Supreme Court (SC) According to the Department of Energy (DOE), the ruling confirms that private contractors’ income tax in the Malampaya gas project is included in the government’s share is expected to reassure investors.
“We are glad this issue has been resolved because it provides stability and security for our investors,” Energy Minister Sharon S. Garin said in an interview last week.
Ms. Gallin said the decision could attract more exploration investment.
In a July 30 decision, SC overturned allegations against Philippine exploration BV, Chevron Malampaya LLC and state-run PNOC Exploration Corp.
In 1990, the government awarded service contracts to the Philippines, Chevron and PNOC for the Malampaya project. Under the contract, the contractor must remit 60% of the net income of the project to the government.
Although they are exempt from all taxes except income tax, the contract includes tax assumption provisions and specifies that their income tax from 2002 to 2009 will be borne by the government’s share.
After the review, the Board of Audits (COA) found that more than $53 billion in income tax had been deducted from the government’s share. The agency argued that the contractors were held responsible for these taxes due to no clear legal provisions, indicating that their income tax should be part of the government’s share.
During the trial of the case, the International Chamber of Commerce issued an arbitration awardfAvoid the validity of tax assumption provisions in service contracts.
The SC believes that the COA’s ruling is a ruling by Presidential Decree (PD) No. 87 or the Petroleum Exploration and Development Act, which says that the bill says that income tax paid by oil contractors or on behalf of oil contractors constitutes part of the government’s guarantee of 60% net income from the oil business.
It said the law attempts to encourage private investment in oil exploration by allowing the government to assume the contractor’s income tax obligations.
This is noted in PD 1206 and PD 1459, which confirms that the state’s share includes all taxes.
The tax assumption clause under the Malampaya contract does not constitute tax exemption, SC said. – Sheldeen Joy Talavera
