Now lets go to another airline. South African Airways. Tell me the truth, you didn't think there was such did you? I don't blame you. First time I heard it too.
The difference of this case from the last two previous case is that the BIR was the petitioner in the last two cases. Here the petitioner was the airline itself.
So petitioner South African Airways (SAA) is a foreign corporation organized and existing under and by virtue of the laws of the Republic of South Africa. Its principal office is located at Airways Park, Jones Road, Johannesburg International Airport, South Africa.
In the Philippines, it is an internal air carrier also having NO LANDING RIGHTS in the country. And like both previous airlines Petitioner herein has a general sales agent in the Philippines in the person of Aerotel Limited Corporation (Aerotel). No they weren't selling tickets. 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.
The thing was, petitioner is not registered with the SEC as a corporation, branch office, or partnership. It is not licensed to do business in the Philippines. It paid a corporate tax in the rate of 32% of its gross billings.
However, it subsequently claim for refund contending that its income should be taxed at the rate of 2 1/2% of its gross billings.
ISSUE:
Is petitioner’s income sourced within the Philippines and is to be taxed at 32% of the gross billings?
HELD:
The answer was YES!
Court said 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.
Petitioner, being an international carrier with no flights originating from the Philippines, does not fall under the exception. As such, petitioner must fall under the general rule.
(This principle is embodied in the Latin maxim, exception firmat regulam in casibus non exceptis, which means, a thing not being excepted must be regarded as coming within the purview of the general rule.)
To reiterate, the correct interpretation of the above provisions is that, if an international air carrier maintains flights to and from the Philippines, it shall be taxed at the rate of 2 1/2% of its Gross Philippine Billings, 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% of such income.
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So I believe JAL though being a non-resident foreign corporation (contrary to the first requisite in the general rule) was taxed at 32% gross on billings, having absence of flight operations to and from Philippines.
Question: There being absence of flight operations to and from Philippines in the JAL case and there having no landing rights and thus did not carry passengers and/or cargo to or from the Philippines in the BOAC case, then why is BOAC taxed at the rate of 2 1/2% gross on billings.
Here in this case SAA was selling off-line flights outside Philippine territorial jurisdiction and not licensed to do business in the Philippines. So it was taxed at 32% since it falls under the exception.
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THOUGHTS ON LANDING RIGHTS
THOUGHTS ON LANDING RIGHTS
You might question the strictness of Philippine government over the question of giving landing rights. You see we cannot just extend our facilities on a reciprocal basis to other countries when we do not have the capacity to fully benefit from the arrangement. You see our national flag carrier is Philippine Airlines, and so a question will therefore be expected to be thrown at us on how profitable PAL will be (even though now that it's privatized) if the government gives away landing rights that easily to numerous foreign airlines. Well the least that its doing is collecting taxes from revenues from other airlines derived within our territory.
However, it would be unfair to passengers foreign and domestic alike to deprive them of the facility of other airlines. Right? tsk tsk tsk.
I think we need efficient management when it comes to this.
So SAA of course lost this case.
