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FACTS: Linberg Philippines, Inc is a corp under PH laws with principal office in Makati City engaged in the
business of financing the construction and operation of power plants primarily through build-operate-
transfer (BOT) agreements with customers. In 2003, it received the questioned Notice of Assessment for
deficiency business taxes plus surcharges and interests covering taxable years 2000-2002 in the aggregate
amount of P8.7+ million. Alleged deficiency business taxes arose from Makati’s reclassification of Linberg
as a holding/investment company to a contractor.

Linberg filed a letter protest with City Treasurer. Denied. Linberg appealed to RTC-Makati under LGC Sec
195. Dismissed. MR denied. Appealed to CTA. CTA Division partially granted and reduced the deficiency
taxes to P993,901.29. Linberg filed MR. Denied. Hence this recourse by Linberg to CTA en banc, to be
declared not liable to pay deficiency taxes.


1) WON Makati has jurisdiction to tax Linberg’s business (situs issue)
YES, but only as much as 30% of Linberg’s gross sales/receipts (LGC Sec 150). Under its BOT
arrangements, Linberg advances the necessary capital by employing and paying for the services
of a contractor which will build the power plant. These transactions, prior to the completion of
the power plants and branch offices of petitioner, are considered as activities of doing business,
which are necessarily taxable in its principal office, considering that all the documents and deals
were arranged in its principal office in Makati City.

In the ordinary course of business, particularly in the nature of a BOT business, prior to the
building and construction of any power plant at any locality, the usual negotiations thereon, until
the full completion of the contract of BOT, is usually done in the principal office. Naturally, this
transaction is taxable as it is an exercise of a business. Although the power plants, which are
subject of petitioner's contract of BOT, are situated at different localities, still the act of financing
the construction and operation thereof, are considered as "doing business" which appears to have
been performed at petitioner's principal office in Makati City.

2) WON uncollected sales should be deducted from Linberg’s tax base

YES, however Linberg failed to prove which part of the tax base was uncollected and which part
should be deducted.

3) WON Linberg is a contractor

YES. Contractor is referred to in the LGC as to include persons, natural or juridical, not subject to
professional tax under Section 139 of this Code whose activity consists essentially of the sale of all
kinds of services for a fee regardless of whether or not the performance of the service calls for the
exercise or use of the physical or mental faculties of such contractor or his employees. The same
definition is likewise provided now under Section 3A.01 (t) of the Revised Makati Revenue Code.

In other words, the term "contractor" includes any person whether natural or juridical as long as
the activity of such person consists essentially of the sale of services for a fee. In the case at bench,
Linberg is definitely engaged in such sale of services. (Not elaborated.)

In addition, the fact that Linberg is a contractor, and not a financing or holding company, is further
bolstered by its Amended Articles of Incorporation which provides that its primary purpose is "[t]o
carry on the business of managing and operating power plants, including, but not limited to, the
acquisition by purchase, exchange, assignment, importation or otherwise, and to sell, assign,
transfer, exchange, mortgage, pledge, traffic or otherwise to enjoy and dispose of machineries,
equipment and buildings, and generally perform, preserve, improve or enhance the value of any
such machineries, equipment and buildings to the extent permitted by law". Based on the
aforementioned primary purpose of petitioner, it is readily apparent that the business it is
supposed to carry on, fall within the ambit of performing some form or kind of service. (Not

Further, it is worth pointing out that even in the case of Tatad vs. Garcia cited by petitioner, it was
expressly mentioned therein that under the BOT arrangement (which petitioner is engaged in),
there is not only the financing of the project that is involved, but also the construction,
maintenance and operation thereof. Thus, petitioner is undeniably not only engaged in financing
or investment activities, but also in the sale of services which readily classifies it as a contractor.

4) WON imposition of surcharges and penalties was in accordance with law

YES. Under LGC Sec 168, Makati can impose surcharges for late payments of and interests on
unpaid taxes, and penalties thereto, as provided in Sections 3B.04, 3B.05, and 3B.06, respectively,
of the Revised Makati Revenue Code. Consequently, upon discovery by the local government that
Linberg misrepresented itself and caused a different tax rate to be applied to it, there is legal basis
to impose surcharge and penalties.

Even granting for the sake of argument that it was Makati that classified Linberg as a holding or
investment company, still, it was Linberg that submitted certain documents which misled or
caused Makati to believe that it was engaged in an investment business. Linberg’s failure to cause
the correction of such classification is a sign of bad faith on its part because such classification
appears to be more beneficial to it with regard to tax liabilities.

DISPOSITIVE: CTA DIVISION UPHELD. Linberg liable for P993,901.29 as deficiency business taxes
plus surcharges and interests.