2025 Bar Chair's Cases Bar Q and A Taxation Law - Q2

 

AP Holdings, Inc. (APHI), a holding company established to own and hold shares of stock in San Miguel Corporation (SMC), received dividends and interest from its SMC preferred shares and money market placements. In 2011, the City of Davao assessed APHI a local business tax amounting to P723,531.50 pursuant to Section 69(f) of the 2005 Revenue Code of the City of Davao, which imposes a 0.55% tax on earnings from investments.

APHI paid the tax under protest and filed a claim for refund, arguing that it is not subject to local business tax because the Supreme Court in G.R. Nos. 177857-58 ruled that the CIIF companies, including APHI, and the CIIF block of SMC shares are public funds or property necessarily owned by the government.

The Regional Trial Court ruled in favor of the City of Davao, holding APHI liable for the tax. The Court of Tax Appeals (CTA) Division affirmed the RTC decision. However, the CTA En Banc reversed the rulings and declared that APHI was entitled to a tax refund or credit.

Is APHI liable to pay local business taxes on its dividend earnings from its SMC preferred shares?

Ans:

No, APHI is not liable to pay local business taxes on its dividend earnings from its SMC preferred shares because its assets are owned by the government.

Jurisprudence dictates that a holding company exclusively established to own and hold SMC shares of stock is not liable to pay local business taxes on the dividends earned from its SMC preferred shares, as these shares are government assets owned by the national government.

Here, APHI's management of dividends from the SMC shares is merely in furtherance of its purpose as a CIIF holding company for the benefit of the Republic. APHI cannot be considered a non-bank financial intermediary since its investment and placement of funds are not done in a regular or recurring manner for the purpose of earning profit. Hence, APHI is not liable to pay local business taxes on its dividend earnings.