Aces Philippines Cellular Satellite Corp.

EN BANC
[G.R. No. 226680. August 30, 2022.]
ACES PHILIPPINES CELLULAR SATELLITE CORPORATION , petitioner, vs.

THE COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
INTING, J : p
This resolves the Petition 1 for Review on Certiorari assailing the Decision 2 dated
June 8, 2016 and the Resolution 3 dated August 16, 2016 of the Court of Tax Appeals En
Banc (CTA En Banc) in CTA EB Case No. 1242 (CTA Case No. 8567). The assailed issuances
upheld the CTA Second Division (CTA Division) rulings in CTA Case No. 8567 which
affirmed with modification the Final Decision on Disputed Assessment (FDDA) 4 dated
August 23, 2012 issued by respondent Commissioner of Internal Revenue (CIR) and found
petitioner Aces Philippines Cellular Satellite Corporation (Aces Philippines) liable for
deficiency final withholding tax (FWT) for taxable year 2006. HTcADC
The Antecedents
The facts as culled from the rollo reveal the following:
In 1995, the Philippine Long Distance Telephone Company (PLDT) entered into a
Gateway Agreement with PT Asia Cellular Satellite (Aces Indonesia), a company organized
under the laws of Indonesia, "for the supply of certain equipment, software, data and
documentation [to allow PLDT] to construct, own and operate a [g]ateway or [g]ateways in
the Philippines." 5
In the same year, Aces Philippines was incorporated as PLDT's subsidiary 6 to operate
telecommunication gateways and equipment involving the processing, storage,
monitoring, and retrieval of data, image, voice, audio, and tone. 7
Subsequently, on March 12, 1997, PLDT entered into another agreement with Aces
Indonesia. The contract, denominated as the Founder NSP Air Time Purchase Agreement 8
(Air Time Purchase Agreement) contained the following Recitals:
A. [Aces Indonesia] has contracted with Lockheed Martin and its affiliates
for the manufacture and launch of satellite that is expected to be located in
geostationary orbit at 123 degrees East Longitude and to have the capacity to
receive, switch, amplify and transmit radio signals from and to (i) terminals and (ii)
ground station interlinks with terrestrial fixed-line telephone systems and terrestrial
cellular telephone systems ("Gateways"). This system is herein referred to as the
"ACeS System," and the satellite, together with any satellite [Aces Indonesia] elects
to launch in lieu thereof or in replacement thereof having substantially equivalent
coverage and the capacity to receive, switch, amplify and transmit radio signals
from and to (i) terminals and (ii) Gateways, is herein called the "Satellite." The ACeS
System is designed to allow [Aces Indonesia] to sell satellite communication time to
providers of the communication services supported by [Aces Indonesia] ("Service
Providers") for resale to subscribers in the ACeS System coverage area.
B. [PLDT] has entered into a contract with [Aces Indonesia] and Martin
Marietta Overseas Corporation, dated August 28, 1995 (the "Gateway Agreement"),
for the supply of certain equipment, software, data and documentation to enable
[PLDT] to construct, own and operate a Gateway or Gateways in the Philippines (the
"Territory").
C. [Aces Indonesia] wishes to sell satellite communications time for the
ACeS System to [PLDT], and [PLDT] wishes to (i) purchase satellite communications
time for the ACeS System from [Aces Indonesia] and (ii) be the sole supplier of the
ACeS Services to subscribers resident in the Territory. In return for being designated
CD Technologies Asia, Inc. © 2023 cdasiaonline.com
as the sole supplier of ACeS Services in the Territory, [PLDT] is willing to agree to the
payment obligations and other terms and conditions set forth herein and to the
various obligations and standards of service with respect to the ACeS System and
the provision of the ACeS Services to its subscribers set forth in the Founder NSP
Operating Agreement, dated the date hereof, between [PLDT] and [Aces Indonesia].
9 (Emphasis omitted.)
Paragraph 2.2 of the Air Time Purchase Agreement further provided:

2.2 Grant of Exclusive Rights: Retained Rights of [Aces Indonesia]
(a) [Aces Indonesia] hereby grants to [PLDT], and [PLDT] hereby accepts, the
exclusive right to provide (directly or through Authorized Distributors) the ACeS
Services to Persons resident in the Territory during the Term, on the terms and
conditions set forth in this Agreement. Except as provided in the Roaming
Guidelines, during the Term of this Agreement, [Aces Indonesia] will not without
[PLDT]'s prior written consent (a) enter into agreements with any Person (other than
[PLDT]) for the provision of ACeS Services to Persons resident in the Territory during
the Term, or (b) itself solicit or enter into contracts for ACeS Services with Persons
resident in the Territory. During the Term of this Agreement, ACeS will refer to
[PLDT] any inquiries it receives from Persons resident in the Territory concerning the
ACeS System or ACeS Services in the Territory. Any Person with whom [PLDT] or an
Authorized Distributor of [PLDT] contracts for the delivery of ACeS Services is a
"subscriber" of [PLDT] for all purposes of this Agreement.
(b) [Aces Indonesia] is free to contract with any Person to act as a Service
Provider for any area not included in the Territory, to act itself as the Service
Provider for any area not included in the Territory, and to appoint operators of GSM
or AMPS systems covering areas not included in the Territory to act as authorized
distributors of ACeS Services in such areas. 10 (Underscoring in the original.)
In brief, by the end of 1997, Aces Indonesia had two executory contracts with PLDT.
The Gateway Agreement allowed Aces Indonesia to supply PLDT the equipment, software,
data, and documentation necessary for the construction and operation of gateways in the
Philippines. 11 On the other hand, the Air Time Purchase Agreement allowed Aces
Indonesia to sell satellite communications time (Aces Services) to PLDT, which, in turn,
shall become the exclusive provider/distributor thereof to Philippine subscribers. 12
The provision of these services depended upon the "Aces System," which consisted
o f satellite/s, terminals, and gateways. The satellite, located in outer space, has the
capacity to receive, switch, amplify, and transmit radio signals from and to terminals and
gateways, which, on the other hand, are ground station interlinks with terrestrial fixed-line
telephone systems and terrestrial cellular telephone systems located in various
geographical jurisdictions within its coverage. 13
PLDT shall pay Aces Indonesia satellite air time fees as consideration for satellite
communications time used by PLDT, which shall be measured in "Billable Units," 14 viz.:
3.2 Payments for Billable Units Used
(a) [Aces Indonesia] will invoice [PLDT], and [PLDT] will pay, for all satellite
communications time, measured in Billable Units, used by [PLDT] during each Billing
Month in a Billing Period (the "Monthly Usage"). The price for each Billable Unit of
satellite communications time used by Buyer is US$0.025.
(b) For the purpose of this Section 3.2, [PLDT] will be deemed to have
"used" all Billable Units allocated to [PLDT] in accordance with the following
allocation principles. All Billable Units arising from calls made to or from [PLDT]'s
subscribers utilizing the ACeS System (i.e., routed through the ACeS Satellite) will be
allocated to Buyer, regardless of the location of the subscriber at the time of the call
or the Gateway that handles such call. Any subscriber (possessing an ACeS-capable
handset) of a terrestrial cellular system which has an ACeS roaming agreement with
[PLDT] is deemed a subscriber of [PLDT] for the purposes of this Agreement, so that
all calls to or from any such subscriber utilizing the ACeS System also will be
allocated to [PLDT] regardless of the location of such subscriber at the time of the
call or the Gateway that handles such call. Additional rules governing the
implementation of these principles are set forth in the Operating Agreement and the
Annexes thereto, including the procedures for the settlement between [PLDT] and
other operators of Gateways to the ACeS System for the utilization by [PLDT]'s
subscribers of Gateways not operated by the [PLDT].
xxx xxx xxx 15 (Emphasis omitted; italics supplied.)
xxx xxx xxx
Annex Z
DEFINITIONS
xxx xxx xxx
Billable Unit: each six-second interval (fractions thereof to be rounded up to
the next six-second interval) of satellite utilization time for a voice or data call to or
from a terminal, excluding satellite utilization time for all set-up, unanswered calls,
and incomplete calls. 16 (Emphasis omitted.)
A year later, or in 1998, the original parties to the Air Time Purchase Agreement
transferred their rights and obligations under the contract to third parties, viz.: (a) Aces
Indonesia transferred in favor of Aces International Limited, a company incorporated in
Bermuda (Aces Bermuda), and (b) PLDT transferred to its subsidiary, herein petitioner
Aces Philippines. 17
After the transfer, effectively, Aces Philippines had the authority to operate
telecommunications gateways and related equipment within the Aces System, as well as
the exclusive authority to provide Aces Services to its Philippine subscribers. 18
In 2007, the Bureau of Internal Revenue (BIR) commenced its audit of Aces
Philippines' books of account and other accounting records in relation to all internal
revenue taxes for taxable year 2006. 19 The tax authorities found that Aces Philippines
paid Aces Bermuda satellite air time fees amounting to P199,312,169.00 in 2006 but did
not withhold the proper amount of tax. According to the BIR, these satellite airtime fees
are income payments to a non-resident foreign corporation (NRFC) that are subject to 35%
FWT. 20
Aces Philippines protested the findings at the administrative level. 21 However, the
CIR issued the FDDA 22 against Aces Philippines relative to the deficiency FWT for taxable
year 2006 amounting to P170,935,184.92, inclusive of surcharge, interest, and
compromise penalty, computed as follows: 23
Satellite airtime fees P199,312,169.00
Multiply by: FWT rate 35%
–––––––––––––––––––– ––––––––––––––––––––––
Basic tax P69,759,259.15
Add: 25% surcharge 17,439,814.79
Interest 24 83,711,110.98
Compromise penalty 25,000.00
––––––––––––––––––– –––––––––––––––––––––
Total amount payable P170,935,184.92
================== ===================
Aggrieved, Aces Philippines filed its judicial protest before the CTA.
The Ruling of the CTA Division
The CTA Division affirmed the CIR's assessment against Aces Philippines, viz.: 25

WHEREFORE, premises considered, the assessment issued by respondent
against petitioner covering deficiency final withholding tax for taxable year 2006 as
per the assailed Final Decision on Disputed Assessment dated August 23, 2012 is
hereby AFFIRMED with some modifications. Accordingly, petitioner is ORDERED TO
PAY respondent the amount of P87,199,073.94, representing deficiency final
withholding tax for taxable year 2006, inclusive of twenty-five percent (25%)
surcharge imposed under Section 248(3) of the NIRC of 1997, computed as follows:
Basic Final Withholding Tax Due P69,759,259.15
Add: 25% Surcharge 17,439,814.79
TOTAL AMOUNT DUE P87,199,073.94
Likewise, petitioner is ORDERED TO PAY the following:

(a) deficiency interest at the rate of twenty percent (20%) per annum on
the basic deficiency final withholding tax of P69,759,259.15 computed from January
10, 2007 until full payment thereof pursuant to Section 249(B) of the NIRC of 1997;
and
(b) delinquency interest at the rate of 20% per annum on the total amount
of P87,199,073.94 and on the 20% deficiency interest which have accrued as
aforestated in (a), computed from October 3, 2012 until full payment thereof
pursuant to Section 249(C) of the NIRC of 1997.
SO ORDERED. 26
The CTA Division concluded that the satellite air time fees paid to Aces Bermuda
under the Air Time Purchase Agreement are considered Philippine-sourced income. It
observed from the payment terms in the agreement that Aces Philippines pays the satellite
air time fees only when satellite air time is delivered to Aces Philippines and its Philippine
subscribers, and utilized in the Philippines for a voice or data call, excluding satellite
utilization time for call set-up, unanswered calls and incomplete calls. Based on these
premises, the activity that produces income is the undertaking of providing satellite
communication time to be delivered by Aces Bermuda and utilized by Aces Philippines and
its Philippine subscribers. Thus, the activity that produced the income took place in the
Philippines. 27
In its motion for reconsideration, Aces Philippines insisted that Aces Bermuda
rendered all services outside the Philippines. Further, the law did not intend to impose a
20% deficiency interest and delinquency interest simultaneously. 28
However, the CTA Division denied its motion. 29 This prompted Aces Philippines to
elevate the case to the CTA En Banc.
The Ruling of the CTA En Banc
In its assailed Decision, 30 the court a quo affirmed the CTA Division's ruling. In
upholding that the satellite air time fees are income sourced within the Philippines, the
CTA En Banc further observed:
x x x The services for satellite air time fees do not only compound with the use
of the Garuda Satellite (located in outer space) and the Network Control Center
(located in Indonesia), but also require that satellite communication time be
available and delivered in the Philippines. There is a continuous and very real
connection starting from the Philippines (that is the agreement to sell satellite
communications time for the ACES System in the Philippines), Garuda Satellite
(located in outer space), the Network Control Center (located in Indonesia) and again
the Philippines, through petitioner's gateway facilities.
xxx xxx xxx
The contract reveals that the consideration is the undertaking assumed by
[Aces Bermuda] of providing successful transmission of satellite signals to petitioner
in the Philippines. It is only when the satellite signals are received by petitioner's
gateway facilities situated in the Philippines that it can be said that the performance
of the contractual services was fully consummated or rendered. Petitioner pays air
time fees only when the satellite air time is successfully delivered to the petitioner
through its gateway facilities in the Philippines . For unanswered or incomplete
calls[,] no charges are billed against petitioner even if the Garuda Satellite (located
in outer space), the Network Control Center (located in Indonesia) were used.
Clearly, the absence of successful transmission of the satellite signal by [Aces
Bermuda] to petitioner's gateway facilities located in the Philippines, income or
payment for satellite [air time] fees will not arise. Thus, it is incorrect to state that
the act of transmission of satellite signals occurs entirely outside of the Philippines
considering that there is no satellite transmission to speak of if the signal does not
reach the gateway facilities situated in the Philippines. 31 (Italics supplied.)
The CTA En Banc pointed out that the services for satellite air time fees do not rely
exclusively on the transmission of signals from the satellite in outer space. While the
satellite does transmit signals, the service would not be considered delivered to Aces
Philippines and its subscribers if those signals do not reach the gateways located in the
Philippines. 32
Moreover, in upholding the imposition of deficiency interest, the court a quo
ratiocinated that the law imposes the liability for the payment of FWT on the withholding
agent. Thus, when there is deficiency FWT, the withholding agent shall also be liable for
the deficiency interest arising therefrom. 33 Deficiency interest accrues based on any
amount of due and unpaid tax. 34
Aces Philippines moved for reconsideration. When the CTA En Banc denied its
motion, it filed the present petition.
Petitioner's Arguments
For reference, Aces Philippines' arguments are reproduced below.
A. PAYMENTS FOR SATELLITE AIR TRANSMISSION RECEIVED BY A NONRESIDENT
FOREIGN COMPANY IS FROM SOURCES OUTSIDE THE PHILIPPINES, HENCE, NOT
SUBJECT TO INCOME TAX IN THE PHILIPPINES, CONSEQUENTLY, NOT SUBJECT TO
FINAL WITHHOLDING TAX 35
Income Sourced Outside the Philippines is Not Subject to Philippine Income Tax
36
Satellite Airtime Fees are not Rentals or Royalties 37

BIR previously ruled that Fees for Space Segment Services are Income Derived
from Sources Outside the Philippines and are therefore Not Subject to Philippine
Income Tax and consequently to Withholding Tax 38
Several United States tax laws, jurisprudence and tax regulations address the
source of income principle on satellite communications which have persuasive
effect in our jurisdiction 39
The US IRS has Governing Source Rules on Space and Ocean Activities and
International Communications Activities 40
Stare Decisis is Not Applicable since Baier-Nickel's and Howden [sic]
Circumstances are Different from the Case at Hand 41
The Same 1996 Edition of Merten's Treatise on Law of Federal Income Taxation
cited in the Baier-Nickel case has Specifically Addressed Special Types of
Income such as International Communications Income 42
Commentaries on Article 5 of the Model Tax Convention on Income and on
Capital of the Organisation for Economic Co-operation and Development (OECD)
can be applied in the instant case 43
Various other jurisdictions have ruled that satellite airtime fees are payments
for services not subject to withholding tax in such jurisdictions 44
[Aces Bermuda]'s undertaking to provide Satellite Services to [Aces Philippines],
being the activity that produced the income took place outside the Philippines
45

Assuming for the sake of argument that the satellite airtime fees are subject to
Philippine income tax and consequently to withholding tax, it is not the intent of
the law to simultaneously impose a 20% deficiency interest, per annum, on the
unpaid balance of tax deficiency until full payment 46
In the main, Aces Philippines insists that Aces Bermuda's income from satellite air
time fee payments was sourced outside the Philippines for the following reasons: first, the
act of transmission, which takes place in outer space, is the activity that produces the
income for Aces Bermuda. 47 Second , Aces Bermuda does not have machinery, equipment
and/or computers, or employees in the Philippines through which calls would reach and be
received within the Philippines. 48
The act of transmission is the activity
that produces the income.
Aces Philippines limits Aces Bermuda's income-producing activity to the "receipt and
beaming of satellite signals which all happen in the satellite and its control center, all
located outside the Philippines." 49 It claims that Aces Bermuda cannot be considered
already as carrying out business operations in the Philippines by "[t]he mere fact that the
satellite footprint reaches the Philippines." 50
Aces Philippines provides the following diagram: 51
ACeS Network Topology and Transaction Flow
Stated differently, it describes the satellite system as comprising of the following: (a)
Garuda 1, a communications satellite in outer space, which has the capacity to receive,
switch, amplify, and transmit radio signals from and to terminals and ground station
interlinks called "gateways"; 52 (b) Satellite Control Facility, which monitors and controls
the satellite; 53 and (c) Network Control Center, which consists of the hardware, software,
and facilities required in the management and control of the telecommunications system.
54 The Satellite Control Facility and Network Control Center, referred to as the ground or
earth stations, are located in Aces Bermuda's facilities in Batam Island, Indonesia. 55
Aces Philippines insists that the situs of the income derived from the payment of
satellite air time fees by Aces Philippines is considered income from sources outside the
Philippines, inasmuch as Aces Bermuda's ground or earth station that performs the
required service (i.e., satellite monitoring, operations, control, and management) 56 are
located outside the Philippines. 57 In a judicial affidavit, 58 Felimon R. Llavore (Llavore),
Service Quality Assurance Manager of Global Access Group of Smart Communications, Inc.,
testified that the satellite which beams the signal and routes the call is situated in outer
space (i.e., 123 degrees above Indonesia) and clearly outside Philippine jurisdiction.
According to Aces Philippines, Aces Bermuda's service to Aces Philippines is
terminated when the former's Network Control Center provides information to the Garuda
1 as to which gateway the call shall be routed to. 59 Thereafter, it will be Aces Philippines'
gateway/facilities that will receive the call, route the same to a local subscriber using its
switch, and process it until termination. 60 Further, the end-users/consumers of this service
are most likely seafarers 61 deployed in the high seas where there is no wireless signal or
tower. 62
Aces Bermuda has no machinery,
equipment, and employees in the
Philippines.
Aces Philippines cites various references to bolster the above-captioned contention.
In the BIR Ruling No. ITAD-214-02 dated December 4, 2002, the CIR opined that when
no equipment is installed in the Philippines and the services rendered by the NRFC had
been coursed through satellites, the income from the service fees are regarded as derived
from sources outside the Philippines and, thus, not subject to FWT. 63
Also, in Commissioner of Internal Revenue v. Piedras Negras Broadcasting Co., 64 the
United States (US) Circuit Court of Appeals ruled in connection with foreign radio
corporation that broadcasts directly to listeners in the US and elsewhere, viz.:
We think the language of the statutes clearly demonstrates the intendment of
Congress that the source of income is the situs of the income-producing service. The
repeated use of the words within and without the United States denotes a concept of
some physical prese nce, some tangible and visible activity. If income is produced by
the transmission of electromagnetic waves that cover a radius of several thousand
miles, free of control or regulation by the sender from the moment of generation, the
source of that income is the act of transmission. All of respondent's broadcasting
facilities were situated [outside] the United States, and all of the services it rendered
in connection with its business were performed in Mexico. None of its income was
derived from sources within the United States. 65 (Citations omitted; italics
supplied.)
Other jurisdictions such as India, Singapore, Thailand, and Germany, also do not
regard satellite airtime fee payments as subject to withholding tax. 66
Likewise, Aces Philippines argues that the source of Aces Bermuda's income is the
act of transmission of the call, which occurs in outer space, not the property, activity, or
service that produced the income. 67 It avers repeatedly that Aces Bermuda's facilities are
located outside the Philippines (i.e., outer space, Indonesia). As Aces Bermuda performs
the required service outside the Philippines, 68 the satellite air time fees paid by Aces
Philippines in exchange therefor are not subject to FWT.
Aces Philippines also cites the US Internal Revenue Code, which establishes special
rules 69for determining the source of international communications income, viz.:
26 U.S.C.S. § 863. I.R.C. § 863
§ 863. Special rules for determining source
xxx xxx xxx
(e) International communications income.
(1) Source rules.
(A) United States persons.
In the case of any United States person, 50 percent of any
international communications income shall be sourced in the United
States and 50 percent of such income shall be sourced outside the
United States.
(B) Foreign persons.
(i) In general. Except as provided in regulations or clause (ii), in
the case of any person other than a United States person, any
international communications income shall be sourced outside
the United States.
(ii) Special rule for income attributable to office or fixed place of
business in the United States. In the case of any person (other
than a United States person) who maintains an office or other
fixed place of business in the United States, any international
communications income attributable to such office or other
fixed place of business shall be sourced in the United States.
(2) Definition. For purposes of this section, the term "international
communications income" includes all income derived from the
transmission of communications or data from the United States to any
foreign country (or possession of the United States) or from any foreign
country (or possession of the United States) to the United States.
In brief, under the US taxation laws, the international communications income of a
foreign corporation is treated wholly as income sourced outside the US. The only time such
income is taxable in the US is in case the foreign corporation maintains an office or other
fixed place of business in the US, in which case the income will be attributable to such
fixed place of business. 70
Furthermore, based on the Commentaries on Article 5 of the Model Tax Convention
on Income and on Capital, 71 "the particular area over which a satellite's signals may be
received (the satellite's 'footprint') cannot be considered to be at the disposal of the
operator of the satellite so as to make that area a place of business of the satellite's
operator." In which case, the footprint alone does not constitute a permanent
establishment in a contracting state.
In sum, Aces Philippines imputes error upon the CTA En Banc for not considering the
above-discussed references and, instead, upholding (stare decisis) the principles set out in
the cases of Commissioner of Internal Revenue v. Baier-Nickel 72 (Baier-Nickel) and
Alexander Howden & Co., Ltd. v. Collector of Internal Revenue. 73 According to Aces
Philippines, the doctrines enunciated therein cannot be applied here because the facts of
these precedent cases are not substantially the same with those in the present
controversy. 74
The law does not intend to impose
deficiency and delinquency interests
simultaneously.
Assuming for the sake of argument that the satellite air time fee payments are
subject to FWT, the law did not intend to impose simultaneously a 20% deficiency interest
and a 20% delinquency interest, per annum on the unpaid balance of tax deficiency until
full payment. 75
The Issues
The issues in the present controversy may be restated as follows:first, are the
satellite air time fee payments to Aces Bermuda, in consideration for services rendered
using the Aces System, income from sources within the Philippines? Second, if the primary
issue is resolved in the affirmative, is Aces Philippines liable for delinquency interest? aScITE
Our Ruling
The petition is unmeritorious.
I
That taxation is inherent in sovereignty 76 limits the scope of taxing power within a
state's territorial jurisdiction. 77 There must be an established nexus between the subject
(e.g., person, property, income, or business) and the state that intends to tax it. The
existence of a nexus ensures that the taxing power does not extend beyond its territorial
limits. 78
Under our income tax law, this nexus is established by one'sresidence and source of
income. While resident individuals 79 and domestic corporations 80 are taxed on their
worldwide income, the National Internal Revenue Code of 1997, as amended (1997 Tax
Code), provides that any "foreign corporation, whether engaged or not in trade or business
in the Philippines, is taxable only on income derived from sources within the Philippines."
81 In particular, an NRFC 82 is subject to a 35% final tax on its "gross income received
during each taxable year from all sources within the Philippines." 83 Any tax due shall be
withheld at source by the income payor (withholding agent), 84 who shall be responsible
for filing the applicable return and remitting the tax withheld to the BIR. 85
In other words, the statute recognizes that the taxability of a foreign corporation's
income is limited to that which is connected to Philippine territory or Philippine-sourced
income. Certainly, other income the foreign corporation may derive from foreign sources is
beyond the scope of the Philippines' taxing power.
In the present case, the CIR assessed Aces Philippines (payor/withholding agent) for
deficiency FWT on satellite air time fees paid to Aces Bermuda (payee/income earner), an
NRFC, on the theory that such payments constituted Philippine-sourced income. In
contrast, Aces Philippines argues the income from these payments was not sourced from
the Philippines because Aces Bermuda: (a) performed the relevant service completely
outside of the Philippines, and (b) does not own equipment in the Philippines.
Resolving the issue of whether the satellite air time fee payments to Aces Bermuda is
subject to FWT requires a two-tiered approach, where We identify, first, the source of the
income and, second, the situs of that source.
A.
Identifying the source
The gateways' receipt of the call as
routed by the satellite is the income
source.
"Income" refers to the flow of wealth. 86 In ascertaining the income source, We must
inquire into the property, activity, or service that produced the income, 87 or where the
inflow of wealth originated. 88 It is insufficient to identify just any property, activity, or
service. The subject may only be regarded as an income source if the particular property,
activity, or service causes an increase in economic benefits, which may be in the form of
an inflow or enhancement of assets or a decrease in liabilities with a corresponding
increase in equity other than that attributable to a capital contribution. 89
At this juncture, it is best to recall the structure of the subject satellite system. The
"Aces System" is described in the Air Time Purchase Agreement as consisting of satellite/s,
terminals, and gateways. The satellite (outer space) receives, switches, amplifies, and/or
transmits radio signals to and from the terminals and gateways (terrestrial/ground,
including Philippine territory).
Aces Philippines' description of the system largely concurs with that provided in the
agreement, except that it insists that the Aces System's operations can be broken down
into two separate segments after a Philippine subscriber makes a call using the satellite
user terminal: first, the satellite receives the call and beams the signal to the Network
Control Center in Indonesia, which, in turn, would determine the exact Philippine gateway
the call shall be routed to. 90 Second , the Philippine gateway receives the call, routes it
using its switch, and processes it for termination. 91 According to Aces Philippines, Aces
Bermuda's service is terminated or finished by the time the Indonesian Network Control
Center provides information to the Garuda I satellite. 92
To put it in another way, Aces Philippines attempts to remove the subject satellite air
time fees from the reach of Philippine taxation by confining Aces Bermuda's service to the
first segment, which takes place in/at locations outside the Philippines (e.g., outer space,
Indonesia) and attributing the income-generating activity exclusively to the second
segment , which is handled by Aces Philippines' facilities without any participation from
Aces Bermuda.
Aces Philippines' theory misleads in that, for purposes of determining Aces
Bermuda's income source, the satellite in outer space is completely independent from the
terrestrial components of the Aces System, particularly the gateways located within
Philippine territory.
The Court agrees with the CTA that the income-generating activity takes place not
during the act of transmission but only upon the gateway's receipt of the call as routed by
the satellite. As will be discussed below, the Court identifies the gateway's receipt of the
call as the income source as it coincides with (1) the completion or delivery of the service,
and (2) the inflow of economic benefits in favor of Aces Bermuda.
1) The gateway's receipt of the
routed call marks the
completion or delivery of the
service.
In rejecting Aces Philippines' attempt to single out the act of transmission as the
income-producing activity, the Court echoes the CTA En Banc's keen observation that
"there is a continuous and very real connection" 93 within the components of the Aces
System. While the satellite appears to be the focal point of the system, the Court cannot
ignore that there is a two-/three-way inter-connection or inter-dependence between/among
the satellite in outer space, the control center in Indonesia, and the terminals and
gateways in the Philippines.
By itself, the act of transmission only suggests that a Philippine subscriber has made
a call and that the satellite received the call and signaled the control center to determine
where the call should be routed. At this point, the satellite and its control center have only
determined the location the call shall be directed to but have not actually routed the call.
Thus, it is clear that nothing has been sold/delivered yet to Aces Philippines. At best, Aces
Bermuda's provision of its service remains in-progress at this stage and requires further
action to be completed.
That Aces Bermuda's service: (a) relies on the inter-connectivity of the Aces Satellite
System's components, and (b) cannot be compartmentalized to the point of transmission
are inherent in the nature of its principal undertaking.
The CTA En Banc emphasized that Aces Bermuda undertook to provide satellite
communication time to petitioner Aces Philippines. 94 As expressly described in the Air
Time Purchase Agreement, Aces Bermuda's provision of satellite communication services
relies on the entire Aces System consisting of a satellite that is interconnected with
terminals and gateways. The technology was designed precisely to allow local service
providers (e.g., Aces Philippines) to access, connect to, and use the Aces Satellite System
so that, in turn, the local service providers can cater to their local subscribers (e.g.,
Philippine subscribers) whose calls require the use of/access to the Aces Satellite System
to be able to contact and be connected to another mobile/landline number.
Thus, the fulfillment of Aces Bermuda's undertaking requires the satellite to have
transmitted/routed the call (first segment) and a gateway to have received the call as
routed by the satellite (second segment). At the point of transmission, Aces Philippines has
not been given access to the Aces System yet. It is only when the call is actually routed to
its gateway that Aces Philippines is able to connect its local subscriber to the intended
recipient of the call. In this sense, the gateway's receipt of the call signifies
completion/delivery of Aces Bermuda's service.
2) The accrual of satellite air
time fees marks the inflow of
economic benefits.
A reading of Section 3.2 of the Air Time Purchase Agreement, supra, reveals that
Aces Bermuda charges satellite air time fees to Aces Philippines according to the latter's
usage. Its usage is determined by allocation (Billable Units) based on all calls made to or
from Aces Philippines' subscribers utilizing the Aces System — routed through the satellite
— regardless of the location of the subscriber at the time of the call or the gateway
handling the call. 95 Certainly, Aces Philippines will not be charged anything at the point of
transmission inasmuch as there has not been any usage at that time and satellite air time
fees expressly exclude satellite utilization time for call set-up, unanswered calls and
incomplete calls. 96
In other words, the satellite air time fees accrue only when the satellite air time is
delivered to Aces Philippines (i.e., upon the gateway's receipt of the routed call) and is
utilized by the Philippine subscriber for a voice or data call. 97 The accrual of fees payable
to Aces Bermuda signifies the inflow of economic benefits.
B.
Identifying the situs
The situs of the income-producing
activity is within the Philippines.
After having identified the source of the income, We now inquire into its situs. It is
settled that where the inflow of wealth and/or economic benefits proceeds from, and
occurs within Philippine territory, it enjoys protection of the Philippine government. In
consideration of such protection, the flow of wealth should share the burden of supporting
the government, 98 and thus, is subject to tax.
The following establishes the Philippine situs of Aces Bermuda's income from satellite
air time fee payments: (1) the income-generating activity is directly associated with the
gateways located within the Philippine territory; and (2) engaging in the business of
providing satellite communication services in the Philippines is a government-regulated
industry.
1) The income-generating activity
is directly associated with the
gateways located within
Philippine territory.
Verily, Aces Philippines' admits that the gateway's receipt of the call as routed by the
satellite (i.e., second segment of Aces System) takes place in the Philippines. 99 However,
it insists that any income arising therefrom cannot be attributable to Aces Bermuda
because: (a) Aces Bermuda's operations are confined to its satellite in outer space; and (b)
Aces Philippines, not Aces Bermuda, owns the gateways and related equipment installed in
the Philippines. 100
These contentions do not persuade.
First, the Court has already discussed above that Aces Bermuda's service
encompasses both first and second segments of the Aces System's operations. The
performance of the service does not cease at the point of transmission but continues until
such time Aces Bermuda delivers the satellite communication time (i.e., routes the call) to
the Philippine gateway.
Second , while Aces Philippines is the legal owner/operator of the Philippine gateways,
it cannot be denied that these gateways were constructed primarily to serve the needs and
requirements of the Aces System.
To recall, under the Gateway Agreement executed between PLDT and Aces Indonesia
in 1995, Aces Indonesia had supplied PLDT with the necessary equipment and software to
enable the latter "to construct, own and operate a [g]ateway or [g]ateways in the
Philippines." 101 The construction of the gateways was an act preparatory to theAir Time
Purchase Agreement executed in 1997. It was instrumental in and necessary to providing
and installing the required technology in the Philippines precisely to join PLDT/Aces
Philippines to the Aces Satellite System.
The agreements, taken together, were instrumental in allowing Aces Bermuda to
make its services available to Philippine subscribers. The nature of its undertaking
necessitates Aces Bermuda to contract service providers in specific jurisdictions like the
Philippines. Even if Aces Bermuda operates the satellite in outer space, it cannot provide
its services completely even if a territory is within its coverage. It needs: (a) to cause the
construction of terrestrial gateways that will receive signals from its satellite; (b) to provide
the specific equipment and software to ensure that the gateways are compatible with the
Aces System; and (c) to contract a local supplier (e.g., PLDT/Aces Philippines) that would
operate the gateways and act as its local distributor of services.
The foregoing observations are consistent with the general company description in
Aces Bermuda's 2008 Consolidated Financial Statements, 102 viz.:
The Company has authorized National Service Providers ("NSPs") of the Aces
System to the followings (sic)[:] PT Pasifik Satelit Nusantara ("PSN") for Indonesia,
Philippines Long Distance Company ("PLDT") further assigned to ACeS Philippines
Cellular Satellite Corporation ("APCSC"), for Philippines and Jasmine Overseas
Company Limited ("Jasmine") for Thailand with sole supplier rights in their respective
countries. The continuation of Company's operation is largely dependent upon the
successful operations of the NSPs. 103 (Italics supplied.)
To stress, the income-generating activity ( i.e., accrual of satellite airtime fee
payments and completion of the principal undertaking) coincides with the receipt of the
routed call by gateways located within Philippine territory. That income generation is
dependent on the operations of facilities situated in the Philippines contributes to the
income's Philippine situs. Verily, the gateways are legally owned by Aces Philippines.
Nonetheless, Aces Bermuda has sufficient economic/beneficial interest in these Philippine
properties, inasmuch as its Philippine operations are dependent on these local facilities.
2) The provision of satellite
communication services in
the Philippines is a
government-regulated
industry.
The contracting of a Philippine gateway operator and service provider is pivotal
particularly to Aces Bermuda's operations in the Philippines because the local public
telecommunications industry is state-regulated. 104 Only telecommunications entities
endowed with a state-granted franchise may operate within the territory. 105 That a
foreign satellite service provider seeks to provide telecommunications services to
Philippine subscribers or otherwise participate in the Philippine telecommunications
industry necessarily invokes Philippine sovereignty and government
intervention/protection.
All told, that the main asset is situated in outer space cannot be determinative of the
income source and the situs thereof. 106 At this point, it is clear that: (a) Aces Bermuda's
income attaches to property operated and maintained in the Philippines, and (b) making
Aces Services available to Philippine subscribers, albeit through its local service provider,
is an endeavor that requires the intervention of the Philippine government. In the Court's
view, it is only fair that this income be subjected to Philippine taxation; to hold Aces
Bermuda accountable for its share in compensating the government for the protection it
accords to Aces Bermuda's arrangements, operations, and related transactions in the
Philippines.
The references cited by Aces
Philippines do not have the force of
law in our jurisdiction.
Aces Philippines cites the following references to refute the satellite airtime fee's
Philippine situs:

1) BIR Ruling No. ITAD-214-02;
2) Commissioner of Internal Revenue v. Piedras Negras Broadcasting decided by
the US Circuit Court of Appeals, as well as other cases decided in India,
Singapore, Thailand, and Germany;
3) Section 863 (e) of the US Internal Revenue Code; and
4) OECD Commentaries on Article 5 of the Model Tax Convention on Income and
on Capital.
On the one hand, the authority of the issuing bodies/tribunals from which the above-
enumerated references is derived is not in question. However, as these rulings and
legislation do not have the force of law in the Philippines, these shall not persuade the
Court.
1) BIR Ruling No. ITAD-214-02
This ruling was issued by the CIR 107 in response to a query submitted by C.L.
Manabat & Co. on behalf of its client, Sky Subic Satellite System, Inc. Being a specific
interpretative rule addressing issues raised by a particular taxpayer, it binds the CIR only
with respect to the inquiring taxpayer. 108 In other words, all other taxpayers are not at
liberty to rely on this ruling as its application is limited to the specific taxpayer and the
factual circumstances upon which the ruling was based.
2) US cases/legislation and
jurisprudence from foreign
jurisdictions
While the Court has on occasion relied on US cases and legislation in resolving tax
cases, 109 the general rule is that these are not binding and are merely persuasive in our
jurisdiction. 110 To be clear, the Court relies on US tax laws and regulations only by
exception; in instances where the domestic legal provision under consideration was lifted
substantively, if not in its entirety, from US legislation. 111 If the party relying on the
foreign law and/or jurisprudence fails to demonstrate this, the application thereof in our
jurisdiction shall not be justified.
In the present case, Aces Philippines merely states that the Philippine income tax law
is of American origin. It did not point to any domestic tax law provision that has been
supposedly transposed directly from US tax legislation. This bare statement as to the
origins of Philippine income tax law is not a sufficient justification for the Court to apply the
US Internal Revenue Code in resolving the present controversy.
Aces Philippines decries that the current domestic tax laws and issuances do not
have special source rules that deem as foreign-sourced amounts pertaining to
international communications services income as the US tax rules 112 do. It points out that
the BIR has been unable to "cope with the fast pace of advances in science and
technology." As a consequence, there has yet to be a regulation that deals specifically with
telecommunication companies for the purpose of clarifying the complicated tax system
applicable to them. 113
Whether there have been few developments in the field of taxation of satellite
communications, the Court cannot simply incorporate a foreign law into our legal system
to mend this situation. It is fundamental that the power to determine the nature, object,
extent, coverage, and situs of taxation tax rests with Congress. "This Court cannot freely
delve into those matters which, by constitutional fiat, rightly rest on legislative judgment."
114 That at this time, no Philippine tax law characterizes international satellite
communications income as foreign-sourced only reveals that the Legislative did not intend
to remove automatically the income of foreign satellite companies from the reach of
Philippine taxation. Should there be changes to this intention, only Congress is authorized
to put it into effect by amending the law.
In these lights, there is even less reason to give probative value to case law from
foreign jurisdictions other than the US. There is clearly no law or jurisprudence supporting
the application of these precedents to the present controversy, much less in our
jurisdiction.
3) OECD Commentaries on Article
5 of the Model Tax Convention
on Income and on Capital
The OECD is an international standard-setting body 115 that, among others, develops
a model or pro-forma tax convention, which contracting states may adopt in executing or
amending tax treaties or double tax agreements. The model treaty provisions of the OECD
Model Tax Convention on Income and on Capital and the accompanying commentary are
irrelevant to the present case for the obvious reason that there is no double tax agreement
between the Philippines and Aces Bermuda's country of residence. 116
Interestingly, Bermuda was recognized as a tax haven 117 or a low or no-tax
jurisdiction. Aces Bermuda's consolidated financial statements expressly declared that it
does not pay any income tax in its residence country. 118 If Aces Bermuda's income from
satellite air time fees is not taxed in the Philippines, in other jurisdictions where Aces
Bermuda has local service providers, or even in its residence country, it appears that these
amounts will escape completely the imposition of any income tax. These are indicative of a
profit shifting strategy: a method of tax avoidance that artificially shifts profits to low or
no-tax locations where there is little or no economic activity. 119 While most tax avoidance
schemes are legal, the OECD itself underscores that these undermine "the fairness and
integrity of tax systems because businesses that operate across borders can use [these
strategies] to gain a competitive advantage over enterprises that operate at a domestic
level." 120
Aces Philippines failed to establish
that the satellite air time fee payments
are foreign-sourced.
The rule is that the taxpayer bears the burden of proving that the "income was from
sources outside the Philippines and exempt from the application of our income tax law."
121 In this regard, the CTA categorically ruled that petitioner did not present sufficient
evidence that the satellite air time fees were generated from sources without the
Philippines. 122
Aces Philippines relied heavily on Llavore's judicial affidavit, where he submitted that
"the satellite which beams the signal that will route the call is not within the jurisdiction of
the Philippines as the satellite is situated 120 degrees above Indonesia." The CTA did not
find Llavore's statements persuasive 123 and the Court agrees. The statements merely
narrated that the satellite is situated in outer space but did not contradict the finding that
Aces Bermuda's service is completed and performed in the Philippines.
II
The Court rejects Aces Philippines' theory that the imposition of deficiency interest
a n d delinquency interest , simultaneously, was not the intent of the law. In Takenaka
Corporation Philippine Branch v. Commissioner of Internal Revenue , 124 the Court
explained:
The law is clear. The imposition of deficiency interest and delinquency interest
is simultaneous, pursuant to Section 249 (A) (B) (C) of the NIRC, as amended, to wit:
SEC. 249. Interest. —
(A) In General. — There shall be assessed and collected on any
unpaid amount of tax, interest at the rate of twenty percent (20%) per
annum, or such higher rate as may be prescribed by rules and
regulations, from the date prescribed for payment until the amount is
fully paid.
(B) Deficiency Interest. — Any deficiency in the tax due, as the term
is defined in this Code, shall be subject to the interest prescribed in
Subsection (A) hereof, which interest shall be assessed and collected
from the date prescribed for its payment until the full payment thereof.
(C) Delinquency Interest. — In case of failure to pay:
xxx xxx xxx
(3) A deficiency tax, or any surcharge or interest thereon on the due
date appearing in the notice and demand of the Commissioner, there
shall be assessed and collected on the unpaid amount, interest at the
rate prescribed in Subsection (A) hereof until the amount is fully paid,
which interest shall form part of the tax.
A cardinal rule in statutory construction is that when the law is clear and free
from any doubt or ambiguity, there is no room for construction or interpretation.
There is only room for application. As the statute is clear, plain, and free from
ambiguity, it must be given its literal meaning and applied without attempted
interpretation. This is what is known as the plain-meaning rule or verba legis. It is
expressed in the maxim, index animi sermo, or "speech is the index of intention."
Furthermore, there is the maxim verba legis non est recedendum, or "from the
words of a statute there should be no departure."
The NIRC is clear. It imposes deficiency interest at the rate of 20% per annum
on any deficiency in the tax due from the date prescribed for its payment under the
relevant tax law until full payment thereof. In addition, the NIRC imposes
delinquency interest at the rate of 20% per annum on any deficiency tax, or any
surcharge or interest thereon from its due date, appearing in the notice and demand
of respondent, until the amount is fully paid. Failure to pay the deficiency tax
assessed, including any surcharge or interest thereon, within the time prescribed for
its payment justifies the imposition of delinquency interest. 125 (Citations omitted;
italics supplied.)
Significantly, Congress has since enacted RA 10963, 126 otherwise known as the Tax
Reform for Acceleration and Inclusion (TRAIN) Law, which amended the 1997 Tax Code's
interest provision to read:
Sec. 249. Interest. —
(A) In General. — There shall be assessed and collected on any unpaid
amount of tax, interest at the rate of double the legal interest rate for loans or
forbearance of any money in the absence of an express stipulation as set by the
Bangko Sentral ng Pilipinas [BSP] from the date prescribed for payment until the
amount is fully paid: Provided, That in no case shall the deficiency and delinquency
interest prescribed under Subsections (B) and (C) hereof, be imposed
simultaneously.
In brief, the TRAIN Law bars the simultaneous imposition of deficiency and
delinquency interests. Instead, interest equal to the prevailing legal rate as set by the
Bangko Sentral ng Pilipinas shall accrue on any amount of unpaid tax until it is fully paid.
As pointed out by Associate Justice Japar B. Dimaampao, the Secretary of Finance
issued Revenue Regulations No. 21-2018 127 to implement the above-cited amendments.
The issuance instructs:
SECTION 6. Transitory Provision. — In cases where the tax liability/ies or
deficiency tax/es became due before the effectivity of the TRAIN Law on January 1,
2018, and where the full payment thereof will only be accomplished after the said
effectivity date, the interest rates shall be applied as follows:
Period Applicable Interest Type and Rate
For the period up to December 31, 2017 Deficiency and/or delinquency interest at
20%
For the period January 1, 2018 until full Deficiency and/or delinquency interest at
payment of the tax liability 12%
The double imposition of both deficiency and delinquency interest under Section 249
prior to its amendment will still apply in so far as the period between the date
prescribed for payment until December 31, 2017.
Associate Justice Samuel H. Gaerlan adds that the Court has since had the occasion
to deal with the matter of imposition of deficiency and/or delinquency interest in light of
the recent statutory developments. In this regard, the Court's Resolution in E.E. Black Ltd.-
Philippine Branch v. Commissioner of Internal Revenue 128 (E.E. Black Ltd.-Philippine
Branch) is instructive inasmuch as it is consistent with the above-discussed amendments
and implementing rules.
Taking these amendments into consideration and guided by Revenue Regulations
No. 21-2018, as well as the Court's Resolution in E.E. Black Ltd.-Philippine Branch,
deficiency and delinquency interests under the 1997 Tax Code shall be imposed
simultaneously but only until December 31, 2017. Beginning January 1, 2018 or upon the
TRAIN Law's effectivity, only deficiency interest at the prevailing legal rate of 12% shall
accrue on the unpaid amount of tax until fully paid.
Apart from deficiency and delinquency interests, the CIR also imposed a 25%
surcharge on account of Aces Philippines failure, as a withholding agent, to pay the
deficiency FWT within the time prescribed. However, notably, Aces Philippines did not
question this assessment before the CIA Division and CTA En Banc. It also did not raise in
the present petition any defense against the imposition thereof. In other words, Aces
Philippines did not submit any reason for the Court to review and, much less, depart from
the 25% surcharge assessment. Thus, the Court also upholds this portion of the
assessment, as affirmed by the CTA.
In sum, the satellite air time fee payments to Aces Bermuda constitute income from
sources within the Philippines. Thus, the CIR correctly assessed Aces Philippines for
deficiency FWT for its failure to withhold the proper amount of tax from its income
payments to Aces Bermuda. That Aces Philippines was liable for said deficiency also gave
rise to its liability for the additions to tax (e.g., surcharge, deficiency interest, and
delinquency interest) under the 1997 Tax Code. Consequently, the CTA En Banc did not
commit any error in upholding the assessment, only that the computation of interests shall
be modified in accordance with the amendments introduced by the TRAIN Law, as
implemented by Revenue Regulations No. 21-2018.
WHEREFORE, the instant petition is DISMISSED. The Decision dated June 8, 2016
and the Resolution dated August 16, 2016 of the Court of Tax Appeals En Banc in CTA EB
Case No. 1242 (CTA Case No. 8567) are AFFIRMED WITH MODIFICATION relative to
interest computation, in that Petitioner Aces Philippines is ORDERED TO PAY the
following:
(a) deficiency interest at the rate of 20% per annum on the basic deficiency final
withholding tax of P69,759,259.15 computed from January 10, 2007 until December 31,
2017 pursuant to Section 249 (B) of the 1997 Tax Code;
(b) delinquency interest at the rate of 20% per annum on the total amount of
P87,199,073.94 and on the 20% deficiency interest which have accrued as aforestated in
paragraph (a), computed from October 3, 2012 until December 31, 2017 pursuant to
Section 249 (C) of the 1997 Tax Code; and
(c) delinquency interest at the rate of 12% per annum on the unpaid amount (i.e.,
basic tax plus surcharge and interests computed in paragraphs (a) and (b)) computed from
January 1, 2018 until full payment thereof, pursuant to Section 249 (C) (3) of the 1997 Tax
Code, as amended by Republic Act No. 10963.
SO ORDERED.
Gesmundo, C.J., Caguioa, Hernando, Lazaro-Javier, Zalameda, M.V. Lopez, Gaerlan,
Rosario, J.Y. Lopez, Marquez, Kho, Jr. and Singh, JJ., concur.
Leonen, J., see separate opinion.
Dimaampao, J., see separate concurring and dissenting opinion.
Separate Opinions
LEONEN, J., concurring and dissenting:
I concur with the ponencia that the airtime fees received by Aces Bermuda, a
nonresident foreign corporation, constitute income within the Philippines, subject to
income taxes. However, I dissent to the simultaneous imposition of the deficiency and
delinquency interest on the deficiency final withholding tax assessment.
I
Section 42 of the National Internal Revenue Code of 1997 provides the rules in
determining whether a particular income is derived from sources "within" or "without" the
Philippines. Under this provision, income from service is considered sourced within the
Philippines when the service is performed in the Philippines.
Aces Philippines contends that the air time fees came from sources outside the
Philippines because the act of transmission, "the receipt and beaming of satellite signals"
takes place abroad, so their situs lies outside the Philippines.
Aces Philippines is mistaken. Under the Civil Code, there is performance when "the
thing or service in which the obligation consists has been completely delivered or
rendered, as the case may be." 1 Here, from the express terms of the parties' agreement,
service is completely rendered upon the actual connection of calls to or from the
Philippines. HEITAD
Under the Air Time Purchase Agreement, Aces Indonesia/Aces Bermuda grants
PLDT/Aces Philippines the exclusive right to sell the Aces services to end-users or
subscribers in the Philippines. PLDT/Aces Philippines shall pay Aces Indonesia/Aces
Bermuda airtime fees for satellite communications time used, "excluding satellite
utilization time for all set-up, unanswered calls, and incomplete calls." 2
In other words, Aces Philippines will be charged/billed only for the successful
connection of calls to and from Philippine subscribers. Aces Bermuda will earn income only
when the service is completed, i.e., the routed call is received.
The provision of telecommunications services in the country is subject to franchise
and licensing requirements. 3 Through Aces Philippines' international gateway facility, Aces
Bermuda is able to provide its satellite communication services to end users or subscribers
in the Philippines. Aces Bermuda's income source is the business generated by Aces
Philippines for the use of Aces communications services. Aces Bermuda benefited from the
infrastructures put in place and regulated in the country. Therefore, its income is deemed
sourced within the Philippines and is subject to income tax.
II
The imposition of deficiency and delinquency interest is provided under Section 249
of the National Internal Revenue Code of 1997, as amended:
SECTION 249. Interest. —
(A) In General. — There shall be assessed and collected on any unpaid amount of
tax, interest at the rate of twenty percent (20%) per annum, or such higher rate
as may be prescribed by rules and regulations, from the date prescribed for
payment until the amount is fully paid.
(B) Deficiency Interest. — Any deficiency in the tax due, as the term is defined in
this Code, shall be subject to the interest prescribed in Subsection (A) hereof,
which interest shall be assessed and collected from the date prescribed for its
payment until the full payment thereof.
(C) Delinquency Interest. — In case of failure to pay:
(1) The amount of the tax due on any return required to be filed, or
(2) The amount of the tax due for which no return is required, or
(3) A deficiency tax, or any surcharge or interest thereon on the due date
appearing in the notice and demand of the Commissioner, there shall be
assessed and collected on the unpaid amount, interest at the rate
prescribed in Subsection (A) hereof until the amount is fully paid, which
interest shall form part of the tax[.]
Section 249 (B) imposes a 20% per annum deficiency interest for any deficiency tax
due, which is computed starting from the date prescribed for its payment until the full
payment thereof.
Section 249 (C), on the other hand, imposes a 20% per annum delinquency interest
on the following: (1) when a taxpayer filed a return but failed to pay the tax due thereon;
(2) when a taxpayer failed to pay the tax due for which no return is required; or (3) when
the Bureau of Internal Revenue issued a notice and demand for the collection of unpaid
tax (deficiency tax plus surcharge or interest thereon). Delinquency interest is computed
starting from the date indicated in the notice until the full payment thereof.
In the old Tax Code, 4 deficiency interest is computed from the date prescribed for
payment until the date the deficiency tax is assessed or upon notice and demand.
Delinquency interest, on the other hand, is collected, from the date of notice and demand
until full payment.
Because of the way Section 249 (B) of the National Internal Revenue Code of 1997 is
worded, it may happen that both deficiency and delinquency interest are imposed
simultaneously against an erring taxpayer.
To illustrate:
Let us assume that in March 2020, the Bureau of Internal Revenue issued a final
notice to X Co. demanding payment of deficiency income tax of P100,000.00 for the
taxable year 2018. The notice indicates that the deficiency tax, including penalties and
interest, must be paid on or before April 15, 2020, and X Co. paid the deficiency tax only
on April 15, 2022.
Applying Section 249 (B), X Co. is required to pay deficiency interest of 20%
computed from April 15, 2019 until April 15, 2022, or a total of P60,000.00.
Moreover, since X Co. failed to pay on the due date specified in the final notice,
applying Section 249 (C), it is required to pay delinquency interest at the rate of 20%
computed from April 15, 2020 until April 15, 2022 or a total of P48,000.00. 5
Thus, the deficiency tax of P100,000.00 is simultaneously subject to deficiency
interest and delinquency interest, in the total amount of P100,000.00 (P60,000.00 +
P40,000.00). The total amount of interest is, in effect, equal to the basic deficiency tax
due. Thus, the amount of deficiency tax assessment could double in just three years
because of the overlapping imposition of deficiency and delinquency interest.
Interests are imposed to encourage taxpayers to pay the correct amount of taxes in
a timely manner, as well as to compensate the government for the time value of money
lost due to delays in the payment of taxes. 6 The collection of interests is not penal but
compensatory in nature. 7
From the example given, the manner of imposition of deficiency interest and
delinquency interest under the National internal Revenue Code of 1997 was confiscatory
and oppressive.
In 2018, the Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion
(TRAIN) Law, took effect, which among others, amended Section 249 of the National
Internal Revenue Code of 1997:
SECTION 75. Section 249 of the NIRC, as amended, is hereby further
amended to read as follows:
(A) In General. — There shall be assessed and collected on any
unpaid amount of tax, interest at the rate of double the legal interest
rate for loans or forbearance of any money in the absence of an express
stipulation as set by the Bangko Sentral ng Pilipinas from the date
prescribed for payment until the amount is fully paid: Provided, That in
no case shall the deficiency and the delinquency interest prescribed
under Subsections (B) and (C) hereof, be imposed simultaneously.
(B) Deficiency Interest. — Any deficiency in the tax due, as the
term is defined in this Code, shall be subject to the interest prescribed in
Subsection (A) hereof, which interest shall be assessed and collected
from the date prescribed for its payment until the full payment thereof,
or upon issuance of a notice and demand by the Commissioner of
Internal Revenue, whichever comes earlier. (Emphasis supplied)
Section 75 of the TRAIN Law reverts to the computation of deficiency interest under
the old Tax Code.
A comparison of Section 249 under the National Internal Revenue Code of 1997 and
the TRAIN Law is shown below:
Interest NIRC TRAIN
Rate 20% Twice the legal rate (6% per

BSP Circular No. 799)
Deficiency interest (on the From the date prescribed From the date prescribed for
basic deficiency tax due) for the payment of the the payment of the deficiency
deficiency tax until full tax until full payment or upon
payment notice and demand by the
Commissioner, whichever
comes earlier.
Delinquency interest (on From the date indicated in From the date indicated in the
the basic deficiency tax the notice and demand notice and demand until the
due + penalties and until the full payment full payment thereof.
interest) thereof.
Section 75 of the TRAIN Law contains words of positive prohibition — "that in no case
shall the deficiency and the delinquency interest . . . be imposed simultaneously," which is
mandatory. The provision is curative 8 in nature. It cures the defect in the wording of
Section 249 of the National Internal Revenue Code of 1997 by curbing the oppressive
effect of a simultaneous imposition of deficiency and delinquency interest, and hence,
should operate retroactively to pending proceedings like this case. "Tax laws must be
construed in favor of the taxpayer and strictly against the government." 9
Applying retroactively the proviso in the amendatory provision will not adversely
affect any vested right. It is more in keeping with "right and justice" 10 and the policy 11 of
the TRAIN Law to provide equitable relief to taxpayers.
ACCORDINGLY, I vote to PARTIALLY GRANT the Petition.
DIMAAMPAO, J., concurring and dissenting:
"[E]very person surrenders a portion of their income for the running of the
government, and the government in turn, provides tangible and intangible benefits to
serve and protect those within its jurisdiction." 1 This describes the benefits-received
principle in taxation.
The instant Petition calls upon the Court to settle a novel question of law: is income
paid to a foreign corporation for satellite services it provides subject to taxation in our
jurisdiction?
The ponencia answers this issue in the affirmative based on a close examination of
the ACeS System as described in the Air Time Purchase Agreement executed between
Aces Philippines Cellular Satellite Corporation (petitioner) and Aces International Limited,
the foreign corporation incorporated in Bermuda (Aces Bermuda).

Although I agree with this conclusion, I believe that the ponencia should have also
scrutinized the instant case in light of the relevant principles laid down by the Court in the
very recent case of Saint Wealth Ltd. v. Bureau of Internal Revenue, 2 where our traditional
rules on recognizing the source of income was applied to the economic activities of
Philippine Offshore Gaming Operators (POGOs).
Indeed, an identical level of complex innovativeness attends the present query, and
Our decision would have far-reaching implications to other parties and transactions
similarly-situated.
I n Saint Wealth , the Court was tasked with properly assessing the taxability of an
unprecedented situation: POGOs providing and participating in offshore gaming services.
There, the Court undertook to carefully analyze how the POGOs operated and how they
derived revenues. The Court's eventual conclusion found its legal mooring under Section
42 (A) 3 of the National Internal Revenue Code (Tax Code), as amended by Republic Act
No. 8424, 4 and from the seminal cases of Commissioner of Internal Revenue v. British
Overseas Airways Corporation (BOAC) 5 and Commissioner of Internal Revenue v. Baier-
Nickel. 6
The Court ratiocinated that the POGOs derived no income from sources within the
Philippines "because the 'activity' which produces income occurs and is located outside the
territory of the Philippines. Indeed, the flow of wealth or the income-generating activity —
the placing of bets less the amount of payout — transpires outside the Philippines." 7 Thus,
the POGOs, by the very nature of their operations and limited presence, could not have
been said to enjoy any protection from the State as to justify their taxation in this
jurisdiction.
This was the necessary outcome of applying the prevailing situs rules embodied in
Our Tax Code. The Court recognized this inherent statutory limitation in the State's current
ability to exact taxes when it observed that "until such time as existing tax treaties and
tax laws are revised and revisited to account for the digital economy, this Court must apply
the laws as they currently are. Since, as explained above, no income is derived from
sources within the Philippines, offshore-based POGO licensees cannot be subjected to
income tax." 8
From the foregoing, the question devolves to whether the same principles should
apply to Aces Bermuda's satellite services. To my mind, they do not.
At first blush, the services provided by Aces Bermuda do seem to present the same
issues that arose from the incorporeality of the POGO transactions rendered in the digital
economy. It cannot be gainsaid that when the movement of products or services are
neither tangible nor visible, there is a layer of added complexity in pinpointing precisely
where the business activity which produces the taxable income occurs. This was precisely
the challenge that the Court hurdled in arriving at its ruling in Saint Wealth . However, the
apparent nonphysical form of the services rendered by both Aces Bermuda and the POGOs
is where the similarities of the two end. As will be extensively discussed below, the present
case presents a key distinction that exists by the very nature of how satellite radio signals
are utilized which sets it apart from transactions conducted over the internet and which
call upon a different conclusion from this Court.
The revenue-generating activity occurs within the Philippines.
The "source" of income is not determined by where the payout is either disbursed or
physically received but rather where the business activity that produced the same was
actually conducted. 9 Moreover, in cases where the transaction occurs in multiple stages
spanning different taxing jurisdictions, it becomes imperative to determine whether
particular stages occurring in the Philippines are so integral to the transaction as a whole
that the business activity would not be accomplished without it. In such instances, the
foreign corporation would clearly need to rely on the State to produce its income, which is
the very tenet of the benefits-received theory.
Here, it was keenly observed by the ponencia that the performance of the service in
this case does not cease at the point of transmission but continues until Aces Bermuda
successfully delivers the satellite communication time to the petitioner's gateways. This is
further underscored by the parties' own Air Time Purchase Agreement whereby petitioner
is only charged based on usage but excludes therefrom satellite utilization time for call
set-up, unanswered calls, and incomplete calls. Interestingly, the last two situations
presuppose that air time was transmitted from Aces Bermuda and yet by the terms of their
contract, petitioner would not be liable for these. This contradicts petitioner's assertion
that Aces Bermuda's provided services cease from transmission. Clearly, a complete and
successful delivery of air time between and among end users or Philippine subscribers is
the anchor of the revenue-generating business activity. Without which, there would be no
"inflow of economic benefits" as advanced by the ponencia. This is better appreciated
when the ACeS System is illustrated: 10
ACeS System
To my mind, and as portrayed in the illustration above, the receipt of the

satellite air time by petitioner's gateways and the actual utilization thereof by
the Philippine subscribers, whether or not they are found locally or are seafarers
in the high seas as claimed by petitioner, are the very core of Aces Bermuda's
services. Whether intentionally or unintentionally, Aces Bermuda relies on the State's
facilities to pursue its commercial interests. Hence, it cannot disclaim the surrender of a
portion of its income in exchange for the State's protection.
As above-intimated, this distinguishes the instant case from that presented inSaint
Wealth. In the afore-cited case, the core stage of the business activity conducted by the
POGOs, i.e., the placing of bets less the amount of payout, occurred outside of the
Philippines. Hence, there was no basis to impose taxes. This is contra-distinguished in the
present case where the receipt of the satellite air time and the eventual successful
utilization of the same by end-users is the very trigger for petitioner's payment of fees to
Aces Bermuda.
All in all, Aces Bermuda cannot evade its tax liabilities. By extension, petitioner,
having failed to withhold the appropriate taxes, is directly liable for the same as a
withholding agent.
As aptly observed by the ponencia, there is some merit in the petitioner's
contention that it should not be held liable simultaneously for deficiency and
delinquency interest.
To be sure, prior to the 2018 amendment to the Tax Code, the wording of Section
249 thereof supported the practice of imposing both deficiency and delinquency interest
until the taxes due were paid in full.
As the ponencia observes, one of the changes introduced by Republic Act No. 10963,
11 or the Tax Reform for Acceleration and Inclusion (TRAIN) Act is to halt the hemorrhaging
of interest on tax liabilities by proscribing the simultaneous application of deficiency and
delinquency interest, to wit:
(A) In General. — There shall be assessed and collected on any unpaid
amount of tax, interest at the rate of double the legal interest rate for loans or
forbearance of any money in the absence of an express stipulation as set by the
Bangko Sentral ng Pilipinas from the date prescribed for payment until the amount is
fully paid: Provided, That in no case shall the deficiency and the delinquency
interest prescribed under Subsections (B) and (C) hereof, be imposed
simultaneously. (Emphases and underscoring supplied)
It is readily apparent in the minutes of the Bicameral Conference Committee
Hearings for the disagreeing provisions to the precursor bills to the TRAIN Act, i.e., House
Bill No. 5636 and Senate Bill No. 1592, that Congress expressly adopted this prohibition as
a concession to taxpayers, to wit:
CHAIRPERSON CUA.
May I present a proposal from the industry.
CHAIRPERSON ANGARA.
For which provision? Is it for the current provision?
CHAIRPERSON CUA.
Yeah, for the current provision. x x x
xxx xxx xxx
CHAIRPERSON CUA.
They also propose expressly to prohibit the simultaneous imposition of
deficiency and delinquency interest.
CHAIRPERSON ANGARA.
That's acceptable to the BIR?
MR. CHUA.
(Nodding)
CHAIRPERSON ANGARA.
Subject to style, yes. I think that has been a complaint put that on top of the
other. Thank you.
CHAIRPERSON CUA.
Thank you, Mr. Chairman. 12
Indeed, even the Department of Finance conceded that the interest regime under
TRAIN was made "fairer and simpler" in order to encourage taxpayers to pay their taxes. 13
It recognized the stark reality that prior to this amendment, taxpayers could end up paying
accumulated interest penalties which exceeded the amount of the basic deficiency tax. 14
Clearly, the amendment to Section 249 is a form of remedial legislation which the
Court should apply in every opportunity, as in this case.
In applying the same to the present case, We must be guided by Revenue
Regulations No. 21-2018, which implements the amendment to Section 249. Section 6
thereof provides:
Section 6. TRANSITORY PROVISIONS. — In cases where the tax liability/ies
or deficiency tax/es became due before the effectivity of the TRAIN Law on January
1, 2018, and where the full payment thereof will only be accomplished after the said
effectivity date, the interest rates shall be applied as follows:
Period Applicable Interest Type and Rate
For the period up to December 31, 2017 Deficiency and/or delinquency interest
at 20%
For the period January 1, 2018 until full Deficiency and/or delinquency interest
payment of the tax liability at 12%
The double imposition of both deficiency and delinquency interest under

Section 249 prior to its amendment will still apply in so far as the period between the
date prescribed for payment until December 31, 2017.
xxx xxx xxx
Accordingly, the assailed rulings of the Court of Tax Appeals En Banc were correctly
modified by the ponencia when it held that petitioner should only be ordered to pay the
basic final withholding tax due with simultaneous deficiency and delinquency of twenty
percent (20%) per annum thereon computed from 10 January 2007 until 31 December
2017. Thereafter, only delinquency interest at the rate of twelve percent (12%) per annum
shall accrue, computed from 1 January 2018, which is the effectivity date of the TRAIN Act,
until full payment.
In the interest of equity, the imposition of surcharge should be deleted.
Anent the imposition of surcharge, it is my considered opinion that the same must be
deleted. Generally, surcharges are paid to penalize the taxpayer's non-filing or improper
filing of returns or non-payment of taxes due. Here, the surcharge was imposed based on
Section 248 (3) of the Tax Code for petitioner's "[f]ailure to pay the deficiency tax within
the time prescribed for its payment in the notice of assessment."
In the past, this Court limited the deletion of the surcharges imposed to instances
when the taxpayer's "good faith" was grounded on the Bureau of Internal Revenue (BIR)'s
previous erroneous interpretations of the law. 15 In Philippine Amusement and Gaming
Corp. (PAGCOR) v. The Commissioner of Internal Revenue, et al. , 16 We sustained the
imposition of surcharge considering that the therein taxpayer's "good faith" was based
solely on "opinions of the Office of the Government Corporate Counsel, and the [Office of
the Solicitor General] and the Resolutions issued by the Department of Justice" which were
government offices bereft of any authority to implement or interpret tax laws.
However, these previous cases did not present the same complexity or novelty as
entailed in the present Petition. As the ponencia summarized, the petitioner here relied on
(1) BIR Ruling No. ITAD-214-02; (2) Commissioner of Internal Revenue v. Piedras Negras
Broadcasting decided by the US Circuit Court of Appeals, as well as other cases decided in
India, Singapore, Thailand, and Germany; (3) Section 863 (e) of the US Internal Revenue
Code; and (4) OECD Commentaries on Article 5 of the Model Tax Convention on Income
and on Capital. 17 Concededly, none of these references are binding in this jurisdiction and
the BIR Ruling relied upon was issued in favor of a different taxpayer.
Nevertheless, since the taxability of income from satellite services has never been
passed upon by this Court and the provisions of the Tax Code, particularly the sections on
income tax and situs of taxation, are silent with respect to the treatment of this particular
form of revenue, the petitioner's liability to income tax is a difficult question of law and an
admitted gray area prior to the promulgation of this Decision. Indeed, petitioner was
constrained to rely upon how similar services were treated in other jurisdictions,
particularly the U.S. from which our Tax Code was originally drawn from. The similarity in
the tax treatment of similar services across multiple jurisdictions supported petitioner's
honest belief that the payments it made to Aces Bermuda were not subject to tax.
With all due respect to the majority, I believe it is of no moment that petitioner failed
to raise the issue on the imposition of the surcharge before the CTA. Indeed, as a general
rule, the Court may not pass upon issues not raised before the trial court lest We offend
the other party's right to due process. 18 Nevertheless, this rule admits of exceptions such
as when the matter not assigned as an error is closely related to another error that was
assigned, or when the resolution thereof is necessary in arriving at a just decision and
complete resolution of the case or to serve the interests of justice, as in this case. 19
Undoubtedly, the issue on petitioner's liability for surcharge is closely related to its
ultimate tax liability. Moreover, and as above-discussed, this point of law has never been
passed upon by the Court and this necessitates that We temper petitioner's liability to
cushion the blow as it were, especially since it had colorable basis for believing that it was
not subject to tax for its transactions.
Undoubtedly, it is within the power of the Court to temper penalties on the basis of
good faith and honest belief. 20 I believe the current situation merits the same exercise of
equity. ATICcS
With the foregoing discourse, I vote to partly grant the Petition.
Footnotes
1. Rollo , pp. 11-56.
2. Id. at 60-77. Penned by Associate Justice Cielito N. Mindaro-Grulla and concurred in by
Associate Justices Juanito C. Castañeda, Jr., Caesar A. Casanova, Esperanza R. Fabon-
Victorino, and Ma. Belen M. Ringpis-Liban. Presiding Justice Roman G. Del Rosario issued his
Concurring and Dissenting Opinion, as joined by Associate Justice Erlinda P. Uy, Associate
Justice Lovell R. Baustista issued his Dissenting Opinion.
3. Id. at 94-96.
4. Id. at 712-713. Signed by Regional Director and CESO VI Araceli L. Francisco, Revenue Region
No. 4.
5. Id. at 530.
6. Id. at 63.
7. Id. at 62-63.
8. Id. at 527-556.
9. Id. at 530.
10. Id. at 531.
11. Id. at 530.

12. Id. at 530-531.
13. Id. at 530.
14. Id. at 533.
15. Id. at 533.

16. Id. at 552.
17. Id. at 63.
18. Id. at 62-63.
19. Id. at 63.

20. Id. at 712.
21. Id. at 65.
22. Id. at 712-713.

23. Id. at 712.
24. Computed from July 30, 2006 to August 31, 2012.
25. See Decision dated July 23, 2014 of the CTA Second Division as penned by Associate Justice
Amelia R. Cotangco-Manalastas and with the concurrence of Associate Justices Juanito C.
Castañeda, Jr. and Caesar A. Casanova, rollo, pp. 408-434.
26. Id. at 432-433.
27. Id. at 40.
28. Id. at 69.

29. See Resolution dated October 15, 2014 of the CTA Second Division, id. at 456-461.
30. Id. at 60-77.
31. Id. at 71-74.
32. Id. at 74.

33. Id. at 75.
34. Id. at 76.
35. Id. at 22.

36. Id.
37. Id. at 26.
38. Id. at 27.
39. Id. at 29.

40. Id. at 32.
41. Id. at 36.
42. Id. at 41.
43. Id. at 42.

44. Id. at 44.
45. Id. at 46.
46. Id. at 49-50.

47. Id. at 35.
48. Id.
49. Id.
50. Id. at 34.

51. Id. at 562. Marked as Annex "E" in the rollo.
52. Id. at 24.
53. Id. at 25.

54. Id.
55. Id.
56. Id. at 28-29.
57. Id. at 28.

58. Id. at 557-559.
59. Id. at 25.
60. Id. at 26.

61. Id. at 49.
62. Id. at 26.

63. Id. at 27-28.
64. 127 F.2d 260 (5th Cir. 1942).
65. Id. at 261.

66. Rollo , pp. 44-45.
67. Id. at 32.
68. Id.
69. 26 U.S.C.S. § 863 (LexisNexis, Lexis Advance through Public Law 117-129, approved May 21,
2022).
70. Rollo , p. 34.
71. Organisation for Economic Co-operation and Development (OECD) (2019), Model Tax
Convention on income and on capital 2017 (Full Version), OECD Publishing, Paris,
<https://doi.org/10.1787/g2g972ee-en> (last accessed on June 6, 2022).
72. 531 Phil. 480 (2006).
73. 121 Phil. 579 (1965).

74. Rollo , p. 40.
75. Id. at 50.
76. See City Gov't. of Quezon City v. Hon. Judge Ericta, 207 Phil. 648, 654 (1983).
77. Manila Gas Corporation v. Collector of Internal Revenue, 62 Phil. 895, 900 (1936).
78. Id.; See also Cargill Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 203346,
September 9, 2020.
79. Section 23 (A), 1997 Tax Code.
80. Section 23 (E), 1997 Tax Code.
81. Section 23 (F), 1997 Tax Code.

82. Section 22 (I) of the 1997 Tax Code defines an NRFC as "a foreign corporation not engaged in
trade or business within the Philippines."
83. Section 28 (B) (1) of the 1997 Tax Code provides:
SEC. 28. Rates of Income Tax on Foreign Corporations. —

xxx xxx xxx
(B) Tax on Nonresident Foreign Corporation. —
(1) In General. — Except as otherwise provided in this Code, a foreign corporation not
engaged in trade or business in the Philippines shall pay a tax equal to thirty-five percent
(35%) of the gross income received during each taxable year from all sources within the
Philippines, such as interests, dividends, rents, royalties, salaries, premiums (except
reinsurance premiums), annuities, emoluments or other fixed or determinable annual,
periodic or casual gains, profits and income, and capital gains, except capital gains subject
to tax under subparagraph 5 (c).
xxx xxx xxx
84. Section 57 (A) of the 1997 Tax Code provides:

SEC. 57. Withholding of Tax at Source. —
(A) Withholding of Final Tax on Certain Incomes. — Subject to rules and regulations the
Secretary of Finance may promulgate, upon the recommendation of the Commissioner,
requiring the filing of income tax return by certain income payees, the tax imposed or
prescribed by Sections 24 (B) (1), 24 (B) (2), 24 (C), 24 (D) (1); 25 (A) (2), 25 (A) (3), 25 (B),
25 (C), 25 (D), 25 (E), 27 (D) (1), 27 (D) (2), 27 (D) (3), 27 (D) (5), 28 (A) (4), 28 (A) (5), 28
(A) (7) (a), 28 (A) (7) (b), 28 (A) (7) (c), 28 (B) (1), 28 (B) (2), 28 (B) (3), 28 (B) (4), 28 (B) (5)
(a), 28 (B) (5) (b), 28 (B) (5) (c); 33; and 282 of this Code on specified items of income shall
be withheld by payor-corporation and/or person and paid in the same manner and subject
to the same conditions as provided in Section 58 of this Code.
xxx xxx xxx
85. Section 58 (A) of the 1997 Tax Code provides:
SEC. 58. Returns and Payment of Taxes Withheld at Source. —
(A) Quarterly Returns and Payments of Taxes Withheld. — Taxes deducted and withheld
under Section 57 by withholding agents shall be covered by a return and paid to, except in
cases where the Commissioner otherwise permits, an authorized agent bank, Revenue
District Officer, Collection Agent, or duly authorized Treasurer of the city or municipality
where the withholding agent has his legal residence or principal place of business, or where
the withholding agent is a corporation, where the principal office is located.
The taxes deducted and withheld by the withholding agent shall be held as a special fund in
trust for the government until paid to the collecting officers.
The return for final and creditable withholding taxes shall be filed and the payment made
not later than the last day of the month following the close of the quarter during which
withholding was made.
xxx xxx xxx
86. Alexander Howden & Co., Ltd. v. Collector of Internal Revenue, supra note 73 at 584, citing
Madrigal and Paterno v. Rafferty and Concepcion, 38 Phil. 414, 418 (1918).
87. Id. at 583-584. Also see Commissioner of Internal Revenue v. British Overseas Airways
Corporation, 233 Phil. 406, 422 (1987); Commissioner of Internal Revenue v. Baier-Nickel,
supra note 72 at 418.
88. Manila Gas Corporation v. Collector of Internal Revenue, supra note 77 at 901; See also Cargill
Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 203346, September 9, 2020.
89. The Framework for the Preparation and Presentation of Financial Statements (Conceptual
Framework) defines "income" as "increases in economic benefits during the accounting
period in the form of inflows or enhancements of assets or decreases of liabilities that result
in increases in equity, other than those relating to contributions from equity participants.
Income encompasses both revenue and gains. Revenue is income that arises in the course
of ordinary activities of an entity and is referred to by a variety of different names including
sales, fees, interest, dividends and royalties." See SEC Memorandum Circular No. 12, series
of 2019 — Adoption of Revised Conceptual Framework; Summary of Philippine Financial
Reporting Standards adopted by the SEC. Available at <https://www.sec.gov.ph/wp-
content/uploads/2019/11/2011PFRS_December31.pdf> (last accessed on March 4, 2022).
Also see Ericsson Telecommunications, Inc. v. City of Pasig, 563 Phil. 417, 431-432 (2007).
90. Rollo , p. 25.

91. Id. at 26.
92. Id. at 25.
93. Id. at 71.

94. Id. at 74.
95. Id. at 533.
96. Id. at 73-74.
97. Id.

98. Alexander Howden & Co., Ltd. v. Collector of Internal Revenue, supra note 73 at 584;
Commissioner of Internal Revenue v. British Overseas Airways Corporation, supra note 87 at
422.
99. Rollo , p. 35. Petitioner avers in Paragraph 5.44 of the Petition, "Once the above is done, it is
now the Petitioner's equipment and/or personnel which do the work of receiving and routing
the call to the proper person. Any machinery, equipment, computer or persons which can
receive the signals in the Philippines are owned by the Petitioner. This second leg is the
activity which takes place in the Philippines, and as such, income arising from this service
having performed in the Philippines, constitute income from sources within the Philippines."
100. Id.
101. Id. at 530.
102. Id. at 339-372.
103. Id. at 348.

104. Executive Order No. 546, entitled, "Creating the Ministry of Public Works and Ministry of
Transportation and Communications," approved on July 23, 1979; Republic Act No. (RA)
7925, entitled, "Public Telecommunications Policy Act of the Philippines," approved on
March 1, 1995.
105. Section 16, RA 7925.
106. See Dissenting Opinion of Associate Justice Florentino P. Feliciano in Commissioner of
Internal Revenue v. British Overseas Airways Corporation, supra note 87 at 429.
107. Signed by Milagros V. Regalado, Assistant Commissioner, BIR Legal Service, in behalf of CIR.
108. Commissioner of Internal Revenue v. San Roque Power Corp., 703 Phil. 310, 376 (2013).
109. See Commissioner of Internal Revenue v. Baier-Nickel, supra note 72 at 487; Phil. Health
Care Providers, Inc. v. Commissioner of Internal Revenue, 616 Phil. 387, 403 (2009);
Transimex Co. v. Mafre Asian Insurance Corp. , 795 Phil. 97, 112-113 (2016).
110. Transimex Co. v. Mafre Asian Insurance Corp., id.
111. Commissioner of Internal Revenue v. Baier-Nickel, supra note 72 at 487; Transimex Co. v.
Mafre Asian Insurance Corp., id. at 113.
112. 26 U.S.C.A. § 863, I.R.C. § 863.
113. Rollo , p. 29.
114. Commissioner of Internal Revenue v. Santos, 343 Phil. 411, 427 (1997), citing Tan v. Del
Rosario, Jr., 307 Phil. 342 (1994).
115. See OECD iLibrary <https://www.oecd.org/about/> (last accessed on June 6, 2022).
116. All valid and effective Double Tax Agreements the Philippines is a party to are listed on the
BIR website <https://www.bir.gov.ph/index.php/international-tax-matters/international-tax-
agreements.html> (last accessed on March 16, 2022).
117. In 1998, the OECD published "Harmful Tax Competition: An Emerging Global Issue" (1998
Report), a report that, among others, enumerated the criteria for identifying whether a
jurisdiction is a being a tax haven. In 2000, the progress report on the 1998 Report listed
jurisdictions which met the tax haven criteria. While Bermuda met the criteria, it was not
listed as a tax haven in the progress report because it made an advance commitment to
cooperate with the OECD in its effort to eliminate harmful tax practices set out in the 1998
report. The OECD's 1998 Report and the 2000 Progress Report are available on
<https://www.oecd.org/ctp/harmful/1904176.pdf> and
<https://www.oecd.org/ctp/harmful/2090192.pdf> (last Accessed on June 6, 2022),
respectively. On the other hand, Bermuda's advance commitment is available on
<https://www.oecd.org/ctp/harmful/1903535.pdf> (last accessed on June 6, 2022).
118. Rollo , p. 358. Note 9 to the Financial Statements discloses the following: "To date no Income,
profit, capital or capital gain taxes are levied in Bermuda and, accordingly, the [Aces
Bermuda] has not recorded any provision for such taxes. In the event that such taxes are
levied, the Company has received an undertaking from the Bermuda Government
exemption it from all such taxes until March 28, 2016."
119. See the OECD iLibrary <https://www.oecd.org/about/> (last accessed on June 6, 2022).
120. Id.
121. Commissioner of Internal Revenue v. Baier-Nickel, supra note 72 at 493.
122. Rollo , p. 431.
123. Id.
124. G.R. No. 211589 (Notice), March 12, 2018.

125. Id.
126. Approved on December 19, 2017.
127. Regulations Implementing Section 249 (Interest) of the NIRC of 1997, as Amended under
Section 75 of the TRAIN Law, Revenue Regulations No. 21-18, September 14, 2018.
128. G.R. No. 221655 (Notice), January 20, 2021 <https://sc.judiciary.gov.ph/17691/> (last
accessed on July 15, 2022).
LEONEN, J., concurring and dissenting:
1. Civil Code, Article 1233.
2. Ponencia , p. 6.
3. CONST., Art. XII, Sec. 11. See also Commonwealth Act No. 146, Section 13 (b).
4. Presidential Decree No. 1158, Sec. 51 (d), National Internal Revenue Code of 1977 provides:
SECTION 51. Payment and Assessment of Income Tax — . . .
xxx xxx xxx

(d) Interest on deficiency. — Interest upon the amount determined as a deficiency shall be
assessed at the same time as the deficiency and shall be paid upon notice and demand
from the Commissioner and shall be collected as a part of the tax at the rate of fourteen per
centum per annum from the date prescribed for the payment of the tax (or, if the tax is paid
in installments, from the date prescribed for the payment of the first installment) to the date
the deficiency is assessed: Provided, That the maximum amount that may be collected as
interest on deficiency shall in no case exceed the amount corresponding to a period of three
years, the present provisions regarding prescription to the contrary notwithstanding. (e)
Additions to the tax in case of nonpayment. — (1) Tax shown on the return. — Where the
amount determined by the taxpayer as the tax imposed by this Title or any installment
thereof, or any part of such amount or installment, is not paid on or before the date
prescribed for its payment, there shall be collected as a part of the tax, interest upon such
unpaid amount at the rate of fourteen per centum per annum from the date prescribed for
its payment until it is paid: Provided, That the maximum amount that may be collected as
interest on deficiency shall in no case exceed the amount corresponding to a period of three
years, the present provisions regarding prescription to the contrary notwithstanding.
(2) Deficiency. — Where a deficiency, or any interest assessed in connection therewith
under paragraph (d) of this section, or any addition to the taxes provided for in Section
seventy-two of this Code is not paid in full within thirty days from the date of notice and
demand from the Commissioner of Internal Revenue, there shall be collected upon the
unpaid amount, as part of the tax, interest at the rate of fourteen per centum per annum
from the date of such notice and demand until it is paid: Provided, That the maximum
amount that may be collected as interest on deficiency shall in no case exceed the amount
corresponding to a period of three years, the present provisions regarding prescription to
the contrary notwithstanding.
Commonwealth Act No. 466, Sec. 51 (d), National Internal Revenue Code of 1939, as
amended by Republic Act No. 2343 (1959) contains the same provision except for the rate
of interest imposed, thus:
SECTION 51. Assessment and Payment of Income Tax. — . . .
xxx xxx xxx
(d) Interest on deficiency. — Interest upon the amount determined as a deficiency shall be
assessed at the same time as the deficiency and shall be paid upon notice and demand
from the Commissioner of Internal Revenue; and shall be collected as a part of the tax, at
the rate of six per centum per annum from the date prescribed for the payment of the tax
(or, if the tax is paid in installments, from the date prescribed for the payment of the first
installment) to the date the deficiency is assessed: Provided, That the maximum amount
that may be collected as interest on deficiency shall in no case exceeded the amount
corresponding to a period of three years, the present provisions regarding prescription to
the contrary notwithstanding.
5. [0.20 x (P100,000 + P20.000)] x 2 years.
6. Republic v. Philippine Bank of Commerce, 145 Phil. 81, 89 (1970) [Per J. Dizon, En Banc]. See
also Central Azucarera Don Pedco v. Court of Tax Appeals, 126 Phil. 685 (1967) [Per J.
Reyes, J.B.L., En Banc].
7. Id.
8. Emcor, Inc. v. Sienes , 615 Phil. 33, 46 (2009) [Per J. Peralta, Third Division], citing Narzoles v.
NLRC, 395 Phil. 758 (2000) [Per J. Kapunan, First Division]:
Curative statutes are enacted to cute defects in a prior law or to validate legal proceedings
which would otherwise be void for want of conformity with certain legal requirements. They
are intended to supply defects, abridge superfluities and curb certain evils. They are
intended to enable persons to carry into effect that which they have designed or intended,
but has failed of expected legal consequence by reason of some statutory disability or
irregularity in their own action. They make valid that which, before the enactment of the
statute was invalid. Their purpose is to give validity to acts done that would have been
invalid under existing laws, as if existing laws have been complied with. Curative statutes,
therefore, by their very essence, are retroactive.
9. Commissioner of Internal Revenue v. SM Prime Holdings, Inc., 627 Phil. 581, 605 (2010) [Per J.
Del Castillo, Second Division]. See also Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of
Internal Revenue, 522 Phil. 693 (2006) [Per J. Ynares-Santiago, First Division]; Commissioner
of Internal Revenue v. Philippine American Accident Insurance Co., Inc., 493 Phil. 785 (2005)
[Per J. Carpio, First Division]; Collector of Internal Revenue v. De Los Angeles, 101 Phil. 1026
(1957) [Per J. Reyes A., En Banc].
10. CIVIL CODE, Art. 10 provides:
Article 10. In case of doubt in the interpretation or application of laws, it is presumed that
the lawmaking body intended right and justice to prevail.
11. Republic Act No. 10963, Sec. 2, Tax Reform for Acceleration and Inclusion Law (TRAIN).
DIMAAMPAO, J., concurring and dissenting:
1. Saint Wealth Ltd. v. Bureau of Internal Revenue, et al., G.R. Nos. 252965 & 254102, 7
December 2021.
2. Id.
3. Section 42. Income from Sources within the Philippines. —

(A) Gross Income from Sources within the Philippines. — The following items of gross
income shall be treated as gross income from sources within the Philippines:
xxx xxx xxx
(3) Services. — Compensation for labor or personal services performed in the Philippines;
xxx xxx xxx

4. TAX REFORM ACT OF 1997, enacted on 11 December 1997.
5. 233 Phil. 406-438 (1987).

6. 531 Phil. 480-496 (2006).
7. Supra note 1.
8. Id.
9. Supra note 1.
10. Note: The simplified illustration is based on the diagram submitted by petitioner and as
described in the pleadings and the records; it was prepared using the stock clip arts
provided in Microsoft Word (see rollo, p. 562).
11. Approved on 19 December 2017.
12. Minutes of the Bicameral Conference Committee Meeting on the Disagreeing Provisions of H.B.
No. 5636 and S.B. No. 1592 on 5 December 2017, pp. EMTB/XVIII-3 to XVIII-4.
13. "TRAIN removes oppressive rates for delinquent tax payments." Department of Finance,
posted on 14 February 2018. Accessed at <https://www.dof.gov.ph/train-removes-
oppressive-rates-for-delinquent-tax-payments/>
14. Id.
15. See Thunderbird Pilipinas Hotels and Resorts, Inc. v. Commissioner of Internal Revenue, G.R.
No. 211327, 11 November 2020.
16. 821 Phil. 508-537 (2017).
17. Ponencia , p. 26.
18. See Figuera v. Ang, 788 Phil. 607-621 (2016).

19. Id.
20. See Film Development Council of the Philippines v. Colon Heritage Realty Corp., G.R. Nos.
203754 & 204418 (Resolution), 15 October 2019, 923 SCRA 583-603.

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EN BANC

[G.R. No. 226680. August 30, 2022.]

ACES PHILIPPINES CELLULAR SATELLITE CORPORATION , petitioner, vs.

Paragraph 2.2 of the Air Time Purchase Agreement further provided:

Satellite airtime fees P199,312,169.00

Multiply by: FWT rate 35%

Basic tax P69,759,259.15

Add: 25% surcharge 17,439,814.79

Compromise penalty 25,000.00

Total amount payable P170,935,184.92

CD Technologies Asia, Inc. © 2023 cdasiaonline.com

Basic Final Withholding Tax Due P69,759,259.15

Add: 25% Surcharge 17,439,814.79

TOTAL AMOUNT DUE P87,199,073.94

Likewise, petitioner is ORDERED TO PAY the following:

Satellite Airtime Fees are not Rentals or Royalties 37

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Period Applicable Interest Type and Rate

Interest NIRC TRAIN

Rate 20% Twice the legal rate (6% per

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To my mind, and as portrayed in the illustration above, the receipt of the

The double imposition of both deﬁciency and delinquency interest under

With the foregoing discourse, I vote to partly grant the Petition.

11. Id. at 530.

15. Id. at 533.

19. Id. at 63.

22. Id. at 712-713.

28. Id. at 69.

32. Id. at 74.

35. Id. at 22.

39. Id. at 29.

43. Id. at 42.

46. Id. at 49-50.

50. Id. at 34.

53. Id. at 25.

57. Id. at 28.

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62. Id. at 26.

65. Id. at 261.

73. 121 Phil. 579 (1965).

81. Section 23 (F), 1997 Tax Code.

SEC. 28. Rates of Income Tax on Foreign Corporations. —

84. Section 57 (A) of the 1997 Tax Code provides:

90. Rollo , p. 25.

93. Id. at 71.

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103. Id. at 348.

124. G.R. No. 211589 (Notice), March 12, 2018.

xxx xxx xxx

3. Section 42. Income from Sources within the Philippines. —

xxx xxx xxx

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5. 233 Phil. 406-438 (1987).

18. See Figuera v. Ang, 788 Phil. 607-621 (2016).

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