ENERGY DEVELOPMENT CORPORATION v. THE CITY TREASURER OF ORMOC

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ENBANC ENERGY DEVELOPMENT CTAEB NO. 2846 CORPORATION, (CBAA Case No. V-44-2020, LBAA Case No. 007) Petitioner, Present: DEL ROSARIO, P.J., -versus - RINGPIS-LIBAN, MANAHAN, BACORRO-VILLENA, MODESTO-SAN PEDRO, REYES-FAJARDO, CUI-DAVID, THE CITY TREASURER OF FERRER-FLORES, and ANGELES, Jl. ORMOC, Respondent. Promulgated: X--- ---------------------------- -- ~~~-~-~ -'31:;,,..,..;"'' JUDGMENT ON COMPROMISE AGREEMENT RINGPIS-LIBAN, J.: For resolution are the following: 1) T he parties' "J oint Mo tion for Judgment Based on Co m p r o mise" 1 filed on February 16, 2024; and , 2) Petitioner's "Compliance/Submission"2, flied on June 19, 2024. "Compliance/Submission" filed on June 19, 2024/ 1 Rollo, pp. 235-241. 2 Id., pp. 274-279 .

Judgment on Compromise Agreement CTA EB NO. 2.846 (CBAA Case No. V-44-2.02.0, LBAA Case No. 007) Page 2. of 13 On f;Iay 31, 2024, a Resolution3 was issued ordering the parties to submit the original or certified true copy of the following documents within fifteen (15) days from notice: 1) Sangguniang Panlungsod Lungsod ng Ormoc Resolution No. 2023-239; and 2) Secretary's Certificate dated December 12, 2023. On June 19, 2024, Petitioner filed a "Compliance/Submission", attaching the original copy of Secretary's Certificate dated December 12, 2023 and a certified true copy of Sangguniang Panlungsod Lungsod ng Ormoc Resolution No. 2023-239. The Court NOTES said "Compliance/Submission". We now proceed to resolve the "Joint ;.rotion for Judgment Based on Comprorru.sc" . "Joint Motion for Judgment Based on Compromise" filed on February 16, 2024 On December 11, 2023, a "Petition for Review"" was ftled in the instant case via registered nuil, seeking for the reversal and setting aside of the Decision dated i\Iay 18, 2023 and Resolution dated October 17, 2023 issued by the Central Board of c\ssessment "\ppeals ("CBc\N') in CBc\,\ Case No. V-44-2020, in relation to Petitioner's claim for refund of overpaid real property tax for calendar year 2014 on its properties located in Ormoc City. On February 16, 2024, the parties filed their "Joint J\Iotion for Judgment Based on Compromise", praying for the Court E11 Ba11c to approve the parties' Compromise ,\greement and issue a judg1nent on the basis thereof. In support thereto, the parties submitted the following documents: 1) photocopy of Lungsod ng Ormoc Tax Ordinance No. 015 Series of 2023;/ 3 !d., pp. 2.71-273. 4 !d., pp. 3-61.

Judgment on Compromise Agreement CTA EB NO. 2846 (CBAA Case No. V-44-2020, LBAA Case No. 007) 2) photocopy of Certification dated December 22, 2023 issued by the Secretary to the Sangguniang Panlungsod Lungsod ng Ormoc to attest to the publication and posting of Tax Ordinance No. 015 Series of 2023; 3) notarized "Compromise Agreement" dated December 13, 2023; 4) certified true copy of Sangguniang Panlungsod Lungsod ng Ormoc Resolution No. 2023-239 granting authority to the i\Iayor of Ormoc City, l\Iayor Lucy Torres Gomez, to enter into and sign the "Comprornise :\greement"; 5) original Secretary's Certificate dated December 12, 2023 granting authority to Petitioner's Vice Chairman and Chief Executive Officer, Francis Giles B. Puno, and President and Chief Operating Officer, Jerome J-1. C:ainglet, to sign the "C:mnpromise c\greement"; 6) photocopy of draft "Joint i\Iotion for Judgment Based on Compromise" to be filed with the Central Board of "\ssessment c\ppeals; and 7) photocopy of draft "Joint l\Iotion for Judgment Based on Compromise" to be flied with the Local Board of Assessment "-\ppeals. Section 22 of Republic _\ct No. 7160 or the Local Government Code of 1991 allows a local government unit to be a party to contracts or agreements, the mayor as signatory therein, provided that there is an authorization from the Sanggunian to enter into said contract or agreement, to wit: "SECTION 22. Corporate Powers.- (a) Every local government unit, as a corporation, shall have the following powers: XXX XXX XXX (5) To enter into contracts; and (6) To exercise such other powers as are granted to corporations, subject to the limitations provided in this Code and other laws. rl

Judgment on Compromise Agreement ITA EB NO. 2846 (CBAA Case No. V-44-2020, LBAA Case No. 007) XXX XXX XXX (c) Unless otherwise provided 111 this Code, no contract may be entered into by the local chief executive in behalf of the local government unit without prior authorization by the sanggunian concerned. ,-\ legible copy of such contract shall be posted at a conspicuous place in the provincial capitol or the city, municipal or barangay hall. (d) Local government units shall enJOY full autonomy in the exercise of their proprietary functions and in the management of their economic enterprises, subject to the limitations provided in tlus Code and otlKr applicable laws."5 The "Compromise ,\grcement" reads, as follows: "RECITALS WHEREAS, the LGU Ofu\fOC is empowered by the Local Government Code ('LGC') to collect Real Property Tax ('RPT'), thus: 'A pro11inre or tit) xxx shalffix a umjom1 mte of basir real property tax applimble to tbeir mpedil'e !omlitieJ� mjol!oJPS: xxx (b) In tbe case of a tit)! xxx, at tbe rate not exceeding two perant (2%) oftbe asseJJed at tbe real property'; WHEREAS, the LGU ORMOC implements real property taxation in the City through Tax Ordinance No. 93-03 enacted on June 17, 1993, Section 38 of which states: 'Tbere is bereby !et;ied annual 'Ad Valorem' tax 011 real properties sucb as land, b11ilding, macbimry and otber imp1vvement not berein after .rpedficall)! exempted, an 'Ad Valorem' tax of 1% of tbe asseJJed valm of Jllcb propetties except on all commercial and industrial properties in tbe City, macbims�, macbinerieJ�, merbaniml contrivances, imtmments, tools, implementJ, appliances, apparatlfs parapbemalia medfor indi!J'tJial, agJimlt11ral or commercial pmposes, plants, eledrimlpoles, raiiJPap andje11ces�; wbid; are taxed at 1 1/2% oftbe anm1al J)a/ue '; WHEREAS, Section 235 of the LGC further states, that: 'A province or rtf]!. or a 17?1/lllt'!pality witbin tbe Aietropolitan J\Iamla Area, JJJC!)' levy and rolled an annual tax ofom percent (1 %) on tbe assessed !Ja!ue ofreal property wbicb Jba!l be in addition to tbe ba.rit rea!proper!)' tax Tbe proceedJ thereof Jball exdttsive!y aceme to tbe Jpe,ia! Education F11nd (SEI")'. ;/ Emphasis supplied.

Judgment on Compromise Agreement ITA EB NO. 2846 (CBAA Case No. V-44-2020, LBAA Case No. 007) WHEREAS, Section 32 of Ordinance No. 93-03 also states, that: 'For p111pose.r of aneSJment, a depreciation alloJYanre .rba!l be made for macbine!]' at a rate percent ofji1;e percent (5%) of its original mst or its replacemellt or reptvduction cost, as tbe rase maybe, for eadJyear ofme provided tbat tbe remaining val11e for all kinds of marbittety shall be fixed at twenty percent (20%) ofmcb original, replacement, or reproduction mstfor .ro long as machinery is Jt.rejit! and i11 operation'. WHEREAS, Section 53 of Ordinance No. 93-03, as amended by Ordinance No. 001-98, states that: 'If tbe baJic Real Ptvperty Ta.Y and tbe additional Tax aaming to special edumtion ji111d are paid 011 time or in advance in accordal!ce witb tbe pre.rcribed schedule ofpayment as pmvided}or in [Section 52 of! tbis ordinance, a di.rcottnt of 10% forprompt payments, and a disrom1t of20% for ad?JC/1/te paymwts, sba!l be giJJe/1 to tbe taxpcl)'er conrerned, p1vvided however tbat tbere is 110 tax delinqmncy dm on tbe same ptvpert/; WHEREAS, on 16 December 2008, Republic 1\ct No. 9S13 or the Renewable Energy c\ct of 2008 (the 'RE Law') was signed into law; WHEREAS, the RE Law granted Registered Renewable Energy (RE) Developers certain incentives, including a Special Realty Tax Rate on civil works, equipment, machinery, and other improvements, and provides- Section 15. Incentives for Renewable Energy Projects and Activities. - RE developers of renewable energy facilities, including hybrid systems, in proportion to and to the extent of the RE component, for both power and non-power applications, as duly certified by the DOE, in consultation with the BOI, shall be entitled to the following incentives: (c) Special Realty Tax Rates on Equipment and Machinery.- Any law to the contrary notwithstanding, realty and other taxes on civil works, equipment, machinery, and other improvements of a Registered RE Developer actually and exclusively used for RE facilities shall not exceed one and a half percent (1.5%) of their original cost less accumulated normal depreciation or net book value: Provided, That in case of an integrated resource development and generation facility as provided under Republic Act No. 9136, th/

Judgment on Compromise Agreement CTA EB NO. 2846 (CBAA Case No. V-44-2020, LBAA Case No. 007) real property tax shall only be imposed on the power plant; WHEREAS, EDC is a Philippine corporation engaged in the exploration, dev�elopment, and utilization of energy from RE sources; WHEREAS, EDC is a Registered RE Developer of geothermal energy resources in Leyte pursuant to the RE Law and is July registered with the Department of Energy; WHEREAS, EDC owns and/ or operates civil works, machineries, equipment, and improvements used for geothermal power plant operations in Ormoc City (the 'Power Plant Assets'); WHEREAS, the LGU ORMOC had assessed EDC with realty taxes for taxable years 2012 to 2023 with respect to the Power Plant _\ssets at the total rate of 2.5%, consisting of 1.5% basic RPT and 1% levy for the Special Education Fund ('SEP') pursuant to Ormoc Ordinance No. 93-03 and the LGC (basic RPT and SEF shall be collectively referred to as 'Realty Taxes'); WHEREAS, EDC, as a Registered RI:<: Developer, is of the view that it is liable only for Realty Taxes on civil works, equipment machinery, and other improvements under Section 15(c) of theRE Law on all its Power Plant c\ssets at a rate not exceeding 1.5%; WHEREAS, from taxable year 2012 to 2023, EDC paid under protest the aggregate amount of Php366,121,230.97 representing the additional Realty Taxes over and above the Special Realty Tax Rate of 1.5%, ami the application of less than 5% depreciation allowance on machineries for taxable years 2022 and 2023; WHEREAS, EDC filed separate Petitions with the Local Board of _\ssessment _\ppeals ('LB"�\N) to assail the LGU OR.c\IOC's inaction or adverse decision on its protest letters for taxable years 2012-2015 and the LBA_�\ ultimately upheld the LGU OR:\IOC's imposition of Realty Taxes at the total rate of 2.5%; WHEREAS, as a result of the denial of its LBAA Petitions, EDC instituted the following cases before the Central Board of "\ssessment c\ppeals ('CR\X) (the 'CR\_\ Cases'); /

Judgment on Compromise Agreement CTA EB NO. 2846 (CBAA Case No. V-44-2020, LBAA Case No. 007) 1. Em1gy Development C01poration JJ. Local Board of AJJeJJment Appea!J of tbe City of Om10c and The City TreaJI!rer of Ormoc (CBAA CaJe No. V-45-2020; LBAA Ca.re No. 005) covering taxable year 2012; 2. Enel;g)' Det,e!opment Co1poratio11 v. Lora! Board of Assewnent Appeals of the City of Omzoc and The City Treas11rer of Ormor (CBAA CaJe No. V-43-2020; LBAA Cme No. 006) covering taxable year 2013; 3. Em1gy Development Co1poration v. Loud Board of AnesJment Appea!.r of the City of Omzoc and The City TreaJ/Irer of Ormoc (CBAA Case No. V-44-2020; LB/lA C{m No. 007) covering taxable year 2014; and 4. Enetgy Development C01poration JJ. Lora! Board of AJsessment Appeals of the City of Ormoc and The City Trea.rurer of Ormoc (CBAA CaJ�e 1"-''o. V-46-2020; LBAA CaJ�e No. 008) covering taxable year 201 S; WHEREAS, to date, the CR\c\ Cases are still pending with the CBA"\; XXX XXX XXX WHEREAS, the Parties have come to a mutual agreement to amicably settle their claims in the CB:\.\ Cases and LBA"\ Caocs in order to avoid the inconvenience and expense of further proceedings; NOW, THEREFORE, for and in consideration of the foregoing premises and all the conditions and covenants herein, the Parties have agreed as follows: Section One LGU ORMOC's Obligations 1.1. Recognition of Special Realty Tax Rate. Consistent with the principles set forth in the aforequoted cases and DOJ opinion, the LGU Olu\IOC recognizes and affirms that a Registered REDeveloper under theRE Law shall be entitled to the 1.5% Special Realty Tax Rate on civil works, equipment, machinery, and other improvements under Section 15(c) of theRE Law. /

Judgment on Compromise Agreement ITA EB NO. 2846 (CBAA Case No. V-44-2020, LBAA Case No. 007) The LGU Oiu\IOC: recognizes and affirms that EDC as well as its subsidiaries that are Registered RE Developers under the RE Law are, and will be, entitled to the Special Realty Tax Rate under this provision, unless and until a final and executory decision, inconsistent thereto, is rendered by a court of competent jurisdiction, and/ or until later national legislation is passed and enacted which supersedes and/ or revokes Section 15(c) of the RE Law. 1.2. Extent of Special Realty Tax Rate. Since EDC: operates an integrated resource development and generation facility in Ormoc City, the LGU Ofu\IOC shall apply the Special Realty Tax Rate to the Power Plant c\sscts, consisting of EDC's power plants and other real properties used for power plant operations, as well as to power plants and other real properties used for power plant operations which EDC may herafter own or acquire. Land owned and/ or used by EDC in its operations and properties utilized for resource development or steamfield operations arc likewise not subject to Realty Taxes. 1.3. Entitlement to Depreciation Allowance. The LGU OR\IOC further recognizes and affirms that EDC and its subsidiaries are entitled to full depreciation allowance for machinery under Section 32 of Ordinance No. 93-03 as above quoted. The full depreciation allowance shall be applied per year on the machineries that are being used for power plant operations, as well as for future machineries that will be used for its power plant operations, and declared by EDC: and its subsidiaries for tax purposes, provided that the remaining varies for all kinds of machinen-� shall be fixed at t:wentv percen t (20%) or reproduction' of such original, replacement, cost for so long as the machinery is useful and in operation. 1.4. Beginning taxable year 2024 onwards, the LGU Ofu\IOC shall: a. Assess and collect Realty Taxes from EDC only for the Power Plant Assets and based on the Special Realty Tax Rate under Section 15(c) of the RE Law, at a maximum rate of 1.5%. Consistent with the RE Law, the Special Realty Tax Rate shall apply in lieu of all 'realty and other taxes', including both the basic RPT and the SEF, 'any law to the contrary notwithstanding'/

Judgment on Compromise Agreement CTA EB NO. 2846 (CBAA Case No. V-44-2020, LBAA Case No. 007) b. Not impose and collect Realty Taxes on land owned and/ or used by EDC for its operations and properties utilized in the resource development or steamfield operations of EDC; and c. Apply the 5% depreciation allowance per year to all the machineries forming part of the Power Plant "\ssets, consistent with the provisions of Ordinance No. 93-03. This obligation is without prejudice to subsequent jurisprudence and/ or national legislation that is/are inconsistent with the above undertakings. 1.5. Discounts for Prompt Payment and Advance Payment of Realty Taxes. LGU Ormoc shall grant EDC and its subsidiaries discounts on payments of Realty Taxes of (i) 10% for prompt payments, and (ii) 20% for advance payments in accordance with the LGC and its implementing rules and regulations, provided that there are no Realty Tax delinquencies due on the properties subject to tax. Section Two EDC's Obligations In consideration of the foregoing covenants bv the LGU ORMOC, and by way of concession: (a) EDC agrees not to pursue its claims for refund of its overpaid Realty Taxes for taxable years 2012 to 2023, which are the subject of the CB"�L\ Cases and the LR\A Cases, in the total aggregate amount ofPhp366,121 ,230.97. (b) Subject to the conditions set out below, EDC waives its right to receive a cash refund or a tax credit certificate ('TC:C') for its overpayments of Realty Taxes for taxable years 2012 to 2023 in the amount of Php366,121,230.97. This amount shall instead constitute a donation bv EDC in favor of the LGU ORMOC to finance the LGU ORMOC's local government programs, especially those on education, such donation being subject to the following conditions: (i) The LG lJ ORMOC shall fulfill its obligations under this ;\grecment, including its obligations as set out in Section 1, unless the preferential tax incentives under Section 15(c) of the RE Law are invalidated by virtue /

Judgment on Compromise Agreement CTA EB NO. 2846 (CBAA Case No. V-44-2020, LBAA Case No. 007) of a final judgment of a court of competent jurisdiction or superseded or revoked by a national legislation; and (ii) There is no local ordinance passed that adversely affects the preferential tax incentives of EDC of the same nature as the ones made subject of this c\greement. Should any of the conditions set forth above not be fulfilled or met, the donation herein shall be deemed automatically cancelled and EDC shall be entitled to receive from the LGU ORt\IOC, and the LGU 01\1\IOC undertakes to immediately remit to EDC, a cash refund or issue TCC in EDC's favor equivalent to its overpayment of Realty Taxes for taxable years 2012 to 2023 in the total amount of Php366,121,230.97, or treat such over1nymcnt of Realty Taxes as tax credits against EDC's future Realty Tax lia bili tics. Consistent with the foregoing, the Parries agree to execute the corresponding Deed of Conditional Donation and such other documents as may be required to give effect to this conditional donation. (c) EDC shall comply with the obligation of persons acquiring real property or malting improvements thereon by filing sworn statements declaring the value of the property, as set forth in Ordinance No. 93-03, the LGC, or subsequent national legislation and/ or regulation/s by competent office/sand/ or agency /ies. Section Three Joint Motion for Judgment based on Compromise Immediately after the execution of this c\greement, the Parries undertake to file, with the CK\A and I ,B_\c\, or the CL\, as the case may be, a Joint l\Iorion for Judgment based on Compromise (substantially in the form of Annex 'C') in order to cause the termination of the CB1'L\ Cases, the LB.r'L\ Cases, or the CL\ Cases, as the case may be. Section Four Release of Claim/

Judgment on Compromise Agreement CTA EB NO. 2846 (CBAA Case No. V-44-2020, LBAA Case No. 007) 4.1 In consideration of the foregoing covenants, each of the Parties, their agents, successors, and ass1gns, shall irrevocably discharge and release the other Party, its agents, successors, and as:;igns from all claims, demands, damages, actions or suits at law or in equity, of any nature, now pending or which may arise, directly or indirectly, in connection with the CB1\,\ Cases, the LK~\ Cases, or the CT~-\ Cases, as the case mav be. In addition, the LGU OIL\IOC irrevocably discharges and releases EDC, its agents, succe:;:;or:;, and a:;sign:; from any claims that it may have against EDC: relating to Realty taxes over all real properties located in Ormoc City used and/ or registered in the name of EDC or their predecessos for their RE operations. XXX XXX XXX IN \\fiTNESS HEREOF, the Parties have hereunto affixed their signatures on the date and place indicated above. THE CITY OF ORMOC ENERGY DEVELOPMENT CORPORATION By: By: LUCY TORRES GOMEZ FRANCIS GILES B. PUNO City Mayor Vice Chairman and Chief Executive Officer JEROME H. CAINGLET President and Chief Operating Officer" A compromise agreement is a contract whereby the parties make reciprocal conce:;:;ions in order to resolve their differences and, thus, avoid or put an end to a law:;uit. They adjust their difficulties in the manner they have agreed upon, disregarding the po:;sible gain in litigation and keeping in mind that such gain is balanced by the danger of losing. It must not be contrary to law, morals, good customs and public policy, and must have been freely and intelligently executed by and between the parties. 1\ compromise agreement may ~

Judgment on Compromise Agreement CTA EB NO. 2846 (CBAA Case No. V-44-2020, LBAA Case No. 007) be executed in and out of court. Once a compromise agreement is given JUdicial approval, however, it becomes more than a contract binding upon the parties. Having been sanctioned by the court, it is entered as a determination of a controversy and has the force and effect of a judt,'1nent.6 Finding the subject compromise agreement to be in order and in compliance with established laws, rules and regulations, taking into consideration the documents submitted by the parties in support thereof, the same is approved. WHEREFORE, in view of the foregoing, the parties' "Joint Motion for Judgment Based on Compromise" is GRANTED. The Compromise "\greement between the City of Ormoc and Energy Development Corporation dated December 13, 2023 is APPROVED and judgment is hereby rendered in accordance therewith. Accordingly, the proceedings in the instant case are considered CLOSED and TERMINATED. SO ORDERED. ~- ~ -v '------ MA. BELEN M. RINGPIS-LIBAN Associate Justice WE CONCUR: CJ5 ROMAN G. DEL Presiding Justice C~,J-~ CATHERINE T. MANAHAN Associate Justice 'I;_ I MARIA -SAN PEDRO 6 David M. David v. Federico M. Paragas, Jr., G.R. No. 176973, February 25, 2015.

Judgment on Compromise Agreement CTA EB NO. 2846 (CBAA Case No. V-44-2020, LBAA Case No. 007) -.<.. ( ') ~ ' <>"'VP-} . MARIAN IVY'F.'1iEYES-FAJARDO ;\ssociatc Justice h!Ur1ttn~ LANEE S. CUI-DAVID Associate Justicc HENRY 1/!GELES 1\ssociate Justice CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Judgment on Compromise Agreement were reached in consultation before the case was assigned to the writer of the opinion of the Court. Presiding Justice