CITY OF DAVAO and BELLA LINDA N. TANJILI in her official capacity as The Officer-in-Charge City Treasurers Office of Davao City v. TE DEUM RESOURCES, INC.,

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY EN BANC CITY OF DAVAO and BELLA CTA EB No. 1636 LINDA N. TANJILI, in her (CTA AC N0.142) official capacity as the Officer- in- Charge City Treasurer's Office of Davao City, Present : Petitioners, DEL RO_SARIO, P.J ., CASTANEDA, JR., UY, -versus- FABON-VICTORINO, MINDARO-GRULLA, RINGPIS- LIBAN , and MANAHAN, JJ. TE DEUM RESOURCES, INC., Respondent. Promulgated: x----------------------------------------M--A-Y--3-o---2-0-~ ~--~-~!:~~ - RESOLUTION MINDARO-GRULLA, J.: Submitted for resolution is a Motion for Reconsideration filed via registered mail on December 20, 2018 by petitioners City of Davao and Bella Linda N. Tanjili, in her official capacity as the Officer-in-Charge City Treasurer's Office of Davao City with respondent's Comment (On Petitioners' Motion for Reconsideration dated 20 December 2018) filed via registered mail on February 11, 2019 1. Petitioners pray that this Court reconsider, reverse and set aside the Decision2 promulgated on November 20, 2018 which denied petitioners' Petition for Review, the dispositive portion of which read s as follows : 'Received on January 30, 2019 the Court's Resolution dated January 24, 20 19 direct1ng respondent to comment within t en (10) days or until February 9, 2019. February 9 falls on a Saturday, respondent has until February 11, 2019, which is the next working day within which to file 1ts Comment pursuant to Section 1, Rule 22 of the Rules of Court. 2 En Bane Docket, pp. 187-204. L

CITY OF DAVAO and BELLA LINDA N. TANJILI, in her official capacity as the Page 2 of 8 Officer-in-Charge City Treasurer's Office of Davao City vs. Te Deum Resources, Inc. CTA EB No. 1636 (CTA AC No. 142) RESOLUTION ' "WHEREFORE, premises considered, the Petition for Review is hereby DENIED. The Decision of the Third Division of this Court in CTA AC Case No. 142 dated September 15, 2016, and its Resolution dated March 2, 2017, are AFFIRMED. No pronouncement as to costs. SO ORDERED." In the Motion, petitioners mainly assert that, contrary to the finding of the Court, respondent is not a holding company, but a non-bank financial institution or intermediary, which subjects its dividends and interest income to local business tax. After due consideration, this Court finds that the arguments proffered by petitioners in the instant Motion are mere rehash of the same facts and issues which have already been analyzed and passed upon in the assailed Decision. Nonetheless, this Court shall expound the discussion of the issues reiterated herein for clarity and respondents' better understanding. To recapitulate, respondent's Amended Articles of Incorporation reveal that the scope of its primary purpose is not extensive enough to cover most of the principal functions of a financial intermediary. Let petitioners be reminded that the city's taxing power does not extend to the levy of income tax, except when levied on banks and other financial institutions3 � The dividends and interests in this case are therefore not subject to local business tax considering that petitioner is not a bank or other financial institution. While Section 131(e)4 of the LGC defines the term banks and other financial institutions, it did not define what is a 3 Section 133(a) of the Local Government Code of 1991. Section 133. Common Limitations on the Taxing Power of Local Government Units. - Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: (a) Income tax, except when levied on banks and financial institutions; XXX XXX XXX 4 Section 131 (e) of the Local Government Code of 1991.

CITY OF DAVAO and BELLA LINDA N. TANJILI, in her official capacity as the Page 3 of 8 Officer-in-Charge City Treasurer's Office of Davao City vs. Te Deum Resources, Inc. CTA EB No. 1636 (CTA AC No. 142) RESOLUTION . non-bank financial intermediary. Thus, this Court finds it necessary to resort to other applicable laws which may enlighten us in its definition. The National Internal Revenue Code (NIRC) of 1997, as amended, defines the term "non-bank financial intermediary" in Section 22(W) as follows: "The term a 'non-bank financial intermediary' means a financial intermediary, as defined in Section 2(D)(c) of Republic Act No. 337, as amended, otherwise known as the General Banking Act, authorized by the Bangko Sentral ng Pilipinas (BSP) to perform quasi-banking activities." Accordingly, Section 2.3 of Revenue Regulations No. 09-2004 further elaborated said definition which reads as follows: "Non-bank Financial Intermediaries- shall refer to persons or entities whose principal functions include the lending, investing or placement of funds or evidences of indebtedness or equity deposited with them, acquired by them or otherwise coursed through them, either for their own account or for the account of others. This includes all entities regularly engaged in the lending of funds or purchasing of receivables or other obligations with funds obtained from the public through the issuance, endorsement or acceptance of debt instruments of any kind for their own account, or through the issuance of certificates of assignment or similar instruments with recourse, trust certificates, or of repurchase agreements, whether any of these means of obtaining funds from the Section 131. Definition of Terms.- When used in this Title, the term: XXX XXX XXX (e) "Banks and other financial institutions" include non-bank financial intermediaries, lending investors, finance and investment companies, pawnshops, money shops, insurance companies, stock markets, stock brokers and dealers in securities and foreign exchange, as defined under applicable laws, or rules and regulations thereunder; XXX XXX XXX L

CITY OF DAVAO and BELLA LINDA N. TANJILI, in her official capacity as the Page 4 of 8 Officer-in-Charge City Treasurer's Office of Davao City vs. Te Deum Resources, Inc. CTA EB No. 1636 (CTA AC No. 142,) RESOLUTION . public is done on a regular basis or only occasionally." Likewise, Section 2-D(c) of the General Banking Act defines "financial intermediaries" as follows: "Financial intermediaries" shall mean persons or entities whose principal functions include the lending, investing or placement of funds or evidences of indebtedness or equity deposited with them, acquired by them, or otherwise coursed through them, either for their own account or for the account of others." Section 4.101 Q.1 of the Manual of Regulations for Non- Bank Financial Institutions (Manual) defines "financial intermediaries" to be persons or entities whose principal functions include the lending, investing or placement of funds or evidences of indebtedness or equity deposited with them, acquired by them, or otherwise coursed through them either for their own account or for the account of others. (Emphasis supplied) The same section further clarifies the definition by elaborating the terms "Principal and Functions", to wit: "Principal" shall mean chief, main, most considerable or important, of first importance, leading, primary, foremost, dominant or preponderant, as distinguished from secondary or incidental. "Functions" shall mean actions, activities or operations of a person or entity by which his/its business or purpose is fulfilled or carried out. The business or purpose of a person or entity may be determined from the purpose clause in its articles of incorporation/partnership, and from the nature of the business indicated in his/its application for registration of business filed with the appropriate government agency."

CITY OF DAVAO and BELLA LINDA N. TANJILI, in her official capacity as the Page 5 of 8 Officer-in-Charge City Treasurer's Office of Davao City vs. Te Deum Resources, Inc. CTA EB No. 1636 (CTA AC No. 142) RESOLUTION . . Relevantly thereto, in order to be considered a financial intermediary, any of the following functions must be performed on a regular and recurring, not on an isolated basis: a. Receive funds from one (1) group of persons, irrespective of number, through traditional deposits, or issuance of debt or equity securities; and make available/lend these funds to another person or entity, and in the process, acquire debt or equity securities; b. Use principally the funds received for acquiring various types of debt or equity securities; c. Borrow against, or lend on, or buy or sell debt or equity securities; d. Hold assets consisting principally of debt or equity securities such as promissory notes, bills of exchange, mortgages, stocks, bonds, and commercial papers; e. Realize regular income in the nature of, but need not be limited to, interest, discounts, capital gains, underwriting fees, guarantees, fees, commissions, and service fees, principally from transactions in debt or equity securities or by being an intermediary between suppliers and users of funds. On the other hand, non-banking financial intermediaries shall include the following: (1) A person or entity licensed and/ or registered with any government regulatory body as a non-bank financial intermediary, such � as investment house, investment company, financing company, securities dealer/broker, lending investor, pawnshop, money broker, fund manager, cooperative, insurance

CITY OF DAVAO and BELLA LINDA N. TANJILI, in her official capacity as the Page 6 of 8 Officer-in-Charge City Treasurer's Office of Davao City vs. Te Deum Resources, Inc. CTA EB No. 1636 (CTA AC No. 14~) RESOLUTION ' company, non-stock savings and loan association and building and loan association. (2) A person or entity which holds itself out as a non-banking financial intermediary, such as by the use of a business name, which includes the term financing, finance, investment, lending and/ or any word/phrase of similar import which connotes financial intermediation, or an entity which advertises itself as a financial intermediary and is engaged in the function(s) where financial intermediation is implied. (3) A person or entity performing any of the functions enumerated in Items a to e of this Subsection. The above definitions show that non-bank financial intermediaries are persons or entities primarily engaged in "lending, investing or placement of funds or evidences of indebtedness or equity deposited with them, acquired by them or otherwise coursed through them, either for their own account or for the account of others." More importantly, to be considered a non-bank financial intermediary, the entity must perform any of the functions stated therein on a regular and recurring basis and not on an isolated basis. Indeed, respondent cannot be considered a bank or other non-bank financial institution, more specifically, a non- bank financial intermediary, since it is not engaged in lending money, investing, reinvesting or trading securities and/ or foreign exchange either for its own account or for the account of others on a regular and recurring basis. It appears from the records that respondent acquired SMC shares only once after its incorporation and has not bought any shares of stocks or invested in any other corporation other than in SMC. Hence, it is properly classified as an isolated transaction. As already discussed in the assailed Decision, there is nothing on record that shows that respondent can be categorized as a financial intermediary or that it has engaged in the activities defined and enumerated in the General Banking Act and in the Manual.

CITY OF DAVAO and BELLA LINDA N. TANJILI, in her official capacity as the Page 7 of 8 Officer-in-Charge City Treasurer's Office of Davao City vs. Te Deum Resources, Inc. CTA EB No. 1636 (CTA AC No. 14~) RESOLUTION . The Court is not convinced that the stated primary purpose of respondent in the Amended Articles of Incorporation is broad enough to catch all the descriptive functions of a financial intermediary. It is not proper to just assume that respondent is engaged as a non-bank financial institution or intermediary based on the said primary purpose. Furthermore, it must be emphasized that the determination of whether a person or an entity is (a) performing banking or quasi-banking functions, or (b) engaged in other types of financial intermediation is vested in the Monetary Board subject to judicial review. We reiterate the ruling in Commission of Internal Revenue vs. Hantex Trading Co., Inc. 5 wherein the Supreme Court ruled that an assessment must be based on actual facts. Accordingly, the local business tax assessment should be based on actual facts. Under the premises, considering that there is no proof that respondent can be considered as a non-bank financial institution or intermediary engaged in such activities, the local business tax assessment has no factual basis. Such a conclusion is based on an assumption, with no support in evidence. In view of the foregoing, this Court finds no cogent reason to disturb the assailed Decision. WHEREFORE, premises considered, petitioners' Motion for Reconsideration is hereby DENIED for lack of merit. SO ORDERED. ~ N. rvtv:-u,. .. G~ CIELITO N. MINDARO-GRULLA Associate Justice 5 Commission of Internal Revenue vs. Hantex Trading Co., Inc, G.R. No. 136975, March 31, 2005, citing Collector of Internal Revenue vs. Benipayo, 4 SCRA 182 (1962).

CITY OF DAVAO and BELLA LINDA N. TANJILI, in her official capacity as the Page 8 of 8 Officer-in-Charge City Treasurer's Office of Davao City vs. Te Deum Resources, Inc. CTA EB No. 1636 (CTA AC No. 142) RESOLUTION . WE CONCUR: (I reitera e my Con rring Opinion) ROMAN G. DEL ROSARIO Presiding Justice (L~~ C-~~/~ ER~P.UY cr reft:erate my Dissenting Op1f�o.n) AssoCiate Justice JUANITO C. CASTANEDA, JR. Associate Justice � (On Leave) rAIDuN-VICTORINO MA. BELEN M. RINGPIS-LIBAN Associate Justice ~ 'T- ~-�~..._,4,&_'"'"'-----...._ CATHERINE T. MANAHAN Associate Justice