Atty. Sonny Pulgar’s Blog & personal website.


Feb 1, 2009Articles0 comments

In 2000, Quezon Power Ltd., a US$1B power plant located in Bgy. Cagsiay 1, Mauban, Quezon, started negotiating with the local assessor on the assessment and valuation of the power facilities for purposes of real property taxes (RPT).

Mario Diamante, the municipal assessor was being assisted by the former provincial attorney of the former Governor Willie Enverga. Atty. Ariel Radovan wanted the conference held at the head office of QPL in the Enterprise Building along Paseo de Roxas and Ayala, and demanded lunch or dinner at the nearby Shangri-La.

Coming prepared in the discussion, Diamante brought with him various documents, among which were the financials of the power corporation prepared by no less than the premier accounting firm in the country, SGV, and on file with the Securities and Exchange Commission. From those available records, and coming as they were from the power generator’s own admission with the corporate watchdog, Diamante came out with an assessment conformably with the Local Government Code.

First, Diamante ascertained from the announcements made by the power company prior to construction, that the total cost of the 450- megawatt coal plant was in the vicinity of US$1B. That includes the acquisition of land in Bgy. Cagsiay 1, construction of various buildings, and the installation of the power generation facilities directly custom-made from the United States. Second, from the Assessor’s actual inspection and evaluation of the facilities upon their commissioning. And lastly, from the records of the SEC.

From the financials submitted by QPL with the SEC, the former valued its total assets comprising of land, buildings and structures, and the power facilities themselves to be close to a billion US dollars. Since undoubtedly the business of power generation is commercial and industrial, the assessment for local land tax is 80% of the gross valuation of one billion dollars. From that calculation, applying the gross 2% RPT on the assessed value of US$800M is US$16M or at current exchange rate of Php47.00, is Php752M annually from October, 1999, when QPL began its first commercial operation.

When QPL learned about the official report of Diamante, it shelved the negotiation and went directly with the former Governor.

In several undisclosed meetings, QPL laid down a legal strategy meant to compel the Province of Quezon to settle. It said to the ex-Governor that it shall be filing a judicial complaint designed to questioning the propriety of the assessment made by Diamante. When the Provincial Prosecutor voiced his reservations, QPL said that there are exceptions to the rule against judicial resort ascribing abuse of discretion on Diamante’s part. It claimed that given the magnitude of their operation, only the Provincial Assessor has the power to pass upon the assessment. All that Diamante did was well “outside of his task and therefore null and void”. To make the judicial resort palatable for local consumption, the former Governor’s cohorts spread the rumor that Diamante was trying to fleece QPL with a brand new Mitsubishi Adventure.

The power plant skirted administrative appeal where the protestant has to deposit under protest the questioned amount of land tax. In its court petition, QPL deposited by way of consignation an amount which it believes was the rightful imposition. The amount deposited was of course far less than what Diamante assessed by more than half. The former Governor played with his discretion and froze Diamante’s assessment. When Diamante protested, he was booted out and was replaced by his assistant.

The Province of Quezon, hewing closely to script, made a feeble resistance to QPL’s judicial action. Its Answer to the Complaint discloses a no-contest stance. No mention was made ever on Diamante’s figures. Or telling QPL that it should have first gone to the Board of Assessment before going to Court, or why its monetary deposit is arbitrarily low compared to what Diamante reported. In short its counterclaim to the Complaint was unusually meek disclosing a later coup d’grace, i.e., a compromise agreement based on QPL’s estimate. While the Sangguniang Panglalawigan was busy deliberating what looked like a Christmas authorization to the former governor in December, 2002, Sentro ng Gabay Legal sa Quezon filed an Intervention which was granted by Judge Jose Hernandez, the former presiding judge. After the retirement of Judge Henandez, QPL and Quezon Province submitted in court what was purported to be an arbitration award dished out by the Department of Finance, then headed by Secretary Isidro Camacho and upheld the valuation of QPL of Php15B or an annual RPT of about Php240M.

QPL, with the able assistance of DoF and former Governor Enverga, saved almost half a billion pesos a year. From the financials of QPL, it disclosed a cash deduction of Php500M per year on depreciation beginning 2000.

Faced with what appeared to be an arbitration award, the new presiding judge dismissed the case, rationalizing that everything ended well, the tax was paid anyway, and there the intervention went as well, since what the intervenor sought was realized anyway.

Not soon after, in 2003, Sentro went straight to the Supreme Court and sought review of the dismissal. Interesting questions were raised. Foremost of which was the authority of the Provincial Governor to compromise a tax assessment when a municipal assessor has already made an official valuation. Of course, on the issue of jurisdiction, whether a local court can take cognizance on a question of pure administrative prerogative exclusively established by the local government code. Peripherally, another unsettling spectacle brought about by the case was the surprised intrusion of the Secretary of the Dept. of Finance, acting as an arbiter, who was not on the scene at the first instance.

This holds true on the land tax liability of Hopewell, now owned by Team Energy. To date, this Pagbilao power plant has outstanding arrears of about Php6B in unpaid land tax. Its power facilities are estimated not far from the valuation of QPL.

Hopewell began its commercial operations since 1995. Under its BOT agreement, Hopewell has 25 years to operate or until 2020. When it was under Covanta, it was one of the company’s most profitable power generators in Asia reporting an annual net income of Php10B, while all the rest of its power assets in North America posted debilitating losses. It conveniently ignored Pagbilao in the latter’s claims for land taxes since 1995 and went on to file for bankruptcy.

Pursuing its rightful demands for land taxes, Quezon Province prevailed before the administrative bodies. Napocor, taking the cudgels for Team Energy and its successors, resisted the just and legal claims of the province much to its prejudice. Smarting from legal debacle before the Central Board of Assessment Appeals, Napocor went to the Supreme Court and asked for an Injunction to restrain this time a new Governor bent on auctioning off Team Energy’s facilities.

Now comes this piece of disturbing news:

New York, Manila settle taxation row

NEW YORK City has agreed to accept $9 million from the government of the Philippines, representing about 85 percent of unpaid property taxes and interest on a portion of its Fifth Avenue UN Mission and consulate occupied by profit-making businesses, Mayor Michael Bloomberg said.

The agreement follows a ruling last February by US District Court Judge Jed Rakoff in Manhattan awarding the city $10.9 million in taxes and interest.

The dispute had gone before the US Supreme Court, which in June 2007 established that cities may sue foreign governments to collect taxes on property used for non-governmental purposes.

In 2003, the city sued to collect taxes covering 1974 to 1996 on commercial enterprises such as the Philippine National Bank and Philippine Airlines inside the Philippines Center at 556 Fifth Avenue.

The city has sought more than $100 million from governments, including $37 million from India and $4 million from Mongolia, which remain on appeal. Turkey settled for $5.05 million in 2003.

“These are tough economic times, and I have asked city agencies to stretch every tax dollar further-but I also want to make sure that we pursue those who fail to pay their taxes,” Bloomberg said in a news release.

The Philippines had argued its building was exempt from taxation and the city’s statutory 18-percent interest rate amounted to “punitive damages,” which by law may not be assessed against foreign nations.

Telephone calls and e-mail seeking comment from the Philippine consulate were unanswered.

“This settlement affirms the city’s long-standing position that if foreign governments use their properties for non-exempt purposes, they must pay property taxes,” said city law department head Michael Cardozo, who argued the Supreme Court case.

New York City hosts the largest diplomatic community in the world-192 permanent missions to the United Nations and 110 consulates, the mayor’s office said in a news release.

The mayor is founder and majority owner of Bloomberg News’ parent, Bloomberg LP. Bloomberg



The tax collection case was brought by the City of New York in 2003. It obtained a favorable ruling from its District Court contending that a tax lien is an exception to sovereign immunity for cases “in which … rights in immovable property situated in the United States are in issue”. Permanent Mission of India appealed the case to the United States Court of Appeals for the Second Circuit and was rebuffed. Finally in July, 2006 Permanent Mission filed certiorari petition before the US Supreme Court. In little less than one year or on June 14, 2007, the US Supreme Court resolved the case, and New York City was relieved and was able to collect not only from the missions from India, Mongolia, and others, but also from the Philippines where the latter settled for $9M. Out of this endeavor, Mayor Bloomberg was able to “stretch every tax dollar further” and he also made sure to pursuing “those who fail to pay their taxes.”

This is not true in the case of Quezon Province. It seems that there is an incredible confluence of events leading to the virtual immovability of the tax case before the Philippine Supreme Court. Does the case involve rocket science? What is apparent is the confluence of personalities involved in the non-collection of the billions of land taxes from these two power giants. First, there were those provincial officials who colluded with the power plants to frustrate collections by providing clandestine opportunity to bargain. Second is the unwillingness of Napocor to help the LGU in the collection, and in fact, resisted the effort, claiming that in the end the facilities would end up under their management after the BOT period. What is clear however is that in the meantime, Team Energy and QPL rake in billions in earnings, their “take or pay” under the unrenegotiated Power Purchase Agreement. Third, there seems to be no sense of urgency on the part of the Supreme Court to resolve tax cases such as this.

Disposing of this case favourably for instance to cash strapped local government, as it did in some other related cases, especially at this trying economic time, would be of great help. Other LGUs would look up to the resolution as testament to local autonomy instead of total reliance to the internal revenue allotment, a source of sloth and graft to local officials. Unlike the City of New York, Quezon Province doesn’t expect a tax windfall from the power plants, the latter having taken care of those who made sure it won’t happen.

The New York Times reported the following exchange:

Supreme Court justices cast a skeptical eye Tuesday on claims that U.N. diplomats should not pay property taxes to New York City, despite a lawyer’s warning that a ruling for the city could mean higher bills for U.S. sites around the world.

The court heard arguments from two countries being sued for taxes New York claims it is owed on high-rise apartments that house mission offices and residences for diplomatic workers.

“Whatever happens in this case to India and Mongolia is likely to happen to the United States around the world,” warned John Howley, a lawyer representing the two countries.

“You mean we’ll have to start paying our taxes?” Justice Antonin Scalia asked playfully.”I’m afraid so,” answered Howley.

Maybe Mayor Fred Lim should start revisiting his local tax code. The US Embassy and the Seafront both along Roxas Blvd. deserve a tax spanking.

In New York, the sad part is that this government was asked to cough up $9M for real property taxes, while at home it assists foreign firms from dodging much needed taxes.



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