COA orders Malampaya consortium to pay ₱146-B in taxes

Metro Manila (CNN Philippines, May 17) — The Commission on Audit (COA) affirmed its ruling that the contractors of the Malampaya Natural Gas Project should pay government ₱146.8 billion worth of underpaid income taxes since 2002.

The independent audit body, in a January 24 decision released Wednesday, also rebuffed the appeal of the Department of Energy (DOE) and the Office of the Solicitor-General to allow the consortium to keep the payments.

In April 2015, COA had ordered the consortium — comprised of Shell Philippines Exploration B.V. (SPEX), Chevron Malampaya LLC, and Philippine National Oil Co. - Exploration Corp. (PNOC-EC) — to pay ₱53.1 billion to the government. But the value had ballooned to ₱146.8 because the consortium continued a "tax assumption" scheme from 2010 to 2014, and 2015 to 2016.

"This does not yet include the unremitted government share for 2017. If this Commission will not put an end to this illegal 'tax assumption' scheme, the government will continue to bleed billions and billions of funds that can and should be used for the very purpose intended by law," it said.

Both the consortium and DOE argued that under the scheme, the income taxes imposed on contractors were charged against the government's 60 percent share in the gas project's net income. However, COA maintained that there is no specific provision in the law which states income taxes from the contractors will be part of the government's share.

COA added the arrangement increased the share of the contractors from 40 percent as prescribed by law to 65.97 percent, while government share decreased from 60 percent to only 34.03 percent.

"This is a clear violation of the maximum contractor's share under Section 8(2) of Presidential Decree (P.D.) 87 and the minimum guaranteed government share under Section 18(b) of PD 87 and Section 1(a) of PD 1459," the audit body said.

Under Section (8)2 of Presidential Decree (PD) 87, the contractor must get a net amount "which shall not exceed forty percent of the balance of the gross income."

The same decree through Section18(2) says government's annual revenue, including all taxes paid by or on behalf of the contractor, must not "be less than sixty percent of the difference between the gross income and the sum of operating expenses."

The DOE and Solicitor General appealed the COA ruling in 2015, saying this decision will cause " irreparable harm to the country's long term interest," and further erode the "confidence of foreign petroleum industry investors in the stability and certainty of our rules and regulations."

But COA replied that the enforcement of the "tax assumption" scheme which results in the undercollection of government revenue, is more detrimental to the interest of the country.

"The proceeds from the recovery of income tax payments made by DOE on behalf of the contractors against the provisions of PD Nos. 87 and 1459 will be added back to the Malampaya Fund and be utilized for the exploration, exploitation, and development of indigenous energy resources, so that eventually, the Philippines will have sufficient and sustainable sources of renewable energy and will no longer need to depend on foreign capital infusion," the COA order said.

The Malampaya gas plant, located off the shores of Palawan, accounts for 20 percent of the country's power supply. Its natural gas deposits are expected to run out by 2024.