Conpania General De Tabacos De Filipinas <Phi1ippine Offices Peti "Lioner, vs. The Cohhissioner of Internal Revenue

DECISION -

- 2- Incore Correct Overpaid Year Branch Profits Remittance Date Branch Profits Subjected to Resittance Remittance Earned (Gross) Tax Paid Paid (Actually Remitted) Final Tax Tax Tax 1980 PLL, 266,175.31 P1,689,926.29 2/07/84 P 9,576, 249.02 P 782,042.92 Pi,319,130.92 P 370,795.37 1981 11, 839,681.41 1,775,952.21 4/10/85 10,063, 729. 20 287,257.74 1,466, 470.72 309, 481. 49 1982 10, 663,298.95 1,599,494.84 4/10/85 9,063,804. 11 305,616.33 = 1,313, 727. 66 285, 766. 98 1983 _17,860, 260.11 _2,679,099.01 4/22/85 15, 181, 22).10 529,306.23 2, 197, 787. 23 481, 251.78 TOTAL P51,629, 415.78 P7,744, 412, 35 P43, 885,003.43 Pl, 904,225.22 P6,297,116.73 Pl, 447, 295.62 Thereafter or on April 8, 1987, petitioner filed another request for the refund of P321,6935.40, this time for the yeara 1984 and 1985, details of which are shown below:

Correct Overpaid Year Branch Profits Remittance Date Branch Profits Rewittance Earned (Groge) Tax Paid Paid (Actually Remitted) Tax 1984 P 4,614,723.34 P 692,208.49 8/04/86 P 3,922,514.85 P 588, 377. 24 P103, 631.25 1985 _ 9,680, 164.96 _1, 452,027.75 8/04/86 8, 228, 157, 25 1, 234, 223.60 217, 804. 15 TOTAL P14, 294, 908.30 P2, 144, 236. 24 P12, 150, 672. 10 Pl, 822, 610. 84 P321, 635. 40 Since respondent has not acted on petitioner’s Sequenst, the latter filed the instant petition on April = 1987 to interrupt the running of the prescriptive period for claims for refund.

The issues raised before this Court are:

ly Whether or not the right to eliaim For refund of payments has already prescribed; som

2. Whether or not the petitioner rs legally entitled to the refund of the total amount of Pi, 768,931.05 on alleged excess branch profit remittance taxes paid during the years 1980 to 1985.

Respondent, in his angsver, and by way of special

DECISION ·-

C.T. A.

No. 4141 - 3 - and affirmative defenses, alleges among others, that "the right to claim for refund of payments mad e prior to Apr il 9, 1985 has already prescribed." <Answer,

P· 2:

C.T.A.

Records, p. 30 >.

Section 230 of th& Tax Code provides: "Recovery of tax erroneously or illegally col! cted No e u · p ooeed ing s hall be maintain d ' n eny court for the r covery of any nation internal venue tax hereafter alleged o have been e roneousl y or illegal y assessed or collected, o of any penalty cl~ ime d to have been collected without author'ty oro any su m alleged to h ve been exoe ~s ·v r in any manner wrongfully collec e , un il a cl aim for refund or credit h as been duly fi l , d w'th the Commissioner ; but be main ·taine-d, penalty, or sum duress.

s uch suit or pro whether or not has been paid under edi ng ma y such tax, :r·otest or In any case, no s u c h s u or proceeding shall be begun e::£ r the lit p ·rat on of two years from the date o payment f the t ax or penalty regardl sa of any supervening cause that may a i e gf er paymDnt xxx."

<Underscoring suppl ied) It is evident th payment m ~d~ pt or to " April 9, 1985, had already prescribed.

The profit remittance tax corresponding to bran c h profi t for 1980 was paid on February 7, 1984.

When this case was filed o~ April 9 , 1987, more than two years have lapsed from the time t h e payment of the tax was made. This Court is now left to decide on t h e correct branch profit remittance taxes paid during the period j' 1 () q ~ ' ·' from 1981 to 1985.

- 4 - Petitioner contends hat he co rect tax base for computing the branch profit remi ance tax is the profit actuall y r emitted abroad ne t of income already subjected to final ta~·t.

To support i ts contention, petitioner brought t o he e tention o£ ·hi e Court , B.I.R.

ruling dated Janua r y 2 1, 980 and the ee w~ , .... Commissioner o:f Internal R venu vo.

Burroughs Li it~d (142 SCRA 324> wherein the Supreme Caurt held that1 " n a ur u of Inte rft ~ l venue ruling d~ted Januar y 2 ~ 980 y · her1 Acting Co10missiou •r C' In . rr1 . l Rev -rJ e Ht~n. Ef :n?n I.

Plana the afore quo e provision had be en interpreted to mean that the ' ta x base upon which the 15X branch profit remittance tax xxx shall be imposed xxx (is) the profit ac~ually remitted abroad and not on the total branch profits out of which the remittance is to be made. ' The said ruling is hereinbelow quoted as f o llows~ 'In reply to your letter of November 3, 1978, relative to your que r y as to the tax base upon which the 15X branch profits remittance tax provided for under Section 2 4 <b><2> of the 1977 Tax Code shall be imposed, please be advised that the 15X branch profit tax shall be imposed on the branch profits actually remitted abroad and not on the total branch profitq out of whi c h the remittance is to be made. Please be gu 'ded accor ·dingly.' :~If· • " ·, ftpplying , therefore, the aforequoted ruling, the claim of private respondent that it made an overpayment in the amount of P172 , 058.90 which is the difference between the remittance tax actually paid of ?1,147,058.70 and remittance tax that should h~ve been paid • -1 • ~ ) - 5 - of P974,999.89 co mput ed as follo ws - Profits actually remi tted Remittance tax rate Remittance tax due is well taken. "

P5, 499,999.30 15X p 974 , 999 . 89 Respondent, on the other hand , contends that the case o£ Burroughs Cs pra> is not ap pl icable to the instant case b caus~ of R~v nue Memorandum Circular No.

8- 8 2, dated March 17, 1982, wh i ch s ates that since the "ta:·: is imposed nd call cted at source , necessarily the tax base should be the amount mctually applied for by t he branch ~ith the Central Bank of the Philippi nes as profit t o be remitted abroad." The applicable provision of he Tax Code is Section 24 Cb>C 2><ii) <now Section 25Ca><~>> which provides: "Tax on branch pro£its e mittances - Any profit remitted by a branch to its heap . office shall be subject to a tax of 15X < exc~ pt those registered with the Export Pr ocessing .zone Authority>: Provided, That any profit re~itted by a branch to its head office authorized to engage in petroleum operations in the Phi lippines s hall be subjected to tax at 7- 1/2%.

In both cases, the tax shal l be collected and paid in the s a me manner as p rovided in Sectic1ns 51 and 52 o:f this · Code

:<:XX • "

The ques io n now lies on what part~cular B.I.R

Ruling

or Circular is appl'cable o the instant case.

Wher eas petitioner relies on B.I.R. Rul ing dated January 21 , 19BO, :respondent is a~ the opinion that Revenue 1 n o r,

DECISION --

C.T.A. No. 11141 - 6 - Memorandum Circular No. 8-82 dated March 17, 1982 s hould apply.

Re~enu e Memorandum Circular No.

8-82 is q~ oted hereunder in full:

"SUBJECT: Classification as to t he proper tax base in the computation of the 15X branch profit remittance tax. To :

All Internal Revenue Officers and Others Concerned .

In BIR Ruling No.

016 - 79 da ed April 18, 1979 anent the 15X branch profit remittance tax as an inccme tax imposed under Section 24 Cb) (2), National Internal Revenue Code of 1977, as amended, this Office ruled that 'xxx the 15X branch profit remittance tax should be based on the amount of Pl, 504 , 330.43 representing refit derived from the disposition of the shares, 15'l.

of which is P225, 649. 57 . ' It will be no ed tha computation in accordance with profit without deduction for the the basis the ruling 1 =1% tax.

of is On Ja.nuary 21, 1980, t his Office , in another ruling issued in answer to a query as to the tax base upon which the 15X branch profit remittance tax should be imposed held that 'the 15X branch prof't r·emittance tax s hall be imposed on the profit actually remitted abroad and not on the totar branch profit out of which the remittance i s to be made. • As the latter r uling seems o have ' given rise to some misconception that it modified BIR Ru ling No. 016 -79 with respect to the manner of computation of he 15X branch profit remi~tance ta x , this Office issued a clarificator y ·, ruling on October 23, 1981 explaining - The above ruling <of January 21, . I a 1980) merely emphasized the distinction between the total branch profit which is remittable and that portion of the branch profit actually remitted without deduction on account of the tax to be paid, The phrase ‘any profit remitted abroad’ should be canstrued to mean the profit to be remitted. Hence, there must he an actual remittance, ag distinguished from profit which is remittable | {errs To give an example: Thiugghe total branch profit ie P115,000,00 but the amount to be remitted is P100,000.00, then tax base should be P1100, 000.00, Moreover, the 15% profit remittance tax impoged by Section 24(h)(2) of the Tax Code ig an income tax, it is therefore : Glear that the same is non-deducetible from the gross (profit) income. Inasmuch as the tax is an exaction on profit realized for remittance abroad, the deduction thereof as an expense is not sustained by law nowhere in Section 30 of the Tax Code is ait provided that the same is deductible. Besides deductions from gross income are masters of legislative, grace, what is not expressly granted, by the., jas is deemed withheld.’

Considering that the 15% branch profit remittance tax is imposed and collected at source, necessarily the tax base should be the amount actually applied for by the, branch with the Central Bank of the Philippines as profit to be remitted abroad. Wee cy ot It is desired that thie Circular Pe given as wide publicity as possible.

(Sgd) RUBEN B. ANCHETA Acting Commissioner" The Supreme Court, in the Burroughs case (supra) nai

DECISION -·

C. T. A.

No . 4141 - 8 - applied B.I.R. Ruling d ted January ~1, 19SO and not Revenue Memorandum Ci cula No. 8 - 82.

It . was ruled that:

"Petitioner's a£ares id contention is without merit.

What ·s applicable in the case at bar is stil the Revenue Ru ing of January 21, 1980 bee au =- pr i vat.e e-sponden Burroughs Limited paid the- branch profit remittance tax in ques ir.1n on !1a:rc.~h J4~ 979.

Memorandum Circular No.

B- 82

Led M~rch 17, 1982 cannot be given re ro c ive eff o t in he light of Secti n 327 of th~ Nation n ~nal Revenue Code wh ich proviei s·· 'SectitHJ :'.;'1~1 .

Nt~n ~ rg-trQii1tJtil-·ity o:f .rulings. · Any 1 l'vocaticlllJ lft~ti. :fieat.ic,n, or reversal of ny u! th ~yl •~ §ft egulations promulgated in accord a nce with 1e preceding section or any of the rulings or ciicular s promulgated b y the Commissioner shall not be given retroactive a p plication if the revocation, modification, or reversal will be prejudicial to the tax p ayer except in the fo l lowing cases (a ) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Iuterna l Reve·nue;.

<b) where the facts subsequently gathered by the Bureau of Internal Revenue are . mat~rially different fiom the facts on which the r uling is based, or <c) 'rlhere the tax payer· actecf · t in b~d faith. ' C ABS --CDN Broadcasting Corporat·it". va.

Co urt o:f Tax Appeal s , 108 SCRA 151 - 152 J: !; .· Th e prejudice that woul-J result to private respoudent Bur ·u~h..., rui · ~;~~cl by ·a retl coacti v e application of " ' "DT~ndum Circular No. 8 - 82 is beyond qu~sticon £~r it would b~ deprived of the substantial !lfflOUfll o:f P 172, 058. 'go . ' · And, insofar as th0 g num ~-- ~~0 ex~~~tions are concerned, · ct nd. l.. ·t, _ dl y, Bu "" 1' 01..1 ha Limited does not f~ll und·r any ~f t hem . • In the inat nt o~~e.

th~ b • o ~ h profit remittance taxes were paid after th~ efL.ctivity o£ Mf:?mora nd u m

I I

l • 1 . I

- 9 - Circular No.

8-82 .

What should therefore apply is Memorandum Circular No. 8 - 82 as correctly advanced by the respondent.

Thi s Court, in deciding early cases <CTA Case No.

445 dated August 23, 1993; CTA Case No.

382 7 dated October 14 1988) involving the same parties and issues, applied Revenue Memorandum Circular No. 8 - 82. Furthermore, the Court of Appeals, in the recent case o f Commissioner of Internal Revenue vs.

Bank of America <CA - G. R.

S P No .

2 2~2J dat e d Septe mber 1 9 , 1990 ) had the occas ion t o •xplain h e ra ion a le of Revenue Metnorandum Ci r cular No. 8 - 82, when it r uled : "The use of the word remitted may well be underst ood as referring to that part of the said tot a l branch profits whic h wo uld be sent to the l1ead office as di s tinguis he d from t he total profits of the branch <not all of whic h need be sent or would be orde red remitt e d abroad).

If the legislature inde ed had wanted to mitigate t he har s hne s s of successive taxation, it would have been s impl e r to just lower the rates without i n effec t requiring the r ~ lat"v e n o vel and complic ated way of c omputing the ta x , as envisi oned by the herein private r e spond ent.

The same result would have been a c hieved.

The attempt to deduce legislative intent with r e gard to Section 24<b><2><ii) of the Tax Code would only serve to allow a captious a nd strained intendment of the law.

NIHIA

S UBTILITAS

IN JURE REPROBATUR, .

ET TALIS CERTITUDO CERTITUDIHEH CONFUNDIT <The la ws does not allow of a captious and s trained intendtne nt , for such nice pretence of certainty confounds true and legal certainty>.

As held 'l

DECISION -·

C. T. A.

No. 4141 when - 10 - in the case of United States vs. Wurzbach. 280 u.s. 395, 398:

There is no warrant for seeking refined arguments to show that the statute does not mean what it says. In view of the foregoing, this Court ' finds that the clear import of Section 24Cb)C2>Cii> of the Tax Code mandates the imposition of the fifteen percent C51X> tax on the branch profits remittance , with in tax parlance is a lluded to as the "tax handle", with the total amount remitted <not the total amount of the branch profits> as base for the tax." Having found that the questioned taxes were paid the applicable ruling is Hevenue Memorandum Circular No. 8 - 82, "then what should apply as taxable base in computing the 15X branch profit remittance tax is the amount applied for with the Central Bank as profit to be remitted abroad xxx. "

CCompania General de Tabacoa vs. The Commissioner of Internal Revenue, C.T.A. case No.

With regard to the passive income already subjected to the final tax, the same Section 2 4 Cb)C2>Cii> (now Section 25Ca>C5)) of the Tax Code provides: " )otx That interests, dividends, rents , royalties, including remunerations for technical services, salaries, wages, premiums, annuities , emoluments or other fi xed or determinable annual, periodical or casual gains, profits, income and capita l gains receiv~d by a foreign corporation during each taxable year f rom all sources within the rhilippines shall not be considered as branch profits unless the same are pffectively connected with thP conduct of the trade or 1 n n ' ·' -

DECISION -

C. T. A.

No.

"111.1 - 11 - business in the Philippines."

supplied) <Underscoring Peti ti one.r claims U1at only profits remit ted abroad 'tlhich are effectively cormected with the taxpayer's :trade on business in the Philippines are subject to th e 1 5% branch profit remittance tax . It cited B. I.R. Ruling No.

1 57 - 81 dated July 1 3 , 1981, the pertinent pro vision of which reads as follows: and "In reply thereto, pl ease be informed that pursuant to Section 24(b)C2> of the Tax Code, as amended, only profits remitted abroad by a branch office to its head office which are effectiv ly COIHJec.ted w·· h its t rade or business in the rhilippines are subject to the 15% profit remittance tax .

To be 'effectively connected' it is not necessary that the income be derived from he actual operation of ta~payer - corporalion's trade of business ; it is suffi cient that b e irJcc•me ar ises from th e business act.i vi ty in which the cor poratiora is e ngaged.

For example, if a resident foreign corporation is engaged in the buying and selling of machineries in the Philippines and invests in some s la a:res of stock on which dividends are subseque11 t ly received , the dividend thus earned are not considered ' effectively corme•c ed ' w i l h is trade or business in thi s country. " (Revenue Memorandum Circular No. 55-80. ) Respond e nt for his pail argues that cash dividends interest income of pe ti ti,oner are effectively connect ed with the conduct of its trade and business in the Philippines that s ho u ld be sub~iected to branch profits remittance ta;.c. As fou nd by this Cour t in a previous case:

DECISION C.T.fl..

No.

4 141 - 1 2 - "<T>he rule is interest a nd dividends received by a foreign corporation dur·ing each ta)table year fo :crn all sources withiu t h e Philippines shall not be considered as branch profits unless the same are effectively connected with the conduct of its trade or business.

The phrase "effectively connected " was interpreted to mean income derived from the business activity in whi c h the corporation is engaged.

In all the corporate quarterly income tax returns filed by petitioner with Iespondent's office, it was indicated as it was shown that the petitioner is engaged in the bus iness as leaf tobacco dealer , ex por ter , importer a nd 9ene1·a1 me:cchant.s .

Petitioner claims that int erests r e ceived from savings d e posit with Philtrust, interests received from money market placements and inter est ou Land Bank Bonds and c~sh div idends received from Philippine Long Distance Company Tele phone Company <PLDT> and Tabacalera Industr ial Development Corp oration of the Phils. are not effectively conue·cted with its trade or business . Furt hermore , pursua11t. to Section 2 4(c) and

(d) of NIRC , dividends and interest are subject to fin al tax.

To inc~ude them again as subject t.o ln a n c h profit remittance ta'c under the same Section 24 (b)(2J<ii> would b e contra r y to law.

Righ t fully so , petitioner h as sufficiently established a ri ght t o be refunded the amount of b I an c h p r of i t r· em i t ·tan c e· t a :·t paid on these.

interests and dividends which were included as part of the bionc h profits xxx . "

<Campania General de Tabacos de Filipin as vs.

The Co mmission er o.f Iul.ernal Revenu e C. T. 11.

Case No. 4451, supra) lifter considering the facts and i ssues of the case , 'thi s Court holds the petitioner enti tled to a refund or tax credit in the amount of Pl 52, 690 .61 corresponding to over paid branch profi t remi ttance taxes during the years from 190 1 to 1983, com p uted as follows :

- 13 - Gross amount renittable (1981-1982) P40, 363, 240. 47 Less: Income subjected to final tax a) Dividends 198) (Exhibits AC-2 to AC-20) P16, 180. 11 1982 (Exhibits AB~1 to AB-33) 10, 357. 11 . 1983 (Exhibits XX-1 to XX-39) 10, 844.67 b) Interest on PTC savings account 1981 (Exhibits AD-1 to AD-6) P142, 249.04 1982 (Exhibite 22-1 to 22-7) 211, 689. 59 1983 (Exhibits YY-1 to YY-12) 513, 480. 21 c) Interest on LBP bonds . 1981 {Exhibits AD-21 end 12) 2, 730, 00 1982 (Exhibit 22-8) 2, 730. 010 d) Interest on money market placerents 1981 (Exhibits AD-8 to AD-10) 88, 182.11 e) Capital gain 1982 (Exhibits WW-1 and W¥-2) 19, 494, 66 1, 017, 937.50 Amount subjected to 15% branch profits remittance tax P39, 345, 302. 97 15% branch profit remittance tax P35, 901, 795. 45 Less: Amount of branch profit tax paid (1981-1983) 6, 054, 486. 06 Anount refundable P 152,690.61 As to the 1984 and 1985 branch profit remittance taxes, no refund or tax credit is due the petitioner since the latter did not present any proof of passive income it :eceived during the period. Hence, the correct branch prof t trem'tttance taxead are the exact amount of taxes paid b, the petitiLoner as computed below:

Gross amount remittable (1984-1985) P14, 294, 908. 30 Less: Incone subject to final tax a) Dividends nil b) Interests nil c) Other passive incomes nil Amount subjected to 15% branch P14, 294, 908. 30 profits remittance tax 15% Branch profits resittar e tax P 2,144 4

WHEREFORE, IN VIEW OF THE FOREGOING, .respondent Commissioner of Internal Revenue is hereby,.ardered to @ £\ ry ™ L ..

DECISION ·-

C. T. A.

No. 1.14.1 - 14 -- refund in . :favor oi petitioner, the amount of P152, 590.51 representing overp id 15X brancll profit remitt a nce taxes or1 div'dends , interests and capital gain received d~ring the years 1981 to 1983. Na pr onouncement as to cost. WE so ono RED.

Quezon City, Me :ret Matdl , Nt'v ·mbe:r· 17, 1993 . cmun Juclfil" ~#~~~-- RAHON 0. DE Y• . A Associate Juclg .J ~~(2.~ EJ NESTO A. ACOSTA r ~id ing J udge CER-..IFICATICJ I h ereby certify that this decision wa s r eached after due consultation among th e members o:f the Court of Ta x Appeal s in accordance with Section 13 Article VII of the Constitution .

..

(~lQ.Q~ ERNESTO D. ACOSTA Pres iding Judg e Court of Tax Appeals