Court of Tax Appeals
0CTA Case No. 2961
R.£. & J. ALEXANDER & CO., LTD. and
TOOT~L LT~. and ALLIED THR~AD
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Petitioner: s,
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V~~r GUS · ..
THE CO£-'il·'ll. ':;;JONE: OF INTERNAL
REVENUE,
C.T.A . CASE NO . 2961
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D E C I S I 0 N
Ser:tion 24 (b) (1) .of the National lnte~:nal
Revenue Code imposes on a forei gn corporation not
engaged ir trade or business in the Philippines
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gn incom3 tax egual to thirty-five percent (35% )
cf t')1e
~;ross income received during each taxabl
ye ~ r from all sour c es within the Philippines, as,
among others, divi6en~s,J r other fixed
r deter-
minable, arnual, periodical or c2su~l gains,
profits and income, and capital gains .
Howev-r,
on dividends r eceiveJ from a domestic corporation
1 iable to tax , the ta}~ is fifteen percen t
(15%) .
. o~ the dividends ··eccived, which is collected and
paid as provided in Section 53(d) _of the Tax Code,
:3ubj :;ct t:o the condition that the country in which
the non-res i dent ~ o re ign corpor2tion is dorn i~iled
DECISION -·
CTA CASE NO.
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allows a credit agains t tl:v:: '•:a:< due fro;n t>-2 i."'\on-
.i: es .:.dE.'.nt fore i<;;11 corpor c1 tion r taxes d ::..er,"r1 ·:.c
have been p~id in the Philippines equi 7~ .. ~~~ t~
twenty percent
f2L~) .which represents ~~~ ~~f~~r-
ence between the regular tax ( 35% ) .on corp)rations
and the tu.x (1 5%) _on di'liden::Js.
(Now 2ection
24{b)(_iii)d. 1977 National Int'.e.rnal Hevenue Code.)
In this Guit for recovery of alleged ouerpaid
Hi t ':1hold ~.ng, ta:. on di v idcnds, it appear~ that
peLitioner Allied Thread Co., Inc. (hereinafter
called "l\llied
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) .declared and paid dividends on
June 28, 1976 to i ts co-petU:ioners R.F .
& J·.
A. exander & Co. , Ltd. (hereinafter called "Ale}'ander")
and Tootid. Ltd. (hereinafter called "Tootal") '· frorn
which Allied wi thheld and paid to the Bureau .of
Internal Reve~u c the 35~ withholding (income ) .tax,
pursu .1nt to the at,ovc Section 24 (b) (1) in relation
to Sec',:ion 53 (b ) of the National Inte .rnal Re• enue
Code.
Averring, however, that unde r the Income Tax
Law of the United Kingdom i n which Alexander and
Tootal are lomiciled, the allowable deemed paid
tax credit exceeds 20% of the dividends rece1ved
by them , Allied now claims that since it withheld
35% tax o n the d iv idends paid to its co-petitionE~ ::s
ins tead of only 15 %, in accor~ance wi~h the above
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DECIS""ON -
CT! CASE NO. 2961
-· 3 ., ...
Sectior:. 2tl(0) (1) o£
th~ Cod::.v it had o·verpaid
the withholding tax by 20%.
Consequentl:, claim
for refund or tax credit of the over;aid or
erroneously paid withho:· · n-:J
ta~~ or1 divi _.c'.~ds dec-
lared an~ paid by Allied to its co-petitioners
Alexander and Tootal was filed wit~ respondent
Commissioner of Internal Re-~nue.
And to inter-
rupt th~ running of the prescriptive period for
t~e refund o_ tax credit claified, petitioners
filed the present suit in acco.dance with
Section 292 of the National Int.er:naJ. Revenue Code .
There is no cispute as t.o the facts of the
case.
After petitioners have rresented their
evidence, both oral and documentary, and rested
Lheir case, counsel for respondent, without con-
troverting or dibputing Lhe evidence of petitioners
and witJ.1.out offerir:g, proof as to t.he truth of his
own allegations in the answer, submitted this appeal
fo r decision on the basis of the plead i ngs and
the records of the case.
(nit utes o[ the sessicm.
of the Cour :, June 4, 1980, p. 76, C'l'A
recorr~·.)
And the recotds of the case 0onsi ~t of the uncon-
tested oral and documentary evidence of petitioners
s~pporting and justifying their claim for refund
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DECJ:S I "JN -
CTA CASE NO. 2961
or tax credi -p and t~e record of t.e Bureau of
Internal F. .. Nenue pertaining to
~:h is proce-sding
which is only the written claim for refund qr
t.::J.x credit filcc.'l. by petitio<~E:!rs vd. th respondent
togEther with the documents which support their
claim.
U1der the well-settled rule that one who
prays for judgment on the pleadings without
offering p:uof: as to t.he truth of his own alle-
gations, must be understood to have admitted the
truth of all t he material and relevnnt allegations
of the opposing part.yi and to rest hie- motion for
judgment on these allegations ~ aken together with
such as his own as are admitted (Bauerman vs.
Casas, 10 P~i l. 386; Evangelista vs. De la Rosa,
et al., 76 Phil. 1 5) ~ the factual background of
t~e case as ga~hered from
~he petition for review
borne out by the records, a d supported by the
uncontrove rted evidence of pet~tioners may be
stated as follows :
1.
Petitioners Alexander (R F . & J. Alexander
& Co., Ltd.) _ar d Toot:al (Tootal Ltd.) _which are
non-resident foreig~ corporations, no t engaged
in trade or business in the Philippines and
cxis~ing un~er anJ by virtue of E r gl~sh Law, are
both do1nicil€~d in and Hi.th pri.ncipa.Ol. ofi:iceE in
DECISION
~- CTA C~SE NO. 2961 ... 5 - the United Kingdom.
( p. ..... , ,J J. 1 t.s,n., March 11, 1980~ 'Testimony of Alejo Alvar-ez; Exhs. "1\n t "B", 2.
Petitioner All ied (Allied Thread Co., Inc.) is a domestic corp~ration organized and existing by virtue of the lar,•,:.; of the Philippines, with o.ffice a~d place of busines s at Pasig, Metro Manila. , Petition for Review; adm itted , par . 1, Answer.) 3.
Petitioners Alexander and Tootal are fcreign corporate stockholders of co-petitioner All1.ed.
( '<'vh· " l " } .C: ~'b • ..
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On June 23, 1S76 , Allied f~led a with- holding t.ax return (BIR Form No. 17.43-B) .covering , / among othera, the dividends it decl~red and paid to Alexander and Tootal amounting to Pl,377,090.00 and P1,773, 015.00f respective ly. rv1ay 11, 1979 ,· testimony of V.Jitness l·d.frE:do Carill.oi Exhs. "D" & "F".)
5.
As withholding agent, Allied paid the 35% withholding tax on dividends rem~tted to Alexander and Tootal in the respective amount of P481,982 . 00 and ~620 ,55 5.00, or a total of Pl,~02 , 527.00, under Official Receipt No. 2861946, dat~J July 23, 1976.
(Exhs. "C 11 , nD", "[;" & 11 F".)
DECISION ~
Such dividends were remitted on June 28, 1976. (p. 3, t.S.n., July 20, 1979, testimony of Alfredo Carillo; Exh. "F".) |
6. Alleging that the tax on dividends paid to a non-resident United Kingdom corporation by a domestic corporation is only 15% pursuant to Presidential Decree No. 369 which amended Section 24(b) (1) /now Section 24(b) (iii)7 of the National Internal Revenue Code, petitioners, on June 21, 1978, filed a claim for.refund or tax credit of excess withholding tax on dividends, representing the difference between the 35% tax paid and the 15% that should have been paid, such refundable or creditable tax amounting to a total of B630,021.00, computed as follows:
Non-resident Amount of 15% Tax Excess
foreign Dividends 253% Tax That Should Tax corporation Paid Withheld Have been withheld Withheld Alexander 81,377,090 B 481,982 8 206,564 B 275,418 Tootal 1,773,015 620 ,555 265,952 354,603 Total B3,150,105 B1,102,537 . B472.516 2630021
7. In accordance with Section 292 of the
National Internal Revenue Code and Section 7 of
Republic Act No. 1125, petitioners on June 28, 1978, filed their petition for review with this Court.
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DECISIOll --
CTA CA:E NO. 2961 - 7 - On December 4, 1978, respondent fileci his answer which in e_fcct is a denial of the claim for refund or tax credit of petitioners.
/:..re petitioners entitled to the :refu nd or. tax ,., redi t of the over pay. 1en t of tax wi thhe.l.d at. so1Jrce pursuant to Section 24(b) (1) of the Revenue Code? Petitioners submit, and respondent does not dispute, tha~ the claim fc~ refund and the petition for review were filed within t_wo years from the date of overpayment; and Alexander and Tootal are non-resident British corporations. This is cJearl.y borne out by the records of the case and presented.
While re spondent also admits the evi~~:e tha ·t "~ti ·~ .
/ tioner Allied declared dividends during the fiscal year ended January 31, 1976 in favor o f co-pe titioners Ale.:ander and 'roo tal u filed tile cor responding quarterly return of income t ax withheld and paid 35 % withholding tax, r· _spondent. avers tba t "there ,.,......
is no showing that these dividends were actually remitted to the payee non-resident foreign corpo- rations."
(pp. 121-122, CTA records. )
To begin with, respondent admits, as stated above, that. Allied declared dividends in favor of Alexander and Tootal , filed the correspondins quarterly return an ~ paid the 35% withholding tax DECISION .,.
CTA CASE NO. 29;1 ·~ ,8 ~· withheld therefrom; and Alexander and To~tal explicitly affirmed that the dividends declared in their favor were remitted to them .
(pars. 4 & 5, Petition for Revi8w.)
While this affirmation was made in the pet.Lt:Lon for J:eview prepared by tl'H::ir lawyer, attorneys have authority to bind their clients in any case 1n rel~tion thereto made in writing, and in taking '-lppeals und in all. matters of ordinar,y :judicial pr-o- ceclu1~e .
(E)ec. 2.; Huh; 138 , Rules of Cou:rt.! se~· condly# the fact that Allied declared the dividends, filed the corresponding quarterly return of income tax withheld at source , paid the 35% withholding tax amounting to f'll~l02!537.00 to the Bu reau of Internal Revenus has been clearly and sufficiently established by the evidence.
(Ex b s • "C" , ·~ D" , "E" & 11 F" ; t. . s • n • pp. 10-19, hearirgs on May 11, 1979 and July 20, 1979, testimony ot 1\lfH~do Carill.o.). It is axio~· matic that a domestic corporation does not deciare dividends in favor of non-resident foreign corpo- rations, file the corresponding retLrn of income tax withheld at source and pay to the Bureau of In~ernal Revenue the 35% withholding tax unless such dividends have been remitted to the payee non-resident foreig n cor porations .
Otherwise, if no dividends were declared a~d £emitted by Allied to AlexandAr and Tootal, there would bs no legal basis for the . '
DECISION ···
withholding of the income tax at source, filing of the return ai1d payment t.o the Bu.rec:.u of Internal. Revenue of the tax with.1eld .
The:
ent~ire 35~s v.rith·~ holding tax of ~1,102 , 537.00 paid to the Bureau of Internal Revenue would therefore be refundable to petitioners instead of the st. m of :1?6 30,0 21. 00 as 15% e,'C(:~ss t-:r::.x withheld.
'l'o say that: these dividends were not remitted to the payee non-resident foreign cotporat.ions is to incur :·r Er>lf-~contrad.i.ction.
Then too, Alfredo Carillo , cost and budget projert accountant of Allied testified. before this Court that Pl,377 , 090.00 and Pl,773,015.00 we r e remitted to Alexander and Tootal, respectively, as dividends withholding the respective amount of ~481,982.00 and l'f620 , 5::i5 . 00 as i come ·tax thE":reon. (pp. 15-16 1 t.s.n., May 11, 1979; p. 18, t.s.n., ~ay 11, 1979.) No evidence whatsoever was introduce by respondent to controvert or rebut the evi once of petition2rs. Against this backdrop, the bare statement of respondent that these dividends were not actually remitted to the payee non-recident foreign corpo- rations, Lnaccompan ied by adequate evidence, has no we1ght with the Court.
Another roadblock astride petitioner's route to refund or tax credit of the omount oi P63u , 21.00 ') ~J- 7 """'; l . '
DECISION -
CTA C~SE NO. 2961 -
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r cprcscn:.:j ng ove·cpaid 'dithboldi.ng t.2 •. p point·3d c by re sp on~ent f is petitioners' alleged f ailure t o show ~hat non-r_esident for e ign corpor ati ons 1\le.":mder and 'J.'oo t.al own at least 25% of t he vot:u19 pc i·, e :: i n Allied v an express r equ ireme n t provi ded f·.n: under Section 498 (4) (b) of thE. United Kingdom Income -nd Corporation Taxe s Act 1 97 0 . As already stated abovcv dividends dec l ~ red and paid by a domestic corporat i on to a non-resident forei g n corporatio~ are subject only to t he 1 5% w~thholdin g t a:{ <;\ t.
~:'; I J rce and not to 35% pursuan t t o Sec t ion 2 4 (b)(_ 1 ) /:::(. ' ' j __ ·'· i .J .v Section 24 (b) (ii. il7 of the Na t ional Inte rnal ~cv cnue Code, in relatio n to Sectio ns 53 and 54 thereof, if the countr y in which the non- reside nt foreign corpo:ation is domici l ed allows .,.
a credit against the tax due from the non-resident foreign corpora t ion, taxes deemed to have be~ n paid i n the Ph ilipp i nes equival ent t o 20% . Whi l e r e spon- den t concedes that the law o~ the Un ited Kingdom where Alexander and Tootal are domiciled allows a tax credit o f more ttan 20% for taxes paid in the Philippines, he coJ,tends that petitioners failed to ~~how as rr2quired under: Section 498 (4) ( b ) .of the United Kingdom I ncome a ~d Corpo ~ ation Taxes Ac L 1 970 t h a t r on-r e siden t forei gn cor por a tio ns f) (' s ...... J \
DEC IS IOU
1\lcxD.ndor ar~' 'I'ooU: .. l ow:1 ::ott lc-.asl: 25% of th.e To quote the per· t . .:i.nen t. pm: tions ot tbc Un i t.ed Kingdom Income an~ Co~poration Taxss Act 1970: "SEC. 498. ·-
(l) 'Eo tr·,r~ extent appearing from the foilowing provisions of this section, relief from income tax and corporation tax in respect of income shall be given in reEpect of tax payable under the law of any territory outside the United Kingdom by allowing the last- mentioned taK as a credit again~t income tax or coroorat:!.on taxr not~withst.anding that there are not for the time beinJ in force any arrangements under section ~'7 above providing for ~uch relief: " "(3) Credit for tax paid under the law of t~~ territo_y outside the United Kingdom and computed by reference Lo income arising in that territory shall be allowed against any United Kingdom income t~ax 0.1~ corporation ta:v cowpu ted by ref~rence to that income (profit from, or remuneration for, personal or profes- sional services performed in that territory being deemed for this purpose to be income arising in that t.er.ri.tor:i) :. "( 4 ) .··lhe!:e a divid"nd paid by a company resident in the territory is paid to a company resident in the United Kingdom which either - 11 {a) controls dir:ectly ur .i.ndir:ectly,or "(b) ·is subs~.diz,ry o.f a comoanv \·Jbicb
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,-' . l" r:· . • , ~ " . 7 ~ -· n ... r o ..... o _ 1 .... ---- '-- y ""- 1.n.11. ...• <. •• ~.L.~ , not l~ss that 25% of the voting power in ~he company paying the dividend, or not less than 10% per cent of the votina powe: if th2 tc~ritory i3 one of th~ Co-r,pn nr.-r::a:L tL ter. r i '::·n .i es 1 ar:y t.az :i.n :c?pecL of its 2r0fit& paid u~der th~ f)(' 0 -.... ,J J DECif::IO.
CT~ CASE NO. 2961 - 12 -· 1 ·,, of the te:rri to'.~Y by ~-;_,c c .... _,---:· Jaying the ~~~ide nd sha:~ -~' into accc nt in ro nside~· ~~ ~ i 11ny 1 and if so w;·1at 1 er e'_:_: ~ s allowed in re spect of the d~v ~ - PctitionersAlcxonder and ~ ~0~ a .. cc~porate stockholders of co-p2t~ti~ ··· """ 1 .
., , '-.~ __ .:.. eca;, :' n'J the evidt~nce clearly shovJ t::-><.o:~: i • ... ···,· (c:;:; Oh'.'·· ::;,hares , or 56 %, of the total slu~:es. c. - r:;:·~~, 2 .'' cor:;mor:. and vot.:.n9 ;;,hares of All icd . "I ·~l" & "I-2"; p.
t. s . n. , March · testimon.y of Alr·jo Alvarez .). 'rhis 'C: • •. : ::.:.:·.:;e bas not been cont_overted or rebutted by respondent. To say the~cfore that Alexander and Tootal do not own at least 25% of the voting power in Alli -d is to ignore the logical connotations of plain facts and figures.
Ownership of 44% or 56% of the total s iales of stock in Allied, and the control primari ly dependent upon SL'Ch owr.ership - chc impor ·ant ingredients cf voting power - negate any allegation that Alexander an~ Tootal do not own at least 25% of the · oting ?Ower in All i ed. For its Llscal year ended January 31 , 1976, Allic 1 had a taxable net income of PlO , S28,4~J.OO c, vJhich i- paid income ta:x: amounting to ?3,674,953.00 or 34 .90%.
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CTA records .)
From the remaining profits of P6,853,484. 0, Allied paid dividends to Alexander and Tootal.
In accordance with Section 498 of the Income and Corporation Taxes Act 1970 of the United Kingdom, a tax credit for taxes paid in the Philippines is granted on the dividends received from Allied by Alexander and Tootal on the bas is of suc.h inca •. e ta;{ paid by Allied in tb.e Philippines on its income out of which the dividends were paid.
Pursuant to the said Section 498 ~f the Income and Corporation Taxes Act 1970, a tax credit of 34.90% should therefore be granted for taxes paid on dividends remitted by Allied to Alexander and Tootal, which is clearly more than the 20% minimum r equired in Section 24(b) (1) ~f the National In te rnal Revenue Code. It seems clear beyond doubt therefore that as far as the dividends remitted by Allied to Alexander and Tootal are concerned, United Kingdom grants a tax credit of more than 20% on taxes deemed to have been paid ·n the Philippines on such dividends. The conditions pLovided in Section 24(b) (1) of the Nation~1 :nternal Revenue Coder in relation to Sections 53 and 54 thereof, having b2en ful(illed
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-· 14 -· the correct with~olding tax rate on the dividcn~s paid and remitted by Allied l~.o AJ.e:xander.: o.nd Tocta l should be 15% and net 35% puro1ant to said Section of the la\ which is now Section 24 (b (iii of the Code.
There is therefore an overpayment of fl630 , 0 21.00 .
WHEREFORE, respondent Commiss i oner of Internal Revenue is hereby ordered to grant a:;:; t,ax credit the amourts of ¥275,418.00 and P354,603.00, or a total of P630,02l . OO, as ovelpa:d withholding tax, in favor of petitioners ~.F. & J . Alexander & Co., Ltd.; Tootal Lt., and Allied Thread Co. , Inc. h'ithout pronouncement as to costs.
SO ORDERED .
Quezon Cit], Metro Manila, July 9p 1981.
CONCUR: I
:~6:/:c.c-z co~;AN~'E !,; . ROAQUIN / SSOCl:).~te ~:·d:e 1 •r / .
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