Authority of LGUs to impose LBTs is not dependent on timing of application for retirement

By Camille Angela M. Espeleta-Castillo

February 17, 2023

In Lazada E-Services Philippines, Inc v City of Makati,(1) the Court of Tax Appeals held that the authority of local government units (LGUs) to impose local business taxes (LBTs) is not dependent on the procedural requirement of filing an application for retirement of business but is contingent on the business transactions being conducted within their territorial jurisdiction.

Facts

In the third quarter of 2015, Lazada E-Services Philippines, Inc (Lazada) decided to transfer its principal office and move the operation of its business from Makati City to Taguig City. It retained its Makati City office as an administrative office. The Securities and Exchange Commission approved the change of principal office and issued its certificate of filing of amended articles of incorporation in March 2016. Despite this transfer, Lazada still paid LBT to Makati City for the taxable years 2016 and 2017.

On 31 August 2017, Lazada's lease contract over its Makati City office was terminated. Thereafter, Lazada filed an application for retirement of business of its Makati office, effective 30 September 2017, before the Business Tax Division of Makati City.

Subsequently, the city treasurer of Makati City assessed Lazada deficiency LBT for taxable years 2015, 2016, and 2017. The city treasurer's theory was that Lazada continued to be liable to Makati City for LBT, even after Lazada had transferred its principal office to Taguig City, until Lazada filed its application for retirement of business.

Lazada submitted to the city treasurer of Makati City:

• its letter of protest contesting the assessment for taxable years 2016 and 2017 only (Lazada did not dispute the assessment for 2015); and
• its claim for refund of the LBT payments for the year 2017.

The city treasurer denied both of Lazada's submissions.

Lazada thereafter filed the following with the Regional Trial Court of Makati City:

• petition for cancellation of tax assessment; and
• complaint for recovery of tax erroneously collected.

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Originally published by the International Law Office on Lexology.