PAGCOR Petitioner, v.

THECOMMISSIONER OF INTERNAL REVENUE

G.R. Nos. 210689-90

:FACTS:

1997 NIRC took effect wherein PAGCOR, under Section 27(C) thereof, was included among
thegovernment-owned or -controlled corporations (GOCCs) exempt from the payment of income
tax.Subsequently, RA No. 933711 amended Section 27(C) of the 1997 NIRC, by removing PAGCOR
fromthe list of the GOCCs exempt from payment of income tax.RA No. 948712 was enacted extending
PAGCOR's franchise under PD No. 1869 for another period of 25 years, renewable for another 25
yearsOn August 11, 2008, PAGCOR received from the CIR a Preliminary Assessment Notice datedJuly 29,
2008 on its alleged deficiency income tax, Value-Added Tax (VAT), Fringe Benefit Tax (FBT),and
documentary stamp tax for taxable years 2005 and 2006.The CTA Division ruled that when RA No. 9337
took effect, PAGCOR was deleted from the listand ceased to be among those GOCCs exempt from paying
income tax on their taxable income. In otherwords, RA No. 9337 effectively withdrew the income tax
exemption granted to PAGCOR under itscharter.PAGCOR claims that, under its Charter, it is liable only
for the 5% franchise tax which is in lieuof all kinds of national and local taxes, levies, fees or
assessments; and said tax privilege was notamended or repealed by RA No. 9337.43 It further argues
that assuming said tax exemption wasamended/repealed by RA No. 8424 and RA No. 9337, RA No. 9487,
which extended PAGCOR'sfranchise to another 25 years, restored its rights, privileges and authority
granted and/or enjoyed under PD No. 1869

ISSUE:

WHETHER THE CTA EN BANC SERIOUSLY ERRED IN FAILING TO CONSIDER THATPAGCOR UNDER P.D.
1869, AS AMENDED BY R.A. 9487, IS LIABLE ONLY FOR THE 5%FRANCHISE TAX WHICH IS IN LIEU OF ALL
KINDS OF TAXES, LEVIES, FEES ORASSESSMENTS OF ANY KIND, NATURE OR DESCRIPTION, LEVIED,
ESTABLISHED ORCOLLECTED BY ANY MUNICIPAL, PROVINCIAL, OR NATIONAL GOVERNMENTAUTHORITY.

Ruling:PAGCOR is liable for corporate income tax only on its income derived from other related
services.After a thorough study of the arguments and points raised by the parties, and in accordance
with ourDecision dated March 15, 2011, SC sustain [PAGCOR's] contention that its income from
gamingoperations is subject only to five percent (5%) franchise tax under P.D. 1869, as amended, while
its income from other related services is subject to corporate income tax pursuant to P.D. 1869, as
amended,as well as R.A. No. 9337. This is demonstrable.Under P.D. 1869, as amended, [PAGCOR] is
subject to income tax only with respect to its operation ofrelated services. Accordingly, the income tax
exemption ordained under Section 27(c) of R.A. No. 8424clearly pertains only to [PAGCOR's] income
from operation of related services. Such income taxexemption could not have been applicable to
[PAGCOR's] income from gaming operations as it is alreadyexempt therefrom under P.D. 1869, as
amended
CHAMBER OF REAL ESTATE AND BUILDERS' ASSOCIATIONS, INC. VS. ROMULO, ET AL- MINIMUM
CORPORATE INCOME

FACTS:

Chamber of Real Estate and Builders' Associations, Inc. (CHAMBER) is questioning the constitutionality of
Sec 27 (E) of RA 8424 and the revenue regulations (RRs) issued by the Bureau of Internal Revenue (BIR)
to implement said provision and those involving creditable withholding taxes (CWT). [CWT issues will
not be discussed]

CHAMBER assails the validity of the imposition of minimum corporate income tax (MCIT) on
corporations and creditable withholding tax (CWT) on sales of real properties classified as ordinary
assets. Chamber argues that the MCIT violates the due process clause because it levies income tax even
if there is no realized gain.

MCIT scheme: (Section 27 (E). [MCIT] on Domestic Corporations.)

A corporation, beginning on its fourth year of operation, is assessed an MCIT

of 2% of its gross income when such MCIT is greater than the normal

corporate income tax imposed under Section 27(A) (Applying the 30% tax

rate to net income).

If the regular income tax is higher than the MCIT, the corporation does not pay the MCIT.

Any excess of the MCIT over the normal tax shall be carried forward and credited against the normal
income tax for the three immediately succeeding taxable years.

The Secretary of Finance is hereby authorized to suspend the imposition of the [MCIT] on any
corporation which suffers losses on account of prolonged labor dispute, or because of force majeure, or
because of legitimate business reverses.

The term ‘gross income’ shall mean gross sales less sales returns, discounts and allowances and cost of
goods sold. "Cost of goods sold" shall include all business expenses directly incurred to produce the
merchandise to bring them to their present location and use.

CHAMBER claims that the MCIT under Section 27(E) of RA 8424 is unconstitutional because it is highly
oppressive, arbitrary and confiscatory which amounts to deprivation of property without due process of
law. It explains that gross income as defined under said provision only considers the cost of goods sold
and other direct expenses; other major expenditures, such as administrative and interest expenses
which are equally necessary to produce gross income, were not taken into account. Thus, pegging the
tax base of the MCIT to a corporation’s gross income is tantamount to a confiscation of capital because
gross income, unlike net income, is not "realized gain."
ISSUE:

1. WON the imposition of the MCIT on domestic corporations is unconstitutional

2. WON RR 9-98 is a deprivation of property without due process of law because the MCIT is being
imposed and collected even when there is actually a loss, or a zero or negative taxable income

HELD:

1. NO. MCIT is not violative of due process. The MCIT is not a tax on capital. The MCIT is imposed on
gross income which is arrived at by deducting the capital spent by a corporation in the sale of its goods,
i.e., the cost of goods and other direct expenses from gross sales. Clearly, the capital is not being taxed.

Furthermore, the MCIT is not an additional tax imposition. It is imposed in lieu of the normal net income
tax, and only if the normal income tax is suspiciously low.

The MCIT merely approximates the amount of net income tax due from a corporation, pegging the rate
at a very much reduced 2% and uses as the base the corporation’s gross income.

CHAMBER failed to support, by any factual or legal basis, its allegation that the MCIT is arbitrary and
confiscatory. It does not cite any actual, specific and concrete negative experiences of its members nor
does it present empirical data to show that the implementation of the MCIT resulted in the confiscation
of their property.

Taxation is necessarily burdensome because, by its nature, it adversely affects property rights. The party
alleging the law’s unconstitutionality has the burden to demonstrate the supposed violations in
understandable terms.

2. NO. RR 9-98, in declaring that MCIT should be imposed whenever such corporation has zero or
negative taxable income, merely defines the coverage of Section 27(E).

This means that even if a corporation incurs a net loss in its business operations or reports zero income
after deducting its expenses, it is still subject to an MCIT of 2% of its gross income. This is consistent with
the law which imposes the MCIT on gross income notwithstanding the amount of the net income.
CASE DIGEST: AIR CANADA, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. (G.R.
No. 169507; January 11, 2016)

FACTS: Air Canada is an offline air carrier selling passage tickets in the Philippines, through a general
sales agent, Aerotel. 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[.]

Air Canada filed a claim for refund for more than 5 million pesos. It claims that there was overpayment,
saying that the applicable tax rate against it is 2.5% under the law on tax on Resident Foreign
Corporations (RFCs) for international carriers. It argues that, as an international carrier doing business in
the Philippines, it is not subject to tax at the regular rate of 32%.

Air Canada also claims that it is not taxable because its income is taxable only in Canada because of the
Philippines-Canada Treaty (treaty). According to it, even if taxable, the rate should not exceed 1.5% as
stated in said treaty.

However, the CTA ruled that Air Canada was engaged in business in the Philippines through a local agent
that sells airline tickets on its behalf. As such, it should be taxed as a resident foreign corporation at the
regular rate of 32%.

The CTA also said that Air Canada cannot avail of the lower tax rate under the treaty because it has a
"permanent establishment" in the Philippines. Hence, Air Canada cannot avail of the tax exemption
under the treaty.

ISSUES:

[1] Is Air Canada, an offline international carrier selling passage documents through Aerotel, a RFC?

[2] As an offline international carrier selling passage documents, is Air Canada subject to 2.5% tax on
Gross Philippine Billings or to the regular 32% tax?

[3] Can Air Canada benefit from the treaty's elimination of double taxation in favor of Canada or the
preferential rate of 1.5%?

[4] Can Air Canada validly refuse to pay its tax deficiency on the ground that there is a pending tax credit
proceeding it has filed?

[5] Is Air Canada entitled to the tax refund claimed at more than 5 million pesos?

HELD:

[1] Yes, Air Canada is a resident foreign corporation. Although there is no one rule in determining what
"doing business in the Philippines" means, the appointment of an agent or an employee is a good
indicator. This is especially true when there is effective control, similar to that of employer-employee
relationship. This is true between Air Canada and Aerotel. Hence, Air Canada is a RFC.
[2] No, because the 2.5% tax on Gross Philippine Billings applies only to carriers maintaining flights to
and from the Philippines. Air Canada's appointment of a general sales agent, Aerotel, here is only for the
purpose of selling passage documents. However, this is not the complete answer since the treaty is the
latter law that prevails in this case.

HELD:

[1] Yes, Air Canada is a resident foreign corporation. Although there is no one rule in determining what
"doing business in the Philippines" means, the appointment of an agent or an employee is a good
indicator. This is especially true when there is effective control, similar to that of employer-employee
relationship. This is true between Air Canada and Aerotel. Hence, Air Canada is a RFC.

[2] No, because the 2.5% tax on Gross Philippine Billings applies only to carriers maintaining flights to
and from the Philippines. Air Canada's appointment of a general sales agent, Aerotel, here is only for the
purpose of selling passage documents. However, this is not the complete answer since the treaty is the
latter law that prevails in this case.