MAKATI CITY AND THE CITY TREASURER OF MAKATI CITY v. METRO PACIFIC TOLLWAYS DEVELOPMENT CORPORATION

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY S~COND DIVISION *********** MAKATI CITY AND THE CITY CTAAC N0.172 TREASURER OF MAKATI CITY, (Civil Case No. 13-982) Petitioners, Members: -versus- CASTANEDA, JR., Chairperson, CASANOVA, and MANAHAN,Jl METRO PACIFIC TOLLWAYS Promulgated: DEVELOPMENT CORPORATION, DEC 0 1 2017 Respondent. _/ I r X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -/ - : - -,- - - - - - - - - - -X fo !5') (' . .,. IfESOLUTION CASANOVA,L.: Before this Court is PEftitioners' Motion for Reconsideration (of the Decision dated 20 SeP,tember 2017) filed on October 10, 2017, with respondent's conimentjOpposition (To: Motion for I Reconsideration) filed on November 3, 2017. On September 20, 2017, this Court promulgated its Decision over the instant case, upholding the conclusions reached in the assailed Decision dated December 1, 2015 and Resolution dated June 21, 2016 both rendered by the Regional Trial Court (RTC) - Branch 143 of Makati City. The dispositive portion of this Court's Decision reads as follows: "VJHEREFORE, premises considered, the Petition for Review is DENIED for lack of merit. SO ORDERED.'~

RESOLUTION CTAAC NO. 172 Page 2 ofS Aggrieved thereby, peti ioners filed the instant Motion, again, reiterating the provisions of th Revised Makati Revenue Code1 (RMRC) on holding companies, partie larly Section 3A.02(p), in relation to subsections (g) and (h). Petitio ers stress that having been classified as a holding company, it is axiom tic that the tax rate of 20o/o of 1�/o shall be imposed unequivocally on t e holding company's gross sales andjor receipts without any other re uirement whatsoever. They also insist that the foregoing Section of th RMRC was never questioned before the Secretary of Justice, in accord nee with Section 78.14(d) of the same Code which provides for the t xpayer's legal remedies. Consequently, the said Section is still a valid t provision of the RMRC. On the other hand, in it Comment, respondent claims that the reference made to subsection (g) and (h) of Section 3A.02 merely pertains to the rate of local bu iness tax (LBT) that a local sanggunian may impose on a holding c mpany's gross sales and/or receipts excluding its passive income. R spondent continues that nowhere under the RMRC is it stated that a hoi ing company shall be taxed as a bank or financial institution. To impo e the same to holding companies is considered a tax on incom which is proscribed by the Local Government Code (LGC) of 199 , as amended. After due consideration 'I of the arguments presented by the parties, this Court finds no meri~ in the instant Motion. !I I Notably, the arguments p offered in the instant Motion are mere rehash of the arguments alrea y raised and resolved, not only by this Court, but by the court a quo a well. Thus, to discuss anew the issues reiterated in the instant Motion ould only be mere superfluity. I I I Again, this Court empha~�zes that, generally, the imposition of taxes on holding companies is n t expressly prohibited by Republic Act (RA) No. 71602, otherwise kno n as the 11Local Government Code of 1991". Thus, a local governmen~ unit has autonomy to impose taxes on any other businesses not otherwise specified under the Local Government Code (LGC) of 1991, as amended. However, such autonomy, though, is not without limits.~ 1 City Ordinance No. 2004-A-025 which to'ok effect on January 1, 2006 2 Which took effect on January 1, 1992

RESOLUTION CTAAC NO. 172 Page 3 ofS I B~nc As held in the CTA En case of MICHIGAN HOLDINGS, INC. vs. THE CITY TREASURER OF M KA Tl CIT~ NELIA A. BARLJS3, dividend income is excluded from gros receipts for purposes of imposition of LBT, viz.: "Dividend Income Not Su~j' ect to Local Business Tax I ' i Section 133 (a) of the\ Local Government Code expressly provides that the taxiJig powers of provinces, cities, municipalities, and barang~ys shall not extend to the levy of income tax, except when lfvied on banks and other financial institutions. ! ! ! Section 131 (e) of the L C defines 'banks and other financial institutions' to include ' on-bank financial intermediaries, lending investors, finan e and investment companies, pawnshops, money shops, i surance companies, stock markets, stock brokers and dealers i securities and foreign exchange, as defined under applicable laws, or rules and regulations thereunder.' This enumerat on appears to be exclusive of other entities. Nowhere in the e tirety of Section 131 is a holding company mentioned. How ver, this, by itself, does not place holding companies beyond e reach of local taxation, except on their income. Section 143 of the Loc I Government Code is the law on local business taxes. Subs ction (f) thereof expressly allows local taxation on banks and other financial institutions on their income from dividends, ased on gross receipts of the preceding calendar year. W at Section 3A.02 (h) of the Revised Makati Revenue Code did as to expand the taxpayer base to encompass 'owners or ope ators of banks and other financial institutions which include o fshore banking, non-bank, financial intermediaries, lending in estors, finance and investment companies, investment ,ouse, pawnshops, moneyshops, insurance companies, stock markets, stock brokers, dealers in securities, including pre-nel.led companies, foreign exchange.' The Treasurer of Makati Cit)t, while invoking this Section 3A.02 (h), made it applicable to ho\lding companies, such as Michigan Holdings, by virtue of Sectipn 3A.02(p), which provides that holding companies 'shall be ~axed at the rate prescribed either~ 3 CTA EB Case No.1093 (CTAAC No. 99), une 17,2015

RESOLUTION CTAAC NO. 172 Page 4 ofS I I under subsection (g) or (hj, of the gross sales andjor receipts during the preceding calendlar year.' I Section 3A.02 (h) of t~e Revised Makati Revenue Code, which took effect on Janua~ 1, 2006, imposes a local business tax on the dividend incom of certain taxable entities. Section 3A.02 (p) makes holding co panies liable for this business tax. I 'Section 3A.02 (p). On Hqlding Company shall be taxed at the rate prescribed eith~r under subsection (g) or (h) of the gross sales and/or' receipts during the preceding calendar year.' I 1 Thus, Section 3A.02 (p in relation to Section 3A.02 (h), both of the Revised Makat Revenue Code, violates the limit set by Section 133 (a) oft e Local Government Code. Indeed, if the business o a holding company is in the same class as that of a bank or ot er financial institutions, the Makati City tax ordinance could simply have included holding companies in its Section 3 .02 (h), instead of placing them all by themselves in Section 3 .02 (p) and then making the tax rates in either Section 3A.O (h) or (g) applicable to them. That holding companies, exclus�vely, were placed in a separate section, shows that they co prise a category distinct from the class of 'banks and other fnancial institutions' as defined by Section 131 (e) of the LG . That holding companies were subjected to a tax on divid nd income which the LGU is not authorized and is in fa t prohibited from levying on businesses other than b nks and financial institutions, shows a deliberate inten to circumvent the prohibition laid down by Section 133 ( ) that the taxing powers of LGUs shall not extend to the le of income tax, except on banks and other financial institu �ons. There is more. Section 27 (D) of the Na~ional Internal Revenue Code deals with rates of tax on certai~ passive incomes. Subsection (4) thereof, covering intercotporate dividends, states that 'Dividends received by a d1�mestic corporation from another domestic corporation shall ot be subject to tax' - meaning corporate income tax. Divi . ends are instead subject, under~

RESOLUTION CTAAC NO. 172 Page 5 ofS Section 27 (D) (1), to 'a fi~al tax at the rate of twenty percent (20o/o).' , I i 'Under Section 27(~)(4) of the Tax Code, dividends received by a dome tic corporation from another corporation are not su ject to the corporate income tax. Such intracorporate di idends are some of the passive incomes that are subj ct to the 20% final tax, just like interest on bank deposits. Intracorporate dividends, being already subject ,to the final tax on income, no I longer form part of ~he bank's gross income under Section 32 of the Tax C~de for purposes of the corporate m� come tax. I I ! I Thus, Section 3A.02 (p);�n relation to Section 3A.02 (h), both of the Revised Makati Rev nue Code, likewise violates Section 27 (D) (4) of the National I ternal Revenue Code. 'I Section 3A.02 (p) of t 'e Revised Makati Revenue Code is thus an ultra vires exercise of local taxing power, and cannot be given effect without violat ng the principle that an ordinance can neither amend nor re eal but must conform to a statute." (Emphases Ours and Citatio s Omitted) I I Accordingly, finding no r~versible error, this Court finds no cogent justification to disturb the con1lusions reached in the assailed Decision dated September 20, 2017. 1 I I WHEREFORE, premise~ considered, petitioners' Motion for Reconsideration (of the Decisidn dated 20 September 2017) is DENIED for lack of merit. 1 1 SO ORDERED. ~ CAESAR A. CASANOVA Associate Justice We Concur: il C~T'1.. :fif~ ~--~---~ c.~" 1-- CATHERINE T. MANAHAN Associate Justice J&\.Nrro C. CASTANEDA, JR, Associate Justice