DOJ Opinion No. 024, s. 1981

DOJ OPINION NO. 024 , s. 1981 February 10, 1981 The Acting Chairman Commission on Audit Quezon City Sir : This has reference to your request for "a comment or ruling" on the effect of the decision of the Court of Tax Appeals in CTA Case No. 2600, "Koronadal Electric Light & Power Co., Inc. vs. Commissioner of Internal Revenue", upon this Ministry's Opinion No. 125, series 1980. cdlex The ruling in subject opinion is that the BFC Communications, Inc. (BFCCI), a grantee of a franchise to engage in telecommunications services, being already subject to a franchise tax, is not liable to pay the corporate income tax imposed in Section 24 of the National Internal Revenue Code (NIRC) in view of the "most-favored treatment" clause found in its franchise and of the fact that there are certain companies engaged in the same line of business as BFCCI which have not been exacted the said tax. On the other hand, the abovecited decision holds that the Koronadal Electric Light & Power Company is liable for the corporate income tax despite the provision in its franchise that its payment of the franchise tax shall be "in lieu of any and all taxes", in view of the provision of Section 24[d] (now Section 24[g]) of the Tax Code, infra , and of the fact that the said company is not specifically exempt under sections 24(c) (1) and 27 of the same Code. SEC. 24 "(g). The provisions of existing special or general laws to the contrary notwithstanding, all corporate taxpayers not specifically exempt under Sections twenty-four (c) (1) and twenty-seven of this Code shall pay the rates provided in this Section. All corporations, agencies, or instrumentalities owned or controlled by the Government, including the Government Service Insurance System and the Social Security System but excluding educational institutions, shall pay such rate of tax upon their taxable net income as are imposed by this Section upon associations or corporations engaged in a similar business or industry." (Emphasis supplied.) We do not see any conflict or inconsistency between the subject opinion and the cited CTA decision, since they may both be made to apply side by side and at the same time. What our subject opinion says is that when a franchise contains a "most-favored treatment" clause the holder thereof is entitled to any privilege or favor conferred upon any other holder of a franchise for the same line of business. As pointed out in said opinion, the idea of the aforesaid clause is "fair play", such that a rival firm will not gain an undue and unfair advantage over the other in the pursuit of their respective competing businesses. However, the subject matter of the cited Court of Tax Appeals decision is different, although related. It held that all corporations are, under sections 24(g) of the tax Code, subject to the corporate income tax imposed in Section 24 of the same Code, unless any of them falls under the exceptions mentioned in Section 24 [c] (1) and Section 27 of the same Code. Expressed differently, the pronouncement infers that all tax-immunity provisions in franchises of public utility companies should be deemed repealed or superseded upon the enactment of Section 24(g), supra, which, therefore must have the effect of withdrawing any and all tax exemptions heretofore enjoyed by public service corporations by virtue of the "in lieu of any and all taxes" provision contained in their respective franchises. Applying the CTA decision hand-in-hand with Opinion No. 125, supra , to the present case, a determination must first be made on whether telecommunications companies like the BFCCI fall under any of the exempted categories specified in Section 24[c] and Section 27 of the Tax Code, and upon a finding that they do not, such companies including BFCCI, should not, pursuant to Section 24 (g) of the same Code, enjoy any exemption from the corporate income tax. Thus, the principle of fair play, the motivating force behind the "most-favored treatment" clause, still holds true, since BFCCI would be engaging in its chosen line of business under the same terms and conditions in law as those of its competitors. Please be guided accordingly. Very truly yours, (SGD.) RICARDO C. PUNO Minister of Justice