Asian Journal- The Filipino-American Community Newspaper

NEW YORK—The Philippines settled a long-standing dispute with the New York City government over real estate taxes for $9 million on Wednesday, Jan. 28.

This is a problem that resulted from certain decisions that were taken over three decades ago, the Philippine Embassy said, adding that it is a problem that could not be allowed "to continue to fester and to drain our resources."

Mayor Michael R. Bloomberg on Thursday, Jan. 29, announced the settlement of the lawsuit that sought unpaid taxes on portions of a Philippines-owned building that has housed a branch of the Philippine National Bank, an office of the Philippine Airlines, and a Filipino restaurant.

Under the terms of the settlement, the Philippines paid $9 million in back property taxes and interest—approximately 85 percent of the amount the City had sought—in exchange for the City’s dismissal of the case. Foreign countries receive exemptions for their diplomatic missions in New York City but must pay their fair share for property used for non-exempt purposes.

"These are tough economic times, and I have asked City agencies to stretch every tax dollar further—but I also want to make sure that we pursue those who fail to pay their taxes," said Mayor Bloomberg. "It is only fair that foreign government-owned properties used for non-exempt purposes pay their fair share of property taxes, because that is what every other law-abiding property owner does."

According to a statement from the Philippine Embassy, the Philippines had put up a vigorous political and legal battle over the years but that a 2007 US Supreme Court decision effectively limited the legal options that a foreign government had in terms of challenging the jurisdiction of New York courts. It added that protracted litigation would only lead to great legal costs, increases in interests and fines, and the very real possibility of an adverse judgment amounting to over $27M.

After consulting its legal counsel and after a thorough study of the case, including recent US judicial precedents, and in order to maximize the benefits of the Philippine Center Building, a decision was taken to settle the case, but at an amount lower than the existing judgment.

The settlement follows last February’s ruling by Judge Jed Rakoff of the US District Court for the Southern District of New York, which awarded the City $10.9M in taxes and interest on those portions of the property used as a bank and airlines office.

The taxes in question were imposed during the period 1974 to 1996. Of the $10.9M District Court judgment, $437,456 was principal and the remainder was interest. On appeal, the Philippines argued that its building was exempt from taxation, and that the City’s statutory 18 percent interest rate was equivalent to punitive damages, which by law may not be assessed against a foreign sovereign.

After years of seeking payment for taxes, the City of New York sued the Philippines in April 2003 in a case filed in the United States District Court for the Southern District of New York seeking unpaid real property taxes on the Philippine Center Building for the period from January 1974 through January 1995. The City sought real property taxes, and interest, of approximately $37M on portions of the Philippine Center occupied by Maharlika, a Philippine restaurant, by the Philippine National Bank (PNB), and by Philippine Airlines (PAL).

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