South African Airways v.

CIR
February 16, 2010
Velasco
Alycat

SUMMARY: South African Airways is a foreign corporation. It is an
airline with no landing rights in the Philippines, but which has a sales
agent, which sells passage tickets for SAAs off-line flights between
points outside the Philippines. For the taxable year 2000, SAA paid
P1.7M as Gross Philippine Billings (GPB). In 2003, it filed a claim for
refund of the P1.7M allegedly erroneously paid on GPB. The BIR denied.
The CTA First Division held that while SAA was not liable for GPB, it
was still liable for income tax on sales of passage documents at the rate
of 32%. CTA En Banc and SC affirmed.

DOCTRINE: Sec. 28(A)(3)(a) of the 1997 NIRC does not, in any
categorical term, exempt all international air carriers from the coverage
of Sec. 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.

FACTS:
x South African Aiways (SAA) is a foreign corporation organized
under the laws of South Africa.
x SAA has no landing rights in the Philippines, but it has a
general sales agent in the country, Aerotel Limited
Corporation.
o Aerotel sells passage documents (like tickets) for
compensation or commission for SAAs off-line flights
between points outside the Philippines.
x For the taxable year 2000, SAA filed separate quarterly and
annual income tax returns for its off-line flights, including
P1.7M as Gross Philippine Billings (GPB).
x In 2003, SAA filed a claim for refund of the P1.7M allegedly
erroneously paid on GBP with the BIR, but the BIR denied.
x CTA First Division: Denied. MR denied.
o SAA is a resident foreign corporation engaged in trade
or business. It is not liable to pay tax on its GPB under
Sec. 28(A)(3)(a), NIRC. However, SAA is liable to pay a
tax of 32% on its income from sales of passage
documents in the Philippines.
x CTA En Banc: Denied. MR denied.

ISSUE: Should the tax refund for the paid GPB be allowed? NO.

SAAs ARGUMENT: With the new definition of GPB, it is no longer
liable to pay tax on GPB under Sec. 28(A)(3)(a). And due to the non-
applicability of such provsion to it, it is precluded from paying any
other income tax for its sale of passage documents in the Philippines.

RATIO:
Prior to the 1997 NIRC, GPB referred to revenues from uplifts
anywhere in the world, provided that the passage documents were sold
in the Philippines. Legislature departed from such concept in the 1997
NIRC.

Under the current law, GPB 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)(3)(a)]

Now, it is the place of sale that is irrelevant; as long as the uplifts of
passengers and cargo occur to or from the Philippines, income is
included in GPB.

As such, SAA is correct that it is not taxable under Sec. 28(A)(3)(a)
inasmuch as it does not maintain flights to or from the Philippines. BUT
SAA can still be liable to pay other forms of income tax for it sale of
passage documents in the Philippines.

CIR v. British Overseas Airways: Off-line air carriers having general
sales agents in the Philippines are engaged in or doing business in the
Philippines, and their income from sales of passage documents in the
country is income from within the Philippines. Thus, they are liable for
the 32% tax on its taxable income.

SAA says that because Sec. 28(A)(3)(a) is not applicable to it, then the
entire Sec. 28(A)(1) must thus also not be applicable to it. This
argument has no merit.

First, the difference between the 1939 and 1997 NIRCs with regard to
the taxation of off-line air carriers is more apparent than real. Sec.
28(A)(3)(a) of the 1997 NIRC does not, in any categorical term, exempt
all international air carriers from the coverage of Sec. 28(A)(1) of the
1997 NIRC. Certainly, had legislatures intentions been to completely
exclude all international air carriers from the application of the general
rule under Sec. 28(A)(1), it would have used the appropriate language
to do so; but the legislature did not.

SAA cites the deliberations on the provisions of the 1997 NIRC to show
the alleged intention of Congress in amending the definition of GPB to
exempt off-line air carriers from all income tax. But, the Court has ruled
in Espino v. Cleofe that statements made by individual members of
Congress in the consideration of a bill do not necessarily reflect the
sense of that body and are, consequently, not controlling in the
interpretation of law.

Moreover, an examination of the subject provisions of the law would
show that SAAs interpretation of those provisions is erroneous. 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.

In the instant case, 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. SAA, being an
international carrier with no flights originating from the Philippines,
does not fall under the exception. As such, it must fall under the general
rule.

DISPOSITIVE: Case remanded to determine SAAs taxable income.