Philippines Geothermal Plant Operators Not Always Subject to Local Franchise Taxes (Business Mirror)
The Philippines Court of Tax Appeals (CTA) has ruled that local government units (LGUs) cannot impose local franchise taxes on operators of geothermal power plants unless such operators are shown to have been granted a “franchise” to exploit geothermal resources as defined in pertinent laws.
The CTA said the operation of geothermal power plants is not necessarily a “franchise” for which a franchise tax can be imposed by a LGU.
Under the Supreme Court ruling in National Power Corp. (Napocor) City of Cabanatuan, a franchise tax is defined as “a tax on the privilege of transacting business in the state and existing corporate franchises granted by the state. It is not levied on the corporation simply for existing as a corporation, but on its exercise of the rights or privileges granted to it by the government.”
In the case of CE Cebu Geothermal Power Co. Inc. and Visayas Geothermal Power Co. (VGPC) Province of Leyte promulgated last January 24, the CTA ruled that such geothermal power plant operators must be shown to be generating power under a franchise to exploit geothermal resources before they can be imposed local franchise taxes by the province of Leyte.
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