Republic Act 8424 The Tax Reform Act of 1997

CHAPTER III

TAX ON INDIVIDUALS SEC. 24. Income Tax Rates. -

(A) Rates of Income Tax on Individual Citizen and Individual Resident Alien of the Philippines.

(1) An income tax is hereby imposed:

(a) On the taxable income defined in Section 31 of this Code, other than income subject to tax under Subsections (B),
(C) and (D) of this Section, derived for each taxable year from all sources within and without the Philippines be every
individual citizen of the Philippines residing therein;

(b) On the taxable income defined in Section 31 of this Code, other than income subject to tax under Subsections (B),
(C) and (D) of this Section, derived for each taxable year from all sources within the Philippines by an individual citizen of the
Philippines who is residing outside of the Philippines including overseas contract workers referred to in Subsection(C) of
Section 23 hereof; and

(c) On the taxable income defined in Section 31 of this Code, other than income subject to tax under Subsections (b),
(C) and (D) of this Section, derived for each taxable year from all sources within the Philippines by an individual alien who is a
resident of the Philippines.

The tax shall be computed in accordance with and at the rates established in the following schedule:

Not over 5%
Over P10,000 but not over P30,000 P500+10% of the excess over P10,000
Over P30,000 but not over P70,000 P2,500+15% of the excess over P30,000
Over P70,000 but not over P140,000 P8,500+20% of the excess over P70,000
Over P140,000 but not over P250,000 P22,500+25% of the excess over P140,000
Over P250,000 but not over P500,000 P50,000+30% of the excess over P250,000
Over P500,00 125,000+34% of the excess over P500,000 in 1998.

Provided, That effective January 1, 1999, the top marginal rate shall be thirty-three percent (33%) and effective
January 1, 2000, the said rate shall be thirty-two percent (32%).

For married individuals, the husband and wife, subject to the provision of Section 51 (D) hereof, shall compute
separately their individual income tax based on their respective total taxable income: Provided, That if any income cannot be
definitely attributed to or identified as income exclusively earned or realized by either of the spouses, the same shall be
divided equally between the spouses for the purpose of determining their respective taxable income.

(B) Rate of Tax on Certain Passive Income.

(1) Interests, Royalties, Prizes, and Other Winnings. - A final tax at the rate of twenty percent (20%) is hereby imposed
upon the amount of interest from any currency bank deposit and yield or any other monetary benefit from deposit
substitutes and from trust funds and similar arrangements; royalties, except on books, as well as other literary works and
musical compositions, which shall be imposed a final tax of ten percent (10%); prizes (except prizes amounting to Ten
thousand pesos (P10,000) or less which shall be subject to tax under Subsection (A) of Section 24; and other winnings (except
Philippine Charity Sweepstakes and Lotto winnings), derived from sources within the Philippines: Provided, however, That
interest income received by an individual taxpayer (except a nonresident individual) from a depository bank under the
expanded foreign currency deposit system shall be subject to a final income tax at the rate of seven and one-half percent (7
1/2%) of such interest income: Provided, further, That interest income from long-term deposit or investment in the form of
savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments
evidenced by certificates in such form prescribed by the Bangko Sentral ng Pilipinas (BSP) shall be exempt from the tax
imposed under this Subsection: Provided, finally, That should the holder of the certificate pre-terminate the deposit or
investment before the fifth (5th) year, a final tax shall be imposed on the entire income and shall be deducted and withheld
by the depository bank from the proceeds of the long-term deposit or investment certificate based on the remaining
maturity thereof:

Four (4) years to less than five (5) years - 5%;

Three (3) years to less than (4) years - 12%; and

Less than three (3) years - 20%

(2) Cash and/or Property Dividends - A final tax at the following rates shall be imposed upon the cash and/or property
dividends actually or constructively received by an individual from a domestic corporation or from a joint stock company,
insurance or mutual fund companies and regional operating headquarters of multinational companies, or on the share of an
individual in the distributable net income after tax of a partnership (except a general professional partnership) of which he is
a partner, or on the share of an individual in the net income after tax of an association, a joint account, or a joint venture or
consortium taxable as a corporation of which he is a member or co-venturer:

Six percent (6%) beginning January 1, 1998;

Eight percent (8%) beginning January 1, 1999; and

Ten percent (10% beginning January 1, 2000.

Provided, however, That the tax on dividends shall apply only on income earned on or after January 1, 1998. Income
forming part of retained earnings as of December 31, 1997 shall not, even if declared or distributed on or after January 1,
1998, be subject to this tax.

(C) Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange. - The provisions of Section 39(B)
notwithstanding, a final tax at the rates prescribed below is hereby imposed upon the net capital gains realized during the
taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares
sold, or disposed of through the stock exchange.

Not over P100,000 5%

On any amount in excess of P100,000 10%

(D) Capital Gains from Sale of Real Property. -

(1) In General. - The provisions of Section 39(B) notwithstanding, a final tax of six percent (6%) based on the gross selling
price or current fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher, is hereby
imposed upon capital gains presumed to have been realized from the sale, exchange, or other disposition of real property
located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales, by
individuals, including estates and trusts: Provided, That the tax liability, if any, on gains from sales or other dispositions of
real property to the government or any of its political subdivisions or agencies or to government-owned or controlled
corporations shall be determined either under Section 24 (A) or under this Subsection, at the option of the taxpayer.

(2) Exception. - The provisions of paragraph (1) of this Subsection to the contrary notwithstanding, capital gains presumed
to have been realized from the sale or disposition of their principal residence by natural persons, the proceeds of which is
fully utilized in acquiring or constructing a new principal residence within eighteen (18) calendar months from the date of
sale or disposition, shall be exempt from the capital gains tax imposed under this Subsection: Provided, That the historical
cost or adjusted basis of the real property sold or disposed shall be carried over to the new principal residence built or
acquired: Provided, further, That the Commissioner shall have been duly notified by the taxpayer within thirty (30) days from
the date of sale or disposition through a prescribed return of his intention to avail of the tax exemption herein mentioned:
Provided, still further, That the said tax exemption can only be availed of once every ten (10) years: Provided, finally, that if
there is no full utilization of the proceeds of sale or disposition, the portion of the gain presumed to have been realized from
the sale or disposition shall be subject to capital gains tax. For this purpose, the gross selling price or fair market value at the
time of sale, whichever is higher, shall be multiplied by a fraction which the unutilized amount bears to the gross selling price
in order to determine the taxable portion and the tax prescribed under paragraph (1) of this Subsection shall be imposed
thereon

Section 35. Allowance of Personal Exemption for Individual Taxpayer. -

(A) In General. - For purposes of determining the tax provided in Section 24 (A) of this Title, there shall be allowed a basic
personal exemption as follows:

For single individual or married individual judicially decreed as legally separated with no qualified dependents P20,000

For Head of Family P25,000

For each married individual P32,000

In the case of married individuals where only one of the spouses is deriving gross income, only such spouse shall be allowed
the personal exemption.

For purposes of this paragraph, the term 'head of family' means an unmarried or legally separated man or woman with one
or both parents, or with one or more brothers or sisters, or with one or more legitimate, recognized natural or legally
adopted children living with and dependent upon him for their chief support, where such brothers or sisters or children are
not more than twenty-one (21) years of age, unmarried and not gainfully employed or where such children, brothers or
sisters, regardless of age are incapable of self-support because of mental or physical defect.

(B) Additional Exemption for Dependents. - There shall be allowed an additional exemption of Eight thousand pesos (P8,000)
for each dependent not exceeding four (4).

The additional exemption for dependent shall be claimed by only one of the spouses in the case of married individuals.

In the case of legally separated spouses, additional exemptions may be claimed only by the spouse who has custody of the
child or children: Provided, That the total amount of additional exemptions that may be claimed by both shall not exceed the
maximum additional exemptions herein allowed.

For purposes of this Subsection, a 'dependent' means a legitimate, illegitimate or legally adopted child chiefly dependent
upon and living with the taxpayer if such dependent is not more than twenty-one (21) years of age, unmarried and not
gainfully employed or if such dependent, regardless of age, is incapable of self-support because of mental or physical defect.

(C) Change of Status. - If the taxpayer marries or should have additional dependent(s) as defined above during the taxable
year, the taxpayer may claim the corresponding additional exemption, as the case may be, in full for such year.

If the taxpayer dies during the taxable year, his estate may still claim the personal and additional exemptions for himself and
his dependent(s) as if he died at the close of such year.

If the spouse or any of the dependents dies or if any of such dependents marries, becomes twenty-one (21) years old or
becomes gainfully employed during the taxable year, the taxpayer may still claim the same exemptions as if the spouse or
any of the dependents died, or as if such dependents married, became twenty-one (21) years old or became gainfully
employed at the close of such year.

(D) Personal Exemption Allowable to Nonresident Alien Individual. - A nonresident alien individual engaged in trade, business
or in the exercise of a profession in the Philippines shall be entitled to a personal exemption in the amount equal to the
exemptions allowed in the income tax law in the country of which he is a subject - or citizen, to citizens of the Philippines not
residing in such country, not to exceed the amount fixed in this Section as exemption for citizens or resident of the
Philippines: Provided, That said nonresident alien should file a true and accurate return of the total income received by him
from all sources in the Philippines, as required by this Title.

CHAPTER IX - RETURNS AND PAYMENT OF TAX

Section 51. Individual Return. -

(A) Requirements. -

(1) Except as provided in paragraph (2) of this Subsection, the following individuals are required to file an income tax return:

(a) Every Filipino citizen residing in the Philippines;

(b) Every Filipino citizen residing outside the Philippines, on his income from sources within the Philippines;

(c) Every alien residing in the Philippines, on income derived from sources within the Philippines; and

(d) Every nonresident alien engaged in trade or business or in the exercise of profession in the Philippines.

(2) The following individuals shall not be required to file an income tax return;

(a) An individual whose gross income does not exceed his total personal and additional exemptions for dependents under
Section 35: Provided, That a citizen of the Philippines and any alien individual engaged in business or practice of profession
within the Philippine shall file an income tax return, regardless of the amount of gross income;

(b) An individual with respect to pure compensation income, as defined in Section 32 (A)(1), derived from sources within the
Philippines, the income tax on which has been correctly withheld under the provisions of Section 79 of this Code: Provided,
That an individual deriving compensation concurrently from two or more employers at any time during the taxable year shall
file an income tax return: Provided, further, That an individual whose compensation income derived from sources within the
Philippines exceeds Sixty thousand pesos (P60,000) shall also file an income tax return;

(c) An individual whose sole income has been subjected to final withholding tax pursuant to Section 57(A) of this Code; and

(d) An individual who is exempt from income tax pursuant to the provisions of this Code and other laws, general or special.

(3) The forgoing notwithstanding, any individual not required to file an income tax return may nevertheless be required to
file an information return pursuant to rules and regulations prescribed by the Secretary of Finance, upon recommendation of
the Commissioner.

(4) The income tax return shall be filed in duplicate by the following persons:

(a) A resident citizen - on his income from all sources;

(b) A nonresident citizen - on his income derived from sources within the Philippines;

(c) A resident alien - on his income derived from sources within the Philippines; and

(d) A nonresident alien engaged in trade or business in the Philippines - on his income derived from sources within the
Philippines.

(B) Where to File. - Except in cases where the Commissioner otherwise permits, the return shall be filed with an authorized
agent bank, Revenue District Officer, Collection Agent or duly authorized Treasurer of the city or municipality in which such
person has his legal residence or principal place of business in the Philippines, or if there be no legal residence or place of
business in the Philippines, with the Office of the Commissioner.

(C) When to File. -

(1) The return of any individual specified above shall be filed on or before the fifteenth (15th) day of April of each year
covering income for the preceding taxable year.

(2) Individuals subject to tax on capital gains;

(a) From the sale or exchange of shares of stock not traded thru a local stock exchange as prescribed under Section 24(c)
shall file a return within thirty (30) days after each transaction and a final consolidated return on or before April 15 of each
year covering all stock transactions of the preceding taxable year; and
(b) From the sale or disposition of real property under Section 24(D) shall file a return within thirty (30) days following each
sale or other disposition.

(D) Husband and Wife. - Married individuals, whether citizens, resident or nonresident aliens, who do not derive income
purely from compensation, shall file a return for the taxable year to include the income of both spouses, but where it is
impracticable for the spouses to file one return, each spouse may file a separate return of income but the returns so filed
shall be consolidated by the Bureau for purposes of verification for the taxable year.

(E) Return of Parent to Include Income of Children. - The income of unmarried minors derived from properly received from a
living parent shall be included in the return of the parent, except (1) when the donor's tax has been paid on such property, or
(2) when the transfer of such property is exempt from donor's tax.

(F) Persons Under Disability. - If the taxpayer is unable to make his own return, the return may be made by his duly
authorized agent or representative or by the guardian or other person charged with the care of his person or property, the
principal and his representative or guardian assuming the responsibility of making the return and incurring penalties
provided for erroneous, false or fraudulent returns.

(G) Signature Presumed Correct. - The fact that an individual's name is signed to a filed return shall be prima facie evidence
for all purposes that the return was actually signed by him.

KINDS OF CORPORATIONS

AFISCO INSURANCE CORP. et al. vs. COURT OF APPEAL

DOCTRINE:

Unregistered Partnerships and associations are considered as corporations for tax purposes Under the old internal revenue
code, A tax is hereby imposed upon the taxable net income received during each taxable year from all sources by every
corporation organized in, or existing under the laws of the Philippines, no matter how created or organized, xxx.
Ineludibly, the Philippine legislature included in the concept of corporations those entities that resembled them such as
unregistered partnerships and associations.

Insurance pool in the case at bar is deemed a partnership or association taxable as a corporation In the case at bar,
petitioners-insurance companies formed a Pool Agreement, or an association that would handle all the insurance businesses
covered under their quota-share reinsurance treaty and surplus reinsurance treaty with Munich is considered a partnership
or association which may be taxed as a ccorporation.

Double Taxation is not Present in the Case at Bar Double taxation means taxing the same person twice by the same
jurisdiction for the same thing. In the instant case, the insurance pool is a taxable entity distince from the individual
corporate entities of the ceding companies. The tax on its income is obviously different from the tax on the dividends
received by the companies. There is no double taxation.

FACTS:

The petitioners are 41 non-life domestic insurance corporations. They issued risk insurance policies for machines. The
petitioners in 1965 entered into a Quota Share Reinsurance Treaty and a Surplus Reinsurance Treaty with the Munchener
Ruckversicherungs-Gesselschaft (hereafter called Munich), a non-resident foreign insurance corporation. The reinsurance
treaties required petitioners to form a pool, which they complied with.

In 1976, the pool of machinery insurers submitted a financial statement and filed an Information Return of Organization
Exempt from Income Tax for 1975. On the basis of this, the CIR assessed a deficiency of P1,843,273.60, and withholding
taxes in the amount of P1,768,799.39 and P89,438.68 on dividends paid to Munich and to the petitioners, respectively.

The Court of Tax Appeal sustained the petitioner's liability. The Court of Appeals dismissed their appeal.
The CA ruled in that the pool of machinery insurers was a partnership taxable as a corporation, and that the latters
collection of premiums on behalf of its members, the ceding companies, was taxable income.

ISSUE/S:
1. Whether or not the pool is taxable as a corporation.
2. Whether or not there is double taxation.

HELD:

1) Yes: Pool taxable as a corporation

Argument of Petitioner: The reinsurance policies were written by them individually and separately, and that their liability
was limited to the extent of their allocated share in the original risks thus reinsured. Hence, the pool did not act or earn
income as a reinsurer. Its role was limited to its principal function of allocating and distributing the risk(s) arising from the
original insurance among the signatories to the treaty or the members of the pool based on their ability to absorb the risk(s)
ceded[;] as well as the performance of incidental functions, such as records, maintenance, collection and custody of funds,
etc.

Argument of SC: According to Section 24 of the NIRC of 1975:

SEC. 24. Rate of tax on corporations. -- (a) Tax on domestic corporations. -- A tax is hereby imposed upon the taxable net
income received during each taxable year from all sources by every corporation organized in, or existing under the laws of
the Philippines, no matter how created or organized, but not including duly registered general co-partnership (compaias
colectivas), general professional partnerships, private educational institutions, and building and loan associations xxx.

Ineludibly, the Philippine legislature included in the concept of corporations those entities that resembled them such as
unregistered partnerships and associations. Interestingly, the NIRCs inclusion of such entities in the tax on corporations was
made even clearer by the Tax Reform Act of 1997 Sec. 27 read together with Sec. 22 reads:

SEC. 27. Rates of Income Tax on Domestic Corporations. --

(A) In General. -- Except as otherwise provided in this Code, an income tax of thirty-five percent (35%) is hereby imposed
upon the taxable income derived during each taxable year from all sources within and without the Philippines by every
corporation, as defined in Section 22 (B) of this Code, and taxable under this Title as a corporation xxx.
SEC. 22. -- Definition. -- When used in this Title:
xxx xxx xxx
(B) The term corporation shall include partnerships, no matter how created or organized, joint-stock companies, joint
accounts (cuentas en participacion), associations, or insurance companies, but does not include general professional
partnerships [or] a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in
petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under a service
contract without the Government. General professional partnerships are partnerships formed by persons for the sole
purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or
business.
Thus, the Court in Evangelista v. Collector of Internal Revenue held that Section 24 covered these unregistered partnerships
and even associations or joint accounts, which had no legal personalities apart from their individual members.
Furthermore, Pool Agreement or an association that would handle all the insurance businesses covered under their quota-
share reinsurance treaty and surplus reinsurance treaty with Munich may be considered a partnership because it contains
the following elements: (1) The pool has a common fund, consisting of money and other valuables that are deposited in the
name and credit of the pool. This common fund pays for the administration and operation expenses of the pool. (2) The pool
functions through an executive board, which resembles the board of directors of a corporation, composed of one
representative for each of the ceding companies. (3) While, the pool itself is not a reinsurer and does not issue any policies;
its work is indispensable, beneficial and economically useful to the business of the ceding companies and Munich, because
without it they would not have received their premiums pursuant to the agreement with Munich. Profit motive or business
is, therefore, the primordial reason for the pools formation.

2) No: There is no double taxation.

Argument of Petitioner: Remittances of the pool to the ceding companies and Munich are not dividends subject to tax.
Imposing a tax would be tantamount to an illegal double taxation, as it would result in taxing the same premium income
twice in the hands of the same taxpayer. Furthermore, even if such remittances were treated as dividends, they would have
been exempt under tSections 24 (b) (I) and 263 of the 1977 NIRC , as well as Article 7 of paragraph 1and Article 5 of
paragraph 5 of the RP-West German Tax Treaty.
Argument of Supreme Court: Double taxation means taxing the same person twice by the same jurisdiction for the same
thing. In the instant case, the insurance pool is a taxable entity distince from the individual corporate entities of the ceding
companies. The tax on its income is obviously different from the tax on the dividends received by the companies. There is no
double taxation.

Tax exemption cannot be claimed by non-resident foreign insurance corporattion; tax exemption construed strictly against
the taxpayer - Section 24 (b) (1) pertains to tax on foreign corporations; hence, it cannot be claimed by the ceding companies
which are domestic corporations. Nor can Munich, a foreign corporation, be granted exemption based solely on this
provision of the Tax Code because the same subsection specifically taxes dividends, the type of remittances forwarded to it
by the pool. The foregoing interpretation of Section 24 (b) (1) is in line with the doctrine that a tax exemption must be
construed strictissimi juris, and the statutory exemption claimed must be expressed in a language too plain to be mistaken.

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N.V. Reederij Amsterdam vs. CIR

FACTS:

M.V. Amstelmeer and, MV "Amstelkroon," both of which are vessels of petitioner N.B. Reederij "AMSTERDAM," called on
Philippine ports to load cargoes for foreign destination on two separate occasions. The freight fees for these transactions
were paid abroad in two payments. In these two instances, petitioner Royal Interocean Lines acted as husbanding agent for a
fee or commission on said vessels. No income tax appears to have been paid by petitioner N.V. Reederij "AMSTERDAM" on
the freight receipts.

Respondent Commissioner assessed said petitioner in the amounts of P193,973.20 and P262,904.94 as deficiency income tax
for 1963 and 1964, respectively, as "a non-resident foreign corporation not engaged in trade or business in the Philippines
under Section 24 (b) (1) of the Tax Code.

On the assumption that the said petitioner is a foreign corporation engaged in trade or business in the Philippines, petitioner
Royal Interocean Lines filed an income tax return of the aforementioned vessels computed at the exchange rate of P2.00 to
US1.00 and paid the tax thereon in the amount of P1,835.52 and P9,448.94. Petitioner Royal Interocean Lines as the
husbanding agent of petitioner N.V. Reederij "AMSTERDAM" filed a written protest against the abovementioned assessment
made by the respondent Commissioner which protest

ISSUES: Whether Petitioner should be taxed as a foreign corporation not engaged in trade or business in the Philippines?

HELD:

Yes. Petitioner N.V. Reederij "AMSTERDAM" is a foreign corporation not authorized or licensed to do business in
the Philippines. It does not have a branch office in the Philippines and it made only two calls in Philippine ports, one in 1963
and the other in 1964. In order that a foreign corporation may be considered engaged in trade or business, its business
transactions must be continuous. A casual business activity in the Philippines by a foreign corporation, as in the present case,
does not amount to engaging in trade or business in the Philippines for income tax purposes.

A foreign corporation engaged in trade or business within the Philippines, or which has an office or place of business therein,
is taxed on its total net income received from all sources within the Philippines at the rate of 25% upon the amount but
which taxable net income does not exceed P100,000.00, and 35% upon the amount but which taxable net income exceeds
P100,000.00. 2 On the other hand, a foreign corporation not engaged in trade or business within the Philippines and which
does not have any office or place of business therein is taxed on income received from all sources within the Philippines at
the rate of 35% of the gross income.

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 COMMISSIONER vs. BOAC

"The source of an income is the property, activity or service that produced the income. For such source to be considered as
coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines."

FACTS: Petitioner CIR seeks a review of the CTA's decision setting aside petitioner's assessment of deficiency income taxes
against respondent British Overseas Airways Corporation (BOAC) for the fiscal years 1959 to 1971. BOAC is a 100% British
Government-owned corporation organized and existing under the laws of the United Kingdom, and is engaged in the
international airline business. During the periods covered by the disputed assessments, it is admitted that BOAC had no
landing rights for traffic purposes in the Philippines. Consequently, it did not carry passengers and/or cargo to or from the
Philippines, although during the period covered by the assessments, it maintained a general sales agent in the Philippines
Wamer Barnes and Company, Ltd., and later Qantas Airways which was responsible for selling BOAC tickets covering
passengers and cargoes. The CTA sided with BOAC citing that the proceeds of sales of BOAC tickets do not constitute BOAC
income from Philippine sources since no service of carriage of passengers or freight was performed by BOAC within the
Philippines and, therefore, said income is not subject to Philippine income tax. The CTA position was that income from
transportation is income from services so that the place where services are rendered determines the source.

ISSUE: Are the revenues derived by BOAC from sales of ticket for air transportation, while having no landing rights here,
constitute income of BOAC from Philippine sources, and accordingly, taxable?

HELD: Yes. The source of an income is the property, activity or service that produced the income. For the source of income to
be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. In
BOAC's case, the sale of tickets in the Philippines is the activity that produces the income. The tickets exchanged hands here
and payments for fares were also made here in Philippine currency. The site of the source of payments is the Philippines. The
flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the Philippine
government. In consideration of such protection, the flow of wealth should share the burden of supporting the government.

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CIR vs. JAPAN AIRLINES

Well JAL is also a foreign corporation likewise engaged in the business of International air carriage.

Now if British Overseas Airways Corp. (BOAC) merely used ticket sales agent and stayed at bay. JAL is different. JAL
maintained an office at the Filipinas Hotel, Roxas Boulevard Manila since mid-July of 1957.

The said office did not sell tickets but was merely for the promotion of the company.

But that's what they think. On July 17 1957, JAL constituted Philippine Airlines (PAL) as its ticket agent in the Philippines. PAL
therefore sold tickets for and in behalf of JAL. Same as BOAC there was absence of flight operations to and from the
Philippines in this case. Meaning JAL likewise had no landing rights. And so like BOAC what were talking about here are
connecting flights.

So obviously this didn't escape the long 'nose'.. I mean claws of the BIR. On June 1972, JAL received deficiency income tax
assessments notices and a demand letter from petitioner CIR for years 1959 through 1963.

Of course JAL protested as BOAC did, against said assessments alleging that as a non-resident foreign corporation, it is
taxable only on income from Philippines sources as determined by section 37 of the Tax Code, there being no income on said
years, JAL is not liable for taxes.

ISSUE:
Whether or not the proceeds from sales of JAL tickets sold in the Philippines by Philippine Airlines (PAL) are taxable as
income from sources within the Philippines.

HELD:

YES. Court said the ticket sales are taxable. Citing the case of CIR v BOAC, the court reiterated that the source of an income is
the property, activity or service that produced the income. For the source of income to be considered as coming from the
Philippines, it is sufficient that the income is derived from activity within the Philippines.

The absence of flight operations to and from the Philippines is not determinative of the source of income or the situs of
income taxation.

The test of taxability is the source, and the source of the income is that activity which produced the income. In this case, as
JAL constituted PAL as its agent, the sales of JAL tickets made by PAL is taxable

JAL likewise lost this case.

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INCOME TAXES AVAILABLE TO CORPORATIONS

CIR v. CITYTRUST INVESTMENT PHILS., INC. G.R. No. 139786

ASIANBANK CORPORATION v. CIR G.R. No. 140857
September 27, 2006 Sandoval-Gutierrez, J.
TOPIC IN SYLLABUS: Double Taxation- Instances of double taxation in its broad sense
SUMMARY: Citytrust reported its total gross receipts and paid the 5% GRT corresponding to it. Citytrust claimed for
tax refund, seeking to be reimbursed of the 5% GRT it paid on the portion of 20% FWT contending that the 20%
final tax on the passive income was already deducted and withheld by various withholding agents. Hence, the
actual or the exact amount received, as its passive income was less the 20% final tax and to include the same
would constitute double taxation. SC held that the 20% FWT is included in computing the 5% GRT and such does
not amount to double taxation. The GRT is a percentage tax, while the FWT is an income tax. The two concepts are
different from each other.
DOCTRINE: Double taxation means taxing for the same tax period the same thing or activity twice, when it should
be taxed but once, for the same purpose and with the same kind of character of tax.

HOW THE CASE REACHED THE SC: PETITIONS for review on certiorari of the decisions of the CA

FACTS:
G.R. No. 139786
Citytrust is a domestic corporation engaged in quasi-banking activities.
In 1994, Citytrust reported the amount of P110,788,542.30 as its total gross receipts and paid the amount of
P5,539,427.11 corresponding to its 5% GRT.
On January 30, 1996, the CTA, in Asian Bank Corporation v. Commissioner of Internal Revenue (ASIAN BANK case), ruled
that the basis in computing the 5% GRT is the gross receipts minus the 20% FWT.
Based on this ruling, Citytrust claimed for tax, seeking to be reimbursed of the 5% GRT it paid on the portion of 20% FWT
or the amount of P326,007.01.
CTA:
monies or receipts that do not redound to the benefit of the taxpayer are not part of its gross receipts for the
purpose of computing its taxable gross receipts
the 20% final tax on the passive income was already deducted and withheld by various withholding agents. Hence,
the actual or the exact amount received, as its passive income in the year 1994, was less the 20% final tax already
withheld by various withholding agents.
to include it again would tantamount to double taxation
G.R. No. 140857
Asianbank is a domestic corporation also engaged in banking business. It remitted to the BIR 5% GRT on its total
gross receipts.
It filed a claim for refund for the overpaid GRT based on the Asian bank case.
CTA: allowed refund in the reduced amount of P1,345,743.01
CA: Reversed CTA.
It is true that Revenue Regulation No. 12-80 provides that the gross receipts tax on banks and other financial
institutions should be based on all items of income actually received. Actual receipt here is used in opposition to
mere accrual. But receipt may be actual or constructive. The 20% final tax withheld from interest income of banks
and other similar institutions is not income that they have not received; it is simply withheld from them and paid to
the government, for their benefit.

PETITIONERS ARGUMENT:
Commissioners Arguments:
first, there is no law which excludes the 20% FWT from the taxable gross receipts for the purpose of computing the
5% GRT;
second, the imposition of the 20% FWT on the bank's passive income and the 5% GRT on its taxable gross receipts,
which include the bank's passive income, does not constitute double taxation;
third, the ruling by this Court in Manila Jockey Club, cited in the ASIAN BANK case, is not applicable; and
fourth, in the computation of the 5% GRT, the passive income need not be actually received in order to form part of
the taxable gross receipts.

RESPONDENTS ARGUMENT:
first, Section 4(e) of Revenue Regulations No. 12-80 dated November 7, 1980 provides that the rates of taxes on the
gross receipts of financial institutions shall be based only on all items of income actually received;
second, Court's ruling in Manila Jockey Club is applicable

ISSUES+HELD:
1. WON the 20% FWT on a bank's interest income forms part of the taxable gross receipts for the purpose of computing
the 5% GRT? - NO
Numerous cases are unanimous in defining "gross receipts" as "the entire receipts without any deduction.
CIR v. Bank of Philippine Islands: The Tax Code does not provide a definition of the term "gross receipts".
Accordingly, the term is properly understood in its plain and ordinary meaning and must be taken to comprise of
the entire receipts without any deduction
CIR v. Bank of Commerce: The word "gross" must be used in its plain and ordinary meaning. It is defined as "whole,
entire, total, without deduction." Gross is the antithesis of net.
China Banking Corporation v. Court of Appeals: Under the ordinary basic methods of handling accounts, the term
gross receipts, in the absence of any statutory definition of the term, must be taken to include the whole total gross
receipts without any deductions
o the legislative intent to apply the term in its plain and ordinary meaning may be surmised from a historical
perspective of the levy on gross receipts. From the time the GRT on banks was first imposed in 1946 under
Republic Act No. 39 the legislature has not established a definition of the term "gross receipts."
o Under Revenue Regulations No. 12-80 and No. 17-84, as well as several numbered rulings, the BIR has
consistently ruled that the term "gross receipts" does not admit of any deduction. This interpretation has
remained unchanged throughout the various re-enactments of the present Section 121 of the Tax Code.
Commissioner of Internal Revenue v. Solidbank Corporation: When we speak of the "gross earnings" of a person or
corporation, we mean the entire earnings or receipts of such person or corporation from the business or operation
to which we refer. Webster's Dictionary gross ="whole or entire."

2. WON there is double taxation - NO

The 20% FWT and 5% GRT does not constitute double taxation.
Double taxation means taxing for the same tax period the same thing or activity twice, when it should be taxed but
once, for the same purpose and with the same kind of character of tax. This is not the situation in the case at bar.
The GRT is a percentage tax under Title V of the Tax Code ([Section 121], Other Percentage Taxes), while the FWT is
an income tax under Title II of the Code (Tax on Income). The two concepts are different from each other.
Solidbank Case: a percentage tax is a national tax measured by a certain percentage of the gross selling price or
gross value in money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any person
engaged in the sale of services. It is not subject to withholding. An income tax, on the other hand, is a national tax
imposed on the net or the gross income realized in a taxable year. It is subject to withholding. Tax Code imposes
two different kinds of taxes.
DISPOSITIVE:
G.R. No. 139786: GRANT the petition of the Commissioner of Internal Revenue and REVERSE the Decision of the CA
G.R. No. 140857: DENY petition of Asianbank and affirm in toto the decision of the CA
-------------------------------------------------------------------------------------------------------------------------- --------------

MIINIMUM CORPORATE INCOME TAX

CHAMBER OF REAL ESTATE AND BUILDERS' ASSOCIATIONS, INC. vs.

THE HON. EXECUTIVE SECRETARY ALBERTO ROMULO

FACTS:

Petitioner is an association of real estate developers and builders in the Philippines. It assails the validity of the imposition of
minimum corporate income tax (MCIT) on corporations and creditable withholding tax (CWT) on sales of real properties
classified as ordinary assets.

Petitioner argues that the MCIT violates the due process clause because it levies income tax even if there is no realized gain.
Petitioner also asserts that the enumerated provisions of the subject revenue regulations violate the due process clause
because, like the MCIT, the government collects income tax even when the net income has not yet been determined. They
contravene the equal protection clause as well because the CWT is being levied upon real estate enterprises but not on other
business enterprises, more particularly those in the manufacturing sector.

ISSUE:

Whether the imposition of the MCIT on domestic corporations and CWT on income from sales of real properties classified as
ordinary assets are unconstitutional.

RULING:

NO. MCIT is not violative of due process. The MCIT is imposed on gross income which is arrived at by deducting the capital
spent by a corporation in the sale of its goods, i.e., the cost of goods and other direct expenses from gross sales. Clearly, the
capital is not being taxed. Furthermore, the MCIT is not an additional tax imposition. It is imposed in lieu of the normal net
income tax, and only if the normal income tax is suspiciously low. The MCIT merely approximates the amount of net income
tax due from a corporation, pegging the rate at a very much reduced 2% and uses as the base the corporations gross
income.

It is also stressed that the CWT is creditable against the tax due from the seller of the property at the end of the taxable year.
The seller will be able to claim a tax refund if its net income is less than the taxes withheld. Nothing is taken that is not due
so there is no confiscation of property repugnant to the constitutional guarantee of due process. More importantly, the due
process requirement applies to the power to tax. The CWT does not impose new taxes nor does it increase taxes. It relates
entirely to the method and time of payment. Petitioner, in insisting that its industry should be treated similarly as
manufacturing enterprises, fails to realize that what distinguishes the real estate business from other manufacturing
enterprises, for purposes of the imposition of the CWT, is not their production processes but the prices of their goods sold
and the number of transactions involved. The income from the sale of a real property is bigger and its frequency of
transaction limited, making it less cumbersome for the parties to comply with the withholding tax scheme.
------------------------------------------------------------------------------------------------------------------------------------------

CIR vs. PHILIPPINE AIRLINES, INC

FACTS:

PHILIPPINE AIRLINES, INC. had zero taxable income for 2000 but would have been liable for Minimum Corporate Income Tax
based on its gross income. However, PHILIPPINE AIRLINES, INC. did not pay the Minimum Corporate Income Tax using as
basis its franchise which exempts it from all other taxes upon payment of whichever is lower of either (a) the basic
corporate income tax based on the net taxable income or (b) a franchise tax of 2%.

ISSUE: Is PAL liable for Minimum Corporate Income Tax?

HELD:
NO. PHILIPPINE AIRLINES, INC.s franchise clearly refers to "basic corporate income tax" which refers to the general rate of
35% (now 30%). In addition, there is an apparent distinction under the Tax Code between taxable income, which is the basis
for basic corporate income tax under Sec. 27 (A) and gross income, which is the basis for the Minimum Corporate Income Tax
under Section 27 (E). The two terms have their respective technical meanings and cannot be used interchangeably. Not being
covered by the Charter which makes PAL liable only for basic corporate income tax, then Minimum Corporate Income Tax is
included in "all other taxes" from which PHILIPPINE AIRLINES, INC. is exempted.

The CIR also can not point to the Substitution Theory which states that Respondent may not invoke the in lieu of all other
taxes provision if it did not pay anything at all as basic corporate income tax or franchise tax. The Court ruled that it is not
the fact tax payment that exempts Respondent but the exercise of its option. The Court even pointed out the fallacy of the
argument in that a measly sum of one peso would suffice to exempt PAL from other taxes while a zero liability would not and
said that there is really no substantial distinction between a zero tax and a one-peso tax liability. Lastly, the Revenue
Memorandum Circular stating the applicability of the MCIT to PAL does more than just clarify a previous regulation and goes
beyond mere internal administration and thus cannot be given effect without previous notice or publication to those who
will be affected thereby.

-------------------------------------------------------------------------------------------------------------------------------------------

REPUBLIC OF THE PHILIPPINES, rep. by the COMMISSIONER OF CUSTOMS, Petitioner,

vs.
PHILIPPINE AIRLINES, INC.(PAL), Respondent.

Before the Court are consolidated Petitions for Review on certiorari assailing the Decision of the Court of Tax Appeals en
bane (CTA en bane) dated 9 September 2013 1 in C.T.A. EB Nos. 920 and 922. Petitioner Commissioner of Internal Revenue
(CIR) also assailed the appellate court's Resolution dated 10 March 2014 2 in the same consolidated cases.

THE FACTS

The case stemmed from a claim for a refund by respondent Philippine Airlines, Inc. (PAL) of the amount of 4,469,199.98
representing the alleged erroneously paid excise tax for the period covering July 2005 to February 2006. On 18 January 2007,
PAL filed written claims for a refund with the Bureau of Internal Revenue (BIR). For failure of the BIR to act on the
administrative claim, PAL filed two separate Petitions for Review with the CTA on 30 July 2007 and 21December2007,
docketed as C.T.A. Case Nos. 7665 and 7713, respectively.

The CTA consolidated the two Petitions and tried them jointly. On 17 April 2012, the CT A Second Division rendered a
Decision granting the Petitions and ordered the CIR and the Commissioner of Customs (COC) to refund PAL in the total
amount of 4,469,199.98.

On 23 April 2012 and 4 May 2012, the CIR and the COC filed their respective Motions for Reconsideration, which were both
denied in a Resolution dated 28 June 2012.

C.T.A. EB No. 920

The CIR, in its Petition for Review before the CT A en bane, raised the issue of whether PAL is entitled to a tax refund of the
alleged erroneously paid excise tax. The CIR argued that Presidential Decree (P.D.) No. 1590, 3particularly Section 13 thereof,
had already been expressly amended by Republic Act (R.A.) No. 9334. 4 Moreover, PAL failed to prove that the alleged
commissary supplies were not locally available in reasonable quantity, quality and price considering that no independent
credible evidence was presented but merely PAL' s own employee where testimony was self-serving and not comprehensive.

C.T.A. EB No. 922

A separate Petition for Review was filed before the CT A en bane by the COC. The latter argued that the case should have
been dismissed outright, as it stated no cause of action against petitioner, which merely acted as a collecting agent for the
CIR. The COC further alleged that PAL had also failed to exhaust the latter's administrative remedies with the former. Finally,
like the CIR, the COC maintained that Sections 6 and 10 of R.A. 9334 had repealed Sections 13 and 24 of P.D. 1590.

THE RULING OF THE CTA En Banc

The appeals were consolidated. The CT A en banc denied both Petitions and ruled that R.A. 9334 was not expressly repealed
by P.D. 1590. The tax court also emphasized that P.D. 1590 is a special law that governs the franchise of PAL, while R.A. 9334
is a general law, and therefore P.D. 1590 must prevail. The CT A held that reliance by petitioners on Cagayan Electric Power
Light Co. Inc. v. CIR5 is also misplaced. In that case, there was an express repeal of R.A. 5431, as all corporate taxpayers not
expressly exempted under that law and under Section 27 of the Tax Code were subjected to income tax.

The CTA ruled that respondent PAL was entitled to a refund of excise taxes paid on the latter's commissary supplies. The
appellate court explained that the exemption granted to PAL under P.D. 1590 was not expressly repealed by R.A. 9334. The
CTA found that PAL had opted to pay the latter's basic corporate income tax for the fiscal year ending 31 March 2006. The
court also found that the articles imported were intended for the operations of PAL and were not locally available in
reasonable quantity, quality or price. The latter is therefore entitled to a refund of erroneously paid excise tax in the total
amount of 4,469,199.98.

THE PETITIONS

The COC, instead of filing a motion for reconsideration with the CTA, directly filed a Petition before this Court. The COC
assailed the Decision of the CTA en bane in C.T.A. EB Nos. 920 and 922, herein docketed as G.R. Nos. 209353-54.

On the other hand, the CIR appealed the Decision dated 9 September 2013 and Resolution dated 10 March 2014 on its
Motion for Reconsideration herein docketed as G.R. Nos. 211733-34.

ISSUE

Both Petitions raise similar issues, which boil down to the principal one of whether Sections 6 and 10 of R.A. 9334 repealed
Section 13 of P .D. 1590.

THE COURT'S RULING

We find no merit in the Petitions.

The controversy before the Court is not novel. In CIR v. PAL, 6 the Court has already passed upon the very same issues raised
by the same petitioners. The only differences are the taxable period involved and the amount of refundable tax.

We have held in that case that it is a basic principle in statutory construction that a later law, general in terms and not
expressly repealing or amending a prior special law, will not ordinarily affect the special provisions of the earlier statute. A
reading of the pertinent provisions of P.D. 1590 and R.A. 9334 shows that there was no express repeal of the grant of
exemption: PRESIDENTIAL DECREE N0.15907 xxxxxxx

SECTION 13. In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine Government
during the life of this franchise whichever of subsections (a) and (b) hereunder will result in a lower tax:

(a) The basic corporate income tax based on the grantee's annual net taxable income computed in accordance with the
provisions of the National Internal Revenue Code; or

b) A franchise tax of two per cent (2%) of the gross revenues derived by the grantee from all sources, without distinction as
to transport or nontransport operations; provided, that with respect to international air-transport service, only the gross
passenger, mail, and freight revenues from its outgoing flights shall be subject to this tax.

The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties, royalties,
registration, license, and other fees and charges of any kind, nature, or description, imposed, levied, established, assessed, or
collected by any municipal, city, provincial, or national authority or government agency, now or in the future, including but
not limited to the following:
xxxx

(2) All taxes, including compensating taxes, duties, charges, royalties, or fees due on all importations by the grantee of
aircraft, engines, equipment, machinery, spare parts, accessories, commissary and catering supplies, aviation gas, fuel, and
oil, whether refined or in crude form and other articles, supplies, or materials; provided, that such articles or supplies or
materials are imported for the use of the grantee in its transport and nontransport operations and other activities incidental
thereto and are not locally available in reasonable quantity, quality, or price; x x x x

SECTION 24. This franchise, as amended, or any section or provision hereof may only be modified, amended, or repealed
expressly by a special law or decree that shall specifically modify, amend, or repeal this franchise or any section or provision
thereof. (Emphasis supplied)

REPUBLIC ACT NO. 93348

xxxx

SECTION 6. Section 131 of the National Internal Revenue Code of 1997, is amended, is hereby amended to read as follows:

SEC. 131. Payment of Excise Taxes on Imported Articles.

(A) Persons Liable. Excise taxes on imported articles shall be paid by the owner or importer to the Customs Officers,
conformably with the regulations of the Department of Finance and before the release of such articles from the customs
house, or by the person who is found in possession of articles which are exempt from excise taxes other than those legally
entitled to exemption.

In the case of tax-free articles brought or imported into the Philippines by persons, entities, or agencies exempt from tax
which are subsequently sold, transferred or exchanged in the Philippines to nonexempt persons or entities, the purchasers
or recipients shall be considered the importers thereof, and shall be liable for the duty and internal revenue tax due on such
importation.

The provision of any special or general law to the contrary notwithstanding, the importation of cigars and cigarettes, distilled
spirits, fermented liquors and wines into the Philippines, even if destined for tax and duty-free shops, shall be subject to all
applicable taxes, duties, charges, including excise taxes due thereon. This shall apply to cigars and cigarettes, distilled spirits,
fermented liquors and wines brought directly into the duly chartered or legislated freeports of the Subic Special Economic
and Freeport Zone, created under Republic Act No. 7227; the Cagayan Special Economic Zone and Freeport, created under
Republic Act No. 7922; and the Zamboanga City Special Economic Zone, created under Republic Act No. 7903, and such other
freeports as may hereafter be established or created by law: Provided, further, That importations of cigars and cigarettes,
distilled spirits, fermented liquors and wines made directly by a government-owned and operated duty-free shop, like the
Duty-Free Philippines (DFP), shall be exempted from all applicable duties only: Provided, still further, That such articles
directly imported by a government-owned and operated duty-free shop, like the Duty-Free Philippines, shall be labeled
'duty-free' and 'not for resale': Provided, finally, That the removal and transfer of tax and duty-free goods, products,
machinery, equipment and other similar articles other than cigars and cigarettes, distilled spirits, fermented liquors and
wines, from one freeport to another freeport, shall not be deemed on introduction into the Philippine customs territory.

SECTION 10. Repealing Clause. All laws, decrees, ordinances, rules and regulations, executive or administrative orders, and
such other presidential issuances as are inconsistent with any of the provisions of this Act are hereby repealed, amended or
otherwise modified accordingly. (Emphasis supplied)

The Court has exhaustively discussed all issues similar to those in the present case in this wise: Indeed, as things stand, PD
1590 has not been revoked by the NIRC of 1997, as amended. Or to be more precise, the tax privilege of PAL provided in Sec.
13 of PD 1590 has not been revoked by Sec. 131 of the NIRC of 1997, as amended by Sec. 6 of RA 9334. We said as much in
Commissioner of Internal Revenue v. Philippine Air Lines, Inc.:9

That the Legislature chose not to amend or repeal [PD] 1590 even after PAL was privatized reveals the intent of the
Legislature to let PAL continue to enjoy, as a private corporation, the very same rights and privileges under the terms and
conditions stated in said charter. x x x
To be sure, the manner to effectively repeal or at least modify any specific provision of PAL' s franchise under PD 1590, as
decreed in the aforequoted Sec. 24, has not been demonstrated. And as aptly held by the CT A en bane, borrowing from the
same Commissioner of Internal Revenue case:

While it is true that Sec. 6 of RA 9334 as previously quoted states that "the provisions of any special or general law to the
contrary notwithstanding, " such phrase left alone cannot be considered as an express repeal of the exemptions granted
under PAL' s franchise because it fails to specifically identify PD 1590 as one of the acts intended to be repealed .... (Emphasis
supplied)

Noteworthy is the fact that PD 1590 is a special law, which governs the franchise of PAL. Between the provisions under PD
1590 as against the provisions under the NIRC of 1997, as amended by 9334, which is a general law, the former necessary
prevails. This is in accordance with the rule that on a specific matter, the special law shall prevail over the general law, which
shall be resorted only to supply deficiencies in the former. In addition, where there are two statutes, the earlier special and
the later general - the terms of the general broad enough to include the matter provided for in the special - the fact that one
is special and other general creates a presumption that the special is considered as remaining an exception to the general,
one as a general law of the land and the other as the law of a particular case.10

In other words, the franchise of PAL remains the governing law on its exemption from taxes.1wphi1 Its payment of either
basic corporate income tax or franchise tax - whichever is lower - shall be in lieu of all other taxes, duties, royalties,
registrations, licenses, and other fees and charges, except only real property tax. The phrase "in lieu of all other taxes"
includes but is not limited to taxes, duties, charges, royalties, or fees due on all importations by the grantee of the
commissary and catering supplies, provided that such articles or supplies or materials are imported for the use of the
grantee in its transport and nontransport operations and other activities incidental thereto and are not locally available in
reasonable quantity, quality, or price. However, upon the amendment of the 1997 NIRC, Section 22 11 of R.A.
933712 abolished the franchise tax and subjected PAL and similar entities to corporate income tax and value-added tax (VAT).
PAL nevertheless remains exempt from taxes, duties, royalties, registrations, licenses, and other fees and charges, provided it
pays corporate income tax as granted in its franchise agreement. Accordingly, PAL is left with no other option but to pay its
basic corporate income tax, the payment of which shall be in lieu of all other taxes, except VAT, and subject to certain
conditions provided in its charter.

In this case, the CT A found that PAL had paid basic corporate income tax for fiscal year ending 31 March
2006.13Consequently, PAL may now claim exemption from taxes, duties, charges, royalties, or fees due on all importations of
its commissary and catering supplies, provided it shows that 1) such articles or supplies or materials are imported for use in
its transport and nontransport operations and other activities incidental thereto; and 2) they are not locally available in
reasonable quantity, quality, or price.

As to the issue of PAL' s noncompliance with the conditions set by Section 13 of P.D. 1509 for the imported supplies to be
exempt from excise tax, it must be noted that these are factual determinations that are best left to the CT A. The appellate
court found that PAL had complied with these conditions. 14 The CTA is a highly specialized body that reviews tax cases and
conducts trial de nova. Therefore, without any showing that the findings of the CT A are unsupported by substantial
evidence, its findings are binding on this Court.15

In view thereof, we find no cogent reason to reverse or modify the findings of the CT A en bane. WHEREFORE, premises
considered, both Petitions are DENIED for lack of merit.

SO ORDERED.

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RESIDENT FOREIGN CORPORATION

CIR vs. British Overseas Airways Corporation (BOAC)

Facts: British Overseas Airways Corp (BOAC) is a 100% British Government-owned corporation engaged in international
airline business and is a member of the Interline Air Transport Association, and thus, it operates air transportation services
and sells transportation tickets over the routes of the other airline members.
From 1959 to 1972, BOAC had no landing rights for traffic purposes in the Philippines and thus, did not carry passengers
and/or cargo to or from the Philippines but maintained a general sales agent in the Philippines - Warner Barnes & Co. Ltd.
and later, Qantas Airways - which was responsible for selling BOAC tickets covering passengers and cargoes. The
Commissioner of Internal Revenue assessed deficiency income taxes against BOAC.

Issue: Whether the revenue derived by BOAC from ticket sales in the Philippines, constitute income of BOAC from Philippine
sources, and accordingly taxable.

Held: The source of an income is the property, activity, or service that produced the income. For the source of income to be
considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines.
Herein, the sale of tickets in the Philippines is the activity that produced the income. The tickets exchanged hands here and
payment for fares were also made here in the Philippine currency.

The situs of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within Philippine
territory, enjoying the protection accorded by the Philippine government. In consideration of such protection, the flow of
wealth should share the burden of supporting the government. PD 68, in relation to PD 1355, ensures that international
airlines are taxed on their income from Philippine sources. The 2 1/2% tax on gross billings is an income tax. If it had been
intended as an excise tax or percentage tax, it would have been placed under Title V of the Tax Code covering taxes on
business.

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African Airways v. CIR

G.R. No. 180356 February 16, 2010

Lessons Applicable: Taxes can be offset if intimately related, unless exempted assumed within the purview of general rule,
liabilities and tax credit must first be determined before offset can take place

Laws Applicable:

Facts:

South African Airways, a foreign corporation with no license to do business in the Philippines, sells passage documents
for off-line flights through Aerotel Limited, general sales agent in the Philippines
Feb 5, 2003: Petitioner filed a claim for refund erroneously paid tax on Gross Philippine Billing (GPB) for the year 2010.
CTA: denied - petitioner is a resident foreign corp. engaged in trade or business in the Philippines and therefore is NOT
liable to pay tax on GPB under the Sec. 28 (A) (3) (a) of the 1997 NIRC but cannot be allowed refund because liable for
the 32% income tax from its sales of passage documents.
This is upheld by the CTA and CTA En Banc

Issue:

1. W/N petitioner is engaged in trade or business in the Philippines is subject to 32% income tax.

2. W/N petitioner is entitled to refund

HELD:

CTA En Banc decision is set side

1. Yes. Since it does not maintain flights to or from the Philippines, it is not taxable under Sec. 28(A)(3)(a) of the 1997 NIRC.
This much was also found by the CTA. But petitioner further posits the view that due to the non-applicability of Sec.
28(A)(3)(a) to it, it is precluded from paying any other income tax for its sale of passage documents in the Philippines. But,
Sec. 28 (A)(1) of the 1997 NIRC does not exempt all international air carriers from the coverage of Sec. 28 (A) (1) of the 1997
NIRC being a general rule. Petitioner, being an international carrier with no flights originating from the Philippines, does not
fall under the exception. As such, petitioner must fall under the general rule. This principle is embodied in the Latin maxim,
exception firmat regulam in casibus non exceptis, which means, a thing not being excepted must be regarded as coming
within the purview of the general rule.

2. Underterminable. Although offsetting of tax refund with tax deficiency is unavailing under Art. 1279 of the Civil Code, in
CIR v. CTA it granted when deficiency assessment is intimately related and inextricably intertwined with the right to claim for
a tax refund. Sec. 72 Chapter XI of 1997 NIRC is not applicable where petitioner's tax refund claim assumes that the tax
return that it filed were correct because petitioner is liable under Sec. 28 (A)(1), the correctness is now put in doubt and
refund cannot be granted. It cannot be assumed that the liabilities for two different provisions would be the same. There is
a necessity for the CTA to receive evidence and establish the correct amount before a refund can be granted.

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Air Canada vs. CIR (2005) Palanca-Enriquez, J. [CTA Case]

Petitioner: Air Canada

Respondent: Collector of Internal Revenue Concept:

Gross Income and Exclusions: Income from whatever source

Brief Facts:

Air Canada was granted an authority to operate as an off-line carrier by the Civil Aeronautics Board (CAB), and then it
entered into a Passenger General Sales Agency (GSA) Agreement with Aerotel Ltd., Corporation for operation in the
Philippines. On 2002, Air Canada filed its administrative claim for refund of Php 5,185,676.77 with the BIR, contending that
the revenue derived by it from its sales of tickets in the Philippines on its off-line flights through its local General Sales Agent
cannot be subject to income tax because the same is not sourced within the Philippines. Doctrine: A foreign airline company
selling tickets in the Philippines through their local agents shall be considered as resident foreign corporation engaged in
trade or business in the country. The absence of flight operations within the Philippine territory cannot alter the fact that the
income received was derived from activities within the Philippines. The test of taxability is the source, and the source is that
activity which produced the income.

FACTS:

1. Air Canada is a foreign corporation organized and existing under the laws of Canada.

2. Air Canada was granted an authority to operate as an off-line carrier by the Civil Aeronautics Board (CAB) subject to
certain conditions, on April 24, 2000, with said authority to expire on April 24, 2005.

3. On July 1, 1999, Air Canada and Aerotel Ltd., Corporation entered into a Passenger General Sales Agency (GSA) Agreement
for operation the Philippines.

4. On November 28, 2002, Air Canada filed its administrative claim for refund with the Bureau of Internal Revenue (BIR) in
the total amount of Php 5,185,676.77.

5. Air Canada contends that it erroneously paid income taxes from the Q3 2000 up to the Q2 2002.

6. With no response received from the BIR, Air Canada elevated its claim to the CTA on November 29, 2002.

7. Air Canada: The revenue derived by it from its sales of tickets in the Philippines on its off-line flights through its local
General Sales Agent cannot be subject to income tax because the same is not sourced within the Philippines.

ISSUES:
 1. WON the revenue derived by an international air carrier from sales of tickets in the Philippines for air
transportation, while having no landing rights in the country, constitutes income of said international air carrier
from Philippine source, and accordingly, taxable under Sec. 24(b)(2) of the National Revenue Code. (YES)

RATIO:

1. YES. Such revenue constitutes taxable income. This issue has already been laid to rest in a number of cases by the
SC, one of which is the landmark case of CIR v. British Overseas Airways Corporation.

2. Although Air Canada is not liable to pay the tax as an international air carrier (2.5% on gross Phil. Billings), it is still
liable to pay income tax as a resident foreign corporation.

3. An off-line international carrier with a General Sales Agent (GSA) in the Philippines may be considered a resident
foreign corporation taxable at 32% on taxable income derived from Philippine sources.

4. The GSAs functions include, among others, solicitation, promotion and sale of air passenger services.

Such activities show continuity of commercial dealings and the exercise of functions in pursuit of commercial gain.

Moreover, Revenue Regulations No. 6-78 has elaborated that the phrase doing business in the Philippines includes
regular sale of tickets in the Philippines by off-line international airlines, either by themselves or through their agents. o On
the other hand, income from sale of tickets in the Philippines is considered Philippine sourced.

The test of taxability is the source and the source of an income is the activity which produced the income.

o The sale of tickets in the Philippines is the activity that produces the income.

Further, by appointment of a GSA whose premises are used as outlet for selling tickets, the off-line carrier may be deemed to
have a permanent establishment in the Philippines, hence taxable on Philippine sourced income.

DISPOSITIVE: The petition is DENIED and DISMISSED.

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Marubeni v. CIR
September 14, 1989
Fernan, C.J.
Raeses, Roberto Miguel O.

SUMMARY: Marubeni Corporation is a Japanese corporation licensed to engage in business in the Philippines. When the
profits on Marubenis investments in Atlantic Gulf and Pacific Co. of Manila were declared, a 10% final dividend tax was
withheld from it, and another 15% profit remittance tax based on the remittable amount after the final 10% withholding
tax were paid to the Bureau of Internal Revenue. Marubeni Corp. now claims for a refund or tax credit for the amount
which it has allegedly overpaid the BIR. The CIR and the CTA denied such claim, stating that, while it was not subject to the
15% profit remittance tax and the 10% intercorporate tax, it was subject to the 25% tax according to the tax treaty
between Japan and the Philippines. The SC said that Marubeni was a non-resident foreign corporation. However, the SC
granted the claim for refund on the basis of a different computation, considering that, according to the SC, the CIR and the
CTA should not have simply added the two taxes together to justify the denial of the claim for refund.

DOCTRINE: Under the Tax Code, a resident foreign corporation is one that is "engaged in trade or business" within the
Philippines.

FACTS: Marubeni Corp. of Japan has equity investments in AG&P of Manila. For the first quarter of 1981 ending March 31,
AG&P declared and paid cash dividends to petitioner in the amount of P849,720 and withheld the corresponding 10% final
dividend tax thereon. Similarly, for the third quarter of 1981 ending September 30, AG&P declared and paid P849,720 as
cash dividends to petitioner and withheld the corresponding 10% final dividend tax thereon.

AG&P directly remitted the cash dividends to petitioner's head office in Tokyo, Japan, net not only of the 10% final dividend
tax in the amounts of P764,748 for the first and third quarters of 1981, but also of the withheld 15% profit remittance tax
based on the remittable amount after deducting the final withholding tax of 10%.
The 10% final dividend tax of P84,972 and the 15% branch profit remittance tax of P114,712.20 for the first quarter of 1981
were paid to the BIR by AG&P, same with the 10% final dividend tax of P84,972 and the 15% branch profit remittance tax of
P114,712 for the third quarter of 1981.

Subsequently, the 10% final dividend tax of P84,972 and the 15% branch profit remittance tax of P114,712.20 for the first
quarter of 1981 were paid to the BIR, same with the 10% final dividend tax of P84,972 and the 15% branch profit remittance
tax of P114,712 for the third quarter of 1981.

Marubeni, through SGV and Co., sought a ruling from the BIR on on whether or not the dividends petitioner received from
AG&P are effectively connected with its conduct or business in the Philippines as to be considered branch profits subject to the
15% profit remittance tax imposed under Section 24 (b) (2) of the National Internal Revenue Code as amended by Presidential
Decrees Nos. 1705 and 1773.

In reply, Acting Commissioner Ancheta said that such dividends were not branch profits for purposes of the 15% profit
remittance tax imposed by Section 24 (b) (2) of the Tax Code, as amended.
1. Only profits remitted abroad by a branch office to its head office which are effectively connected with its trade or
business in the Philippines are subject to the 15% profit remittance tax.
2. To be effectively connected it is not necessary that the income be derived from the actual operation of taxpayer-
corporation's trade or business; it is sufficient that the income arises from the business activity in which the
corporation is engaged.
a. E.g. if a resident foreign corporation is engaged in the buying and selling of machineries in the Philippines
and invests in some shares of stock on which dividends are subsequently received, the dividends thus
earned are not considered 'effectively connected' with its trade or business in this country.

Consequently, Marubeni filed with the CIR a claim for refund of or issuance of a tax credit of P229,424.40, representing the
profit tax remittance incorrectly paid on the dividends remitted by AG&P to Marubenis head office in Tokyo. CIR denied the
claim, saying that while it is not covered by the 15% profit remittance tax and the 10% intercorporate dividend tax, it, as a
non-resident stockholder, is subject to the 25 % tax pursuant to Article 10 (2) (b) of the Tax Treaty dated February 13, 1980
between the Philippines and Japan.

The CTA affirmed the denial.

1. It stated that the dividends in question are income taxable to the Marubeni.
2. The said dividends were distributions made by AG&P to its shareholder out of its profits on the investments of the
Marubeni, a non-resident foreign corporation.
3. The investments in AG&P of Marubeni were directly made by it and the dividends on the investments were likewise
directly remitted to and received by the latter.
4. Marubeni Corporation Philippine Branch has no participation or intervention, directly or indirectly, in the
investments and in the receipt of the dividends.
5. Subject to certain exceptions not pertinent hereto, income is taxable to the person who earned it. Admittedly, the
dividends under consideration were earned by the Marubeni Corporation of Japan, and hence, taxable to the said
corporation.
a. While it is true that the Marubeni Corporation Philippine Branch is duly licensed to engage in business
under Philippine laws, such dividends are not the income of the Philippine Branch and are not taxable to
the said Philippine branch.

ISSUES:
1. WON Marubeni Corporation is resident foreign corporation.
2. WON the CIR and CTA were correct in claiming that no refund was due Marubeni because the taxes thus withheld
totaled the 25% rate imposed by the Philippine-Japan Tax Convention.

RULING:
1. No. Marubeni is a non-resident foreign corporation.
2. No. The CIR and CTA should not have simply added the two taxes to arrive at such conclusion.

RATIO:
 1. Marubeni: following the principal-agent relationship theory, Marubeni Japan is likewise a resident foreign
corporation subject only to the 10 % intercorporate final tax on dividends received from a domestic corporation in
accordance with Section 24(c) (1) of the Tax Code of 19771.
a. Precisely because it is engaged in business in the Philippines through its Philippine branch that it must be
considered as a resident foreign corporation.
b. Since the Philippine branch and the Tokyo head office are one and the same entity, whoever made the
investment in AG&P, Manila does not matter at all.

CIR and CTA: Marubeni, Japan, being a non-resident foreign corporation and not engaged in trade or business in the
Philippines, is subject to tax on income earned from Philippine sources at the rate of 35 % of its gross income under
Section 24 (b) (1) of the tax code2 but expressly made subject to the special rate of 25% under Article 10(2) (b) of
the Tax Treaty of 1980 concluded between the Philippines and Japan3.
a. OSG: The general rule that a foreign corporation is the same juridical entity as its branch office in the
Philippines cannot apply here. This rule is based on the premise that the business of the foreign
corporation is conducted through its branch office, following the principal agent relationship theory. It is
understood that the branch becomes its agent here. So that when the foreign corporation transacts
business in the Philippines independently of its branch, the principal-agent relationship is set aside. The
transaction becomes one of the foreign corporation, not of the branch. Consequently, the taxpayer is the
foreign corporation, not the branch or the resident foreign corporation.

SC: Marubeni is clearly a non-resident foreign corporation.

a. The alleged overpaid taxes were incurred for the remittance of dividend income to the head office in Japan
which is a separate and distinct income taxpayer from the branch in the Philippines.
b. The investment (totalling 283.260 shares including that of nominee) was made for purposes peculiarly
germane to the conduct of the corporate affairs of Marubeni Japan, but certainly not of the branch in the
Philippines.

2. To simply add the two taxes [10% intercorporate tax + 15% profit remittance tax = 25% tax under the Phil. Japan
Treaty] to arrive at the 25 % tax rate is to disregard a basic rule in taxation that each tax has a different tax basis.
While the tax on dividends is directly levied on the dividends received, "the tax base upon which the 15 % branch
profit remittance tax is imposed is the profit actually remitted abroad."
a. The 25% tax rate should not have been imposed as if it was a fixed rate.
i. A closer look at the Treaty reveals that the tax rates fixed by Article 10 are the maximum rates as
reflected in the phrase "shall not exceed." This means that any tax imposable by the contracting
state concerned should not exceed the 25 % limitation and that said rate would apply only if the
tax imposed by our laws exceeds the same. In other words, by reason of our bilateral negotiations
with Japan, we have agreed to have our right to tax limited to a certain extent to attain the goals
set forth in the Treaty.
ii. Marubeni, being a non-resident foreign corporation with respect to the transaction in question,
the applicable provision of the Tax Code is Section 24 (b) (1) (iii) in conjunction with the Philippine-
Japan Treaty of 19804.

1 Dividends received by a domestic or resident foreign corporation liable to tax under this Code (1) Shall be subject to a final tax of 10%
on the total amount thereof, which shall be collected and paid as provided in Sections 53 and 54 of this Code ....
2 (b) Tax on foreign corporations (1) Non-resident corporations. A foreign corporation not engaged in trade or business in the

Philippines shall pay a tax equal to thirty-five per cent of the gross income received during each taxable year from all sources within the
Philippines as ... dividends
3 Article 10 (1) Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be

taxed in that other Contracting State.

(2) However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident, and
according to the laws of that Contracting State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not
exceed;

(a) . . .

(b) 25 per cent of the gross amount of the dividends in all other cases.
4 (b) Tax on foreign corporations. (1) Non-resident corporations ... (iii) On dividends received from a domestic corporation

liable to tax under this Chapter, the tax shall be 15% of the dividends received, which shall be collected and paid as provided in
Section 53 (d) of this Code, subject to the condition that the country in which the non-resident foreign corporation is domiciled shall
allow a credit against the tax due from the non-resident foreign corporation, taxes deemed to have been paid in the Philippines
equivalent to 20 % which represents the difference between the regular tax (35 %) on corporations and the tax (15 %) on dividends
as provided in this Section; ....
 b. Being a non-resident foreign corporation, as a general rule, Marubeni is taxed 35 % of its gross income
from all sources within the Philippines, on the basis of the cited provision in footnote number four [4].
i. However, a discounted rate of 15% is given to petitioner on dividends received from a domestic
corporation (AG&P) on the condition that its domicile state (Japan) extends in favor of petitioner,
a tax credit of not less than 20 % of the dividends received.

DISPOSITIVE: WHEREFORE, the questioned decision of respondent Court of Tax Appeals dated February 12, 1986 which
affirmed the denial by respondent Commissioner of Internal Revenue of petitioner Marubeni Corporation's claim for refund
is hereby REVERSED. The Commissioner of Internal Revenue is ordered to refund or grant as tax credit in favor of petitioner
the amount of P144,452.40 representing overpayment of taxes on dividends received. No costs.
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COMMISSIONER OF INTERNAL REVENUE v. BURROUGHS LIMITED AND THE COURT OF TAX APPEALS PONENTE :
PARAS LEGAL

DOCTRINE: Memorandum Circular No. 8-82 cannot be given retroactive effect in light of Section 327 of the NIRC.1

FACTS:

1. March 1979: The branch office of Burroughs Limited, a foreign corporation, applied with the Central Bank for
authority to remit to its parent company abroad, branch profit. Amount Applied for: Php 7,647,058.00 15%
Branch Profit Remittance Tax: Php 1,147,048.70 Amount Actually Remitted: Php 6,499,999.30

2. 24 December 1980: Burroughs claims a tax refund/credit of Php 172,058.90. Branch Profit Remittance tax
should be 15% of Amount Actually Remitted. (based on Ruling of Acting Commissioner of Internal Revenue)

3. CTA: grants tax credit

4. CIR: Burroughs no longer entitled to refund because Memorandum Circular No. 8-82 dated 17 March 1982 had
revoked and/or repealed the BIR ruling of 21 Jan 1980.

ISSUE(S) WON Memorandum Circular No. 8-82 (MC 8-82) dated 17 March 1982 can be given retroactive effect?

(NO) DISPOSITION 1 Sec. 327.

Non-retroactivity of rulings. Any revocation, modification, or reversal of any of the rules and regulations
promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the
Commissioner shall not be given retroactive application if the revocation, modification, or reversal will be
prejudicial to the taxpayer except in the following cases (a) where the taxpayer deliberately misstates or omits
material facts from his return or in any document required of him by the Bureau of Internal Revenue; (b) where
the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on
which the ruling is based, or (c) where the taxpayer acted in bad faith. (ABS-CBN Broadcasting Corp. v. CTA, 108
SCRA 151-152)

1. 21 Jan 1980: BIR ruling by Acting Commissioner of Internal Revenue of NIRC Sec 24 (b)(2) (ii)

Tax Base upon which 15% branch profits remittance tax shall be imposed on Branch profits actually remitted
and not on the total branch profits out of which the remittance is to be made.

2. Applicable Ruling is Revenue Ruling of 21 Jan 1980 because Burroughs paid the branch profit remittance tax on
14 Mar 1979. MC No. 8-82 cannot be given retroactive effect in light of Sec 327 of NIRC.

3. The retroactive application of MC No. 8-82 would prejudice Burroughs as it would be deprived of the
substantial amount of 172T++. Burroughs also does not fall under any of the enumerated exceptions where
retroactivity would apply.
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Bank Of America V. CA (2003)

FACTS:

Eduardo K. Litonjua, Sr. and Aurelio J. Litonjua (Litonjuas) were engaged in the shipping business owning 2
vessels: Don Aurelio and El Champion

Because their business where doing well, Bank of America (BA) offered them to take a loan for them to increase
their ships.

BA acquired through them as borrowers four more ships: (a) El Carrier; (b) El General; (c) El Challenger; and (d) El
Conqueror. The registration, operation, income, funds, possession of the vessel belonged to the corporation.

May 10, 1993: Litonjuas filed a complaint to the RTC Pasig claming that during its operations and the foreclosure
sale, BA as trutees failed to fully render an account of the income. They lost all their 6 vessels and 10% of their
personal funds and they still have an unpaid balance of their loans.

BA NT&SA, and BA international filed a Motion to Dismiss on grounds of forum non conveniens and lack of cause
of action against them

RTC and CA: Dismissed

ISSUE:

1. W/N there is grounds of forum non conveniens

2. W/N there is litis pendentia

HELD: Denied

1. NO.

The doctrine of forum non-conveniens, literally meaning 'the forum is inconvenient', emerged in private
international law to deter the practice of global forum shopping

Under this doctrine, a court, in conflicts of law cases, may refuse impositions on its jurisdiction where it is not the
most "convenient" or available forum and the parties are not precluded from seeking remedies elsewhere.

Whether a suit should be entertained or dismissed on the basis of said doctrine depends largely upon the facts of
the particular case and is addressed to the sound discretion of the trial court.

Philippine Court may assume jurisdiction over the case if it chooses to do so; provided, that the following
requisites are met:

(1) that the Philippine Court is one to which the parties may conveniently resort to; - present

(2) that the Philippine Court is in a position to make an intelligent decision as to the law and the facts; and, -
present

(3) that the Philippine Court has or is likely to have power to enforce its decision - present
This Court further ruled that while it is within the discretion of the trial court to abstain from assuming
jurisdiction on this ground, it should do so only after vital facts are established, to determine whether special
circumstances require the court's desistance; and that the propriety of dismissing a case based on this principle of
forum non conveniens requires a factual determination, hence it is more properly considered a matter of defense

2. NO.

litis pendentia to be a ground for the dismissal of an action there must be:

(a) identity of the parties or at least such as to represent the same interest in both actions -present

(b) identity of rights asserted and relief prayed for, the relief being founded on the same acts - not shown

(c) the identity in the two cases should be such that the judgment which may be rendered in one would,
regardless of which party is successful, amount to res judicata in the other - not shown

It merely mentioned that civil cases were filed in Hongkong and England.

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