Malampaya consortium runs to SC in P53-billion tax dispute

By Lenie Lectura- September 5, 2018
https://businessmirror.com.ph/malampaya-consortium-runs-to-sc-in-p53-billion-tax-dispute/

THE consortium that operates the Malampaya Deep Water Gas to Power project has filed a petition for certiorari before the Supreme Court in a bid to reverse the government auditors’ stand barring it from including its income-tax payments in the sums it remitted to the national government as the latter’s 60-percent share of royalties in the project.

The consortium has a standing P53-billion tax deficiency that it disputes on the basis that income tax is imputed in the royalty payments it made to the government.

“We can confirm that the Malampaya joint-venture partners, together with the Department of Energy [DOE], filed a petition for certiorari with the SC after receiving the Commission on Audit’s [COA] decision denying the consolidated motion for reconsideration submitted by the Malampaya consortium,” the Shell companies in the Philippines said on Tuesday.

No other details were provided.

The project is spearheaded by the DOE, and developed and operated by Spex (Shell Philippines Exploration B.V) with a 45-percent stake on behalf of joint-venture partners Chevron Malampaya Llc.—also with a 45-percent stake—and PNOC EC (Philippine National Oil Co. Exploration Corp.), which holds the remaining 10 percent.

The COA earlier overruled the petition of the Malampaya consortium that income tax was already imputed in the government’s 60-percent share in the Malampaya royalties. The tax, it argued, was deductible from the government’s share of the Malampaya earnings.

However, the COA said there is no provision in the law stating that the income tax of the contractors forms part of the share of the government. Back then, the COA noted in its 2009 report a P53,140,304,739.86
tax deficiency.

On a per-year basis, the COA said the undercollection amounted to P2,409,817,191.46 in 2003; P2,335,402,961.38 in 2004; P2,832,586,038.93 in 2005; P7,901,265,361.42 in 2006; P11,272,523,434.55 in 2007; P15,826,563,356.86 in 2008; and P10,562,146,395.26 in 2009.



DOE backs consortium

The DOE supported the consortium and asserted that the national government may assume and pay the tax liabilities of a service contractor consistent with the incentive-oriented policy toward investors.

It had said that imposing P53.14 billion in taxes would create havoc on the petroleum industry and that the COA report had “sent a very wrong signal to the existing and future petroleum exploration investors in the country.”

It said the COA decision had totally wreaked havoc on the government’s representation with these investors that the Philippines honors and respects the sanctity of contracts and agreements.

“The trust and confidence of foreign investors in the stability and certainty of our investment laws and regulations that the government, for a long period of time, has painstakingly built and nurtured, has been greatly damaged,” it said.

The COA, in its April 6, 2015, decision, upheld its findings that the income taxes of the service contractors could not be assumed by the national government in its 60-percent share in the Malampaya proceeds and, thus, ordered the consortium to pay the national government P53,140,304,739.86 in taxes.

In September 2015 Spex filed an arbitration case against the national government with the Singapore International Arbitration Center. In July 2016 Spex filed another arbitration case in the International Center for Settlement of Investment Disputes against the national government regarding its tax dispute.