G.R. No. 222239 , January 15, 2020
Association of International Shipping Lines, Inc., APL Co. Pte Ltd., and Maersk-Filipinas, Inc., Petitioners, v. Secretary of Finance and Commissioner of Internal Revenue, Respondents.

FACTS

Republic Act No. 9337 , enacted on July 1, 2005, amended select provisions of the 1997 National Internal Revenue Code (NIRC). Subsequently, Revenue Memorandum Circular No. 31-2008 (RMC 31-2008) was issued, which clarified tax provisions as applied to shipping companies. Petitioners sought to nullify certain provisions of RMC 31-2008 via a petition for declaratory relief. The Regional Trial Court (RTC), Branch 98, Quezon City, granted summary judgment and declared invalid the portions of RMC 31-2008 that subjected (a) demurrage and detention fees to regular corporate income tax and 12% VAT; (b) the domestic portion of services rendered to persons engaged in international shipping to 12% VAT; and (c) commission income of local shipping agents from inbound freights/fares to 12% VAT. This Order became final and executory on June 16, 2012.
On March 7, 2013, Republic Act No. 10378 was enacted, amending Section 28(A)(3)(a) of the NIRC, defining “Gross Philippine Billings” for international carriers. The Secretary of Finance then issued Revenue Regulation No. 15-2013 (RR 15-2013). Petitioners initiated a new petition for declaratory relief challenging Section 4.4 of RR 15-2013, which states that demurrage and detention fees, considered Philippine-sourced income, are subject to Philippine income tax under the regular rate and do not form part of Gross Philippine Billings. Petitioners argued this imposition was identical to the one previously declared invalid by the final and executory Order of RTC Branch 98.

ISSUE

Whether Section 4.4 of Revenue Regulation No. 15-2013, which subjects demurrage and detention fees collected by international shipping carriers to the regular corporate income tax rate, is valid.

RULING

The Supreme Court declared Section 4.4 of Revenue Regulation No. 15-2013 VOID and UNENFORCEABLE. The Court ruled that demurrage and detention fees are incidental to the international carriage of goods and form part of the Gross Philippine Billings of international shipping carriers, which are subject to the 2.5% preferential tax rate under Section 28(A)(3) of the NIRC, as amended. The Court held that RR 15-2013, in treating these fees as separate income subject to the regular corporate income tax rate, contravened the law and the legislative intent to maintain the competitiveness of Philippine ports. The regulation amounted to an administrative legislation that overstepped the bounds of the Secretary of Finance’s rule-making authority. The final and executory judgment in the prior case (Civil Case No. Q-09-64241) had already settled the issue of the taxability of these fees, and the government was barred from re-imposing the same tax declared invalid.