September 2010 Philippine Supreme Court

Decisions on Tax Law

Posted on October 8, 2010 by Carina C. Laforteza Posted in Tax Law
Here are selected September 2010 rulings of the Supreme Court of the Philippines on tax law:
National Internal Revenue Code; irrevocability of option to carry-over of excess income tax
credits. It is undisputed that taxpayer indicated in its 1997 income tax return (ITR) its option to
carry-over as tax credit for the next year its tax overpayment. In its 1998 ITR, taxpayer again
indicated its preference to carry-over the excess income tax credit against the tax liabilities for
the succeeding taxable years. Clearly, taxpayer chose to carry-over and apply the overpaid tax
against the income tax due in the succeeding taxable years. Under section 76 of the National
Internal Revenue Code of 1997, once the taxpayer exercises the option to carry-over and apply
the excess creditable tax against the income tax due for the succeeding taxable years, such option
is irrevocable. Thus, taxpayer can [in the succeeding years, i.e., 1999] no longer claim a refund
of its excess income tax credit in the taxable year 1997 because it has already opted to carry-over
the excess income tax credit against the tax due in the succeeding taxable years. Commissioner of
Internal Revenue vs. The Philippine American Life and General Insurance Company, G.R. No.
175124, September 29, 2010.
National Internal Revenue Code; international air carriers; Gross Philippine Billings; regular
income tax. Inasmuch as the taxpayer has ceased operating passenger flights to or from the
Philippines in 1998, it is not taxable under Section 28(A)(3)(a) of the National Internal Revenue
Code (NIRC), or on 2 1/2% of its Gross Philippine Billings (GPB). The correct interpretation of
said provisions is that, if an international air carrier maintains flights to and from the Philippines
then it shall be taxed at the rate of 2 1/2 % of its GPB, 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% [now 30%] of such income. United Airlines, Inc. vs
Commissioner of Internal Revenue, G.R. No. 178788, September 29, 2010.
National Internal Revenue Code; claims for refunds. Under Section 72 [Suit to Recover Tax
Based on False or Fraudulent Returns] of the National Internal Revenue Code, the Court of Tax
Appeals can make a valid finding that taxpayer made erroneous deductions on its gross cargo
revenue; that because of the erroneous deductions, taxpayer reported a lower cargo revenue and
paid a lower income tax thereon; and that taxpayers underpayment of the income tax on cargo
revenue is even higher than the income tax it paid on passenger revenue subject of the claim for
refund, such that the refund cannot be granted. On the assumption that taxpayer filed a correct
return, it had the right to file a claim for refund of the Gross Philippine Billings (GPB) tax on
passenger revenues it paid in 1999 when it was not operating passenger flights to and from the
Philippines. However, upon examination by the CTA, taxpayers return was found erroneous as
it understated its gross cargo revenue for the same taxable year due to deductions of two items.
Having underpaid the GPB tax due on its cargo revenues for 1999, taxpayer is not entitled to a
refund of its GPB tax on its passenger revenue, the amount of the former being even much higher
than the tax refund sought. United Airlines, Inc. vs Commissioner of Internal Revenue, G.R. No.
178788, September 29, 2010.