UNITED AIRLINES, INC. vs. COMMISSIONER OF INTERNAL REVENUE - Gross Philippine Billings (GPB)

FACTS:

Petitioner used to be an online carrier but ceased operating cargo flights from the Philippines starting 2001. It is now an offline international air carrier but has a general sales agent in the Philippines which sells passage documents for its off-line flights for carriage of passengers and cargo. It filed a claim for refund on the Gross Philippine Billings (GPB) tax it paid. The CTA ruled that Petitioner was not liable for the GBP but was liable to pay 32% tax on its net income derived from the sales of passage documents in the Philippines.

ISSUE:

Is Petitioner liable for either the GPB or the 32% tax?

HELD:

32% tax. The Court reiterated the ruling in South African Airways and BOAC stating that it is the sale of tickets which is the revenue-generating activity subject to Philippine tax. The correct interpretation of the applicable rules is that, if an international air carrier maintains flights to and from the Philippines, it shall be taxed at the rate of 2 1/2% of its Gross Philippine Billings, while international air carriers that do not have flights to and from the Philippines but nonetheless earn income from other activities in the country will be taxed at the rate of 32% of such income.

The Court also ruled that “to avoid multiplicity of suits and  unnecessary difficulties and expenses” the issue of deficiency tax assessment be resolved jointly with the its claim for refund – and doing so does not violate the rule against offsetting of taxes.