Republic Gf the Philippines Court of Tax Appeals Quezon City¥ Systematics Ing. and Rank of the Philippine Islands, et al. vs. C.T.F. Case No. 4665 Commissioner of Internal Promulgatede:' - Revenue

DECISION

This case involves a claia for refund of allegedly overpaid withhoiding tax on License fee in the amount of P1,3514,877. 30 for the year 1989.

Petitioner Systematics Ine. (SI) is a non-resident Foreign corporation with business address at 4001 Rodney (snare Rd., Little Rock, Arkansas, U.S.A. Represented herein by the giendoldenss agent/petitioner Bank of Philippine Islands (BPI), a corporation duly organized and existing under the laws of the Philippines.

Un April 30, 1989, BPI entered into an agreement “with SI entitled “Investment Charter Software License Agreement" (portion of which was amended on July 20, oc cH —

DECISION —

c.T.A. Case No. 4665 -~ ge 1989). + This agreement was duly registered and approved by the Technology transfer Board of the Department of Trade and Industry on July 27, 1989 under Certificate of Registration No. 950." The said Agreement granted BPI a license to use certain SI computer programs. Further a payment of a license fee in the amount of $271,800.00 or P6,059,509.20 was stipulated payable upon completion of the acceptance af the software (orininally payable upon execution of the agreement).

On November 10, 1989, petitioner BPI filed its

Monthly Remittance Return of Income Taxes Withheld for

the month of Uctober 1989 showing a final withholding tax of P4S,G661, $54.59 which was paid under Payment Order No. 3637466 and CB Confirmation Receipt No. 17080580 both dated Novenber 10, 1989.7 Petitioner BPI] alleged that this amount includes the be, 120,826.22 income tan payment of petitioner Sl representing 45% of P6,059,509. 20 license fee.* . ( Gn April 26, 1990, BPI requested for BIR ruling confirming its opinion that the license fees and royalties paid by it to SI were subject only ta a 10% withholding tax pursuant to Article 13, paragraph 27Exh. "HH".

“Exh. "G6".

SExba. "OE", "CH1" and "C-2".

“Exhs. "BR" and "B-i".

DECISION —

C.17.A. Case No. 4665 2b) iii) of the RP-US Tax Treaty in relation to Article 12, paragraph @(b) of the RP-West Germany fax Treaty."

In response, the then Commissioner of Internal Revenue Jose U. Ong issued BIR Ruling No. 079-91 on May 3, 1991 sonfirming petitioner’ BPI’s opinion®. This ruling provides in part:

XMM HH xKK in rept Min BLOM AR. ETT ra opinion to the effect that the license f = and royaities you are eecina 4a Bvatesatics os non-resident "T Se. Corporat ions Lae suant to ear "Software License Agreement with said corporation are subje withheldin tax under Article 12, ae parabrace Bibhtsti) of (3313) of the RP-US Tax Ireaty in relation to Article 12, Paragraph @(b) of the RP-West Germany Tax Treaty is. hereby confirmed. Under the mast favored nation provision of the RP-US Tax Treaty (CArticie 12, paragraph 2@¢b) (iii1)9, the tax imposable an royalties (which likewise embrace License fees) derived by a resident of the United States from sources within the Philiopines shall be the lowest rate of Philippine tax that may be imposed on royalties ot the same kind paid under Similar Circumstances to a resident of a third state. Article te, paragraph eb) of the RP-West Germany Tax Treaty , effective January 1, 1985 provides that royalties arising in the Philippines and paid to a resident of West Germany may also be taxed in the Philippines, but the tax so charged shall not exceed 10% of the gross amount of royalties arising from the use of or the right to use of, any patent, trademark, design or model, plan, secret formula, or from the use of, or the right to USE, industrial, commercial or scientific fPExunhs. "D" and "D-i”".

SExh. "Ek",

DECISION —

C.1.A. Case No. 4665 —~ hh ~ ' experience. The said treaty also provides that tor as long as the transfer of technolony under Philippine law, is tubject to approval, the limitations of the tax rate mentioned under (b) shall, in case of royalties arising in the Republic of the Philippines, only apply if the contract giving rise to such royalties has been approved by the Philippine competent authorities. ;

HK uM HHH In Line with the above ruling, petitianer BPI filed on July or 4991 a Glaim for Fefund with respondent’s Legislative Ruling and Research Division asking for the over remittance of withholding tanes in the amount of P1,514,6/77. 40 paid by petitroner Si.7 The over remittance is computed as follows:

Licenses fee paid te SI $$ 271,800.00 Multiply by peso rate } 220.294 License fee paid in pesos P6, 959, 509. 20 Multiply by regular tax rate oe 35% Total tax remitted to BIR P2, 120, 828. 22 Actual tax liability (6,059, 509.20 » 10%) 605, 950. 92 Over remitted withholding tax P1,514,877.30 However, respondent did not grant the refund nor even answered BPI’s Letter leaving no recourse but to file a suit before this Court. Therefore, a petition for review was filed on November 5S, 1991 in order to interrupt the running of the two-year prescriptive period under Sec. 230 of the National Internal Revenue Code, as amended.

7Exhs. "F“ and “F-1i".

DELISIUN --

G. 1.0. UCase No. 4665 This case was submitted by respondent’s counsel for decision on the basis of the BIR record, petitioner's evidence? and the pleadings. Both parties failed to. submit their respective memoranda.

Ihe sole issue to be resolved by this Court is whether or not petitioners are entitled to the refund of P1,514,877.30 representing overpaid withholding tax of Sl, a non-resident foreign corporation, pursuant toa the RP-US Tax Treaty.

Based on the evidence presented, this Court finds no reason why We can not grant petitioners’ claim.

As stated by Commissioner Jase U. OQnqg on his ruling:

Cidnasmuch as the ‘Software License

Agreement’ between you and Systematics Inc. had been duly registered and approved by the

Technology Transfer Board of the Department of

Trade and Industry on July #27, $989 «under Certificate of Reqistration No. 950, royalties and license feee arising in th® Philippines and payable to Systematics Ine., a non-resident foreign corporation based in Arkansas, U.S.A., are subject to the Philippine tax at the rate of 10% because this rate appears in the RP-West Germany Tax Treaty and pursuant to Article 13, paragraph @(b) Ciiid of the RP-US Tax Treaty.

RM Ke

Since petitioners were able to prove that the withholding tax on license fee they paid and remitted to *The BIR records was not transmitted to the Court. “=Counsel for respondent did not object to the admission of petitioners’ exhibits.

DECISION —

Le. 1.H. Case No. 4665 the Bureau of Internal Revenue amounts to 35%, where it should be 10%, the excess af @5% should be refunded to them.

WHEREFORE, cespondent 14 Hereby ordered to REFUND to petitioners the amount of 61,514,877.30 representing overpaid withholding income tax on license fee pursuant to RP-US Tax Treaty.

Presiding Judge

WE CONCUR:

Kk. GRUBA

Ree Judge

‘4 Dre V. “hey/ RAMUN O. DE VEYR

Associate Judge

860

DECISION —

C.1.0. Case Now 466

CERTIF TCATIONI

[ hereby certify that this decision was reached after due consultation among the members of the Court of Tax Appeals in accordance with Seetion 13 Article VIII of the Constitution.

Eats Ce, RKRNESIU D. ALOSTA

Mresiding Judge

Court of Tax Appeals

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