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Gov't Malampaya profit share includes contractors' income taxes —SC

The Supreme Court (SC) has lifted the charges against private contractors of the Malampaya Natural Gas Project, ruling that the Philippine government's share in the profits from the project includes the income taxes of the contractors. In a 19-page decision, the SC En Banc reversed and set aside a decision of the Commission on Audit. It lifted the charges imposed against Shell Exploration B.V., PNOC Exploration Corporation, and Chevron Malampaya LLC. 'The Court is on all fours with COA to zealously ensure that the Government is never placed at a disadvantage and that it rightfully receives what is due it in all its transactions,' it said. 'Nevertheless, remaining bound by the Constitution and the laws of the land, the Government cannot be allowed to renege on its obligation, especially when such has been distinctly outlined in the contract it freely entered into and agreed to,' it added. The petition stemmed from COA's finding that P53 billion income taxes were deducted from the government's share in the project. It ruled that the contractors were liable for the taxes. In reversing the ruling, the SC said that the government signed a service contract with the contractors for the Malampaya project. It said the contract was entered pursuant to Presidential Decree (PD) No. 87 or the Oil Exploration and Development Act. Under the contract, the contractors must remit 60% of the project's next proceeds to the government. The SC said that under PD No. 87, the contractor is liable to pay income tax, but the contractor's income tax forms part of or is counted in the government's 60% share. The SC stressed that tax assumption is not tax exemption. It did not give weight to COA's argument that the service contract infringes upon the prerogative of the government to impose tax or exempt a class from taxation. Meanwhile, the International Chamber of Commerce (ICC) Arbitral Tribunal also reaffirmed and upheld the validity of the tax assumption mechanism in the service contract in December 2019. The SC said that it must respect the finding, but even without it, its independent analysis of the COA disposition would lead to the same conclusion. The decision, penned by Associate Justice Japar Dimaampao, was promulgated in February and made public in July. — BM, GMA Integrated News