SC lifts charges against Malampaya contractors, rules income taxes part of government share

The Supreme Court has lifted charges against private contractors of the Malampaya Natural Gas Project, ruling that the government's share includes the income taxes paid by the contractors.

In a 19-page decision promulgated July 30, 2025, the SC reversed and set aside a Commission on Audit (COA) decision finding P53 billion in income taxes improperly deducted from the government’s share of profits.

The court reiterated that Presidential Decrees No. 87, No. 1206, and No. 1459 clearly state that the government's share includes all taxes paid by contractors as part of their 60% share in net proceeds.

The decision, penned by Associate Justice Japar Dimaampao, clarified that while contractors are still liable for income tax, it forms part of or is counted in the government’s 60 percent share, and this does not constitute a tax exemption but rather an assumption.

In December 2019, an International Chamber of Commerce (ICC) Arbitral Tribunal upheld the validity of the tax assumption mechanism in the service contract, a point acknowledged by the SC, though it noted that even without this ruling, its decision would have been the same based on constitutional law and agreements.