Whether Globe Telecom, Inc. Is Liable to Pay Real Property Taxes

DOJ OPINION NO. 024 , s. 2007 May 18, 2007 Mr. Austere A. Panadero OIC-Undersecretary Department of the Interior and Local Government Francisco Gold Condominium Diliman, Quezon City Sir : This pertains to your Indorsement dated May 7, 2007 whereby you referred for our consideration the request of Globe Telecom, Inc. (" Globe ") for clarification as to whether or not Globe is liable to pay real property taxes. The request it appears stemmed from the allegations made by Globe that all its properties and machineries used in connection in pursuit of its legislative franchise are exempt from the local real property tax in the light of the Decision rendered by the Supreme Court last March 6, 2006 in G.R. No. 162015 entitled " The City Government of Quezon City, et al. vs. Bayan Telecommunications, Inc .". It also appear in said Decision, the Court ruled in favor of Bayan Telecommunications, Inc. ( "Bayantel" for brevity) on the basis of the provision of Section 11 of Republic Act No. 7633, the law amending R.A. No. 3259 (Bayantel's franchise), which states as follows: "Section 11. The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate, buildings and personal property exclusive of this franchise , as other persons or corporations are now or hereafter may be required by law to pay. . . ." (emphasis ours) In the aforesaid case, the City Government of Quezon City enacted City Ordinance No. SP-91, S-93, whereby it imposed a real property tax on all real properties in Quezon City on the basis of Section 234 of the Local Government Code (LGC) which withdrew any exemption from realty tax granted to or enjoyed by all persons, whether natural or juridical. The Court viewed this latter enactment of R.A. 7633 by Congress, as an " express and real intention on (its) part to once again remove from the LGC's delegated taxing power all of the franchisee's (Bayantel's) properties that are actually, directly and exclusively used in the pursuit of its franchise ." (emphasis supplied). SHADcT The same argument is now being raised by Globe applying the "parity clause" or the "ipso facto clause" . Globe maintains that the favorable decision being enjoyed by Bayantel should likewise effect in favor of the former. We find Globe's contention to be meritorious. The relevant dispositive portion of said Bayantel Decision reads as follows: "xxx xxx xxx As we see it, then, the issue in this case no longer dwells on whether Congress has the power to exempt Bayantel's properties from realty taxes by its enactment of R.A. No. 7633 which amended Bayantel's original franchise. The more decisive question turns on whether Congress actually did exempt Bayantel's properties at all by virtue of Section 11 of R.A. No. 7633. Admittedly, R.A. No. 7633 was enacted subsequent to the LGC (Local Government Code). Perfectly aware that the LGC has already withdrawn Bayantel's former exemption from realty taxes, Congress opted to pass R.A. 7633 using, under Section 11 thereof, exactly the same defining phrase " exclusive of the franchise " which was the basis for Bayantel's exemption from realty taxes prior to the LGC. In plain language, Section 11 of R.A. 7633 states that "the grantee, its successors or assigns shall be liable to pay the same taxes on their real estate, buildings and personal property, exclusive of this franchise, as other persons or corporations are now or hereafter may be required by law to pay." The Court views this subsequent piece of legislation as an express and real intention on the part of Congress to once again remove from the LGC's delegated taxing power, all the franchisee's properties that are actually, directly and exclusively used in the pursuit of its franchise." HEDSIc The Decision above-quoted is based on Section 11 of R.A. No. 7633, which was approved into law on July 20, 1992 or after effectivity of the LGC on January 1, 1992 which read as follows: "Section 11. The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate, buildings and personal property exclusive of this franchise, as other persons or corporations are now or hereafter may be required by law to pay." The Supreme Court in Bayantel elucidated that the phrase " exclusive of this franchise " following the words, " the grantee, its successors or assigns shall be liable to pay the same taxes on their real estate, buildings and personal properties ", means that all said properties "exclusive of" or outside or unconnected with Bayantel's franchise operations are subject to real property tax and, conversely, all real and personal properties of Bayantel used in the operation of its franchise are exempt from the local real property tax. The rationale is because Section 20 of R.A. No. 402, as amended by R.A. No. 4540 is clear and explicit, to wit: applying the principle of "parity clause" or " the most favored treatment clause" , the Bayantel Decision thus, applies with equal force and effect in favor of Globe. Said Section 20 reads as follows: "Section 20. This franchise shall not be interpreted to mean as exclusive grant of the privileges herein provided for, however, in the event of any competing individual, partnership, or corporation, receiving from the Congress of the Philippines a similar permit or franchise more favorable than those herein granted or tending to place the herein grantee at any disadvantage, then such term or terms, shall, ipso facto become part of the terms, hereof, and shall operate equally in favor of the grantee as in the case of said competing individual, partnership or corporation." Moreover, the provision in Bayantel's franchise which exempts that company from real property taxation (because of the " exclusive of this franchise " provision embodied in Section 11 of R.A. No. 7633 enacted after the effective date of the LGC) is similarly found in Section 9 of R.A. No. 402 as amended by R.A. No. 4540 (Globe's franchise) which reads as follows: "Section 9. (a) The grantee shall be liable to pay the same taxes on its real estate, buildings, and personal property, exclusive of this franchise, as other persons or corporations are now or hereafter may be required by law to pay, except radio equipment, machinery and spare parts needed in connection with the business of the grantee, which shall be exempt from customs duties, tariffs and other taxes, as well as those declared exempt in this section. (b) The grantee shall further pay to the Treasurer of the Philippines each year after the audit and approval on the accounts as prescribed in this Act, one and half percentum of all gross receipts from business transacted under this franchise by the said grantee in the Philippines, in lieu of any and all taxes of any kind, mature or description levied, established or collected by any authority whatsoever, municipal, provincial or national, from which the grantee is hereby expressly exempted, . . . ." It may also be significant to note that under the above-quoted Section 9 (b) of Globe's franchise, which is an independent exempting provision separate from Section 9 (a), Globe is exempt from the payment of any and all taxes of any kind, nature or description levied, established or collected by any authority whatsoever, municipal, provincial or national, from which the grantee (Globe) is expressly exempted, thereby leaving no doubt that by express provision of law or Globe's franchises, all its real properties, machineries and equipment used in connection with its franchise are exempt from all kinds of taxes, including the local real property tax. ETDAaC More importantly, R.A. No. 402, as amended by RA. No. 4540 was/were reenacted into law by R.A. No. 7229, as approved by the President of the Philippines on March 19, 1992 or after the effective date of the LGC on January 1, 1992 (see Sections 2 and 10 of R.A. No. 7229). Because Globe's franchise (R.A. No. 402, as amended) was reenacted into law after March 19, 1992, or after the effective date of the LGC, then the LGC can neither amend nor repeal Globe's reenacted franchise, particularly its realty tax exemption provisions. Finally, this Department has previously opined (Secretary of Justice Opinion No. 125, s. 1980), citing the case of Davao Light & Power Co., vs. the Commissioner of Customs (44 SCRA 122), that the " most favored treatment " or " ipso facto " clause directs that any favorable term/s granted to, or enjoyed by, entities engaged in the same line of business as the holder of a franchise with an ipso facto clause shall automatically be deemed incorporated in the franchise with the ipso facto clause, including tax exemptions. This has recently been reiterated in Secretary of Justice Opinion No. 55, s. 2005 wherein we opined that Cebu Pacific was exempt from registration fees under PD 1529 by reason of the most favored treatment clause found in Section 11 of R.A. No. 7151 or the Cebu Air, Inc. franchise. We held that: "Based on the foregoing premises, this Department confirms that the "most favored treatment" clause found in Section 11 of R.A. No. 7151 expressly provides that tax privileges or favorable term/s received or enjoyed by any competing individual, partnership or corporation in this case, PAL, shall, automatically be deemed incorporated in the franchise of Cebu Pacific. The basic idea of the aforesaid clause is "fair play", such that a rival firm will not gain an undue or unfair advantage over the other in the pursuit of their respective competing business. In other words, the purpose of the said clause is to place the holder thereof on an equal footing with its rival enterprise by not giving such competitors undue advantage." ASDTEa Very truly yours, (SGD.) RAUL M. GONZALEZ Secretary