DOJ Opinion No. 044, s. 1997

DOJ OPINION NO. 044 , s. 1997 June 17, 1997 Chairman Perfecto R. Yasay, Jr. Securities and Exchange Commission SEC Bldg., EDSA, Greenhills Mandaluyong City Sir : This refers to your ''request for an opinion as to whether the Philippine Airlines (PAL) is exempted from the payment of filing fees relative to its application for an increase of its authorized capital stock from P5 Billion to P10 Billion". aisadc You state that PAL is claiming the exemption on the basis of P.D. No. 1590, "An Act Granting a New Franchise to Philippine Airlines, Inc. to Establish, Operate, and Maintain Air Transport Services in the Philippines and Between the Philippines and Other Countries" [June 11, 1978]. The pertinent provision of said Decree reads: "Sec. 13. In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine Government during the life of this franchise, whichever of the subsections (a) and (b) hereunder will result in a lower tax: (a) The basic corporate income tax based on the grantee's annual net taxable income computed in accordance with the provisions of the National Internal Revenue Code or; (b) A franchise tax of two percent (2%) of the gross revenues derived by the grantee from all sources, without distinction as to transport or non-transport operations; provided, that with respect to international air-transport service, only the gross passenger, mail, and freight revenues from its outgoing flights shall be subject to this tax. The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties, royalties, registration, license and other fees and charges of any kind, nature or description imposed, levied, established, assessed or collected by any municipal, city, provincial, or national authority or government agency, now or in the future, including, but not limited to the following: (1) All taxes, duties, charges, royalties, or fees due on local purchases by the grantee of aviation gas, fuel, and oil, whether refined or in crude form, and whether such taxes, duties, charges, royalties, or fees are directly due from or imposable upon the purchaser or the seller, producer, manufacturer, or importer of said petroleum products but are billed or passed on to the grantee whether as part of the price or cost thereof or by mutual agreement or other arrangement; provided, that all such purchases by, sales or deliveries of aviation gas, fuel, and oil to the grantee shall be for exclusive use in its transport and nontransport operations and other activities incidental hereto: (2) All taxes, including compensation taxes, duties, charges, royalties, or fees due on all importations by the grantee of aircraft, engines, equipment, machinery, spare parts, accessories, commissary and catering supplies, aviation gas, fuel, and oil, whether refined or in crude form and other articles, supplies, or materials; provided, that such articles or supplies or materials are imported for the use of the grantee in its transport and nontransport operations and other activities incidental thereto and are not locally available in reasonable quantity, quality, or price; (3) All taxes on lease rentals, interest, fees, and other charges payable to lessors, whether foreign or domestic, of aircraft, engines, equipment, machinery, spare parts, and other property rented, leased, or chartered by the grantee where the payment of such taxes is assumed by the grantee; (4) All taxes on interest, fees, and other charges on foreign loans obtained and other obligations incurred by the grantee where the payment of such taxes is assumed by the grantee; (5) All taxes, fees, and other charges on the registration, licensing, acquisition, and transfer of aircraft, equipment, motor vehicles, and all other personal and real property of the grantee; (6) The corporate development tax under Presidential Decree No. 1158-A. The grantee, shall, however, pay the tax on its real property in conformity with existing law. . ." (Emphasis supplied) In the past, we have had several occasions to construe the above quoted provision of the PAL franchise. Pertinently, we have ruled as follows: "In several opinions, this Office has ruled that when the law used language as broad and all-embracing as that employed in the second paragraph of the above quoted section, the manifest legislative intent is to exempt the grantee from all kinds of burdens imposed by the government. (see Ops., Secretary of Justice, dated August 31, 1955; No. 16, s. 1978 & No. 171, s. 1979). Thus, regardless of whether the imposition in question may be categorized as fee or a tax, PAL is exempted therefrom on account of the comprehensive nature of its statutory immunity from taxes and fees, expressed in the above-quoted provision of its franchise." (Opn. No 71, s. 1981) Even earlier, Opinion No. 126, series of 1973. citing an opinion dated January 30, 1964, clarified that the exemption of PAL was not really a tax exemption because PAL was obligated to pay a franchise tax in lieu of taxes. The coverage of the said exemption, referred to as "tax commutation" in the said opinions, now extends to "duties, royalties, registration, license and other fees and charges of any kind, nature or description imposed, levied, established, assessed by any municipal, city, provincial or national authority or government agency, now or in the future". This broad enumeration covers the filing fee imposed by SEC on PAL's application for an increase of its authorized capital stock. cdt In view of the foregoing, your query is answered in the affirmative. Very truly yours, (SGD.) TEOFISTO T. GUINGONA, JR. Secretary