Tax court affirms P41-M refund to foreign airline

Business & Finance

The Court of Tax Appeals (CTA) has affirmed a tax refund of PHP42.5 million to the local branch of an international air carrier representing erroneously paid income taxes for 2013 and 2014.

In its 18-page decision dated April 12, the tax court en banc upheld an earlier ruling of the CTA First Division in July 10, 2020 for the grant of the tax refund claim of Gulf Air Company Philippine branch.

The amount is erroneously paid income taxes on its 2013 and 2014 gross Philippine billings (GPB) or the gross revenue derived from the transport and their excess baggage under Republic Act 10378 providing for “reciprocity for the grant of income tax exemptions to international carriers”.

Revenue officials had questioned the exemption, citing that the firm’s Bahrain-based parent company Gulf Air BSC and Philippine Airlines had entered into an agreement where Gulf Air operated as operating carrier and PAL as operating carrier for certain Gulf Air flights.

Gulf Air Philippines thus cannot claim an exemption from payment of income tax under the law.

Revenue officials also said Gulf Air failed to show that Philippine carriers are actually enjoying the income tax exemption in Gulf Air’s home country of Bahrain.

Gulf Air said the income tax law of Bahrain does not impose tax on the income of airlines derived from the transport of passengers and their excess baggage, and therefore satisfied that the airline’s home country grants income tax exemption to Philippine carriers.

The tax court said that under the firm’s home country, income taxes are only imposed on gains realized by companies directly engaged in exploration or production of crude oil or other natural hydrocarbons.

The CTA dismissed revenue officials’ claim that the provision in the law cited by the Gulf Air to enjoy tax exemption specifically requires that Philippine carriers enjoy reciprocal income tax exemption in Gulf Air’s home country.

In rejecting that interpretation, the CTA said that “would run counter to the purpose of the law, which is to encourage flight and shipping operations of international carriers, and as a matter of course, foreign tourist arrivals in the country.”

Source: Philippines News Agency

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