THAI AIRWAYS INTERNATIONAL PUBLIC COMPANY LIMITED v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY Third Division THAI AIRWAYS INTERNATIONAL CTA CASE NO. 8597 PUBLIC COMPANY LIMITED, Members: Petitioner, -versus- BAUTISTA, Chairperson, PABON-VICTORINO, and RINGPIS-LIBAN,JJ. COMMISSIONER OF INTERNAL Promulgated: REVENUE, Respondent. X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X AMENDED DECISION RINGPIS-LIBAN,J: For resolution are the following: 1. petitioner's Motion for Partial Reconsideration, flied on October 26, 2016, without respondent's comment despite due notice as per Records Verification dated December 7, 2016;and 2. respondent's Motion for Partial Reconsideration (Re: Decision dated September 16, 2016), filed on October 27, 2017, with petitioner's Opposition (To Respondent's Motion for Partial Reconsideration) , fl.led on December 28, 2016. Petitioner assails the Court's Decision dated September 16, 2016 on the following ground~

AMENDED DECISION CTA CASE NO. 8597 I. Petitioner should not have been held liable to pay deficiency income tax in the total amount of P2,142,919.75 and the corresponding surcharge and interest thereon; II. Petitioner should not have been held liable to pay deficiency value added tax in the total amount of P1,100,598.81 and the corresponding surcharge and interest thereon; and III. Petitioner should not have been held liable to pay expanded withholding tax in the total amount of P966,401.22 and the corresponding surcharge and interest thereon. On the other hand, respondent argues that the Court erred in partially granting the Petition for Review. Respondent's motion for reconsideration pertains to the ruling of the Court on deficiency income tax, deficiency fringe benefit tax (FBT), deficiency withholding tax on compensation (WTC), and deficiency expanded withholding tax (EWT); while petitioner prays for reconsideration of the ruling on deficiency income tax, deficiency value-added tax ryAT), and deficiency EWT. A. Deficiency Income Tax In the motion, respondent contends that the rule is well-settled that tax assessments are entitled to the presumption of correctness and made in good faith. The taxpayer has the alleged duty to prove otherwise. In the absence of proof of any irregularities in the performance of duties, the alleged assessment duly made by a Bureau of Internal Revenue examiner, and approved by the superior officers will not be disturbed. Thus, respondent stands that the assessment contained in the Formal Letter of Demand is imbued with factual and legal bases. Respondent also claims the following: a) Petitioner under-declared its revenue in the amount of?64,316,514.11 for taxableyear 2008 forfailure to support its claim ofnon-revenue passengers; There are allegedly unsupported non-revenue passengers amounting to P64,316,514.11 as shown in the flown revenue schedule. The alleged amount of the non-revenue passengers is based on the average amount per flight destination and classification of passengers using the adult rate. Respondent assents with petitioner that non-revenue passengers shall not be given value for purposes of computing the taxable base subject to tax in consonance with ~

AMENDED DECISION CTA CASE NO. 8597 Revenue Regulation (RR) No. 15-2002. However, sufficient documents must be presented to show that those passengers are indeed non-revenue passengers. Respondent expresses that identification and supporting documents are very important to determine the veracity of petitioner's claim; otherwise, this will open the gates for fraud to evade payment of taxes. b) The underdeclared revenue on rebooking fee in the amount of P13 7, 796.00 must be included in the computation ofgross income tax. It is alleged by respondent that petitioner agreed with the former's findings but computed the tax liability based on 1.5�/o rate plus interest. Respondent insists that the tax rate must be 2.5% instead of 1.5% for failure of petitioner to submit a written application availing the tax treaty with the International Tax Affairs Division (ITAD). c) The underdeclared commission paid to brokers in the amount of ?4,369,695.63 must be included in the computation ofgross income. Respondent avers that the undeclared commission paid to brokers as indicated in the journal vouchers, was still part of the total remittance to petitioner and formed part of the gross amount subject to tax whether it was reflected in the ticket or not. d) The underdeclared commission paid to brokers in the amount of ?9,796,614.39 must be included in the computation ofgross income tax. Respondent claims that the unaccounted source of cash in the amount of P9,796,614.39 was the difference between alphalist and financial statement. Petitioner has allegedly stated during informal conference that the discrepancy was brought about by a clerical error; while during preliminary assessment notice, petitioner has mentioned that the discrepancy was due to the fact that the salaries of Expat Officers were paid in Thailand and were not reported as part of locally paid expenses but were subject to withholding tax. As such, respondent posits that such inconsistency on petitioner's contention without any supporting evidence to any of its claim cannot be given weight and credence. Petitioner opposes the above arguments and alleges that it presented sufficient evidence to support and substantiate the identities/personalities of the non-revenue passengers, which the Court affirmed in the assailed Decision that the amount of P64,316,514.11 indeed pertained to non-revenue passenger tickets for the year 2008. It is also claimed by petitioner that the Court correctly cancelled the deficiency income tax assessment for lack of factu~

AMENDED DECISION CTA CASE NO. 8597 basis in the amount of P4,369,695.63 and P9,796,614.39, representing the commission paid to brokers and unaccounted source of cash, respectively. Also, petitioner argues that the Court correctly applied the ruling made by the Supreme Court in the case of Deutsche Bank AG Manila Branch vs. Commissioner ofInternal Revenue with respect to the availment of tax treaty relief. After a careful evaluation of the foregoing arguments, the Court finds that the same are mere rehash of the same facts and issues which have already been passed upon extensively in the assailed Decision. Thus, a further discussion on the said arguments is unnecessary. On the other hand, both petitioner and respondent seek reconsideration of the Court's ruling on the storage fee in the amount of P14,309,779.86. Petitioner does not dispute the portion of the assailed Decision ordering petitioner to pay deficiency income tax amounting to P164,904.22, a surcharge of P41,226.05, and interest of P129,266.57 and P259,559.86 or a total of P594,956.70. However, petitioner contests the Court's finding that the former is liable for 35% tax on storage income amounting to P5,651,472.94 or a tax liability of P1,978,015.33. Allegedly, the Court has ruled that petitioner failed to prove that the amount P5,651,472.94 referred to cargo sales instead of storage fees due to petitioner's failure to formally offer certain documents such as supporting invoices and official receipts. Petitioner alleges that its export billing statement, which was marked and admitted in evidence as Exhibit "P- 20-3", enumerated the cargo sales amounting to P5,651,472.94. Petitioner also claims that the said cargo sales were supported by the testimony of Mr. Moises Visperas Jr. and corroborated by the testimony of Mr. Wilfrido C. Rodriguez, the Independent Certified Public Accountant (ICPA). Petitioner posits that the cargo sales were adequately explained in the ICPA Report, and all exhibits that were examined by the ICPA were included in the ICPA Report as Annexes. However, respondent claims that the said fee in the amount of P14,309,779.86 is a revenue not forming part of the Gross Philippine Billings (GPB), thus, subject to the regular rate of 35%. Respondent claims that petitioner submitted photocopy of invoices/statements and accordingly claimed that only P3,520,183.78 was for storage fee while the amount of P10,789,596.08 was for cargo sales. Respondent points out that petitioner partially admitted its tax liability and paid the amount of P1 ,973,328.43 on April 18, 2012. Further, since the amount of P10,789,596.08 was not supported by original documents, respondent cannot allegedly validate the truthfulness of peritioner's contention. Petitioner's contention is partly meritoriouy

AMENDED DECISION CTA CASE NO. 8597 The ruling of the Supreme Court in the case of Dizon vs. Court if Tax Appeals' is instructive in applying the exception to the general rule that evidence not formally offered cannot be considered by the Court, to wit: "Under Section 8 of RA 1125, the CTA is categorically described as a court of record. As cases flied before it are litigated de novo, party-litigants shall prove every minute aspect of their cases. Indubitably, no evidentiary value can be given the pieces of evidence submitted by the BIR, as the rules on documentary evidence require that these documents must be formally offered before the CTA. Pertinent is Section 34, Rule 132 of the Revised Rules on Evidence which reads: SEC. 34. Offer if evidence. - The court shall consider no evidence which has not been formally offered. The purpose for which the evidence is offered must be specified. The CTA and the CA rely solely on the case of V da. de Onate, which reiterated this Court's previous rulings in People v. Napat-a and People v. Mate on the admission and consideration of exhibits which were not formally offered during the trial. Although in a long line of cases many of which were decided after Vda. de Onate, we held that courts cannot consider evidence which has not been formally offered, nevertheless, petitioner cannot validly assume that the doctrine laid down in V da. de Onate has already been abandoned. Recently, in Ramos v. Dizon, this Court, applying the said doctrine, ruled that the trial court judge therein committed no error when he admitted and considered the respondents' exhibits in the resolution of the case, notwithstanding the fact that the same were not formally offered. Likewise, in Far East Bank & Trust Compaf!Y v. Commissioner o/ Internal Revenue, the Court made reference to said doctrine in resolving the issues therein. Indubitably, the doctrine laid down in Vda. De Onate still subsists in this jurisdiction. In V da. de Onate, we held that: From the foregoing provision, it is clear that for evidence to be considered, the same must be formally offered. Corollarily, the mere fact that a particular document is identified and marked as an exhibit does not mean that it has already been offered as part of ~ 1 G.R. No. 140944, April30, 2008.

AMENDED DECISION CTA CASE NO. 8597 the evidence of a party. In Interpacific Transit, Inc. v. Aviles [186 SCRA 385], we had the occasion to make a distinction between identification of documentary evidence and its formal offer as an exhibit. We said that the first is done in the course of the trial and is accompanied by the marking of the evidence as an exhibit while the second is done only when the party rests its case and not before. A party, therefore, may opt to formally offer his evidence if he believes that it will advance his cause or not to do so at all. In the event he chooses to do the latter, the trial court is not authorized by the Rules to consider the same. However, in People v. Napat-a [179 SCRA 403] citing People v. Mate [103 SCRA 484], we relaxed the foregoing rule and allowed evidence not formally offered to be admitted and considered by the trial court provided the following requirements are present, viz.: first, the same must have been duly identified by testimony duly recorded and, second, the same must have been incorporated in the records of the case. From the foregoing declaration, however, it is clear that Vda. de Onate is merely an exception to the general rule. Being an exception, it may be applied only when there is strict compliance with the requisites mentioned therein; otherwise, the general rule in Section 34 of Rule 132 of the Rules of Court should prevail." Apparently, the evidence not formally offered may be admitted and considered by the Court provided the said evidence has been duly identified by testimony duly recorded, and has been incorporated in the records of the case. In the instant case, the invoices and official receipts have already been marked as petitioner's Exhibits "18 to 18.11" and submitted to this Court. Also, Mr. Rodriguez, the ICPA, has identified the said exhibits in his Judicial Affidavit2 dated February 3, 2014. However, Exhibits "18 to 18.11" have not been formally offered. Accordingly, although Exhibits "18 to 18.11" have not been formally offered in evidence, the Court may consider the same since the said exhibits were duly identified by Mr. Rodriguez and were submitted to this Court whic~ 2 Exhibit "P-29", docket, vol. 2, p. 514.

AMENDED DECISION CTA CASE NO. 8597 formed part of the records of this case. Thus, it is deemed just to apply in this case the exception to the general rule in Section 34 of Rule 132 of the Rules of Court. A scrutiny of the official receipts marked as Exhibits "18.1" to "18.11" and a schedule marked as Exhibit "18" shows that the amount of P5,651,472.94 pertains to petitioner's cargo sales for the period February 1-15, 2008 and not storage income as assessed by respondent. Hence, the applicable tax rate thereon is the 1.5% GPB tax and not the regular income tax rate of 35%. However, considering that petitioner failed to prove that the said cargo sales of P5,651,472.94 already formed part of its P2,737,205,642.79 Gross Philippine Billings (GPB) per Flown Revenue schedules subjected to the 1.5% GPB tax, petitioner shall still be held liable to pay deficiency 1.5% GPB tax on the amount ofP5,651,472.94. Accordingly, petitioner's deficiency income tax liability for taxable year (TY) 2008 is reduced to P249,676.31, as computed below: Taxable Gross Philippine Billings :P 5,855,491.63 P2, 731,350,151.17 Add: Underdeclaration of Gross Philippine Billings 10,789,596.08 16,645,087.71 Cargo Sales P2,747,995,238.88 Total Taxable Gross Philippine Billings p 448,817.77 Multiply by Preferential Tax Treaty Rate 9,085,828.97 1.50% Tax Due on Gross Philippine Billings 31,435,605.53 p 41,219,928.58 Less: Tax Paid 40,970,252.27 Excess from Previous year p 249,676.31 Cash paid- First three quarters Cash payment - Fourth quarter Tax Basic Deficiency Income Tax Further, it is to be noted that petitioner does not dispute the portion of the 1.5% deficiency GPB tax pertaining to the amounts of P5,855,491.63 and P5,138,123.14 representing under-declaration of Gross Philippine Billings and cargo sales to Deutsche Bank, respectively, totaling P10,993,614.77.3 In fact, petitioner has attached in its motion the Payment Form (BIR Form No. 0605) with corresponding EFPS Payment Form and Confirmation (Annexes "A", "A-1" to "A-3") 4 showing payment to the BIR on October 21, 2016 of the amount ofP594,956.70,5 which consisted of the following/ 3 Petitioner's Motion for Partial Reconsideration, p. 9, docket, val. 2, p. 969. 4 Docket, val. 2, pp. 972 to 975. 5 Petitioner's Motion for Partial Reconsideration, p. 9, docket, val. 2, p. 969.

AMENDED DECISION CTA CASE NO. 8597 Basic Tax _(1.5% ofP10,993,614.77_l p 164,904.22 Surcharge 41,226.05 Interest p 129,266.57 388,826.43 Total Amount Paid 259,559.86 594,956.70 p After petitioner submitted the certified true copies of the aforementioned documents, the Court admitted the same to form part of the records of this case.6 With the foregoing payment, petitioner's basic deficiency income tax due for taxable year 2008 amounts to only P84,772.097 representing 1.5% GPB tax on cargo sales ofP5,651,472.94. In addition thereto, petitioner is still liable to pay the amount of P111,931.79 representing surcharge, deficiency interest, and delinquency interest pursuant to Sections 248(A)(3), 249(B), and (C) of the National Internal Revenue Code (NIRC) of 1997, as amended, computed as follows: Basic Deficiency Income Tax p 164,904.22 i Add: 25% Surcharge p 41,226.06 20% Deficiency Interest from April 15, 2009 to December 10, 2012 120,628.57 (P164,904.22 x 20% X 1,335/365) 127,495.81 From December 10, 2012 to October 21, 2016 (P164,904.22 x 20% x 1,411/365) 159,369.77 20% Delinquency Interest from Dec. 10, 2012 to Oct. 21, 2016 on basic deficiency Income Tax and surchat"g_e 93,264.06 541,984.27 p 706,888.49 [(P164,904.22 + P41,226.06)] X 20% X 1,411/365 p 164,904.22 594,956.70 on deficiency interest due for April15, 2009 to Dec. 10, 2012 41,226.05 (P120,628.57 x 20% x 1,411/365) P111,931. 79 Total Amount Due 388,826.43 Less: Payment om October 21, 2016 ~ Basic Tax Surcharge Interest Amount Still Due 6 Resolution dated July 10, 2017. 7 P249,676.311ess P164,904.22.

AMENDED DECISION CTA CASE NO. 8597 B. Deficiency Value-Added Tax Petitioner contends that it should not have been held liable for deficiency VAT because it did not perform warehousing services, and could not have rendered such services because it does not own, lease, manage, or operate any warehouse facility in the Philippines. According to petitioner, the share in storage fees received by petitioner from the warehousing company is allegedly a mere incidental to its operation as an airline while awaiting release/loading of imported cargo and outgoing cargo of shippers. Petitioner points out that being an international airline, it is non-VAT registered; thus, petitioner is subject to percentage tax instead of VAT. Petitioner argues that the fee paid by Peoples Air Cargo & Warehousing Co., Inc. representing the 20% share of storage fees received and earned by the latter should not be considered a warehousing fee but merely an incidental fee similar to rebooking fee which is currently subject to 3% percentage tax under Revenue Regulation (RR) No. 11-2011. Assuming for the sake of argument that the said fee is not merely an incidental share in storage fee, petitioner avers that it should be classified as rental. Thus, noVAT deficiency allegedly exists. The Court disagrees with petitioner. Section 10 of RR No. 15-02 provides that "gross receipts" for the purpose of determining Common Carrier's Tax shall be the same as the tax base for calculating Gross Philippine Billings Tax (GPB) as provided under Section 5 thereof, to wit: SECTION 5. Determination ofGross Philippine Billings.- (a) In computing for "Gross Philippine Billings", there shall be included the total amount of gross revenue derived from passage of persons, excess baggage, cargo and/or 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 passage documents: XXX XXX XXX The gross revenue for freight or cargo and mail shall be determined based on the revenue realized from the carriage thereof. The amount realized for freight or cargo shall be based on the amount appearing on the airway bill after deducting therefrom the amount of discounts granted which shall be validated using the monthly cargo sales reports generated by the IATA Cargo Accounts Settlement System (IATA CASS) /./

AMENDED DECISION CTA CASE NO. 8597 for airway bills issued through their cargo agents or the monthly reports prepared by the airline themselves or by their general sales agents for direct issues made. The amount realized for mails shall, on the other hand, be determined based on the amount as reflected in the cargo manifest of the carrier. It is clear from the foregoing that only those receipts reflected on the airway bills shall be included for purposes of computing the Common Carriers Tax under Section 118 of the NIRC of 1997, as amended. Considering that the 20% share of the storage fees were collected by petitioner from People's Air Cargo & Warehousing Co., Inc. as shown in the receipts8 issued by petitioner to the latter, the same do not fall under the afore-quoted definition of GPB. As discussed in the assailed Decision, the said storage fees/income are subject to 12% VAT pursuant to Section 108 of the NIRC of 1997, as implemented by Section 4.108-1, 108-2 and 108-3 of RR No. 16-05. It must be stressed, however, that out of the assessed storage fees/income of P14,309,779.86, petitioner was able to establish that the amounts of P5,138,123.14 and P5,651 ,472.94 totaling P10,789,596.08 pertain to petitioner's cargo sales subject to 3% Common Carriers Tax or Percentage Tax under Section 118(A) of the NIRC of 1997, as amended, instead of 12% VAT. Hence, petitioner is liable for deficiency 12% VAT on the remaining amount of P3,520,183. 78. Accordingly, petitioner is liable for deficiency VAT and Percentage tax liabilities for taxable year 2008 in the modified amounts of P422,422.05 and P2,337,509.93, respectively, computed as follows: DEFICIENCY VAT Storage Fees/Income p 3,520,183.78 Output Tax p 422,422.05 Less: Input tax Deficiency VAT - p 422,422.05 DEFICIENCY PERCENTAGE TAX Taxable Net Income p 2,731,350,151.17 Add: Underdeclaration of Revenue 5,855,491.63 8 Exhibits "P-21" and "P-21-1" to "P-21-2", docket, vol. 1, p. 329 and pp. 330 to 331. /"W'

AMENDED DECISION CTA CASE NO. 8597 Cargo sales 10,789,596.08 Total Taxable Income Multiply by Tax Rate p 2,747,995,238.88 Percentage Tax Due Less: Payment Per Returns 3% Basic Deficiency Percentage Tax p 82,439,857.17 80,102,347.24 p 2,337,509.93 Nevertheless, petitioner has assented to its deficiency percentage tax liability of P2,167,965.74 as it paid on October 21, 2016 the amount of P7,800,422.90,9 which consisted of the following: Basic Tax p 2,167,965.74 Surcharg_e Interest 541,991.43 Total Amount Paid p 1,687,400.15 3,403,065.58 5,090,465.73 p 7 ,800,422. 90 The photocopies of the Payment Form (BIR Form No. 0605) and EFPS Payment Form and Confirmation supporting the amount of P7,800,422.90 have been attached in petitioner's motion as Annexes "B", "B-1" to "B-3"10. Subsequently, petitioner submitted the certified true copies of the aforesaid documents on May 25, 2017, in compliance with the Court's Resolution11 dated May 10, 2017. The said documents were likewise admitted to form part of the records of this case.12 With the foregoing payment, petitioner's basic deficiency percentage tax due for taxable year 2008 amounts to only P169,544.1913 which pertains to its cargo sales ofP5,651,472.94. Aside from the basic deficiency percentage tax due in the amount of P169,544.19, petitioner's is still liable to pay the amount of P1,661,420.91 pursuant to Sections 248(A)(3), 249(B) and (C) of the NIRC of 1997, as amended, computed as follows: Basic Deficiency Percentage Tax I p 541,991.44 p 2,167,965.74 Add: 25% Surcharge ;./ 9 Petitioner's Motion for Partial Reconsideration, p. 9, docket, vol. 2, p. 969. 10 Docket, vol. 2, pp. 976 to 979. 11 Docket, vol. 3, pp. 1029 to 1030. 12 Resolution dated July 10, 2017. 13 1>2,337,509.93/ess 1>2,167,965.74.

AMENDED DECISION CTA CASE NO. 8597 20% Deficiency Interest 1,680,915.90 from January 25,2009 to December 10,2012 1,676,164.20 iP 2,167,965.74 X 20% X 1,415/365) 2,095,205.25 From December 10, 2012 to October 21, 2016 1,299,601.28 7,293,878.07 (P 2,167,965.74 x 20% x 1,411/365) 20% Delinquency Interest from Dec. 10,2012 to October 21,2016 p 9,461,843.81 on basic deficiency Income Tax and surcharge P2,167,965.74 7,800,422.90 [(P2,167,965.74 + P541,991.44)) X 20% X 1,411/365 541,991.43 P1,661,420. 91 on deficiency_interest due forjan. 25, 2009 to Dec. 10, 2012 5,090,465.73 (P1,680,915.90 X 20% X 1,411/365) Total Amount Due Less: Payment on October 17,2016 Basic Tax Surcharge Interest Amount Still Due C. Deficiency Fringe Benefit Tax Respondent contends that petitioner's allegation that rent-a-car charges were taken from actual payment instead of the correct period of their use of vehicles as shown in fringe benefits tax lacks basis because petitioner merely showed a computation without any supporting documents to support the latter's claim. Petitioner, however, claims that there is no need to respond to the other items raised by the respondent which was already clearly ruled upon by the Court. Contrary to respondent's claim, the Court has already ruled based on the documents presented by petitioner, which were marked as Exhibits "P-25", "P- 2"P52-26"-'2"",P-a2n5d-3""P'-2"P6--42"5,-4t"h'at"Pth-2e5m-6o"n' e"tPar-y25v-a8l"u'e"Po-f2t5h-e1 0f"ri'n"gPe-2b6en"e' f"iPt -o2n6-t1h"e' house rent and car rental of its employees shall be based on the actual usage thereof for taxable year 2008 that amounted to P1,579,500.00 and P490,000.00, respectively. 14 Thus, respondent's allegation regarding the matter has no merit. D. Deficiency Withholding Tax on Compensation Respondent contends that petitioner failed to show any factual proof to support that the difference of the salaries and wages per Alphalist and financial statement is brought about by Expat Officers' salaries paid in Thaila~ 14 Pages 49 to 50 of the Decision, docket, val. 2, pp. 956 to 957.

AMENDED DECISION CTA CASE NO. 8597 Respondent insists that a compromise penalty of P3,000.00 was still part of the assessment for failure of petitioner to @e accurate information on the remittance. Petitioner expresses that it need not respond to respondent's argument because it was already ruled upon by the Court in the assailed Decision. Perusal of the above shows that the argument raised by respondent is a mere rehash of the same facts and issues which have already been passed upon extensively in the assailed Decision. Therefore, there is no need for the Court to further discuss on the said argument. E. Deficiency Expanded Withholding Tax Petitioner claims that the matter pertaining to the EWT assessment was adequately explained in the ICPA Report and the said report included all the exhibits that were examined by the ICPA as annexes thereto. It is alleged by petitioner that the Court should have considered not only the documentary evidence but also the testimonial evidence presented which were equally, if not, more persuasive. Petitioner points out that respondent failed to rebut the evidence that the former presented. As discussed earlier, the evidence not formally offered may be admitted and considered by the court provided the said evidence has been duly identified by testimony duly recorded, and has been incorporated in the records of the case. The ICPA submitted the following exhibits: Particulars Reference Exhibit 1) Payments to Air Transportation Office (ATO) Exhibit Nos. "31.2- 31.2.1" and "31.2.2 2) Additional Payments to ATO - 31.2.27" 3) Payments to Outsourced Services _(security agency) Exhibit Nos. "31.3" and "31.3.1 - 4) Reimbursement of expat expenses 31.3.25" 5) Credit card fees 6) Expenses paid to sales team Exhibit Nos. "31.4" and "31.4.1 - 7) Expenses paid for repairs of vehicle 8) Expenses paid for admin services 31.4.23" 9) Expenses paid for transportation expenses 10) Expenses for ground handling expenses Exhibit Nos. "31.5" and "31.5.1 - 11) Expenses paid for representation expenses 12) Expenses paid for claims re damaged cargo .31.5.41" Exhibit No. "31.6" Exhibit Nos. "31.7- 31.7.1" Exhibit No. "31.8" Exhibit Nos. "31.9.1 - 31.9.5" Exhibit No. "31.1 0" Exhibit Nos. "31.11 - 31.11.5'' Exhibit No. "31.12" Exhibit No. "31.13" /a-/

AMENDED DECISION CTA CASE NO. 8597 Although the same were not formally offered, these exhibits were submitted to this Court and were likewise identified in the ICPA Report which was also identified by petitioner's witness, Mr. Wilfrido C. Rodriguez15; thus, the said exhibits shall be considered in the Court's determination of petitioner's deficiency EWT liability. In ascertaining petitioner's deficiency EWT liability, the Court found that only items No. 1- Payments to Air Transportation Office, No. 2 - Additional Payments to ATO, and No. 3 -Payments to Outsourced Services (security agency) were properly and adequately supported by billing invoices and official receipts. Anent Item No. 1 -Income Payments to ATO, these are supported by Billing Statements submitted by petitioner, detailed as follows: Exhibit Nos. Account No. Amount Exhibit 31.2.3 2215 p 1,852,642.40 Exhibit 31.2.4 and Exhibit 31.2.5 2215 Exhibit 31.2.7 2215 1,850,822. 75 Exhibit 31.2.9 2215 1,739,739.94 2215 1,930,564.38 Exhibit 31.2. 11 2215 Exhibit 31.2.13 2215 2,100,104.80 Exhibit 31.2.15 2215 1,959,532.75 Exhibit 31.2.17 2211 1,994,681.60 Exhibit 31.2. 19 2211 2,163,624.17 Exhibit 31.2.21 2211 2,019,525.67 Exhibit 31.2.23 2215 Exhibit 31.2.25 2215 2,172,707.70 Exhibit 31.2.27 2,018,629.74 Per Su{J{JOrts --- 2,041,313.54 1,908,157.79 -- p 25,752,047.23 Moreover, Item No. 2 -Additional Payments to ATO amounting to P6,21 0,863.11 were found to be income payments doubly recorded in the books of petitioner, hence, twice subjected to EWT per respondent's assessment. These were recorded both under Account #2215 - Navigation Fees Control and Account #2211 - Fixed Handling Fees ControP6: Exhibit Payee Account PVNo. Amount Number Code p 2,019,525.67 Air Transportation Office (ATO) 63728 31.2.19 Air Transportation Office (ATO) 2211 63898 2,172,707.70 31.2.21 Air Transportation Office (ATO) 2211 64209 2,018,629.74 31.2.23 2211 p 6,210,863.11 TOTAL // 15 Exhibit "P-29", Judicial Affidavit of Wilfrido C. Rodriguez, docket, vol. 2, pp. 506-521; 516. 16 See highlighted amounts in Exhibit "31.2.1".

AMENDED DECISION CTA CASE NO. 8597 The 2% deficiency EWT assessment on the foregoing income payments of P25,752,047.23 and P6,210,863.11 shall be cancelled considering that ATO, being a national government office, is exempt from EWT, pursuant to Section 2.57.5 of RR No. 2-98, as amended, to wit: "SECTION 2.57.5. Exemption from withholding. - The withholding of creditable withholding tax prescribed in these Regulations shall not apply to income payments made to the following: (A) National government and its instrumentalities, including provincial, city or municipality governments; xxx" Meanwhile, with regard to petitioner's payments for security services to Trifecta Security Services amounting to P144,982.20, the Court found that these were erroneously classified by respondent as Commission subject to 10% EWT. Pursuant to Section 2.57.2(E)(4)(g) of RR No. 02-98, as amended by RR No. 17-03, such income payments are subject to 2% EWT: "SECTION 2.57.2. Income Pqyment Suiject to Creditable Withholding Tax and Rates Presm"bed Thereon. - Except as herein otherwise provided, there shall be withheld a creditable income tax at the rates herein specified for each class of payee from the following items of income payments to persons residing in the Philippines: XXX XXX XXX (E) Income pqyments to certain contractors - On gross payments to the following contractors, whether individual or corporate- Two percent (2%). XXX XXX XXX (4) Other contractors- (g) Messengerial, janitorial, private detective and/or security agencies, credit and/or collection agencies and other business agenct.es;" It is also to be noted that the folder containing the alleged supporting documents for Reimbursements of Expat Expenses (Exhibit Nos. "31.5" and "31.5.1 - .31.5.41 ") actually contain journal vouchers and official receipts f~

AMENDED DECISION CTA CASE NO. 8597 income payments made to Trifecta Security Services which is a different expense altogether. Hence, the Court finds it proper to disallow the same. Furthermore, the rest of the expenses were supported by mere petitioner-prepared internal schedules. It should be noted that such do not have probative value without corroborating third-party evidence (i.e., official receipts, commercial invoices). Since petitioner failed to present evidence such as invoices and official receipts in support of the schedules, we cannot verify the amounts and nature of the transactions and their appropriate tax implications. After considering the supporting documents for Payments to Air Transportation Office and the Payments to Outsourced Services (security agency), which were disallowed in the assailed Decision, the Court sustains respondent's basic deficiency EWT assessment for taxable year 2008, but in the reduced amount of P315,544.43, as computed below: Rental Amount Rate EWTDue Contractor , 22,393,567.12 5% , 1,119,678.36 Less: Pqyments to ATO not suf:jed to EWT 207,443,545.88 3,512,512.35 Pqyments to ATO doubjy suf:jeded to EWT ry (25,752,047.23) 214,271.80 56,025.00 respondent (6,210,863.11) 55,065.93 Add: Pqyments to Trifecta Securiry Seroices erroneous!;: 144,982.20 2,717,088.64 suf:jed to 10% EWT 175,625,617.74 2% 606,585.90 Professional fee 2,142,718.02 10% 8,278,328.34 Professional fee , 7,965,683.55 Top lOT Corp. (Services) 373,500.00 15% p 315,544.43 Top 1OT Corp. (Purchases) Commission/broker 2,753,296.66 2% Less: Pqyments to Trifecta Securiry Seroim Allowances paid to gov't. Employees 271,708,863.79 1% Total Less: Payment 144,982.20 Basic Deficiency EWT (144,982.20) - 4,043,906.00 15% P478,896,487.13 WHEREFORE, premises considered, respondent's Motion for Partial Reconsideration (Re: Decision dated September 16, 2016) is DENIED for lack of merit. On the other hand, petitioner's Motion for Partial Reconsideration is PARTIALLY GRANTED. Accordingly, the dispositive portion of this Court's Decision dated September 16, 2016 is hereby amended to read as followy

AMENDED DECISION CTA CASE NO. 8597 "WHEREFORE, premises considered, the assessments issued by respondent against petitioner for taxable year 2008 covering deficiency Withholding Tax on Compensation (P3,000.00) and Fringe Benefits Tax (P685,941.15) are CANCELLED and WITHDRAWN. However, the assessments issued by respondent against petitioner for taxable year 2008 covering deficiency Income Tax, Value-Added Tax, Percentage Tax and Expanded Withholding Tax are AFFIRMED but with modifications. Accordingly, petitioner is ORDERED TO PAY respondent the amount of P1,240,353.45 representing basic deficiency Income Tax, Value-Added Tax, Percentage Tax and Expanded Withholding Tax and the twenty five percent (25%) surcharge imposed under Section 248(A) (3) of the NIRC of 1997, as amended, and the amount of Pl,773,352.70 representing twenty percent (20%) deficiency and delinquency interest on the partial payments made on October 21, 2016 or in the aggregate sum ofP3,013,706.15, computed as follows: Type ofTax Basic Tax 25% Surcharge Total Income Tax p 84,772.09 p 21,193.02 p 105,965.11 i Value-Added Tax 105,605.51 Percentage Tax 422,422.05 42,386.05 528,027.56 Expanded Withholdin_g_Tax 169,544.19 78,886.11 211,930.24 i Sub-Total 315,544.43 p 248,070.69 394,430.54 p 992,282.76 P1,240,353.45 , 20% Deficiency and p 111,931.79 Delinquency Interest on the partial payments made on 1,661,420.91 October 21, 2016 Pl,773,352.70 Income Tax P3,013,706.15 Percentage Tax Sub-Total Total In addition, petitioner is ORDERED TO PAY: a) Deficiency interest at the rate of 20% per annum on the basic deficiency Income Tax, Value-Added Tax, Percentage Tax and Expanded Withholding Tax computed from the dates indicated below until fu~

AMENDED DECISION CTA CASE NO. 8S97 payment thereof pursuant to Section 249(B) of the NIRC of 1997, as amended: Tax Type Basic Tax Deficiency interest computed from Income Tax Value-Added Tax p 84,772.09 April 15, 2009 Percentage Tax 422,422.05 January 25, 2009 Expanded Withholding Tax 169,544.19 January 25, 2009 January 12, 2009 315,544.43 b) Delinquency interest at the rate of 20% per annum on the total amount of P1 ,240,353.45 and on the 20% deficiency interest which have accrued as aforestated in (a) computed from December 10, 2012 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended. SO ORDERED." ~� ~ .<1 '- WE CONCUR: MA. BELEN M. RINGPIS-LIBAN Associate Justice LOVEJ.. BAUTISTA justice .. ATTESTATION I attest that the conclusions in the above Amended Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. LOVEuN. BAUTISTA Assoczate Justice Chairperson

AMENDED DECISION CTA CASE NO. 8597 CERTIFICATION Pursuant to Section 13 of Article VIII of the Constitution, and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Amended Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. ~C. ~"Ot..t \) Jt'JANITO C. CASTANEDi()R.. Acting Presiding Justice