ASG Law

Tag: Local Business Tax

  • Local Tax Assessments: Who is Liable After Corporate Restructuring?

    Navigating Local Tax Liabilities After Business Restructuring: The Importance of Proper Party Assessment

    G.R. No. 226716, July 10, 2023

    Imagine a scenario where a thriving power generation company restructures due to new energy regulations. Years later, the local municipality demands hefty business taxes from the original company, even though its power generation assets have been transferred to another entity. This is precisely the predicament faced by the National Power Corporation (NPC) in a recent Supreme Court decision, highlighting the critical importance of correctly identifying the liable party for local tax assessments after corporate restructuring.

    This case serves as a crucial reminder for businesses undergoing restructuring or asset transfers to ensure that local tax obligations are properly assigned to the appropriate entity. Failure to do so can lead to significant financial liabilities and legal disputes.

    Understanding the Legal Landscape of Local Tax Assessments in the Philippines

    Local Government Units (LGUs) in the Philippines have the power to levy local business taxes (LBT) on businesses operating within their jurisdiction. This power is derived from the Local Government Code of 1991 (LGC), specifically Section 143, which allows municipalities to impose taxes on various businesses, trades, and occupations. It is important to note that government instrumentalities are generally exempt from local taxes, unless otherwise provided by law.

    However, this power is not absolute. The LGC also provides mechanisms for taxpayers to contest assessments they believe are erroneous or illegal. Section 195 of the LGC outlines the procedure for protesting an assessment:

    “SECTION 195. Protest of Assessment. — When the local treasurer or his duly authorized representative finds that correct taxes, fees, or charges have not been paid, he shall issue a notice of assessment stating the nature of the tax, fee, or charge, the amount of deficiency, the surcharges, interests and penalties. Within sixty (60) days from the receipt of the notice of assessment, the taxpayer may file a written protest with the local treasurer contesting the assessment; otherwise, the assessment shall become final and executory…”

    This provision establishes a clear process: a notice of assessment is issued, and the taxpayer has 60 days to file a written protest. Failure to protest within this period generally renders the assessment final and unappealable. However, Philippine jurisprudence recognizes an exception to this rule when the issue involves purely legal questions, allowing taxpayers to directly seek judicial intervention.

    For example, if a municipality assesses a business for a type of tax it is not legally authorized to collect, the business can directly challenge the assessment in court without first exhausting administrative remedies.

    NPC vs. Sual: A Case of Mistaken Identity in Tax Liability

    The case of *National Power Corporation vs. Philippine National Bank and Municipality of Sual, Pangasinan* revolves around a local business tax assessment issued by the Municipality of Sual against NPC for the year 2010. NPC argued that it was no longer liable for the tax because, with the enactment of the Electric Power Industry Reform Act of 2001 (EPIRA), its power generation assets and operations in Sual had been transferred to the Power Sector Assets and Liabilities Management Corporation (PSALM).

    The procedural journey of the case is as follows:

    • The Municipality of Sual issued a Notice of Assessment to NPC for local business taxes in 2010.
    • NPC did not file a protest with the Municipal Treasurer.
    • The Municipality sought to collect the tax through a Warrant of Distraint, targeting NPC’s bank accounts.
    • NPC filed a Petition for Injunction with the RTC of Quezon City, which was dismissed.
    • NPC appealed to the Court of Tax Appeals (CTA), which affirmed the RTC’s dismissal, stating that the assessment had become final due to the lack of a prior protest.
    • NPC then elevated the case to the CTA En Banc, which also ruled against NPC.
    • Finally, NPC appealed to the Supreme Court.

    The Supreme Court ultimately sided with NPC, emphasizing that the central issue was a purely legal one: whether NPC was the proper party to be assessed for the tax. The Court cited the *National Power Corporation v. Provincial Government of Bataan* case, which established that the EPIRA effectively transferred NPC’s power generation assets and responsibilities to PSALM.

    The Supreme Court stated:

    “Albeit the aforesaid case involved local franchise tax, by parity of reasoning, the same conclusion necessarily follows—PSALM, not petitioner, is the proper party subject of the 2010 Notice of Assessment. Undoubtedly, respondent Municipality is barking up the wrong tree.“

    The Court further stated:

    “It is well to reiterate that petitioner’s power generation business had ceased by operation of law upon the enactment on June 26, 2001 of the EPIRA. Petitioner has thus had no more business activity within the territorial jurisdiction of respondent Municipality that may be subject to business taxes during the period in question for the same had already been transferred to PSALM pursuant to the EPIRA.”

    Therefore, the Supreme Court declared the 2010 Notice of Assessment and the Warrant of Distraint against NPC null and void.

    Practical Implications for Businesses and LGUs

    This case provides critical guidance for businesses undergoing restructuring and for LGUs seeking to collect local taxes. It underscores the importance of verifying the correct taxpayer after any significant corporate change.

    For businesses, the key takeaway is to proactively communicate any restructuring or asset transfers to the relevant LGUs and ensure that tax liabilities are properly assigned. This includes providing documentation and seeking clarification from the LGU to avoid future disputes.

    For LGUs, the case highlights the need for due diligence in identifying the proper taxpayer. Assessments should be based on the current operational reality, not outdated information. Engaging with businesses and reviewing relevant legal and corporate documents can prevent erroneous assessments and costly litigation.

    Key Lessons

    • Verify Taxpayer Identity: Always confirm the correct taxpayer after any business restructuring or asset transfer.
    • Communicate with LGUs: Proactively inform LGUs of any changes that may affect tax liabilities.
    • Legal Questions Allow Direct Judicial Action: You can go directly to court if the issue is purely a legal one.
    • Document Everything: Maintain thorough records of all transactions and communications related to restructuring and tax liabilities.

    Frequently Asked Questions (FAQs)

    Q: What happens if I fail to protest a local tax assessment within the 60-day period?

    A: Generally, the assessment becomes final and unappealable. However, an exception exists if the issue involves a purely legal question.

    Q: What is the EPIRA, and how did it affect NPC’s tax liabilities?

    A: The EPIRA (Electric Power Industry Reform Act of 2001) restructured the power industry, transferring NPC’s generation assets and responsibilities to PSALM. This transfer relieved NPC of certain tax liabilities related to those assets.

    Q: What should I do if I receive a tax assessment that I believe is incorrect?

    A: Immediately consult with a qualified tax lawyer to assess the validity of the assessment and determine the best course of action. This may involve filing a protest with the local treasurer or directly seeking judicial intervention.

    Q: Is a government instrumentality always exempt from local taxes?

    A: Generally, yes, unless otherwise provided by law.

    Q: How can I ensure that my business is compliant with local tax laws after a restructuring?

    A: Conduct a thorough review of your tax obligations with a tax professional and proactively communicate with the relevant LGUs to ensure that all liabilities are properly assigned and managed.

    ASG Law specializes in tax law and corporate restructuring. Contact us or email hello@asglawpartners.com to schedule a consultation.

  • Local Business Tax: Dividends and Interests Earned by Holding Companies

    The Supreme Court has ruled that a holding company managing dividends from shares, even if it places those dividends in interest-yielding markets, is not automatically considered to be ‘doing business’ as a bank or other financial institution for local business tax (LBT) purposes. The Court emphasized that the key is whether these activities are the company’s primary purpose or merely incidental to its role as a holding company. This decision clarifies the scope of local government taxing powers and protects holding companies from being unfairly taxed as financial institutions.

    Taxing Passive Income? Davao’s Fight for Local Business Tax on Holding Company Dividends

    This case revolves around the City of Davao’s attempt to collect local business taxes (LBT) from ARC Investors, Inc. (ARCII), a holding company, based on dividends and interests it earned in 2010. The city assessed ARCII P4,381,431.90, arguing that these earnings qualified ARCII as a financial institution subject to LBT under Section 143(f) of the Local Government Code (LGC). ARCII contested the assessment, arguing that it was not a bank or financial institution and that its receipt of dividends and interests was merely incidental to its ownership of shares in San Miguel Corporation (SMC) and money market placements. The legal question at the heart of the matter is whether ARCII, by virtue of its investment activities and the income derived therefrom, could be considered a “bank or other financial institution” as defined under the LGC, making it liable for LBT.

    The Local Government Code grants local government units the power to impose LBT on the privilege of doing business within their jurisdictions. Section 143(f) of the LGC allows municipalities to tax banks and other financial institutions based on their gross receipts derived from various sources, including interest and dividends. The definition of “banks and other financial institutions” is found in Section 131(e) of the LGC, which includes “non-bank financial intermediaries, lending investors, finance and investment companies, pawnshops, money shops, insurance companies, stock markets, stock brokers and dealers in securities and foreign exchange.” The Supreme Court has consistently held that the term ‘doing business’ implies a trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit.

    However, to be classified as a non-bank financial intermediary (NBFI) and thus subject to LBT, an entity must meet specific criteria. These requisites, as identified by the Supreme Court, include authorization from the Bangko Sentral ng Pilipinas (BSP) to perform quasi-banking functions, the entity’s principal functions must include lending, investing, or placement of funds, and the entity must perform these functions on a regular and recurring basis, not just occasionally. In this case, the Court found that ARCII did not meet these requirements. ARCII was not authorized by the BSP to perform quasi-banking activities, and its primary purpose, as defined in its Articles of Incorporation (AOI), did not principally relate to NBFI activities.

    Furthermore, the Court emphasized that ARCII’s functions were not performed on a regular and recurring basis. ARCII’s activities were connected to its role as one of the Coconut Industry Investment Fund (CIIF) holding companies, established to own and hold SMC shares of stock. In the landmark case of COCOFED v. Republic of the Philippines, the Supreme Court characterized the SMC preferred shares held by CIIF holding companies and their derivative dividends as assets owned by the National Government, to be used solely for the benefit of coconut farmers and the development of the coconut industry. This underlying purpose, the Court noted, distinguished ARCII’s activities from those of a typical financial institution, where the management of dividends, even through interest-yielding placements, did not, by itself, constitute “doing business” as an NBFI.

    The Supreme Court, citing its ruling in City of Davao v. Randy Allied Ventures, Inc., drew a clear distinction between a holding company and a financial intermediary. It emphasized that a holding company invests in the equity securities of other companies to control their policies, whereas a financial intermediary actively deals with public funds and is regulated by the BSP. Investment activities by holding companies are considered incidental to their primary purpose, unlike financial intermediaries whose core business involves the active management and lending of funds. The critical distinction lies in the regularity of function for the purpose of earning a profit, which was lacking in ARCII’s case.

    The court also gave weight to a Bureau of Local Government Finance Opinion, which stated that unless a tax is imposed on banks and other financial institutions, any tax on interest, dividends, and gains from the sale of shares of non-bank and non-financial institutions assumes the nature of income tax. This is because, unlike banks and financial institutions, non-bank and non-financial institutions receive interest, dividends, and gains from the sale of shares as passive investment income, not as part of their ordinary course of business. The Court found that the City of Davao had acted beyond its taxing authority in assessing ARCII for LBT, given that ARCII’s activities did not qualify it as an NBFI engaged in doing business within the meaning of the LGC.

    FAQs

    What was the key issue in this case? The key issue was whether ARC Investors, Inc. (ARCII), a holding company, could be considered a non-bank financial intermediary (NBFI) subject to local business tax (LBT) based on dividends and interests it earned.
    What is a holding company? A holding company is a company that owns a controlling interest in other companies. Its primary purpose is to control the policies of those companies rather than directly engaging in operating activities.
    What is a non-bank financial intermediary (NBFI)? An NBFI is an entity authorized to perform quasi-banking functions, whose principal functions include lending, investing, or placement of funds on a regular and recurring basis. These entities are regulated by the Bangko Sentral ng Pilipinas (BSP).
    What is the Local Government Code (LGC)? The LGC is a law that grants local government units the power to impose local business taxes on the privilege of doing business within their territorial jurisdictions.
    What did the Court rule about ARCII’s tax liability? The Supreme Court ruled that ARCII was not liable for LBT because its investment activities were merely incidental to its role as a holding company and did not qualify it as an NBFI.
    What is the significance of the COCOFED case? The COCOFED case established that the SMC preferred shares held by CIIF holding companies and their derivative dividends are assets owned by the National Government and should be used solely for the benefit of coconut farmers and the development of the coconut industry.
    What is the difference between a holding company and a financial intermediary? A holding company invests in other companies to control their policies, while a financial intermediary actively deals with public funds and is regulated by the BSP due to its quasi-banking functions.
    What was the basis of the City of Davao’s assessment? The City of Davao assessed ARCII based on Section 143(f) of the LGC, which allows municipalities to tax banks and other financial institutions on their gross receipts, including interest and dividends.

    This ruling clarifies the distinction between holding companies and financial institutions for local tax purposes. It reinforces the principle that incidental investment activities by holding companies do not automatically subject them to LBT as financial intermediaries. This decision provides valuable guidance for local government units and holding companies alike.

    For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

    Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
    Source: City of Davao vs. ARC Investors, Inc., G.R. No. 249668, July 13, 2022

  • Understanding Local Business Tax Allocation: A Guide to Situs and Jurisdiction in the Philippines

    The Importance of Proper Jurisdictional Appeals in Local Tax Disputes

    Municipality of Villanueva, Misamis Oriental v. STEAG State Power, Inc. and Municipality of Tagoloan, Misamis Oriental, G.R. No. 214260, May 03, 2021

    Imagine a power plant that spans two municipalities, each vying for a larger share of local business taxes. This real-life scenario unfolded in the Philippines, leading to a pivotal Supreme Court decision that not only clarified the allocation of local business taxes but also underscored the critical importance of jurisdictional appeals in tax disputes.

    The case centered on STEAG State Power, Inc. (SPI), a company generating and selling electricity, with its operations straddling the Municipalities of Villanueva and Tagoloan in Misamis Oriental. The core issue was how to fairly allocate the 70% of SPI’s sales for local business tax purposes, as stipulated under Section 150 of the Local Government Code (LGC). The Municipalities disagreed on whether the tax should be divided equally or based on the location of SPI’s main facilities.

    Legal Context: Understanding Local Business Tax Situs and Jurisdiction

    The concept of situs of tax is crucial in determining where taxes should be paid. Section 150 of the LGC outlines the rules for tax allocation, particularly for businesses like manufacturers and producers. It states:

    Section 150. Situs of the Tax. – (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.

    (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:

    (1) 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

    (2) 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.

    However, the case also brought to light the jurisdiction of the Court of Tax Appeals (CTA) under Republic Act No. 9282, which expanded the CTA’s authority to include:

    Section 7. Jurisdiction. – The CTA shall exercise:

    (a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

    (3) Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction;

    This provision was pivotal in the Supreme Court’s ruling, emphasizing the need for businesses to understand and adhere to proper jurisdictional procedures when contesting local taxes.

    Case Breakdown: A Journey Through the Courts

    STEAG State Power, Inc. found itself at the center of a dispute when the Municipality of Villanueva assessed local business taxes on the entire 70% of SPI’s sales, while Tagoloan claimed a share due to the location of SPI’s water intake facility. SPI, under protest, paid the assessed taxes and filed a complaint for refund and consignation with the Regional Trial Court (RTC).

    The RTC, in its decision dated October 8, 2010, ruled that the 70% sales allocation should be divided equally between the two municipalities, considering the integral role of both locations in electricity production. The RTC’s decision also mandated the refund of overpayments and the issuance of business permits upon payment of the proper taxes.

    Unsatisfied, the Municipality of Villanueva appealed to the Court of Appeals (CA), which modified the RTC’s decision. The CA applied Section 150(c) of the LGC, allocating 60% of the 70% sales to Villanueva (where the power plant is located) and 40% to Tagoloan (where the water intake facility is situated).

    The Supreme Court, however, declared the CA’s decision null and void due to lack of jurisdiction. The Court emphasized:

    “It is elementary that a judgment rendered by a court without jurisdiction is null and void and may be attacked anytime. It creates no rights and produces no effect.”

    The Supreme Court further clarified that:

    “Since no proper appeal or petition for review is filed to question the correctness of the decision of the RTC, it has become final and executory.”

    Practical Implications: Navigating Local Tax Disputes

    This ruling serves as a reminder for businesses operating across multiple jurisdictions to meticulously follow the correct appeal procedures. The decision of the RTC, which divided the tax equally, became final due to the Municipality of Villanueva’s improper appeal to the CA instead of the CTA.

    For businesses, this case underscores the importance of understanding local tax laws and the jurisdiction of appellate courts. It is crucial to:

    • Identify the correct situs of tax as per the LGC.
    • Ensure that any disputes are appealed to the appropriate court, such as the CTA for local tax cases.
    • Consult with legal experts to navigate complex tax issues and avoid jurisdictional errors.

    Key Lessons:

    • Businesses must be aware of the situs of tax and how it applies to their operations.
    • Proper jurisdictional procedures are essential in legal disputes, especially in tax matters.
    • Seeking professional legal advice can prevent costly mistakes and ensure compliance with tax laws.

    Frequently Asked Questions

    What is the situs of tax?

    The situs of tax refers to the location where a tax is imposed and collected. For businesses, this often relates to where their operations or sales are conducted.

    How is local business tax allocated under the Local Government Code?

    Under Section 150 of the LGC, 30% of sales are taxable where the principal office is located, and 70% where the factory or plant is located. Special rules apply for operations spanning multiple locations.

    What should a business do if it disagrees with a local tax assessment?

    A business should file a protest with the assessing municipality and, if necessary, file a case with the Regional Trial Court. Appeals should be directed to the Court of Tax Appeals.

    Why is the Court of Tax Appeals important in local tax disputes?

    The CTA has exclusive jurisdiction over appeals from RTC decisions in local tax cases, ensuring specialized and consistent rulings on tax matters.

    What are the consequences of appealing to the wrong court?

    Appealing to the wrong court can result in the decision being declared null and void, as seen in this case, potentially leading to the original decision becoming final and executory.

    How can businesses ensure compliance with local tax laws?

    Businesses should regularly review the LGC and consult with legal experts to ensure they are correctly allocating taxes and following proper appeal procedures.

    ASG Law specializes in local taxation and jurisdictional issues. Contact us or email hello@asglawpartners.com to schedule a consultation.

  • Holding Company or Financial Intermediary? Local Business Tax Dispute Over Dividends

    In City of Davao v. Randy Allied Ventures, Inc., the Supreme Court ruled that Randy Allied Ventures, Inc. (RAVI), as a Coconut Industry Investment Fund (CIIF) holding company, is not a non-bank financial intermediary (NBFI) and therefore not subject to local business tax (LBT) under Section 143(f) of the Local Government Code (LGC). This decision clarifies the distinction between a holding company managing government assets and a financial institution engaged in lending activities for profit, which is essential for determining tax liabilities of corporations.

    Taxing Times: When is a Holding Company a Financial Institution?

    The City of Davao sought to tax Randy Allied Ventures, Inc. (RAVI) under Section 143 (f) of the Local Government Code (LGC), arguing that RAVI’s activities qualified it as a non-bank financial intermediary (NBFI). RAVI contested, claiming it was merely a holding company managing dividends from San Miguel Corporation (SMC) shares, which the Supreme Court had already declared as government assets in Philippine Coconut Producers Federation, Inc. v. Republic (COCOFED). The central question was whether RAVI’s activities constituted ‘doing business’ as a financial institution, thereby subjecting it to local business tax (LBT).

    The Local Government Code empowers local government units to impose taxes on the privilege of doing business within their jurisdictions. Section 143 of the LGC specifically addresses taxes on businesses, including those imposed on banks and other financial institutions. The term “banks and other financial institutions” is defined broadly to include non-bank financial intermediaries (NBFIs), lending investors, finance and investment companies, pawnshops, and other entities as defined under applicable laws. The critical aspect of this tax provision is that it targets entities actively engaged in financial activities as a means of livelihood or with a view to profit.

    SECTION 143. Tax on Business. — The municipality may impose taxes on the following businesses:

    x x x x

    (f) On banks and other financial institutions, at a rate not exceeding fifty percent (50%) of one percent (1%) on the gross receipts of the preceding calendar year derived from interest, commissions and discounts from lending activities, income from financial leasing, dividends, rentals on property and profit from exchange or sale of property, insurance premium. (Emphasis supplied)

    The Supreme Court emphasized that local business taxes are levied on the privilege of conducting business within a locality. “Doing business” is defined as a trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit. The Court scrutinized RAVI’s activities to determine whether they aligned with the characteristics of a financial institution actively engaged in lending or financial services.

    In its analysis, the Court referenced the criteria for identifying a non-bank financial intermediary (NBFI). These criteria include authorization by the Bangko Sentral ng Pilipinas (BSP) to perform quasi-banking functions, principal functions involving lending, investing, or placement of funds, and regular engagement in specific financial activities. These activities typically involve receiving funds from one group and making them available to others, using funds for acquiring debt or equity securities, or borrowing, lending, buying, or selling debt or equity securities.

    The Supreme Court cited the COCOFED case, which established RAVI as a CIIF holding company managing government assets for the benefit of the coconut industry. The dividends and increments from these shares are owned by the National Government and are intended solely for the coconut farmers and the development of the industry. RAVI’s management of these dividends, including placing them in trust accounts that yield interest, was deemed an essential activity for a CIIF holding company rather than a financial institution engaged in business for profit.

    The Court highlighted the difference between a holding company and a financial intermediary. A holding company primarily invests in the equity securities of another company to control its policies, whereas a financial intermediary actively deals with public funds and is regulated by the BSP. RAVI’s investment activities were considered incidental to its main purpose of holding shares for policy-controlling purposes, distinguishing it from a financial intermediary actively involved in quasi-banking functions.

    Furthermore, the Court addressed the argument that RAVI’s Amended Articles of Incorporation (AOI) granted it powers similar to those of an NBFI. The Court clarified that the power to purchase and sell property and receive dividends is common to most corporations, including holding companies. The mere existence of these powers does not automatically convert a holding company into a financial intermediary, as the key determinant is the regularity and purpose of the activities undertaken.

    In conclusion, the Supreme Court affirmed that RAVI, as a CIIF holding company managing government assets for the benefit of the coconut industry, is not subject to local business tax under Section 143 (f) of the LGC. This determination, however, does not exempt RAVI from other potential tax liabilities should it engage in profit-making activities beyond the management of SMC preferred shares and their dividends.

    FAQs

    What was the key issue in this case? The key issue was whether Randy Allied Ventures, Inc. (RAVI) qualified as a non-bank financial intermediary (NBFI) subject to local business tax (LBT) under Section 143(f) of the Local Government Code (LGC). The City of Davao argued RAVI’s activities met the definition of an NBFI, while RAVI contended it was merely a holding company.
    What is a non-bank financial intermediary (NBFI)? An NBFI is a financial institution that provides financial services but does not have a banking license. These institutions are typically involved in activities like lending, investing, and managing funds, and they are regulated by the Bangko Sentral ng Pilipinas (BSP).
    What is a holding company? A holding company is a corporation that owns controlling shares in other companies. Its primary purpose is to control the policies of these companies, rather than engaging directly in operating activities.
    What did the Supreme Court decide in this case? The Supreme Court decided that RAVI was not an NBFI but a holding company managing government assets for the benefit of the coconut industry. Therefore, it was not subject to LBT under Section 143(f) of the LGC.
    What is the significance of the COCOFED case in this decision? The COCOFED case established that RAVI, as a CIIF company, and the SMC shares it holds are government assets owned by the National Government. This classification influenced the Court’s decision, as it viewed RAVI’s activities as managing these assets for public benefit rather than engaging in business for profit.
    What factors did the Court consider in determining RAVI’s status? The Court considered whether RAVI was authorized by the BSP to perform quasi-banking functions, whether its principal functions involved lending or investing funds, and whether it regularly engaged in financial activities typical of NBFIs. The Court found RAVI did not meet these criteria.
    Does this decision mean RAVI is exempt from all taxes? No, this decision only exempts RAVI from local business tax under Section 143(f) of the LGC. The Court clarified that RAVI could still be liable for other taxes, whether national or local, if it engages in other profit-making activities.
    What is the main difference between a holding company and a financial intermediary? A holding company primarily invests in other companies to control their policies, while a financial intermediary actively deals with public funds and is regulated by the BSP. The key difference lies in the purpose and regularity of their activities.

    This ruling provides clarity on the taxation of holding companies and financial intermediaries, emphasizing the importance of evaluating the nature and purpose of a company’s activities. It underscores that merely possessing powers similar to those of a financial institution does not automatically subject a company to local business tax if its primary function is not that of a financial intermediary.

    For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

    Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
    Source: CITY OF DAVAO VS. RANDY ALLIED VENTURES, INC., G.R. No. 241697, July 29, 2019

  • Compromise Agreements Prevail: Resolving Tax Disputes Through Mutual Concessions

    In a significant ruling, the Supreme Court affirmed the validity and enforceability of compromise agreements in resolving tax disputes. The Court set aside its earlier decision and adopted the terms of the Universal Compromise Agreement (UCA) between Metro Manila Shopping Mecca Corp. and the City of Manila. This decision underscores the judiciary’s support for amicable settlements and the binding nature of compromise agreements once judicially approved, providing clarity for businesses and local governments engaged in tax disputes.

    Tax Accord Triumph: How a Settlement Trumped Judicial Ruling

    This case revolves around a tax dispute between Metro Manila Shopping Mecca Corp. and the City of Manila. The petitioners sought a tax refund/credit for local business taxes paid, which the City of Manila initially contested. However, both parties later entered into a Universal Compromise Agreement (UCA) to settle all pending cases between them involving claims for tax refund/credit, including the present case. The Supreme Court was then asked to approve the terms of this UCA, which would effectively replace the Court’s earlier decision denying the petitioners’ claim.

    A key aspect of the UCA was the agreement that “there shall be no refunds/tax credit certificates to be given or issued by the City of Manila” in certain cases, including the one before the Supreme Court. Despite this agreement, the City of Manila initially argued that the UCA should not affect the Court’s decision because the specific taxes in this case were not covered by the agreement. The Supreme Court, however, disagreed, emphasizing that the taxes subject of the case were indeed covered by the UCA, as they were paid under the same provision of the Revenue Code of Manila.

    The Supreme Court grounded its decision on the fundamental principles governing compromise agreements, explaining that a compromise agreement is a contract where parties make reciprocal concessions to avoid or end litigation. The Court cited the Civil Code, stating that a compromise agreement allows parties to come to a mutual understanding instead of incurring the expenses of litigation, especially when the outcome is uncertain. The requisites and principles of contracts dictate the validity of such agreements. These requisites include consent, object, and cause, along with the limitation that terms and conditions must adhere to law, morals, good customs, public policy, and public order.

    Article 2028 of the Civil Code states: “A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced.”

    Building on this principle, the Court emphasized the binding nature of a judicially approved compromise agreement. Once a court sanctions a compromise, it transforms from a mere contract into a judicial determination of the controversy. The ruling has the force and effect of a judgment, making it immediately executory and generally not appealable, except in cases of vices of consent or forgery. Non-compliance with the terms of the agreement empowers the court to issue a writ of execution, which becomes a ministerial duty, compelling compliance with the compromise.

    The Court noted that the parties should have informed it about the UCA’s execution, which would have rendered the case moot and academic. Nevertheless, the Court considered several factors in deciding to approve and adopt the UCA’s terms. First, the UCA appeared to meet all the requirements of a valid compromise agreement. Second, the UCA was executed more than a year before the Court’s original decision. Third, the UCA and the Court’s decision produced practically the same result: the petitioners were not entitled to any tax refund or credit. Due to these considerations, the Supreme Court granted the petitioners’ Manifestation and Motion, setting aside its earlier decision and adopting the UCA’s terms as the new decision of the Court.

    This decision has significant practical implications for businesses and local governments involved in tax disputes. It reinforces the importance of compromise agreements as a means of resolving disputes efficiently and amicably. By adopting the UCA, the Supreme Court signaled its approval of parties settling their differences through mutual concessions rather than protracted litigation. This approach aligns with the principles of judicial economy and encourages parties to negotiate in good faith to reach mutually acceptable solutions. The case provides a clear example of how a compromise agreement, once approved by the court, becomes a binding judgment that the parties must faithfully comply with. The decision underscores the courts’ readiness to uphold and enforce such agreements, provided they meet the necessary legal requirements and are not contrary to law or public policy.

    This ruling also highlights the need for parties to promptly inform the court about any compromise agreements reached during litigation. In this case, the Court noted that the parties’ failure to notify it about the UCA could have resulted in unnecessary judicial proceedings. Therefore, parties should proactively communicate any settlement agreements to the court to avoid wasting judicial resources and to ensure the timely resolution of the dispute.

    Furthermore, this case clarifies the scope and effect of compromise agreements in the context of tax disputes. The Court’s decision confirms that such agreements can effectively resolve claims for tax refunds or credits, provided that the agreement clearly covers the taxes in question and meets the requirements of a valid contract. This clarification is particularly important for businesses operating in multiple jurisdictions, as it provides a framework for settling tax disputes through a comprehensive and coordinated approach.

    The Supreme Court’s action underscores the judicial system’s recognition of compromise agreements as not merely private arrangements but as mechanisms that, when judicially sanctioned, elevate to the level of enforceable court decisions. Such agreements embody a pragmatic approach to dispute resolution, allowing parties to tailor outcomes to suit their specific circumstances, thereby preserving relationships and reducing the strains on judicial resources. Therefore, parties involved in legal disputes should consider the potential of compromise agreements as a tool for achieving efficient and satisfactory resolutions, keeping in mind the importance of ensuring these agreements are comprehensively documented and aligned with legal standards.

    FAQs

    What was the key issue in this case? The key issue was whether the Supreme Court should approve and adopt the terms of a Universal Compromise Agreement (UCA) between the parties, which would settle their tax dispute and replace the Court’s earlier decision.
    What is a compromise agreement? A compromise agreement is a contract where parties make reciprocal concessions to avoid litigation or end an existing lawsuit; it involves mutual gains to avoid the expenses and uncertainty of court battles.
    What happens when a court approves a compromise agreement? When a court approves a compromise agreement, it becomes more than just a contract; it becomes a determination of the controversy with the force and effect of a judgment, making it immediately executory and generally not appealable.
    What was the main contention of the City of Manila? The City of Manila initially contended that the UCA should not affect the Court’s decision because the taxes subject of the case were not included in the agreement, a claim which the Supreme Court refuted.
    Why did the Supreme Court ultimately approve the UCA? The Court approved the UCA because it met the requirements of a valid compromise agreement, it was executed before the Court’s decision, and it produced the same result as the Court’s decision (no tax refund/credit for the petitioners).
    What is the practical implication of this ruling for businesses? This ruling reinforces the importance of compromise agreements in resolving tax disputes, providing businesses with a means of settling disputes efficiently and amicably, instead of undergoing protracted litigation.
    What should parties do if they reach a compromise agreement during litigation? Parties should promptly inform the court about the compromise agreement to avoid wasting judicial resources and to ensure the timely resolution of the dispute.
    Can a compromise agreement cover tax refund claims? Yes, this decision confirms that compromise agreements can effectively resolve claims for tax refunds or credits, provided the agreement clearly covers the taxes in question and meets the requirements of a valid contract.

    In conclusion, the Supreme Court’s decision in Metro Manila Shopping Mecca Corp. v. Toledo reaffirms the judiciary’s support for compromise agreements as a valuable tool for resolving disputes, particularly in the context of tax claims. The decision emphasizes the binding nature of judicially approved compromise agreements and encourages parties to engage in good-faith negotiations to reach mutually acceptable solutions.

    For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

    Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
    Source: METRO MANILA SHOPPING MECCA CORP. VS. TOLEDO, G.R. No. 190818, November 10, 2014

  • Double Taxation and Local Business Tax: Clarifying Exemptions for Manila Businesses

    The Supreme Court ruled in this case that the City of Manila cannot impose local business taxes on Coca-Cola Bottlers Philippines, Inc. under both Sections 14 and 21 of Tax Ordinance No. 7794, as this would constitute double taxation. The court emphasized that businesses already paying tax under one section of the ordinance should be exempt from paying under another, thus preventing the same entity from being taxed twice for the same activity. This decision clarifies the scope of local business tax regulations in Manila and protects businesses from being unfairly burdened with multiple taxes for the same business activities.

    Manila’s Taxing Dilemma: Can a Business be Hit Twice?

    This case revolves around a dispute between the City of Manila and Coca-Cola Bottlers Philippines, Inc. (CCBPI) regarding the imposition of local business taxes. Prior to February 25, 2000, CCBPI had been paying local business tax under Section 14 of Tax Ordinance No. 7794. This section pertains to manufacturers, assemblers, and other processors. However, CCBPI was expressly exempted from tax under Section 21 of the same ordinance. Section 21 covers businesses subject to excise, value-added, or percentage taxes under the National Internal Revenue Code (NIRC).

    The City of Manila then approved Tax Ordinance No. 7988 on February 25, 2000, amending sections of Tax Ordinance No. 7794. This included deleting the proviso in Section 21 that exempted businesses already paying the tax. Following this amendment, the City of Manila assessed CCBPI based on Section 21 of Tax Ordinance No. 7794. The assessment covered deficiency local business taxes, penalties, and interest for the third and fourth quarters of 2000. CCBPI protested this assessment, arguing it amounted to double taxation.

    The legal battle escalated when CCBPI filed an action with the Regional Trial Court (RTC) of Manila, seeking cancellation of the assessment. The RTC initially dismissed the case. The court decided that the business taxes imposed under Sections 14 and 21 of Tax Ordinance No. 7988 were not of the same kind or character, hence no double taxation. But the RTC later reversed course, granting CCBPI’s Motion for Reconsideration, decreeing cancellation and barring further assessment under Section 21. This decision aligned with a prior ruling of the Supreme Court that Tax Ordinances No. 7988 and No. 8011 (which further amended the tax ordinance) were null and void. The City of Manila then appealed this decision, eventually bringing the case to the Supreme Court.

    The Supreme Court had to address whether the City of Manila could assess taxes under both Sections 14 and 21 of Tax Ordinance No. 7794. The court first clarified the proper procedure for appealing decisions from the RTC to the Court of Tax Appeals (CTA). The court found that the City of Manila had indeed filed its Petition for Review with the CTA within the reglementary period, thus technically its appeal should be allowed.

    Even so, the Court emphasized a crucial flaw: The City of Manila failed to submit the required number of copies of the Petition for Review and attached mere machine copies of vital RTC orders, which were prepared and certified only after the petition was already filed. Therefore, The CTA properly dismissed the City’s Petition for Review given this non-compliance. The court also pointed out that the declaration of nullity of Tax Ordinances No. 7988 and No. 8011 reinstated the original proviso in Section 21 of Tax Ordinance No. 7794. This meant that businesses already paying local business tax under other sections, like CCBPI, were exempt from tax under Section 21. Therefore, it follows that, even if the court granted the Petition, it would have to rule against the City of Manila.

    The most important element of the decision was the issue of double taxation. Double taxation occurs when the same property is taxed twice by the same jurisdiction for the same thing. Direct duplicate taxation requires that the two taxes be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period, and be of the same kind or character. In CCBPI’s case, the Court found that taxing the company under both Sections 14 and 21 of Tax Ordinance No. 7794 constituted double taxation, as both taxes were imposed on the privilege of doing business in Manila, for the purpose of raising city revenues, by the same authority, within the same jurisdiction, and were of the same kind or character.

    The Supreme Court clarified how the Local Government Code (LGC) should be interpreted regarding local business taxes. According to the Court, when a city has already imposed a business tax on manufacturers, such as CCBPI, under Section 143(a) of the LGC, that city cannot subject the same manufacturers to another business tax under Section 143(h) of the same Code. Section 143(h) only applies to businesses subject to excise tax, VAT, or percentage tax under the NIRC that are “not otherwise specified in preceding paragraphs”.

    SECTION 143. Tax on Business. – The municipality may impose taxes on the following businesses:
    (a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce of whatever kind or nature, in accordance with the following schedule:
    x x x x
    (h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian concerned may deem proper to tax: Provided, That on any business subject to the excise, value-added or percentage tax under the National Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year.

    Thus, The Supreme Court ruled against the City of Manila, reaffirming the principle that local governments cannot impose taxes in a way that leads to unfair or double taxation. The City of Manila’s actions to tax CCBPI under two different sections of the ordinance went against the principle that businesses already paying taxes under one section should be exempt from additional taxes on the same activity.

    FAQs

    What was the key issue in this case? The key issue was whether the City of Manila could impose local business taxes on CCBPI under both Sections 14 and 21 of Tax Ordinance No. 7794, which would constitute double taxation.
    What is double taxation? Double taxation means taxing the same property twice when it should be taxed only once, specifically when the two taxes are imposed on the same subject matter, for the same purpose, by the same authority, within the same jurisdiction, during the same taxing period, and are of the same kind or character.
    What did Section 21 of Tax Ordinance No. 7794 originally state? Section 21 of Tax Ordinance No. 7794 originally exempted registered businesses in the City of Manila that were already paying local business tax from paying additional taxes under Section 21.
    What was the effect of declaring Tax Ordinances No. 7988 and No. 8011 null and void? Declaring Tax Ordinances No. 7988 and No. 8011 null and void meant that Section 21 of Tax Ordinance No. 7794, with its original exempting proviso, was back in effect.
    Why did the Supreme Court rule against the City of Manila? The Supreme Court ruled against the City of Manila because imposing taxes under both Sections 14 and 21 on CCBPI constituted double taxation, which is not allowed under the Local Government Code.
    What is the relevance of Section 143 of the Local Government Code in this case? Section 143 of the Local Government Code specifies the businesses that a municipality or city may tax. When a business is already taxed under one subsection, it cannot be taxed again under another subsection for the same activity.
    Did the City of Manila follow proper procedure when appealing the case? Yes, initially. The city initially filed its Petition for Review with the CTA within the reglementary period.
    Why was the City of Manila’s Petition for Review eventually dismissed by the CTA First Division? The City of Manila failed to comply with Section 4 of Rule 5 and Section 2 of Rule 6 of the Revised Rules of the CTA (submitting correct number of copies) and the dismissal was upheld.

    This ruling reinforces the importance of fair tax practices and adherence to the Local Government Code. It clarifies that local governments must avoid imposing taxes that unfairly burden businesses with double taxation, especially when those businesses are already contributing to local revenues through other legitimate taxes. The Supreme Court’s decision serves as a reminder that proper procedures must be followed, or it may lead to the Petition not being given due course.

    For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

    Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
    Source: The City of Manila vs. Coca-Cola Bottlers Philippines, Inc., G.R. No. 181845, August 04, 2009

  • Gross Receipts vs. Gross Revenue: Defining the Tax Base for Contractors in the Philippines

    The Supreme Court ruled that local business taxes imposed on contractors in the Philippines should be based on gross receipts, not gross revenue. This means that only money actually or constructively received by a contractor during the taxable period should be considered when calculating local business tax liabilities. This decision clarifies the tax base for contractors and prevents potential double taxation, ensuring a fairer application of local tax laws.

    Ericsson vs. Pasig: Unpacking the ‘Gross’ Misunderstanding in Local Business Taxation

    In the case of Ericsson Telecommunications, Inc. v. City of Pasig, the central legal question revolved around the interpretation of the terms “gross receipts” and “gross revenue” within the context of local business taxation. Ericsson, a telecommunications company, contested the City of Pasig’s assessment of business tax deficiencies based on the company’s gross revenue, arguing that the tax should be calculated based on gross receipts instead. This dispute highlighted a critical distinction in accounting and taxation principles, with significant implications for how businesses are taxed at the local level. The Supreme Court was tasked with resolving this ambiguity, ensuring that local tax laws are applied consistently and fairly across different industries and sectors.

    The legal battle began when the City of Pasig assessed Ericsson for business tax deficiencies for the years 1998 to 2001, amounting to over P17 million. The city based its assessments on Ericsson’s gross revenues as reported in its audited financial statements. Ericsson protested these assessments, asserting that the local business tax should be based on gross receipts, which reflect only the money actually or constructively received, and not on gross revenue, which may include uncollected earnings. The Regional Trial Court (RTC) initially ruled in favor of Ericsson, canceling the city’s assessment notices. However, the Court of Appeals (CA) reversed this decision, dismissing Ericsson’s complaint due to a procedural issue concerning the authority of the signatory of the verification and certification of non-forum shopping.

    The Supreme Court addressed two preliminary issues before delving into the substantive tax question. First, the Court held that the CA erred in dismissing the case based on the alleged lack of authority of Ericsson’s Manager for Tax and Legal Affairs to sign the verification and certification of non-forum shopping. Citing previous jurisprudence, the Court emphasized that substantial compliance with procedural rules is often sufficient, especially when there is no intent to disregard the rules. The Court noted that Ericsson had subsequently submitted a Secretary’s Certificate confirming the attorney’s authority, which should have been considered by the CA. This initial ruling underscored the Court’s willingness to relax procedural requirements in the interest of substantial justice.

    Second, the Supreme Court determined that the CA lacked jurisdiction over the appeal because it involved a pure question of law. The Court clarified that a question of law arises when the issue does not require an examination of the probative value of evidence, but rather an interpretation of the law based on a given set of facts. In this case, the dispute centered on whether the local business tax should be based on gross receipts or gross revenue, a question that could be resolved by interpreting the relevant tax laws without needing to delve into Ericsson’s financial statements. Thus, the CA should have dismissed the appeal for lack of jurisdiction, as appeals involving pure questions of law fall under the Supreme Court’s purview.

    Having addressed the procedural issues, the Supreme Court turned to the core substantive question: whether the local business tax on contractors should be based on gross receipts or gross revenue. The Court emphasized that Section 143 of the Local Government Code, in relation to Section 151, authorizes local government units to levy business taxes. Specifically, subsection (e) of Section 143 pertains to contractors and other independent contractors, stating that the tax should be based on “gross receipts.” The Local Government Code further defines “gross sales or receipts” as including the total amount of money or its equivalent representing the contract price, compensation, or service fee, including amounts charged for materials supplied with the services, and the deposits or advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding discounts, sales returns, excise tax, and value-added tax (VAT).

    The Supreme Court elaborated on the concept of constructive receipt, citing its previous rulings in Commissioner of Internal Revenue v. Bank of Commerce and Commissioner of Internal Revenue v. Bank of the Philippine Islands. The Court explained that actual receipt is not limited to physical receipt but may also include constructive receipt, which occurs when money or its equivalent is placed at the control of the person who rendered the service without restrictions by the payor. Revenue Regulations No. 16-2005 provides examples of constructive receipts, such as deposits in banks made available to the seller of services without restrictions, the issuance by the debtor of a notice to offset any debt or obligation accepted by the seller as payment for services rendered, and the transfer of amounts retained by the payor to the account of the contractor. Thus, the Court clarified that gross receipts include not only amounts physically received but also those constructively received.

    In contrast, the Supreme Court distinguished gross revenue as encompassing money or its equivalent actually or constructively received, including the value of services rendered or articles sold, exchanged, or leased, the payment of which is yet to be received. This aligns with the International Financial Reporting Standards (IFRS), which define revenue as the gross inflow of economic benefits (cash, receivables, and other assets) arising from the ordinary operating activities of an enterprise, measured at the fair value of the consideration received or receivable. Therefore, gross revenue includes both amounts currently received and amounts expected to be received in the future.

    The Court highlighted that Ericsson uses the accrual method of accounting, where income is reportable when all the events have occurred that fix the taxpayer’s right to receive the income, and the amount can be determined with reasonable accuracy. Under this method, Ericsson’s audited financial statements reflect income or revenue that accrued to it during the taxable period but was not yet actually or constructively received or paid. The Supreme Court concluded that imposing a local business tax based on Ericsson’s gross revenue would result in double taxation, as the revenue or income for a taxable year would inevitably include gross receipts already reported during the previous year, for which local business tax had already been paid. This would violate the constitutional prohibition against taxing the same person twice by the same jurisdiction for the same thing.

    The Supreme Court concluded that the City of Pasig committed an error by assessing Ericsson’s local business tax based on its gross revenue as reported in its audited financial statements. The Court reiterated that Section 143 of the Local Government Code and Section 22(e) of the Pasig Revenue Code clearly provide that the tax should be computed based on gross receipts. Therefore, the Court granted the petition, setting aside the CA’s decision and reinstating the RTC’s decision, which had ordered the city to cancel the assessment notices issued to Ericsson. This decision provides clarity on the proper tax base for contractors and prevents potential double taxation, ensuring a fairer application of local tax laws.

    FAQs

    What was the key issue in this case? The key issue was whether the local business tax on contractors should be based on gross receipts or gross revenue. The Supreme Court ruled that it should be based on gross receipts, which are amounts actually or constructively received.
    What are gross receipts? Gross receipts include money or its equivalent actually or constructively received in consideration of services rendered or articles sold. This includes advance payments actually received during the taxable quarter.
    What are gross revenues? Gross revenue covers money or its equivalent actually or constructively received, including the value of services rendered or articles sold, the payment of which is yet to be received. This includes amounts receivable, even if not yet received.
    What is constructive receipt? Constructive receipt occurs when money or its equivalent is placed at the control of the person who rendered the service without restrictions by the payor. Examples include deposits in banks available to the seller and the transfer of retained amounts to the contractor’s account.
    Why did the Court of Appeals initially dismiss the case? The Court of Appeals initially dismissed the case because Ericsson failed to adequately demonstrate that the signatory of the verification and certification of non-forum shopping was duly authorized by the Board of Directors. The Supreme Court reversed this, citing substantial compliance.
    What is the significance of using the accrual method of accounting? The accrual method of accounting recognizes income when all events have occurred that fix the taxpayer’s right to receive the income, and the amount can be determined with reasonable accuracy. This method is used by Ericsson but is distinct from basing tax on actual receipts.
    What is double taxation, and how does this case relate to it? Double taxation is taxing the same person twice by the same jurisdiction for the same thing. The Supreme Court found that basing the local business tax on gross revenue could lead to double taxation since it might include receipts already taxed in prior years.
    What was the final ruling of the Supreme Court? The Supreme Court granted Ericsson’s petition, setting aside the Court of Appeals’ decision and reinstating the Regional Trial Court’s decision. This means the City of Pasig was ordered to cancel the assessment notices based on gross revenue.

    This ruling provides important clarification for businesses operating in the Philippines, particularly contractors, regarding the proper tax base for local business taxes. By emphasizing the distinction between gross receipts and gross revenue, the Supreme Court has helped to prevent potential double taxation and ensure a fairer application of local tax laws. This decision reaffirms the principle that taxation should be based on actual or constructively received income, providing greater certainty for businesses in their tax planning and compliance efforts.

    For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

    Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
    Source: Ericsson Telecommunications, Inc. vs. City of Pasig, G.R. No. 176667, November 22, 2007