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Sir :
This refers to your undated letter, received by this Bureau on March 3, 2011,
requesting for a ruling in behalf of your clients listed hereunder, that the gross receipts
of these companies in the form of interest, dividend income and equity in the net
earnings of the investee company, are beyond the scope of the taxing powers of local
governments:
1) Equasis Incorporated
2) Globalift, Inc.
It is submitted that with the equity method of accounting, the revenues of these
companies also reflect their equity in the net earnings of the company where they
invested their funds in shares of stocks even if there were no actual cash inflows of
these holding companies.
It is contended however, that the local government, in this case the City
Government of Muntinlupa, has no power under the Local Government Code (LGC)
of 1991 to impose business taxes on the income of holding companies in view of
Section 133 (a) of the LGC, quoted as follows: (emphasis ours)
"(a) Income tax, except when levied on banks and other financial
institutions; (Emphasis our)
In view of the above contention and information, it is viewed that the following
issues have to be resolved:
3) Whether interest and dividend incomes are subject to LBT in view of the
prohibition in Section 133 of the LGC.
The claim apparently implies that these holding companies although they
reported incomes/revenues in their AFS, did not actually receive the amounts.
** Globalift owns the majority shares of Equasis, Inc. The Company has not yet
commenced commercial operations as of June 30, 2008
Issue No. 3.
In resolving this particular issue, reference is made to Section 143 (f) of the
LGC quoted hereunder which enumerates the types of income earned by banks and
other financial institutions which local governments may tax by way of exception to
the prohibition against income taxation provided under Section 133 aforementioned:
It is clear that unless imposed on banks and other financial institutions, any tax
Copyright 1994-2017 CD Technologies Asia, Inc. Taxation 2017 First Release 4
imposed on interest or dividends received by non-bank and non-financial institutions
assume the nature of income tax. The reason for this is evident: while banks and other
financial institutions derive such gross receipts in the ordinary course of their business
as financial institutions, the same cannot be said for non-bank and non-financial
institutions like Aquasis Incorporated, Petrolift Holdings, Inc. and Cargolift Group,
Inc. The interest and dividend incomes are merely passive investment incomes.
To sum it up, this Bureau expresses the following views on the herein matters
submitted for resolution:
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* Equity interest in Petrolift, Inc.
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** Globalift owns the majority shares of Equasis, Inc. The Company has not yet
commenced commercial operations as of June 30, 2008.