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Flores PDF
Flores PDF
Flores PDF
IMPLEMENTATION
(Pursuant to Republic Act 7160, the
Local Government Code of 1991)
by
Florecita P. Flores
Local Government Research and
Consultancy Service
• Republic Act No. 7160, otherwise known
as the Local Government Code of 1991,
under Book II (Local Taxation and Fiscal
Matters), in Title One (Local Government
Taxation) prescribed the situs of the tax for
purposes of collection of the tax on
business.
• “Situs” is defined “L(atin) for Situation;
Location e.g. location or place of crime or
business. Site; position; the place where a
thing is considered, for example with
reference to jurisdiction over it, or the right
or power to tax it. It imports fixedness of
location. Situs of property, for tax purposes,
is determined by whether the taxing state
has sufficient contact with the personal
property sought to be taxed to justify in
fairness the particular tax.” (Black’s Law
Dictionary, Centennial Edition (1891-1991)
p.1387)
• The “situs rule” is defined as “a
provision of tax law setting out the
factors which determine where a
particular asset is situated or deemed
to be situated for tax purposes. The
location of the assets may be a
decisive element in determining tax
liability.” (International Tax Glossary,
Second Edition, International Bureau
of Fiscal Documentation, 1992 IBFD
Publications BV)
The Taxes on Business
• Definition of Terms.
– Head/Principal Office - shall refer to the main office
of the construction contractor indicated in the
pertinent documents submitted to either the
Securities and Exchange Commission (SEC) or
other appropriate government agencies, as the case
may be. The city or municipality specifically
mentioned in the Articles of Incorporation and other
official registration papers as being the official
address of said Head Office/Principal Office shall be
considered as the situs thereof.
– Branch Office – is a fixed place
in a locality which conducts
operations of the business as
an extension of the principal
office.
– Project Office - shall mean
the field office in the
construction site. It is
equivalent to the factory of a
manufacturer,
• For purposes of collection of the tax, the
following rules shall apply:
• (1) All gross receipts realized from
domestic projects or contracts undertaken by
the branch office shall be recorded in the said
branch office and the tax thereon shall be
payable to the city or municipality where said
branch is located.
• (2) In cases where there is no branch office,
the gross receipts from domestic projects or
contracts shall be recorded in the Head Office/
Principal Office and the same shall be
allocated as follows:
• Thirty percent (30%) of the gross receipts shall
be taxable by the city or municipality where
the principal office is located; and
• (ii) Seventy percent (70%)of the gross
receipt shall be taxable by the city or
municipality where the project office is located.
• In cases where there are two (2) or more
project offices located in different localities, the
seventy percent (70%) allocation stated in
subparagraph (2) (ii) above shall be prorated
among the localities where such project offices
are located in proportion to the work
accomplished based on the cost of the projects
or contracts actually undertaken in the locality
during the tax period for which the tax is due.
• In the case of overseas construction
projects, the construction contractor shall
declare separately the gross receipts
realized therefrom, which shall not be
subject to the business tax.
• In case of pre-fabricated works which are
paid for in accepted freely convertible
currency with attendant installation works
outside the Philippines, the gross
receipts realized therefrom shall be
subject to not more than one-half (1/2) of
the rate prescribed for in Sec. 3 (a)
hereof.
• In case there is a transfer or
relocation of the Head/Principal
Office or any branch to another
city or municipality, the
construction contractor shall give
due notice of such transfer or
relocation to the cities or
municipalities concerned within
fifteen (15) before such transfer
or relocation is effected.”
Query of. Republic-Asahi Glass
Corporation
–The company has its principal office, factory
and sales offices located in the Municipality of
Pasig;
–all sales are recorded in Pasig and the taxes
due are paid thereat;
–the company also has ten (10) depots located
in two (2) municipalities and eight (8) cities
where its products are stored for sale and
accepts orders from dealers in their respective
areas.
• In the DOF opinion (which was signed
by an Undersecretary), the provincial
depots were considered
“warehouses” following the definition
in subparagraph (3) of Article 243, to
wit:
• “A building utilized for the storage of
products for sale and from which
goods and merchandise are
withdrawn for delivery to customers or
dealers, or by persons acting in
behalf of the business.”
• Hence, while all the sales made by the
principal office, factory and sales offices
located in Pasig should be recorded and
the tax due paid thereat, if the provincial
depots accepts orders and/or issue sales
invoices, such orders and/or sales shall be
recorded in the said depot and the tax due
shall be paid to the city or municipality
where the depot is located.
• It will be noted that the DOF opinion was largely
based on the facts as alleged by the taxpayer in
determining the tax situs of the principal office,
factory and sales offices. With respect to the
provincial depots, the taxpayer only alleged that
it was used for storage of products and to accept
orders from dealers in the area. It was the DOF
which filled out the “missing facts” that would
establish the tax situs of the depots i.e., if the
depots accept orders and/or issue sales
invoices, such orders or sales must be recorded
in the depot and the tax paid to the city or
municipality where the depot was located.
Query of Kenram Philippines, Inc
• These facts were disclosed in three (3) letters
which provided piece-meal information on the
operations of the company, as follows:
• In the first letter, it was represented that the
sales, invoicing and collection of the company
was made in the principal office located in the
Municipality of Pasig;
– that no sale is consummated (sic) in the plantation
and farm office located in the Municipality of Isulan,
Sultan Kudarat;
• that likewise, no sale is consummated at the Port
of General Santos City where the storage tank
for the palm oil shipped to Manila is located;
• In a second letter, representations
were further made that the plantation
is solely planted with palm trees that
bear fruits known as Fresh Fruit
Bunches; the fruits are milled by
another company for extraction of
palm oil which is sold domestically.
• Then, in a third letter, it was explained
that kernels are also extracted from
the nuts of the fresh fruits and these
are cleaned, dried and packed in
bags for export.
• BLGF replied that sales allocation under Art
243© of the IRR shall apply such that seventy
percent (70%) of the sales recorded in the
principal office in Pasig shall be taxable by the
municipality of Isulan, Sultan Kudarat where the
plantation is located while the remaining thirty
percent (30%) shall be taxable by the
municipality of Pasig. With respect to the palm
oil sold domestically and the kernels that are
exported, BLGF expressed the view that the
issue was not its tax situs but the nature of the
products i.e., the palm oil and the kernels, which
BLGF considered as “agricultural products”
under Sec. 143 © (2) of the Code, taxable at
one-half of the rate prescribed therein, to wit:
• “On exporters, and on manufacturers, millers,
producers,
• wholesalers, distributors, dealers or retailers of
essential commodities enumerated hereunder at
a rate not exceeding one half (1/2) of the
rates prescribed under subsections (a), (b) and
(d) of this Section:
• x x x
• Wheat or cassava flour, meat, dairy products,
locally-
• manufactured, processed or preserved food,
sugar, salt and other agricultural, marine, fresh
water products, whether in original state or not.
(italics, ours)
• In this situation, BLGF relied on
the representations of the
taxpayer in giving its opinion on
the situs queries except with
respect to the storage tank
located in the port of loading in
General Santos City on which
BLGF requested more
information.
• (4) Wenphil Corporation is a duly
registered domestic corporation
engaged in the operation of Wendy’s
hamburger restaurants. It holds the
exclusive franchise to operate Wendy’s
restaurants so all its outlets are
company-owned.
• Its principal office is located in Muntinlupa City
• It has forty-five (45) outlets or restaurants in
different localities in Metro Manila and nearby
provinces
• It maintains its sale commissary in the City of
Marikina which serves as a central receiving,
quality inspection and warehouse area for some
goods which the company’s suppliers deliver in
bulk
• No sales are made in the commissary; deliveries
or withdrawals from the commissary are through
vans to the various outlets outside Marikina
recorded in stock cards with no sales invoices
being issued.
• Issue: The Chief, Business Permits and
Licenses Office of the City Treasurer’s
Office informed Wenphil that the
commissary was treated as Cold Storage
and Processing Plant and a major integral
part of the various Outlet’s of Wendy’s
Hamburger restaurants; that these outlets
are dependent to a large measure on said
Plant. Thus, said office treated
all materials withdrawn as sales and,
taxable.
• Citing Art. 243(b) on Sales Allocation. BLGF
opined that with respect to the forty-five (45)
outlets of Wenphil in different localities, 100% of
sales made in the said outlets shall be taxable
by the local government units where the same
are located. The City of Marikina where only the
commissary is maintained and where there is no
sales outlet, shall not share in the business tax
that is paid by the sales outlets. Accordingly, the
City of Marikina may only impose a Mayor’s
permit fee and other regulatory fees and charges
on Wenphil for the operation of a Cold Storage
and Processing Plant.
Query of SM Prime Holdings, Inc:
• SM Prime Holdings, Inc. maintains its
principal office in Makati. However, said
principal office performs administrative
functions only;
• The corporation conducts its business
operations through the following Shopping
Malls:
»SM City located North EDSA, Quezon City
»SM Centrepoint located at Sta. Mesa, City of Manila
»SM Southmall located in the City of Las Pinas
»SM City located in Cebu City
»SM Bacoor in Bacoor, Cavite
• The income derived from the operation of said
shopping malls includes rentals from store
spaces, receipts from cinemas, bowling alleys,
skating rinks and parking fees and the gross
receipts are reported and the corresponding
local business taxes are paid to the cities where
the shopping malls are located
• Issue: The ICO Treasurer of Makati assessed
SM Prime Holdings deficiency assessment
based on a 30%-70% allocation of taxable sales
i.e. that the City of Makati was entitled to 30%
thereof.
• BLGF pointed out that since the business
operations of SM Prime Holdings were
conducted through the different shopping malls
that it maintains and not in its principal office
located in Makati, the said shopping malls
partake of the nature of a branch or sales office.
Accordingly, the transactions involved should be
recorded in such “branch” or “sales office” and
the local business taxes due on said gross
receipts from rentals should be paid in the city
where the same is located pursuant to the
provisions of subparagraph (1) of Article 243 (b)
of the Implementing Rules and Regulations of
the Code.
• BLGF also advised that “while it appears from
the provisions of Art 243 of the IRR
implementing Section 150 of the Code, in
determining the proper situs of the taxes due,
the term “sales” is used, this should not be
strictly construed as being limited to the sale of
goods or products whether they are in their
original form , or are manufactured, or processed
before being sold in the market. Rather, the
term used in the IRR should be interpreted to
mean also other forms of receipts or income as,
for example, receipts for services rendered by
“contractors” or income realized by banks and
other financial institutions in their operations as
contemplated under Section 150 of the Code
itself.”
END