Aces Philippines Cellular Satellite Corp. vs. Commissioner of Internal Revenue

G.R. No. 226680
Aces Philippines disputed CIR's FWT assessment on satellite airtime fees paid to Aces Bermuda; SC ruled income sourced in PH, modified interest computation per TRAIN Law.
deficiency final withholding tax satellite air time fees satellite communication time

Case Digest (G.R. No. 226680)

Facts:

This is Aces Philippines Cellular Satellite Corporation v. The Commissioner of Internal Revenue, G.R. No. 226680, promulgated August 30, 2022, the Supreme Court En Banc, Inting, J., writing for the Court. Petitioner is Aces Philippines Cellular Satellite Corporation (Aces Philippines); respondent is The Commissioner of Internal Revenue (CIR).

In 1995 PLDT contracted with PT Asia Cellular Satellite (Aces Indonesia) under a Gateway Agreement to supply equipment, software and documentation to enable PLDT to construct and operate gateways in the Philippines. In 1997 PLDT and Aces Indonesia executed a Founder NSP Air Time Purchase Agreement under which Aces Indonesia agreed to sell satellite communications time (the ACeS services) to PLDT, which would be the exclusive supplier in the Philippines; bills would be measured in “Billable Units” and charges excluded set‑up, unanswered and incomplete calls. In 1998 rights under the Air Time Purchase Agreement were transferred so that Aces Bermuda (Aces International Limited) became the foreign payee and petitioner Aces Philippines became the Philippine national service provider and local operator of the gateways.

The Bureau of Internal Revenue audited Aces Philippines for taxable year 2006 and found that Aces Philippines paid Aces Bermuda P199,312,169.00 in satellite airtime fees but failed to withhold final withholding tax (FWT). The CIR issued a Final Decision on Disputed Assessment (FDDA) dated August 23, 2012 assessing deficiency FWT (plus surcharge, interest and compromise penalty) totaling P170,935,184.92. Aces Philippines filed a judicial protest with the Court of Tax Appeals (CTA).

The CTA Second Division, by Decision dated July 23, 2014, affirmed the FDDA with modification and ordered petitioner to pay P87,199,073.94 as basic amount (basic tax plus 25% surcharge) and to remit deficiency and delinquency interest pursuant to the 1997 Tax Code. The Division denied petitioner’s motion for reconsideration. The CTA En Banc, in a Decision dated June 8, 2016 (Resolution dated August 16, 2016 denying reconsideration), affirmed the Division, ho...(Pro-only)

Issues:

  • Are the satellite airtime fee payments to Aces Bermuda income from sources within the Philippines and therefore subject to Philippine final withholding tax?
  • If so, is petitioner liable for deficiency and delinquency interest and how should interest be computed in view of subsequent ...(Pro-only)

Ruling:

  • (Pro-only)

Ratio:

  • (Pro-only)

Doctrine:

  • (Pro-only)
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