SC Clears Malampaya Contractors Over Taxes
MANILA — The Supreme Court has cleared the private contractors of the Malampaya Natural Gas Project from charges related to unpaid income taxes. The court ruled that the Philippine government’s share of the project’s profits already includes the contractors’ income taxes.
The exact four word keyphrase “Malampaya contractors income taxes” appears early in this decision, which was released by the Supreme Court En Banc on Wednesday. The ruling lifted charges against Shell Exploration B.V., PNOC Exploration Corporation, and Chevron Malampaya LLC.
Contract Terms and Tax Assumptions
Back in 1990, the government and these contractors signed a service contract for the Malampaya Project. This contract requires the contractors to remit 60 percent of the project’s net proceeds to the government. It also states that contractors are exempt from all taxes except income tax.
However, the Supreme Court clarified that the contract’s tax assumption clause means the government’s 60 percent share already covers the contractors’ income taxes from 2002 to 2009. This interpretation directly affects the understanding of financial responsibilities between the government and contractors.
Commission on Audit’s Claims and Court Response
The charges were based on the Commission on Audit’s (COA) findings that P53 billion in income taxes had been deducted from the government’s share. COA argued the contractors should pay these taxes since no law explicitly states their income taxes are part of the government’s share.
Nevertheless, the private contractors disputed these findings and brought the case before the Supreme Court. Meanwhile, the International Chamber of Commerce (ICC) issued an arbitral award that supported the tax assumption provision in the service contract.
Final Ruling and Its Implications
The Supreme Court overturned COA’s ruling but emphasized that tax assumption does not equal tax exemption. Contractors remain liable for income tax, but the government pays it on their behalf as part of its share in the project’s income.
The SC also stated, “It respects the ICC’s arbitral ruling, in line with the State’s policy favoring arbitration, but emphasized that even without the ICC ruling, it would have reached the same conclusion based on its own review.”
Moreover, the court acknowledged COA’s role in protecting public funds but stressed that the government must honor its contractual obligations, especially when terms are clear in agreements it willingly entered.
For more news and updates on Malampaya contractors income taxes, visit Filipinokami.com.
