THE COURT of Tax Appeals (CTA) has affirmed that Makati City
cannot impose taxes on Luzon Hydro Corp. (LHC), a unit of Aboitiz Power Corp.,
because its administrative office there does not perform sales.
In a 16-page decision
dated Jan. 14, the court en banc voted 9-0 to affirm the Special First
Division’s November 2013 decision, which reversed the Makati Regional Trial
Court’s April 2012 order entitling the city to business tax from LHC.
The CTA en banc said its division was correct to rule that LHC’s office in Makati City did not perform sales, going by the statement of the company’s finance and accounting manager.
The decision stated that it is not enough for an office to conduct operations to be considered a branch or sales office for the purpose of tax collection under the Local Government Code.
Such an office would need to have recorded sales and transactions made within Makati City’s jurisdiction, something the city government was not able to prove in the case of LHC.
“Considering that the [LHC] Makati City office is not a branch or sales office, it is not entitled to share in the 70% sales allocation,” the decision read.
Because of this, the CTA affirmed that only the towns of Bakun, Benguet, and Alilem, Ilocos Sur, can tax the company’s sales proceeds. LHC’s 70-megawatt hydroelectric plant along Bakun River straddles the two towns.
Previously, the Aboitiz unit had allocated an equal 23.33% portion of its gross sales each to Bakun, Alilem, and Makati City (or a total of 70%). Questioning this setup, Bakun in 2006 obtained from the Bureau of Local Government Finance (BLGF) an opinion declaring that Makati City is not entitled to local business tax. Alilem adopted the BLGF opinion a year later.
This prompted LHC to ask the Makati RTC to determine how it should distribute the 70% sales allocation. In April 2012, the court ruled that the Makati office was a project office, saying the city can impose tax on LHC at a reduced 20% rate. This, in turn, led Bakun to successfully appeal before the CTA.
The en banc decision was penned by Associate Justice Cielito N. Mindaro-Grulla.
The CTA en banc said its division was correct to rule that LHC’s office in Makati City did not perform sales, going by the statement of the company’s finance and accounting manager.
The decision stated that it is not enough for an office to conduct operations to be considered a branch or sales office for the purpose of tax collection under the Local Government Code.
Such an office would need to have recorded sales and transactions made within Makati City’s jurisdiction, something the city government was not able to prove in the case of LHC.
“Considering that the [LHC] Makati City office is not a branch or sales office, it is not entitled to share in the 70% sales allocation,” the decision read.
Because of this, the CTA affirmed that only the towns of Bakun, Benguet, and Alilem, Ilocos Sur, can tax the company’s sales proceeds. LHC’s 70-megawatt hydroelectric plant along Bakun River straddles the two towns.
Previously, the Aboitiz unit had allocated an equal 23.33% portion of its gross sales each to Bakun, Alilem, and Makati City (or a total of 70%). Questioning this setup, Bakun in 2006 obtained from the Bureau of Local Government Finance (BLGF) an opinion declaring that Makati City is not entitled to local business tax. Alilem adopted the BLGF opinion a year later.
This prompted LHC to ask the Makati RTC to determine how it should distribute the 70% sales allocation. In April 2012, the court ruled that the Makati office was a project office, saying the city can impose tax on LHC at a reduced 20% rate. This, in turn, led Bakun to successfully appeal before the CTA.
The en banc decision was penned by Associate Justice Cielito N. Mindaro-Grulla.
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