CTA Case No. 3415 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY PAN- MARINE INTERNATIONAL, INC., (Philippine Branch), Petitioner, C.T.A CASE NO. 3415 THE COMMISSIONER OF INTERNAL REVENUE, Rt::!s p cmd E? n t. >~ �-- ��- ..... ���- �- -�� -- � �- -�� ~< DEC I I 0 N Th e case i n v ol ves a c l a im f o r- t h e re fund o f F' 2 85, 6 .1 9. ~)2 ;01 ll eqe d e r-r--o n e ou s 1 y \<.Ji t hh e l ~ B/. �f i n a l t a x o n g ro s s i n co me o f s ub - c o n tractors e n gag ed i n petro l eum operation s as p tr�ovi d l? d und c�?r� F'r-esidentia l D t.,�c:r�� e~;: No . 1 ::::5 4 t ake n i n re l at i o n wi th Pre si d e n tial Decree No. 87. I t a p pe ars t hat pet i tion er a resi d e nt f o r ei gn c o rpora t ion duly li c en s e d t o e n qag e i n bus in ess i n ~;.h ~=~ P h i l .i. pp.i.rH:!S en ter�ed i n to c ontr-ac t s with J: he P h i li p p i n e Ci t ies Se r-v i ce (CI TC O) on J a nu a t~ y 2 9, .1.980 t:md Am oc o Philipp i n e P et r� o l e urn Co. (AMO CO) o n 1979 , both duly qu a l i f ied crs

DECISION CTA CASE NO. 3415 - 2- under Pr-esident U.\ l Decree No. 87, Em titled~ "The Oil E:�:p 1 oration DeveloprTH:;)nt Act of 1972". Under said con t.rac ts peti tiont~r under-too k to specia lized of f s hore service a nd supp 1y vesse 1s to be used as fo 11 ow~;: 1. CITCO: The vesse 1 s ha 1 1 be u se d for�� the 1awfu 1 movement of rn a ter�ia 1s a nd personne 1 inc idf.m ta 1 to the CHARTERER'<;; opera t .ions in exploration for and production of oil~ gas a nd other minerals offshore F'hili.ppines. (Ar-ticle IV Time Charter Party) 2. At�10CO: The vesse l s hall be employed for the lawful mo ve ment of sup plies, equipment a nd other materials a nd personnel as well a s suc h other person s as the occasion req uir es in the wate rs offshore the country/ies as descr ibed in t he addendum at 4�.ached hereto. The vessel s hall not r=~nt: ; 1ge in the Ci:1FTiage of goods or personnel for hi re. Upon mutual agreement, the vessel may be directed to countries of the world~ other than those li s ted in the Add e ndum~ provided owner consents thereto~ which conse nt s hall not br:? unr� easonably withheld. (Ar�t.i.cle II, Service, Time Charter Party) For- ser-v icr=?s such amounts r-e pn:?se n t.ing the 8/. f ina 1 ta:.: imposed by PO 1354 \'ler-e \'lithheld fr-o m petitioner 's gross .income, to

DEC I SION CTA CASE NO. 34 1 5 - 3- (-'ts of Dl-x:ember 31 ~ 1979 G-1 g n:JSs .incO'TlE? o �f F'1 , 18~5, 208. 20 � � F' 94, 816. 66 A'::; of 1'1ar-c: h 31, .1980 0 �1 gr-oss .im.:ane of F2,004, 703.96 �� F'l60,-:::.-:76.31 CITCO: As of Febn...t;;~.ry '2:9 , 1980 o-, gi'..CJSS incane of P::.so' 3'?9. 38 TOTAL. F"::':'.85, 619. ~52 H ~::\V .i.ng considered the ~<~ithheld amounts erroneous ly imposed and co llecte d, petitioner filed a c J. aim for� the r�� efund ther-e for on December 17, .191:�31 but. without wa i t i nCJ for the r �esponden t.' s l"eso l u t ion, instituted the instant petition for review on January 19~ 1982. F'~? t.i t.i u n er- would h ave i t s undertaking under t h ~~ c9 n tr�,::H::: t s considered basic a 11 y as those of an .intei'Tlat.i.onal car-rier� an d not o �f a sub--contractor c ont e mpl ated .in F'D 1354 for ta x purpo ses ~ citing a May 11~ .1978 ruling of the respondent's predecessor .....in �favor� of Zapata Mar-ine Ser-vices, Ltd., S " A., which deemed ;,;uch acts of "fLwnishing by char� ter or othen<~ise spec ia 1 i zed offshore ser�v ice and supply Vl=.:> ss els to o �f �fshore oil clr�i lling rigs" merely as an

DECISION CTA CASE NO . 3 415 - 4- a~t of an international carrier s ubject to an incomE! tc:n: of 2 1./2/. of gross Phi 1 ippine b.i.l J. ings pL.wsuan t to Section 24 (b) ( 2 ) of the Ta:-: Code. But respondent took an adverse stance and a J. together� over r�ul ed his pl~edecessor with an unvar� ying "Assu mi ng that petitioner's business consists of furnishing by way of or s pecialized of f s hor�e services a nd the supply of vessels to offshore services a nd the supply of vessels to of f s hore I dr� .i.lling rigs, '\: h ~~ sa me is .inc.idke ntal to, or� in : t. h F~ nAt.un~~ of, engaging i n 'Pet.r�o 1 eum Open:\ tions' as defin ed under Section 3 par. (d) of P.O. No. 87, hence, subject to t he 8/. final income tax pursuant to F'.D. No . 1.354. " L~t i t s uffice that the .issue wa s squarely met <~ nd n ..ll ed upon in the ensuing "Zapata Marine Service, Ltd., S.A. vs. Commissioner of Internal Revenue, C. T, ('1. Cas e No. 3384, March 30, 1987 ", so h erE~, the h o lding equ i J.ly �" PP 1 ies, Lr.~.tf!..r....� ..!..f:.J:J,_, thus - The s prouting .i mpr ession precitately br� oac h e d by peti tcmer� t h at the services confi n ed to a n interna'\:ional carrier's acti vities s hould not be conside red a

DECISION CTA CASE NO. 3415 - 5- su b -co ntr actor for purpo ses of the 8% �f ina 1 t:a:-: 1 evy ~ can h ard 1 y be a I'"E�!a ~:;~:; UI'- incJ pr�� ospec t th at ca n easi 1 y be reconcil ed with the statutory intendment. Dete r-m:i.n <::\tive of the !':; e-r,se a nd scope of the tf? r-m 'sub-- contr-actor- ' is the natur�e rJ.ncl pur�po se of the par�ticL.I1 ar� contr-acts entered into with the ser-vice contr-actors. Thus, Section 1 of P.D. No. 1354�, ~:;_\:,.U?..r::E'., begin s with the broad <:':l.~:;ser. t .i. em that "Eve1r� y sub ..- co n tna c tor. whether- domes tic or for-eign entering into a contr-~ct with a serv i ce contractor- enga g ed �i n p et r-oleum oper-ations in the Phi 1 i ppint:?!':; s ha 11 be liable to a f ina 1 t:a :�: equivalent to eight p r:~r-cE>.nt (8%) of its gross income from s u c h contract, such t.a :�: to b e in lieu of any a nd a 1 l ta:�:es, whether� n,3tic.mal or- local ." Thi s see me d to be where pe titioner stood with respect. to its contracts with ser-vice contractors , v1z: AMOCO, CITCO and PCSI. As s tipulated, the und E?r-taki ng r-equir-ed of the petitioner somehow pr-ovide the means rH?cessa l~y in pursuing the subject petroleum operation of the service co n t 1'- acto 1'""-:;. Obviously, .in s ofar. ,3s th e statute is brought to bear upon the circ ums tances obtaining, petitioner can r-eadily slip into that war m c ubby - hole of a , su b-contr-actor, s o to speak. Ludicrous ,::m d !;?:�: pE~d iE?n t piffle indeE!d if thE? kind of ar-rangements cannot validly be infused co gn i za n c:e as that o�f a s ub -c on trac tot- within the legal contemplation unless petitioner is unwilling to take the responsibilities or s imply unable to discern what they are. " Mor�eover-, fr�om the contract itself and the natur-e of the subject rna t ter- i t contains the " ser-vices r-ende1'�ed by petitioner- for the ser-vice contr-actor-s are clear-ly connected with the 'petr-oleum operations' since such ~ser-vices wer-e render-ed for the pur-pose of assisting the

DECISION - CTA CASE NO. 3 415 - 6- service contractors in obtai n ing pet:I'"Oli.'?Um. 11 And~ as dE~-finfc.~ d~ 11 p E"~t. r-� o l eum o pr:.�r�'" t. .i. c:>n ~;" mea n ::. sr:o>a r--c:: h .i. ng f 01~ and obtain ing petroleum within the P h i l ippines th rough drilling a nd pressure c:w ~; u c: t. ion cJr. t. h(?. 1 i k P , an cl o t. h E-? r-� t opr.~ ,,.. ,"~ .i. on s i n c .i. den t,:;~J. the r��e:~ to. It. in c lud E�s t h e tr-�anspor�� tation, stor-,':l.gE:?, h a ndling o":\nd !'5 alr:~ Whether.. �for e)�: pDr�t CJ I'"' -for d o me stic consumption o-f petroleum so obtained bt.tt doe s not inc: l uc:le any: ( .1.) tr �;,~n <::;por�tation of pet,,.�olt::! um outsidf? thP Ph i 1 :i. ppi n es; ( 2 ) pnJct:?ss ing or ,. . E~-fi nino at. a r�E~ �f.i.n e r.. y; or� (3) a ny transactions in t he products so refined . ( Sec:. 3(cl), P . D. No . 87.) As not e d, the l aw does not qua l i f y the kind, n ature or extent of the se rvices rendered or to be ren d ered by t he sub-c ontractor whether of s pecia l ized or l imited co ntingency~ pn:Jvid r.'~c:l t.hE'Y o.~r��r~ c:\ddn:? ss;ed to th e serv ice contractors' need s relative to thcd.r-- pEd.�. n :ll.E�um oppr�at:i.cm~;;. "Wh at ' s in a n ame? That which we ca ll a ros e i n any oi::. h er� n ;,;~me v~ou l d ~:. m e ll o':\S s weE-?t ! II As <:=; u c: h Pf" t:.i t .i. clnE! r�� c: ann o t p ,.. y i t.::,e l. f 1 oo se -from th e 8% fin a l tax on gros s income. A 1 thnurJ h th E~ ,.-� p ,;;~c: h CJ f th e i ~;;~:;ur::~ o n V�Jh .i. C: h t<J E' r. E!o::\C h OU ,,.. d E'C .i. ~:;ion l'"' f:? n de I'"'S thE�~ cons ide ration of other s ubsi di ary qu E' o::; t ion <::~ u nne c e s ~5 .::~ r.. y , ~5 u �f f i c P .i t.: t. o s tate t h at it wa s no comedy o-f errors -for r�es pondent Com mi ss ioner of Int er nal Re venue 'to revoke, repeal or abrogate the acts or previous rulings of hi s . predecessor in office because the co n s tr-uc::t..i.on of '"' s .'\~ atut.e by tho se admi ni s teri n g it i s not binding o n their s; u c::ceso::,cws if~ then::?after. , the l atb.-?r-� be co me satisfied that a different ccm �::; t.t�.. u c: t.i.on ~; h o uld bE'.~ given (Hilado v. Coli . of Internal Revenue , .1.00 Phil. 294 (1956), citing Association of Clerical Employees v. Brotherhood of Railroad & Steamship Clerks . 85 F(2d) 152, 109, A.L. � R . ;: .�15) . "

DECISION CTA CASE NO. 3415 - 7- By all the for- egoing~ we a l'" e led unmi s takably to the conclusion of the respondent that petitioner is a sub- contractor within the contemplation of F'.D. No. 1354 to the e:�:h~ nt that the 8/. final tax can valid ly be located. (Affirmed by the Supreme Court in Zapata Marine Service Ltd., S.A. v. Court of Tax Appeals et al. , G.R. No. 80046, April 18, :1.988.) Going by such pronouncement and insofar as the s ame i s brought to bear upon the petitioner's case a t bar, the re can be no occ asion to specu l ate upon what rule s hould apply, otherwise, there would be a r� ,::~ndDm qui r� k in tht~ equal t.a :�: tr�!2a tmr,~n t. of cases s imilarly circumstanced. We the r�efor�e hesitate to �f ;::ts hion an i ss ue into '"' satisfactory se ttl e d legal s ituation. l,,IHEREFCJF~E, peti t ..icm is her-eby dismissed wi t.h c o s t s ~g a .in s t the petitioner. SO ORDERED. DUE? Z C>I"l City~ ... Associate cludge

DECISION - 8- CTA CASE NO. 3 415 li�JF CONCUR~ C. ROAQUIN CERT I F I CAT I 0 N I hereby certify that this decision reached after due consultation among t he members of the Coul�- t of Te~;.: App�~al s in accordance wi t h S ection 13~ Article VIII of the Constitution. AMANTE Pn;~sid ing Judge Court of Tax Ap pea l s "