February 2010 Philippine Supreme Court Decisions on Tax Law

Here are selected February 2010 rulings of the Supreme Court of the Philippines on tax law:

Assessment; final decision. Records show that petitioner disputed the PAN but not the Formal Letter of Demand with Assessment Notices. Nevertheless, we cannot blame petitioner for not filing a protest against the Formal Letter of Demand with Assessment Notices since the language used and the tenor of the demand letter indicate that it is the final decision of the respondent on the matter. We have time and again reminded the CIR to indicate, in a clear and unequivocal language, whether his action on a disputed assessment constitutes his final determination thereon in order for the taxpayer concerned to determine when his or her right to appeal to the tax court accrues. Viewed in the light of the foregoing, respondent is now estopped from claiming that he did not intend the Formal Letter of Demand with Assessment Notices to be a final decision.  Allied Banking Corporation vs. Commissioner of Internal Revenue, G.R. No. 175097, February 5, 2010.

Excise tax;  refund. The proper party to question, or claim a refund or tax credit of an indirect tax is the statutory taxpayer, which is Petron in this case, as it is the company on which the tax is imposed by law and which paid the same even if the burden thereof was shifted or passed on to another. It bears stressing that even if Petron shifted or passed on to petitioner Silkair, the burden of the tax, the additional amount which petitioner paid is not a tax but a part of the purchase price which it had to pay to obtain the goods.   Silkair (Singapore) PTE. Ltd. vs. Commissioner of Internal Revenue, G.R. No. 184398, February 25, 2010.

Gross Philippine billings;  off line carrier. South African Airways, an off-line international carrier selling passage documents through an independent sales agent in the Philippines, is engaged in trade or business in the Philippines subject to the 32% income tax imposed by Section 28 (A)(1) of the 1997 NIRC.

The general rule is that resident foreign corporations shall be liable for a 32% income tax on their income from within the Philippines, except for resident foreign corporations that are international carriers that derive income “from carriage of persons, excess baggage, cargo and mail originating from the Philippines” which shall be taxed at 2 1/2% of their Gross Philippine Billings. 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.

To reiterate, the correct interpretation of the above provisions is that, if an international air carrier maintains flights to and from the Philippines, it shall be taxed at the rate of 2 1/2% of its Gross Philippine Billings, while international air carriers that do not have flights to and from the Philippines but nonetheless earn income from other activities in the country will be taxed at the rate of 32% of such income.  South African Airways vs. Commissioner of Internal Revenue, G.R. No. 180356, February 16, 2010.

Overseas communication tax; PAL.  Under its franchise, Philippine Airlines is exempt from the overseas communications tax.  Republic of the Philippines represented by the Commissioner of Internal Revenue vs. Philippine Airlines, Inc. (PAL), G.R. No. 179800, February 4, 2010.

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