IN its legal and tax battles, the Philippine flag carrier suffered a double whammy on the decisions recently promulgated by the courts.
Three weeks ago the Philippine Airlines (PAL) stole the spotlight when a Regional Trial Court (RTC) in Makati ordered the airline to pay P100,000 each to its almost 1,000 retired female flight attendants after PAL lost an 11-year legal battle over gender discrimination.
This suit arose from a controversial provision in the airline’s Collective Bargaining Agreement, which states that cabin attendants hired before November 1996 should retire at the age of 55 while their male colocounterparts had to retire by the age of 60. Aggrieved by such discrimination, the PAL Flight Attendants and Steward Association of the Philippines (Fasap) questioned such provision and elevated the matter before the court.
A week after that unfavorable RTC decision came another blow to the flag carrier. In PAL’s claim for a tax refund for the excise taxes it paid under protest on its importations of cigarettes, liquors and wines for the taxable year 2008, it had to hurdle a difficult two-pronged bout. First, the airline had to prove that its franchise under Presidential Decree (PD) 1590 has not been amended and/or modified with the advent of Republic Act (RA) 9334, otherwise known as the sin-tax law. Secondly, PAL had to satisfy the conditions set forth in PD 1590 for exemption from excise tax on its importation of cigarettes, liquors and wines to entitle it to its claim for tax refund.
For the first issue, both the Commissioner of Internal Revenue and the Commissioner of Customs argued that the tax exemption granted to PAL under PD 1590 had been expressly withdrawn and that Section 131 of RAs 8424 and 9334 only exempts cigars, cigarettes, distilled spirits and wines from excise taxes, among others, if imported by a government-owned or -controlled duty- free shop, and not those brought by private entities like PAL.
In said Court of Tax Appeals (CTA) Case 8198, the CTA ruled in favor of the airline on the first issue, following an earlier pronouncement of the Supreme Court in GR 212536-37 dated August 27, 2014.
The SC categorically declared that the tax privilege of PAL provided in Section 13 of PD 1590 has not been revoked by Section 131 of the National Internal Revenue Code (NIRC) of 1997, as amended by Section 6 of RA 9334. The court noted that the legislature chose not to amend or repeal PD 1590 even after PAL was privatized reveals the intent of the legislature to let PAL continue to enjoy the very same rights and privileges under the terms and conditions in its charter. Likewise, between the provisions of PD 1590, a special law, as against the provisions under the NIRC of 1997, as amended by RA 9334, which is a general law, the former necessarily prevails.
While PAL was able to hurdle the first round, it was not able to surmount the second issue. In order for the flag carrier to be exempted from taxes, duties, charges, or fees on the importation of its assorted cigarettes, alcohol and wines for international flights, it must prove the following:
- the corporate income tax and value-added tax liabilities for the subject period was paid;
- the imported articles, supplies or materials are intended to be used in its transport and non-transport operations and other activities incidental thereto; and
- the imported articles, supplies or materials are not locally available in reasonable quantity, quality
or price.
PAL complied with the first requisite when it presented its Annual Income Tax Returns, Quarterly VAT Returns, Payment Forms and BIR Certificate of Registration as testified to by its tax manager.
For the second requisite, the Tax Court did not give credence to the testimony of the witness since he has no personal knowledge of whether the goods subject of the informal entries and air waybill are for commissary and catering supplies of PAL.
As to the third requisite, the airline presented its manager of the In-flight Materials Purchasing Division. Unfortunately, the Tax Court ruled that PAL could not have determined the availability of the imported wines or liquors in reasonable quantity, quality or price in the local market based solely on the price list provided by only one supplier. With respect to the imported cigarettes, PAL failed to make comparison in contrast to its local prices and merely assumed based on speculations that its requirement on imported cigarettes could not be satisfied by any local supplier.
For failure to comply with the second and third requisites, PAL’s tax refund was denied.
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Atty. Filamer D. Miguel is a senior associate of Du-Baladad and Associates Law Offices, a member-firm of World Tax Services Alliance. The article is for general information only and is not intended, nor should be construed, as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at filamer.miguel@bdblaw.com.ph, or call 403-2001, local 360.