Case Summary (G.R. No. 222239)
2012 RTC Decision on RMC 31-2008
Petitioners first sought declaratory relief in December 2010 against RMC 31-2008. RTC-Branch 98 ruled in May 2012 that:
- Demurrage and detention fees form part of Gross Philippine Billings (GPB) subject to 2.5% tax under Section 28, not regular income tax or 12% VAT
- Domestic portions of international shipping services and certain commissions were not subject to 12% VAT
The order became final June 16, 2012.
RA 10378 and Issuance of RR 15-2013
RA 10378 (March 2013) amended Section 28(A)(3)(a) to define GPB for international carriers and codify a 2.5% tax on GPB, with exemption or preferential treatment based on reciprocity or tax treaties. Section 5 directed the Secretary of Finance to promulgate implementing rules, leading to RR 15-2013 (September 2013).
Petition Challenging RR 15-2013
In December 2013 petitioners challenged Section 4.4 of RR 15-2013, which treats all income items outside GPB—specifically demurrage and detention fees—as Philippine-sourced income subject to regular income tax. They invoked res judicata based on the 2012 RTC order and argued RR 15-2013 exceeded statutory authority and lacked public hearing and UP Law Center registration.
Trial Court Ruling: Jurisdiction and Res Judicata
RTC-Branch 77 granted judicial notice of prior rulings and RA 10378 but:
- Held it lacked jurisdiction under CA 55 to entertain petitions challenging tax regulations
- Found no res judicata because the Secretary of Finance was not party to the 2012 case and issuances emanated from distinct authorities
- Upheld RR 15-2013 as a reasonable interpretative regulation not requiring public hearing or UP Law Center filing
Supreme Court: Res Judicata Does Not Apply
The Court confirmed res judicata requires identity of parties, subject matter, and causes of action. Here:
- Parties differ: the 2012 case bound only the CIR, not the Secretary of Finance
- Subject matter differs: RMC 31-2008 (CIR’s circular) arose under Section 4 NIRC, whereas RR 15-2013 was issued by the Secretary under Section 244 NIRC and Section 5 of RA 10378
Thus, no bar by prior judgment.
Proper Remedy: Treat as Prohibition/Certiorari
Commonwealth Act No. 55 bars regional courts from declaratory relief over tax liabilities. A petition for declaratory relief cannot challenge tax regulations; the proper vehicle is certiorari or prohibition under the Court’s discretionary appellate jurisdiction. The Court nevertheless treated the petition as one for prohibition given the significant public interest and protracted litigation.
Validity of RR 15-2013 on Demurrage and Detention Fees
RA 10378 defines GPB as gross revenue from carriage of passengers, cargo, or mail originating in the Philippines to final destination. RR 15-2013 correctly excludes demurrage (rent‐like compensation for vessel detention) and detention fees (charges for extended use of containers) from GPB. Those fees constitute other Philippine-sourced income and are thus subjec
...continue readingCase Syllabus (G.R. No. 222239)
Facts and Antecedents
- Republic Act No. 9337 was enacted on July 1, 2005, amending select provisions of the 1997 National Internal Revenue Code (NIRC), including Sections 27, 28, 34, 106–114, 116–117, 119, 121, 148, 151, 236–237, and 288.
- On January 30, 2008, Commissioner of Internal Revenue Lilian Hefti issued Revenue Memorandum Circular No. 31-2008 (RMC 31-2008) to “clarify certain provisions of the National Internal Revenue Code of 1997, as amended…as it applies to shipping companies and their agents.”
- RMC 31-2008 addressed:
- Applicability of VAT vs. 3% percentage tax to on-line international sea carriers (Q-3).
- Tax treatment of demurrage fees as Philippine-sourced income subject to regular income tax (Q-4).
- Tax treatment of detention fees and other charges on inbound/outbound cargoes as Philippine-sourced income subject to regular income tax or 3% percentage tax based on threshold (Q-5).
- Zero-rating of sales of goods, supplies, equipment, fuel and services to carriers for direct foreign voyages (Q-14).
- Zero-rating vs. 12% VAT on commissions of local shipping agents for outbound vs. inbound freights (Q-34).
Civil Case No. Q-09-64241 (RTC-Branch 98, Quezon City)
- On December 6, 2010, petitioners AISL, APL and Maersk filed a petition for declaratory relief to nullify RMC 31-2008.
- They sought:
- A preliminary injunction against implementation or enforcement of challenged RMC 31-2008 provisions.
- A declaration that demurrage/detention fees, domestic service portions and certain agent commissions were improperly taxed at 30% income tax and 12% VAT.
- RTC-Branch 98 (May 18, 2012) granted summary judgment, holding that:
- International sea carriers are not subject to regular corporate income tax under Section 28(A)(1) of the NIRC.
- Demurrage fees are incidental to trade and form part of Gross Philippine Billings (GPB) subject to 2.5% tax.
- Domestic services and inbound agent commissions are not subject to 12% VAT absent express statutory imposition.
- The order declaring pertinent portions of RMC 31-2008 invalid became final and executory on June 16, 2012.
Republic Act No. 10378 and Revenue Regulation No. 15-2013
- RA 10378 was enacted on March 7, 2013, amending Section 28(A)(3)(a) of the NIRC to define GPB for international carriers and recognize reciprocity or tax-treaty exemptions.
- Section 28(A)(3) provided that international carriers pay 2.5% on GPB, defined separately for air and sea operations.
- On September 20, 2013, the Secretary of Finance issued Revenue Regulation No. 15-2013 (RR 15-2013) pursuant to Section 244 of the NIRC and Section 5 of RA 10378 to implement the new law.
- Section 4.4 of RR 15-2013 clarified that income “other than Income From International Tra