Iligan City power plant purchases not subject to withholding tax, CTA rules

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Bureau of Internal Revenue (BIR)

THE Court of Tax Appeals (CTA), sitting en banc, affirmed the cancellation of the P292-million tax deficiency assessment against energy firm Conal Holdings Corp. (CHC) arising from its 2013 purchase of two diesel power plants from the Iligan City government.

In a 13-page decision, the court denied for lack of merit the appeal of the Bureau of Internal Revenue (BIR) and upheld the July 2017 decision and October 2017 resolution of its second division, saying CHC’s acquisition of diesel power plants from Iligan City is not subject to withholding tax as stated in Revenue Regulation (RR) No. 2-98.

“(P)ursuant to Section 2.57.5(A) of RR No 2-98, implementing Section 57 (B) of the NIRC of 1997, as amended, income payments made to the City Government of Iligan (are) exempt from the payment of creditable withholding tax,” the court said.

“Consequently, petitioner is not liable to the deficiency EWT (expanded withholding tax) assessed by respondent on its income payments made to the City Government of Iligan,” it added.

The Court noted that under Section 2.57.5(A) of RR No. 2-98, withholding of creditable withholding tax shall not apply to income payments to national government including provincial, city or municipal governments and barangays.

The CTA also ruled that the Iligan government is “exercising its governmental functions when it sold the power plants.”

It said the local government foreclosed on the Northern Mindanao Power Corp. (NMPC) power plants for failure to pay real property tax. It then sold the power plants to CHC to recover the taxes from NMPC and “increase power supply in Mindanao.”

“The findings of fact by the CTA in Division are not to be disturbed without any showing of grave abuse of discretion considering that the members of the Division are in the best position to analyze the documents presented by the parties,” it added.

The decision was written by Associate Justice Ma. Belen M. Ringpis-Liban and concurred in by Presiding Judge Roman G. Del Rosario and Associate Justices Juanito C. Castañeda, Jr., Erlinda P. Uy, Esperanza R. Fabon-Victorino, Cielito N. Mindaro-Grulla, and Catherine T. Manahan. — Vann Marlo M. Villegas