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The Supreme Court building in Padre Faura, Manila on August 24, 2022. George Calvelo, ABS-CBN News

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Supreme Court

Adrian Ayalin

ABS-CBN News

MANILA -- The Supreme Court reversed a Commission on Audit finding that Malampaya Natural Gas Project contractors were liable for more than P53 billion in income taxes for searching and obtaining petroleum from 2002 to 2009.In the decision of the en banc promulgated on July 30, 2025, the court granted the petitions for certiorari filed by Shell Philippines Exploration B.V., Chevron Malampaya LLC and PNOC Exploration Corporation.The contractors challenged the COA decision which found P53.14 billion in income taxes had been deducted from the government’s share and that the contractors were the ones liable for the taxes.The Supreme Court reiterated in its decision that Presidential Decrees No. 87 (Oil Exploration and Development Act), No. 1206 (Act Creating the Department of Energy) and No. 1459 (Authorizing the Secretary of Energy to Enter Into and Conclude Service Contracts) clearly and unambiguously state that the government’s share includes all taxes.“Evidently, the intended scope and purpose of the law was to provide greater incentives to encourage private participation in the exploration and development of petroleum resources in the Philippines and attract foreign investors to take risks in the Philippine petroleum industry,” the SC said in the decision penned by Associate Justice Japar Dimaampao.The case stemmed from the service contract signed by the government in 1990 with the companies for the Malampaya natural gas project.Under the contract, the contractors must remit 60% of the project’s net proceeds to the government. The companies are exempt from paying all taxes except income tax, but the contract also states that the government’s 60% share already covers the contractors’ income taxes from 2002 to 2009, known as tax assumption provision.The Supreme Court stressed that tax assumption is not tax exemption and that contractors are still liable for income tax although the government pays it on their behalf as part of its share in the project’s income.“From the foregoing perspective, it becomes quite clear that contrary to the standpoint of COA, the concept of an assumption is distinct and not synonymous to an exemption,” the court said.The Supreme Court however assured that  it agrees that the government is never placed at a disadvantage and that it receives what is due it in all its transactions.“Nevertheless, remaining bound by the Constitution and the laws of the land, the Government cannot be allowed to renege on its obligation, especially when such has been distinctly outlined in the contract it freely entered into and agreed to,” the court said.While the case was pending before the Supreme Court, the International Chamber of Commerce issued an arbitral award upholding the validity of the tax assumption provision in the service contract.The court however said even without the ICC ruling, it would have reached the same decision based on its own review.

The Supreme Court reversed a Commission on Audit finding that Malampaya contractors were liable for P53 billion in income taxes.

The Supreme Court reversed a Commission on Audit finding that Malampaya contractors were liable for P53 billion in income taxes.

SC lifts charges vs Shell, PNOC, Chevron over Malampaya income taxes

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SC lifts charges vs Shell, PNOC, Chevron over Malampaya income taxes

Adrian Ayalin,

ABS-CBN News

Published July 31, 2025 12:09 PM PHT

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