DOJ Opinion No. 125, s. 1980

DOJ OPINION NO. 125 , s. 1980 September 9, 1980 The Acting Chairman Commission on Audit Quezon City Sir : This refers to your query on whether or not the BFC Communications, Incorporated (BFCCI) a grantee of a franchise to engage in telecommunications services (R.A. No. 5954) which is already subject to the franchise tax imposed thereunder, may still be liable for the corporate income tax under the National Internal Revenue Code. prLL We resolve the query in the negative, subject to the extended discussion herein below set forth. Your view, it appears, is that BFCCI is liable for both the franchise tax and the corporate income tax in view of the following provisions of law: Section 14(b), R.A. No. 5954 "The grantee (the BFCCI) shall further pay to the Treasurer of the Philippines each year, within ten days after the audit and approval of the accounts as prescribed in this Act one and one-half per centum of all gross receipts from the business transacted under this franchise by the said grantee." Section 24(d), National Internal Revenue Code, as amended "The provisions of existing special or general laws to the contrary notwithstanding, all corporate taxpayers not specifically exempt under Section 27 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 similar business or industry" On the other hand, BFCCI contents that it is not subject to the corporate income tax exacted under Section 24(d) (now Section 24(g) of the Tax Code, supra , as other telecommunications companies are not required to pay said corporate income tax and it should likewise enjoy such privilege by reason of Section 13 of its franchise which provides: "In the event of any competing individual, partnership or corporation receiving from Congress a similar franchise in which there shall be any term 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. The "most-favored treatment" clause found in Section 13 of the BFCCI's franchise, supra , expressly directs that any favorable term/s granted to, or enjoyed by, individuals or entities engaged in the same line of business as that undertaken by the BFCCI shall automatically be deemed incorporated in its franchise. Fair play is the basic idea of such clause as its purpose is to place the grantee thereof on an equal footing with its rival enterprises by not giving such competitors undue advantage. (see Davao Light & Power Co. vs. Commissioner of Customs, 44 SCRA 122 [1972]). You state that the BFCCI's franchise "would show that it does not enjoy any tax exemption clause, unlike other companies engaged in the same business" and that the "usual tax exemption clause found in some franchises provides that the payment of franchise tax shall be in lieu of any and all kinds of taxes of any kind, nature or description levied, established or collected by any authority whatsoever, municipal, provincial or national from which the grantee is hereby expressly exempted. This confirms BFFCI's claim that there are indeed certain domestic companies engaged in the same business as BFFCI with franchises containing the "in lieu of all taxes" exemption clause by son of which they have not been required to pay the corporate income tax. In a previous opinion, we had ruled to the effect that where two telecommunications companies are engaged in the same line of business and are in competition with each, any privilege or prerogative conferred upon and enjoyed by one should likewise be enjoyed by the other, provided that the franchise of the latter contains the "most-favored treatment" clause quoted above (Op. No. 53, s. 1960). Considering that, as already stated, BFFCI's franchise contains in its section 13 the "most-favored treatment clause" and there are other companies in the same business as and in competition with BFCCI which are not required to pay the corporate income tax because they already pay a franchise tax which BFCCI also already pays, we conclude that BFCCI should likewise not be subjected to the payment of the corporate income tax. Finally, while it is a settled rule, as you state, that "tax exemptions are expressly and explicitly granted and therefore can never be implied", we wish to stress that the present case does not involve the grant to BFCCI of a tax exemption by implication. Rather, it involves the application of an express provision of BFFCI's franchise (section 13, supra ) the operation of which necessarily results in relieving BFFCI from liability for the corporate income tax. Wherefore, we reiterate our conclusion hereinabove set forth. (SGD.) RICARDO C. PUNO Minister of Justice