Resolution of the Malampaya Tax Dispute

The former partners of the Malampaya gas field—Shell, Chevron, and state-run Philippine National Oil Company Exploration Corporation (PNOC-EC)—have finally resolved a long-standing tax dispute in the Philippines. The conflict centered on whether the government's 60% share under Service Contract 38 (SC 38) for the offshore Palawan field included the companies' corporate income tax.

Background of the Dispute

In 2015, the Philippines Commission on Audit (CoA) initially claimed the three companies owed 53 billion pesos (US$862.7 million) in income taxes from 2002 to 2009. Three years later, the CoA increased the demand to 146.8 billion pesos. This prompted Shell to bring the case to the International Centre for Settlement of Investment Disputes (ICSID) in the US.

Supreme Court Ruling and Resolution

The CoA recently cleared Shell's local subsidiary SPEX, Chevron's local subsidiary, and PNOC-EC of the payment obligations, following a Supreme Court ruling in February 2025. The court upheld the contractors' position that the allegedly unpaid income taxes were already factored into the government's 60% share of the project's net proceeds, effectively nullifying the historic tax charges.

Key Legal Clarifications

The CoA had previously argued that deducting these taxes from the government's 60% share—while contractors kept their full 40%—violated two presidential decrees guaranteeing the state's share never fell below 60%. The commission calculated this arrangement reduced the government's actual take to 34%, while the contractors' effective share rose to nearly 65.97%. However, the Supreme Court determined that income taxes paid on behalf of petroleum contractors should count as part of the government's guaranteed 60% share. The court clarified that the tax assumption provision under SC 38 is not a tax exemption; contractors remain technically liable for income tax, but the government pays those taxes on their behalf.

Current Status of Malampaya

The Malampaya asset is now operated by Prime Energy, which took over after the period covered by the tax dispute. The Prime-led consortium has invested nearly $900 million in the Malampaya Phase 4 project to extend the field's lifespan and enhance the country's energy security, recently announcing two new discoveries: Malampaya East-1 (MAE-1) and Camago-3.