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CIR vs. PHILIPPINE AIRLINES, INC. Minimum Corporate Income Tax

Income Taxation
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FACTS:
PHILIPPINE AIRLINES, INC. had zero taxable income for 2000 but would have been liable for
Minimum Corporate Income Tax based on its gross income. However, PHILIPPINE AIRLINES,
INC. did not pay the Minimum Corporate Income Tax using as basis its franchise which exempts
it from all other taxes upon payment of whichever is lower of either (a) the basic corporate
income tax based on the net taxable income or (b) a franchise tax of 2%.

ISSUE:
Is PAL liable for Minimum Corporate Income Tax?

HELD:

NO. PHILIPPINE AIRLINES, INC.s franchise clearly refers to "basic corporate income tax"
which refers to the general rate of 35% (now 30%). In addition, there is an apparent distinction
under the Tax Code between taxable income, which is the basis for basic corporate income tax
under Sec. 27 (A) and gross income, which is the basis for the Minimum Corporate Income Tax
under Section 27 (E). The two terms have their respective technical meanings and cannot be used
interchangeably. Not being covered by the Charter which makes PAL liable only for basic
corporate income tax, then Minimum Corporate Income Tax is included in "all other taxes" from
which PHILIPPINE AIRLINES, INC. is exempted.

The CIR also can not point to the Substitution Theory which states that Respondent may not
invoke the in lieu of all other taxes provision if it did not pay anything at all as basic corporate
income tax or franchise tax. The Court ruled that it is not the fact tax payment that exempts
Respondent but the exercise of its option. The Court even pointed out the fallacy of the argument
in that a measly sum of one peso would suffice to exempt PAL from other taxes while a zero
liability would not and said that there is really no substantial distinction between a zero tax and a
one-peso tax liability. Lastly, the Revenue Memorandum Circular stating the applicability of the
MCIT to PAL does more than just clarify a previous regulation and goes beyond mere internal
administration and thus cannot be given effect without previous notice or publication to those
who will be affected thereby.

Minimum Corporate Income Tax

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