Union Cement wins P2.68-M tax refund

THE Court of Tax Appeals (CTA) has ordered the City of Taguig to refund P2.68 million in local business taxes to Union Cement Holdings Corp., ruling that the city improperly imposed taxes on the company’s dividend income as a holding company.

In a decision promulgated on June 4, the CTA Special Third Division granted Union Cement’s petition and reversed a Regional Trial Court (RTC) ruling that had denied the company’s claim for refund.

The tax court ordered the respondents to refund about P2.68 million, representing local business taxes paid by the company in connection with the renewal of its business permit.

The dispute stemmed from a Jan. 15, 2018 billing statement issued by the City of Taguig, which assessed Union Cement P2.68 million in alleged deficiency business taxes.

Taguig had classified Union Cement as a holding company and based the assessment on dividend income reflected in its financial statements. The company paid the amount on Jan. 19, 2018 before seeking a refund, arguing there was no legal basis for the tax.

The CTA ruled that Union Cement properly filed a refund claim under Section 196 of the Local Government Code, finding that the billing statement did not constitute a valid tax assessment that could be protested under Section 195.

Citing jurisprudence, the court said not all billing statements or payment demands issued by local government units qualify as formal assessments under the law, particularly those issued in connection with business permit renewals.

The tribunal also rejected Taguig’s position that dividend income of holding companies may be subjected to local business tax under its ordinance, stressing that the Local Government Code generally prohibits local government units from imposing income taxes except on banks and other financial institutions.

The CTA said Union Cement, as a holding company deriving income from investments, could not be made liable for such tax, and that the assessment had no legal basis.

The court granted the petition and reversed the RTC’s Aug. 14, 2024 decision and Nov. 22, 2024 resolution, ordering the respondents to refund P2.68 million to Union Cement. — Mark Joseph M. Sanchez