The Supreme Court building in Manila. INQUIRER FILE PHOTO
MANILA, Philippines—The Supreme Court has denied for lack of merit the petition of the Bureau of Internal Revenue to reverse a Court of Tax Appeals ruling that stopped them from collecting over P300 million in corporate income tax from the Philippine Airlines.
In an 18-page decision, the high court’s second division through Associate Justice Jose Perez said the tax court was correct in its ruling that PAL was exempt from paying the corporate tax pursuant to Presidential Decree 1590 or the PAL’s franchise.
Section 13 of Presidential Decree 1590 gives PAL the option to pay basic corporate income tax or franchise tax, whichever is lower; and the tax so paid shall be “in lieu of all other taxes,” except real property tax.
The BIR, in its appeal, argued that the MCIT does not belong to the category of “other taxes” under PD1590.
“It is the legislative intent to give respondent a privilege in the form of an option in paying its taxes which would result in paying a lower tax liability, but not in dispensing the sharing of a tax burden to which every taxpayer is obligated to bear and a claim from exemption from taxation is never presumed; thus, respondent [PAL] is liable for the deficient MCIT,” the BIR said.
But the high court said that under Section 13 of PD 1590, PAL has the option to pay the basic corporate income tax or franchise tax, whichever is lower. In the case of MCIT, it is paid when it is higher than the basic corporate income tax.
The case stemmed from the BIR’s examination of PAL’s book of accounts and other records in response to its claim for refund in 2001. Then, on December 2003, PAL received a formal letter of demand from BIR collecting P326-million MCIT payment plus interest. PAL filed a formal protest in January 2004.
Due to BIR’s inaction, PAL took the case to the tax court. The tax court’s second division ruled in favor of PAL. After the CTA second division dismissed the appeal filed by the BIR, it took the case to the Tax Court’s full court who affirmed the ruling of its second division. From CTA, the BIR took the case to the high court who upheld the Tax Court’s decision.