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latter, and it must perform its functions according to the standards required by petitioner.
Through Aerotel, petitioner is able to engage in an economic activity in the Philippines.
b.
The tax (Gross Philippine Billings) attaches only when the carriage of persons, excess
baggage, cargo, and mail originated from the Philippines in a continuous and uninterrupted
flight, regardless of where the passage documents were sold. Not having flights to and from
the Philippines, petitioner is clearly not liable for the Gross Philippine Billings tax. While
petitioner is taxable as a resident foreign corporation under Section 28 (A) (1) of the 1997
National Internal Revenue Code on its taxable income from the sale of airline tickets in the
Philippines, it could only be taxed at a maximum 1 % of gross revenues, pursuant to Article
VIII of the Republic of the Philippines-Canada Tax Treaty that applies to petitioner as a
foreign corporation organized and existing under the laws of Canada.
c.
Finally, we reject petitioner's contention that the Court of Tax Appeals erred in denying its
claim for refund of erroneously paid Gross Philippine Billings tax on the ground that it is
subject to income tax under Section 28(A) (1) of the National Internal Revenue Code because
(a) it has not been assessed at all by the Bureau of Internal Revenue for any income tax
liability; and (b) internal revenue taxes cannot be the subject of set-off or compensation.
In this case, the P5,185,676.77 Gross Philippine Billings tax paid by petitioner was computed
at the rate of 1 % of its gross revenues amounting to P345,711,806.08149 from the third
quarter of 2000 to the second quarter of 2002. It is quite apparent that the tax imposable
under Section 28(A)(l) of the 1997 National Internal Revenue Code [32% of t.axable income,
that is, gross income less deductions] will exceed the maximum ceiling of 1 % of gross
revenues as decreed in Article VIII of the Republic of the Philippines-Canada Tax Treaty.
Hence, no refund is forthcoming.