CTA Case No. 4643

DECISION

- 3 a tax ct·'edi t cet' tificatE~ in the amount of PE.OO,OOO.OO t'<~pt'esenting the a ll eged ovet'payment of withholding tax by ;::~01- <Ex h i bit "L" > • To date, howevet', t'espondent ~s ,.

neither granted nor acted upon petitioners' claim for Dn <-·eptembet' 10, 1991, petitionet' filed the instant petition for review <pp. 1- 4, CTR records). D Ut' j_ n ~l t h e h eat' l. n g o f t h e cas e at bar, pet i t i on e t' s and submitt ed document at'y and testimonial evidence.

On the other hand, respondent failed to present .::my evidence c:\nd was constt' ained to submit the case based on the pleadings. The :it; suE~s t'aised fot' t' esolution of thi s Cotwt are th~: follov.•ing:

(1) Whethet~ cot' pOt' at ion COt''p!H' at ion iS 351- Ot' 151-, dividend payments by a domestic to a non - reside nt foreign s•.tbj ect to a withholding tax of <2> Whether p e titioner is entitled to the ref und of PE.OO,OOO.OO, representing their alleged ovet'paid ~.-<dthholding tax fot' the yeat'S 1 r:J8'3 and 1 '3'30. Respondent contends th a t dividend payments made by petitioner Malayan Zurich Insurance Co., Inc., to its co- petitione r Zurich In s urance Co. are subject to 351- final withholding tc.'\x ptwsuant to Section 25(b) (1) of the tax Code , to wit:

"SECTION .-.c:

•. .-:.J .

Rates of tax on foreign corporation.

DECISION C.T. A Cas e No. 4643 - 4 - XXX XXX XXX (b) 1\lon - t~e sident fot~ eign cot~ pot~ations.

(1) In g e neral.

Unle ss otherwise provided, a foreign corporation not engaged in trade or business in the Philippines sha ll pay a tax eq uc.~_ l_i.Q 35'1- of tlli__gt~o s s income received during each taxable y ear fro m all sources "'1ithin t h e Phj.lippi ne s such as intet~est, !Ll':{..t£1. .. ~£1~ , r·ent s, t~oya 1 ties, sa l at~i e s premises ( except reinsurance premiums>, ann uitie s , e mol uments Ot' othet' fixed or determinable ;ann• .. tc.'\1 1 pet~iodic.:d ot~ c.:lsual gains, profi ts and inc()me, and capitii\\1 gains, except capita l gain s Sl..\b,ject to t;a x • .. mdet~ s •.tbp ar~a gt~ aph 5<c>".

<Underscoring supp l ied. > XXX XXX XXX On the peti tioner tnvoked Section 25 < b > < 5 > ( B > of · he m< Code in suppo t~t of its stand , which r·eads:

SECTION 25.

Rates of tax on corpot•at ion •.

XXX XXX <b) Non - resident for eign corporat ions. XXX <5> Ta>< t· es ident ><><X XXX on cert ain incomes foreign eorporati~ns. XXH rece ived XXX XXX by non XXX <B> On dividend s received from a domestic coq.JIH'<-~tio n li ab l e to ta>< •.~ndet' this Chapter~, the _ _!_~ hajl be 1tl'1- of the dividends receiv ed whi.ch s h a ll b e co ll ecte d and paid as provided in Section 50( a ) of the National Internal F~even•.te Code, <:As "" "' er1ded, subject to the condi tion that the co •.mtr~ y i n which the non - r~esi<Je n t fo r~eig n ct:n~ pcn·atiOT1 · s domiciled shall allow a cr··edit against the tax dlle from the nonre si dent foreig n corporation, ~axes deemed to h a ve bee n pa id in the Philippines equivalent _, - 5 to 20~ which represents the difference between the t~egular~ tax <:35~> on cot~po t' ati ons and the tax <15~) on dividends as provid ed in this SIJbpat'a~p' aph;"

< Und erscor~ i ng s upp 1 i ed. ) XXX XXX XXX It is i mmedi a tel.'y appa t"ent fro m a reading of t he of law that Section 25 (b) ( 1> pe r"tains in genet"a l to l·"ates of tax on gross income t"eceived by ncm - r"esident fot"eig n corporations from all wi th:l. 1'1 the Philipp ines whereas Section 25(b) (5) ()3) '"Pec ifi c~lly to tax on divid ends received by a nan - ~ ~s idant for gn corporati on from a domesti c corporation.

in statutot' Y co n str~l..\ ction th<;~t whtn"e ther~e ar e two provisions, one of which is sp~c · al and the other general, the special pl-'Ovisio n , must be co n str~ ued C\S ~otl s tituting an exception o "'void confli ct.

<Lichauco vs. Apost ol, J.~'• Phi 1.

38>.

The g e neral rule is that the Ph ilipp in ~ inco me of n on - r esident foreign corporation s sha ll be Sl.tb.ject to t he tax t~ ate of 35~ , with cet'tain exceptions, such as div id e nd s t~ecei v ed from a domestic cot"pot"ation b y a non -- t~ esident for~eign corporation which s h a ll taxed .;:o.t l w't.

st.tbj er..:t t o the condition that the countt~y in which the nont'esident foreign corpm"ation is domi c il ed sht:\ll. allow a ct•edit aga · nst the tax dr.te from it, tax es deem e d to h;::we been pa id in the Phili ppines eq uiva lent to 20't. which represents the difference between ...

' '\ - - a a the regular tax (35%) on corporations and the tax (15%) on dividends.

The above interpretation finds support in aia, issued by the Burean of Internal Revenue (BIR) that dividends received by non-resident foreign corporations from aoedomestic corporation shall be subject to a withholding tax of 15% provided the conditions stipulated by law are inet, Quoted hereunder is BIR Ruling No. 208-89, dated September £S, 1989:

"In reply thereto, I have the honor to inform you that under Section #5(b) (5) (B) of the Tax Code, as amended, dividends received by non-resident foreign corporations from a domestic corporation shall be subject to a withholding tax of 15% of the dividends received subject to the condition that the country in which the non-resident foreign corporation is domiciled shall allow a credit against the tax due from the non-resident foreign corporation, taxes deemed to have been paid in the Fhilippines equivalent to 20% which represents the difference between the regular tax (35%) on corporations and the tax (15%) on dividends. Thus, if the country of domicile of the recipient corporation allows as credit against the tax imposable by it as amount equivalent to 20% of the dividends remitted to corporations domiciled therein, the dividends so remitted are subject to a withholding tax at the rate of 15% only.

Since this Office has issued a ruling on February 23, 1978, that the tax dividends to be remitted to American Express International Development Co., Ltd. Cayman Islands is subject only to the 15% withholding tax under then Section #4 (b) of the Tax Code, as amended based on the certification of the Financial Secretary of Cayman Islands that dividends

- 7 t~ e c ~? j_ v e d h~ o m s o tw c e s o u t s i d e t h e Cay man I slands and any other income of a Cay man Islc.'\tlds Company is not subject to any form of taxation under the laws of the Cayman Islands' as vJell as a cer'tification dated September~ 14, 1989 of Naples and Calder', Attor~neys-at-law in Cayman Islands that the Government of the Cayman Islands will not under the existing laws pf the Cay man Island, impose any tax, levy, withholding or deduction on dividend income received by the Fund from companies incorporated in jurisdiction outside the Cayman Islands, i11cl•.tding the Philippines ' the dividends to be t"'emitted to the Manila F•.md (Cc.'\ylll t-:.\n) Limited is s ubject only to the 15'1- wi.thholding t<i:\x rJI.tt"Sllii:\nt to S ection 25 <b> <5> <B> of the Tax Code , as amended". J.n BlR F~llling No. 178- 85 dated October~ 4, 1985, the respondent has ruled as follows : "In ~"' !.1ply, please be infot"'med that since you ar• e •?.

s u b s i d i a t' y of' Dunlo I nt et"'nat ion a 1 ~) . c.

of Switz et" 1 a tid, you will be r~emitt ing pt'O fitS Ot' c.1ividends to the said count r~y.

Hence the HP·-·UI-\ Ti:.'\X Tt"'eat y cannot be C.'\ppl i ed. On the assumption that residerlts of Swit:zet~}i-.'\nd .:~r'e <\1\lso shat"'eholdet"'s of yam~ compc.uly, considr.n~ ing that ·the Phi 1 ippines does not have a tax b "' e a ty with Switzet'land, Sec. 24

(b) (1) \iii) of the Tax Code will apply to dividends re mit ted to that country. 8 .G.£..Q.!::...d tJ:L9..lli ___ i§l!.td s i nee_ Switzer 1 and does not il!!..f.>O~'\D.J! ta>< on dividends received from for~ eigrl sotn•ces, <BIR Ruling No.

30- 80 dated f_g_qy~uat~ y __ 15'1 1 9BC~)_, __ t_[le dividends to be remitted by your company to Switzerland will be ?'-!...Q.i.Q_ct to withhcllc;l..l..!!9 tax at the t~ate of 15'1-". <Unde r~scot"'ing supplied.) It is settled l'"'•.ll e that constr·uction placed upon a law by the offici.:\ls in chat' ge of enfor"'cing the same weight.

<At las Consolidated Mining

1 ·J R 1~

. I

- 8 - Development corporation vs. Court of Appeals,

182 SCRA

155).

T h e G up~~ e m e Co 1.1 ~ .. t has s i m i 1 at~ 1 y r 1.1 1 e d in t h e cas e ~ o f "' Commissioner of Internal Revenue vs. Wander Phils., In~., L-58375, April 15, 1988, 160 SCRA 573, that dividend remittances to Glat' O f3. A. Ltd., a Swiss cor~pot~ation not engaged tn tr-ade at' business in the Philippines, by its t-Jholly···clwned, subsi.c.:li.::n· y Wandet· Phi ls.

Inc, a domestic s ince Switzerland does not impose a tax on dividend rece ived from the Philippine s . The relevant portion of the decision reads: "In the instant case, Switzer'land did not impose any tax in the dividends r'eceived by G 1 at" o • (-k cot" d i n g 1 y , Wand e r" c 1 a i m s t hat f u 1 1 Ct"edit is gr-anted and not met'ely Cr'edit equivalent to C::01-.

Petitioner', on the other hand, avet··s the tax spat'ing credit is applicab le only if the countr-y of the par'ent corporation allows a foreign tax credit not only fot' the 15 per-centage-point por-tion actually paid but also fat' thf~ equivalent 20 percent-point portion spared, waived or otherwise deemed as if paid in the Philippines; that respondent doe s not cite anywhere a Swiss law to the effect that in case where a foreign tax, s•..tch as the Philippine 351- dividend tax, i s s pat" e d , w a i v e d or' o t h e t' w i s e con s i d e r' e d as i f pc:dd in t.-Jhole Ot' in pat't, by the for'e ign co untry, a Swiss foreign-tax credit would be allovJed fot~ the whole or fat' the pc:n-t, as the case may be, of the fot'eign tax so spar-ed or wa ived or considered as if paid by the foreign countr- y.

"While t' e fund at'e claimant, it may be true that claims constt'ued stt'ictly against neverthel ess, the fact for the that . I -~ 9- Gwitzerland did not impose any tax or the dividends received by Glaro from the Frhilippines should be considered as a full satisfaction of the given condition. For, as aptly stated by respondent Court, to deny a private respondent the privilege to withhold ¥ only 15% tax provided for under Presidential Decree No. 369, amending Section 24(b) (1) of the Tax Code, would run counter to the very spirit and intent of said law and definitely will adversely affect foreign corporations’ interest here and discourage them from investing capital in our country.

Besides, it is significant to note that the conclusion reached by respondent Court is but a confirmation of the May 19, 1977 ruling of petitioner that "since the Swiss Government does not impose any tax on the dividends to be received by the said parent corporation in the Philippines, that condition imposed under the above~mentioned section is satisfied.

Accordingly, the withholding tax rate of 15% is hereby affirmed, " :

The inevitable caonelusion that can be drawn form the foregoing discussion is that under our jurisdiction dividend payments made by petitioner Malayan Zurich to its co-~petitioner Zurich Insurance are subject to 15% final withholding tax only since Switzerland, the country on which the latter is domicile, does not impose any tax on dividends.

To be entitled to a refund, petitioner in addition to being able to point to some positive provision of law creating such right must also be able to establish the fact of payment of the tax sought to be refunded as well as the filing of claim for refund within the reglementary period.

DECISION C.T.A Cas e No. 4643 - 10 - ~") s bot-·n e out by t h e e v i d e nce s ubmitted to thi s Court by Ma l ayan Zurich, it h as withh el d and r e mitted to r--espondent the 35Y.

f"na l withholding ta x on di vide~d s ,.

pai d t o Zut~ich Inst.w<.H1cf:1 in 1989 and 1'390 a mount i ng to P525, ooo.oo fer each year.

Offered a s evidence and a dm itte d by this Court ar~ the followin g e xhibit s , viz: ''E " IIFII " G u

IIH II

II I II

IIJII s'lid .~~nce for t>'la l a yan Zurich .lnsttrance Co. , Inc., Monthly r~e m itta n ce R e tur~ n of I ncome Taxes Wi t hheld for Au g us t 1'38'3 "filed wi th BIR Cll'l Septe m be r~ 11, 1'38'3 showing the P525 , 000. 00 fina l withho l ding tax due on the P1,50o, oo.oo cash divi d en d payment to Zurich I n suranc e Compan y Ce nt ra l Bank Confirmation F~ e ceipt NO.

18023855 date d September 11, 1 '3~L~ show in g the r~ emittance and payme nt to BI R of P525,000.00 1 989 f~n n •Ja 1 Inco me Tax With h eld Janttc.<.t-·y J.E., 1990 for~e g o · n g Ret ur~ n of Final file d with BIR on estab lishing the Mont h ly F~emittanr:e Taxes Withheld for Ju ly wi t h t he BIR on Augu s t of 1'3'30 10, Income filed 1'3'30 s howing the P525,000.00 final withholding t ax due on the P1,50o,ooo. oo c a s h dividend payment to Zuri c h Insurance Company Cent r al Ba nk Confirmation Receipt No .

2 0E.30 3 22 d a ted August 10, 1_'3'30 showing th e r~emittance and payment to BIR of P525,000.00 1 '3'30 (~nnual Ret ur~n of Final Income Tax Withheld filed with BIR on ,J i:.<. nuat~ y 10, 19'31 establishing the fot' egoing

1 I ) I) ' )

DECISION —-

BK" BIR == Revenue Accounting Division Certification dated January 23, 1992 certifying that Malayan Zurich Insurance Co. actually remitted the taxes withheld and paid 4 under Exhibits "F" and "I" - The amount sought to be refunded by petitioners was ‘arrived at using the following computation:

Dividend Reaitted WI Paid at 30% Correct WI Rate-15% Overpaysent 20% P1,500, 000, 00 P525, 000. 00 P225, 000. 00 P300, 000. 00 1,500, 000. 00 525, 000. 00 225, 000. 00 ~ 300, 000. 00 Total Refund - claimed P600, 000. 00 The written claim for refund was filed by petitioner with the BIR Appellate Division on September 3, 1991 covering the withholding tax overpaid on epte r il 1989 and August 10, 1990. The instant patrhien for review was filed with this Court on September 10, 1991. There is no question that the twol(2) year prescriptive period for claiming refund of overpaid taxes as provided under Section 230 of the Tax Code, as amended have been complied with.

Respondent's opposition to the grant of refund is based on the requirements set forth in BIR Ruling No. 080-92 dated March 17, 1992 when the refund sought pertains to years 1989 and 1990, Having positively established that all the requisites for entitlement to refund have been met, petitioner is entitled to the refund being claimed...

FOQHK

- 12 -

WHEREFORE, t• s p ond etlt:

Co mn1 i ss i onet' of Intet'nal to the pet U ; io ne t" IYia l a ycH·l Zu~~ i c h In s urance Company, In,., ' the amount of . PGOO, 000. 00 rept'esent ing overpaid withholding tax on divid e nds paid for the calendar years 198'3 and 1 '390.