24. CIR vs. Goulds Pump Inc.

CTA AB Case No. 784, August 22,2012

Taxpayer: Respondent Gould Pumps received from CIR a final assessment note. It protested
the assessment and submitted additional documents in support of it. Due to inaction of
petitioner, respondent filed a motion or petition for review. Respondent filed a manifestation
and Motion stating that it availed of the tax amnesty program under RA 9480 and that it had
paid the amnesty tax. Respondent claimed that it was entitled to the immunities from the
deficiency income tax, value-added tax and documentary stamp tax assessments including
increments. Respondent filed its amended petition for review and incorporated the allegation
pertaining to the availment of the tax amnesty and retained the allegations pertaining to the
assessment for deficiency expanded withholding tax including increments. Court’s division
resolved that the assessment for deficiency income, VAT and DST is considered closed and
terminated subject to the provision of Tax Amnesty Law. Court’s Division resolved that the
assessment for deficiency withholding tax on compensation, EWT and FWT remains.

Government: CIR maintains that contrary to finding of Court’s Division, respondent had failed
to substantiate that it withheld its income payments on dividends and trademark and loyalties
which is subject to FWT. CIR asserts that respondent failed to submit documentary evidence
to prove that the fact that said purchases of goods and services were supplied by Gould
Pumps. There is no factual and legal basis in cancelling the assessment of EWT. CIR assails the
findings that the right to assess the EWT has prescribed.

Taxpayer Issue: Whether or not the assessed taxes should be cancelled.

Government Issue: Whether or not the Third Division erred in totally cancelling the assessed
deficiency EWT and partially cancelling the assessed deficiency EWT on rental and local
purchases.

Ruling: As aptly found by the independent CPA from petitioner’s related general and
subsidiary ledgers, journal vouchers and sales invoices issued by Goulds Pumps, Inc. the
subject purchases were obtained by petitioner from Goulds Pumps. Undoubtedly,
respondents deficiency FWT assessment is devoid of legal and factual bases and should
therefore be cancelled. Respondent’s deficiency EWT assessments for FY 2000 on petitioner’s
rental expense and local purchases of goods should be cancelled and withdrawn.

The right of withholding agent to claim a refund does not entitle the same to credit or offset
to other tax liabilities. The alleged erroneous payments of the FWT by respondent in 1997
cannot be used to offset or be treated as advance tax payment for taxation purposes to the
succeeding FWT which respondent may be held liable. The erroneous padyment of FWT in
1997 cannot be offset.
Personal Endnotes: The alleged non-submission of complete documents at the administrative
level will not bar the court from receiving, evaluating and appreciating evidence. Once the
claim for refund has been elevated to the court, the admissibility, materiality, relevancy,
probative value and weights of evidence presented therein became subject to the Rules of
Court. Judicial claims are being decided based on what has been presented and formally
offered by party litigants during the trial of the case before the court and not on the mere
allegation of non-submission of complete documents before BIR.

25. CIR vs. Estate of Benigno Toda, Jr.

G.R. No. 147188 September 14, 2004

Taxpayer: Benigno Toda, by authorization of Cibeles Insurance Corporation (CIC) and as

President of the same, sold the subject properties to Rafael A. Altonaga for P100 million, who,
in turn, sold the same property on the same day to Royal Match Inc. (RMI) for P200 million.
These two transactions were evidenced by Deeds of Absolute Sale notarized on the same day
by the same notary public. For the sale of the property to RMI, Altonaga paid capital gains tax
in the amount of P10 million.

Government: The CIR sent an assessment to for deficiency income tax arising from the alleged
simulated sale of the Cibeles building. The CIR contends that a fraudulent scheme was
deliberately perpetuated by the CIC, wholly owned and controlled by Toda, by covering up
the additional gain of P100 million. Thus, it resulted in the change in the income structure of
the proceeds of the sale of the subject properties to an individual capital gains, thereby
evading the higher corporate income tax rate of 35%.

Taxpayer Issue: Whether respondent can be held liable for deficiency income tax due to the
alleged tax evasion.

Government Issue: Whether the tax planning scheme adopted by CIC constitutes tax evasion.

Ruling: The intermediary transaction, i.e., the sale of Altonaga, which was prompted more on
the mitigation of tax liabilities than for legitimate business purposes constitutes one of tax
evasion. Tax evasion connotes the integration of three factors: (1) the end to be
achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the
non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind
which is described as being evil, in bad faith, willful, or deliberate and not accidental; and (3)
a course of action or failure of action which is unlawful.

The scheme resorted to by CIC in making it appear that there were two sales of the subject
properties, i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot be considered a
legitimate tax planning. Such scheme is tainted with fraud. To allow a taxpayer to deny tax
liability on the ground that the sale was made through another and distinct entity when it is
proved that the latter was merely a conduit is to sanction a circumvention of our tax laws.
Hence, the sale to Altonaga should be disregarded for income tax purposes. The two sale
transactions should be treated as a single direct sale by CIC to RMI.

26. CIR vs. Pilipinas Shell Petroleum Corporation

G.R. No. 188497 February 19, 2014

Taxpayer: Respondent argues that a plain reading of Section 135 of the NIRC reveals that it is
the petroleum products sold to international carriers which are exempt from excise tax for
which reason no excise taxes are deemed to have been due in the first place. It points out
that excise tax being an indirect tax, Section 135 in relation to Section 148 should be
interpreted as referring to a tax exemption from the point of production and removal from
the place of production considering that it is only at that point that an excise tax is imposed.
Respondent thus concludes that exemption could only refer to the imposition of the tax on
the statutory seller, in this case the respondent. This is because when a tax paid by the
statutory seller is passed on to the buyer it is no longer in the nature of a tax but an added
cost to the purchase price of the product sold. Respondent also contends that our ruling that
Section 135 only prohibits local petroleum manufacturers like respondent from shifting the
burden of excise tax to international carriers has adverse economic impact as it severely
curtails the domestic oil industry. Lastly, respondent asserts that the imposition by the
Philippine Government of excise tax on petroleum products sold to international carriers is in
violation of the Chicago Convention on International Aviation.
Government: The Solicitor General underscores the statutory basis of this Court’s ruling that
the exemption under Section 135 does not attach to the products which held that the excise
tax, when passed on to the purchaser, becomes part of the purchase price, the Solicitor
General claims this refutes respondent’s theory that the exemption attaches to the petroleum
product itself and not to the purchaser for it would have been erroneous for the seller to pay
the excise tax and inequitable to pass it on to the purchaser if the excise tax exemption
attaches to the product. The Solicitor General points out that there was no pronouncement
in these cases that petroleum manufacturers selling petroleum products to international
carriers are exempt from paying excise taxes.
Taxpayer’s Issue: Whether or not Shell should be tax exempt to petroleum products at the
point of production pursuant to Section 135?
Government’s Issue: Whether or not the imposition of such will cause an adverse impact on
the domestic oil industry and a violation of international agreements on aviation?
 Whether or not excise tax on petroleum products sold to international carriers for
use or consumption outside the Philippines attaches to the article when sold to said
international carriers should be imposed to Shell?
Ruling: The court find merit in respondent's motion for reconsideration. We therefore hold
that respondent, as the statutory taxpayer who is directly liable to pay the excise tax on its
petroleum products, is entitled to a refund or credit of the excise taxes it paid for petroleum
products sold to international carriers, the latter having been granted exemption from the
payment of said excise tax under Sec. 135 (a) of the NIRC. In this case, Sec. 135(a) of the NIRC
embodies our compliance with our undertakings under the Chicago Convention and various
bilateral air service agreements not to impose excise tax on aviation fuel purchased by
international carriers from domestic manufacturers or suppliers. In our Decision in this case,
we interpreted Section 135 (a) as prohibiting domestic manufacturer or producer to pass on
to international carriers the excise tax it had paid on petroleum products upon their removal
from the place of production, pursuant to Article 148 and pertinent BIR regulations. Ruling on
respondent’s claim for tax refund of such paid excise taxes on petroleum products sold to tax-
exempt international carriers, we found no basis in the Tax Code and jurisprudence to grant
the refund of an "erroneously or illegally paid" tax.
We maintain that Section 135 (a), in fulfillment of international agreement and
practice to exempt aviation fuel from excise tax and other impositions, prohibits the passing
of the excise tax to international carriers who buys petroleum products from local
manufacturers/sellers such as respondent. However, we agree that there is a need to
reexamine the effect of denying the domestic manufacturers/sellers’ claim for refund of the
excise taxes they already paid on petroleum products sold to international carriers, and its
serious implications on our Government’s commitment to the goals and objectives of the
Chicago Convention.

Personal Endnotes: Under Section 129 of the NIRC, excise taxes are those applied to goods
manufactured or produced in the Philippines for domestic sale or consumption or for any
other disposition and to things imported. Excise taxes as used in our Tax Code fall under two
types – (1) specific tax which is based on weight or volume capacity and other physical unit of
measurement, and (2) ad valorem tax which is based on selling price or other specified value
of the goods. Aviation fuel is subject to specific tax under Section 148 (g) which attaches to
said product "as soon as they are in existence as such."
The proffered definition of an excise tax as "a tax upon the performance, carrying on,
or exercise of some right, privilege, activity, calling or occupation".
1. Excise taxes, as used in the Tax Code, refers to taxes applicable to certain specified
goods or articles manufactured or produced in the Philippines for domestic sale or
consumption or for any other disposition and to things imported into the Philippines. They
are either specific or ad valorem.
 2. Nature of excise taxes. – They are imposed directly on certain specified goods.
(infra) They are, therefore, taxes on property. (see Medina vs. City of Baguio, 91 Phil. 854.)
A tax is not excise where it does not subject directly the produce or goods to tax but
indirectly as an incident to, or in connection with, the business to be taxed.
Indeed, the avowed purpose of a tax exemption is always "some public benefit or
interest, which the law-making body considers sufficient to offset the monetary loss entailed
in the grant of the exemption."15 The exemption from excise tax of aviation fuel purchased
by international carriers for consumption outside the Philippines fulfills a treaty obligation
pursuant to which our Government supports the promotion and expansion of international
travel through avoidance of multiple taxation and ensuring the viability and safety of
international air travel.

27. Isabela Cultural Corp. vs. CIR

G.R. No. 172231 February 12, 2007

28. Timbol & Diaz vs. Sec. of Finance

G.R. No. 193007, July 19, 2011

Taxpayer: Petitioners filed the case assailing the validity of the impending imposition of
Value-Added Tax (VAT). Since the VAT would result in increased toll fees, that have an interest
as regular users of tollways in stopping the BIR action; that tollway operators cannot be
regarded as franchise grantees under the NIRC since they do not hold legislative franchises.
Government: That BIR intends to collect the VAT by rounding off the toll rate and putting any
excess collection in an escrow account; that the NIRC imposes VAT on all kinds of services of
franchise grantees, including tollway operations, except where the law provides otherwise;
that the imposition of VAT on tollway operations has been the subject as early as 2003 of the
several BIR rulings and circulars; that the tollway operators cannot be regarded as franchise
grantees since they do not hold legislative franchises

Taxpayer Issue: Whether or not the government is unlawfully expanding VAT coverage by
including tollway operators and tollway operations in the terms "franchise grantees" and
"sale of services" under Section 108 of the Code.
Government Issue: Whether or not the imposition of VAT on tollway operators a) amounts
to a tax on tax and not a tax on services; b) will impair the tollway operators' right to a
reasonable return of investment under their TOAs; and c) is not administratively feasible and
cannot be implemented.
Ruling: No. Under Section 108 of the NIRC, subjects to VAT "all kinds of services" rendered for
a fee "regardless of whether or not the performance thereof calls for the exercise or use of
the physical or mental faculties." This means that "services" to be subject to VAT need not fall
under the traditional concept of services, the personal or professional kinds that require the
use of human knowledge and skills.
Tollway operators are franchise grantees and they do not belong to exceptions (the
low-income radio and/or television broadcasting companies with gross annual incomes of less
than P10 million and gas and water utilities) that Section 119 spares from the payment of
VAT. The word "franchise" broadly covers government grants of a special right to do an act
or series of acts of public concern.
No. VAT on tollway operators is not really tax on the tollway user, but on the tollway
operator. Under Section 105 of the Code, [31] VAT is imposed on any person who, in the course
of trade or business, sells or renders services for a fee. In other words, the seller of services,
who in this case is the tollway operator, is the person liable for VAT. The latter merely shifts
the burden of VAT to the tollway user as part of the toll fees.
For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees were
deemed as a "user's tax." VAT is assessed against the tollway operator's gross receipts and
not necessarily on the toll fees. Although the tollway operator may shift the VAT burden to
the tollway user, it will not make the latter directly liable for the VAT. The shifted VAT burden
simply becomes part of the toll fees that one has to pay in order to use the tollways.

Personal Endnotes: Section 108 of the NIRC: VAT is levied, assessed, and collected, according
to Section 108, on the gross receipts derived from the sale or exchange of services as well as
from the use or lease of properties.
Do tollway operators render services for free? No. tollway operators construct,
maintain, and operate expressway, also called tollways, at the operators expense. Tollways
serve as alternatives to regular public highways that meander through populated areas and
branch out to local roads.
When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latter's
use of the tollway facilities over which the operator enjoys private proprietary rights [12] that
its contract and the law recognize.
A tax is imposed under the taxing power of the government principally for the purpose
of raising revenues to fund public expenditures. Toll fees, on the other hand, are collected by
private tollway operators as reimbursement for the costs and expenses incurred in the
construction, maintenance and operation of the tollways, as well as to assure them a
reasonable margin of income. Although toll fees are charged for the use of public facilities,
therefore, they are not government exactions that can be properly treated as a tax.
Taxes may be imposed only by the government under its sovereign authority.
Toll fees may be demanded by either the government or private individuals or entities, as an
attribute of ownership.
VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as an
indirect tax. In indirect taxation, a distinction is made between the liability for the tax and
burden of the tax. The seller who is liable for the VAT may shift or pass on the amount of VAT
it paid on goods, properties or services to the buyer. In such a case, what is transferred is not
the seller's liability but merely the burden of the VAT.
The seller remains directly and legally liable for payment of the VAT, but the buyer bears its
burden since the amount of VAT paid by the former is added to the selling price. Once shifted,
the VAT ceases to be a tax and simply becomes part of the cost that the buyer must pay in
order to purchase the good, property or service.

Consequently, VAT on tollway operations is not really a tax on the tollway user, but on the
tollway operator.

29. CIR vs. Hambrecth & Quist Phils Inc.

November 17, 2010

30. Belle Corporation vs. CIR, January 10, 2011

Taxpayer: Petitioner filed with BIR its ITR for the first quarter of 1997, showing a gross income
a net taxable income and an income tax which petitioner paid on even date through PCI Bank.
Petitioner filed with the BIR its second quarter ITR, declaring an overpayment of income taxes.
In view of the overpayment, no taxes were paid for the second and third quarters of 1997.[7]
Petitioners ITR for the taxable year ending December 31, 1997 thereby reflected an
overpayment of income taxes. Instead of claiming the amount as a tax refund, petitioner
decided to apply it as a tax credit to the succeeding taxable year by marking the tax credit
option box in its 1997 ITR.[9]
For the taxable year 1998, petitioners amended ITR. Petitioner filed with the BIR an
administrative claim for refund of its unutilized excess income tax payments for the taxable
year 1997. Notwithstanding the filing of the administrative claim for refund, petitioner carried
over the amount of P106,447,318.00 to the taxable year 1999 and applied a portion thereof
to its 1999 Minimum Corporate Income Tax (MCIT) liability, as evidenced by its 1999 ITR.
Petitioner asserts that it may still recover unutilized tax credits via a claim for refund.[43]
And while petitioner admits that it has committed a blatant transgression of the succeeding
taxable year limit when it carried over its 1997 excess income tax payments beyond the
taxable year 1998, petitioner believes that this should not result in the denial of its claim for
refund but should only invalidate the application of its 1997 unutilized excess income tax
payments to its 1999 income tax liabilities.[44] Hence, petitioner postulates that a claim for
refund of its unutilized tax credits for the taxable year 1997 may still be made because the
carry-over thereof to the taxable year 1999 produced no legal effect, and is, therefore,
immaterial to the resolution of its claim for refund.[45]

Government: Respondent interposed that Petitioners alleged claim for refund/tax credit is
subject to administrative routinary investigation/examination by respondents Bureau;
Petitioner failed miserably to show that the total amount of P106,447,318.00 claimed as
overpaid or excess income tax is refundable; Taxes paid and collected are presumed to have
been paid in accordance with law; hence, not refundable; In an action for tax refund, the
burden is on the taxpayer to establish its right to refund, and failure to sustain the burden is
fatal to the claim for refund; It is incumbent upon petitioner to show that it has complied with
the provisions of Section 204 (c) in relation to Section 229 of the tax Code; Well-established
is the rule that refunds/tax credits are construed strictly against the taxpayer as they partake
the nature of tax exemptions.[15]
Respondent maintains that tax refund and tax credit are alternative remedies; thus, the
choice of one precludes the other.[50] Respondent, therefore, submits that since petitioner
has already applied its 1997 excess income tax payments to its liabilities for taxable year 1998,
it is precluded from carrying over the same to taxable year 1999, or from filing a claim for
refund.[51]

Taxpayer Issue: Whether or not petitioner is entitled to a refund of its excess income tax
payments
Government Issue: Whether or not petitioner is precluded from claiming the refund
Ruling: The petition has no merit. The option to carry over excess income tax payments is
irrevocable under Section 76 of the 1997 NIRC
This rule, however, no longer applies as Section 76 of the 1997 NIRC now reads:
Section 76. Final Adjustment Return. Every corporation liable to tax under Section 24 shall file
a final adjustment return covering the total net income for the preceding calendar or fiscal
year. If the sum of the quarterly tax payments made during the said taxable year is not equal
to the total tax due on the entire taxable net income of that year the corporation shall either:
(a) Pay the excess tax still due; or
(b) Be refunded the excess amount paid, as the case may be.
Under the new law, in case of overpayment of income taxes, the remedies are still the same;
and the availment of one remedy still precludes the other. But unlike Section 69 of the old
NIRC, the carry-over of excess income tax payments is no longer limited to the succeeding
taxable year. Unutilized excess income tax payments may now be carried over to the
succeeding taxable years until fully utilized. In addition, the option to carry-over excess
income tax payments is now irrevocable. Hence, unutilized excess income tax payments may
no longer be refunded.
Since petitioner already carried over its 1997 excess income tax payments to the succeeding
taxable year 1998, it may no longer file a claim for refund of unutilized tax credits for taxable
year 1997.
To repeat, under the new law, once the option to carry-over excess income tax payments to
the succeeding years has been made, it becomes irrevocable. Thus, applications for refund of
the unutilized excess income tax payments may no longer be allowed.

31. CIR vs. Filinvest Development Corp.

G. R. No. 16365, July 19, 2011

Taxpayer: Filinvest Alabang, Inc. (FAI) and Filinvest Development Corporation (FDC) entered
into a Deed of Exchange with Filinvest Land, Inc. (FLI) whereby the former both transferred in
favor of FLI parcels of land. Shares of stock of FLI were issued to FDC and FAI in exchange.
Thereafter, FLI requested a ruling from the BIR to the effect that no gain or loss should be
recognized in the aforesaid transfer of real properties. The request was granted.

Also, FDC extended advances in favor of its affiliates duly evidenced by instructional letters as
well as cash and journal vouchers. FDC also entered into a Shareholders Agreement with Reco
Herrera PTE Ltd. (RHPL) for the formation of Filinvest Asia Corporation (FAC). The equity
participation in FAC of FDC and RHPL was respectively pegged at 60% and 40%.

Government: CIR claims that the transfer of property in question should not be considered
tax free since, with the resultant diminution of its shares in FLI, FDC did not gain further
control of said corporation. Likewise, the cash advances FDC extended to its affiliates were
interest bearing loans obtained from banking institutions, thus the CIR invoked its power
under the NIRC to allocate, distribute or apportion income or deductions between or among
such organizations, trades or business in order to prevent evasion of taxes. The CIR justified
the imposition of DST on the cash advances stating that the same were loan transactions
subject to tax irrespective of whether or not they are evidenced by a formal agreement or by
mere office memo. The CIR also argued that FDC realized taxable gain arising from the dilution
of its shares in FAC as a result of its shareholders' agreement with RHPL.

Taxpayer Issue: Whether the CIR’s imposition of the aforementioned taxes was bereft of
factual and legal basis.

Government Issue: Whether the subject transactions of FDC and FAI were validly taxed.

Ruling: The CIR's powers of distribution, apportionment or allocation of gross income and
deductions do not include the power to impute "theoretical interests" to the controlled
taxpayer's transactions. With respect to deficiency income taxes, the NIRC provides that gain
or loss will not be recognized in case the exchange of property for stocks results in the control
of the transferee by the transferor, alone or with other transferors not exceeding four
persons. The combined ownership of FDC and FAI of FLI's outstanding capital stock adds up
to a total of 70.99%, it stands to reason that neither of said transferors can be held liable for
deficiency income taxes the CIR assessed on the supposed gain which resulted from the
subject transfer.

On the other hand, the advances FDC extended to its affiliates qualified as loan agreements
upon which documentary stamp taxes may be imposed. Anent FDCs Shareholders Agreement
with RHPL, no deficiency income tax can be assessed on the gain on the supposed dilution
and/or increase in the value of FDC's shareholdings in FAC. A mere increase or appreciation
in the value of said shares cannot be considered income for taxation purposes.

32. South African Airways vs. CIR

G.R. No. 180356, February 16, 2010

Taxpayer: South African Airways is a foreign corporation organized and existing under and by
virtue of the laws of the Republic of South Africa. Its principal office is located at Airways Park,
Jones Road, Johannesburg International Airport, South Africa. In the Philippines, it is an
internal air carrier having no landing rights in the country. Petitioner has a general sales agent
in the Philippines, Aerotel Limited Corporation (Aerotel). Aerotel sells passage documents for
compensation or commission for petitioners off-line flights for the carriage of passengers and
cargo between ports or points outside the territorial jurisdiction of the Philippines. Petitioner
is not registered with the Securities and Exchange Commission as a corporation, branch office,
or partnership. It is not licensed to do business in the Philippines. For the taxable year 2000,
petitioner filed separate quarterly and annual income tax returns for its off-line flights
amounting to 1,727,766.38. Thereafter, on February 5, 2003, petitioner filed with the Bureau
of Internal Revenue, Revenue District Office No. 47, a claim for the refund of the amount of
PhP 1,727,766.38 as erroneously paid tax on Gross Philippine Billings (GPB) for the taxable
year 2000. Such claim was unheeded. Thus, on April 14, 2003, petitioner filed a Petition for
Review with the CTA for the refund of the abovementioned amount.
Government: On May 10, 2006, the CTA First Division issued a Decision denying the petition
for lack of merit. The CTA ruled that petitioner is a resident foreign corporation engaged in
trade or business in the Philippines. It further ruled that petitioner was not liable to pay tax
on its GPB under Section 28(A)(3)(a) of the National Internal Revenue Code (NIRC) of 1997.
The CTA, however, stated that petitioner is liable to pay a tax of 32% on its income derived
from the sales of passage documents in the Philippines. On this ground, the CTA denied
petitioners claim for a refund.
Government Issue: Whether or not the income derived by petitioner from the sale of passage
documents covering petitioners off-line flights is Philippine-source income subject to
Philippine income tax?
Taxpayer Issue: Whether or not petitioner, as 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?
Whether or not petitioner is entitled to a refund or a tax credit of erroneously paid tax
on Gross Philippine Billings for the taxable year 2000 in the amount of P1,727,766.38?

Ruling: The court denied the petition and ruled that Petitioner is Subject to Income Tax at the
Rate of 32% of Its Taxable Income. 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.
Personal Endnotes: Gross Philippine Billings refers to the amount of gross revenue derived
from carriage of persons, excess baggage, cargo and mail originating from the Philippines in
a continuous and uninterrupted flight, irrespective of the place of sale or issue and the place
of payment of the ticket or passage document.
Sec. 28(A)(1) of the 1997 NIRC is a general rule that resident foreign corporations are
liable for 32% tax on all income from sources within the Philippines. Sec. 28(A)(3) is an
exception to this general rule which states that - an international carrier doing business in the
Philippines shall pay a tax of two and one-half percent (2 1/2%) on its Gross Philippine Billings.
Taxes cannot be the subject of compensation because the government and taxpayer
are not mutually creditors and debtors of each other and a claim for taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off.
The grant of a refund is founded on the assumption that the tax return is valid, that is,
the facts stated therein are true and correct. The deficiency assessment, although not yet
final, created a doubt as to and constitutes a challenge against the truth and accuracy of the
facts stated in said return which, by itself and without unquestionable evidence, cannot be
the basis for the grant of the refund.

33. CIR vs. Bank of Commerce

G.R. No. 180529, 2013