CTA Case No. 3657

DEC ISION

CTA CASE NO. 3 6 57 - 2 - c o n s ideration thereof, the GFC-Phils.

will pay roya lties to pet~tioner equal to the sum of 1 1/2 % (E x h. A- 1) of GFC- Phils. gros s s ales . The for e going agreement is valid for a period - ..

of five (5) years or until October 4, 1979. Prior to the e >:piration of the s ubject agr-e e me nt GFC- F'hil s . applied for the renewal and r e gistration of the licensing agr-e eme nt with the Tec hnology Tran s f e r Boa rd (TTB), in a ccordanc e with Sec ti o n 5 of P.D. 152 0 "r··equiring r e gistration of t ec hnolo <:.lY tra n s f e r a r-r a nge ment e ntered into d.i.r-ect. J.y o r- i nd i r··ec: tly lo'Jith foreign companies or- ·f o r-e ign o wn e d compa ni es ". Pe nd i ng appr·o v a 1 of the a greement GFC- Phi 1 s . acc rue d r oya lty payabl e to pet i tione~ for the qua r-t e r· e nded Marc h 3 1., 198.1 to Fe bruary 1982 the total a mount of F'630, 332.27, and withhe ld a nd pa id ta>:es the rein amounting to F'220 , 6.16. 2 9 based on the .1 1/2 % of GFC- Phils. gross sa l es .

On July 2 2 , 1981, the Technology Transfer Boa rd (TTB) appr·ove d (E>:hs .

B 8.~ D), the s ubject agreement r e duc ing the royalty pa yment to 1% of GFC- Phil s . n e t s ales .

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DECIBION --

- 3 - Conse quently, petitioner through its external auditor filed on June 30, 1983 a written claim for ta:·:

r··e ·fund/cr·edit (Exh. ~l) ·for over-paid taxes on royalty withheld at source amounting to P81,522.98. The issues presented for determination are as f 0 l 1 01-'IS ~ 1!-J-ETI·-ER F'ET I TI Cl'-ER IS 00 IlLED TO F"\f.:Fl.ND

I:F TAX

CF-£D IT IN ll-£ N"'. .. NT CF F'Bl , 522. 98 F"\f.:F'FESENTI!\13 Pi.LEEED av'EF:PAID WilHO .. .DII\13 TAX AT sar~ CJ\1 F.:EDI .. l:I:TI F-.1JYPi._ TY I:F .1.% Ft.F:8L.r-NT TO "Jl£ F€QJih£J"ENf CF TI·£ TEO-NJ..LBY Tr~ E00F<f) PM> I\OT CJ\1 1. 1/2"/. f..QYPi .. TY PCTIX~LL.Y F-£MITTED BY IXN FOOD H-IILS. 1!-~··ETI-ER ll£ RIG-IT TO Will+£LD TAX AT SO...F.'CE CF 35/. f.l\J .1. 1.12"1. f..QYPi ... TY ATTAO·£IT.AT TI-E TII"E CF PCCFi.r-L, OR AT ll£ Tit1::: lF PCl1.J)4_ PAYJVENT CF< F-.8'1IlTPN.."E ll-£RF:.CF.

We will take up these issues at the same time. Under the Tax Code, a foreign corporation not enqaged in ··:rade or business in the Phi 1 ippines is subject to lax at the rate of 35/. of qross income received fnJrn all soLwces within the Phi 1 ippines such as royalties under Section 24(8)(1.) of the Tax Code.

The Tax Code in Section 53(b) also requires corporation in whatever capacity acting having control of royalties to deduct and withheld the tax due t.her··eon.

And finally, the Tax Code, under Section 54(b), requires a written statement of the

5. ') L 1-..-

DECISION ·····

-· 4 - r··oya l ties paid and the d e duction of the t.a}: due t.her·f?on.

The GFC--F'hi 1. s. had wi thhe 1 d a nd deducted 35% of the 1 1/2 % royalties to the General Foods - .:.

Cor·pora tion.

Petitioner, howe ver, is of the opinion that .it is entitled to refund of the amount of F'81,522 .98, representing alleged overpaid withholding tax at soLu ·-ce em the bc":\si s of the appr·ova 1 of the GFC-- F'hil s .

of the application for registration of technology tran s f er by TTB, which reduced the base of r o yalty from 1 1/2% of the gross sa les to 1% of net. sa l es.

It. will bf.~ nob:?d that. at the time subject royalties were accrued, a nd that is from Marc h 3 1, 1981 to Februar··y,

1982 ,

the application for technolo<;JY tr-ansfer· was sti ll pending be ·fore the Tec hnology Transfer Board of the Ministry of Trade unt i l its final ~3 pproval on July 22, 198.1, their agreeme nt · ~ s amended as approved by the Technology Tran s f e r Board stating among others "To reflect in Ar·tic le 6 of the Fourth Amendment to the Licensee A<;J r·eernent" that Licensee shall pay to General Foods Corporation, the pet.i ti.oner· , for all the benefits - -

DECISION ····

- 5 - ac:cor·ded to

1. icensee ( Get1. Foods-Phi 1 s. ) a roy a 1 ty equal to the sum of 1% of Licensee's net sales of the products.

D, p . .. : 30' CTA rec. ) .

According 1. y, the roy a 1 ty that should be returned and paid as 35% w.i.thholdir~ tax from March, 1981 to J anuar··y - February,

1. 982 shou J.d be the sum of 1% of Gen. Foods- Phils. net sales and should be withheld at the time of payment of the tax. Of th e indicated overpayment of P81,522.98, hoviE~ver· , thE:? amount. of P7,825.67, corr·esponding to the quarter ended March 31, 1981, was paid on April 27, 1.981, or a lapse of over two years before the claim for refund was filed on June 30, 1983.

Hence, this amount cannot be refunded.

Consequently, we hold respOndent should grant a claim for or· cr·edi t of P73, 697.31.

as overpaid royalty for the period from June, 1981 to Jan. - Feb., 1982, computed as follows: II Yg9..r.

1981 June P21,.158.07 September 16,998.40 December 27,275.01 1982 -~Jan. -Feb.

Tax Refundable/Credit

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WHEREFORE, respondent Commissioner of Internal Revenue is hereby ordered to refund/credit to petitioner General Foods Corporation the sum . of P73 ,697.2l.

Without pronouncement as to costs.

WE CONCUR:

a:~i:?/ F'resid i. g Judge 5 ~ .

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DEC IS I UN ···

- 7 ·- C E R T I F I C A T I 0 N I hereby certify that this decision was reached afte , due consultation among the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. 5 ~6

AMANTE F

Presidin Judge Court of Tax Appeals