The Supreme Court has denied the excise tax refund claims of OceanaGold (Philippines), Inc. (OceanaGold) covering payments made from February 2013 to December 2014, ruling that the company failed to establish that the taxes were paid within the recovery period provided under its Financial and Technical Assistance Agreement (FTAA) with the government. The Court also ruled that OceanaGold did not demonstrate compliance with all applicable legal and contractual conditions required to benefit from the FTAA's fiscal incentives.
The Case
On June 20, 1994, a Financial and Technical Assistance Agreement (FTAA) — a contract allowing large-scale mineral exploration, development, and commercial utilization — was executed by then Executive Secretary Teofisto Guingona and Bryce G. Roxburgh, then President of Arimco Mining Corporation. The FTAA was eventually assigned to OceanaGold with government approval. Known as the Didipio Gold-Copper Project, the FTAA covers a contract area spanning the Provinces of Nueva Vizcaya and Quirino.
On March 3, 1995, Congress enacted Republic Act No. 7942, or the Philippine Mining Act of 1995. In 2007, the Bureau of Internal Revenue (BIR) issued BIR Ruling No. 10-2007, declaring OceanaGold exempt from excise tax from the date of approval of its mining project feasibility study up to the end of the recovery period — reckoned from the date of commercial operation, for a maximum of five years or until pre-operating and exploration expenses are recovered, whichever comes earlier.
In December 2008, OceanaGold halted mine development due to escalating costs and uncertainty in financial markets, placing the Didipio Project under "care and maintenance" until December 2010. In 2012, OceanaGold commenced commissioning of the project and began milling operations to produce copper concentrates, with the first sale and delivery of copper concentrates expected in April 2013.
OceanaGold subsequently filed claims for refund of excise taxes it alleged were erroneously paid: PHP 25,843,462.11 and PHP 42,785,549.13 for February to June 2013 (G.R. No. 251453), and PHP 136,407,793.17 for June to December 2014 (G.R. No. 263004). Both the Court of Tax Appeals (CTA) Division and the CTA En Banc denied these claims. OceanaGold elevated the matters to the Supreme Court.
The Issue
The central question before the Supreme Court was whether OceanaGold was entitled to a refund of excise taxes — or the issuance of tax credit certificates — on the ground that the taxes were paid during the recovery period under the FTAA, during which it claimed exemption from such taxes.
The Ruling
The Supreme Court denied both the Motion for Reconsideration in G.R. No. 251453 and the Petition for Review on Certiorari in G.R. No. 263004. In its dispositive portion, the Court ordered:
"ACCORDINGLY, the Motion for Reconsideration in G.R. No. 251453 and the Petition for Review on Certiorari in G.R. No. 263004 are DENIED. The Resolution, dated February 15, 2022, of the Court in G.R. No. 251453 STANDS AFFIRMED. The Decision, dated May 31, 2022, and the Resolution, dated September 1, 2022, of the Court of Tax Appeals En Banc in CTA EB No. 2492, are also AFFIRMED."
The decision was penned by Associate Justice Ромена D. Singh and concurred in by the other members of the Court.
By the Numbers
- PHP 25,843,462.11 — excise taxes claimed for refund, February to March 2013
- PHP 42,785,549.13 — excise taxes claimed for refund, April to June 2013
- PHP 136,407,793.17 — excise taxes claimed for refund, June to December 2014
- June 20, 1994 — date the FTAA was executed
- May 4, 2007 — date BIR Ruling No. 10-2007 was issued
- October 2008 — when the recovery period commenced, per the Court's reckoning
- October 2013 — when the five-year recovery period concluded
- Five years — maximum duration of the recovery period under BIR Ruling No. 10-2007
The Court's Reasoning
The Court held that to benefit from the recovery period, a contractor must not only establish that the relevant taxes were collected or paid during that period, but must also demonstrate compliance with all applicable legal and contractual conditions under the FTAA, Republic Act No. 7942, and its implementing rules and regulations.
With respect to G.R. No. 263004, the Court found that the excise taxes were paid from June to December 2014, whereas the recovery period commenced in October 2008 and concluded five years later in October 2013. The Court ruled that "the payments were made beyond this prescribed period."
The Court further ruled that non-compliance with the FTAA's timelines cannot be regarded as a mere casual breach, noting that the FTAA itself provides that failure to commence commercial production within the prescribed period "shall be considered a substantial breach of this Agreement." The Court noted that the FTAA does allow for suspension of obligations due to force majeure, but found that OceanaGold failed to present adequate evidence to substantiate its claims that the halt in operations due to escalating costs or financial market uncertainties amounted to force majeure under the FTAA.
The Court emphasized that "taxes are the lifeblood of the government, and any undue delay in their collection affects the government's ability to deliver public services." It also warned that allowing OceanaGold to arbitrarily postpone the commencement of commercial operations would "effectively delay the start of the recovery period, resulting in an undue deferment of the government's rightful share of revenues" and would render the FTAA's timelines meaningless.
Source: Supreme Court of the Philippines, G.R. Nos. 251453 & 263004, Decision penned by Associate Justice Ромена D. Singh.
This report summarizes a public Supreme Court decision and is not legal advice.