THE Court of Tax Appeals (CTA) upheld an earlier decision cancelling the P1.8-billion tax assessment against Cebu Air, Inc. over improperly accumulated earnings tax for 2010.
In a resolution dated Jan. 23, the CTA Special Second Division affirmed its Sept. 27, 2018 decision cancelling and withdrawing the tax assessment issued by the Bureau of Internal Revenue (BIR).
The CTA Special Second Division said the arguments raised by the BIR in its motion for reconsideration were “a mere of the same facts and issues” which were already discussed in its previous decision.
“Considering the foregoing, there is no cogent reason to disturb the assailed Amended Decision,” the CTA ruled.
In its appeal, the BIR said Cebu Air had “failed to prove it declared and paid cash dividends to its shareholders.” It added that retained earnings should only be up to 100% of the paid-up capital to consider it “reasonable” for the needs of business.
The BIR also said a compromise penalty should have been imposed on the operator of Cebu Pacific.
According to the Tax Code, improperly accumulated earnings tax should apply to corporations that have avoided income tax “with respect to its shareholders… by permitting earnings and profits to accumulate instead of being divided or distributed.”
In the amended decision last September, the CTA said that Cebu Air sufficiently proved that it declared cash dividends within one year from the close of 2010, through the submission of audited financial statements, monthly remittance return of final income taxes withheld, among others.
“Taking into consideration the cash dividends declared seasonably within the 1-year period from the end of the taxable year being assessed (i.e., CY 2010), petitioner will no longer have improperly accumulated earnings for TY 2010,” the court said.
The BIR had argued that the additional paid-in capital (APIC) is part of paid-up capital and that the amount that a corporation should retain should only be up to 100% of its paid-up capital or the amount representing the corporation’s shares of stocks. Any amount that exceeded 100% of the paid-up capital is considered unreasonable for the need of the business and should be subjected to tax.
The CTA, however, emphasized its decision that the additional paid-in capital, the amount of capital in excess of the par value of the company’s shares, “are not earnings/profits of a corporation generated from the normal and continuous operations of the business.”
The resolution was penned by Associate Justice Juanito C. Castañeda, Jr. and concurred in by Associate Justice Catherine T. Manahan. — Vann Marlo M. Villegas
