Special InTAX: February 2023 Issue 1 | Volume 1

InTAX is an official publication of R.G. Manabat & Co.'s Tax Group

InTAX is an official publication of R.G. Manabat & Co.'s Tax Group

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Article Posted date 06 February 2023
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special intax

Supreme Court


The Supreme Court (SC) upheld the decision of the Court of Tax Appeals En Banc in CTA EB Case No. 1242 that satellite air time fee payments of Aces Philippines to Aces Bermuda is subject to final withholding tax (FWT) which required a two-tiered approach, of determining: (1) the source of the income and (2) the situs of that source.*

On the source of the income, the SC ruled that the gateway's receipt of the call signifies completion/delivery of Aces Bermuda's service and the accrual of satellite air time fees marks the inflow of economic benefits.

On the situs of Aces Bermuda’s income from satellite air time fee payments, the SC ruled that the situs of the income-producing activity is within the Philippines considering:

  1. The income-generating activity (i.e., accrual of satellite airtime fee payments and completion of principal undertaking) is directly associated with/dependent on the facilities located within the Philippine territory (i.e., gateways receive the call as routed by the satellite) which contributes to the income’s Philippine situs; and                           
  2. Engaging in the business of providing satellite communication services in the Philippines is a government-regulated industry. While the main asset (i.e., satellite) is situated in outer space, the SC ruled it cannot be determinative of the income source and the situs, emphasizing 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. The SC opined that 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 SC also held that the references cited by Aces Philippines do not have the force and effect in our jurisdiction that Aces Philippines failed to establish that the satellite airtime fee payments are foreign-sourced.

*[Aces Philippines Cellular Satellite Corporation vs. The Commissioner of Internal Revenue, GR No. 226680, promulgated on 30 August 2022; received by the SC Public Information Office on 30 January 2023; uploaded in the SC website on 1 February 2023]

Please click on the link for the full text of the issuance: Aces Philippines v CIR GR 226680

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