South African Airways v. CIR

Facts: Petitioner 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, which 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. 

For the taxable year 2000, petitioner filed separate quarterly and annual income tax returns for its off-line flights. Petitioner filed a claim for refund for the erroneously paid tax on Gross Philippine Billings (GPB) for the taxable year 2000. Such claim was unheeded. Petitioner filed a PetRev with the CTA but it was denied. The CTA ruled that petitioner is a resident foreign corporation engaged in trade or business in the Philippines. It further ruled that petitioner was not liable to pay tax on its GPB under Section 28(A)(3)(a) of the National Internal Revenue Code (NIRC) of 1997. The CTA, however, stated that petitioner is liable to pay a tax of 32% on its income derived from the sales of passage documents in the Philippines. 

Issue: Whether or not petitioner, as an off-line international carrier selling passage documents through an independent sales agent in the Philippines, is engaged in trade or business in the Philippines subject to the 32% income tax imposed by Section 28 (A)(1) of the 1997 NIRC. 

Held: Essentially, prior to the 1997 NIRC, GPB referred to revenues from uplifts anywhere in the world, provided that the passage documents were sold in the Philippines. Legislature departed from such concept in the 1997 NIRC where GPB is now defined under Sec. 28(A)(3)(a): “Gross Philippine Billings” refers to the amount of gross revenue derived from carriage of persons, excess baggage, cargo and mail originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the ticket or passage document.” 

Now, it is the place of sale that is irrelevant; as long as the uplifts of passengers and cargo occur to or from the Philippines, income is included in GPB. 

Sec. 28(A)(3)(a) of the 1997 NIRC does not, in any categorical term, exempt all international air carriers from the coverage of Sec. 28(A)(1) of the 1997 NIRC. 

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.