CTA Case No. 3189

DECISION

CTA CASE NO. 3 189 - 2 - Sometime on September 13, 1978~ petitioner entered into a charter party to provide supply vessels to Philippine- Cities Service~ Inc. which is engaged in petroleum exploration and development in the Philippines.

The services include as follows: (a) Carrying s upplies on behalf of Philippine-Cities Service~ Inc.

principally ·from overseas to offshore platforms and drilling rigs to t1abini, Batangas;

( b ) Carr·ying personnel from overseas ports to offshore p l atforms and drilling rigs and vice-versa.

In accor·dance li~i th said charter party agt-eement ~ payments were made to petitioner for the respective quarters ended December 31, 1978 and March 31, 1979.

The total amounts of P456,467.10 and P410, 430.65, rept-esen ting the 8% f ina 1 ta:-:

under P.O.

1354 were withheld petitioner by Philippine- Cities Service~ I nc. and paid to the BIR on January 25~ 1979 and 1979~ r·espec ti ve 1 y.

However, on June 28, 1979~ petitioner through its external auditor, SGV & Company, filed a formal c 1 aim fot- ta:-: ct-ed it covering the above internal revenue tax payments~ alleging that it had overpaid the a bove- men tioned internal revenue tax payments by three and one- half (3-1/2 ) per centum. It cited as l e gal basis BIR Ruling No. 023- 79 dated April 27~ 1979 holding Smit- Lloy d B.IJ.' as an international carrier s ubject to the income ta x of 2 - 1/2% on its gross Philippine billings and to the 2% common ta}:

pur·suan t to Sections 24 (b)(2) and 207 of the National Inte rnal Revenue Code of 1977 .

It appearing from the records that respondent does not di s pute the afm-ementioned facts and in ·fa c t failed to fil e his objection to the fat-ma l of "fer o"f evidences by petitioner , pat-ties decided to s ubmit this case fat- decision on the basis of the pleadings a lready s ubmitted. In view ther e of~ the i ssu e to be reso l ved in this particular case is whe the r or not pe titioner is liable to the 8% final tax under P.O. 1354 , or to the 2- 1 / 2 % income ta x on i t s gross Philippine billings and to the 2% common c:an- .ier·' s ta :-: under· Section s 24 (b) ( 2) a nd 207 of the Tax Code of 1977. Respondent maintains the app 1 icabi 1 i t y of the provision s of P .O . 13 54, as follows: Imposi ng Final Subcontractors and Service Contractors Income Ta:·:

on Alien Employees of and Subcontractors 5~7

Engaged in Philippines No. 87 - 4 - Petroleum Under- Operations Presidential SECTION 1 .

Ta:{ on in the Decree sub- contractors. - Every subco ntra ctor~ whether domestic or foreign~ entering into a contract with a service contractor engaged in petroleum operations in the Philippines s hall be liabl e to a final income tax equivalent to eig ht percent (8%) of its gross income derived from s uch contract, suc h tax to be in lieu of e:1n y and all ta:·:es, whether national ot-

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On the other- hand, petitioner- cited Section 24 (b) (2) a nd 207 of the Nation al Internal Revenue Code, as follow s :

Sec. 24.

Rates of ta:·:

on cor-por-ations.-(a) x ( b) ( 1 ) (2) Resident corporations. - A cor-por-ation organized, authorized~ or- e}:isting under- the latt·IS of any foreig n country, engaged in trade or business within the Philippines, shal l be taxable as provided in subsectio n (a) of this sec tion upon the total net income received in the preceding ta xable year from all sources within the Philippines: Provided, however~ That international carriers shall pay a tax of two and one- ha 1 f per cent on the it- gross Phi 1 i ppine billings x x x.

Sec. 207 . Percentage tax on carriers and kee pe r s of garages. - Keepers of garages, cars for rent or hire dri ven by the 1 essees ~ tt-ansporta tion con tt-ac tors, person who transpor-t passengers or freight for hire, and c ommon carriers by land, air~ or water, except owners of banc as and owners of animal-drawn two- DECISION CTA CASE NO. 3 189 - 5 - wheeled vehicles~ shall pay a ta x equivalent to two per centum of their monthl y gross receipts. i s the principle that in case of con ·f 1 ic t beb"'een a spec ia 1 1 a~'-1 and a genet-a 1 1 aw the provision of the former shall prevail over that of the 1 at te r·· .

Gen-e ralia Spe c ialibu s Hon Der o gant.

Wher-e a 1 a ter- spec ia 1 l <::H'-1 on a par- ticu 1 ar subject is repugnant to, or in c onsi s tent wit h ~ a prior g e neral law on the s ubject, a partia l repeal of the latter ~'Jil l be implied to t he extent of the repugnancy or an exception. grafted upon the general A special law must be intended to constitute an e::ception to t he gene r- a 1 1 aw in the absence of spec ial c i r·cums t ances forcing a con c lusion.

( Nati o nal PoNer Cor p o rati o n vs . Hon.

Pre s i d ing Judge, Pr ov in c e o f Hi s ami s Oriental , G.R . No.

72477~ October 16 ~ 1990.)

An examination o f t he two l a ws wi l l show t hat the National Internal Revenue Code is a general l aw c ompared to F'residen tia 1 Decree No. 1 :354.

t.rJh i 1 e the former gover·ns in genera l ta xation of a ll ty pes o -F ind i v idu.a 1 s and cotr pora te entities ~ the 1 at ter takes exce ption and treats especially the manner of ta:: .ing subcon tr·ac tors and e mployees of s e r-... ; i ce contractors and s ubcontractors engaged i n DECISION CTA CASE NO . 3 189 - 6 - petroleum operation.

Therefo re~ based on the a for·e --men tioned do c trin e~ the prov ision of Presidential Decree No. 1354 should prevail. This cone lusion becomes more apparent if we will take note of the fact that Presidential Decree No. 1354 n?cogn i zes in it:~. opening para.g raph t hat "for-eign subcontractors invol·.;ed in petroleum o pE-!ra tion s in the P hilippines are ta:.:able as resident for-eign corporation". In other words~ the lav~m aker v~a ~.:;

that foreign subcontractors e nga.ged in petroleum operations were ta:.:ed as resident foreign corporation under Section 24(b)(2) of the Tax Code including entities engaged in international carr·iage the subject prr.:'}s i dential decr·ee wa·::; promulgated. The purpose therefore of the law is to take away from the ·provision of said section of the National Internal Revenue Code, foreign subcontractors involved in petn:J I eu.m oper··a tions by ho 1 ding them 1 iab 1 e to a s pe cia l rate of 8% of its gross income derived from .its con tt~ac t 11-1i th a service contr·ac tor· e n gaged in petr·o I eu.m oper·a tion .

Had the intention been to e xc lude internationa l carriers, this should have been specified but the 1 a\1-J remains si 1 en t and in fact did not distinguish. Al so, now here under said presidentia l decree ~~~as it the intention of the

- 7 - lawmaker to give preferential treatment to foreign subcontractor.

The intention was merely "to s implify the method of taxing the sai d foreign subcontractors x x so as to insure the col l ection of \r·Jhatever t a}: i s due from them." (5th pa r-ag tr aph of the ~lhereas C 1 ause) .

Another purpose is to place domestic subcontractor on equal footing with foreign subcontractor 1r~hich we shall discuss below.

Furthermore~ please take note that one of the main purpose for the issuance of P. D. 1354 is "To plac e loca l or domestic subcontractors on equal footing and to make them competitive with foreign subcontt-ac tors, they should simi l at- 1 y be taxed as foreign subcon trac tot-s".

(6th paragr-aph of the Whereas Clause.)

In accordance with the objective, Secticm 1 of P.O.

1354 that ?P I::J ~o r:J .tr:.S\c;::tq_r::, ..... ..... "-~hether dome:?..tic .. CJr e ntering into contract with a service contr-actor e ngaged in petro 1 eum operations in the Philippines s ha 11 be 1 iab 1 e to a f ina 1 income ta:·:

equivalent to eight percent (8%) of its gross income deri '-"ed from such contract, such tax to be in lieu of any and all ta xes , whether national 01r local" (Underscoring supplied) . If ~t-Je will follow the position taken by the petitioner and 56~ .

- 8 - concur tJ.Ji th the cited BIR opinion holding petitioner liable to pay only 2--1/2% ta~: on gross Phi 1 i ppine bi 11 ing s p 1 us 2% common carrier's ta:-:, the purpose of the 1 a1--1 wi 11 be defeated because domestic s ubcontr-actor- engaged in s imilar s ubcon tract of lease or charter of vessel can never be s ubject to the lo11~er 2-1/2 on gross Philippine billings.

Thi s 1 OtJ.Ier ta x rate app 1 ies on 1 y to resident ·foreign cor-·porations.

Clear-l y , the intention of the 1 atJ-1 ~ P. D.

1354 in a.pp 1 y ing a s i mi 1 ar 8% ta}: on both, domesti c and foreign, i s to place them on e qual focJ ting in ter-ms of winning a s ubcontract agreement with a contractor engaged in petroleum operations. To rule othe r wise is to plac e a domestic subcontractor- at a disadvantage vis-a-v i s a foreign s ubcontractor. Mor--eover, if ~~~E.' will examine closely the activities of the vessels of the petitioner emp loye d in the operation 114hich we quote as fo 11 0\-'IS:

1.

Cat- r-y ing s upp 1 ies on beha 1 f of Philippine- Cities Service, Inc.

pt--i n c ipally from overseas ports to offshore platforms and d r i l ling rig s and to Mabini~ Batangas which is the s upply base of companies engaged in oil e::ploration and development and r·e l ated activities. These supplies c:on~::;ist o nly of those items which are necessary to sustain an offshore 5h?

DECISION -

CTA CASE NO. F189 petroleum exploration or production operation. Supplies include but are not limited to: food, water, fuel, bulk cement and drilling fluids, drilling and logging tools and equipment: and ie Carrying personnel from overseas ports ta offshore platforms and drilling rigs and vice-versa. We can conclude that these activities are not covered by the phrase "gross Fhilippine billings" being taxed at 2-1/2% under Section 24(b)(2) of the Tax Code. The law defines "Gross FPhilippine Billings" as gross revenue realized from uplifts anywhere in the world by any international carrier doing business in the Philippines of passage deacuments sold therein, whether for passenger, excess baggage or mail, provided the cargo or. mail originates from the Philippines. The gross revenue realized from the said cargo or mail includes the gross freight charge up to final destination. Gross...revenue. from. chartered flights. originating from. the Philippines shall. likewise form part of “Gross. Philippine, Billings” regardless of the place of sale or payment of the passage documents. For purposes of determining the taxability of revenues from chartered flights, the!

term “originating from the Fhilippines" shall. include flight of passengers who stay in the Philippines for more than. forty- eight. (48). hours oprior to. embarkation".

BRR

- 10 - (Underscoring supplied) Please note that while the service activities of the vesse ls of petitioner s peaks of carrying supplies and personn e l from ove l--sei3.s ports to of f s hor·e p 1 at forms and dr i 11 ing rigs and to t'labini ~ Batangas, the gross revenue c ontemplated under the phrase "gross Philippine billings" speaks of cargo, mai l or char·tered flights originating from the Philippines, a complete re verse of the aforementioned activities. Considering a ll the above j urisp rudence and objectives of the l al-'J, the Court concludes that ~~~hat the petitioner has done in paying the 8/. tax purs uant t o P.D. 1354 is in order.

WHEREFORE, the instant Petition for Review is hereby dismissed.

The claim for tax credit is consequent 1 y c:i.I!'!Di.!?.c:i.. No pronouncement as to costs.

I CONCUR:

~~~~ ERNESTO D. ACOSTA Associate Judge - DECISION CTA CASE NO. 3 189 - 11 -

C E R T I F

I

C A T I

0 N I that this decision was reached after due consultation between the members of the Court of Tax Appeals in accordance with Section 1 3 ~ Article VIII of the Constitution . . j "l tt: !I . '--...._ ANT;(' C . ROAQU IN ssociate Judge C urt of Tax Appea l s