Commissioner v. British Overseas Airways Corp., 149 SCRA 395, G.R. No.

L-65773-74,
April 30, 1987

British Overseas Airways Corporation (BOAC) is a 100% British Government-owned

corporation organized and existing under the laws of the United Kingdom. BOAC 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 which was responsible for
selling BOAC tickets covering passengers and cargoes. CIR assessed BOAC for deficiency
income taxes.

The Court held that BOAC is a resident foreign corporation. There is no specific
criterion as to what constitutes “doing” or “engaging in” or “transacting” business. The term
implies a continuity of commercial dealings and arrangements, and contemplates, to that extent,
the performance of acts or works or the exercise of some of the functions normally incident to,
and in progressive prosecution of commercial gain or for the purpose and object of the business
organization. In order that a foreign corporation may be regarded as doing business within a
State, there must be continuity of conduct and intention to establish a continuous business, such
as the appointment of a local agent, and not one of a temporary character.

BOAC, during the periods covered by the subject-assessments, maintained a general

sales agent in the Philippines, That general sales agent, from 1959 to 1971, was engaged in: (1)
selling and issuing tickets; (2) breaking down the whole trip into series of trips — each trip in the
series corresponding to a different airline company; (3) receiving the fare from the whole trip;
and (4) consequently allocating to the various airline companies on the basis of their participation
in the services rendered through the mode of interline settlement as prescribed by Article VI of
the Resolution No. 850 of the IATA Agreement. Those activities were in exercise of the functions
which are normally incident to, and are in progressive pursuit of, the purpose and object of its
organization as an international air carrier. In fact, the regular sale of tickets, its main activity, is
the very lifeblood of the airline business, the generation of sales being the paramount objective.
There should be no doubt then that BOAC was “engaged in” business in the Philippines through a
local agent during the period covered by the assessments. Accordingly, it is a resident foreign
corporation subject to tax upon its total net income received in the preceding taxable year from all
sources within the Philippines.

SOUTH AFRICAN AIRWAYS v. CIR, G.R. No. 180356, Feb. 16, 2010, 612 SCRA 665

South African Airways is a foreign corporation organized and existing under and by
virtue of the laws of the Republic of 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 petitioner’s 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.

In the British Overseas Airways case which was decided under similar factual
circumstances, this Court ruled that off-line air carriers having general sales agents in the
Philippines are engaged in or doing business in the Philippines and that their income from sales of
passage documents here is income from within the Philippines. Thus, in that case, we held the
off-line air carrier liable for the 32% tax on its taxable income. Clearly, no difference exists
between British Overseas Airways and the instant case, wherein petitioner claims that the former
case does not apply. Thus, British Overseas Airways applies to the instant case. The findings
therein that an off-line air carrier is doing business in the Philippines and that income from the
sale of passage documents here is Philippine-source income must be upheld.

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.

Air Canada v. CIR (CTA Case 6572; December 22, 2004)

Air Canada is a foreign corporation and was granted authority by the Civil Aeronautics Board
(CAB) to operate offline carriage from April 24 2000 to April 24 2005. Aerotel became the agent
of AC in the Philippines. It seeks refund of paid taxes and receiving no response, elevated the
case to the CTA.

W/N CA is taxable as a non-resident foreign corporation doing business in Philippines //

YES
In order that a foreign corporation may be regarded as doing business, there must be continuity of
conduct and intention to establish a continuous business, such as the appointment of a local agent,
and not one of a temporary character. In other words, a foreign airline selling tickets in the
Philippines through a local agent, whether liaison offices, agencies or branches, as in the case at
bar, shall be considered as a resident foreign corporation engaged in trade or business in that
country for such activities show continuity of commercial dealings or arrangements and
performance of acts or works or the exercise of some functions normally incident to and in
progressive prosecution of commercial gain.

Air New Zealand v. CIR (CTA Case No. 6761; 9/12/2005)

This is a claim for refund of 420,466 pesos alleged to have been mistakenly paid as tax on Gross
Phil Billings for taxable year 2001.
Air New Zealand has no landing rights in the Philippines. It has no flight operations to and from
the Philippines. It is not licensed to do business in the Philippines. But it has a general sales agent
in the Philippines that sells passage documents for compensation or commission covering its off-
line flights. ANZ paid the 420,000 pesos pursuant the reduced rate of 1.5% under NZ-RP Treaty.
Issue: W/N ANZ is subject to Gross Philippine Billings tax under Section 28 of NIRC? No
Held: Since ANZ is an offline international carrier, and having no flights originating in the
Philippines in a continuous and uninterrupted flight, cannot be taxed pursuant to Section
28(A)(3)(a) of the 1997 Tax Code, that is, based on their Gross Philippine Billings. (SC citing Air
Canada v. CIR)
BUT, ANZ is still liable to pay 32% of its taxable income derived from sales of passage
documents in the Philippines.

Air New Zealand v. CIR (CTA Case No. 6657; 6/28/2007)

Air New Zealand has no landing rights in the Philippines. It has no flight operations to and from
the Philippines. It is not licensed to do business in the Philippines. But it has a general sales agent
in the Philippines that sells passage documents for compensation or commission covering its off-
line flights.
Issue: Is Air New Zealand’s (ANZ) income from sales of passage documents in the Philippines
taxable?
Held: Citing BOAC case, CTA said that the sale of tickets in the Philippines is the activity that
produces the income. ANZ is considered a resident foreign corporation doing business in the
Philippines. Pursuant to Section 28 (A) (1) of the 1997 Tax Code, a resident foreign corporation
shall be subject to 32% (now 35%) corporate income tax. But because of tax treaty, ANZ is liable
only to 1.5% tax of its gross revenues derived from sources within the Philippines arising from
the “operation in international traffic of ships or aircraft” pursuant to Article 8 of RP-NZ Tax
Treaty

Air New Zealand v. CIR (CTA Case No. 6949; January 30, 2008)
This is a petition for review of the decision which held that ANZ is not taxable on Gross Phil
Billings but still liable for income tax not at the rate of 32% but at the lower rate of 1.5% pursuant
to the NZ-RP tax treaty. The CTA held that since ANZ already paid the 1.5% before, no refund is
due it.
ANZ prays, among others, that a.) it be declared a non-resident foreign corporation and hence
neither subject to the 32% income tax under S28 of the NIRC or the 1.5% under the Tax treaty;
b.) that the income it derived is not Phil source and hence not subject to income tax; c.) that it is
entitled to refund.
Held/Ratio:
The CTA denies all the reliefs sought by ANZ. It said that ANZ merely rehashed its previous
arguments. The CTA cited the BOAC case. Since ANZ sells tickets in the Phil through its sales
agent and it derives revenues from the conduct of business activity regularly pursued in the
Philippines, ANZ is a resident foreign corporation engaged in trade or business in the Philippines
and hence subject to income tax.
Doctrine: Absence of flight operations is not determinative of source of income for purposes of
ascertaining income tax liability. It suffices that income is derived from activity within the
Philippine territory.

Commissioner of Internal Revenue vs. Japan Airlines and CTA, GR No 60714, October 4, 1991
Respondent Japan Air Lines, Inc. (hereinafter referred to as JAL for brevity), is
a foreigncorporation engaged in the business of international air carriage. From 1959 to 1963,
JAL did not have planes that lifted or landed passengers and cargo in the Philippines as it had not
been granted then by the Civil Aeronautics Board (CAB) a certificate of public convenience and
necessity to operate here. However, since mid-July, 1957, JAL had maintained an office at the
Filipinas Hotel, Roxas Boulevard, Manila. Said office did not sell tickets but was maintained
merely for the promotion of the company's public relations and to hand out brochures, literature
and other information playing up the attractions of Japan as a tourist spot and the services enjoyed
in JAL planes.|||
On July 17, 1957, JAL constituted the Philippine Air Lines (PAL), as its general sales agent in the
Philippines. As an agent, PAL, among other things, sold for and in behalf of JAL, plane tickets
and reservations for cargo spaces which were used by the passengers or customers on the
facilities of JAL
There being no dispute that JAL constituted PAL as local agent to sell its airline tickets, there can
be no conclusion other than that JAL is a resident foreign corporation, doing business in the
Philippines. Indeed, the sale of tickets is the very lifeblood of the airline business, the generation
of sales being the paramount objective (Commissioner of Internal Revenue vs. British Overseas
Airways Corporation, supra). The case of CIR vs. American Airlines, Inc. (supra) sums it up as
follows:
". . . foreign airline companies which sold tickets in the Philippines through
their local agents, whether called liaison offices, agencies or branches, were
considered residentforeign corporations engaged in trade or business in the
country. Such activities show continuity of commercial dealings or
arrangements and performance of acts or works or the exercise of some
functions normally incident to and in progressive prosecution of commercial
gain or for the purpose and object of the business organization."