GARCIA VS. EXECUTIVE SECRETARY 211 SCRA 219 July 3, 1992Feliciano, J.

:FACTS:
The President issued an EO which imposed, across the board, including crude oil
and otheroil products, additional duty ad valorem. The Tariff Commission held public
hearingson said EO and submitted a report to the President for consideration and
appropriateaction. The President, on the other hand issued an EO which levied a
special duty of P0.95per liter of imported crude oil and P1.00 per liter of imported oil
products.
ISSUE:
Whether or not the President may issue an EO which is tantamount to enacting a bill
in thenature of revenue-generating measures.
RULING:
The Court said that although the enactment of appropriation, revenue and tariff
billsis within the province of the Legislative, it does not follow that EO in question,
assumingthey may be characterized as revenue measure are prohibited to the
President, that theymust be enacted instead by Congress. Section 28 of Article VI of
the 1987 Constitutionprovides:The Congress may, by law authorize the President to
fix tariff rates and other duties orimposts The relevant Congressional statute is
the Tariff and Customs Code of the Philippines andSections 104 and401, the
pertinent provisions thereof.

OSMEA vs. ORBOS

220 SCRA 703
GR No. 99886, March 31, 1993

" To avoid the taint of unlawful delegation of the power to tax, there must be a
standard which implies that the legislature determines matter of principle and lays
down fundamental policy."

FACTS: Senator John Osmea assails the constitutionality of paragraph 1c of PD

1956, as amended by EO 137, empowering the Energy Regulatory Board (ERB) to
approve the increase of fuel prices or impose additional amounts on petroleum
products which proceeds shall accrue to the Oil Price Stabilization Fund (OPSF)
established for the reimbursement to ailing oil companies in the event of sudden
price increases. The petitioner avers that the collection on oil products
establishments is an undue and invalid delegation of legislative power to tax.
Further, the petitioner points out that since a 'special fund' consists of monies
collected through the taxing power of a State, such amounts belong to the State,
although the use thereof is limited to the special purpose/objective for which it was
created. It thus appears that the challenge posed by the petitioner is premised

primarily on the view that the powers granted to the ERB under P.D. 1956, as
amended, partake of the nature of the taxation power of the State.

ISSUE: Is there an undue delegation of the legislative power of taxation?

HELD: None. It seems clear that while the funds collected may be referred to as
taxes, they are exacted in the exercise of the police power of the State. Moreover,
that the OPSF as a special fund is plain from the special treatment given it by E.O.
137. It is segregated from the general fund; and while it is placed in what the law
refers to as a "trust liability account," the fund nonetheless remains subject to the
scrutiny and review of the COA. The Court is satisfied that these measures comply
with the constitutional description of a "special fund." With regard to the alleged
undue delegation of legislative power, the Court finds that the provision conferring
the authority upon the ERB to impose additional amounts on petroleum products
provides a sufficient standard by which the authority must be exercised. In addition
to the general policy of the law to protect the local consumer by stabilizing and
subsidizing domestic pump rates, P.D. 1956 expressly authorizes the ERB to impose
additional amounts to augment the resources of the Fund.

Ernesto Maceda v Macaraig (Exec Sec, OP), Mison(Comm, Bureau of Customs), Ong
(CIR), NPC, FiscalIncentives Review Board (FIRB), et al
Prohibition against delegation of taxing power;Exceptions; Delegation to
administrative agencies1991 | Gancacyo, J.Only Relevant Facts as stated in the
case.The petition seeks to nullify the decisions, orders,rulings and resolutions of
respondent government entitiesabovementioned for exempting the National
PowerCorporation (NPRC) from indirect tax and duties. In1949, RA 358 granted
NPRC tax and duty exemptionprivileges.In 1971, RA 6495 revised the charter of
NPCwhere Congress declared as a national the totalelectrification of the Philippines,
which policy was to becarried out by NPC. Section 13 of the law provided indetail
the exemption of NPC from all taxes, duties, fees,imposts and other charges by the
government and itsinstrumentalities.In 1974, PD 380 amended Section 13 of RA
6495specifying inter alia the exemption of NPC from suchtaxes, duties, et
c, imposed directly or indirectly, on all
petroleum products used by NPC in its operation.In 1984, PD 1931 withdrew all tax
exemptionprivileges granted to GOCCs. However, said law empowerthe President
and/or the Minister of Finance, uponrecommendation of the FIRB to restore the
exemption(totally or partially).Pursuant to said law, in 1985, FIRB issueResolution
10-85 restoring the tax and duty exemptionprivileges of NPC from June 11, 1984 to
June 30, 1985.Then in January of 1986, FIRB issued Resolution 10-86indefinitely
restoring the NPC tax and duty exemptionprivileges effective July 1, 1985.However,
effective March 10, 1987, EO 93 onceagain withdrew all tax and duty incentives

granted togovernment and private entities which had been restoredunder PDs 1931
and 1955 but it gave authority to FIRB torestore, revise the scope and prescribe the
date of effectivity of such tax and/or duty exemptions.On June 24, 1987, the FIRB
Issued Resolution 1787 restoring NPCs tax and duty exemption privileg
eseffective March 10, 1987. On October 5, 1987, thePresident, thru ES Macaraig, Jr.,
confirmed and approvedFIRB Resolution 17-87.Petitioner contends:
August 6, 1987: the Secretary of Justice renderedan Opinion that the powers
(Section 2(a,b, & d)of EO 93)
1
of conferred upon FIRB constituteundue delegation of legislative power andtherefore
unconstitutional;
He observes that FIRB did not merely recommendbut categorically restored the tax
and dutyexemption of the NPRC so that the memorandumof the respondent
Executive Secretary datedOctober 5, 1987 approving the same is asurplusage;
Note: Petitioner does not question the validityand enforceability of FIRB Resolution
Nos. 10-85and 1-86. Indeed, they were issued in compliancewith the requirement of
Section 2, P.D. No. 1931,whereby the FIRB should make therecommendation subject
to the approval of "thePresident of the Philippines and/or the Minister of Finance."
Issue (relevant to discussion):Whether or not FIRB could validly andlegally issue
Resolution No. 17-87 dated June 24,1987 which restored NPC's tax exemption
privilegeeffective March 10, 1987; and if said Resolution wasvalidly issued, the
nature and extent of the taxexemption privilege restored to NPC. YES.Held and
Ratio:
Court says that while it is true that the Secretary of Justice opined that the cited
powers conferred upon FIRBconstitute undue delegation of legislative power, he
was,nevertheless, overruled by respondent ExecutiveSecretary in a letter to the
Secretary of Finance (datedMarch 30, 1989).
The Executive Secretary, by authority of thePresident, has the power to modify,
alter orreverse the construction of a statute given by adepartment secretary;
Section 3
2

EO 93 shows that it set the policy to bethe greater national interest; the standards
of thedelegated power are also clearly provided for The required standard need not
be expressed:
Edu v Ericta: the standard may be either express
or implied The standard though does not have
to be spelled out specifically. It could be impliedfrom the policy and purpose of the
act consideredas a whole;
People v Rosenthal: broa
d standard of publicwelfare was deemed sufficient;

Calalang v Williams, it was public welfare; and

in Cervantes v Auditor General, it was the
purpose of promotion of simplicity, economy andefficiency.l

And, implied from the purpose of the law as a

whole, national security was consideredsufficient standard and so was
protection of fishfry or fish eggs.;
Approval of President still required;
Petitioner observes that unlike previous similarissuances, approval by President of
the taxexemption privilege was not even required;
SC says: on the contrary, Section I(f) of the EO93, requires approval of such
exemptions; in thiscase, FIRB Resolution 17-87 was approved by theExecutive
Secretar, by authority of the President,on October 15, 1987;Just
ice Isagani Cruzs comment on delegation of
legislative power:
-

Latest in our jurisprudence that delegation of legislative power has become the rule
and itsnon-delegation the exception;
Reasons:
o

Increasing complexity of modern life andmany technical fields of

governmentalfunctions as in matters pertaining to taxexemptions;
o

Coupled by the growing inability of thelegislature to cope directly with the

manyproblems demanding its attention;
o

Growth of society has ramified its activitiesand created peculiar and

sophisticatedproblems that the legislature cannot beexpected reasonably to
comprehend;
Specialization even in legislation has becomenecessary;
c)
nature of the activity the beneficiary is engaged
;d)
in general
,
the greater national interest to be served
.
The legislative authority could not or is not expected tostate all the detailed
situations wherein the tax exemptionprivileges of persons or entities would be
restored
The task may be assigned to an administrativebody like the FIRB;
-

Also, presumptions are indulged in favour of theconstitutionality and validity of the

statute;
Such presumption can be overturned if itsinvalidity is proved beyond reasonable
doubt;
Otherwise, a liberal interpretation in favour of constitutionality should be adopted;
W/N NPC is really exempt from indirect taxes. Yes.
NPC is a non-profit public corporation created forthe general good and welfare of
the people. Fromthe very beginning of its corporate existence, NPCenjoyed
preferential tax treatment to enable it topay its debts and obligations. From the
changesmade in the NPC charter, the intention tostrengthen its preferential tax
treatment isobvious. The tax exemption is intended not onlyto insure that the NPC
shall continue to generateelectricity for the country but more importantly,to assure
cheaper rates to be paid by consumers.
Notes on Direct and Indirect Taxes:
1.

Direct Taxes

those which a taxpayer is directlyliable on the transaction or business it engages in.

Examples are: custom duties, ad valoremtaxes paid by oil companies forimportation
of crude oil;2.

Indirect Taxes

paid by persons who can shiftthe burden upon someone else

Examples are: ad valorem taxes that oilcompanies pay to BIR upon removal of
petroleum products from its refinery canbe shifted to its buyer, like the NPC;
DISMISSEDSarmiento, J. Dissenting.

There was no delegation at all. As the majoritypoints out, "[u]nder Section 1 (f) of
Executive Order No.93, aforestated, such tax and duty exemptions extendedby the
FIRB must be approved by the President." Hence,the FIRB does not exercise any
power

and as I had held,its powers does not merely recommendatory

and it is thePresident who in fact exercises it. It is true that ExecutiveOrder No. 93
has set out certain standards by which theFIRB as a reviewing body, may act, but I
do not believethat a genuine delegation question has arisen becauseprecisely, the
acts of the Board are subject to approval bythe President, in the exercise of her
legislative powersunder the Freedom Constitution.

Maceda vs. ERB

192 SCRA 363Sarmiento
Facts:
1. Petroleum companies Caltex,Shell and Petron filed separate applications with
theEnergy Regulatory Board for permission to increase the wholesale prices of
petroleumproducts, and meanwhile, for provisional authority to increase temporarily
such pricespending further proceedings.2. The Energy Regulatory Board, in a joint
order granted provisional relief and authorizessaid applicants a provisional
increase.3. The petitioners, Senator Ernesto Maceda and Atty. Oliver Lozano submits
that the samewas issued without proper notice and hearing in violation of Section 3,
paragraph (e), of Executive Order No. 172, and has been issued with grave abuse of
discretion,tantamount to lack of jurisdiction.4. Hence, this petition praying for
injunctive relief, to stop the Energy Regulatory Boardfrom implementing its order
mandating a provisional increase in the prices of petroleumand petroleum products.
Issue:
Whether or not the Order of the Energy Regulatory Board is valid?
Held:

YES.
Senator Maceda and Atty. Lozano, in questioning the lack of a hearing, have
overlooked theprovisions of Section 8 of Executive Order No. 172 which authorizes
the Board to grantprovisional relief on motion of a party in the case or on its own
initiative, without prejudice to afinal decision after hearing, should the Board find
that the documentary evidences substantiallysupport the provisional order.
Provided, That the Board shall immediately schedule and conducta hearing thereon

within thirty (30) days thereafter, upon publication and notice to all affectedparties.:
naSection 3, paragraph (e) and Section 8 do not negate each other, or otherwise,
operateexclusively of the other, in that the Board may resort to one but not to both
at the same time.Section 3(e) outlines the jurisdiction of the Board and the grounds
for which it may decree aprice adjustment, subject to the requirements of notice
and hearing. Pending that, however, itmay order, under Section 8, an authority to
increase provisionally, without need of a hearing,subject to the final outcome of the
proceeding.NOTES

NOTES:
Executive Order No. 172,Section 8: Authority to Grant Provisional Relief .

The Board may, upon the filing of an application,petition or complaint or at any

stage thereafter and without prior hearing, on the basis of supporting papers duly
verified or authenticated, grant provisional relief on motion of a party inthe case or
on its own initiative, without prejudice to a final decision after hearing, should
theBoard find that the pleadings, together with such affidavits, documents and
other evidencewhich may be submitted in support of the motion, substantially
support the provisional order:Provided, That the Board shall immediately schedule
and conduct a hearing thereon within thirty(30) days thereafter, upon publication
and notice to all affected parties.: nadSection 37,par. E(e) Whenever the Board has
determined that there is a shortage of any petroleum product, or when public
interest so requires, it may take such steps as it may consider necessary,
includingthe temporary adjustment of the levels of prices of petroleum products and
the payment to theOil Price Stabilization Fund created under Presidential Decree No.
1956 by persons or entitiesengaged in the petroleum industry of such amounts as
may be determined by the Board, whichwill enable the importer to recover its cost
of importation.

RULING:
The Board Order authorizing the proceeds generated by the increase to be
deposited to theOPSF is not an act of taxation. It is authorized by Presidential
Decree No. 1956, as amended byExecutive Order No. 137, as follows:SECTION 8.
There is hereby created a Trust Account in the books of accounts of the Ministry of
Energy to be designated as Oil Price Stabilization Fund (OPSF) for the purpose of
minimizingfrequent price changes brought about by exchange rate adjustments
and/or changes in worldmarket prices of crude oil and imported petroleum products.
xxxEvidently, authorities have been unable to collect enough taxes necessary to
replenish theOPSF as provided by Presidential Decree No. 1956, and hence, there

was no availablealternative but to hike existing prices.The OPSF, as the Court held
in the aforecited CACP cases, must not be understood to be afunding designed to
guarantee oil firms' profits although as a subsidy, or a trust account, theCourt has
no doubt that oil firms make money from it. As we held there, however, the
OPSFwas established precisely to protect the consuming public from the erratic
movement of oilprices and to preclude oil companies from taking advantage of
fluctuations occurring every sooften. As a buffer mechanism, it stabilizes domestic
prices by bringing about a uniform raterather than leaving pricing to the caprices of
the market.In all likelihood, therefore, an oil hike would have probably been
imminent, with or withouttrouble in the Gulf, although trouble would have probably
aggravated it

Mactan Cebu (MCIAA) vs. Marcos

GR 120082 September 11, 1996 261 SCRA 667

Davide Jr., .: (CJ)

FACTS:

Mactan Cebu International Airport Authority (MCIAA) was created to principally

undertake to economical, efficient and effective control, management and
supervision of the Mactan International Airport and such other airports as may be
established in the province of Cebu Section 14 of its charter excempts the
Authority from payment of realty taxes but in 1994, the City Treasurer demanded
payment for realty taxes on several parcels of land belonging to the other. MCIAA
filed a petition in RTC contending that, by nature of its powers and functions, it has
the same footing of an agency or instrumentality of the national government. The
RTC dismissed the petition based on Section 193 & 234 of the local Government
Code or R.A. 7160. Thus this petition.

ISSUE:

Whether or not the MCIAA is excempted from realty taxes?

RULING:

With the repealing clause of RA 7160 the tax exemption provided. All general and
special in the charter of the MCIAA has been expressly repeated. It state laws, acts,
City Charters, decrees, executive orders, proclamations and administrative
regulations, or part of parts thereof which are inconsistent with any of the provisions
of the Code are hereby repeated or modified accordingly. Therefore the SC affirmed
the decision and order of the RTC and herein petitioner has to pay the assessed
realty tax of its properties effective January 1, 1992 up to the present.

Taada v. Angara
G.R. No. 118295 | May 2, 1997

Petitioners: Wigberto Tanada, et al. Respondents: Edgardo Angara, et al.

Summary:
Petitioners assail the constitutionality of the Philippines acceding to the World Trade
Organization for being violative of provisions which are supposed to give preference
to Filipino workers and economy and on the ground that it infringes legislative and
judicial power. The
WTO, through it provisions on most favored nation
and national treatment, require that nationals and other member countries are
placed in the same footing in terms of products and services. However, the Court
brushed off these contentions and ruled that the WTO is constitutional. Sections 10
and 12 of Article XII (National Economy and Patrimony) should be read in relation to
Sections 1 and 13 (promoting the general welfare). Also, Section 10 is selfexecuting only to rights, privileges, and concessions covering national economy
and patrimony but
not every aspect of trade and commerce.
There are balancing provisions in the Constitution allowing the Senate to ratify the
WTO agreement. Also, the C
onstitution doesnt rule out foreign competition. States waive certain amount of
sovereignty when entering into
treaties.
Facts:
This case questions the constitutionality of the Philippines being part of the World
Trade Organization, particularly when President Fidel Ramos signed the Instrument
of Ratification and the Senate concurring in the said treaty.
Following World War 2, global financial leaders held a conference in Bretton Woods
to discuss global economy. This led to the establishment of three great institutions:

International Bank for Reconstruction and Development (World Bank), International

Monetary Fund and International Trade Organization.
However, the ITO failed to materialized. Instead, there was the General Agreement
on Trades and Tariffs. It was on the Uruguay Round of the GATT that the WTO was
then established.
The WTO is an institution regulating trade among nations, including the reduction
of tariff and barriers.
Petitioners filed a case assailing the WTO Agreement for violating the mandate of
the 1987 Constitution
to develop a self
-reliant and independent national economy effectively controlled by Filipinos, to give
preference to qualified Filipinos and to promote the preferential use of Filipino labor,
domestic materials
and locally produced goods.

It is petitioners position that the national treatment and parity provisions of the
WTO Agreement place nationals and products of mem
ber countries on the same footing as
Filipinos and local products,

in contravention of the Filipino First

policy of the Constitution. They allegedly render meaningless the
phrase effectively controlled by Filipinos.

Issue 1:
Does the petition present a justiciable controversy? YES!
In seeking to nullify the Senates act as being unconstitutional, the petition no doubt
raises a justicia
ble controversy. It becomes not only the right but in fact the duty of the judiciary to
settle the dispute
Issue 2:
Do the provisions of the WTO Agreement contravene Section 19, Article II and
Section 10 & 12, Artilce XII of the 1987 Constitution? NO!

Petitioners Contentions
:

Petitioners argue that the letter, spirit and intent of the Constitution mandating
economic nationalism
are violated by the socalled parity provisions and national treatment clauses scattered in parts of
WTO Agreement

This is in view of the most-favored nation clause (MFN) of the TRIMS (trade-related
investment measures), TRIPS (Trade Related aspects of intellectual property rights),
Trade in Services, and par. 4 of Article III of GATT 1994.

shall be accorded treatment no less favorable than that accorded to like products of
national
origin

Sec. 19, Art II:The State shall develop a self-reliant and independent national
economy effectively controlled by Filipinos.
Sec. 10, Art XII: Congress shall enact measures that will encourage the formation
and operation of enterprises whose capital is wholly owned by Filipinos. In the grant
of rights, privileges, and concessions covering the national economy and patrimony,
the State shall give preference to qualified Filipinos.
Sec. 12, Art XII: The State shall promote the preferential use of Filipino labor,
domestic materials and locally produ
ced goods, and adopt measures that help make them competitive.

Ruling:

These provisions are not self-executing

Merely guides in the exercise of judicial review and in making laws.

Secs. 10 and 12 of Article XII should be read and understood in relation to the other
sections in said article, especially Sec. 1 and 13:

A more equitable distribution of opportunities, income and wealth;

A sustained increase in the amount of goods and services

An expanding productivity as the key to raising the quality of life

The issue here is not whether this paragraph of Sec. 10 of Art. XII is self-executing
or not.
Rather, the issue is whether, as a rule, there are enough balancing provisions in the
Constitutio
n to allow the Senate to ratify the Philippine concurrence in the WTO Agreement.
And we hold that there are.

WTO Recognizes Need to Protect Weak Economies

Unlike in the UN where major states have permanent seats and veto powers in the
Security Council, in the WTO, decisions are made on the basis of sovereign equality,
with each
members vote equal in weight.

Specific WTO Provisos Protect Developing Countries

Tariff reduction

developed countries must reduce at rate of 36% in 6 years, developing 24% in 10

years
Domestic subsidy

developed countries must reduce 20% over six (6) years, developing countries at
13% in 10 years

Export subsidy

developed countries, 36% in 6 years; developing countries, 3/4ths of 36% in 10

years

Constitution Does Not Rule Out Foreign Competition

Encourages industries that are competitive in both domestic and foreign markets

The Court will not pass upon the advantages and disadvantages of trade
liberalization as an economic policy. It will only perform its constitutional duty of
determining whether the Senate committed grave abuse of discretion
Issue 3:
Does the text of the WTO and its Annexes limit, restrict or impair the exercise of
legislative power by Congress? NO!
A portion of sovereignty may be waived without violating the Constitution.
While sovereignty has traditionally been deemed absolute and all-encompassing on
the domestic level, it is however subject to restrictions and limitations voluntarily
agreed to by the Philippines, expressly or impliedly, as a member of the family of
nations.
The sovereignty of a state therefore cannot in fact and in reality be considered
absolute. Certain restrictions enter into the picture: limitations imposed by the
nature of membership in the family of nations & limitations imposed by treaty
stipulations
CIR VS. BRITISH OVERSEAS AIRWAYS CORPORATION and CTAFACTS:
BOAC is a British Government-owned corporation organized and existing under the
laws of the UnitedKingdom.t is engaged in the international airline !usiness. t
did not carr" passengers or cargo to or from the#hilippines$ although during the
period covered !" the assessments$ it maintained a general sales agent in
the#hilip. % &amer Barnes and Compan"$ 'td.$ and later (antas Airwa"s % which
was responsi!le for selling BOACtic)ets covering passengers and cargoes. t is
admitted that BOAC had no landing rights for traffic purposes in the #hilippines$
and was not granted aCertificate of pu!lic convenience$ except for a nine-month
period$ partl" in *+,* and partl" in *+,$ when it wasgranted a temporar" landing
permit . #etitioner assessed BOAC for deficienc" income taxes covering the "ears
*++ to *+,/. BOAC paid theassessment under protest.

ISSUE:

Whether the revenue derived by BOAC from ticket sales in the Philippines for air
transportation, while having no landing rights in the Philippines, constitute income
of BOAC from Philippine sources, and accordingly, taxable.

HELD:

Court said..

The source of an income is the property, activity or service that produced the
income. For the source of income to be considered as coming from the Philippines,
it is sufficient that the income is derived from activity within the Philippines.

In this case, the sale of tickets in the Philippines is the activity that produced the
income. The tickets exchanged hands here and payments for fares were also made
here in Philippine currency. The SITUS of the source of payments is the Philippines.
The flow of wealth proceeded from, and occured within, Philippine territory, enjoying
the protection accorded by the Philippine Government.

So court said, in consideration of such protection, the flow of wealth should share
the burden of supporting the government.

(PD 68, in relation to PD 1355, ensures that international airlines are taxed on their
income from Philippine sources. The 2 1/2 %tax on gross billings is an income tax. If
it had been intended as an excise or percentage tax, it would have been placed
under Title V of the Tax Code covering taxes on business.)

BOAC lost this case.

CIR VS Japan Airlines

JAL is also a foreign corporation likewise engaged in the business of International air
carriage. JAL maintained an office at the Filipinas Hotel, Roxas Boulevard Manila
since mid-July of 1957.

The said office did not sell tickets but was merely for the promotion of the company.

But that's what they think. On July 17 1957, JAL constituted Philippine Airlines (PAL)
as its ticket agent in the Philippines. PAL therefore sold tickets for and in behalf of
JAL. Same as BOAC there was absence of flight operations to and from the
Philippines in this case. Meaning JAL likewise had no landing rights. And so like
BOAC what were talking about here are connecting flights.On June 1972, JAL
received deficiency income tax assessments notices and a demand letter from
petitioner CIR for years 1959 through 1963. JAL protested, gainst said assessments
alleging that as a non-resident foreign corporation, it is taxable only on income from
Philippines sources as determined by section 37 of the Tax Code, there being no
income on said years, JAL is not liable for taxes.

ISSUE:

Whether or not the proceeds from sales of JAL tickets sold in the Philippines by
Philippine Airlines (PAL) are taxable as income from sources within the Philippines.

HELD:

YES. Court said the ticket sales are taxable.

Citing the case of CIR v BOAC, the court reiterated that the source of an income is
the property, activity or service that produced the income. For the source of income
to be considered as coming from the Philippines, it is sufficient that the income is
derived from activity within the Philippines.

The absence of flight operations to and from the Philippines is not determinative of
the source of income or the situs of income taxation.

The test of taxability is the source, and the source of the income is that activity
which produced the income. In this case, as JAL constituted PAL as its agent, the
sales of JAL tickets made by PAL is taxable

JAL likewise lost this case.

AIR CANADA v. CIR

G.R. 169507
January 11, 2016

FACTS:
Air Canada is a foreign corporation organized and existing under the laws of
Canada. On April 24, 2000, it was granted an authority to operate as an offline
carrier by the Civil Aeronautics Board, subject to certain conditions, which authority
would expire on April 24, 2005. As an off-line carrier, Air Canada does not have
flights originating from or coming to the Philippines and does not operate any
airplane in the Philippines.

On July 1, 1999, Air Canada engaged the services of Aerotel Ltd., Corp. (Aerotel) as
its general sales agent in the Philippines. Aerotel sells Air Canadas passage
documents in the Philippines.

For the period ranging from the third quarter of 2000 to the second quarter of 2002,
Air Canada, through Aerotel, filed quarterly and annual income tax returns and paid
the income tax on Gross Philippine Billings in the total amount of 5,185,676.77.

On November 28, 2002, Air Canada filed a written claim for refund of alleged
erroneously paid income taxes amounting to 5,185,676.77 before the Bureau of
Internal Revenue (BIR). Its basis was found in the revised definition of Gross
Philippine Billings under Section 28(A)(3)(a) of the 1997 National Internal Revenue
Code (NIRC) .

To prevent the running of the prescriptive period, Air Canada filed a Petition for
Review before the Court of Tax Appeals (CTA).

The CTA denied the petition. It found that Air Canada was engaged in business in
the Philippines through a local agent that sells airline tickets on its behalf. As such,
it held that while Air Canada was not liable for tax on its Gross Philippine Billings
under Section 28(A)(3), it was nevertheless liable to pay the 32% corporate income
tax on income derived from the sale of airline tickets within the Philippines pursuant
to Section 28(A)(1). On appeal, the CTA En Banc affirmed the ruling of the CTA First
Division.

ISSUES & HELD:

1)
Whether Air Canada is subject to the 2% tax on Gross Philippine Billings
pursuant to Section 28(A)(3).
NO. Air Canada is not is not liable to tax on Gross Philippine Billings under Section
28(A)(3). The tax attaches only when the carriage of persons, excess baggage,
cargo, and mail originated from the Philippines in a continuous and uninterrupted
flight, regardless of where the passage documents were sold. Not having flights to
and from the Philippines, petitioner is clearly not liable for the Gross Philippine
Billings tax.

2)
If not, whether Air Canada is a resident foreign corporation engaged in trade
or business and thus, can be subject to the regular corporate income tax of 32%
pursuant to Section 28(A)(1);

YES. Petitioner falls within the definition of resident foreign corporation under
Section 28(A)(1) , thus, it may be subject to 32% tax on its taxable income.

The Court in Commissioner of Internal Revenue v. British Overseas Airways

Corporation declared British Overseas Airways Corporation, an international air
carrier with no landing rights in the Philippines, as a resident foreign corporation
engaged in business in the Philippines through its local sales agent that sold and
issued tickets for the airline company. According to said case, there is no specific
criterion as to what constitutes doing or engaging in or transacting business.
Each case must be judged in the light of its peculiar environmental circumstances.
The term implies a continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the exercise of
some of the functions normally incident to, and in progressive prosecution of
commercial gain or for the purpose and object of the business organization.

An offline carrier is any foreign air carrier not certificated by the Civil Aeronautics
Board, but who maintains office or who has designated or appointed agents or
employees in the Philippines, who sells or offers for sale any air transportation in
behalf of said foreign air carrier and/or others, or negotiate for, or holds itself out by
solicitation, advertisement, or otherwise sells, provides, furnishes, contracts, or
arranges for such transportation.

Petitioner is undoubtedly doing business or engaged in trade or business in the

Philippines. In the case at hand, Aerotel performs acts or works or exercises

functions that are incidental and beneficial to the purpose of petitioners business.
The activities of Aerotel bring direct receipts or profits to petitioner. Further,
petitioner was issued by the Civil Aeronautics Board an authority to operate as an
offline carrier in the Philippines for a period of five years. Petitioner is, therefore, a
resident foreign corporation that is taxable on its income derived from sources
within the Philippines.

3)

Whether the Republic of the Philippines-Canada Tax Treaty is enforceable;

YES. While petitioner is taxable as a resident foreign corporation under Section

28(A)(1) on its taxable income from sale of airline tickets in the Philippines, it could
only be taxed at a maximum of 1% of gross revenues, pursuant to Article VIII of
the Republic of the Philippines-Canada Tax Treaty that applies to petitioner as a
foreign corporation organized and existing under the laws of Canada.

The second paragraph of Article VIII states that profits from sources within a
Contracting State derived by an enterprise of the other Contracting State from the
operation of ships or aircraft in international traffic may be taxed in the firstmentioned State but the tax so charged shall not exceed the lesser of a) one and
one-half per cent of the gross revenues derived from sources in that State; and b)
the lowest rate of Philippine tax imposed on such profits derived by an enterprise of
a third State.

By reason of our bilateral negotiations with Canada, we have agreed to have our
right to tax limited to a certain extent. Thus, we are bound to extend to a Canadian
air carrier doing business in the Philippines through a local sales agent the benefit
of a lower tax equivalent to 1% on business profits derived from sale of
international air transportation.

Our Constitution provides for adherence to the general principles of international

law as part of the law of the land. The time-honored international principle of pacta
sunt servanda demands the performance in good faith of treaty obligations on the
part of the states that enter into the agreement. Every treaty in force is binding
upon the parties, and obligations under the treaty must be performed by them in
good faith. More importantly, treaties have the force and effect of law in this
jurisdiction. (Deutsche Bank AG Manila Branch v. Commissioner of Internal
Revenue).

4)
Whether the appointment of a local general sales agent in the Philippines
falls under the definition of permanent establishment under Article V(2)(i) of the
Republic of the Philippines-Canada Tax Treaty;

Article V of the Republic of the Philippines-Canada Tax Treaty defines permanent

establishment as a fixed place of business in which the business of the enterprise
is wholly or partly carried on. Specifically, Article V(4) of the Republic of the
Philippines-Canada Tax Treaty states that a person acting in a Contracting State on
behalf of an enterprise of the other Contracting State shall be deemed to be a
permanent establishment in the first-mentioned State if . . . he has and habitually
exercises in that State an authority to conclude contracts on behalf of the
enterprise, unless his activities are limited to the purchase of goods or merchandise
for that enterprise.

Section 3 of The Civil Aeronautics Act of the Philippines, defines a general sales
agent as a person, not a bonafide employee of an air carrier, who pursuant to an
authority from an airline, by itself or through an agent, sells or offers for sale any air
transportation, or negotiates for, or holds himself out by solicitation, advertisement
or otherwise as one who sells, provides, furnishes, contracts or arranges for, such
air transportation.

Through the appointment of Aerotel as its local sales agent, petitioner is deemed to
have created a permanent establishment in the Philippines as defined under the
Republic of the Philippines-Canada Tax Treaty. Aerotel is a dependent agent of
petitioner pursuant to the terms of the Passenger General Sales Agency Agreement
executed between the parties. It has the authority or power to conclude contracts or
bind petitioner to contracts entered into in the Philippines. A third-party liability on
contracts of Aerotel is to petitioner as the principal, and not to Aerotel, and liability
to such third party is enforceable against petitioner. While Aerotel maintains a
certain independence and its activities may not be devoted wholly to petitioner,
nonetheless, when representing petitioner pursuant to the Agreement, it must carry
out its functions solely for the benefit of petitioner and according to the latters
Manual and written instructions. Aerotel is required to submit its annual sales plan
for petitioners approval.

In essence, Aerotel extends to the Philippines the transportation business of

petitioner. It is a conduit or outlet through which petitioners airline tickets are sold.

Under Article VII of the Republic of the Philippines-Canada Tax Treaty, the business
profits of an enterprise of a Contracting State is taxable only in that State, unless
the enterprise carries on business in the other Contracting State through a

permanent establishment. Thus, income attributable to Aerotel or from business

activities effected by petitioner through Aerotel may be taxed in the Philippines.

5)

Whether petitioner Air Canada is entitled to the refund.

NO. As discussed in South African Airways, the grant of a refund is founded on the
assumption that the tax return is valid, that is, the facts stated therein are true and
correct. The deficiency assessment, although not yet final, created a doubt as to
and constitutes a challenge against the truth and accuracy of the facts stated in
said return which, by itself and without unquestionable evidence, cannot be the
basis for the grant of the refund.

In this case, the P5,185,676.77 Gross Philippine Billings tax paid by petitioner was
computed at the rate of 1 % of its gross revenues amounting to
P345,711,806.08149 from the third quarter of 2000 to the second quarter of 2002.
It is quite apparent that the tax imposable under Section 28(A)(l) of the 1997 NIRC
32% of taxable income, that is, gross income less deductions will exceed the
maximum ceiling of 1 % of gross revenues as decreed in Article VIII of the
Republic of the Philippines-Canada Tax Treaty. Hence, no refund is forthcoming.
ILOILO BOOTLERS VS CITY OF ILOILO
FACTS:
Iloilo Bottlers Inc., a company in the business of bottling and selling soft drinks,
wasdemanded by the City of Iloilo to pay an amount of 59,505 in the form of an
license tax the cityclaims were due to it under an ordinance which was enacted on
January 11, 1960 known asOrdinance No. 5, Series of 1960; which provides that
manufacturers, bottlers, and distributers of soft drinks in Iloilo are subject to a
municipal license tax of 10 centavos per case of 24 bottles.Iloilo Bottling Inc
asserted however that since their plant base has moved to municipality of Pavia
shortly after the aforementioned ordinance was enacted, they are not liable for any
taxes.The city however, still demanded taxes and also demanded back taxes under
the claim that IloiloBottlers is still distributing in the city of Iloilo since its transfer.
Iloilo Bottlers paid thedemanded license tax and back taxes under protest. After
bringing the case to court, the courtsruled in favor of Iloilo Bottlers and declared
that Iloilo Bottlers is free from liability. The city of Iloilo then appealed this ruling,
hence this case.
ISSUE:
Whether or not the courts were correct in their initial ruling that Iloilo Bottlers Inc.
isfree from liability and directing the city of Iloilo to refund the tax money.
HELD:

No, the courts were not correct. The ruling was reversed in favor of the City of
Iloiloand Iloilo Bottlers is deemed liable for the aforementioned taxes.
RATIO:
Situs of taxation (place of taxation) depends on various factors including the nature
of the tax and subject matter thereof both of which must be scrutinized to reach a
fair decision. Thetax ordinance enacted by the City of Iloilo imposes a tax on
persons, firms, and corporationsengaged in the business of distribution of softdrinks, manufacture of soft-drinks, and bottling of soft drinks within the territorial
jurisdiction of the City of Iloilo. There is no question that IloiloBottlers has moved out
of Iloilo Citys jurisdiction and into the municipality of Pavia where its plant now
stands therefore, the latter two conditions for taxation are no longer applicable.
Theruling now depends upon whether or not Iloilo Bottlers can be considered as
distributing its products within Iloilo city. Iloilo Bottlers disclaims liability, saying that
it does notindependently distribute but rather actively sells directly to its
consumers. Distribution istherefore only incidental to its business. However, the
courts find that Iloilo Bottlers is indeedconsidered as distributing since while the
manufacturing and bottling occurs outside of Iloilocity, the drinks are sold in Iloilo
city to consumers in a moving store fashion. The transactionsare considered to
occur within the city. The tax imposed under Ordinance No. 5 is an excise tax.By its
nature, the power to levy an excise tax depends upon the place where the business
is done,or the occupation is engaged in, or where the transaction took place. In this
case, it is a tax on the privilege of distributing, manufacturing or bottling soft drinks.
Even though the base of operations is at Pavia, the areas of transactions where it
conducts its business are within Iloilocity limits. The Situs for excise tax is the area
of transaction, not necessarily base of operation.Since Iloilo Bottlers does distribute
within city limits, it is therefore subject to the ordinance andtherefore should pay
the pertinent amounts to the city of Iloilo.

TAN VS DEL ROPSARIO

Petitioners challenge the constitutionality of RA 7496 or the simplified income
taxation scheme (SNIT) under Arts (26) and (28) and III (1). The SNIT contained
changes in the tax schedules and different treatment in the professionals which
petitioners assail as unconstitutional for being isolative of the equal protection
clause in the constitution.
issue: Whether or not the tax law is unconstitutional for violating due process

NO. The due process clause may correctly be invoked only when there is a clear
contravention of inherent or constitutional limitations in the exercise of the tax
power. No such transgression is so evident in herein case.

1. Uniformity of taxation, like the concept of equal protection, merely requires that
all subjects or objects of taxation, similarly situated, are to be treated alike both in
privileges and liabilities. Uniformity does not violate classification as long as: (1) the
standards that are used therefor are substantial and not arbitrary, (2) the
categorization is germane to achieve the legislative purpose, (3) the law applies, all
things being equal, to both present and future conditions, and (4) the classification
applies equally well to all those belonging to the same class.

2. What is apparent from the amendatory law is the legislative intent to

increasingly shift the income tax system towards the schedular approach in the
income taxation of individual taxpayers and to maintain, by and large, the present
global treatment on taxable corporations. The Court does not view this classification
to be arbitrary and inappropriate.

SISON VS ANCHETA
Facts: Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its
provision (Section 1) unduly discriminated against him by the imposition of higher
rates upon his income as a professional, that it amounts to class legislation, and
that it transgresses against the equal protection and due process clauses of the
Constitution as well as the rule requiring uniformity in taxation.

Issue: Whether BP 135 violates the due process and equal protection clauses, and
the rule on uniformity in taxation.

Held: There is a need for proof of such persuasive character as would lead to a
conclusion that there was a violation of the due process and equal protection
clauses. Absent such showing, the presumption of validity must prevail. Equality
and uniformity in taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of taxation. Where the
differentitation conforms to the practical dictates of justice and equity, similar to the
standards of equal protection, it is not discriminatory within the meaning of the
clause and is therefore uniform. Taxpayers may be classified into different
categories, such as recipients of compensation income as against professionals.
Recipients of compensation income are not entitled to make deductions for income
tax purposes as there is no practically no overhead expense, while professionals
and businessmen have no uniform costs or expenses necessaryh to produce their
income. There is ample justification to adopt the gross system of income taxation to
compensation income, while continuing the system of net income taxation as
regards professional and business income.

VILLEGAS VS HIU CHIONG

Facts: The Municipal Board of Manila enacted Ordinance 6537 requiring aliens
(except those employed in the diplomatic and consular missions of foreign
countries, in technical assistance programs of the government and another country,
and members of religious orders or congregations) to procure the requisite mayors
permit so as to be employed or engage in trade in the City of Manila. The permit fee
is P50, and the penalty for the violation of the ordinance is 3 to 6 months
imprisonment or a fine of P100 to P200, or both.

Issue: Whether the ordinance imposes a regulatory fee or a tax.

Held: The ordinances purpose is clearly to raise money under the guise of
regulation by exacting P50 from aliens who have been cleared for employment. The
amount is unreasonable and excessive because it fails to consider difference in
situation among aliens required to pay it, i.e. being casual, permanent, part-time,
rank-and-file or executive.

[ The Ordinance was declared invalid as it is arbitrary, oppressive and unreasonable,

being applied only to aliens who are thus deprived of their rights to life, liberty and
property and therefore violates the due process and equal protection clauses of the
Constitution. Further, the ordinance does not lay down any criterion or standard to
guide the Mayor in the exercise of his discretion, thus conferring upon the mayor
arbitrary and unrestricted powers.]

TAN VS DEL ROSARIO

EQUAL PROTECTION:
ISSUE 2: Whether or not public respondents exceeded their authority in
promulgating the RR

No. There is no evident intention of the law, either before or after the amendatory
legislation, to place in an unequal footing or in significant variance the income tax
treatment of professionals who practice their respective professions individually and
of those who do it through a general professional partnership.