JLT Asia Holdings B.V vs. Commissioner of Internal Revenue

DECISION

CUI-DAVID, J.:

Before this Court is a Petition for Review¹ filed on March 10, 2022, by petitioner JLT Asia Holdings B.V. ("Petitioner" or "JLT Asia") against respondent Commissioner of Internal Revenue ("CIR" or "Respondent") , seeking the refund of the alleged erroneously paid Capital Gains Ta2C (CGT) in the amount of P18,446,009.15.

THE PARTIES

Petitioner JLT Asia Holdings B.V. is a corporation incorporated under the laws of the Netherlands, with registered office address at Conradstraat 18 A, Groothandelsgebouw (Entrance E), 3013 AP Rotterdam, the Netherlands. It has the following objectives:

(a) To incorporate companies and enterprises, to acquire, hold, and dispose participations in other companies and enterprises; (b) To finance such companies and enterprises, to borrow and lend money, to provide undertakings and guarantees, and to bind the company and its assets for the benefit of companies with which it is affiliated in a group; (c) To

JLT Asia Holdings B.V. v. Commissioner of Internal Revenue acquire, exploit, and dispose of registered property and other property; (d) To conduct the management and of supervision of enterprise and legal entities, to provide clerical and other services to other companies and enterprises; (e) To acquire, exploit, and dispose of patents, trade names, trademarks, know-how, royalties, and rights of intellectual and/or industrial property, as well as to grant a license to such rights, and to acquire and exploit licenses; and (f) as well as all that is related to the aforesaid in the widest sense or may be conducive thereto.² On the other hand, respondent is vested by the National Internal Revenue Code (NIRC), as amended, with the authority, among others, to decide applications for refund of erroneously paid taxes.

He may be served with court processes at the Bureau of Internal Revenue (BIR) National Office Bldg., BIR Road, Diliman, Quezon City.³

THE FACTS

Petitioner held 3,118,908 shares of common stock of Jardine Lloyd Thomson Insurance & Reinsurance Brothers, Inc. (JLT PH), a company organized under the laws of the Philippines. 4 On March 1, 2020, JLT Asia sold all of its shares in JLT PH to Marsh Philippines, Inc. (MPI), a corporation duly organized and registered under the laws of the Philippines with office address at Six/Neo, 5th Avenue Corner 26th Street, Bonifacio Global City, Taguig City, for a consideration of US$20 ,000,000 or P1 ,018,739,815.22.

JLT

Asia's

total acquisition cost of JLT PH's shares is P834,229,723.83. Thus, the sale resulted in a gain of P 184,51 0, 091.40. 5 On March 10, 2020, petitioner filed with the BIR a Capital Gains Tax Return (BIR Form No. 1707), 6 and paid the CGT amounting to P18,446,009.15. 7 Eventually, petitioner was issued a Certificate Authorizing Registration (CAR) dated May 27, 2020 for the transaction. 8 ~

JLT Asia Holdings B.V. v. Commissioner of Internal Revenue

On December 29, 2021, petitioner filed a Tax Treaty Relief Application (TTRA) and a letter of even date, addressed to the CIR through the Chief, International Tax Affairs Division, and the Revenue District Officer (RDO), Revenue District Office No. 39, with the caption Application for Tax Treaty Relief and Refund of Erroneously Paid CGT. 9

PROCEEDINGS BEFORE THE COURT

On March 10, 2022, due to respondent's inaction, petitioner was constrained to file a judicial claim for a refund via the present Petition for Review to preserve and protect its right to seek judicial relief for the refund of its erroneously paid CGT. 10 On April 26, 2022, respondent filed his Motion to Admit Attached Answer, 11 to which petitioner filed a Comment (Re: Motion to Admit Attached Answer) on May 20, 2022.12 The Court granted respondent's Motion to Admit and, accordingly, admitted his Answer.

On September 1, 2022, respondent transmitted the BIR Records for the present case.13 On September 2, 2022, respondent's Pre-Trial Brief and petitioner's Pre-Trial Briefwere filed separately. 14 The pre-trial conference was held on September 7, 2022. 15 On September 15, 2022, the BIR's International Tax Affairs Division (ITAD) gave due course to petitioner's TTRA. It issued a Certificate of Entitlement to Treaty Benefit signed by the Legal Service's Assistant Commissioner, Larry M. Barcelo, certifying that the income petitioner has derived from the alienation of its shares in JLT PH to MPI is exempt from income tax under the Netherlands-Philippines Tax Treaty ("NL- PH Tax Treaty").

JLT Asia Holdings B.V. v. Commissioner of Internal Revenue

On October 5, 2022, petitioner filed a Manifestation,l6 and submitted a copy of the Certificate of Entitlement to Treaty Benefit.

On October 13, 2022, the parties submitted their Joint Stipulation of Facts and Issues, 17 which the Court admitted and approved. 18 The Pre-Trial Order dated November 23, 2022 was then issued.l9 In the trial that ensued, petitioner presented two witnesses, namely: (1) Olivia Erika Susa, a Manager at Isla · Lipana & Co.;20 and (2) Editha Vargas-Amburgo, Vice-President for Finance and Deputy Chief Financial Officer of MPI.21 On March 10, 2023, petitioner's Formal Offer of Evidence with Manifestation was filed. 22 In its Comment (To Petitioner's Formal OfferofEvidence) filed on March 27,2023,23 respondent manifested that he would no longer present any witnesses. On April 18, 2023, 24 petitioner's offered exhibits were admitted in evidence, except for ( 1) Exhibit "P-8", for failure of the exhibit formally offered and identified to correspond with the document actually marked; and (2) Exhibits "P-9" and "P-9-· 1 ", for failure to present the originals for comparison. Respondent filed a Manifestation on May 23, 2023, 25 adopting his Answer as his Memorandum, while petitioner's Memorandum was submitted on May 24, 2023.26 The case was considered submitted for decision on May 26, 2023.27 Hence, this Decision.

JLT Asia Holdings B.V. v. Commissioner of Internal Revenue

THE ISSUE

The sole issue for the Court's resolution is: "Whether or not Petitioner is entitled to a tax refund of the alleged erroneously paid CGT in the amount of P18,446,009.15."28

PETITIONER'S ARGUMENTS

Petitioner contends that it is registered with the BIR as a taxpayer and was assigned with Tax Identification No. 207-317- 235-000; that its income derived from the alienation of its shares in JLT PH to MPI is exempt from income tax pursuant to the Certificate of Entitlement to Treaty Benefit issued by the BIR - ITAD; that petitioner erroneously paid the CGT on the transfer of the company shares; that it was able to show proof of payment of the CGT; that the administrative and judicial claims for tax refund were filed within the two (2)-year prescriptive period; and that the erroneously paid CGT should be refunded to petitioner following the principle of ((solutio indebiti."

RESPONDENT'S ARGUMENTS

Respondent adopted his Answer as his Memorandum. He argues in his Answer that petitioner is not entitled to the refund of the CGT arising from the transfer of shares to MPI for failure to comply with the provisions of Revenue Memorandum Order (RMO) Nos. 1-2000 and 14-2021, particularly the filing of the application for tax treaty relief. He further argues that petitioner paid the CGT on March 10, 2020 without applying first for a tax treaty relief; that it filed the application only on December 29, 2021; that tax refunds are in the nature of tax exemptions and are regarded as in derogation of sovereign authority to be construed strictissimijuris against the person or entity claiming the exemption; and that the burden of proof is upon the taxpayer to prove that it is entitled to the claim for refund and failure to discharge with the same is fatal to the claim.

THE COURT'S RULING

The instant Petition for Review is impressed with merit. . v

JLT Asia Holdings B.V. v. Commissioner of Internal Revenue

Petitioner

timely filed its administrative and judicial claims; hence, the Court has jurisdiction over the instant Petition.

Section 7(a)(1) and (2) of Republic Act ("RA") No. 1125,29 as amended by RA No. 9282,30 confers jurisdiction to this Court relative to decisions and inactions of respondent, to wit: "SEC. 7. Jurisdiction.- The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

( 1) Decisions of the [CIR] in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue;

(2) Inaction by the [CIR] in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial; [Emphasis supplied] Moreover, Section 11 of RA No. 1125, as amended by RA No. 9282, provides the period for filing an appeal before the CTA, VlZ.:

"SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely affected by a decision, ruling, or inaction of the [CIR] ... may file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the expiration of the period ftxed by law for action as referred to in Section 7(a)(2) herein. ... [Emphasis supplied]

JLT Asia Holdings B.V. v. Commissioner of Internal Revenue

The above provisions are likewise provided under Section 3(a)(1)(2), Rule 4,31 and Section 3(a), Rule 832 of the RRCTA. Based on the foregoing, this Court has exclusive jurisdiction to review by appeal a decision, ruling, or inaction of respondent. The appeal must be filed by the taxpayer affected, or as worded by RA No. 9282, the party adversely affected, within thirty (30) days from receipt of such decision or ruling or after the expiration of the period ilxed by law for action. In this case, petitioner paid the CGT amounting to !>18,446,009.15 on its sale of JLT PH shares to MPI on March 10, 2020.33 Accordingly, petitioner had two (2) years from the date of the erroneous payment of the CGT, or until March 10, 2022, to file its refund claim, both at the administrative and judicial levels. Clearly, petitioner's administrative claim filed on December 29, 2021,34 and the subsequent appeal with this Court due to respondent's inaction on March 10, 2022,35 were within the two (2)-year prescriptive period. Accordingly, this Court has validly obtained jurisdiction over the instant case.

Governing provisions for refund claims.

Section 229 of the National Internal Revenue Code (NIRC) of 1997, in relation to Section 204(C), governs the refund or recovery of excessively, erroneously, or illegally collected taxes. Section 204 applies to administrative claims for refund, while Section 229 to judicial claims for refund. We quote: ~

JLT Asia Holdings B.V. v. Commissioner of Internal Revenue

"SEC.

204. Authority of the

Commissioner

to Compromise/ Abate and Refund or Credit Taxes. - The Commissioner may -

XXX

XXX

XXX

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however) that a return filed showing an overpayment shall be considered as a written claim for credit or refund." [Emphasis supplied] "SEC. 229. Recovery of Tax Erroneously or fllegally Collected.- No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided1 however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid." [Emphasis supplied] Reading the two provisions together, both administrative and judicial claims must be filed within the two-year period. Furthermore, the administrative claim must be filed before the judicial claim. Timeliness of the filing of the claim is mandatory and jurisdictional; thus, the Court cannot take cognizance of ajudicial claim for refund filed either prematurely or out of time. 36 As for the judicial claim, tax law even explicitly provides that it be filed within two (2) years from payment of the tax

JLT Asia Holdings B.V. v. Commissioner of Internal Revenue

"regardless of any supervening cause that may arise after payment."37 Moreover, what can be refunded or credited is a tax that is erroneously, illegally, excessively, or in any manner wrongfully collected. In short, there must be a wrongful payment because what is paid, or part of it, is not legally due. 38 Erroneous or wrongful payment includes excessive payment because they all refer to payment of taxes not legally due.39 Thus, for the present claim for refund to prosper, petitioner must establish that it erroneously or wrongfully paid the CGT and that it filed in writing with the CIR and this Court its claim for refund within two years from the date of the erroneous payment of the CGT.

As discussed, petitioner timely filed its administrative and judicial claims. Accordingly, We now determine whether there was an erroneous payment of CGT.

The subject CGT was erroneously paid given petitioner's exemption under the NL-PH Tax Treaty;

hence, petitioner is entitled to a tax refund.

Section 28(B)(5)(c) of the NIRC of 1997 states: SEC. 28. Rates of Income Tax on Foreign Corporations.

XXX

XXX

XXX.

(B) Tax on Non-resident Foreign Corporation. -

XXX

XXX

XXX.

(5) Tax on Certain Incomes Received by a Non-resident Foreign Corporation. -

XXX

XXX

XXX.

37 Commissioner of Infernal Revenue v. San Miguel Corporation. et seq., G.R. Nos. 180740 and 180910, November 11 , 2019.

38 Commissioner of Internal Revenue v. San Roque Power Corporation, et seq., G.R. Nos. 187485, 196113, and 197156, February 12, 2013.

39 !d.

JLT Asia Holdings B.V. v. Commissioner of Internal Revenue

(c) Capital Gains from Sale of Shares of Stock Not Traded in the Stock Exchange. - A final tax at the rates prescribed below is hereby imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold, or disposed of through stock exchange:

Not over PlOO,OOO.. . ...... .... ..... ...... .. .... ...... .... 5% On any amount in excess of PlOO,OOO.. ..... .. 10% [Emphasis supplied] However, Section 32(B)(5) of the same Code provides that income of any kind, which includes the above-stated net capital gains, is exempt from income taxation to the extent required by any treaty obligation binding upon the Government of the Philippines, to wit:

SEC. 32. Gross Income.-

XXX

XXX

XXX.

(B) Exclusions from Gross Income. - The following items shall not be included in gross income and shall be exempt from taxation under this Title:

XXX

XXX

XXX.

(5) Income Exempt under Treaty. - Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines. [Emphasis supplied] Based on the foregoing prov1s1on, an income may be exempted from taxation to the extent required by any treaty obligation binding upon the Government of the Philippines. The said treaty obligation may be embodied in bilateral treaties for the avoidance of double taxation. The purpose of these international agreements is to reconcile the national fiscal legislations of the contracting parties in order to help the taxpayer avoid simultaneous taxation in two different jurisdictions. More precisely, the tax conventions are drafted with a view towards the elimination of international juridical double taxation, which is defined as the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods. 40 " Commi,iooa of /o"mol R"'""' '· S C. Joh""" ood Son /"'·· " a/., G. R. No. 1271 05, J ""' 25, 1999, ~

JLT Asia Holdings B.V. v. Commissioner of Internal Revenue

We quote the Supreme Court's pronouncement in Commissioner of Internal Revenue v. S.C. Johnson and Son, Inc., et al. 41 ... The purpose of these international agreements is to reconcile the national fiscal legislations of the contracting parties in order to help the taxpayer avoid simultaneous taxation in two different jurisdictions. More precisely, the tax conventions are drafted with a view towards the elimination of international juridical double taxation, which is defined as the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods.

The apparent rationale for doing away with double taxation is to encourage the free flow of goods and services and the movement of capital, technology and persons between countries, conditions deemed vital in creating robust and dynamic economies. Foreign investments will only thrive in a fairly predictable and reasonable international investment climate and the protection against double taxation is crucial in creating such a climate.

Double taxation usually takes place when a person is resident of a contracting state and derives income from, or owns capital in, the other contracting state and both states impose tax on that income or capital. In order to eliminate double taxation, a tax treaty resorts to several methods. First, it sets out the respective rights to tax of the state of source or situs and of the state of residence with regard to certain classes of income or capital. In some cases, an exclusive right to tax is conferred on one of the contracting states; however, for other items of income or capital, both states are given the right to tax, although the amount of tax that may be imposed by the state of source is limited. [Emphasis supplied] One such bilateral agreement is the NL-PH Tax Treaty,⁴ 2 which is the treaty being invoked by petitioner anent its claim for exemption from the imposition of CGT on the subject transaction. Article 13 thereof reads:

Article 13

GAINS FROM THE ALIENATION OF PROPERTY

1) Gains from the alienation of immovable property as defined in paragraph 2 of Article 6, may be taxed in the State in which such property is situated.

41 /d.

42 Formally known as the CONVENTION BETWEEN THE KINGDOM OF THE NETHERLANDS AN D THE REPUBLIC OF THE PHILIPPINES FOR THE A VOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TOT AXES ON INCOME.

JLT Asia Holdings B.V. v. Commissioner of Internal Revenue

2) Gains from the alienation of movable property, forming part of the business property of a permanent establishment which an enterprise of one of the States has in the other State, or of movable property pertaining to a fixed base available to a resident of one of the States in the other State for the purpose of performing professional services including such gains from the alienation of such permanent establishment (alone or together with the whole enterprise) or of such a fixed base, may be taxed in the other State.

3) Notwithstanding the prov1s10ns of paragraph 2, gains derived by an enterprise of one of the States from the alienation of ships and aircraft operated in international traffic and movable property pertaining to the operation of such ships or aircraft shall be taxable only in that State. 4) Gains from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3, shall be payable only in the State of which the alienator is a resident.

5) The provisions of paragraph 4 shall not affect the right of each of the States to levy according to its domestic law a tax on gains from the alienation of property derived by an individual who is resident of the other State and has been a resident of the first-mentioned State at any time during the six years immediately preceding the alienation of the property." [Emphasis supplied] The foregoing provision governs the taxing rights of each Contracting State relative to gains derived from the alienation of property. Paragraph 1 covers the alienation of immovable as defined in paragraph 2 of Article 6 of the same treaty, while paragraph 2 covers the alienation of movable property, forming part of the business property of a permanent establishment which an enterprise of one of the States has in the other State, or pertaining to a fixed base available to a resident of one of the States in the other State for the purpose of performing professional services, as well as the alienation of such permanent establishment (alone or together with the whole enterprise) or of such a fixed base. Paragraph 3 relates to the alienation of ships and aircraft operated in international traffic and movable property pertaining to the operation of such ships or aircraft.

Notably, paragraph 4 of the foregoing Article, which petitioner rightly invokes, involves the alienation of any property other than those mentioned in paragraphs 1, 2, and 3 . Under paragraph 4, the taxing right belongs to the Contracting v

JLT Asia Holdings B.V. v. Commissioner of Internal Revenue

State, where the alienator is a resident. As a corollary, any gain derived from the alienation of the subject property should be exempt from income taxation in the Contracting State in which the alienator is not a resident.

To determine whether an alienator is a resident, paragraph 1 of Article 4 of the NL-PH Tax Treaty is instructive, to wit: "Article 4

FISCAL DOMICILE

1. For the purpose of this Convention, the term 'resident of one of the States' means any person who, under the law of that State, is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature." [Emphasis supplied] In this case, it was established that petitioner is a resident of the Netherlands during the year 2020, via the Certificate of residence dated March 18, 2020 issued by The Inspector of the Tax Authorities Administration Office of the Netherlands. 43 The said Certificate of residence reads, in part, as follows: "JLT Asia Holdings B.V.

Conradstraat 18 A

3013 AP Rotterdam

XXX

XXX

XXX

Is during the year 2020 a resident of the Netherlands within the meaning of article 4 of the Convention for the avoidance of double taxation between the Kingdom ofthe Netherlands and the Republic of the Philippines." [Emphasis supplied] Thus, petitioner is a resident of the Netherlands for purposes of the NL-PH Tax Treaty. This fact is even bolstered by the Certification of Non-Registration of Company dated February 13, 2023, issued by the Philippine Securities and Exchange Commission, which certifies that their records do not show petitioner's registration as a corporation, partnership, or One-Person Corporation. 44 Considering that petitioner is a resident of the Netherlands under Article 4 of the NL-PH Tax Treaty, this Court finds that any gain it derived from the alienation of its shares of stocks in

JLT Asia Holdings B.V. v. Commissioner of Internal Revenue

JLT PH to MPI is exempt from the CGT imposed under Section 28(B)(S)(c) ofthe NIRC of 1997, pursuant to paragraph 4, Article 13 of the same Tax Treaty. Parenthetically, it is noted that the BIR even confirmed petitioner's exemption from the imposition of CGT for the said transaction, per the Certificate of Entitlement To Treaty Benefit dated September 15, 2022, issued by Assistant Commissioner Larry M. Barcelo, Legal Service. 45 Such being the case, petitioner's payment of CGT for the subject transaction in the amount oLP18,446,009.15 is deemed erroneous or wrongful since no CGT is legally due. Petitioner asserts that the erroneously paid CGT should be refunded to it following the principle of solutio indebiti. In Commissioner of Internal Revenue v. Mirant Pagbilao Corporation, 46 the Supreme Court's explanation of the application of the principle of solutio indebiti on refund of erroneously paid taxes is relevant:

... [A] tax refund may be, as usually it is, predicated on tax refund provisions allowing a refund of erroneous or excess payment of tax. The return of what was erroneously paid is founded on the principle of solutio indebiti, a basic postulate that no one should unjustly enrich himself at the expense of another. The caveat against unjust enrichment covers the government.

Under the principle of solutio indebiti, the government must restore to petitioner the sums representing its erroneous tax payments.47 Since the CGT paid is considered erroneous by this Court, it must be refunded to petitioner following the principle of solutio indebiti.

Respondent's contentions that the transfer of shares to MPI should be subjected to CGT in view of petitioner's failure to comply with RMO Nos. 1-2000 and 14-2021, particularly the non-filing of an application for tax treaty relief; that petitioner paid the CGT on March 10, 2020 without applying first for a tax treaty relief; and that it filed the application before the BIR only on December 29, 2021 , are unmeritorious.

JLT Asia Holdings B.V. v. Commissioner of Internal Revenue

First, it has been jurisprudentially settled that a tax treaty relief application is unnecessary for a taxpayer to avail of the benefits or the reliefs provided under a tax treaty executed by the Philippines with a foreign country.

In CBK Power Company Limited v. Commissioner of Internal Revenue, et seq.,4s the Supreme Court, citing Deutsche Bank AG Manila Branch v. Commissioner of Internal Revenue,49 ruled that the obligation to comply with a tax treaty must take precedence over the objective ofRMO No. 1-2000. It further held that the BIR must not impose additional requirements that would negate the availment of the reliefs provided in the tax treaty and that the application for a tax treaty relief from the BIR should merely operate to confirm the taxpayer's entitlement to the relief. We quote:

"The Philippine Constitution provides for adherence to the general principles of international law as part of the law of the land. The time-honored international principle of pacta sunt servanda demands the performance in good faith of treaty obligations on the part of the states that enter into the agreement.

The issue of whether the failure to strictly comply with RMO No. 1-2000 will deprive persons or corporations of the benefit of a tax treaty was squarely addressed in the recent case of Deutsche Bank AG Manila Branch us. Commissioner of

Internal

Revenue (Deutsche

Bank), where the

Court

emphasized that the obligation to comply with a tax treaty must take precedence over the objective of RMO No. 1-

2000 XXX

XXX

XXX

XXX

The objective of RMO No. 1-2000 in requ1rmg the application for treaty relief with the ITAD before a party's availment of the preferential rate under a tax treaty is to avert the consequences of any erroneous interpretation and/ or application of treaty provisions, such as claims for refund/ credit for overpayment of taxes, or deficiency tax liabilities for underpayment.

However, as pointed out in Deutsche Bank, the underlying principle of prior application with the BIR becomes moot in refund cases - as in the present case - where the very basis of the claim is erroneous or there is excessive payment arising from the non- availment of a tax treaty relief at the first instance. Just as Deutsche Bank was not faulted by the Court for not complying with RMO No. 1-2000 prior to the transaction, so should CBK

JLT Asia Holdings B.V. v. Commissioner of Internal Revenue

Power. In parallel, CBK Power could not have applied for a tax treaty relief 15 days prior to its payment of the final withholding tax on the interest paid to its lender precisely because it erroneously paid said tax on the basis of the regular rate as prescribed by the NIRC, and not on the preferential tax rate provided under the different treaties. As stressed by the Court, the prior application requirement under RMO No. 1-2000 then becomes illogical. Not only is the requirement illogical, but it is also an important that is not found at all in the applicable tax treaties. In Deutsche Bank, the Court categorically held that the BIR should not impose additional requirements that would negate the availment of the reliefs provided for under international agreements, especially since said tax treaties do not provide for any prerequisite at all for the availment of the benefits under said agreements. It bears reiterating that the application for a tax treaty relief from the BIR should merely operate to confirm the entitlement of the taxpayer to the relief. Since CBK Power had requested for confirmation from the ITAD on June 8, 2001 and October 28, 2002 before it filed on April 14 2003 its administrative claim for refund of its excess final withholding taxes, the same should be deemed substantial compliance with RMO No. 1-2000, as in Deutsche Bank. To rule otherwise would defeat the purpose of Section 229 of the NIRC in providing the taxpayer a remedy for erroneously paid tax solely on the ground of failure to make prior application for tax treaty relief. As the Court exhorted in Republic v. GST Philippines, Inc., 50 while the taxpayer has an obligation to honestly pay the right taxes, the government has a corollary duty to implement tax laws in good faith; to discharge its duty to collect what is due to it; and to justly return what has been erroneously and excessively given to it." [Emphasis supplied] Second, respondent's contention is inconsistent with the release of the Certificate of Entitlement to Treaty Benefit on September 15, 2022 by the BIR-ITAD. The relevant portion of the ruling is hereunder quoted:

This is to certify that the income derived by JLT Asia Holdings B.V. (JLT Asia), a resident of Netherlands, from the alienation of its shares in Jardine Lloyd Thompson Insurance and Reinsurance Brokers, Inc. (JL T PH) to Marsh Philippines, Inc. (Marsh) is exempt from income tax pursuant to Article 13 (Gains from the Alienation of Property) of the Convention between the Kingdom of the Netherlands and the Republic of the Philippines for the Avoidance of Double

JLT Asia Holdings B.V. v. Commissioner of Internal Revenue

Taxation and the Prevention of Fiscal Evasion with Respect to

Taxes on Income (NL-PH Tax Treaty)

The details of the transaction are as follows:

Relevant

Deed of Sale of Shares

Document/Contract

Date of Execution

March 2, 2020

Subject Shares

3,118,908 common shares with a par value of PlO.OO per share

Total Par Value

P31,189,080.00

Cost of Shares

P834,229,723.83

Consideration

USD20,000,000.00 or 1,018,739,815.32

Income

P184,510,091.49

INCOME TAX

Article 13(4) of the NL-PH Tax Treaty states that gains from the alienation of any property, other than immovable property, movable property forming part of the business property of a permanent establishment which an enterprise of one of the states has in the other state or such a permanent establishment (alone or together with the whole enterprise) shall be taxable only in the Contracting State where the alienator is resident. Considering that the shares of stock do not fall within the aforecited exceptions and that JLT Asia is a resident of the Netherlands, the capital gains derived by JLT Asia from the transfer of the subject shares to Marsh are exempt from Philippine income tax. [Emphasis supplied] Thus, with the issuance of the Certificate of Entitlement to Treaty Benefit dated September 15, 2022, in favor of petitioner, respondent himself has confirmed that petitioner is entitled to the benefits under the NL-PH Tax Treaty.

WHEREFORE, in light of the foregoing considerations, the present Petition for Review is GRANTED.

Accordingly, respondent is ORDERED TO REFUND petitioner the amount of P18,446,009.15, representing the CGT it erroneously paid on March 10, 2020 in connection with the sale of its common shares in JLT PH to MPI on March 2, 2020.

Associate Justice

JLT Asia Holdings B.V. v. Commissioner of Internal Revenue

!CONCUR:

\

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. \ ociate Justice Special 2n 1vision Acting Chairperson

JLT Asia Holdings B.V. v. Commissioner of Internal Revenue

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Special 2nd Division Acting Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

Presiding Justice