granted pursuant to Presidential decree No. 83 dated December 20, 1972 and Letter of Instruction No. 31 dated October 23, 1972, both as amended, are the members of the Armed Forces of the Philippines . . ." Hence, following the afore-mentioned ruling of the Supreme Court that AFPCES is a mere unit or facility of the AFP, the same can be said of PNPSSS, that it, it is also a mere unit or facility of the PNP. As regards your third query on whether the PNPSSS is exempted from payment of taxes, quoted hereunder are the pertinent provisions of Republic Act No. 7160 or the The Local Government Code of 1991 : "Section 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: ITECSH xxx xxx xxx "(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units. "Section 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax: "(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person; . . ." It is clear from the foregoing provisions that local government units (LGUs) cannot impose local taxes on the National Government, its agencies and instrumentalities. Real property taxes cannot likewise be imposed on real properties owned by the Republic of the Philippines or any of its political subdivisions. PNPSSS, being a mere unit or facility of, and having no personality separate and distinct from, the PNP, which in turn is a bureau 8 of the DILG, cannot be subject to local and real property taxes. PNPSSS is embraced in the term "agency" as defined in Section 2 (4) of the Introductory Provisions of the Administrative Code of 1987, thus: "Section 2. General Terms Defined. xxx xxx xxx "(4) Agency of the Government refers to any of the various units of the Government, including a department, bureau, office, instrumentality, or government-owned or controlled corporation, or a local government or a distinct unit therein ." (Emphasis supplied.) Please be guided accordingly. Very truly yours, (SGD.) LEILA M. DE LIMA Secretary Footnotes 1. Section 5 of Republic Act No. 8551, otherwise known as the Philippine National Police Reform and Reorganization Act of 1998 . 2. Section 10, Chapter 3, Title III, Book IV, Administrative Code of 1987. 3. Secretary of Justice Opinion Nos. 53, 49, 37 & 35, s. 2009; Nos. 69, 68, 66 & 47, s. 2008. 4. Secretary of Justice Opinion Nos. 43, 35 & 21, s. 2009; Nos. 49, 31, 30, 15 & 12, s. 2008; Nos. 59 & 55, s. 2007. 5. Secretary of Justice Opinion Nos. 49 & 19, s. 2008. 6. Section 6 of Republic Act No. 6975, as amended, provides: Section 6. Organization. The Department shall consist of the Department Proper, the existing bureaus and offices of the Department of the Local Government, the National Police Commission, the Philippine Public Safety College, and the following bureaus: the Philippine National Police, the Bureau of Fire Protection, and the Bureau of Jail Management and Penology. Section 2 (8) of the Administrative Code of 1987 defines "bureau" as "any principal subdivision or unit of any department." 7. Section 23 of R.A. No. 6975 provides: Section 23. Composition. Subject to the limitations provided for in this Act, the Philippine National Police, hereinafter referred to as the PNP, is hereby established, initially consisting of the members of the police forces who were integrated into the Integrated National Police (INP) pursuant to Presidential Decree No. 765, and the officers and enlisted personnel of the Philippine Constabulary (PC). . . . 8. Section 6 of R.A. No. 6975, dated December 13, 1990.