Court denies PAL’s bid to refund taxes on interest earnings

July 18, 2010
Business World

THE COURT of Tax Appeals has denied Philippine Airlines’ (PAL) claim for a refund of some P4 million in taxes withheld by banks, as there was supposedly no evidence the amount had been remitted to the government.


PHILIPPINE Airlines is asserting its tax perks under Presidential Decree No. 1590, which requires it to pay only the corporate income tax or a 2% tax on gross revenues, whichever is lower. -- Bw file photoIn a ruling last May 11, the tax court said certifications from seven banks in which PAL had accounts were not corroborated by documents from the Bureau of Internal Revenue (BIR).

The Lucio C. Tan-led carrier wanted P3,621,067.51 in interest income refunded, citing tax perks under its franchise. The amount was withheld from peso and US dollar bank accounts, representing 20% and 7.5% in final income taxes in 2003.

“It bears stressing that equally important to petitioner PAL’s claim for refund is evidence showing that the taxes withheld from petitioner PAL’s interest income [was] actually remitted to the BIR,” the court ruling said.

Under Presidential Decree (PD) No. 1590, PAL was granted a legislative franchise that exempted it from taxes, including withholding taxes. In lieu of the exemption, PAL was made to pay either the corporate income tax or a franchise tax of 2% of gross revenues, “whichever will result in lower tax.”

The court, in its ruling, recognized this right of the airline, but said lack of documents failed PAL’s claim for a tax refund.

To prove that it had earned interest income on its bank deposits, PAL presented as evidence certifications and certificates of final tax from seven banks worldwide, namely: Tan-led Allied Banking Corp., China Banking Corp., Hong Kong Shanghai Banking Corp., JP Morgan Chase Bank, Land Bank of the Philippines, Standard Chartered Bank, and Philippine Bank of Communications.

PAL claimed that a total of P203,260.34 and $62,311.89 worth of final taxes were withheld by the seven banks, court records showed.

The tax court said PAL should not only establish its rightful claim to a refund, but also the exact amount of refund it was seeking.

“Without supporting documents to prove that the amount PAL is claiming for refund had in fact been remitted to the BIR, this court cannot determine the exact amount refundable to [the airline] by reason of its exemption from all other taxes,” the ruling said.

“This court can order [the BIR] refund to petitioner PAL only the amount of taxes duly withheld and actually remitted to the government,” the decision said.

On Feb. 4, the Supreme Court reversed an earlier decision by the tax court, ordering the refund of P141,431 representing the 10% overseas communication tax it had paid to Philippine Long Distance Telephone Co. on overseas calls in 2002.

The Supreme Court also cited PD 1590 as basis for its ruling. -- P. P. Magtulis