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City of Makati vs.

Municipality of Bakun and Luzon Hydro Corporation


CTA EB Case No. 1179. January 14, 2006
En Banc, Mindaro-Grulla, J.

FACTS:

Luzon Hydro Corporation (LHC) operates a hydroelectric power plant facility that harnesses
the Bakun River spanning the Provinces of Ilocus Sur and Benguet. It maintains factories,
project offices, plant and/or plantations in the pursuit of business. LHC enjoyed a tax holiday
until 2003 and it was only in 2004 that it commenced paying local business tax to the
Municipality of Bakun (Bakun) and Makati City (Makati) pursuant to Section 150 of the Local
Government Code (LGC). To pay local business tax, LHC allocated 70% of its annual gross
sale and receipts to the Municipality of Alilem and Bakun as site of the plant and Makati as
site of the project office, each having a share of 23.33%.

Bakun questioned the allocation made by LHC to Alilem and Makati with the Bureau of
Local Government Finance (BLGF). BLGF issued an opinion declaring that Makati is not
entitled to the share in the 70% allocation made by LHC since LHC’s office in Makati is an
administrative office, and as such, is not among the sites enumerated in the LGC and its
Implementing Rules and Regulations (IRR). Both Alilem and Bakun adopted the said opinion
which prompted LHC to file a Special Civil Action of Interpleader.

ISSUE: Whether or not Makati is a branch or sales office which entitles it to a share in the 70%
business tax allocation made by LHC.

DECISION:

No. To be considered as a branch or sales office for purposes of collection of taxes, it is not
enough that the branch or sales office conducts operations of the business as an extension
of the principal office. The Makati office must be engaged in the sale of the hydroelectric
power being produced by the LHC. However, the records show otherwise. Among others,
LHC’s Memorandum dated 24, 2011 unequivocally declared that “The invoices or records of
all sales to the National Power Corporation are not handled by the LHC’s Makati City Office
nor does it operate any aspect of the business or primary purposes of LHC as provided in its
Articles of Incorporation.

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