Court of Tax Appeals
0Warner-Lakbert Co. Inc. vs. Commissioner of Internal Revenue
' .
REPUBLIC OF THE PHILIPPINES
COURT OF TAX APPEALS
QUEZON CITY
WARNER-LAKBERT CO. INC.,
Petitioner,
-
versus -
C.T.A. CASE NO. 3914
COMMISSIONER OF INTERNAL
REVENUE,
Respondent.
X
-
-
-
-
X
D
E
C
I
I
0
N
The
petitioner
is
a
domestic
corporation
organized
and
existing
under
the
laws
of
the
Philippines and
is engaged
in the manufacture and
sale of
c~rtain pharmaceutical,
health-care
and
confectionary products under different trademarks.
In regard
to the first cause
of action, the
evidence shows
that petitioner
has been granted a
license by Warner-Lambert Company, U.S.A.,
<Warner-
Lambert U.S.A.
for short),
a non-resident foreign
corporation,
to
manufacture
and
sell
products
bearing
the
trademarks
owned
by
Warner-Lambert
U.S.A., as
shown by
their agreement,
executed on
April
1,
1979
<Exhibit
"A" ) ,
as
well
as
a
Certificate
of
Registration
issued
by
the
Technology
Transfer
Board
<Exhibit
"A-1">.
Petitioner was
also obligated
to pay royalties to
Warner-Lambert U.S.A.
pursuant to
the
agreement.
530
DECISION -
- 2 - These royalties amounted to P466t344.00 £or the period January 1983 to March 1983.
Petitioner deducted and withheld 35Xt or the amount £rom the said royalties o£ P466t344.00 as withholding text and remitted the same to the Bureau o£ Internal Revenue <BIR;
Exhibits "B"t "B-1" and "B- 2">. With respect to the second cause o£ actiont it is shown that petitioner is a trans£eree o£ a license granted to Parke-Davies & Co. Inc. <Parke- Davies £or short> by Parke- Davies & Company U.S.A. <Par ke - Davies U.S.A. £or short) t a non-resident £oreign corporation.
Pursuant to their agreement executed on March 21t 1979 <Exhibit "D" > t the assets and obligations o£ Parke-Davies were assumed by petitioner in 1980 and petitioner was also obligated to pay royalties to Parke- Davies U.S.A. which amounted to P679t014.00 £or the period Januar y 1t 1983 to March 31t 1983.
Petitioner deduc ted and remitted to the BIR 35X o£ the said royaltiest or P237t654.00t as withholding ta~ at source. <Exhibits "E"t "E- 1"t and "E-2"> In both the £irst and second causes o£ actiont petitioner now claims that it should only deduct and pay 25X withholding tax on the royaltiest not 531
- 3 - 35Y. thereo£, as was erroneously done.
Hence, it sought £rom respondent tax credits in the amounts o£ P45,534.40 and P67,901.40 under the £irst and second causes o£ action, respectively, or a total o£ P114,535.80, as erroneously paid withholding taxes.
The £ormer amount o£ P45,634.40 is the di££erence between P153,220.40 (35X o£ P455,344) actually remitted to the BIR and 25X o£ P466,344 which is allegedly the correct amount to have been withheld and paid to the BIR~ and the latter amount o£ P67,901.40 is the di££erence between P237,654.90 (35Y. o£ P679.014> which was also actually withheld and remitted to the BIR, and 25Y. o£ P679,014 which is allegedly the correct amount to have been withheld and remitted to the BIR. The instant petition was £iled to toll the 2- year prescriptive period, respondent not having acted on the claim £or tax credits in both instances.
The only issues are:
1.
Whether or not petitioner is entitled to the tax credits in the total amount o£ Pl14,535.80 <P46,634.40 + P67,901.40>, representing alleged overpaid withholding taxes at source on royalty payments under the £irst and second causes o£ action~ and 532 -·
- 4 - 2.
Whether or not petitioner is the real party-in-interest or has legal capacity to sue in the instant petition £or tax credits.
The Court £inds £or petitioner. 1.
In regard to the £irst issue, it has been established, and it is in £act admitted, that the amounts o£ P466,344.00 and P679,014.00 remitted by petitioner to Warner-Lambert U.S.A.
and Parke- Davies, U.S.A., respectively, were royalties.
It is expressly provided under Article 13 o£ the Convention o£ the Government o£ the United States o£ America and the Government o£ the Republic o£ the Philippines with Respect to Taxes on Income, e££ective January 1, 1983, more particularly on royalties, that "25 per cent o£ the gross amount o£ the royalties" will be the tax imposed.
The pertinent portion is quoted: "1.
Royalties derived by a resident o£ one o£ the Contracting States £rom sources within the other Contracting State may be taxed by both Contracting States.
2.
However, the tax imposed by that other Contracting State shall not exceed <a> In the case o£ the United States, 15 percent o£ the gross amount o£ the royalti~s, and (b) In the case o£ the Philippines, the least o£:
533
\ \
- 5 - . .L!...t __ 2q__p_~_:r._qe~ t o ;t_ t h~ g r o as ·--~mount o ~ :!:_h.l§?_ .. I..Q.Y..<\l_J:.. t t.~ .~_,__ (ii) 15 percent o£ the gross amount o£ the royalties, where the royalties are paid by a corporation registered with the Philippine Board o£ Investments and engaged in pre£erred areas o£ activities, and (iii) The lowest rate o£ Philippine tax that may be imposed on royalties of the same kind paid under similar circumstances to a resident o£ a third State."<Emphasis SURplied. > Additionally, respondent admits paragraph 8 o£ the subject petition, citing BIR Ruling No. 149, dated August 25, 1983, con£irming that royalty ~ayments are subject to only 25Y.
thereo£ a£ter January 1, 1983, the pertinent portion o£ which is likewise quoted:
XXX XXX XXX "In reply, please be in£ormed that under par.
( 3 >, Article 13 o£ the RP-US Tax Treaty, the term "royalties" as used therein means payments o£ any kind received in consideration £or the use o£, or the right to use any patent, trademark, design or model, plan, secret £ormula or process o£ other like right or property, £or in£ormation concerning industrial, commercial or scienti£ic experience.
Accordingly, under the £oregoing facts, the technical service £ee is considered as royalty.
Pursuant to Article 13(2)(b) o£ the RP-US Tax Treaty;
i~e gross a~ount o£ -~~~~ ro~lty i~L_§_ubj ec.;:t to _t.h~:?5Y. __ w:!-thholding tax 534 -
- 6 - a£ter January 1, 1983 when the RP-US Tax :rreaty -t;.ook e££ect. _ <Emphasis supplied. > Very truly yours, <Sgd. > RUBEN B. ANCHETA Acting Commissioner Bureau o£ Internal Revenue" This Court, there£ore, sustains petitioner's contention that the royalties remitted to the said two non-resident corporations are subject to only 25X withholding tax.
With respect to the second issue, recent Supreme Court decisions, more speci£ically Co~~~ssioner o£ Internal Revenue v.
~curt o£ Tax ~~als and Hawaiian- Philippines Co., GR No.
939.01, dated February 9, 199~ and Comm~ssioner o£ ~nt~~nal Revenue
v. Procter & Gamble Corporation, dat~_!:f December 2 .t.__!99!.
(setting aside an earlier ruling in the same case, 166 SCRA 560 [ 1988]), clearly held that a withholding agent is a real party-in-interest and has legal capacity to sue £or re£und o£ taxes or £or a tax credit.
The withholding agen~ is properly considered as a taxpayer, having an obligation to pay the withholding tax, which obligation is a personal, direct and independent liability o£ the withholding 535
- 7 - agent.
Being statutorily liable £or the tax, he ~hould be regarded as a real party-in-interest to bring the suit £or re£und o£ the tax or issuance o£ a tax credit certi£icate.
WHEREFORE.
judgment is hereby rendered in :favor o:f petitioner, ordering respondent Commissioner o:f Internal Revenue to issue to petitioner a tax credit certificate :for the total amount o:f P114.535.80 <P46,634.40 + P67,901.40) as overpaid withholding tax at source. No costs.
SO ORDERED.
Quezon City, Metro Manila, August 6, 1992.
I CONCUR:
cz~~Q.~'"" ERNESTO D. ACOSTA Presiding Judge 536
- 8 - C E R T I F I C A T I 0 N I hereby certi£y that this decision was reached a£ter due consultation between the members o£ the Court o£ Tax Appeals in accordance with Section 13, Article VIII o£ the Constitution. 537 Presiding Judge Court o£ Tax Appeals