CIR vs PAL

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.

G.R. No. 106611 July 21, 1994

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.

COURT OF APPEALS, CITYTRUST BANKING CORPORATION and COURT OF TAX APPEALS,

respondents.
Citytrust filed a claim for refund with BIR in the amount of P19,971,745.00 representing the alleged overpayment of
income tax as computed in its final income tax return for the calendar year ending December 31, 1985. To interrupt
the prescriptive period, Citytrust filed a petition with the Court of Tax Appeals, claiming the refund of its income tax
overpayments for the years 1983, 1984 and 1985. The OSG in their answer contended that the claim of Citytrust
from 1983 was not properly documented and that even if they are entitled for such claim the right to claim the same
has prescribed with respect to income tax payments prior to August 28, 1984, pursuant to Sections 292 and 295 of
the National Internal Revenue Code of 1977, as amended, since the petition was filed only on August 28, 1986. The
case was submitted for decision based solely on the pleadings and evidence submitted by herein private respondent
Citytrust because the petitioner failed to present evidence due to the failure of Tax Credit/Refund Division of the
BIR to transmit the records of the case, as well as the investigation report thereon, to the Solicitor General. The
petitioner filed a motion to suspend the proceedings but the same was denied. The case was decided and the Tax
court ruled in ordering BIR to refund the overpaid tax for the year 1984 and 1985 only. Petitioner filed a motion for
reconsideration contending that Citytrust has an outstanding tax liability amounting to P56M in 1984. Both parties
filed a motion for reconsideration which was denied by the CA and the court affirmed the decision of CTA. Hence
this petition.
Issue: Whether or not the state is bound to the mistakes committed by its agents
Ruling: It is a long and firmly settled rule of law that the Government is not bound by the errors committed by its
agents. In the performance of its governmental functions, the State cannot be estopped by the neglect of its agent and
officers. Although the Government may generally be estopped through the affirmative acts of public officers acting
within their authority, their neglect or omission of public duties as exemplified in this case will not and should not
produce that effect.
Nowhere is the aforestated rule more true than in the field of taxation. It is axiomatic that the Government cannot
and must not be estopped particularly in matters involving taxes. Taxes are the lifeblood of the nation through
which the government agencies continue to operate and with which the State effects its functions for the
welfare of its constituents. The errors of certain administrative officers should never be allowed to jeopardize the
Government's financial position, especially in the case at bar where the amount involves millions of pesos the
collection whereof, if justified, stands to be prejudiced just because of bureaucratic lethargy. Wherefore the
Judgment of CA is hereby set aside and the case is remanded to CTA

CIR vs PMC-Phil

NON-RESIDENT FOREIGN CORPORATION- DIVIDENDS

Sec 24 (b) (1) of the NIRC states that an ordinary 35% tax rate will be applied to dividend remittances to non-resident
corporate stockholders of a Philippine corporation. This rate goes down to 15% ONLY IF the country of domicile of the
foreign stockholder corporation shall allow such foreign corporation a tax credit for taxes deemed paid in the
Philippines, applicable against the tax payable to the domiciliary country by the foreign stockholder corporation.
However, such tax credit for taxes deemed paid in the Philippines MUST, as a minimum, reach an amount equivalent to
20 percentage points

FACTS:
Procter and Gamble Philippines declared dividends payable to its parent company and sole stockholder, P&G USA. Such
dividends amounted to Php 24.1M. P&G Phil paid a 35% dividend withholding tax to the BIR which amounted to Php
8.3M It subsequently filed a claim with the Commissioner of Internal Revenue for a refund or tax credit, claiming that
pursuant to Section 24(b)(1) of the National Internal Revenue Code, as amended by Presidential Decree No. 369, the
applicable rate of withholding tax on the dividends remitted was only 15%.

MAIN ISSUE:
Whether or not P&G Philippines is entitled to the refund or tax credit.

HELD:
YES. P&G Philippines is entitled.
Sec 24 (b) (1) of the NIRC states that an ordinary 35% tax rate will be applied to dividend remittances to non-resident
corporate stockholders of a Philippine corporation. This rate goes down to 15% ONLY IF he country of domicile of the
foreign stockholder corporation shall allow such foreign corporation a tax credit for taxes deemed paid in the
Philippines, applicable against the tax payable to the domiciliary country by the foreign stockholder corporation.
However, such tax credit for taxes deemed paid in the Philippines MUST, as a minimum, reach an amount equivalent to
20 percentage points which represents the difference between the regular 35% dividend tax rate and the reduced 15% tax
rate. Thus, the test is if USA shall allow P&G USA a tax credit for taxes deemed paid in the Philippines applicable
against the US taxes of P&G USA, and such tax credit must reach at least 20 percentage points. Requirements were met.

South African Airways vs 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. Its principal office is located at
Airways Park, Jones Road, Johannesburg International Airport, 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 Limited Corporation (Aerotel). Aerotel sells passage documents
for compensation or commission for petitioners 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. 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.
Issues: whether or not petitioners income is sourced within the Philippines and is to be taxed at
32%
of
the
gross
billings?
Held: Yes! 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.