Authorizing Participation in the 10th National Career Executive Service Conference

February 24, 1997 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 2nd Indorsement Respectfully returned to the In-Charge of Office, Office of the City Treasurer, Makati City. This refers to the letter dated September 19, 1996 of SGV & Co. in behalf of its client, ABN-AMRO Bank, N.V., regarding their request for reconsideration of the notices sent by that Office requiring said Bank to settle its tax obligations due that city. Representations are made that ABN-AMRO Bank, N.V. is an offshore banking unit (OBU) established pursuant to the provisions of PD 1034. An OBU is a branch, subsidiary or affiliate of a foreign banking corporation which is duly authorized by the Bangko Sentral ng Pilipinas (BSP) to conduct banking transactions in foreign currencies involving the receipt of funds from foreign services and the utilization of such funds as provided for under PD 1034. The provisions of Section 7 of PD 1034 relative to the tax and other incentives of OBUs are as follows: "SEC. 7. Tax and Other Incentives . a. The provisions of any law to the contrary notwithstanding, the transactions of offshore banking units authorized hereunder with non-residents and other offshore banking units shall be subject to a five per cent (5%) tax on the net income from such transactions which shall be in lieu of all taxes on the said transactions: Provided, however, that, transactions of offshore banking units with local commercial banks, including branches of foreign banks that may be authorized by the Central Bank to transact business with offshore banking units, shall likewise be subject to the same tax, except net income from such transactions as may be specified by the Secretary of Finance, upon recommendation of the Monetary Board, to be subject to the usual income tax payable by banks. Any income of non-residents from transactions with said offshore banking units shall be exempt from any tax." The abovequoted provisions of law have been amplified by Revenue Regulations No. 10-76 of the Bureau of Internal Revenue, the pertinent portion of which is quoted hereunder: "Section 10. Privileges of the offshore banking units . The offshore banking units shall be exempt from all forms of local licenses, fees, dues, imposts or any other local taxes or burdens. "The license fee paid by offshore banking units shall be allowed as a deduction in accordance with Section 4 of these regulations." In view of the foregoing, it is the contention of Counsel that its client is not subject to the local business tax imposed by that City on banks and banking institutions. It is contended further that while Section 193 of the Local Government Code of 1991 (LGC) has withdrawn the tax exemption privileges granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, the same does not affect the exemption of OBUs from local business taxes. It is argued that the LGC is a general statute because it applies to all banks in general, while on the other hand, PD 1034 is a special statute, as it applies specifically to OBUs. Hence, the LGC did not result in the repeal of the OBUs exemption from local taxes under PD 1034. In this connection, attention is invited to Section 534(f) of the LGC, quoted hereunder: "Section 534. Repealing Clause . "xxx xxx xxx. "(f) All general and special laws, acts, city charters, decrees, executive orders, proclamations and administrative regulations, or part or parts thereof which are inconsistent with any of the provisions of this Code are hereby repealed or modified accordingly." Apparently, the Code withdrew the tax exemption privileges granted to all natural and juridical persons, including GOCCs, considering that all special laws, such as PD 1034, or part or parts thereof which are inconsistent with the provisions of RA 7160, are already "repealed and modified accordingly." Moreover, Section 1(a)(5) of Local Finance Circular No. 1-93, dated June 16, 1993 of the DOF, prescribing the guidelines governing the power of municipalities and cities to impose a business tax on banks and other banking institutions pursuant to Section 143(f) of the LGC provides as follows: "SEC. 1. Coverage . (a) . . . "For purposes of this Circular, banks shall be classified as follows: "(1) . . .; "(5) Other classes of banks as may be authorized by the Monetary Board of the Central Bank of the Philippines; and "xxx xxx xxx." On the basic of the aforequoted provision of law, it may be stated that Offshore Bank Units, in this case, ABN-AMRO BANK, N.V., fall within the coverage of "other classes of banks" subject to the payment of the business tax imposed by cities and municipalities under their respective duly-enacted tax ordinances pursuant to Sec. 143(f) of the LGC. IcDESA Be guided accordingly. (SGD.) LORINDA M. CARLOS Executive Director