NextGen Day

In a case involving Davao City and a local business tax (LBT) assessment of PHP801.63 million, the Supreme Court (SC) has found in favor of a local business.

The court dismissed the petition submitted by Davao through the city treasurer Linda Tanjili. It upheld the Court of Tax Appeals’ (CTA) ruling in favor of ARC Investors Inc. in September 2019. (ARCII).

The amount of the LBT that the city sought to levy was 0.55 percent of the dividends and interest that ARCII received in 2010 from its stock holdings and its money market placement interests.

The earned dividends and interests, according to ARCII, were merely a byproduct of its ownership of the shares and placements and were not a “business activity” covered by the LBT.

The regional trial court’s ruling that ARCII should be treated as a financial intermediary with dividends and interest from money market placements as its primary sources of income subject to local company taxes was overturned by the CTA on January 29, 2019.

The Bangko Sentral ng Pilipinas has not given ARCII permission to engage in quasi-banking activities, and its articles of incorporation do not specifically state that its functions are primarily related to NBFI activities, so it cannot be considered either a financial intermediary or a non-bank financial intermediary (NBFI). The SC agreed with the CTA in its 11-page decision, which was published online on September 1, and stated that ARCII could not be considered either a financial intermediary

According to the tax court, a holding company is not one of the businesses listed as banks and other financial institutions.

The SC concluded that by taxing ARCII, the in question LBT, on the basis that it is an NBFI, “The City of Davao acted outside its taxation power.”

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