SC rules in favor of Pilipinas Shell in P95-M tax refund case

MANILA, Philippines - The Supreme Court (SC) on Monday ruled in favor of Shell Petroleum Corp. after the oil company filed a motion for reconsideration in claiming a P95-million tax refund from the Bureau of Internal Revenue (BIR).

The ruling, written by Associate Justice Martin Villarama, Jr., granted the original and supplemental motions for reconsideration filed by Pilipinas Shell. It also upheld the decision of the Court of Tax Appeals (CTA) on March 25, 2009 and the CTA resolution on June 24, 2009 which ordered BIR to refund the excess tax or issue Pilipinas Shell a tax credit certificate amounting to P95,014,283.

"[W]e find merit in respondent's motion for reconsideration. We therefore hold that respondent, as the statutory taxpayer who is directly liable to pay the excise tax on its petroleum products, is entitled to a refund or credit of the excise taxes it paid for petroleum products sold to international carriers, the latter having been granted exemption from the payment of said excise tax under Sec. 135 (a) of the National Internal Revenue Code (NIRC).

The SC earlier dismissed the CTA ruling in favor of Pilipinas Shell for its alleged failure to prove exemption from excise tax under Section 135 (a) of the NIRC of 1997.

Pilipinas Shell argued that the excise tax imposed on petroleum products sold in international carriers is a violation of the Chicago Convention on International Aviation where the Philippines is a signatory with the United States of America, Netherlands, Belgium and Japan.

In the new decision, the high court said "[w]ithout any international agreement on taxing fuel, it is highly likely that moves to impose duty on international flights, either at a domestic or European level, would encourage 'tankering': carriers filling their aircraft as full as possible whenever they landed outside the EU (European Union) to avoid paying tax."

"Clearly this would be entirely counterproductive. Aircraft would be traveling further than necessary to fill up in low-tax jurisdictions. In addition they would be burning up more fuel when carrying the extra weight of a full fuel tank. With the prospect of declining sales of aviation jet fuel sales to international carriers on account of major domestic oil companies' unwillingness to shoulder the burden of excise tax, or of petroleum products being sold to said carriers by local manufacturers or sellers at still high prices, the practice of 'tankering' would not be discouraged," the SC said.