Facts:
Toyota Financial Services Philippines Corporation (Petitioner) was assessed deficiency taxes and fees by the City Treasurer of Davao (Respondent) for the years 2009 to 2018.
The Petitioner argued that it was not doing business in Davao, only operating a “lending desk” and soliciting clients at a Toyota dealership.
The Petitioner claimed that transactions were recorded and processed at its principal office in Makati City.
The Respondent argued that “doing business” includes “solicitation of orders” under the Revenue Code of Davao, making the Petitioner liable for the taxes.
Legal Issue:
The primary legal issue was the situs (location) of the Local Business Tax (LBT) for financial institutions. Specifically, where should the Petitioner pay its LBT when it operates a lending desk in Davao but records transactions in Makati City?
Decision:
The Court of Tax Appeals (CTA) ruled in favor of the Petitioner, canceling the assessment.
The CTA found that the RTC erred in applying R.A. No. 7042, which pertains to foreign entities.
The CTA applied Sec. 131(d) of the Local Government Code (LGC), which defines “doing business” as engaging in trade or commercial activity regularly for profit.
The CTA held that the Petitioner was engaged in business in Davao but that the situs of the LBT was not in Davao City.
The CTA cited Sec. 150 of the LGC, which states that financial institutions must record sales at their branch or outlet, with taxes payable to the corresponding municipality. If no outlet exists, sales are recorded at the principal office, and taxes are paid there.
The CTA determined that loan applications do not qualify as sales and that the Petitioner’s transactions were recorded and processed at its principal office in Makati City.
The CTA also noted that the Revenue Code of Davao recognizes the municipality listed in the Articles of Incorporation (AOI) or registration papers as the situs for tax purposes.
Law:
Local Government Code (LGC): Sec. 131(d) defines “doing business” and Sec. 150 determines the situs of LBT for financial institutions.
Revenue Code of Davao: Recognizes the municipality listed in the AOI or registration papers as the situs for tax purposes.
Key Takeaway:
This case highlights the importance of understanding the specific provisions of the LGC and local revenue codes when determining the situs of LBT for financial institutions. Financial institutions must record sales at their branch or outlet, with taxes payable to the corresponding municipality. If no outlet exists, sales are recorded at the principal office, and taxes are paid there. The mere solicitation of orders or loan applications does not necessarily constitute “doing business” for LBT purposes if the actual transactions are recorded and processed elsewhere.
