CTA Case No. 3189 (Decision)
REPUBLIC OF THE P.HILIPPIMES COURT OF TAX APPEALS QUEZON CITY SMIT-LLOYD B.V., Petitioner, C.T.A. CASE NO. 3189 THE ACTING COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - - - - X DE C I I This is a claim for ta:-: credit involving the amount of P422~058.94 representing alleged overpaid 8/. final ta~-~ ~.-.Ji thheld petitioner by Phi 1 i ppine - Ci ties Ser-vice, Inc. for the quar-ters ended December 31, 1978 and March 3 1~ 1979. Petitioner, Smit-Lloyd B.V., is a foreign corporation organized under the 1 a~"s of the Netherlands . It is engaged in the business as a resident international carrier in the Phi 1 ippines with business address a t Mar-y Bachrach Building, 25th Street~ Port Area~ Man i 1 a. It oper-ates a fleet of vesse l s of foreign registry that calls on Philippine ports at regular schedule. These vessel& are generally chartered principa lly to international oil companies to service the needs of their offshore oil drilling activities.
DECISION CTA CASE NO. 3 1 89 - 2- Sometime on September 13, 1978~ petitioner entered into a charter party to provide supply vessels to Philippine - Cities Service~ Inc. which is engaged in petroleum exploration and development in the Philippines. The services include as follows: (a) Carrying s upplies on behalf of Philippine-Cities Service~ Inc. principally �from overseas to offshore platforms and drilling rigs to t1abini, Batangas; ( b ) Carr�ying personnel from overseas ports to offshore p l atforms and drilling rigs and vice-versa. In accor�dance li~i th said charter party agt-eement ~ payments were made to petitioner for the respective quarters ended December 31, 1978 and March 31, 1979. The total amounts of P456,467.10 and P410, 430.65, rept- esen ting the 8% f ina 1 ta:-: under P.O. 1354 were withheld petitioner by Philippine - Cities Service~ I nc. and paid to the BIR on January 25~ 1979 and 1979~ r�espec ti ve 1y. However, on June 28, 1979~ petitioner through its external auditor, SGV & Company, filed a formal c 1aim fot- ta:-: ct- ed it covering the above internal revenue tax payments~ alleging that i t had overpaid
DECISION CTA CASE NO. 3189 the a bo ve - men tioned internal re v enue tax payments by three and one- half ( 3-1/2 ) per centum. It cited as l e gal basis BIR Ruling No. 023- 79 dated April 27~ 1979 holding S mit- Llo y d B.IJ.' as an intern ational carrier s ubject to the income ta x of 2 - 1/2% on its gross Philippine billings and to the 2% common ta }: pur�suan t to Sections 24 (b)(2) and 207 of the National Inte rnal Revenue Code of 1977 . It appearing from the records that respondent does not di s pute the afm-ementioned fa cts and in �fa c t failed to fil e his objection to the fat- ma l of "fer o"f evidences by petition er , pat- ties decided to s ubmit this case fat- decision on the basis of the pleadings a lready s ubmitte d. In view ther e of~ the i ssu e to be reso l ved in this particular case is wh e the r or not p e titioner is liable to the 8% final tax under P.O. 1354 , or to the 2- 1 / 2 % income ta x on i t s gross Philippin e billings and to the 2% common c: an- .ier�' s ta :-: under� Section s 24 (b) ( 2) a nd 207 of the Tax Code of 1977. Respondent maintains the app 1 icabi 1i t y of the provisions of P .O . 13 54, as follows: Imposi ng Final Income Ta:�: on Subcontractors and Alien Employees of Service Contractors and Subcontractors 5~7
DECISION CTA CASE NO. 3189 - 4- Engaged in Petroleum Operations in the Philippines Under- Presidential Decree No. 87 SECTION 1 . Ta:{ on sub- contractors. - Every subco ntra ctor~ whether do me stic or foreign~ enteri ng into a contract with a service contractor engaged in petroleum operations in the Philippines s hall be liabl e to a final income tax equivalent to eig ht percent (8%) of its gross income derived from s uch contract, suc h tax to be in lieu of e:1 n y and all ta:�:es, whether national ot- 1 OC (31 : >! ~�~ X � On the other- hand, petitioner- cited Section 24 (b) (2) a nd 207 of the Nation al Internal Revenue Code, as follow s : Sec. 24. Rates of ta:�: on cor-por-ation s.-(a) x ( b) (1 ) (2) Resident corporations. - A cor-por-ation organized, authorized~ or- e}:isting under- the latt�IS of any for eig n country, engaged in trade or business within the Philippines, shal l be taxable as provided in su bsec tio n (a) of this sec tion upon the total net income received in the preceding ta xable year from all sources within the Philippines: Provided, however~ That international carriers shall pay a tax of two and one- ha 1 f per cent on the it- gross Phi 1 i ppine billings x x x. Sec. 207 . Percentage tax on carriers and kee pe r s of garages. - Keepers of garages, cars for rent or hire dri ven by th e 1 essees ~ tt-a n sporta tion con tt-ac tors, person who transpor-t passengers or freight for hire, and c ommon carriers by land, air~ or water, except owners of banc as and owners of animal-drawn two-
DECISION CTA CASE NO. 3 189 - 5- wheeled vehicles~ shall pay a ta x equivalent to two per centum of their monthl y gross receipts. i s the principle that in case of co n �f 1 ic t beb"'een a spec ia 1 1 a~'-1 and a genet- a 1 1 aw the provision of the former shall prevail over that of the 1 at te r�� . Gen-e ralia Spe c ialibu s Hon Der o gant. Wher- e a 1 a ter- spec ia 1 l <::H'-1 on a par- ticu 1 ar subject is repugnant to, or in c onsi s tent wit h ~ a prior g e neral law on the s ubject, a partia l repeal of the latter ~'Jil l be implied to t h e extent of the repugnancy or an exception. grafted upon the general A special law must be intended to constitute an e::ception to t h e gene r- a 1 1 aw in the absence of spec ial c i r�cums t ances forcing a con c lusion. ( Nati o nal PoNer Cor p o rati o n vs . Hon. Pre s i d ing Judge, Pr ov in c e o f Hi s ami s Oriental , G.R . No. 72477~ October 16 ~ 1 990.) An examination o f t h e two l a ws wi l l show t h at the National Internal Revenue Code is a general l aw c ompared to F'residen tia 1 Decree No. 1 :354. t.rJh i 1e the former gover �ns in genera l ta xa tion of a ll ty pes o -F ind i v idu.a 1 s and cotr p ora te entities ~ the 1 at ter takes exce ption and treats especially the manner of ta:: .ing subcon tr�ac tor s and e mployees of s e r-..; i ce contractors and s ubcontractors engaged i n
DE C I S I O N CTA CASE NO . 3 189 - 6- petroleum operation. Therefo re~ based on the a for�e -- men tioned do c trin e~ the prov ision of Presidential Decree No. 1354 should prevail. This cone lusion becomes more apparent if we will take note of the fact that Presidential Decree No. 1354 n?cogn i zes in it:~. opening para.g raph t h at "for-eign subcontractors invol�.;ed in petroleum o pE-!ra tion s in the P h ilippines are ta:.: able as resident for-eign corporation". In other words~ the lav~m aker v~a ~.:; that foreign subcontractors e nga.ged in petroleum operations were ta:.:ed as resident foreign corporation under Section 24(b)(2) of the Tax Code including entities engaged in international carr� iage the subject prr.:'}s i dential decr�ee wa�::; promulgated. T he purpose therefo re of the law is to take away from the �provision of said section of the National Internal Revenue Code, foreign subcontractors involved in petn:J I eu. m oper��a tions by ho 1ding them 1 iab 1e to a s p e cia l rate of 8% of its gros s income derived from .its co n tt~ac t 11-1i th a service contr�ac tor� e n gaged in petr�o I eu.m oper�a tion . Had the intention been to e xc lude internationa l carriers, this should have been specified but the 1 a\1-J remains si 1 en t and in fact did not distinguish. Al so, nowhere under said presidentia l decree ~~~as i t the intention of the
DECISION CTA CASE NO. 3189 - 7- lawmaker to give preferential treatment to foreign subcontractor. The intention was merely "to s implify the method of taxing the sai d foreign subcontractors x x so as to insure the col l ection of \r�Jhatever t a}: i s due from them." (5th p a r-ag tr aph of the ~lhereas C 1 ause) . Another purpose is to place domestic subcontractor on equal footing with foreign subcontractor 1r~hich we shall discuss below. Furthermore~ please take note that one of the main purpose for the issuance of P. D. 1354 is "To plac e loca l or domestic subcontractors on equal footing and to make them competitive with foreign subcontt- ac tors, they should simi l at- 1y be taxed as foreign subcon trac tot-s". (6th paragr-aph of the Whereas Clause.) In accordance with the objective, Secticm 1 of P.O. 1354 that ?P I::J ~o r:J .tr:.S\c;::tq_r::, ..... ..... "-~hether dome:?..tic .. CJr e ntering into contract with a service contr-actor e ngaged in petro 1eum operations in the Philippines s ha 11 be 1 iab 1 e to a f ina 1 income ta:�: equivalent to eight percent (8%) of its gross income deri '-"ed from such contract, such tax to be in lieu of any and all ta xes , whether national 01r local" (Underscoring supplied) . If ~t-Je will follow the position taken by the petitioner and 56~ .
DECIS ION CTA CASE NO. 318 9 - 8- concur tJ.Ji th the cited BIR opinion holding petitioner liable to pay only 2-- 1/2% ta~: on gross Phi 1 i ppine bi 11 ing s p 1 us 2% common carrier's ta:-:, the purpose of the 1 a1--1 wi 11 be defeated b eca use domestic s ubcontr-act or- engaged in s imilar s ubcon tract of lease or charter of vessel can never be s ubject to the lo11~er 2-1/2 on gross Philippine billings. Thi s 1 OtJ.Ier ta x rate app 1 ies on 1y to resident �foreign cor-�porations. Clear- l y , the intention of the 1 atJ-1 ~ P. D. 1 35 4 in a.pp 1 y ing a s i mi 1 ar 8% ta}: on both, domesti c and foreign, i s to place them on e qual focJ ting in ter-ms of winning a s ubcontract agreement with a contractor engaged in petroleum operations. To rule othe r wise is to plac e a domestic subcontractor- at a disadvantage vis-a-v i s a foreign s ubcontractor. Mor--eover, if ~~~E.' will examine closely the activities of the vessels of the petitioner emp loy e d in the operation 114hich we quote as fo 11 0\-'IS: 1. Cat- r-y ing s upp 1 ies on beha 1 f of Philippine- Cities Service, Inc. pt--i n c ipally from ov erseas ports to offshore platforms and d r i l ling rig s and to Mabini~ Batangas which is the s upply base of companies engaged in oil e::ploration and development and r�e l ated activities. These supplies c:on~::;ist o nly of tho se items which are necessa ry to sustain an offshore 5h?
DECISION CTA CASE NO. 3189 - 9- p1~tr-oleum e}: p 1 or-ation or- pi~oduc tion oper-ation. Supplies include but ar-e not 1 imi ted to: f oo d, ~'iater- ~ fuel~ bulk cement an d dr-illing fluids, dr-illing and logging tools and equipment; and 2. C<i: n�� y ing per-sonnel �fr- o m ove r-seas po,- ts to of �fshot- e p 1 at fot-ms an d dr-illing r-igs and v ice- versa. We can conc lude that the se activities are not c: ove r��e d by the phr- ase "gr- oss Phi 1 i ppine bi 11 ings" being taxed at 2-1/2% under Section 24(b)(2) of the Ta:-: Code. The law de �fines "Gr� oss Phi 1 ippine Billings" as gr-� oss r��evenue n:~alized fr-o m uplifts anywhere in the world b y any internat ion a l carrier doing business in the Philippines of passage c:loc:u rnent s s old ther-ein~ Nhet h er- for- passenger� , The gr-oss r-evenue r- eali ze d fr- o m the sai d car-go or- mail includes the gr-oss freight c har-ge up to fin a l destina t ion. ''Gr.:.CJs'=!...Cht..Li.PP.:i:..D..�!.. J3.ilJ..i,.rJ9?." r-egar�dless of the place of sale or- pa y ment of the passa ge documents. For- pur�poses of de ter-m in ing the ta ::a bi 1 i t y of r�evenu.es fr� o rn char-te r-ed flight s ~ the i tenn "gr.::i.ginc;~.:t::i.og _ f .r �qm i:.hf:?.. .F'lt:i.Jippif'le__s" sba ll. . Jnc tudE?.. :flj._g _ll:t.. p:f p@._ssgnger.:.?. 11:1ho ....? t.<o:~y __) ,1:1 _ t,he__ _Phi lippin?s. _fgr. . __mp_r:_e __ j; h~n ...:fP.r:t:.Y.:: ... P r- :i, q r::__ . J:9... . _.. em.P.~-r.J::..a t:Jgn" �
DECISION CTA CASE NO. 3189 - 10 - (Underscoring supplied) Please note that while the service activities of the vesse ls of petitioner s peaks of carrying suppli es and pe rsonn e l from ove l-- sei3.s ports to of f s hor�e p 1at forms and dr i 11 ing rigs and to t'labini ~ Batangas, the gross revenue c ontem plated under the phrase "gross Philippine billings" speaks of cargo, mai l or char�tered flights originating from the Philippines, a complete reverse of the aforementioned activities. Considering a ll the above j urisp rudence and objectives of the l al-'J, the Court concludes that ~~~hat the petitioner h as done in paying the 8/. tax purs uant t o P.D. 1354 is in order. WHEREFORE, the instant Petition for Review is hereby dismissed. The claim for tax credit is consequent 1y c:i.I!'!Di.!?.c:i.. No pronouncement as to costs. SO ORDERED. Quezon City, Metro Manila, November 1991. ~~~~ ERNESTO D. ACOSTA Associate Judge I CONCUR:
- DECISION CTA CASE NO. 3 189 - 11 - CERT I F I CAT I 0 N I that this decision was reached after due consultation between the members of the Court of Tax Appeals in accordance with Section 1 3 ~ Article VIII of the Constitution . .j tt: "l !I . '--...._ ANT;(' C . ROAQU IN ssociate Judge C urt of Tax Appea l s
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