The Supreme Court has ruled that the government’s share of profits from the Malampaya Deep Water Gas-to-Power Project includes the income taxes of its private contractors.
In a decision penned by Associate Justice Japar B. Dimaampao, the high court’s en banc held that while contractors are still liable for income tax, the government pays it on their behalf as part of its share. The court clarified that this tax assumption is not a tax exemption.
As a result, the Supreme Court lifted charges for unpaid income taxes against Shell Exploration B.V., PNOC Exploration Corporation and Chevron Malampaya LLC.
The court cited the Oil Exploration and Development Act, which states that income taxes paid by or on behalf of contractors are included in the government’s guaranteed 60% share of net proceeds from petroleum operations. The law further provides that the government assumes and pays contractors’ income taxes to encourage private investment in petroleum exploration.
Presidential Decrees 1206 and 1459 also confirm that the government’s share includes all taxes.
The court stressed that the government must honor its contractual obligations, particularly when terms are clearly stated in voluntarily entered agreements.
In a dissenting opinion, Senior Associate Justice Marvic M.V.F. Leonen argued that Presidential Decree 87 does not expressly state that the government’s share includes income taxes.
