CTA Case No. 3076

DECISION

- 2 - The backgr-ound ·facts ar-e not disputed, • r-espondent havi ng s ubmitted this case for- decision on the basis of the p 1 ead ings, after- petitioner-s have pr-esented their- evidence.

As alleged in the amended petition for- r-eview and admitted by r-espondent:

1.

Petition er- Hyatt Regency Manila is a domestic co r·por-at.i.on duly or-ganized and e: ·~ .i.sting und er- and by vir-tue of Philippine laws, doing business and with pr-incipal offic~? at 2702 Ro:<as Boulevar-d, Pasay City, while petitioner- Hyatt Hong Kong Limited is a r-esident for-eign cor-por-ation with office in the Philippines at Hyatt Regency Manila. 2.

Respondent is the duly designated, qualified and incumbent Acting Commissioner- of Inter-nal Revenue of the Philippines vested with autht:H"ity to act as such, and with office at the BIR National Office Building, East Avenue, Diliman, Quezon City, where he may be served with summons. 3.

For- year-s 1978 and 1979, the petitioner-s pCil .. id ranch pr-ofit r-emittance taxes in the amounts ·f P98,134.02 and P179,207.80 or- a ~ · (

- 3 - tota 1 of P277, 341.82 for profits r-·ea 1 i zed in the years 1976, 1977 and 1978. 4.

The above payments were made by the petitioners in the belief that the tax base of the br-·anch profit. remittance ta:·: is the "tot a 1 branch profit out of which the remittance is to be made." 5.

Section 2 4(b)( 2 ) of the applicable National Inte~n~l Revenue Code, in relevant provision, provides:

":·:

:-:

:·:. _ .. Provided fur·ther, that ~.!JY.

p_r_g_f.!..!: ___ ..r:::g.m. :i.:._t._t.~?...9. .. _ .. ~.9J:.Q.§.'_Q_ by a branch off i c: e to its mothP r company shall be subject to tax of fifteen per cent (except those registered with the Export Processing Zone Author-ity). :·: :-: :-:" [Underscoring supplied] 6.

In a ruling dated Januar-y 21, 1980, r-espondent Commissione r held th<:\t "the 15/. branch profit remittance tax s hall be imposed on the pn::>f i. t ac tua 11 y remit ted abroad and !J_9J;. on the total branch profit out 6f which the remittance is to be made".

7.

Based on the manner of computing the branch profit remitt~nce tax, the petitioners should have only paid the total amount of P214,236.29, instead of P277,341.82, on the above-mentioned branch profit remi ttanceis. As a

- 4 - result, petitioners herein have mad e an overpaymeni of the said tax in the total amount of P63~105.53. 8.

On April 1, 1980 and April 2, 1980, respectively, petitioners filed with the respond~nt a claim for refund and a supplemental letter thereto in the total amount 'of F'63,105.53 r~ epr·esen ting overpaid br·a nc h pr·of it remittance taxes of petitioner Hya tt Hong Kond Limited. Since respondent, within the presc r· .i pti ve period, has not acted favo~ably on their claim for refund of the amount of F'63,105.53, petitioners filed with this Court the present petition for r·ev.iew.

The only issue in this case is the proper and correc t tax oase in computing the profit remittance taxes involved in this amended petition for review at the time o f payments on April 13, 1978 and April 23, 1979" Thi s issue is not one of first impression. In Commi ssi oner of Internal R~venue vs .

Burro ughs Li mited and the Court of Tax Appeals, G.R.

No.

66653, June 19, 1986, where the factual setting is s imi 1. ar to that in the case at bar·, the SL1preme

- 5 - Cour·t unequivocally r-uled that under- Section 24 (b) ( 2) of the TaN Code the br-anch pr-ofit r-emittance tax. sha ll be imposed on the pr-ofit 9s:_.t!o-J_S\._U .. Y- ..... r:::gJI!.i. .. t .t.s>.Q __ ~q.r._g_.~.9. and .O..fl:t.

on the tota 1 br-anch pr-ofit o ut of which the r-emittance is to be made in accordance with Bur-eau of Inter-nal Revenue r-uling dated Januar-y 21, .1.980 .if paid befor-e its r-evocation and/or- r-epeal by Bur-eau of Inter-nal Revenue Memor-andum Ci r·cu 1 ar- No.

8-82 dated March .1. 7' 1.982.

Since the br-anch pr-ofit r-emittance taxes involved .i.n t.h.i.s case wer-e paid on Apr-i 1 -:r ·-· ~ 1978 and , Apr·i 1 1979 before the revocation and/or r-epea 1 of Bur·eau of In ter-r1a 1 Rf:?Venue ruling dated J~:-\nuar-y 21., 1.980 on March 1.7, 1982, petitioners Hyatt Hong Kong Limited (Philippine Br-anch) and Hyatt Regency Manila ar-e legally entitled to a r-efund of the aforementioned amount of P63,105.53. As stated by the Supr-eme Court in Burroughs ..

Limited:

We rule in the per-tinent provision Internal Revenue Code (ii) which states:

affir-mative.

The of the National is Sec.

24(b) (2) "Sec. 24. Rates of taH on cor-porations.

•

- 6 - ( b) r·a t.ions.

Tax on foreign corpo-

(2) (i.i) Tax on branch profits remittances.

Any profit remitted abroad by a branch to its head office shall be subject to a tax of fifteen per cent ( 15%) H : ·~ :<

• I I

In a Bureau of Internal Revenue ruling dated January 21, 1980 by then Acting Commissioner of Internal Revenue Hem.

Efren I.

Plana the afor·equoted provision had been interpreted to mean that "the t.a:-:

base upon which the 15% b1···an c h profit remittance ta:-: ,., :<:·:shall he impos;ed :-:

:-:

:·: (is) the profit ?..«;.1!::~~ -U.Y remitted abroad and not on the total \ t;-~~-~ ·~h·--prof its out of which the ;~· emittance is to be matjef."

Th::= said ruling is hereinbelow quoted as follows: "In reply to your letter of November 3, 1978, relative to your query as to the tax bas e upon which the 15% branch profits remittance tax provided for under Sec tion 24(b) (2) of the 1.977 Ta:< Code shall be imposed, please be a d v ised that the 1.5% branch profit tax shall be imposed on the branch profits actually remitted abroad and not on the total branch profits out o~ which the remittance is to be made. Please ingly."

be guided . accor·d - Applying, therefore, the ruling, the claim of private ( Burr·oughs L.imi ted) -1:ha t it overpaymt-:m t in the amount of which is the difference aforequoted respondent made an P1.72,058.90 between the remittance tax actually paid of •

- 7 - F' 1 ~ 14 7 ~ 058.70 and the remittance ta:·: that should have been paid of F'974~999.89, '''.!'.' , ... ,,,, is welJ. --·taken.

respondent Court sian - As in correctly held by its assailed deci- "Respondent concedes at least that in his ruling dated January 21, 1980 he held that under Section 24· (b) ( 2) of the Tax Code the 15% branch profit remittance tax shall be imposed on the profit e.<; .. i:..l::.!.£.J.J:.Y .. _r_~m.;i,., . .!;,j.~d 9l>r..9..§l. .. Q.

and O.Q.t on the tota 1 branch profit out of which the rem.i. t. tance is to be made. Based on sue h ru 1 ing pet.i t.ioner shou 1 d have paid only the amount of F'974,999.89 in remittance tax computed by taking the 15% of the profits of F'6,499,999.89 in remittance ta:·: actually remitted to its head off ice in the United States, {nstead of F'1,147,058.70, on its net profits of F'7,647,058.00.

Undoubtedly,peti- tioner had overpaid its branch pr-ofit r· ~n.i>t tance t~;~ in the amount of F'172,058.90." F'eti tioner (Commissioner of In tern a 1 Revenue) contends that respondent is no longer- en tit 1 ed to a r-efund because Memorandum Circular No. 8-82 dated March 17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1980. The said memorandum c:irc:ular states - the "Considering that branch profit remittance imposed and collected at necessarily the tax base be the amount actually 15% is taN source, s'hould applied •

- 8 - for by t.he branch with the Central Bank of t.he Philippines as pr-ofit to be remit ted -abroad. 11 F'eti tioner' s afor·esaid contention is without mer··it.

What is applicable . in the case at bar is still the Revenue Ruling of January 21, 1980 -· because private r- e ~;ponden t Burroughs Limited paid the br-an c h pr-ofit renli ttance ta:-: in question on tL~r.::.~ ~L_J _ _4_, .......... J .. ~_?-~. Memorandum C i r c ul a r No.

8 -·82 dated -March 17 ~ 1982 cannot be given retroactive ef feet in the 1 ight of Section 327 of the National Internal Revenue Code which provides - 11 Sec .

32 7 .

N qJJ_:::r.:_~_t_r_::_g_~!;_!; i y:J,J:._y_ g_'f ______ r_\,._t___!_J,_o__g_§. • An y rev o c a t i on ~ modification~ or revers a 1 of any of the rules and regulations promulgated in accordance with the prec€~d ing section or any of the ruling s or circulars promulgated by the Commissioner sha ll not be given retroactive application if the revocation~ modification, or reversal will be pre judicial to the taxpayer except in the following cases (a) whe re the taxpayer deliberately misstates or omits material fac ts from his return or in any doc:ume n t required o ·f him by the Bur-eau o ·f Internal Revenue;

(b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based, or (c) where the ta:-: payer acted in bad faith. 11 (ABS CBN Broadca sting Corp.

v.

CTA 108 SCRA 151-152)

The p re j~Jice that would re~ult to private respondent Burroughs Limited by a retroac:t~ve application of Memorandum 3 • DECISION CTA CASE NO . 3076 .:.

- 9 - Circulatr· No.

8 -·82 is beyond question for it would be deprived of the s ubstantial amount of F'172~058.90.

And~ insofar as the enumerated e:-:cept.ions are concerned~ ad mittedly~ Burroughs Limited does not fall under any of them. We see no significance in respondent's special and a f ·firma t.i. ve defense that the 11 refund of the ta:·: under O.R. No. 28538996 dated April 3, 1978 (in the amount o ·f F'16,35~5.67) has a 1 rea.dy pn:?sc r i bed 11 , apparently because the petition fer review was a mr:mded on April 17, 1980. The or ig ina 1 petition ·for· r·eview was filed on April 1, 1980. The rule has been established that where an appeal is filed with the Court of Tax Appeals in connection with a c laim for refund of an internal revenue tax and the peti t.i.on fot review is later amended~ the two- year period .i.s sus pended from the date of filing of the original petition for review~ not from the date of f i 1 ing of the amended peti ticm ·for.. review.

(Cebu Portl a nd Cement Co .

v s .

Collector of Internal Revenue, L-20563, Oct. 29, 1968, 25 SCRA 789.) ACCORDINGLY, res pondent Commissioner of Inte rnal Revenue i s hereby o r dered to refund to petiti oners Hya tt Hong Kong Limite d (Phil i ppine Branc h) a nd Hya tt Re g e nc y Manila the amount of •

- 10 - P63,105.53 representing overpaid branch profie remittance taxes paid in 1978 and 1979.

WE CONCUR:

I C. ROAQUIN ,Judge z~ AMANTE Presidi.

C E R T I

F I

C A T I

0 N

cel~ ti fy that this decision was reached after due consulta~{on among the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. u ~5 AMANTE F'residi g Judge Court of Tax Appeals