SPEX wins US$1.1-B Malampaya tax case arbitration

With a unanimous vote of 3-0, the operator of the multibillion Malampaya gas field project led by Shell Philippines Exploration B.V. (SPEX) won its landmark US$1.1 billion (approximately 153 billion) tax case before the International Chamber of Commerce (ICC) in Singapore.

Voting in favor of the Malampaya consortium had been designated arbitration Chairperson Yves Fortier, SPEX-led consortium arbitrator David Williams and Philippine arbitrator Reynato S. Puno, a former Chief Justice of the Supreme Court.

According to highly placed sources, the Philippine government has already been informed of the decision, along with the other relevant parties. The Malampaya consortium was represented by the Romulo Mabanta Buenaventura Sayoc and de los Angeles law firm; while the Philippine government leaned on the Office of the Solicitor General (OSG) on its legal defense.

The US$1.1 billion tax case stemmed from the demand of the Commission on Audit (COA) for the Malampaya consortium to settle what it claimed as “back taxes” under its Service Contract 38 for the gas field venture – as the State auditor deemed that income tax should have been to the service contractor’s account instead of it being integrated into the royalty share of the Philippine government.

Nevertheless, SPEX along with its co-consortium members American firm Chevron Malampaya LLC and Philippine National Oil Company-Exploration Corporation (PNOC-EC) argued that the Malampaya gas development contract prescribes that the contractor’s income tax payment shall become part of the State’s royalty share- hence, it is not liable on such scale of back taxes being demanded by COA. Petroleum service contracts (PSCs) in the Philippines take guide from the prescriptions of Presidential Decree No. 87 or the Philippine Oil and Gas

Law.