LINDBERG PHILIPPINES INC. v. CITY OF MAKATI & NELIA A. BARLIS, in her capacity as the TREASURER OF THE CITY OF MAKATI.

..� ~� R PUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY First Division L INBE RG PHIIPPINES~ INC.~ C TA ACNo. 19 Petitio11er, (Civil Case No. 03 -7 54) (RTC Makat:i Branch 58) Members: - versus - Acos ta, Chairman, Bautista, and Casanova, Jl CIT Y OF M A RA.TI and Promulga ted: N E LIA BARLIS~ in her cap acity as the TREASURER OF THE CITY OF MAI(A TI, IJUN 28 2007- '1' tJS~ R e.rpondentJ. ~� , � '1" 1 X --- ---- --- -- ----------- - ----------------- /'~' ~�- :-_- - ----------- -X DECISION ACOSTA , Pl : This is a Petition for Review fil ed und er Section 11 o f Republic i\ ct No. 11 25 , as am ended, brought before this Co urt on D ecember 19, 2005 , seeking the reversal of the D ecision and Order dated August 30, 2005 and October 28, 2005, res pectively, rend ered by Br:-tnch 58 of the Regional Trial Court of Makati City, in Civil Case No. 03-754, enti tled "Linberg Philippin es, Inc. vs. The Ci ty o f Makati and Lu z R. Yamane, in her c;~pacity as th e Tre:-ts urer of Makati." The assailed Decisio n affirmed th e legality of the No tice o f Assessm en t ;~ga i n s t petitioner, for deficiency taxes, fe es and charges cove ring the years :2000, 2001 and 2002 in th e amount of Eight i\!Wlio n Seven Flundred Fourteen T housand Seven l-I undred Forty- \'

Decision CTAAC No . 19 Page 2 of19 Four and 53/ 100 Pesos (P8,714,744.53), issued by respondents, while th e qu es tio ned O rder denied petition er's Motion for Reco nsideratio n. P etitioner is a duly organized corporation, existing under Philippine laws, wi th principal offi ce at Suite 20-D , Rufin o Pacific Tower, corn er H errera StJ:eet, Ayala Avenu e, Makati City. It is engaged in the business of fin ancing th e constru ction and opera ti on o f private power plants primarily through "Build-Operate-Transfer" agreem ents wi th its cus to m e rs. P etition er received the question ed No tice of Assessm ent o n March 7, 2003. T he alleged deficien cy busin ess taxes arose from respondent's reclassificatio n o f peti tioner's business from a "h olding or inves tmen t" company Lo a "contractor". No t in agreem ent with the assessm ent, petitioner, o n May 6, 2003 fil ed a letter- protes t elated May 5, 2003. The p ro test was denied by respo nd ent in a letter elated May 19, 2003, and received by petiti oner on June 4, 2003. On July 3, 2003, in consonance with Section 195 of the Local Governm ent Code, petitioner appealed th e denial o f th e pro tes t to th e Regional T rial Court (RTC) of Makati. T he appeal was docke ted as Civil Case 03-754 and raffl ed to Branch 58. The appeal lodged with the RTC was dismissed o n August 30, 2005 and th e Motion for Reconsideration to the dismi ssal was denied on October 28, 2005. H aving received the Order denying th e Motio n for Reconsideratio n on November 18, 2005 , the instant Petition fo r Review was timely filed with this Court on D ecember 19, 2005, sin ce the 30'11 day, December 18, fell on a Sunday. On January 12, 2006, resp o ndents filed th eir Comment. And on J anu ary 29, 2007, with the filing of respondents' and petitio ner's Memoran da on D ecember 13, 2006 and January 15, 2007, respectively, this cas e was submitted for decision.

Decision CTAAC No.19 Page 3 of1 9 -� ..�\ ' Pe titione r's arg ume nts Petitioner rannot be be!d liable to tax i?J respondent Ciry because all its sales 1vetr: e.ffected and recorded in its branch ojjice.r outside the latter's taxingjmisdidion. Petitioner maintains that its bu siness consists of investing its capital in builcling and operating power plants, under either "build-operate-transfer" (BOT) or "build-operate- own" arrangements with certain business partners. And that during the taxable years covered by the Notice of Assessment, petitioner had branch offices in the following localities where the power plants are located: Philips I, Cabuyao, Laguna P hilips II, Calamba, Laguna Lepanto Ceramics, Calamba, Laguna SCA Hygiene Products, Dasmariiias, Cavite SMC Seaweeds, Cebu Cebu United Polymer, Cebu Fiesta Mall, Lipa, Batangas, and Primo Oleochem.icals Inc., Panganiban, Camarines Norte According to petitioner, most of its employees are stationed at these branch offices and that its principal office in Makati City is only a place where a few administrative staff holds office. Petitioner avers that under Section 150 of the 1,ocal Government Code and Article 243 of the Implementing Rules and Regu lations of this code, respondent should not have assessed taxes on petitioner because its sales are made outside the taxing jurisdiction of Makati City. Petitioner claims that the above provisions are clear, a corporation which maintains or operates branch or sales outlets elsewhere (outside the municipality or city where its principal office is located) shou ld record the sale in tl1e branch or sales outlet making tile sale or transaction. In this case, since its power plants and branch offices are located outside

Decision ~� .�' CTA AC No.19 Page 4 of19 Makati, and none of petitioner's sales occur in Makati, th e tax shou ld accrue and be paid to the municipality or office where its branch or sales outlets are located. Further, according to petitioner, even assuming, without admitting that it does not maintain branch offices in different municipalities or cities, respondent cannot assess taxes on the entire amount of the revenue it generated. It cites Section 150 (b) of th e Local Governm ent Code as basis. T h e said sec tion provides that only thirty percent (30%) of recorded sales shall be taxable by the municipality or city w here the principal o ffi ce is located and seventy percent (70%) shall be taxable by th e municipality or city wh ere the taxpayer's factory, project office, plant and plantation is located. The existence of a corporations principal office does not give 1ise to ai!J legal presumptiotl that tbe corporation condut'ls bmimss in the locality where such pl7.11ctpa! office is located. Petitioner further argues that the existence of a principal office do es not n ecessarily mean that such is the place wh ere the business o f the corporation is transacted. The principal oftice may be a place wh ere the books and records of the corporation are kept and where its ofticers meet for the purpose of managing its affairs. It may turn out that the principal office is located at one place and the area of its bu siness operations, at another. l-Ienee, according to petitioner, the RTC erred 1n holding that th ere exists a legal presumption that every corporation which maintains a principal o ffice, conducts business in the said place. Petitioner insists that in its busin ess of building and operating p ower plants, its setvices are delivered outside of Makati City. It claims th at the sales invoices for the supply o f power to its customers are prepared by the branch offices, merely reviewed and approved by the princi pal office, and then issued and delivered by the branch to its customers, whose busin ess premises are outside Makati City. ~� .�'

Decision CTA AC N o.19 Page 5 of19 \' Petitioner has no obligation to shou; that it had alreac!J paid business taxes in the different localities where its branch rifjices are located P etition er clai.rns that th e taxing auth ority o f local governments is based o n law, specifically, the Local Governm ent Code, its Implem enting Rules and in this case, th e Makati Revenu e Code. According to p etition er, these laws provide th at if th e sa le is effected by the bran ch office, the tax du e thereon automati cally accru es in favo r o f the municipality or city where the bran ch o ffic e is located . T he tax thereon canno t accru e in favor o f an y other locality, including the city or municipality wh ere a corp ora tion's princip al o ffice is located . In any case, p eti ti on er avers th at it has no t avoid ed th e paym en t of busin ess taxes to the municipali ties and citi es where its branch o ffices are located. Petitioner is not estopped f rom que.rtioning the authoriry if respondents to impose busim.rs taxe.r de.rpite pqying such taxes in the past. Its erron eous paym en t o f business taxes to resp ond ent in th e p as t is n ot tantam oun t to an admissio n th at su ch taxes were valid and legal. In this case, petitioner merely committed a mistake in paying such taxes to respo nden t. Petitioner i.r not a mntractor and that even assuming that indeed it is a contractor, the tax ba.re used lry respondent is incon-ect Section 131 (h) o f th e Local Govern ment Code defin es a "contractor" as including persons, n atural and juridical whose activity consists essentially o f the sale o f all kinds of services for a fee, regardless o f whether or no t th e performan ce o f th e service calls for th e exercise or use o f th e physical and m ental faculties o f such contractor or his employees. And according to p etiti on er, th e essence o f "contractorship" is th at th e incom e mu st b e derived essentially or primarily from th e sale of services . And in this case, its in com e is no t

\' Decision CTAACNo.19 Page 6 of19 derived from rendering services, but from capital investments in putting up p ower plants for its business partners. Further, p etition er argues that the basis of the tax on con tractors is gross receipts, not gross sales or reve nu es. And therefore, even assu ming that it is li able for bu~ines s tax as a contractor, the tax must be reduced by th e amount of the uncollec ted sal es. And it should be allowed to dedu ct materials and labor costs from its gross receipts. Assuming without admitting that petitioner is liable to p qy the alleged difidenry taxes due, surcharge a11d interest should be exduded in the computation because there is 110 finding that petitioner 7Vil!fu16' neglected to file the cmnd return. Petitioner asserts that the Trial Court erred in including surcharge and interest in computing th e alleged deficiency taxes, becau se th ere is n o finding that it willfu lly n eglected to file the correct return. According to p etitioner, assuming that it is correct to reclassify it as a "contractor," eguity and justice dictate that its relian ce in good faith on respond ent's own classification and assess ment should not m ake it liable to surcharge or interest. Respondent's arguments T'he existence of petitioner's p1incipal office m Makati Ciry and its admission as to such fact constitute p1ima jade evidence that it ts conducting busim.r.r in the saidj urisdiction. Respo nd ent argues that by petitioner's own admission, it is doing busin ess and is maintaining its prin cipal office in City o f Makati. Moreover, petitio ner's claim th at very little business is conducted thereat does not negate th e fact that it still is conducting business in the said prin cipal office. Respond ent likewise claims th at aside from petiti oner's bare assertions, it failed to show that it conducts business o nly at b ran ch offi ces .

\' Decision CTA AC No. 19 Page 7 of19 Petitiotter is doing business as a contractor and should be liable to pqy the dcficienry taxes assessed agaimt it ry the City ofMakati. According to respondent, under Sec6on 3A.01 (q) of the Makati Revenue Code, the term "contractor" refers to persons, natural or juridical, not subject to professional tax, whose activity consists essentiall y of the sale of all kinds of service for a fee, regardless of whether or not such performance of the service calls for the exercise or use of the physical and mental faculties of such contractor or his employees. And under Section 3A.02 (f) the terms "contractor" and "independent contractor" is more particularly defined to include owners or operators of an enumeration of business establishments rendering or offering services. Respondent asserts that the nature of petitioner's business sguarely fits the aforementioned definition. Respondent further argues petitioner's primary purpose, as can be seen its Amended Articles of Incorporation, is to carry on the business of managing and operating private power plants. Moreover, its Statements of In come and Retained Earnings For the Years E nded December 31, 1999 and 1998, include revenue from services, cost of services and operating expenses. Also, an item shows cash flows from "operating activities." Even the Notes to Financial Statements of petitioner reveal that it serves as an independent contractor responsible for the management, operation, maintenance and repair of base load power plants which supply the power reguirement of third parties. All these illustrate that petitioner is indeed a contractor. Consegu ently, respondent maintains that petitioner should be held liable to the assessed deficiency taxes. There is no lmv supporting petitioner:r daim that in computing the taxes due from it, t!Je matetials and labor should be ded11ctedfrom the tax base. ~� ..�

\' Decision CTA AC No.19 Page 8 of19 It is respondent's contention that the definition of "gross sales or receipts" under Section 220 (n) of the Implem enti ng Rules and Regulations of the Local Government Code of 1991 prohibits the deduction of costs of labor and materials. The said provision reads: "(n) Gross Sales or Receipts include the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged or materials suppli ed with the services and deposits or advance payments actually and constructively received during the taxable quarter for the services performed or to be performed for another person excluding discounts if determinable at the time of sales, sales return, excise tax and valu e-added tax (VAT);" Tax surcharges and interests were apjJiied according to /aUJ. The averment of petitioner that it should not be liable for surcharge and interest principally since it was the City of Makati which classified the former as an investment company 1s erroneous. Respondent claims that during the initial application for securing a business permit last January 5, 1995, it was petitioner through a director, who signed, applied and designated itself to be a "holding company". It was only in the present renewal year 2003 that a change in the business activities of petitioner was noticed by the Business Tax Division of Makati City. And res pondent cannot be held entirely responsible for whatever mistake that had transpired because of its misclassification as a "holding company". Petitioner cannot claim good faith since it could have called the attention of the City Treasurer anent the mistake. The issues raised by the parties can be summed up as follows: First, w hether petition er was correctly re-classified as contractor or whether petitioner is indeed holding/investment company, akin to a financial institution . J\nd corollary thereto, if petitioner was correc tly re- classified as a contractor, wh ether the amount of uncollected sales and the expenses for labor and m::~terials should be deducted from the tax base.

\' Decision CTAAC No.19 Page 9 of19 Second , the tax situs, z:e., whether the City of Makati can impose tax o n p etition er given the fact that only its principal office is located in Makati. \Vheth er or not th e tax surch arges and interests co rrectly imp osed. Th e court w ill tackle th e issu es in th e respective order th at they were presented . FIRST ISSUE: A pplicabl e is Section 131 (h) of th e Local Governm ent Code, thi s provision defined th e term "contractor". It reads: 01) "Contractor" includes person s, natural or juridical, not subj ect to professional tax und er Section 139 of this Code, whose activity co nsists essentially of the sale of all kinds of services for a fee , regardless o f wh ether or not the performan ce of the service calls for the exercise or use of the physical or m en tal faculties of such co ntractor or his employees. As used in this Section, the term "contractor" shall include general engineering, general building and sp ecialty con tractors as defin ed under applicab le laws; filling, demolition and salvage works contracto rs; proprietors or operators o f mine drilling apparatus; proprieto rs or operators o f dockyard s; persons engaged in the installation of water system, and gas or electric light, heat, or p ower; proprietors or op erators o f sm elting pl ants; engravmg, plating, and plastic lamination establishments; proprietors or operators of establishments for repairing, repainting, uph o lstering, washing or greasing of vehicl es, h eavy equipment, vulcanizing, recapping and battery charging; propri etors or operators o f furniture sh ops and es tablishm ents for planning or su rfacing and recu tting of lumber, and sawmills und er contract to saw or cut logs belonging to o th ers; proprietors or operators of dry- clea ning or dyeing establishments, steam laundries, and laundri es using washing machines; proprietors or owners of shop s for th e repair of any kind of m echanical and electrical d evices, instrum ents, app aratu s, o r furniture and sh oe repairing by machin e or an y mechanical contriva nce; proprietors or operators of establishments or lots for parking purposes; proprietors or operators of tailor shops, dress shops, milliners and hatters, beau ty parlors, b arbershops, massage clinics, sauna, Turkish and Swedish ba ths, slenderizing and building saloons and simil ar establi shm en ts; pho tographic studios; funeral parlors; proprietors or op era tors of h o tels, m otels, and lodging houses; propri eto rs or operators of arrastre and stevedoring services, wareh ousing, or forwarding establi shm ents; master plumbers, smiths, and hou se or sign painters; printers, bookbind ers, lith ograph ers; publishers except those engaged in the publicatio n or printing of any newspaper, m agazine, review or bulletin which app ears at regu lar intervals

-� ..�\ ' Decision CTAACNo. 19 Page 10 of19 with fixed prices for subscriptio n and sale and which is no t d evo ted principally to th e publication and adverti sements; busin ess agents, priva te detective or wa tchman agencies, comm ercial and immigration brokers, and cinem atographic film owners, lessors and distributors." (Empbaszs Supplied) The above definiti on is so b road, that any service rendered for a fee is covered therein and th e only qualificati o n is that th e perso n, natural or juridical, no t be subj ect to profession al tax . In this case, petitio ner canno t: correc tl y argue th at it is no t a con tracto r fo r th ere are pieces of evidence to th e contrary. Firs t, per its own admission, it builds power plan ts for a fee under Build-Operate-Transfer schem es with its custom ers. Second, its A mended Article o f Incorporation states that th e primary pu rpose o f the corp orati o n is to m anage and operate power plants. As quoted by the RTC, petiti o ner's Am ended A rticles of Incorporation partly read s: "T o carry on the busin ess o f managing and operating power plants, including, but no t limited to, th e acquisitio n by purchase, exchange, ass ignm en t, imp ortati on or o th erwise, and to sell, assign, transfer, exchange, mortgage, pledge, traffi c o r o th erwise to enj oy and di spose o f, machineri es, equipment and buildings, and generally p erform, preserve, improve or enhan ce the valu e o f any such machin eries, equipment and buildings to th e ex tent permitted by law." Th e fact that it later on amended, thi s alread y Am ended Articles o f Incorporati on to make its primary purpose "to carry on th e bu siness o f a holdin g company" does not mak e any difference, since its business really consists o f building and operating power plants. Third, as fo und by the RTC, petitioner's Financial Statements show that it serves as an independent contractor respon sible for th e m anagem ent, op eration, maintenance and repair of power plants. Petitioner failed to show that th e above RTC findin gs are in correc t and baseless. On the contrary, petitioner m erely argues that it advances capital by employing and paying for services of a "contractor" whi ch will build the power plants. H owever, petitioner failed to

Decision CTAACNo . 19 Page 11 of19 \' show proof o f this allegation . Moreover, as stated above, by its own all egatio n, its bu siness consists o f financing th e co nstru ction and op eration of private p ower plan ts through "Build- O perate-Transfer" (BOT) arrangem ents. Neecll ess to state, und er BOT arrangem ents, th e contractor no t only fin ances, but ac tuall y builds and operates. Anent the issue of w hether, th e amount o f uncollected sales should b e deducted, the Court finds for the p etitio ner. "Gross sales or receip ts" is defin ed in the Local Government Code as to "include th e to tal amou nt of m o ney o r its e quivale nt re prese nting the co ntrac t price , compe n sation or service fee , including th e am ount charged or materials supplied with th e services and de pos its or advance paym e nts ac tu ally and cons tru c tive ly rece ived during the taxable qu arter fo r the serv1ces p erform ed or to be p erform ed for ano ther p erson excluding discounts if de terminable at the tim e o f sales, sales return , excise tax and value- added tax (VAT)." T he definitio n o f "gross sales o r receipts" und er th e Maka ti Revenu e Code, whi ch was pattern ed after Sectio n 220 (n) o f the Impl em en ting Rules and Regul ati ons of the Local Govern m ent Code, as to "include th e to tal amount o f m oney or its equivalent represen ting th e contract price, compensation or service fee, including th e am ount charged or ma terial s supplied with th e services and deposits or the taxable quarter for th e services p erformed or to be perform ed for ano th er p erso n including di scoun ts if determin able at th e tim e o f sales, sal es return, excise tax , and valu e- added tax (VAT)," cann o t take precedence over the Local Government Code, which prov ides that only th e am o unts actually and constru ctively received sh ould be covered. ~ ~.i ,j

Decision CTA AC No. 19 Pnge 12 of19 The decision in China Ba11king Corporation v.r. Court of AppeaLr, 1 may be applied by analogy: " !\ s co mm o nly und erstood, the term 'gross receipts' means th e e ntire receipts w ith o ut any d e du c ti o n. D educ ting any amou nt from the gross receipts ch anges the result, and the m eaning, to ne t receipts . A ny deduction from gross receipts is in consis tent with a law that mand ates a tax o n gross receipts, un less the law itsel f makes an exception. As explain ed by the Supreme Cou rt o f P ennsylvania in Commonwea lth o f Penn sylvania v. Koppers Company, Inc., Highl y refin ed and technica l ::!x concepts have b ee n dev elo ped by th e accountant and lega l tec hni cian primarily because of the impact o f federa l income tax legislatio n. However, this in no way shou ld affec t or control th e normal usage of words in th e con struction of our statutes; and we see nothing that wou ld require us not to include the proceeds here in question in the gross receiprs all ocation unless statutoril y such inclusion is prohibited. Under the ordinary basic m ethods of handling accounts, the term gross receip ts, in the absence of any statutory defin ition of the term, must be taken to in clude the \.vhole total gross receipts w itho ut ~my deductions, ." C itations omitted] (Emp/){IJiJ mpplieclj Clearly, under the definition prov id ed by th e Local Governm ent Co de, the total or entirety of the sa les of p etitio ner is subj ect to tax without dedu ction, and qualifieJ o nl y by the phrase "payments actually or cons tr uctively received". Stated differently, "gross sa les or receipts", include only co mp ensation o r fees, which was received, actually o r con structively, by petiti o ner. l t is well-se ttled th at the court may not co nstrue a statute th at is clear an d free from doubt. Time and time again, it has been repeatedly declared, that wh ere the law speaks in \' clear an d categorica l language, there is no room for interpretation. T here is on ly room for appli cation. For nothing is bet ter settled than the first and fu nd am ental duty of co urts is to app ly the law as they find it, not as they like it. Fidelity to such a task precludes co nstru ction o r interpretation or interpretation, unless ap pli cation is imp ossible or inadeguate without it. I 403 SCRA 64 7-649

Decision CTAACNo.19 Page 13 of19 \' Where the law is clear and unambiguous, it must be taken to mean exactly what it says and the court has no ch oice but to see to it that its mandate is obeyed.2 (Citations Omitted) However, while petitioner is correct that the amount of uncollected sales should be deducted, a perusal of th e records will show that it failed to show proof th at indeed part of the amount assessed, included uncollected sales. There being no proof to the contrary, the amount of deficiency tax as assessed stands, given the presumption of its correctness. Further, petitioner's argument that the amount of expenses for labor and materials which it incurred from the construction and operation o f the power plants should be deducted from the tax base, is erroneous. The same contradicts the unambiguou s definition of gross receipts, provided under the Local Government Code and the Makati Revenue Code. SECOND ISSUE: Petitioner argues that the City of Makati cannot impose taxes on them because all of its sales are recorded in their branch offices and under the Local Government Code, a corporation which maintains or operates branch or sales outlets elsewhere (o utside the municipality or city where its principal office is located) should records the sale in the branch� or sales outlet making the sale or transaction. Accordingly, the t.ax on such sale should accrue and be paid to th e municipality or city where such branch or sales outlet is located. Situs means the location or place of business; the place where a thing is considered, for example, with reference to jurisdic tion over it, or the right or power to tax it.3 2 Agpafo, Statutmy Construction, 3"1 Edition, pages 46-47. s 3 Black Law Dictional)', 5'" Edition.

Decision CTAA C No . 19 Page 14 of19 \' By peti tion er's own allegations, it mai ntains its prin cip al o ffi ce in Makati City for the purp ose o f ensuring an orderly and cen tralized sys tem o f b usin ess administration and the fact th at o nly a few of its employees work at thi s p rincipal office m akes no di fferen ce. The Court no tes th at all its branch es can be foun d o nly in the same places where th e power p lants are actu ally constructed. H ence, p etitio ner ca nno t claim th at all its business are conducted in th ese bran ch o ffices, for in th e ordinary course o f things, before th ese power plants are built, there sho uld be, to begin with negotiatio ns and plans for su ch con s tru c ti o n . Moreover, p etitio ner's assertion th at n o sales are co nducted within th e ju risdiction o f Makati City, arguing th at the sales invoices for the supply o f p ower to its custo mers are prepared by the branch o ffices, m erely reviewed and app roved in th e prin cipal office, and are then issu ed and delivered by th e branch o ffice to custom ers, w hose premises are located outside Makati City, does no t b olster its claim. In stark contras t, th e sam e proved its principal o ffice bas a hand on its sales, since this o ffi ce reviews and apptoves th e correctn ess o f invoices issu ed by branch offices. N aturally, the p rincipal o ffi ce canno t review o r approve th ese invoices, if th e sales are no t record ed th ereat. At any ra te, if there is truth to its allegati o n that no bu sin ess is transacted and record ed in Makati City, peti tio ner cou ld have easil y shown the trial court, th e records and b ooks o f its prin cip al office in th e said city, to show tha t th e sales in th e o ther municipali ties are no t recorded there, in this it failed . P etiti on er is however correct that Sec tion 150 of th e Local Government Code applies. It reads: Sec. 150. SITUS OF T AX.- ..�.. ''-�i a�.-

Decision CTA AC No . 19 Page 15 of19 (a) For purp oses o f collection o f taxes und er Sec ti on 143 of this Code, manufacturers, assemblers, repackers, brewers, di stillers, rectifiers, and compounders of liqu or, distilled spirits and win es, millers, prod ucers, exporters, w holesalers, distributors, dealers, con trac tors , banks and other finan cial institutions, and other busin esses m aintaining or o perating branch or sales outlet elsewhere shall record th e sale in the bran ch or sales outlet making the sale or transaction, and the tax th ereon sh all accrue and shall be paid to the municipality wh ere such bran ch or sales outl et is located. In cases w here there is no such bran ch or sales o utlet in the city or municipality where the sale or transaction is mad e, the sale shall b e duly recorded in th e principal office and th e taxes du e shall accrue and shall be paid to such city or municipali ty. (b) T he followin g sales allocation shall apply to manufacturers, assemblers, contractors, produ cers and exporters with factories, project o ffi ces, plants, and plantations in the pursuit of their bu sin ess: (1) T hi rty perce nt (30%) o f all sales recorded in th e prin cipal office sh all be taxable by th e city o r municipali ty where th e principal o ffice is located. (2) Seventy pe rce nt (70%) of all sales recorded in the principal office shall be taxable by th e city or muni cipality w here the fact ory, project office, p lant, or plantation is located. XXX XXX XXX (d) In cas es where a manufacturer, or assembler, producer, exporter or contractor has two (2) o r m ore fac tories, p ro jec t o ffi ces, plants, or plantations locate d in different localities, the seventy p ercent (70%) sales allocation m entioned in subparagraph (b) of su bsec tion (2) above shall be pro rate d am ong th e localities where th e fa ctories, project o ffi ces, plants, and plantatio ns are located in proportio n to their respective volumes of produ ctio n during th e p eriod for whi ch the tax is due . (e) The foregoing sales allocation shall be applied irrespective of wh eth er or not the sales are made in the locality where the factory, project office, plant, or p lantation is located. (EmpbaJis S11pplied) ��..\� ' Further, Article 243 of the Implementing Rules and Regulatio ns o f th e Local Government Code provides for the foll owing definiti on o f terms: Principal Office - the head or main o ffice of the business appearing in the pertinent documents submitted to th e Securities and Exchange Commi ssion, or the Department of Trade and Indu stty, or other appropriate agencies, as the case may be.

Decision CTAAC No.19 Page 16 of19 \' The city or municipality specificall y mentioned in the Articles of Incorporation or official registration papers as being the official address of said principal office shall be considered as the situs thereof. Branch or sales office - a fixed place in a locality which conducts operations of the business as an extension of the principal office. xxx The same article also implements the Sales Allocation provisiOn 1n the Local Government Code. Thus, the City of Makati where petitioner's principal office is found, can only tax 30% of petitioner's gross sales/receipts. THIRD ISSUE: On the third issue the Court finds for the respondent. As correctly argued by respondent:, it was petitioner, during its initial application for securing a business permit, which represented itself as a holding company. Petitioner cannot rightfully claim good faith, having made the representation itself. Moreover, petitioner could have easily called the attention of the local government anent the mistake. And under Section 168 of the Local Government Code, the sanggunian may impose surcharge not exceeding twenty-five percent (25%) of the total amount of taxes, fees or charges not paid on time and an interest, at the rate not exceeding two percent (2%) p.er month of the unpaid taxes, fess or charges including surcharges, until such amount is fully paid, but not to exceed thirty-six (36) months. Applicable are the following provisions of the Makati Revenue Code: SECTION 3A.09 . Surcharge for late payment. - Failure to pay the tax prescribed in this Article within the time required shall subject the taxpayer to a surcharge of twenty five percent (25%) of the original amount of tax due, such surcharge to be paid at the same time and in the same manner as the tax clue. SECTION 3A.10. Interest on unpaid tax. - In addition to the surcharge imposed herein, there shall be imposed an interest of two percent (2%) per month of the unpaid taxes, fees or charges including �- L) J

Decision CTA AC No.19 Page 17 of19 surcharges, until such amount is fully paid but in no case shall be total interest on the unpaid amount or portion thereof exceed thirty-six (36) months. Where an extension of time for the payment of the tax has been granted and the amount is not paid in full prior to the expiration of the extension, the interest abovementioned shall be coll ected on the unpaid amount from the date it becomes originally due until fully paid. Accordingly, the surcharge and penalties were imposed in accordance with law. On contractors, the Makati Revenue Code provides for the following graduated rates of tax: With gross sales or receipts for the preceding calendar year in the amount of: Per Annum Amount of Tax less than P50,000.00 Exempt \' P50,000.00 or more but less than 75,QOO.OO P880.00 75,000.00 or more but less than 100,000.00 1,320.00 100,000.00 or more but less than 150,000.00 1,980.00 150,000.00 or more but less than 200,000.00 2,640.00 200,000.00 or more but less than 250,000.00 3,630.00 250,000.00 or more but less than 300,000.00 4,620.00 300,000.00 or more but less than 400,000.00 6,160.00 400,000.00 or more but less than 500,000.00 8,250.00 500,000.00 or more but less than 750,000.00 9,250.00 750,000.00 or more but less than 1,000,000.00 10,250.00 1,000,000.00 or more but less than 2,000,000.00 11,500.00 2,000,000.00 or more but less than 50,000,000.00 P11,500.00 plus sixty percent (60%) of one percent (1%) of excess over P2.0 million 50,000,000.00 or more P299,500.00 plus fifty percent (50%) of one percent (1%) for 1993, fifty five percent (55%) of one percent (1%) for 1994 and 1995, and seventy five percent (75%) of one percent (1 %) for 1996 and thereafter of the excess over PSO million. In view of the foregoing, the Petition for Review is PARTIALLY GRANTED and the tax due against petitioner is hereby reduced to the amount of Nine Hundred Ninety

Decision CTA AC No.19 Page 18 of19 Three Thousand Nine Hundred One Pesos 29/ 100 (P993,901.29), representing unpaid deficiency tax as contractor for the years, 2000, 2001, 2002, including su rcharges and interest provided under Section 168 of the Local Government Code computed as follows : Total Service Revenue 2000 2001 2002 Totals Allocation 212,738,652.00 300,844,703.00 364,410,627.00 877,993,982.00 Taxable Base Tax Due 30% 30% 30% 30% 63,82 1,595.60 90,253,410.90 109,323,188.10 263,398, 194.60 P50m Over P50m x 75% of 1% 299,500.00 299,500 00 299,500.00 898,500.00 Total Tax Due 103,661.9 7 301,900.58 444,923 .9 1 850,486.46 Less: Tax Payment 403,161.97 601,400.58 744,423.91 1, 7 48,986.46 Tax Deficiency 348,523.36 451,267.07 486,916.36 1,286,706.79 Add: Surcharge (25%) 150,133.51 257 ,507.55 462,279.67 Total 54,638.61 64,376.89 115,569.92 Add: Interest (2% for 36 mos.) 13,659.65 37,533.38 32 1,884.44 577,849.59 Total Tax Deficiency 68,298.26 187,666.89 23 1,756.80 416,051.70 49 ,174.75 135,120.16 553,641.23 993,901.29 117,473.01 322,787.05 SO ORDERED. L~- c~ ERNESTO D. ACOSTA Presiding Justice / CAES~SANOVA Associate Justice \ ,, \ ---A-ssocia te Ju stice

Decision CIA AC No. 19 -� ..�\ ' CERT IFICATION Pursuant to Secti o n 13, Article VIII o f th e Constitution, it is h ereby certifi ed th at th e conclu sions in th e above D ecision were reached in consul ta tion b efore th e case was as signed to the writer o f th e opinion of th e Court's Division. L\> - ~ ERNESTO D. ACO STA Presicling Ju stice (' ,> _; n c I' � ~x Appe;ah, �.. Library �t