SITUS OF THE TAX - A STUDY OF ITS

IMPLEMENTATION

(Pursuant to Republic Act 7160, the

Local Government Code of 1991)

by

Florecita P. Flores

Local Government Research and Consultancy Service

• Republic Act No. 7160, otherwise known

as the Local Government Code of 1991,

under Book II (Local Taxation and Fiscal

Matters), in Title One (Local Government

Taxation) prescribed the situs of the tax for

purposes of collection of the tax on

business.

• “Situs” is defined “L(atin) for Situation; Location e.g. location or place of crime or business. Site; position; the place where a thing is considered, for example with reference to jurisdiction over it, or the right or power to tax it. It imports fixedness of location. Situs of property, for tax purposes, is determined by whether the taxing state has sufficient contact with the personal property sought to be taxed to justify in fairness the particular tax.” (Black’s Law Dictionary, Centennial Edition (1891-1991) p.1387)

• The “situs rule” is defined as “a

provision of tax law setting out the

factors which determine where a

particular asset is situated or deemed

to be situated for tax purposes. The

location of the assets may be a

decisive element in determining tax

liability.” (International Tax Glossary,

Second Edition, International Bureau

of Fiscal Documentation, 1992 IBFD

Publications BV)

The Taxes on Business

• It is necessary to first establish

the taxes, fees and charges on

business which are authorized in

the Local Government Code

(“Code”, for brevity), and the

Local Government Units (“LGUs”,

for brevity) which may levy such

taxes, fees and charges.

Province: (Section 134)

• Tax on the Transfer of Real Property Ownership (Sec.135)

• Tax on Business of Printing and Publication (Sec. 136)

• Franchise Tax (Sec. 137)

• Tax on Sand, Gravel and Other Quarry Resources (Sec. 138)

• Professional Tax (Sec. 139)

• Amusement Tax (Sec. 140)

• Annual Fixed Tax For Every Delivery Truck or Van of Manufacturers or Producers, Wholesalers of, Dealers, or Retailers in, Certain Products. (Sec. 141)

Municipalities/Cities (Section 142 and Section 151)

• Tax on manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of liquors, distilled spirits, wines, or manufacturers of any article of commerce of whatever kind or nature (Sec. 143 [a])

• Tax on wholesalers, distributors or dealers in any article of commerce of whatever kind or nature (Sec.143 [b])

• Tax on exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or retailers of essential commodities (Sec. 143 [c])

• Tax on Retailers (Sec. 143 [d])

• Tax on Contractors (Sec. 143 [e]) • Tax on banks and other financial institutions (Sec. 143

[f])

• Tax on peddlers (Sec. 143 [h])

• Tax on any business , not otherwise specified in the preceding paragraphs, which the sanggunian concerned may deem proper to tax.

Barangays (Section 152) • Taxes on retailers with fixed business establishments

with gross sales or receipts of the preceding calendar year of P50,000.00 or less, in the case of cities and P30,000.00 or less, in the case of municipalities (Sec. 152[a])

• Services fees or charges for services rendered in connection with the regulation or the use of barangay-owned properties or service facilities such as palay, copra, or tobacco dryers (Sec. 152 [b])

• Barangay Clearance – any license or permit for any business or activity located or conducted within the bagangay (Sec. 152[c])

• Other fees and charges on the following: (Sec. 152 [d]) – On commercial breeding of fighting cocks, cockfights and

cockpits

– On places of recreation which charges admission fees; and

– On billboards, signboards, neon signs, and outdoor adverstisements.

Scope of Taxing Power of the LGUs

(Section 151)

• “Except as otherwise provided in this Code, the city may levy taxes, fees, and charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of this Code.

• The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes.”

I. Specific Provisions in the Code and its

Implementing Rules and Regulations (IRR) on

Situs of the Tax:

• (A) Sec. 150. - “(a) For purposes of collection of the taxes under Section 143 of this Code, manufacturers, assemblers, repackers, brewers, distillers, rectifiers and compounders of liquor, distilled spirits and wines, millers, producers, exporters, wholesalers, distributors, dealers, contractors, banks and other financial institutions, and other businesses, maintaining or operating branch or sales outlet elsewhere shall record the sale in the branch or sales outlet making the sale or transaction, and the tax thereon shall accrue and shall be paid to the municipality where such branch or sales outlet is located.

• In cases where there is no such branch or sales outlet in the city or municipality where the sale or transaction is made, the sale shall be duly recorded in the principal office and the taxes due shall accrue and shall be paid in such city or municipality.

• (b) The following sales allocation shall apply to manufacturers, assemblers, contractors, producers, and exporters with factories, project offices, plants and plantations in the pursuit of their business:

• Thirty percent (30%) of all sales recorded in the principal office shall be taxable by the city or municipality where the principal office is located;

• 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.

• (c) In case of a plantation located at a place other than the place where the factory is located, said seventy percent (70%) mentioned in subparagraph (b) of subsection (2) above shall be divided as follows:

• (i.) Sixty percent (60%) to the city

or municipality where the factory

is located; and

• (ii) Forty percent (40%) to the city

or municipality where the

plantation is located.

• (d) In cases where a manufacturer, assembler, producer,

• exporter or contractor has two (2) or more factories, project offices, plants or plantations are located in different localities, the seventy percent (70%) sales allocation mentioned in subparagraph (b) or subsection (2) above shall be prorated among the localities where the factories, project offices, plants and plantations are located in proportion to their respective volumes of production during the period for which the tax is due.

• (e) The foregoing sales

allocation shall be applied

irrespective of whether or not

sales are made in the locality

where the factory, project

office, plant or plan is located.

(B). Art. 243. - (a) Definition of Terms –

• Principal Office - the head or main office of the business appearing in the pertinent documents submitted to the Securities and Exchange Commission or the Department of Trade and Industry, or other appropriate agencies, as the case may be. The city or municipality specifically 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. In case there is a transfer or relocation of the principal office to another city or municipality, it shall be the duty of the owner, operator or manager of the business to give due notice of such transfer or relocation to the local chief executives of the cities or municipalities concerned within fifteen (15) days after such transfer or relocation is effected.

• Branch or Sales Office – a fixed place in a locality which conducts operations of the business as an extension of the principal office. Offices used only as display areas of the products where no stocks or items are stored for sale, although orders for the products may be received thereat, are not branch or sales offices, as herein contemplated. A warehouse which accepts order and/or issues sales invoices independent of a branch with sales office, shall be considered as a sales office.

• Warehouse – buildings utilized for

the storage of products for sale and

from which goods or merchandise

are withdrawn for delivery to

customers or dealers, or by persons

acting in behalf of the business. A

warehouse that does not accept

orders and/or issue sales invoices

as aforementioned shall not be

considered a branch or sales office.

• Plantation - a tract of

agricultural land planted to trees

or seedlings whether fruit

bearing or not, uniformly spaced

or seeded by broadcast methods

or normally arranged to allow

highest production.For purposes

of this Article, inland fishing

ground shall be considered as

plantation.

• Experimental Farms - agricultural lands utilized by a business or corporation to conduct studies, tests, researches or experiments involving agricultural, agribusiness, marine, or aquatic, livestock, poultry, diary and other similar products for the purpose of improving the quality and quantity of goods or products. On-site sales of commercial quantity made in experimental farms shall be similarly imposed the corresponding tax under Article 233 and allocated in paragraph (b) of this Article.

(b) Sales Allocation –

• (1) All sales made in a locality

where there is a branch or sales

office or warehouse shall be

recorded in said branch or sales

office or warehouse and the tax

shall be payable in the city or

municipality where the same is

located.

• In cases where there is no such

branch, sales office or

warehouse in the locality where

the sale is made, the sale shall

be recorded in the principal

office along with the sales made

by said principal office and the

tax shall accrue to the city or

municipality where said principal

office is located.

• In cases where there is a factory, project

office, plant or plantation, in pursuit of

business, thirty 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 entitled to

the sales allocation provided in this

subparagraph.

• In case of a plantation located in a

locality other than that where the

factory is located, the seventy

percent (70%) sales allocation shall

be divided as follows:

• (i) Sixty percent (60%) to the city or

municipality where the factory is

located, and

• (ii) Forty percent (40%) to the city or

municipality where the plantation is

located.

• In cases where there are two (2) or more factories, project offices, plants or plantations located in different localities, the seventy percent (70%) sales allocation shall be prorated among the localities where such factories, project offices, plants and plantations are located in proportion to their respective volumes of production during the period for which the tax is due. In the case of project offices of service and other independent contractors, the term ‘production’ shall refer to the costs of projects actually undertaken during the tax period.

• The sales allocation in

paragraph (b) hereof shall be

applied irrespective of whether

or not sales are made in the

locality where the factory, project

office, plant or plantation is

located. In case of sales made

by the factory, project office,

plant or plantation, the sale shall

be covered by subparagraphs

(1) or (2) above.

• In case of manufacturers or producers

which engage the services of an

independent contractor to produce or

manufacture some of their products,

these rules on situs of taxation shall

apply except that the factory or plant and

warehouse of the contractor utilized for

the production and storage of the

manufacturer’s products shall be

considered as the factory or plant and

warehouse of the manufacturer

• (c) Port of Loading - The city or

municipality where the port of loading

is located shall not levy or collect the

tax imposable in Article 233 of this

Rule unless the exporter maintains in

said city or municipality its principal

office, a branch, sales office or

warehouse, factory, plant or

plantation in which case, the rule on

the matter shall apply accordingly.

Sales made by route trucks, vans, or

vehicles -

• For route sales made in a locality

where a manufacturer, producer,

wholesaler, retailer or dealer has a

branch or sales office or

warehouse, the sales are recorded

in the branch, sales office or

warehouse and the tax due thereon

is paid to the LGU where such

branch, sales office or warehouse is

located.

• For route sales made in a locality

where a manufacturer, producer,

wholesaler, retailer or dealer has a

branch, sales office or warehouse,

the sales are recorded in the

branch, sales office or warehouse

from where the route trucks

withdraw their products for sale, and

the tax due on such sales is paid to

the LGU where such branch, sales

office or warehouse is located.

• Based on subparagraphs (1) and (2) above,

LGUs where route trucks deliver merchandise

cannot impose any tax on said trucks except

the annual fixed tax authorized to be imposed

by the province in Art. 231 of this Rule on

every delivery truck or van or any motor

vehicle used by manufacturers, producers,

wholesalers, dealers or retailers in the delivery

or distribution of distilled spirits, fermented

liquors, soft drinks, cigars or cigarettes, and

other products as may be determined by the

sangguniang panlalawigan and by the city,

pursuant to Article 223 of this Rule.

• In addition to the annual fixed tax,

cities may also collect from same

manufacturers, producers,

wholesalers, retailers, and dealers

using route trucks a mayor’s

permit fee which shall be imposed

in a local tax ordinance pursuant

to Article 434 in relation to Article

233 of this Rule.”

II. The Department of Finance also

issued specific guidelines on Situs of the

tax for several industries:

• Banks and Other Banking Institutions - Local

Finance Circular No. 1-93 (6/16/93)

• “Section 5. Situs of the Tax. – For purposes of

collection of the tax, the following shall apply (a)

All transactions filed with or negotiated in the

branch shall be recorded in said branch and the

gross receipts derived from said transactions

shall be taxable by the city or municipality where

such branch is located. The rule shall be applied

to:

• transactions negotiated with and

approved by the branch

manager under his own

authority; or

• transactions filed and negotiated

in the branch but being beyond

the approving authority of the

branch manager are forwarded

to the Head Office for final

approval.

• (b) The gross receipts derived from

transactions made by the Head Office,

except gross receipts recorded in the

branches, shall be taxable by the city or

municipality where said Head Office is

located.

• (c) In case there is a transfer or relocation

of the Head Office or of any branch to

another city or municipality, the bank shall

give due notice of such transfer or

relocation to the chief executives of the

cities or municipalities concerned within

fifteen (15) days after such transfer or

relocation is effected.”

On Insurance Companies – Local Finance

Circular No. 2-93 (6/16/93)

• “Section 5. Situs of the Tax. - For purposes of collection of the tax, the following shall apply - (a) Insurance contracts/policies issued by the Head Office or branch shall be recorded in said office or branch as the case may be and the premiums and/or gross receipts due on such contracts/policies shall be taxable by the city or municipality where such Head Office or branch to which such premiums or gross receipts were actually paid is located. This rule shall be applied irrespective of whether the insurance contracts/policies were solicited or negotiated by insurance agents, or brokers who are not residents of the city or municipality where the branch is located or affiliated with or assigned to such branch.

• The offices of an insurance agent, or

broker, shall not be considered a branch

and shall not be subject to the situs of

taxation rule.

• All insurance premiums and/or gross

receipts from transactions not recorded

in the branches of the insurance

companies in accordance with paragraph

(a) above shall be recorded in the Head

Office and taxable by the city or

municipality where said Head Office is

located.

• In case there is a transfer or

relocation of the Head Office or of

any branch to another city or

municipality, the insurance

companies shall give due notice of

such transfer or relocation to the

chief executives of the cities or

municipalities concerned within

fifteen (15) days after such transfer

or relocation is effected

On Financing Companies - Local Finance

Circular No. 3-93 (6/16/93)

• “Section 5. Situs of the Tax. - For

purposes of collection of the tax, the

following shall apply - (a) All transactions

made by the branch shall be recorded in

said branch and the gross receipts derived

from said transactions shall be taxable by

the city or municipality where such branch

is located.

• The gross receipts derived from transactions made by the Head Office, except gross receipts recorded in the branches, shall be taxable by the city or municipality where the Head Office is located.

• (c) In case there is a transfer or relocation of the Head Office or of any branch to another city or municipality, the bank (sic) shall give due notice of such transfer or relocation to the chief executives of the cities or municipalities concerned within fifteen (15) days after such transfer or relocation is effected.”

On Exporters - Local Finance Circular

No. 4-93 (7/30/93)

• “Section 5. Situs of the Tax. - (a) Definition of Terms –

• (1) Principal Office - shall refer to the head or main office of the exporter indicated in the pertinent documents submitted to the Securities and Exchange Commission, Department of Trade and Industry or other appropriate agencies, the city or municipality specifically mentioned in the Articles of Incorporation and other official registration papers being the official address of said Principal Office shall be considered as the situs thereof.

• (2) Branch of Sales Office – a fixed place in a locality which conducts operations of the business as an extension of the principal office. Offices used only as display areas of the products whre no stock or items are stored for sale, although orders for the products where no stock or items are stored for sale, although orders for the products may be received thereat, are not branch or sales offices as herein contemplated. A warehouse which accepts orders and/or issues sales invoices independent of a branch with sales office shall be considered as sales office.

• (3) Warehouse - a building utilized for

the storage of products for sale and

from which goods or merchandise are

withdrawn for delivery to customers or

dealers, or by persons acting in

behalf of the business. A warehouse

that does not accept orders and/or

issue sales invoices as

aforementioned shall not be

considered a branch or sales office.

• Sales Allocation – For purposes of collection of

the tax, the following shall apply:

• (1)All export transactions made by the branch

shall be recorded in said branch and the gross

sales or receipts derived from said transaction

shall be taxable by the city or municipality

where such branch is located.

• (2)The gross sales or receipts derived from

export transactions made by the Principal

Office, except gross sales or receipts recorded

in the branches shall be taxable by the city or

municipality where said Principal Office is

located

• (3)In cases where there is no such branch or sales office, in the locality where the sale is made, the sale shall be recorded in the principal office along with the sales made by said principal office and the tax shall accrue to the city or municipality where said principal office is located.

• (4)In cases where there is a factory or plant in pursuit of business, thirty 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 or plant is located.

• (5)In cases where there are two or more

factories or plants located in different localities,

the seventy percent (70%) sales allocation shall

be prorated among the localities where such

factories or plants are located in proportion to

their respective volumes of production during the

period for which the tax is due.

• (6) The sales allocation in paragraph (b) hereof

shall be applied irrespective of whether or not

sales are made in the locality where the factory

or plant is located. In case of sales made by the

factory or plant, the sale shall be covered by

subparagraphs (1) or (2) above.

• (7) In case of manufacturers or producers which

engage the services of an independent

contractor to produce or manufacture some of

their products, these rules on situs of taxation

shall apply except that the factory or plant and

warehouse of the contractor utilized for the

production and storage of the manufacturer’s

products shall be considered as the factory or

plant and warehouse of the manufacturer, the

independent contractor shall not be taxed on the

basis of the gross sales of its production of the

manufacturer’s products but on the gross

receipts as independent contractor under Sec.

143 (e) of the LGC, as implemented under Art.

232 (e) of its IRR.

On Construction Contractors – Local Finance Circular

No. 3-95 (5/22/95)

• Definition of Terms.

– Head/Principal Office - shall refer to the main office

of the construction contractor indicated in the

pertinent documents submitted to either the

Securities and Exchange Commission (SEC) or

other appropriate government agencies, as the case may be. The city or municipality specifically

mentioned in the Articles of Incorporation and other

official registration papers as being the official

address of said Head Office/Principal Office shall be

considered as the situs thereof.

– Branch Office – is a fixed place

in a locality which conducts

operations of the business as

an extension of the principal

office.

– Project Office - shall mean

the field office in the

construction site. It is

equivalent to the factory of a

manufacturer,

• For purposes of collection of the tax, the

following rules shall apply:

• (1) All gross receipts realized from

domestic projects or contracts undertaken by

the branch office shall be recorded in the said

branch office and the tax thereon shall be

payable to the city or municipality where said

branch is located.

• (2) In cases where there is no branch office,

the gross receipts from domestic projects or

contracts shall be recorded in the Head Office/

Principal Office and the same shall be

allocated as follows:

• Thirty percent (30%) of the gross receipts shall be taxable by the city or municipality where the principal office is located; and

• (ii) Seventy percent (70%)of the gross receipt shall be taxable by the city or municipality where the project office is located.

• In cases where there are two (2) or more project offices located in different localities, the seventy percent (70%) allocation stated in subparagraph (2) (ii) above shall be prorated among the localities where such project offices are located in proportion to the work accomplished based on the cost of the projects or contracts actually undertaken in the locality during the tax period for which the tax is due.

• In the case of overseas construction projects, the construction contractor shall declare separately the gross receipts realized therefrom, which shall not be subject to the business tax.

• In case of pre-fabricated works which are paid for in accepted freely convertible currency with attendant installation works outside the Philippines, the gross receipts realized therefrom shall be subject to not more than one-half (1/2) of the rate prescribed for in Sec. 3 (a) hereof.

• In case there is a transfer or

relocation of the Head/Principal

Office or any branch to another

city or municipality, the

construction contractor shall give

due notice of such transfer or

relocation to the cities or

municipalities concerned within

fifteen (15) before such transfer

or relocation is effected.”

Query of. Republic-Asahi Glass

Corporation

– The company has its principal office, factory and sales offices located in the Municipality of Pasig;

– all sales are recorded in Pasig and the taxes due are paid thereat;

– the company also has ten (10) depots located in two (2) municipalities and eight (8) cities where its products are stored for sale and accepts orders from dealers in their respective areas.

• In the DOF opinion (which was signed

by an Undersecretary), the provincial

depots were considered

“warehouses” following the definition

in subparagraph (3) of Article 243, to

wit:

• “A building utilized for the storage of

products for sale and from which

goods and merchandise are

withdrawn for delivery to customers or

dealers, or by persons acting in

behalf of the business.”

• Hence, while all the sales made by the

principal office, factory and sales offices

located in Pasig should be recorded and

the tax due paid thereat, if the provincial

depots accepts orders and/or issue sales

invoices, such orders and/or sales shall be

recorded in the said depot and the tax due

shall be paid to the city or municipality

where the depot is located.

• It will be noted that the DOF opinion was largely

based on the facts as alleged by the taxpayer in

determining the tax situs of the principal office,

factory and sales offices. With respect to the

provincial depots, the taxpayer only alleged that

it was used for storage of products and to accept

orders from dealers in the area. It was the DOF

which filled out the “missing facts” that would

establish the tax situs of the depots i.e., if the

depots accept orders and/or issue sales

invoices, such orders or sales must be recorded

in the depot and the tax paid to the city or

municipality where the depot was located.

Query of Kenram Philippines, Inc

• These facts were disclosed in three (3) letters which provided piece-meal information on the operations of the company, as follows:

• In the first letter, it was represented that the sales, invoicing and collection of the company was made in the principal office located in the Municipality of Pasig; – that no sale is consummated (sic) in the plantation

and farm office located in the Municipality of Isulan, Sultan Kudarat;

• that likewise, no sale is consummated at the Port of General Santos City where the storage tank for the palm oil shipped to Manila is located;

• In a second letter, representations were further made that the plantation is solely planted with palm trees that bear fruits known as Fresh Fruit Bunches; the fruits are milled by another company for extraction of palm oil which is sold domestically.

• Then, in a third letter, it was explained that kernels are also extracted from the nuts of the fresh fruits and these are cleaned, dried and packed in bags for export.

• BLGF replied that sales allocation under Art 243© of the IRR shall apply such that seventy percent (70%) of the sales recorded in the principal office in Pasig shall be taxable by the municipality of Isulan, Sultan Kudarat where the plantation is located while the remaining thirty percent (30%) shall be taxable by the municipality of Pasig. With respect to the palm oil sold domestically and the kernels that are exported, BLGF expressed the view that the issue was not its tax situs but the nature of the products i.e., the palm oil and the kernels, which BLGF considered as “agricultural products” under Sec. 143 © (2) of the Code, taxable at one-half of the rate prescribed therein, to wit:

• “On exporters, and on manufacturers, millers, producers,

• wholesalers, distributors, dealers or retailers of essential commodities enumerated hereunder at a rate not exceeding one half (1/2) of the rates prescribed under subsections (a), (b) and (d) of this Section:

• x x x

• Wheat or cassava flour, meat, dairy products, locally-

• manufactured, processed or preserved food, sugar, salt and other agricultural, marine, fresh water products, whether in original state or not. (italics, ours)

• In this situation, BLGF relied on

the representations of the

taxpayer in giving its opinion on

the situs queries except with

respect to the storage tank

located in the port of loading in

General Santos City on which

BLGF requested more

information.

• (4) Wenphil Corporation is a duly

registered domestic corporation

engaged in the operation of Wendy’s

hamburger restaurants. It holds the

exclusive franchise to operate Wendy’s

restaurants so all its outlets are

company-owned.

• Its principal office is located in Muntinlupa City

• It has forty-five (45) outlets or restaurants in different localities in Metro Manila and nearby provinces

• It maintains its sale commissary in the City of Marikina which serves as a central receiving, quality inspection and warehouse area for some goods which the company’s suppliers deliver in bulk

• No sales are made in the commissary; deliveries or withdrawals from the commissary are through vans to the various outlets outside Marikina recorded in stock cards with no sales invoices being issued.

• Issue: The Chief, Business Permits and

Licenses Office of the City Treasurer’s

Office informed Wenphil that the

commissary was treated as Cold Storage

and Processing Plant and a major integral

part of the various Outlet’s of Wendy’s

Hamburger restaurants; that these outlets

are dependent to a large measure on said

Plant. Thus, said office treated

all materials withdrawn as sales and,

taxable.

• Citing Art. 243(b) on Sales Allocation. BLGF

opined that with respect to the forty-five (45)

outlets of Wenphil in different localities, 100% of

sales made in the said outlets shall be taxable

by the local government units where the same

are located. The City of Marikina where only the

commissary is maintained and where there is no

sales outlet, shall not share in the business tax

that is paid by the sales outlets. Accordingly, the

City of Marikina may only impose a Mayor’s

permit fee and other regulatory fees and charges

on Wenphil for the operation of a Cold Storage

and Processing Plant.

Query of SM Prime Holdings, Inc:

• SM Prime Holdings, Inc. maintains its principal office in Makati. However, said principal office performs administrative functions only;

• The corporation conducts its business operations through the following Shopping Malls:

» SM City located North EDSA, Quezon City

» SM Centrepoint located at Sta. Mesa, City of Manila

» SM Southmall located in the City of Las Pinas

» SM City located in Cebu City

» SM Bacoor in Bacoor, Cavite

• The income derived from the operation of said

shopping malls includes rentals from store

spaces, receipts from cinemas, bowling alleys,

skating rinks and parking fees and the gross

receipts are reported and the corresponding

local business taxes are paid to the cities where

the shopping malls are located

• Issue: The ICO Treasurer of Makati assessed

SM Prime Holdings deficiency assessment

based on a 30%-70% allocation of taxable sales

i.e. that the City of Makati was entitled to 30%

thereof.

• BLGF pointed out that since the business operations of SM Prime Holdings were conducted through the different shopping malls that it maintains and not in its principal office located in Makati, the said shopping malls partake of the nature of a branch or sales office. Accordingly, the transactions involved should be recorded in such “branch” or “sales office” and the local business taxes due on said gross receipts from rentals should be paid in the city where the same is located pursuant to the provisions of subparagraph (1) of Article 243 (b) of the Implementing Rules and Regulations of the Code.

• BLGF also advised that “while it appears from the provisions of Art 243 of the IRR implementing Section 150 of the Code, in determining the proper situs of the taxes due, the term “sales” is used, this should not be strictly construed as being limited to the sale of goods or products whether they are in their original form , or are manufactured, or processed before being sold in the market. Rather, the term used in the IRR should be interpreted to mean also other forms of receipts or income as, for example, receipts for services rendered by “contractors” or income realized by banks and other financial institutions in their operations as contemplated under Section 150 of the Code itself.”

END