Republic of the Philippines
Department of Finance
BUREAU OF LOCAL GOVERNMENT FINANCE
August 12, 2001
Mr. Ben-Hur C. Salcedo
Undersecretary
Department of Energy
Energy Center, Merritt Road
Fort Bonifacio, Taguig
Metro Manila
Sir:
This refers to your letter dated July 10, 2001 requesting confirmation that Shell Philippines Exploration B.V. (SPEX) and its co-ventures in Service Contract No. 38 (SC 38) are exempt from local business tax, real property tax and other local taxes imposed under R.A. 7160, otherwise known as the Local Government Code (LGC) of 1991.
Representations are made that SPEX, together with its co-ventures Shell Philippines LLC, Texaco Philippines Inc. and PNOC-Exploration Corporation is a petroleum service contractor of the Government of the Republic of the Philippines under SC 38. As such, it is authorized to perform petroleum operations for the development of Malampaya gas filed in offshore Palawan.
Records show that under SC 38 executed on December 11, 1990, the Government as represented by the Office of Energy Affairs (OEA), entered into a Service Contract with SPEX and its co-ventures. Such contract was executed in pursuant to PD 87, also known as “The Oil Exploration and Development Act of 1972” which took effect in 1973. Section 12 (g) thereof, in part, provides:
“SEC. 12. Privilege of Contractor. – The provisions of any law to the contrary notwithstanding, a contract executed under this Act may provide that the contractor shall have the following privileges:
“(a) x x x
“(g) Rights and obligations in any contract concluded pursuant to this Act shall be deemed as essential considerations for the conclusion thereof and shall not be unilaterally changed or impaired; and
“x x x”.
SPEX contends that the Service Contractor is exempt from the payment of local taxes in view of the following:
(1) A specific exemption was granted to the Service Contractor under PD 87 and SC 38;
(2) The rights and obligations of the Service Contractor under SC 38 shall be governed by the original terms and conditions of said contract, as well as PD 87, the law in force at the time such rights were vested;
(3) The express repeal of Section 12 of PD 87 in Section 534 of the LGC only applies to service contracts executed after the effectivity of the LGC, on January 1, 1992; and
(4) The imposition of Local Business Tax, Real Property Tax and other local taxes on the Service Contractor violates their right of protection against impairment of contract under the Constitution.
This Bureau, in resolving a number of related cases in the withdrawal of exemptions of government-owned and controlled corporations (GOCCs), has consistently cited Sections 193, 234 and 534 of the LGC (R.A. 7160). However, this Bureau takes particular attention to queries or requests for opinions/rulings concerning the abovecited withdrawal of exemption provisions of the LGC, specifically in cases where such exemptions previously enjoyed were based on contracts entered into by the government.
We find the claim of SPEX meritorious. Section 10 of the 1987 Constitution provides as follows:
“SEC. 10. No law impairing the Obligations of Contracts shall be passed.”
Admittedly and although the Local Government Code of 1991, specifically paragraph (c) of Section 534 thereof, expressly repealed Section 12 of PD No. 87, as amended, such repeal could not rescind the tax-exemption privilege already stipulated in the Service Contract in favor of SPEX and its co-ventures, which contract was enacted prior to R.A. 7160. Relatedly, and although Sections 192, 234 and 534 of the LGC made sweeping withdrawals of business and realty tax exemption privileges, the Code nevertheless recognizes also the Constitutional mandate on the non-impairment of contracts. Section 5 (d) of the Code provides:
“SEC. 5. Rules of Interpretation. – In the interpretation of the provisions of this Code, the following rules shall apply:
“(a) x x x
“(d) Rights and obligations existing on the date of effectivity of this Code and arising out of contracts or any other source of prestation involving a local government unit shall be governed by the original terms and conditions of said contracts or the law in force at the time such rights were vested; and
“x x x.” (Underscoring ours)
In conclusion, considering the pertinent provisions of the Constitution and the Local Government Code of 1991, this Bureau believes and so holds that SPEX and its co-ventures are exempt from the payment of business tax, real property tax and other local taxes notwithstanding Sections 193, 234 and 534 of the LGC (R.A. 7160).
Very truly yours,
BENJAMIN A. GERONIMO
Executive Director
What do you want to do now?
Go Back to the Top; Go back to art’s home page; Laugh or Be Entertained; Destroy Cartels and Monopolies; Invest or Find a Job; Check Software or a Computer; Check out the latest News; Look for a School; Greet a Friend; Dip Into Black Gold and be Electrified; Express Yourself; Relive the Past; Get Involved in the Law, Government, & Politics; Read Some Classics; Meet New People; Consult the laws of the Philippine energy sector; Philosophize; or Search.
This page is best viewed using Microsoft Internet Explorer 4.0 or higher.
Last revised: August 17, 2009 04:43 PM.
Caveat Emptor: Owners of the sites included herein do not explicitly endorse this page.
Comments, suggestions, objections, or violent reactions?