Case Digest (G.R. No. 169507) Core Legal Reasoning Model
Core Legal Reasoning Model
Facts:
In Air Canada v. Commissioner of Internal Revenue (G.R. No. 169507, January 11, 2016), petitioner Air Canada, a foreign corporation organized under Canadian law and authorized by the Civil Aeronautics Board as an offline international air carrier from April 24, 2000 to April 24, 2005, appointed Aerotel Ltd. Corp. on July 1, 1999 as its general sales agent in the Philippines to sell passage documents. Between the third quarter of 2000 and the second quarter of 2002, Air Canada filed quarterly and annual income tax returns on Gross Philippine Billings and paid P5,185,676.77. On November 28, 2002, it filed a claim for refund with the Bureau of Internal Revenue, prompting a Petition for Review with the Court of Tax Appeals (CTA) on November 29, 2002 docketed as CTA Case No. 6572. A First Division decision dated December 22, 2004 denied the refund, finding Air Canada a resident foreign corporation subject to the 32% rate under Section 28(A)(1) of the 1997 National Internal Revenue Co Case Digest (G.R. No. 169507) Expanded Legal Reasoning Model
Expanded Legal Reasoning Model
Facts:
- Parties and Background
- Petitioner Air Canada is a foreign corporation organized under Canadian law, granted authority by the Civil Aeronautics Board on April 24, 2000 to operate as an offline international air carrier in the Philippines (valid until April 24, 2005).
- As an offline carrier, it had no flights to or from the Philippines and did not operate any aircraft within the country.
- General Sales Agent Arrangement
- On July 1, 1999, Air Canada appointed Aerotel Ltd., Corp. as its general sales agent (GSA) in the Philippines, authorized to sell passage documents on its behalf.
- The Passenger General Sales Agency Agreement imposed detailed duties and standards on Aerotel, including exclusive representation, fiduciary obligations, submission of sales plans, control over premises and staff, and accounting requirements.
- Tax Payments and Refund Claim
- From Q3 2000 to Q2 2002, Air Canada filed quarterly and annual returns, paying ₱5,185,676.77 in income tax on “Gross Philippine Billings” under Section 28(A)(3)(a) of the 1997 NIRC.
- On November 28, 2002, it claimed a refund of that amount, contending the Gross Philippine Billings tax did not apply since it had no flights to/from the Philippines, and petitioned the BIR and then the Court of Tax Appeals (CTA).
- CTA Proceedings and Supreme Court Petition
- The CTA First Division (Dec. 22, 2004) denied the refund, ruling Air Canada was a resident foreign corporation taxable at 32% under Section 28(A)(1), and that Aerotel constituted a permanent establishment under the Philippines-Canada Tax Treaty.
- The CTA En Banc (Aug. 26, 2005) affirmed, dismissing Air Canada’s petition. Air Canada then filed the present Petition for Review under Rule 45 before the Supreme Court.
Issues:
- Tax Classification
- Whether an offline international carrier selling passage through a general sales agent is a “resident foreign corporation” under Section 28(A)(1).
- Whether Section 28(A)(3) (2½% on Gross Philippine Billings) applies to such a carrier, or whether it is subject to the 32% regular corporate income tax under Section 28(A)(1).
- Tax Treaty Application
- Whether the Philippines-Canada Tax Treaty is enforceable and overrides conflicting Code provisions.
- Whether appointment of a general sales agent constitutes a “permanent establishment” under Article V(2)(i) of the Treaty.
- Whether under Treaty Article VIII Air Canada’s tax should be capped at 1½% of gross Philippine revenues.
- Refund Entitlement
- Whether Air Canada is entitled to refund of ₱5,185,676.77 allegedly erroneously paid.
- Whether the CTA properly determined that Air Canada, not being subject to Sec. 28(A)(3), was instead taxable under Sec. 28(A)(1), thus negating the refund.
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)