Rep. of the Phils. vs. City of Parañaque

An incorporated instrumentality of the National Government that is neither a stock nor a non-stock corporation is not a GOCC, and is exempt from local real property taxes under Sections 133(o) and 234(a) of the Local Government Code.

PRA (formerly Public Estates Authority or PEA) was created by P.D. 1084 to integrate, direct, and coordinate all reclamation projects for and on behalf of the National Government. It holds titles to several reclaimed foreshore and offshore areas in Manila Bay.

• Filed in RTC, Branch 195, Parañaque City (Petition for Prohibition)
• Decision of lower court: Dismissed PRA's petition; ruled PRA is a GOCC liable for real property taxes.
• Appealed to CA: N/A (Direct resort to the SC on pure questions of law)
• Elevated to SC: Petition for Review on Certiorari under Rule 45

• PRA reclaimed foreshore and offshore areas of Manila Bay in Parañaque City and was issued Original and Transfer Certificates of Title over the lands.
• The Parañaque City Assessor assessed PRA for delinquent real property taxes for the years 2001 and 2002.
• The Parañaque City Treasurer issued Warrants of Levy and scheduled a public auction for the subject reclaimed properties.
• PRA filed a petition for prohibition with a prayer for a Temporary Restraining Order (TRO) in the RTC to enjoin the auction.
• The RTC denied the TRO, and the public auction was consummated on April 7, 2003.
• PRA filed a supplemental petition to nullify the assessment, levy, auction sale, and the issued Certificates of Sale.
• The RTC dismissed the petition, ruling that PRA is a GOCC because it has an authorized capital stock. As a GOCC, the RTC held that PRA's tax exemptions were withdrawn by Section 193 of the Local Government Code (LGC).

• PRA is not a GOCC under the Administrative Code because it is neither a stock nor a non-stock corporation.
• PRA does not meet the "test of economic viability" required for GOCCs under Section 16, Article XII of the 1987 Constitution.
• PRA is an incorporated instrumentality of the National Government performing essential public services.
• The reclaimed lands are part of the public domain, owned by the State, and are thus exempt from real property tax.

• PRA's charter (P.D. 1084) and its own previous admissions establish it as a GOCC.
• PRA is a stock corporation because it has an authorized capital stock divided into 3 million no-par value shares.
• Section 193 of the LGC explicitly withdrew tax exemption privileges granted to GOCCs.

• Procedural Issues: N/A
• Substantive Issues:
  • Whether PRA is a GOCC or an incorporated instrumentality of the National Government.
  • Whether PRA is liable to pay real property taxes to the City of Parañaque on the subject reclaimed lands.

• Procedural: N/A
• Substantive:
  • PRA is an incorporated instrumentality, not a GOCC. Under Section 2(13) of the Administrative Code, a GOCC must be organized as a stock or non-stock corporation. PRA is not a stock corporation because, although it has capital stock, it is not authorized by law to distribute dividends or surplus profits to stockholders. It is not a non-stock corporation because it has no members. Furthermore, PRA does not meet the constitutional "test of economic viability" as it was created to perform an essential public service (managing reclamation projects), not to compete in the commercial marketplace.
  • PRA is exempt from real property taxes. Under Section 133(o) of the LGC, local government units cannot tax the National Government, its agencies, and instrumentalities. Additionally, under Section 234(a) of the LGC, real property owned by the Republic is exempt from realty tax unless the beneficial use is granted to a taxable person. The reclaimed lands held by PRA remain properties of public dominion and are not subject to execution or foreclosure sale.

• GOCC vs. Instrumentality — A GOCC must be organized as a stock or non-stock corporation. An instrumentality refers to an agency of the National Government vested with special functions, endowed with corporate powers, but not necessarily organized as a corporation.
• Requisites of a Stock Corporation — To be classified as a stock corporation, two requisites must concur: (1) it has capital stock divided into shares; and (2) it is authorized to distribute dividends and allotments of surplus and profits to its stockholders.
• Test of Economic Viability — Under Section 16, Article XII of the 1987 Constitution, GOCCs created by special charters must be established for the common good and subject to the test of economic viability (i.e., they perform economic/commercial activities and compete in the marketplace). Instrumentalities performing essential public services need not meet this test.
• Tax Exemption of National Government Instrumentalities — Local governments are prohibited from imposing taxes, fees, or charges of any kind on the National Government, its agencies, and instrumentalities under Section 133(o) of the LGC.
• Public Dominion — Reclaimed lands (foreshore and submerged areas) belong to the public domain. They remain inalienable unless officially classified as alienable and disposable. Properties of public dominion are exempt from real estate tax and cannot be subject to execution or foreclosure sale.

• "When the law vests in a government instrumentality corporate powers, the instrumentality does not necessarily become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers."
• "The State is obligated to render essential public services regardless of the economic viability of providing such service. The non-economic viability of rendering such essential public service does not excuse the State from withholding such essential services from the public."

• Manila International Airport Authority v. Court of Appeals — Controlling precedent. The SC used this case to distinguish between a GOCC and an incorporated government instrumentality, and to affirm the tax-exempt status of instrumentalities under the LGC.
• Chavez v. Public Estates Authority — Followed to establish that reclaimed lands are properties of public dominion. The mere transfer of these lands to PRA and the issuance of titles in its name do not automatically convert them into private lands.

• Section 2(10) and 2(13), Introductory Provisions, Administrative Code of 1987 — Defines "Instrumentality" and "Government-owned or controlled corporation". Applied to classify PRA as an instrumentality rather than a GOCC.
• Section 16, Article XII, 1987 Constitution — Limits the creation of GOCCs by special charter to those serving the common good and subject to the test of economic viability.
• Sections 133(o) and 234(a), Local Government Code (R.A. 7160) — Section 133(o) prohibits LGUs from taxing the National Government and its instrumentalities. Section 234(a) exempts real property owned by the Republic from real property taxes.