Satellite airtime fees for services rendered by providing satellite communication time are considered income for services rendered within the Philippines.

This case involves an assessment for final withholding tax (FWT) on service fees paid arising from an Air Time Purchase Agreement with a non-resident foreign corporation. Said agreement granted the taxpayer the right to purchase satellite communications time from which taxpayer furnishes and sells to its subscribers, the consideration for which is the payment to the non- resident seller of satellite airtime fees. Taxpayer was assessed FWT since allegedly the satellite service fees are income from services rendered within the Philippines. In defense, the taxpayer argues that the services required in providing satellite airtime were performed outside the Philippines and as such, the airtime fees derived from the services should be considered as income from sources outside the Philippines which should not be subjected to Philippine income tax.
In resolving the contentions of the parties, the Court noted that the taxpayer pays the non- resident supplier airtime fees only when the satellite airtime is delivered to taxpayer and to its subscribers and subsequently utilized by them in the Philippines for a voice or data call, excluding satellite utilization time for call set-up, unanswered calls and incomplete calls. In other words, the activity that produces income is the undertaking of providing satellite communication time to be delivered by the non-resident supplier and utilized by taxpayer and its subscribers in the Philippines. Therefore, the activity which produced the income takes place in the Philippines. Accordingly, the BIR is correct in imposing FWT on the service fees which are considered income from sources within the Philippines. (Aces Philippines Cellular Satellite Corporation vs. Commissioner of Internal Revenue, CTA Case No. 8567, July 23, 2014)