‘Tagqpagtaguyod ng Tapat, Responsable at Makabuluhang Pag-tingat REPUBLIC OF THE PHILIPPINES. BUREAU OF LOCAL GOVERNMENT FINANCE DEPARTMENT OF FINANCE a 8th Floor EDPC Building, Bangko Seotal ng Pilipinas Complex Roxas Boulevatd, Manila 1004 * Telefax Nos. 527-2780 527-2790 Email’ igtihlet gounh Ofiial Website; wwwblafz0v ph September 14, 2015 Mr. Virgilio B. Castillejo, Jr. Accountant Triplex Enterprises Incorporated 2244 Chino Roses Ave., Makati City Sir This refers to your letter dated June 19, 2015 seeking advice on the Letter of ‘Authority (LOA) of Parafiaque City classifying the warehouse of Triplex Enterprises Incorporated (Triplex for brevity) as a manufacturing plant subject to business taxes. Representations are made that Triplex principal office is located in Makati City where all sales and marketing are done. Hence, the request for opinion on the following issues: 1. Triplex warehouse in Parafiaque is doing cutting and sheeting of Paper rolls it imports from abroad and buys from local paper manufacturer. Triplex does not pu/add oF process anything on the said paper except to cut it to the size requirement of its customer as part of its sales service. With the above procedure, is it right that Triplex be classified as a manufacturer? 2. When Triplex put its brand or label on said cut paper, is it considered manufacturing? 3. Triplex never does any sales or manufacturing in Parafiaque, except warehousing and cutting facilities. With the above activity, can Triplex be legally compelled to pay local taxes to Parafiaque when the sales involved are already taxed and paid in Makati? 4. Is it not that Section 150(b) applicable only to manufacturers with factories project plants and plantations on the pursuit of their business outside of the locality where the principal office is located. 5, Isn't it very clear that a company is classified and defined as manufacturer in Section 134(20) “Only if by any process it alters the form and exterior of any prodact."? - Jaman at Pagtatasa ng Pamahalaang Lokal”Said letter was referred to the City Treasurer of Paranaque for comment under at Indorsement dated June 25, 2015. Ina reply-letter dated July 27, 2015, copy enclosed, the City Treasurer submits as follows: BLM 4. Triplex stated in their letter dated June 19, 2045 that their warehouse in poe smaque City is “doing cutting and sheeting of Paper rolls we import from ‘Abroad and buy from Local Paper manulaclutt © Thus, there is no doubt tho the warehouse activity of Triplex involves ihe physical means of cutting pat Sheeting of paper rolls which has altered the exterior from the said paper rolls which is clearly the raw material used. There is the need for the pehing and sheeting to prepare the paper rols '0 be sold to customers as Triplex cannot possibly sell to its customers uncut and not sheeted paper rolls. Clearly, the activity of Triplex’s warehouer is manufacturing as defined trSection 134(0) of Republic Act No. 7160. ‘also known as the Local Government Code of 1997, to quote: (0) "Manufacturer includes every person who, by physical or chemical process, alters_the exterior texture_or form or inner substance of any raw material_or manufactured_or partially ve pufactured product in such manner as 1o-prepers iL for special use_or uses to ‘which it could not have been put in original uS6 tans, oF who Dy any Such process, alters the ‘quality of any eich raw material or manufactured OF partially manufactured products so as to reduce it to marketable shape or prepare it for ny of the use of industry, of who by any ‘such process, combines any such raw material or manufactured partially manufactured products with other materials oF products of the same or of vifferent kinds and in such manner that the finished products of Such process or manufacture can be pul {0 8 special use of uses to which such raw material oF ‘manufactured or partially +0 snufacturad in their original condition could not have been put, sg who in addition, alters such raw material OF manufactured oF partially manufactured _products._¢F combines _the_same_to produce such finished products for the purpose of their sale_or istribution to others and nol for his "own use or consumption; (Underscoring supplied) 2. Since Triplex's warehouse is engage i? manufacturing, the putting of its own Brand or label on the cut paper necessarily fone part of the manufacturing process so that Triplex can sell the fnighed paper products to others and not for its own consumption. 3, Since Triplex’s warehouse Is engaged in the manufacturing of paper products, 70% of the local business tox must be paid to the City of Parafiaque as stated in Section 160 of the ‘Local Government Code of 1991 215.917 (Sits, Warelou PLEX, Makati Pari) Page?‘And since Triplex’s warehouse is engaged in manufacturing, it is in the S same category as a factory, project office, plant or plantation. Thus, uncler the abovectted law, Triplex should pay 70% local business tax to the City of Parafaque where the warehouse is located 4. Thus, the delinquency assessment made on Triplex js therefore in accordance with law. The assessments include delinquent regulatory fees which they incurred when these failed to disclose their activity of fabrication of their raw materials in their warehouse, In this connection, Triplex submitted a letter dated September 15, 2015 to supplement its letter-query dated June 19, 2018. As an additional information, Triplex cae pees religiously paying about ninety percent (90%) of its local tax in Makati City and never considered its warehouse in Parafiaque City as engaged in manufacturing or treated it in the same category as a factory, project office, plant or plantation. However, sometime in year 2015, Triplex received a letter from the City of Paranaque recuiring it to pay additional business tax (deficiency), including Surcharges and penalties for the years 2010-2014 for a total “amount of Phpt1,303,462.54, based on their findings that Triplex’s warehouse iS engaged in manufacturing, Hence, Triplex sought a reconsideration which was denied citing Section 150 of the LGC. Triplex contends that if the position by the City of Parafiaaue is correct then starting year 2016, Triplex will be forced to declare (and be classified) its warehouse in that Cty 2s manufacturer. Further, Triplex will be requesting for 2 tax refund from Makati for the amount which Parafiaque is charging as tax deficiencies for the last five (5) years based on the principle of “Solutio Indebiti’ Triplex likewise submitted the following adcitional information: Makati Office: a. All sales and invoicing are done, received and dectared at the Makati Office b. Makati Office is also being utilized for warehousing. No cutting, slitting and/or packaging activity is done here Paraiiaque Site: a. Parafiaque warehouse is purely utilized for warehousing. It is where cutting, slitting and/or packing is being done b. The cutting andior siting consist of cutting the paper rolls into different sizes as needed by ur customers without any process of either adding or altering its composition or substance. REM - 2015.0817 1Sits, Warehouse-Play TRIPLEX, Maki Praia) Pagec. Triplex also sells paper/paper rolls to ts customers in their original state {irom the suppliers to warehouse qustomers) without any changes OF rfervention, not even cutting or siting Triplex is a manufacturer. ; In rosolving the issue of whether of Nol Triplex operations in Parafiague City be considered as that of a manufacturer, the provisions of Section 131 of the LGC is quoted once more for ready reference (0) "Manufacturer includes every person who, by physical or Shemical process, alters_the_extenior texture_or form or inner Substance of any_faw_material_OF manufactured _or_partially ranufactured product in such manner 2S. to prepare it for special lise_or uses fo which L could My have been put jn is oriainal conditions, or who by any such process, alters the quality of any such raw material OF manufactured or partially manufactured products so as to reduce it to orarketable shape or prepare It for Bny of the use of industry, oF who by any such process, combines any such raw material OF manufactured or partially manufactured products with other materials oF products of the same oF of Siferent kinds and in such manner ‘hat the finished products of uch process or manufacture can Be put to a special use of Uses to which such raw material oF manufactured of partially anufactured in their original condition ‘could not have been pul, ‘and who in addition, alters such 12st material or manufactured oF partially manufactured _produets.—cr ‘combines _the_same_to produce such finished products for the purpose of their sale or Freibution to_others_and not for his own use of consumption: (Underscoring supplied) Based on the representations made that Triplex warehouse in Parafagve © doing the cutting and sheeting of Paper veils it imports from abroad and Buys, from Toca! paper manufacturer, aside from putting brand name of abel on the finish product, we therefore agree wth the position of the City Treasurer of Parafiaque Ainich is hereby being re-stated for emphasis’ thus, there is no doubt thal the warehoroe activity of Triplex involves the physical means of cutting and Sheeting of paper rolls which has ditered the exterior from the said Pepe tolls which is clearly the raw ator used. There is the need for the ‘cutting and sheeting to prepare the paper rolls o be sold to customers “riplex cannot possibly sell to ite customers uncut and not sheeted Pept Tolls. Clearly, the activity of Triplex’ warehouse is manufacturing ‘defined in Section 131(0) of Republic Act No. 7160, also known 2S the Local Government Code of 4991 XXX" LM 20154 c-plant TRIPLEX. kot ara Powe 1 ¢sinus_WarehoIn view thereof, the warehouse in Parafaque shall be considered a manufacturing “plant a5 defined in Webster's Third New International Dictionary (1986 ed.) as follows 7 “plant® — the land, building machinery, apparatus, and fixtures employed in carrying on a trade or mechanical or other industrial business; a factory or workshop for the manufacture of a particular product; the total facilities available for production or service in a particular country or place. In this connection and for purposes of local taxation the 30%70% sales allocation pursuant to Article 243(bX3) implementing Section 150 (bX(1) of the Lec, quoted hereunder shall apply: “(b) Sales Allocation ~ (1) xxx (3) In cases where there is a factory, project office, plant or plantation in pursuit of business, thiry percent (30%) of all sales recorded in the principal office shall be taxable by the city or municipality where the principal office is located and seventy percent (70%) of all sales recorded in the principal office shall be taxable by the city or municipality where the factory, project office, plant or plantation is located. LGUs where only experimental farms are located shall not be entitied to the sales allocation herein provided for. (Underscoring ours) Claim for refund/tax credit In view of the claim that Triplex has been religiously paying about ninely percent (90%) ofits local tax in Makati, Triplex may therefore file a writen claim for tax Fofundicredit with the City Treasurer of Makati. However the two-year prescription period shall not apply for the simple reason that the taxpayer cannot be faulted for the prescription of the tax refund claim. When the tax claimed to be refunded is illegally or croneausly collected, the principle of solutio indebiti shall govern and not the twa (2). year prescriptive period provided under Section 196 of the LGC. The principle of yeutio indebifi should apply in the case at bar, thus, “In any case, a taxpayer should oot be held fo suffer loss by his good Intention to comply with what he believes is his fagal obligation, where such obligation does not really exist.” (Ramie Textiles v. Hon. Ismael Mathay Sr., G.R. L-32364, 30 April 1979) Furthermore, Article 2154 under the principle of solutio indebiti, which Is classified as quasi-contract under Section 2, Chapter |, both of the Civi Code, provides that “[]f something is received when there is no right to demand it, and seyuas unduly delivered through mistake, the obligation to return it arises.” And Mince the collection was illegal, the obligation to return or refund the same \aauld be in the nature of solutio indebiti, which by the Civil Code, prescribes in 6 years.” (Victorias Milling Co., Inc. vs. Central Bank of the Phillppines, GR. No. L- 17798 March 31, 1965) BLM - 2015.017 (Sis Warehouse-Phnt TRIPLEX, Makati, Parfiague) PagsConclusively, this Bureau is of the view that Triplex’s application for tax credit is meritorious and should be given due course and the running of the prescriptive period applicableis Article 1144 of the Civil Code, supra. Provided, however, that the claim is duly supported by evidence of payment (e.g., official receipts and such other proof evidencing payment), Triplex is likewise considered as a wholesaler or retailer. On the basis of the claim of Triplex that it also sells paperipaper rolls to its customers in their original state (from the suppliers to warehouse to customers) without any changes or intervention, not even culting or slitting, the warehouse in Parafiaque Cily shall likewise be considered as a Sales Office and 100% of such sales recorded thereat shall be taxable by said City on the basis of the rates imposed on wholesaler or retailer under its duly-enacted ordinance. ‘We hope that this will help clarify matters. Very truly yours, Se 22) —— SALVADOR. ELCASTILLO IC-Executive Director Copy furnished: The City Treasurer Parafaque City The City Treasurer Makati City BLM «2015-0817 (Situ Warchouse Plan TRIPLEX, Mukati Parotaqued