Title
Quezon City vs. ABS-CBN Broadcasting Corp.
Case
G.R. No. 166408
Decision Date
Oct 6, 2008
ABS-CBN claimed exemption from Quezon City's local franchise tax under its franchise's "in lieu of all taxes" clause. The Supreme Court ruled against ABS-CBN, stating tax exemptions must be explicit and the clause no longer applies due to abolished franchise tax.
tax exemption
local franchise tax
franchise

Case Summary (G.R. No. 166408)

Factual Background

ABS-CBN obtained a legislative franchise by R.A. No. 7966, effective May 3, 1995, which imposed a three percent (3%) franchise tax and described that tax as being “in lieu of all taxes on this franchise or earnings thereof,” while preserving liability for income tax. Quezon City had earlier enacted Section 31, Article 13 of the Quezon City Revenue Code of 1993, imposing a local franchise tax on persons and entities enjoying a franchise and doing business in Quezon City. ABS-CBN paid local franchise taxes to Quezon City but asserted that the “in lieu of all taxes” clause in its franchise exempted it from local franchise taxation. ABS-CBN paid certain taxes under protest and on January 29, 1997 submitted a written claim for refund of PHP 14,233,582.29 for amounts paid in 1996 and the first quarter of 1997. When the City Treasurer did not respond, ABS-CBN filed suit in the RTC, Quezon City, on June 25, 1997 seeking declaration of invalidity of the local franchise tax and refund of all local franchise taxes paid, later supplementing its complaint to include further payments.

Trial Court Proceedings

The RTC, Quezon City, rendered judgment on January 20, 1999 declaring invalid the imposition and collection of local franchise taxes from ABS-CBN pursuant to Quezon City Ordinance No. SP-91, S-93 after the enactment of R.A. No. 7966, and ordered refund of all payments made after the effectivity of ABS-CBN’s legislative franchise. The RTC reasoned that the “in lieu of all taxes” provision in Section 8 of R.A. No. 7966 absolutely excused ABS-CBN from local franchise tax, finding legislative intent in the express phrase and in the absence of limiting qualifications except for income taxes. The RTC relied on Province of Misamis Oriental v. Cagayan Electric Power and Light Company, Inc. (CEPALCO) to treat the special legislative franchise as an exception to the general Local Tax Code and concluded that local imposition of a franchise tax would impair ABS-CBN’s legislative franchise. The RTC rejected the City’s contention that ABS-CBN failed to file a prior written claim for refund under Section 196 of the Local Government Code, finding that the City Treasurer’s inaction rendered further formal claims futile.

Court of Appeals Proceedings

The City of Quezon and the City Treasurer appealed to the Court of Appeals. The CA dismissed their appeal on August 31, 2004, reasoning that the issues raised by petitioners involved pure questions of law and thus were cognizable only by the Supreme Court. The CA characterized the dispute as legal in nature—whether the franchise’s “in lieu” clause exempted ABS-CBN from local franchise tax, whether the imposition violated the legislative franchise, and whether the prior written claim requirement could be excused—and declined to entertain the appeal under Rule 41. The CA denied petitioners’ motion for reconsideration by resolution dated December 16, 2004.

Issues

Petitioners presented two principal issues to the Supreme Court: (I) whether the phrase “in lieu of all taxes” in Section 8 of R.A. No. 7966 exempted ABS-CBN from the payment of the local franchise tax imposed by petitioners; and (II) whether petitioners raised factual and legal issues before the Court of Appeals. The Court also treated as resultant issues whether the imposition of local franchise tax violated ABS-CBN’s legislative franchise and whether the requirement of a prior written claim for refund could be dispensed with.

Ruling of the Supreme Court

The Court held that the CA properly dismissed petitioners’ appeal for being the wrong mode of appeal because it raised pure questions of law reviewable by the Supreme Court under Rule 45, and thus the CA acted within Rule 50, Section 2. Notwithstanding that procedural posture, the Court exercised its discretion to relax procedural strictures and proceeded to decide the case on the merits. On the merits, the Supreme Court granted the petition, reversed and set aside the appealed decision of the RTC and CA, and dismissed ABS-CBN’s petition in the trial court for refund of local franchise tax.

Legal Basis and Reasoning

The Court articulated a twofold legal rationale. First, on statutory construction and the burden of proof for tax exemptions, the Court emphasized the firmly settled rule that claims of tax exemption must be grounded upon language “too plain to be mistaken.” Statutes granting tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. The burden to establish entitlement to exemption rests upon the party asserting it. The Court found Section 8 of R.A. No. 7966 ambiguous because its “in lieu of all taxes” clause did not specify what taxes or which taxing authorities were intended to be displaced. The franchise expressly preserved liability for income taxes and imposed a three percent (3%) franchise tax, but it did not expressly identify municipal, provincial, or national taxes as excluded. The Court contrasted the present franchise with precedents such as Manila Railroad v. Rafferty and other decisions where the legislative exemptions expressly stated the municipal and provincial taxes from which the franchisee was exempt. Because ABS-CBN failed to establish an exemption “expressed in terms too plain to be mistaken,” the Court construed the clause against the corporation and declined to recognize an exemption from local franchise tax.

Second, the Court examined subsequent statutory changes to national taxation that affected the operability of the “in lieu” clause. At the time R.A. No. 7966 was enacted, radio and television franchise grantees were subject to a national franchise tax under Section 117 of the NIRC. Thereafter, R.A. No. 7716 (the Expanded Value-Added Tax Law) and later amendments removed radio and television services from the franchise tax regime and subjected them to value-added tax (VAT). R.A. No. 8241 and R.A. No. 8424 confirmed and refined that shift, and later amendments adjusted the VAT rate. The Court concluded that the franchise tax on broadcasting companies with yearly gross receipts exceeding Ten Million Pesos (P10,000,000.00) was abolished and that such companies became subject to VAT. Because the “in lieu of all taxes” clause in Section 8 of R.A. No. 7966 concerned a franchise tax that no longer exists for large broadcasting companies, that clause had become functus

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