China Banking Corporation vs. ' Commissioner of Internal

DECISION -

| .

Internal Revenue together with other withheld . amounts from its non-resident stockholders amounting to F288, 346. 30.

Under Article 9 of the Tax Treaty in relation to _Article 2(b) thereof, dividends derived from a company resident of the Philippines by a company resident of the United Kingdom is subject to 25% tax to be withheld as provided in Section 50¢a) of the Tax Code. Later, Fortron Services Limited sought reimbursement from petitioner the amount allegedly overwithheld applying Section 25(b)(B) of the Tax Code and BIR Ruling nos. 275-88 045-85 and 123-82.

Petitioner alleged that with respect to non-resident foreign corporation | domiciled in Hongkong, the applicable tax rate is 15% thus, claiming an overpayment in the amount of P29, 900. 20 which is broken down as follows:

Dividend due to Fortron - PF 299,002.20 _. #ount eryoy ously withheld (25%) - 74, 850. 50 me fa be rithbeg (2 aa __ Shen “On. “1g Auguet igay, “petitioner “Eled “with the Gentrat Bani an applicstian to Purchase Foreign ‘Exchange: snpluding ‘the Ws By plier gqutyatent of #29) 300. 26 eileged overi thhed tax from Fortron. | 499 4 i i :

!

i D E C I S I 0 N -

- 3 - On 15 August 1991, petitioner respondent a written claim :for re:fund. :filed with Subsequently, on 13 September 1991 and 21 November 1991, petitioner made _:follow-up letters reiterating its request :for re:fund, but to no avail the sam• remains unacted upon. Hence this appeal.

Respondent on the other hand alleged thatt petitioner :failed to state any cause o:f action in accordance with Section 204 of the Tax CodeJ it :failed to show that the tax was erroneously or illegally collected~ tax re:fund are construed strictly ~gainst the taxpayer as they are in the nature o:f tax exemption; in an action for refund the taxpayer has the burden to show that the taxes paid were erroneously or illegally paid and failure to do so is fatal to the action for re:fund;

and that the claim for refund is still under investigation.

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D E C I S I 0 N -

- 4 - As shown by the evidence, the applicable law is Section 25<b><5><B> o£ the Tax Code as amended, previously Section 24<b><l><iii>. The applicable tax rates on tax dividends due and payable to non-resident £oreign corporations is 15X. Section 24<b><S><B> o£ the. National Intetrnal Revenue Code is herein quoted £or re£erence: <B> On dividends received £rom a domestic corporation liable to the tax under this Chapter the tax shall be 15X o£ the dividends received which·shall be collected and paid as provided in Section 51~a> o£ the National Internal Revenue Code as amended, subject to the condition that the country in which the non-resident £oreign corporation is domiciled shal~ allow a credit against the tax due £rom the non-resident £oreign corporation, taxes deemed' to have been paid in the Philippines equivalent to 20X which represents the di££erence between the tegular · tax (35X> on corporations and the tax <15X> on dividends as provided in this sub- paragraph.

tram· the a£orecited provision o£ the law it.

can be deduced there£ rom that dividends received ' ' -~ ' "· .

:from a ~p oon-~~~;~,ht f~~,;~~'- ~.f~~~~~~o~ ~P~~~~H~ ~o~f~t"ri~r., ,~~•++.: ~,. ,~~~~~~. }o tax , ~~ ~h~ ~.t~ ~~ i~-. pr~VJ~-~~t~~{ i~• country in which the -~. . ~: ~ ,· hon~re~~~'~' :for~ig~ P~rroratf~ri. is ;;· ; .

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~Jlo~ ~ cr~~·t againsi ~he . ~-~ due .

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_ ' ' .o domiciled shall the non-.

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~'f~ign corporatt~n· .• ) :.

f. . -~ .it . ' ·' :, • J •• have Ph:t.l:i.pJ1~1'J!t8 ~ ·, !

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~ . • • the ~~·n ~~:1.~ *~ ·, <the .• . ·- - 501 D E C I S I 0 N -

- 5 - di:f:ference between the regular 35Y.

tax 15Y. tax on dividends>. and the No less than the Bureau o:f Internal Revenue had ruled that Hongkong does not impose tax on dividends received by corporations domiciled therein :from :foreign sources, dividends received by non ...

resident corporations based in Hongkong :from domestic corporations shall be subject to 15Y.

tax.

BIR Ruling Nos. 275-85, 045-85• 123-82, is herein reproduced to wit:

"RULING N0.275 June 28, 1988 Gentleman:

This re:fers to your letter dated March 25, 1988 requesting a ruling on the rate o:f withholding tax on cash dividend declared by you to your stockholders on record as o:f May 15, 1988 payable on or be:fore May 31, 1988.

It is represented that your stockholders are as :follows:

CA.

X

X ~

·;·. •;

. "t" - ' II• 502 I, D E C I S I 0 N -

- 6 - b.

Non-resident £oreign based in the United States o£ America, Canada, Hongkong, Australia, Columbia, Japan, England, China and India.

In reply thereto, I have the honor to in£orm you as £ollows: X X X X E.

Pursuant to Section 24<b><S><B> o£ the Tax Code, as amended on dividends received £rom a domestic corporation by non-resident £oreign corporation in which the Philippines has not concluded a tax treaty like Hongkong, China.

India and Columbia the tax shall be 15~ o£ the dividends received, which shall be collected and paid as provided in Section 50(a) o£ the Tax Code;

as amended, subject to the condition that the country in which the non-resident £oreign corporation is domiciled shall allow a .credit against the tax due £rom the non-resident £oreign corporation is domiciled shall allow credit against the tax due £rom the non-resident £oreign corporations;

taxes deemed to have been paid in the Philippines equivalent to 20~ which represents the di££erence between the regular tax <35~> and the tax <15~> on dividends x x x.

Very truly yours," BIENVENIDO A. TAN, JR. Commissioner 503

D £ C I S I 0 N

C.T.A. CAS£ NO. 4676 \ - 7 - "024-<b> 080-80 123-82 April 16, 1982 Jardine-Manila Finance, Inc. Jardine Davies Bldg.

222 Buendia Avenue Makati, Metro Manila A~~n.: ftr. Jesus P. Lukban Corpora~e Secre~ary Gentleman:

In reply to your letter dated November 10, 1978• I have the honor to in£orm you that it having been established that Hongkong does not impose any tax on dividends received by corporations domiciled therein £rom £oreign sources, the dividends to be remitted by Jardine-Manila Finance, Inc.

to Jardine- Barclays;

Ltd.· a non-resident £oreign corporation domiciled in Hongkong are subject only to the 15~ withholding tax; prescribed by Section 24<b><I><ii> o£ the Tax Code; as amended.

Very truly yours;"

<Sgd> RUBEN g. ANCHETA Acting Commissioner , .

504 D E C I S I 0 N -

- 8 - "24-b 126-83 045-85 Hongkong and Shanghai Banking Corporation Manila O££ice March 22; 1985 P.O. Box 1299 Commercial Centre Makati.

M~tro Manila, Philippines Attention:

Kr. A.R. Servinio Kanager Securities Dear Sir:

This re£ers to your letter dated January 25, 1985 requesting £or a con£irmation that the cash dividends issued by a Philippine corporation in £avor o£ your client, Drexel Burnham Lambert.

Inc.

is subject to the reduced 15Y.

withholding tax pursuant to Section 24<b><I><iii> o£ the Tax Code. It is represented that Drexel Burnham Lambert, Inc. is a Hongkong based company and that it derives dividends £rom San Miguel Corporation, a Philippine corporaiion. Considering that it has been established that Hongkong does not impose tax on dividend received by Drexel Burnham Lambert. Inc. £rom San Miguel Corporation shall be subject to 15Y. tax pursuant to Section 24<b><I><iii> o£ the Tax Code.

505

ISTON -

DEC

Evidently, from the foregoing rulings it is well established that as Hongkong does not impose tax on dividend ‘income received by corporations domiciled therein from foreign sources, the dividends received by Hongkong Corporations from the Philippines shall be subject to 15% tax pursuant to Section 25(b)(5)(B) . of © the Tax Code, as amended, previously Section 24(b) (I) Ciidad.

The applicable law above cited is too plain to be missed and too categorical to. he misunderstood. Moreover, “tax statutes are to be construed strictly against the ‘government for tax, being burdens are to be presumed beyond what the applicable statute expressly and clearly declares. "(Republic vs. Intermediate Appellate Court, 196 SCRA 335) Records show that respondent counsel’s attitude shows _ laxity in the discharge of her duties’ as manifested ‘by his frequent non-appearance during Court hearings. Likewise, no memorandum was filed in this court inorder to lay his argument puesllore iver,, the | find of defense offered by. the ‘eam unged da, anghered. on ) aheliow. bosie which ie equivalent. to. not having put ups geod defense at atl. which ie, very voly enhanited, an hie answer. . It ie Likeviae obaerved, | that, vhen, at was hie turn to present evidence, counae} failed to appear which 506.

D E C I S I 0 N -

- 10 - in effect is a waiver on his part to present evidence. Counsel for the respondent lacks diligence and zeal in.

the performance of.his duty being ~n officer of the court.

In the absence of material evidence on the part of the respondent and the observations mentioned~ this Court has no recourse but to afford relief to the petitioner.

WHEREFORE• in view of all the foregoing, the respondent is hereby ordered to refund in favor of China Banking Corporation the amount of P29~900.20 representing overpaid withholding tax on cash dividend.

VE CONCUR:

~ As so GRUBA Judge CERT::t:F::t:CAT::t:ON I hereby certify that the decision was reached after due consultation among the members of the Court of Tax Appeals in ~ccordance with Section 13• Article VIII of the Constitution.

507 eHLZ"bt· ~ ERHESTO D. ACOSTA Presiding Judge Court of Tax Appeals