Vladimir Karl A.

Tolentino
Taxation 1

FRANCHISE TAX:

G.R. No. 149179. July 15, 2005

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC., vs. CITY OF

BACOLOD

Facts:

PLDT is a holder of a legislative franchise under Act No. 3436, as amended,

to render local and international telecommunications services. On August 24, 1991,
the terms and conditions of its franchise were consolidated under Republic Act No.
7082,[2] Section 12 of which embodies the so-called in-lieu-of-all-taxes clause,
whereunder PLDT shall pay a franchise tax equivalent to three percent (3%) of all its
gross receipts, which franchise tax shall be in lieu of all taxes. In August 1995, the
City of Bacolod, invoking its authority under Section 137 of the Local Government
Code, made an assessment on PLDT for the payment of franchise tax due the
City.Complying therewith, PLDT began paying the City franchise tax from the year
1994 until the third quarter of 1998, at which time the total franchise tax it had paid
the City already amounted to P2,770,696.37.On June 2, 1998, the Department of
Finance through its Bureau of Local Government Finance (BLGF), issued a ruling to
the effect that as of March 16, 1995, the effectivity date of the Public
Telecommunications Policy Act of the Philippines (Rep. Act. No. 7925), PLDT,
among other telecommunication companies, became exempt from local franchise
tax. Accordingly, PLDT shall be exempt from the payment of franchise and business
taxes imposable by LGUs under Sections 137 and 143, respectively, of the LGC
[Local Government Code], upon the effectivity of RA 7925 on March 16, 1995.
Invoking the aforequoted ruling, PLDT then stopped paying local franchise and
business taxes to Bacolod City starting the fourth quarter of 1998.The controversy
came to a head-on when, sometime in 1999, PLDT applied for the issuance of a
Mayors Permit but the City of Bacolod withheld issuance thereof pending PLDTs
payment of its franchise tax liability.

Issue: Whether or not PLDT is exempted from the payment of franchise tax imposed
by the City of Bacolod.

Held: No, the tax exemption must be expressed in the statute in clear language that
leaves no doubt of the intention of the legislature to grant such exemption. And, even
if it is granted, the exemption must be interpreted in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority.
G.R. No. 180654 March 6, 2017

NATIONAL POWER CORPORATION vs PROVINCIAL GOVERNMENT OF

BATAAN

Facts:

On March 28, 2003, petitioner National Power Corporation (NPC) received a

notice of franchise tax delinquency from the respondent Provincial Government of
Bataan (the Province) for ₱45.9 million covering the years 2001, 2002, and 2003.
The Province based its assessment on Napocor's sale of electricity that it generated
from two power plants in Bataan. Rather than pay the tax or reject it, Napocor chose
to reserve its right to contest the computation pending the decision of the Supreme
Court in National Power Corporation v. City of Cabanatuan, a case where the issue
of Napocor's exemption from the payment of local franchise tax was then pending.
Republic Act (R.A.) 9136, also known as the Electric Power Industry Reform Act
(EPIRA) that took effect on June 26, 2001. The new law relieved Napocor of the
function of transmitting electricity. Consequently, the Province has no right to further
assess it for the 2001, 2002, and 2003 local franchise tax.

Issue: Whether Napocor was liable to pay the assessed franchise tax.

Held: No, the enactment of EPIRA separated the transmission and sub-transmission
functions of the state-owned Napocor from its generation function, and transferred all
its transmission assets to the then newly-created TRANSCO, which was wholly
owned by PSALM Corporation at that time. Power generation is no longer
considered a public utility operation, and companies which shall engage in power
generation and supply of electricity are no longer required to secure a national
franchise

G.R. No. 177387 November 9, 2016

COMMISSIONER OF INTERNAL REVENUE vs. SECRETARY OF JUSTICE

Facts:

Respondent Philippine Amusement and Gaming Corporation (PAGCOR) has

operated under a legislative franchise granted by Presidential Decree No. 1869 (P.O.
No. 1869), its Charter,4 whose Section 13(2) provides that:No tax of any kind or
form, income or otherwise, as well as fees, charges or levies of whatever
nature, whether National or Local, shall he assessed and collected under this
Franchise from the Corporation; Notwithstanding the franchise tax imposed, the
Bureau of Internal Revenue (BIR) issued several assessments against PAGCOR for
alleged deficiency value-added tax (VAT).

Issue: Whether or not PAGCOR is exempted for payment of VAT.

Held: Yes, PAGCOR is exempt from payment of VAT. R.A. No. 7716, a general
law, did not provide for the express repeal of PAGCOR's Charter, which is a special
law; hence, the general repealing clause under Section 20 of R.A. No. 7716 must
pertain only to franchises of electric, gas, and water utilities, while the term other
franchises in Section 102 of the NIRC should refer only to transport, communications
and utilities, exclusive of PAGCOR's casino operations.

G.R. No. 144696 August 16, 2006

COMMISSIONER OF INTERNAL REVENUE vs. PHILIPPINE GLOBAL

COMMUNICATIONS, INC

Facts:

Respondent operates under a legislative franchise granted by Republic Act

No. 4617 to construct, maintain and operate communications systems by radio, wire,
satellite and other means known to science for the reception and transmission of
messages between any points in the Philippines to points exterior thereto. As such, it
was subject to 3% franchise tax under Section 117 (b) of the Tax Code, as amended
by Executive Order No. 72. Respondent claimed that with the passage and effectivity
of the E-VAT Law on May 24 [sic], 1994, it was no longer obliged to pay the 3%
franchise tax under Section 117 (b) of the Tax Code. 3Respondent added that the
TRO issued in Tolentino et al. enjoining the enforcement and/or implementation of
the E-VAT Law did not have the effect of extending its obligation under Section 117
(b) of the Tax Code to pay the 3% franchise tax since the exemption from or removal
of liability for said 3% franchise tax under the E-VAT Law was not an issue in those
cases; and with the effectivity of the E-VAT Law on May 24 [sic], 1994, it was
benefited by the tax exemption which was self-operative and required no
implementation to take effect.

Issue: Whether or not Philippine Global Communications, Inc., liable to pay the 3%
franchise tax.

Held: No, the abolition of the 3% franchise tax on telecommunications companies,

and its replacement by the 10% VAT, was effective and implemented only
on January 1, 1996, however, following the passage of Revenue Regulation No. 7-
95. Thus, respondent’s claim for refund of the franchise tax it paid during the 2nd
quarter of 1994 until the 4th quarter of 1995 must fail. To grant a refund of the
franchise tax it paid prior to the effectively and implementation of the VAT would
create a vacuum and thereby deprive the government from collecting either the VAT
or the franchise tax.
G.R. No. L-22421 March 18, 1967

IMUS ELECTRIC CO., INC. vs. HON. COURT OF TAX APPEALS

Facts:

On June 23, 1930, the Municipal Council of Imus, Cavite, under authority of
Act No. 667, granted the Imus Electric Co., Inc. through Resolution No. 46, the
franchise to operate in that municipality an electric plant, imposing upon said
company the franchise tax of one per cent of its gross receipts for the first twenty
(20) years and two per cent thereof for the next fifteen (15) years. After the effectivity
on October 1, 1946 of Republic Act 39, which amended Sec. 259 of the Tax. Upon
refusal of the Commissioner to reconsider the assessment, Imus Electric Co., Inc.,
on November 11, 1963, petitioned the Court of Tax Appeals for the review of the
Commissioner's ruling. The Court of Tax Appeals, citing the case of Lealda Electric
Co. vs. Commissioner of Internal Revenue, L-16428, April 30, 1963, affirmed on
December 16, 1963, the Commissioner of Internal Revenue's decision declaring
petitioner subject to the franchise tax of five per cent according to Section 259 of the
Internal Revenue Code as amended by Republic Act 39 because its franchise
"contains an express reservation that it is subject to amendment or repeal and that
the same contains no provision that the tax therein prescribed shall be in lieu of all
other taxes, municipal, provincial or national."

Issue: Whether or not Section 259 of the Tax Code has repealed the corresponding
provision in petitioner's franchise.

Held: Yes, the said legal provision alters the pertinent provisions of said franchises.
In effecting such alteration, our legislative department has merely exercised;
however, a power expressly reserved thereto by said franchises, and has acted,
therefore, in conformity therewith, not in violation of the provisions thereof or to the
detriment of the rights thereby vested in petitioner herein.