CTA Case No. 4129

DECISION

- 2 - the gross peso value of every sale or purchase of fot~e i gr·1 exchange by banks ~-~hi ch We Cluot e in fuJ. J., as follO::•WS:

SUBJECT:

T 0

"Republi c of the PhiJ.ippir1es Ministry of Finance

BUREAU OF INTERNAL REVENUE

Quezon City O cto bet~ 1E:, 1'381.~ REVENUE REGULATIONS NO. 16 - 84 Imposition of Addit iona l One Per Cent <1~> Tax on the Gross Value Received by Bar1ks, Non-Bank Financial Intermediaries and Authorized Foreign Exchange Dealers. All Internal Revenue Officers and Others Concerned.

Purs uant to the prov ision of Section 326, in relation to Section 4 of the National Internal Revenue Code of 1'377, a s a mended, these Reg1.1lat ions a~~ e het~ eby pt~ omulgated to gc•vet~n the mannet~ of imposition of the additio:•nal tax qf or1e pet~ cent <1~ ) o n the sa le or purchase of foreign exchange by banks, non- bank financial int ermed i aries and other authorized foreign exchange dealer s . SECTION 1.

Tax on foreign exchange tt~ ansactior1s.

Ar1 additior1al tax of or1e per cer1t ( 1 ~ ) sha 11 be imposed or1 the gt~ oss va 1 ue of every sale or purchase of foreign exchange by all banks, non - b ~nk financial intermediaries and other aut horized foreign exchange dealers.

SECTION base.

Fa t~ peso value 2.

t"1ar.rret ...

c•f cc• rn putat ic•r• r:•f ta>< purposes of determining the gross of every sA le or purchase of 186

- 3 - foreign eM c h a nge such v alue shall be computed by applying t he offici a l rate o f ex c hange betWf?.en the Philippine peso ar-,d the fot~ eign currency that is prevailing on the date of the actual consummation of the sale or purchase. I y-, the case of sa 1 e of fo::•t~e i gn exchange arising from export proceeds and other inward remittances, the gross value shall not be diminished by commissions paid, document a ry stamps and other charges incurred on s uch transactions.

Similarly, in the case of foreign exchange licenses to cover imports and other outward remittances , the gross value shall not be ir-,ct~ eased by cc•rm11iss ions paid, documentary stamps and other charges incurred on such tran s actions~ SECTION 3.

Time of decl a ration and payrner-,t of taxes.

The tax impos ed o::•n the fc•t~ e i gn e><change, t t~ansact ed with i y-, one week, sha 11 be payab 1 e on the f tt~st bank i ng day of the succeeding week and it shall be the duty of every bank and non-bank financial i r-,t et·'med i at~y and aut hot~ i zed fot~ei ~Jn exchange dealer to make a true and complete return <B. I.R. Form No.

) of the value of foreign exchange s old or purchased during the week and pay the tax due thereon. SECTION 4.

Penalties .

(1) Failm~e to file ar-,d pay the t ax . If the required return i s not filed or the tax n o t pa id within the time speci fied by law, the a mount of the tax shall be increased by t wer-,t y -- f i ve pet~ cey,t ( 2 5 i0 , f o t~ rn pat~ t of the tax and amount sha 11 be co 11 ect ed the i nct~ emeY,t to the entit~ e unpa id i y, the same ma y-,r-,et~ as the tax.

(2) Willful neglect to:• file, ot~ false ot~ fra udulent return .

In case of willful neglect to file the returns wi thin the period s pecified by l aw, or in case of fa l se or fraudulent return is willfully filed, there shall be added to the tax or to the deficiency tax in cas e any payment has been made on the basis of s uc h t~ettn~n befot~e the discovet~ y of the fa 1 sit y ot~ ft~ aud, a sm~charge of fifty (50i0 of the amount . The arnc•unt S(::t added to 187

1985, - 4 - any tax s hal l be collected in the same manner and as part fo the tax unless the tax has been paid befot~ e thP discovet~y o:•f the fal s ity ot~ fraud, in which case, the a mount s o added shall be collected in the same manner a s the tax.

In add it ion to the i':l.bove adrnir-,i s tt~ at ive penalties, the cri minal and civil penalties as provided for under Section 337 of the Tax Code of 1977 shall be imposed. SECTION Repealing c 1 a use.

All regulations, rules, orders or portions thereof whi c h are inconsistent with the provisions of these Regulations are hereby revoked. SECTION Reg u l at i or-.s 5 .

shall Effectivity.

take effect exchange transactions effected These on fot~ei gn beg i r-m i ng Oct o b et~ 15, 1984.

RECOMMENDED BY1

<St3D. )

RUBEN B. ANCHETA Act i ng Comm iss i onet~" < SGD. )

ALFREDO PIO DE RODA

Acting Minister of Finance F•:•t~ the pet~ iod ft~o:•m O ctobet~ 22, 1984 to Jar-.uat~y ;;::, pet .it i or-. et~ paid a total of P9, 5E,8, 7'+9. 28 representing the additional 1~ t ax on gross value received from the sa l e or purchase of foreign exchange. Aside from the additional 1 ~ tax, banks like the pet itioner were also required to pay the percentage tax on gross receipts pursuant to Section 250 (now 119 ) of the National I y·,t et~na 1 Rever-.ue Code, as a mended by 188

- 5 — Presidential Decree Ne. $1739, effective September 17, 1980, Sectian &60 (c) impeses a tax of S% an the gross receipts derived by all harks om profits from exchange transactions within the Fhilippines,.

On January £1, 1985, petitisner paid its grass receipts tax for the fourth quarter of 1984 amounting toa PiG,408,162.93 pursuant to Secticon 260 (Exhns.V¥, V~-i and V-2). Qn February €0, 1985, petitioner paid additional gross receipts tax for the year ending December Gl, 1984 amounting to F47,899.66 (Exhs. T, T-1 and T-&).

Or September 16, 1985, the Bureau of Internal Reverme thru Revenue Memorandum Circular Neo. 39-85 published additicanal questions anc answers oon the interpretation af the previsions af the Tax Code as implemented by Revenue Requlaticans Nea. 16-84. The pertinent interpretation of Rev. Reg. Ne. 16-84 insofar aS applicable prevides:

Questicnm Gl. - Without charging grossed— up rates, car financial institutions be allowed to report for gross receipts tax and net ivcome tax purpeses anly the actual amount earned, without adding the 1% tax assumed by the client?

Ars. ~ Yes. There will be ne pyramiding af the 1% tax passed om to the client for the financial institution. Or May ee, 1986, petitioner relying om Rev. Meme.

Cir. Ne. 39-85 filed a claim for refund with respondent DECISION CTA CASE NO. 4 129 - 6 - <Exh. U>.

It alleged that the 1% additional taxes paid of its gross receipt s subjected anew to the 5 % bank tax pursuant to Section 260 (c). In other words, the gros s receipts was overstated by P9,568,749.28. Neces s at~ i 1 y, the 5'1- tax P9,568,749.28 P478,437.46 was erroneously paid by petitioner following the interpretation placed by respondent on Rev. Reg. No 16- 84 through its Rev. Memo. Cir. No. 39- 85 particularly Question No. 31 thereof. As of pres ent time, respondent has not acted upon petitioner's claim for refund of P478,437.46 on the alleged excess 5% gros s receipts tax for the fourth On .Tar••-t a t~ y 19, 1987, petitior.et~ filed the instant petition for review pursuant to Sections 2 9 2 and 295 (now 230 and 204) of the National Internal Revenue Code, as amended. In his answer, respondent contends that petitioner failed to support by evidence payment o f th e additional 1% tax totallir•g P9,568,749.28.

to respondent's claim, after examining the records, found that petitioner was able to prove payment of at least P9,229,054.35 (Exhs. A - S- 2, inclusive, pp.

65- 102, CTA rec. ).

However, payment made on January 2, 1985 amounting to P339,694.85 was not presented as part 190

- 7 - of petitioner's evidence. Therefore, the same cannot be Petitioner also presented proof that the additional 1~ tax was added as part of the gross receipts of petitioner for the fourth quarter of 1984 <Exhs. X, X-1, There is no dispute that the 1~ tt~arrsact ion taxes paid wet~e indeed irrcluded irr th e cc:.rnputatir:•n of the 5~ bank tax.

The ct~ucial questiorr which has to be t~ esc•lved is whether or not the additional 1~ tax should be added as of the 5~ bank tax.

We hold that it should be included as pat~ t of the gross receipts subjected to the 5~ bank tax. The 5~ bank tax under Section 260 is based on the t~ecei pts 11 det~i ved sout~ ces within the Philippines.

The t errn "gt~oss receipts" was i rrt et~ pt~ et ed to mearr "the whole arnourrt t~eceived with o ut deductir:•ns, 11 otherwise, it wi 11 be cc•rrs idet~ ed a 11 Y"ret receipts 11 • <National City Bank of New York v.

Commissioner of Internal Revenue, BTR Case No.

5 ·;:)

""'"' July 12, 1952. )

Though the t e t~ rn 11 grc•ss receipts 11 ord i nat~ i 1 y rnearrs the arnoLmt collected arrd Lmcollected of all the sales, orr which amourrt the must be computed 191

- 8 - det et~m i r.e the tax. <Eppstein v.

State, Tex., 138 S. W.

1 u ::4 , 1125.

It i s neoteweot~ thy t o stt~ess that the additional 1'1- liability impc•sed c•n the bank. If the 1'1- transaction tax is shifted by the bank to its clients then the 1'1- tax collected ft~orn the c1 ients st i 11 fot~m pat~t of the gross receipt s of the bank because what was received was actually earned and should be treated as income~ Section 260 provides for the basis of computing the 5'1- bank tax, that is, the receipts der ived by all banks business i rt the Philippines d i SCO::ol .. lrtt s, dividends, corm11 iss i orts, t~ oya 1 ties, and Sect ior• 29 (b) defi rtes as to "i rtc 1 ude gains, det~i ved pt~o fe ss ions, vocations, business, co:::ornrnerce, property or any interest therein; and from interest, rents, dividends, securities, eor the transactions of any business carried on for gain or profit, 182 - 9 - s c~_t!:£.~. · •' Ir.stead eof the bank burden was ·Shifted teo the clients.

As such, the additior.al 11- tax chat~ged by petitior.et~ to its clients at'e actually gair.s eot~ ir.corne of the bank. <W.r•Q.!'!J::: ... L~...Dir:!.!l revenue laws are given great weight.

<Mol ina v.

Rafferty, 37 Phil. 545; Madrigal and Paterno v. Rafferty and Concepcion, 38 Phil.

414; People v.

Hernandez, 59 Phil 272; Anderson v. Posadas, 66 Phil. 205.) Howevet', this pt'inciple is r.eot absc:.lute. It may be o:•vet'come by T h us, i f t h t' o ugh a r•lisappt'ehensio:•r• of the law ar• officet' (in this case respondent> has erroneously executed it for a long time, the error may be corrected when the true construction is Ir.cider.tally, the doctt'i ne of estoppel does neot app 1 y het'e. (Phi 1 i ppi ne Long Distance Telephone Co., v. Collector of Internal Revenue, 90 Phil. 674.) Ir.

th~ case at bat' , the ir.tet' pt'etatieon placed by respc•r•der.t eoh Rev.

Reg.

No.

16- 84 tht'cough Rev.

Memo:•'.

Cit'.

Neo.

39- 85 pat' ticulat' lY ar.swet' tc• questior• no.

31 thereof is not in consonance with the provisions of Sections 260 and 29 (b) of the National Internal Revenue Code.

The of ar.

officet' chat'ged with th e duty cof 193

- 10 - given effect.

Fi ndir•g r,o legal bas is teo supp cq·~ t the interpretation of respondent in Rev. Memeo. Cir. No:r.

39- 85 question r•o:•.

31 it feollo:rw s that such ir,t en~pt~etatic•n of Rev.

Reg.

No:•.

15- 84 dc•es r•c•t have the feot~ce and effect cof law.

Claims for refund are in the n ature eof claims fo:rr exemption ft~eo m tax at i c•r,.

<Commissioner of Internal Revenue v. Ledesma, 31 SCRA 95; Resins, Inc. v. Auditor General, 25 SC RA 754.) When exemption frorn taxation is c la i r11ed, it must be shc•wr' ir,dubi tabl y t c• exist.

The pres umpt ion is al ways against any surrender eof the taxi r,g p eo wet~ .

<Mol ina v.

Rafferty, supt~~. > As such, exemptic•n " cannot be allowed unless gt~a nted ir, the mc•st explicit ar,d categc•t~ical lar,guage".

<Resins, Inc.

v.

Auditor General, Commissioner of Internal Revenue v. Guerrero, 21 SCRA 180; Republic Flour Mills, Inc. v. Commissioner of Internal Revenue, 31 SCRA 520;

Union Garment Co., Inc. v. Court of Tax Appeals, 4 SCRA 304.)

The law does no:rt leoeok with favor a tax exemption ar1d that he wh•:• wc•uld seek tc• be thus privileged must justify it by WC•t~ ds too plair1 tc• be mi staken ar1d toe• cat e g eot~ i ca 1 to be misinterpreted.

<Reagan v.

Commissioner of Internal Revenue, 30 SCRA 958;

Wonder Mechanical Engineering Corp.

v.

CTA, 54 SCRA 555;

Commissioner of Internal Revenue.

v. P. J. Keiner Co.,

- 11 - Ltd., 65 SCRA 143; Manila Electric Co. v. Vera, 67 SCRA 351. )

In view of the fcq·~egoir.g, this cotwt is of the opinion and so holds that the additional 1~ tax paid by Rev. Reg. No. 16-84 was rightfully included in its gross receipts for the period for purposes of computing the 5~ bank tax under Section 260.

WHEREFORE, f i r•d i r.g the instant petit i or• fm~ t~ev i ew the san1e is DISMISSED.

Petit ior.et~' s claim for t~efur.d of 5~ gt~oss t~ ecei pts tax for the fourth quarter of 1984 amounting to P478,437.46 ·is thet~efor DENIED. Costs against petitioner.

I CONCUR:

~~~ .. ~ ERNESTO D. ACOSTA Presidir•g Judge 195 ~ - fft t;r--.

TANT¢ C. ROAQUIN Judge

CERTIFICATION I hereby certify that this decision was reached after due ceomsultation between the members af the Court of Tax Appeals in acceardance with Section 13, Article VIII of the Constitution.

Quuw 2. GraPe ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals 196