Napocor can't assume tax liability of Mirant, says Supreme Court

MANILA, Philippines - The National Power Corp. (Napocor) cannot assume P1.5 billion tax liabilities of its partner in thermal plant project in Pagbilao town in Quezon province, the Supreme Court has ruled.

In a 17-page decision, the second division of the SC said Napocor erred when it took responsibility in payment of real property and machinery taxes charged to private power company Mirant Inc. for the built-operate-transfer contract under the Energy Conversion Agreement (ECA) in 1991.

“We find it essentially wrong to allow the NPC to assume in its BOT contracts the liability of the other contracting party for taxes that the government can impose on that other party, and at the same time allow NPC to turn around and say that no taxes should be collected because the NPC is tax-exempt as a government-owned and controlled corporation,” stated the ruling penned by Associate Justice Arturo Brion.

The SC issued the ruling as it dismissed a petition of Napocor seeking to prevent the municipality of Pagbilao from collecting more than P1.5 billion in real property taxes on the power plant and machineries of independent power company Mirant for the period 1997 to 2000.

The Court has affirmed the ruling of the Court of Tax Appeals issued on Feb. 21, 2006 junking the petition of Napocor to reverse the resolution of the Local Board of Assessment Appeals (LBAA) which denied the power firm’s bid to exempt it from payment of property tax on machineries and equipment used for generation of and transmission of power.

It stressed that Napocor is not the proper party to question the demand for tax payment issued by the municipality of Pagbilao despite the latter’s insistence that it has legal interest because of its beneficial ownership of the power plant and its equipment.

The SC ruled that Napocor is neither the owner nor the possessor of the said property and machineries since “its ownership of the plant will only happen after the lapse of the 25-year period.”

The High Tribunal further said that a close scrutiny of the ECA would show that Mirant has more powers in the control and supervision of the power plant’s construction and operations.

Considering that Napocor cannot be considered yet as the owner of the plant, thus, the SC said the municipality of Pagbilao cannot compel it to pay the assessed tax.

The Court held that only Mirant as the contractual obligor, not the local government unit, can enforce the tax liability that the NPC assumed under the ECA.       – Edu Punay