FACTS:

The petitioner, Philippine Reclamation Authority (PRA), filed a petition for review on certiorari assailing the January 8, 2010 Order of the Regional Trial Court (RTC), which ruled that PRA is a government-owned and controlled corporation (GOCC) and not exempt from payment of real property taxes. PRA was created by virtue of Presidential Decree (P.D.) No. 1084 to coordinate and administer reclamation projects for the National Government. It was designated as the agency responsible for reclamation projects by Executive Order (E.O.) No. 525. On October 26, 2004, PEA was transformed into PRA by E.O. No. 380. PRA reclaimed several portions of Manila Bay, including those located in Parañaque City, and was issued titles over the reclaimed lands. The City Treasurer of Parañaque, based on the assessment by the City Assessor, issued Warrants of Levy on PRA's reclaimed properties for delinquent real property taxes. PRA filed a petition for prohibition but was denied. The RTC ruled that PRA is not exempt from payment of real property taxes as a GOCC and that the tax exemption claimed by PRA had been repealed. PRA filed a motion for leave to file a supplemental petition to declare the assessment, levy, and public auction sale of its properties null and void. The motion was denied, and the RTC rendered its decision dismissing PRA's petition. PRA filed this petition for certiorari, asserting that it is not a GOCC and is exempt from payment of real property taxes. Respondent argued that PRA consistently represented itself to be a GOCC and is therefore not exempt from payment of real property taxes.

ISSUES:

1. Whether or not the Philippine Reclamation Authority (PRA) is considered a government-owned or controlled corporation (GOCC) as defined by the Administrative Code.

2. Whether or not the PRA can be classified as either a stock or non-stock corporation.

3. Whether or not the creation of PRA was in compliance with the constitutional requirements for the formation of GOCCs.

4. Whether the test of economic viability applies to government entities vested with corporate powers and performing essential public services.

5. Whether the Presidential Commission on Good Government can impose real property tax on the Philippine Reclamation Authority (PRA).

6. Whether or not local governments have the power to tax national government instrumentalities.

7. Whether or not the reclaimed lands are exempt from payment of real estate taxes.

RULING:

1. The PRA is not considered a GOCC under the Administrative Code. While the PRA is a government instrumentality with corporate powers, it is not organized as a stock or non-stock corporation, which is a necessary condition for a GOCC.

2. The PRA cannot be classified as either a stock or non-stock corporation. Although it has a capital stock divided into shares, it is not authorized to distribute dividends, surplus allotments, or profits to its stockholders. It also does not have members as required for non-stock corporations and was not organized for any purposes listed in the Corporation Code.

3. The creation of PRA does not comply with the constitutional requirements for the formation of GOCCs. While it may have been established for the common good, it does not meet the test of economic viability as it was not created for economic or commercial activities and does not compete in the market place.

4. The test of economic viability does not apply to government entities vested with corporate powers and performing essential public services. The State is obligated to render essential public services regardless of the economic viability of providing such service.

5. The PRA is exempt from paying real property tax and is protected from the taxing powers of local government units. Section 234(a) of the Local Government Code exempts real property owned by the Republic of the Philippines, including those owned by government instrumentalities, from real property tax unless the beneficial use thereof has been granted to a taxable person. In this case, there is no proof that PRA granted the beneficial use of the subject reclaimed lands to a taxable entity.

6. Local governments do not have the power to tax national government instrumentalities, unless otherwise provided by law. The power to tax is construed strictly against local governments, and any doubt on the taxability of a person, article, or activity is resolved against taxation. Tax exemption is also strictly construed against the taxpayer, but when Congress grants an exemption to a national government instrumentality, it is construed liberally in favor of the instrumentality. There is no point in national and local governments taxing each other, unless there is a sound and compelling policy requiring such transfer of public funds. There must be express language in the law empowering local governments to tax national government instrumentalities, and any doubt as to the existence of such power is resolved against local governments. (Basco v. Philippine Amusements and Gaming Corporation)

7. The reclaimed lands are still part of the public domain and are owned by the State. Under the 1987 Constitution, all lands of the public domain are owned by the State, except for agricultural lands. Reclaimed lands are considered natural resources and are subject to the full control and supervision of the State. Furthermore, Article 420 of the Civil Code states that properties belonging to the State, without being for public use, and intended for some public service or for the development of the national wealth, are considered properties of public dominion. Therefore, the reclaimed lands are exempt from payment of real estate taxes. (PRA v. Reyes)

PRINCIPLES:

• A GOCC must be organized as a stock or non-stock corporation, while a government instrumentality is vested with corporate powers but does not necessarily become a corporation.

• To be classified as a stock corporation, two requisites must concur: it must have capital stock divided into shares and be authorized to distribute dividends and allotments of surplus and profits to stockholders.

• Non-stock corporations must have members and must not distribute any part of their income to said members.

• The creation of GOCCs through special charters must be for the common good and meet the test of economic viability.

• Government-owned or controlled corporations (GOCCs) created through special charters must meet the twin conditions of common good and economic viability. (Manila International Airport Authority v. Court of Appeals)

• GOCCs that perform economic or commercial activities and need to compete in the market place are required to meet the test of economic viability. (Manila International Airport Authority v. Court of Appeals)

• Government instrumentalities vested with corporate powers and performing governmental or public functions do not need to meet the test of economic viability. (Manila International Airport Authority v. Court of Appeals)

• Congress has plenary authority to create government instrumentalities vested with corporate powers provided they perform essential government functions or public services. (Manila International Airport Authority v. Court of Appeals)

• The intent of the Constitution is to prevent the creation of GOCCs that cannot survive on their own in the market place and drain public funds. (Manila International Airport Authority v. Court of Appeals)

• Government-owned or controlled corporations with special charters, organized essentially for economic or commercial objectives, must meet the test of economic viability.

• Essential public services must be rendered by the State regardless of economic viability.

• Real property owned by the Republic of the Philippines, including government instrumentalities, is exempt from real property tax unless the beneficial use thereof has been granted to a taxable person.

• Local governments cannot impose taxes, fees, or charges on the National Government, its agencies, and instrumentalities.

• Taxation is not presumed and there must be clear language in the law imposing the tax. Any doubt whether a person, article, or activity is taxable is resolved against taxation.

• Tax exemptions in favor of government agencies may be construed liberally in favor of non-tax liability, as it merely reduces the amount of money that has to be handled by the government in the course of its operations.

• Local governments cannot tax national government instrumentalities, unless otherwise provided by law. Any doubt as to the existence of such power is resolved against local governments.

• The power to tax is construed strictly against local governments, while tax exemption is strictly construed against the taxpayer.

• National and local governments should not tax each other, unless required by a sound and compelling policy.

• Reclaimed lands are part of the public domain, owned by the State, and are exempt from payment of real estate taxes.

• Foreshore and submerged areas irrefutably belong to the public domain and are inalienable unless reclaimed, classified as alienable lands, and declared no longer needed for public service.

• Reclaimed lands retain their inherent potential as areas for public use or public service.

• The transfer of alienable lands of the public domain to the Philippine Reclamation Authority (PRA) and the issuance of land patents or certificates of title in PRA's name does not automatically make such lands private.

• Reclaimed lands are reserved lands for public use and remain properties of public dominion unless withdrawn by law or presidential proclamation.

• Foreshore and submerged areas of Manila Bay, including reclaimed lands, are part of the lands of the public domain owned by the state and shall not be alienated unless classified as agricultural lands of the public domain.

• Properties of public dominion are not subject to execution or foreclosure sale.