The Department of Energy (DOE) welcomed the Supreme Court’s decision affirming that the income taxes of private contractors in the Malampaya natural gas project are legally included in the government’s 60% share of project proceeds, a ruling that officials say strengthens investor confidence in the Philippines’ energy sector.

“We’re happy that the issue has been resolved because it gives stability and security to our investors,” Energy Secretary Sharon Garin said in an interview reported by Business World. “This decision could encourage more investment in energy exploration.”

In a decision promulgated on February 25, 2025, the Supreme Court reversed the Commission on Audit’s (COA) findings that over PHP 53 billion in income taxes were wrongly deducted from the government’s Malampaya share between 2002 and 2009.

The Court lifted COA’s Notice of Charge No. 2010-01-151(09), which had held Shell Philippines Exploration B.V. (SPEX), Chevron Malampaya LLC, and PNOC Exploration Corporation (PNOC-EC) liable for underpaid revenues. COA argued that the contractors were not exempt from income tax and that their service contract’s tax assumption clause lacked legal basis.

But the Supreme Court ruled that the clause — where the government pays the contractors’ income taxes — is valid under Presidential Decrees 87, 1206, and 1459. It said taxes paid by or on behalf of contractors form part of the government’s 60% share of net proceeds.

The Court clarified that tax assumption is not tax exemption and doesn’t need congressional approval. It called the arrangement a legitimate tool to attract foreign investment while preserving the state’s full financial share.

The justices noted that the arrangement had long been recognized by the Department of Energy, the Bureau of Internal Revenue, and the Office of the Solicitor General until COA’s reversal in 2010. Both the DOE and OSG backed the contractors through a petition-in-intervention, calling the setup legal and beneficial to the government.

Follow Power Philippines on Facebook and LinkedIn or join our Viber community for more updates.