ENERGY Secretary Sharon Garin on Sunday welcomed the Supreme Court ruling that the government’s 60-percent share from the Malampaya Deep Water Gas-to-Power Project includes the income taxes of its private contractors.
“We’re happy that the issue has been resolved, because it gives stability and security to the exploration of our investors. This will help encourage them to continue their activities,” Garin said in a statement.
In a July 30 decision written by Associate Justice Japar Dimaampao, the SC en banc reversed the Commission on Audit’s (COA) findings that Shell Exploration B.V., PNOC Exploration Corp., and Chevron Malampaya LLC were liable for failing to remit P53.14 billion ($1.05 billion) in income taxes to the government from 2002 to 2009.
The case stemmed from the Service Contract of the three Malampaya contractors, which stipulated that 60 percent of the project’s net proceeds will go to the government. The contractors are exempted from paying all taxes, except income tax.
After a post-audit, the COA found that over P53.14 billion in income taxes had been deducted from the government’s share. The COA ruled that the contractors were liable to pay these taxes, arguing that no law explicitly states that their income taxes should be part of the government’s share.
However, a clause in the deal, the tax assumption provision, says the government’s 60-percent share already covers the contractors’ income taxes from 2002 to 2009.
The contractors took the case to the high court.
In its decision, the Supreme Court upheld the pertinent provision in the Oil Exploration and Development Act, in which income taxes paid by or on behalf of the contractors are included in the government’s 60-percent share of net proceeds from petroleum operations.
The ruling also emphasized that, while the contractors are still liable for income tax, the government pays it on their behalf as part of its share in the project’s income.
The provision is designed to encourage private investment in petroleum exploration.
The ruling also affirmed an earlier arbitral award from the International Chamber of Commerce (ICC) upholding the validity of the tax assumption provision in the Malampaya Service Contract.
“We at the Court continue to work 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,” the Supreme Court noted in its decision.
“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.”
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