CTA Case No. 4781

DECISION -

C.T.A. CASE NU.

4~81 - ~ - Un said dividend remittances, petitioner alleged that it paid to the Bureau o~ Internal Revenue a 20X withholding taxes due thereon as follows: <1> On Pl~. ~ ee,~ou.uu a.

1 !:t/. w i t .hholding ta~-::es

b. additional 5/. <2 > Un PlU,BUU,OOU.UU a.

~U% withholding taxes

T U T A L

Ptu · su ~ln t to Section 25<b ><5J<B> P1,~93,230.00 3 664,410.00 4 2,150,000.00 15 P4,81'7,640.UO of the Tax Code (providing that the rate of tax of such dividends is only 15%) and the decision o± the Supreme Court in the case o£ Commissioner of internal Revenue vs.

Procter and Gamble Philippine 11anu±acturing Gorp.

and the Court:

o.f Tax Appeals, U f~·ce mb er 19'::) 1, 204 SCRA 3'7'7 , petitioner invokt?d entitlentr:>nt to the tax rate on dividend remittances to Wrigley-U.S .. On March 4, 1992, petitioner filed with the BIR Appellat e Divisi on a written claim for refund of the amount.

oJ p 1 ,. £04, 4 J u. uu representing the excess 5X 3 Evidencf:d tty Payment llrder No.

ClliL4b051 <Exh.

"L" >

and Central Bank Confirmation Heceipt No. B20955765 CExh. "~") both dated July 3, 1991.

4 EvidenCE'd by Payment Ureter No.

C10778976 ( Exh.

"N") and Cent1·a1 Ban}: Confirmation He·ce?ipt No • .I:I:-LJ1:!£L!J <.E:x.tJ. "0" J both dated August Le, 1991.

0 .E:videnc:ed by I-'nyment Urder llo.

C11b!:•5926 Central Hardt C:uniirmatiun HE'c:P.ipt. llo. l:C!09!:t8194 (E}th. November 28, 1991.

552 (Exh.

"S") and "T"I both dated —. a —— ee withholding tax payments on dividend remittances, computed as tollowe:

(1) Dividends oan June 1991 Pig, 288, 200. 00%

(2) Dividends on October 1991 10, 800, 000. 007 Total P24, 088, 200. 00 20% withholding tax paid and remitted to BIR P 4, 817,640. 00 Should be - 15% withholding tax (24,088, 200 x 15%) 3,613, 230.00 Refundable amount P 1, 204, 410. 00 Petitioner without waiting for the respondent to act on the claim for retund filed the instant petition for review on April 8, 13932 to toll the running of the prescriptive period set forth in Section 243 of the Tax Code.

Respandent an his part did nat submit any evidence ta cantrovert the correctness otf the tax return as well as other rcelevant facts, nor refute petiticner’s claim, but oapted ta submit this case for decision an the basis of the recards and pleadings of the case.

The issues posed on this appeal are the fallowing: a?) whether or nat petitioner as entitied ta the preferential 125% tax rate on dividends remitted to its parent ‘Corporation pursuant ta Section 25 (b)(5)0B) at the ‘Tax Cade; tb whether ar not petitioner has the SAppraved hy a letter af CHh-internationsal Sector dated July 24, 1991 (Exh. °G") for remittance.

7Appraved by a letter af CB-International Sector dated December — 12, 1991 (Exh. "F") for remittance, 008

DECISION -

C.Y. A. CASE NO. 4781 persanality in bringing the present suit for heing a withholding tax agent of Wrigley-u.S. and claim the alleged refund.

As regards the first issue it is important ta cansider the pertinent pravisicens of the National internal kevenue Cade, as amended, particularly Section 295 (bh) CS) (8) which states, and We quate:

"(5) Tas on certain incomes received by nonresident foreign corporatians x x x (BRB) Cn dividends received trom a damestic carporatian liable toa tax under this Chapter, the tax shall be 15% at the dividend received, ¥xx Subject ta the canditioagn that the coauntry in which the nenresident fareign corporation is domiciled shall allow the credit against the tax due from the non-resident foreign corporation, taxes deemed to have been paid in the Philippines equivalent ta 20% which represent the difference between the regular tam (35%) on corporations and the tax (15%) on dividends as provided in this subparagraph. ” (Underscoring supplied) By virtue of the abhoaove-cited provision of the Tax Gode, petitianer claimed that it is required ta withhold and remit only 15% of the dividends due ta Wrigley-U.S.

The atearementioned is not of first impressian.

in aie recent case at Commissioner ot Internal Revenue vs. Precter and Gamble Philippine Manutacturing Corporatiun and the Court of Tax Appeais G.K. Ne. L- 66838, December 2, ig9i, 204 SCKA 877, wherein the 004

DECISION -

CG. T.A. CASE NO. 4781 Supreme Court recansidered en hanc the decisian of second Division, the Court said:

"The ordinary thirty-five percent (35%) tax rate applicable ta dividend remittances to non-resident tareign corporate stockholders of a Philippine corporation, goes down ta fifteen percent (15%) if the country of domicile of the.

tereigqn stackhalder corpoaratian “shall allow’ such tftoreign carporatian a tax credit for ‘taxes deemed paid ain the Philippines’, application against the tax payable to the domiciliary country by the foreign stackholder corporation, In oather words, in the instant case, the reduced fifteen percent (152%) dividend tax rate is applicable if the USA “shall aliow’ to P&G-USA ai tax credit far “taxes deemed paid in the Philippines’ applicable against the US taxes of P&G-USA. The NIRC specifies that such tax credit for ‘taxes deemed paid in the Philippines’ must, as a minimum, reach an amount equivalent to twenty

(20) percentage points which represents the difference between the regular thirty-five percent (35%) Jividend tax rate and the preferred fifteen percent (15%) dividend tax rate.

It ais important te nate that Section 24 (Bd¢1), NTIRC, does nat require that the US must qive a ‘deemed paid’ tax credit for the dividend tax (20 percentage points) waived by the Fhlilippines in making applicable the preferred dividend tax rate af fifteen percent C154), in oather words, aur NIRC does net require that the US tax law deem the parent- corporation to have paid the twenty percentage points of dividend tax waived by the Philippines. The NERC only requires that the US ‘shall allaw’ P&G-USA a ‘Deemed paid’ tax credit ain an. amount equivalent toa the twenty

(20) percentage _ points waived by the Philippines." (Underscering supplied) Fertinent tereta, is the questicn at whether law complied with the requirement for 555 the the the - 6 - applicab i li ty oi lhe redu c ed or preferential 15% di v i d e n d ta x rat!::• ur1d e r Section 24 <b >Cl) o~ the Tax Code wherei n the hiph court concluded that indeed Section 902 o~ t he U. S.

Ta '~ Cod e compl iecl with the requirements o~ Section 24 (b)(l) now Section 2 5 Cb> <5> CB> of the Na ·tional Internal Revenue Cod e , to wit : " 'I hu s , :ior · every a c tually remitted <a :Lter rate of 15;·;)

by P&G-Phil.

1-' ~ • !::1. 25 of withholding ·to its U. S .

dividends at.

the r'&G USA, a tax credit oi P 2 9.

7 ~ is allowed by Section 9U ~ US Tax Code for Philippine Corporate income tax " deemed paid" by the parent b u t actually by the wholly owned subsidiary." Petitioner asserts that since P29 . 70 is much hi gher than Pl3. 00 <the amount o~ dividend t a x waived by the Pl1ilippine Government), tmder Section 902 , o~ t h e U. S.

it haE:

there fore specifically and clearly complied with the requirements oi Section 24 Cb)(l) o~ 1hus, it has been ruled: "It remains only to note that under the 1-'!J i l ippines-Uni·ted Stat.es Convention ' With Re ··pect t o Ta)te s o n lncollle' , the P hili p pines , by a treaty commitment , reduced the regular r a t e o£ dividend tax to a maximum o~ twe n ty pe 1·o.:e nt <:LUI.) oi t he gross amount of dividends paid to US par e nt c orporations : Article 11.

- P.ividends_ XXX ( z ) Th e i; a:·~ r·ate imposed by one o£ the Lunt:.ractiny State on dividends derived £rom sources within that Gontt-acting State by a 556

DECISLUN -

C.T.A., CASE NU. 4781

-~ J-

resident af the ather Contracting State shall nat exceed - :

a) 25 percent at the gress amaunt af the dividend; oar bh) When the recipient is a corperatian, 20 percent of the gross amount of the dividend if during the part of the paying carporatian’s taxable year which precedes the date af payment ef the dividend and during the whole ef its prior taxable year (if any), at least 10 percent ot the outstanding shares of the voting stock of the paying cerporation was owned by the recipient corporation,” (Underscoring Supplied)

XX NMX XK

"With Respect toa Taxes oan Incame." the Philippines, #&y a treaty cammitment, reduce the regular rate of dividend tax to a maximum of twenty percent(zZ0%) of the gress amount of dividends paid to US parent corporations. x x x The Tax Canvention, at the , same time, established a treaty obligation on the part of the United States that it "Shall allaw" toa US parent corporation receiving dividends from its Philippines subsidiary" a {tax} credit for the apprapriate amount of taxes paid ar accrued ta the Philippines by the Philippine {subsidiary]-." This is, af course, precisely the "deemed paid" tax credit provided for in Section Ge, US YTax UCUade, discussed above. Clearly, there is here on the part af the Philippines a deliberate undertaking to reduce the requier dividend tax rate af thirty-five percent(4a54). Since, hawever, the treaty rate of twenty percent(20%) is a maximum rate, there is still a differential of additional reduction at ftive(S) percentage points which compliance ef US Law (Section YU) with the requirements af Section 244(b)d¢1), NIRC, makes available in respect of dividends fram a Philippine subsidiary. " :

Thus the petitioner is required ta withheld and remit as tax anly 15% of the dividends due Wrigley U.S..

oo?

DEGISILIN -·

C.T.A. CASE NO.

4Y01 - 8 - The q uestion oi the capacity of Wrig~ey Philippines, Inc.

to bring the claim :for refund , being a mere withholding agent, was also ans wered four square· in the above ment i oned case of Comm~ssioner of I nternal Revenue vs.

Proct.er and GambJ.e Ph~lipp~ne J1anu:factur~ng Corpora t ~ on, (supra ). Pertinent portion o:f s aid decisictn i s quoted belo'r7:

" 2 . The question of the capacity of Phi~.

to brill£!

t he claim for refund substan·ti ve di rnensi orJ.B a s well which, as be seen bPl ow , also ultimately relate i air Tl f.~s E:.

P&G- has will to Under Section 30b of t h e NlHC , a claim for refund or tax credit filed with the Commissioner of Internal Hevenue is essential fo r maintenance oj: a suit. :for recovery of ·ta::>~es allegedly erroneously or illegally assessed o r collected :

"Sec. ::JOb.

H e cover y o .f tax erroneously o:r i .llega11y collectecl .

No S ltit or p rocee ding shall he maintained in a ny co urt f or the recov e ry ol any national inte rna~ revenue tax her e after alleged to have been e rroneously or illegally asses s ed or col ~ ecte d, or of any penalty c~aime d to have bee n collected wi t hout authority , o:r o:L any t':lum a.l J eged to hav e been e .~~cess:i. v e or i n any manner wrong f. ully col.,lected , untJ· ..J.

a claim :lur re.i."und or c:reclit has been d uly :til ed ll'i t.h t h e Commissioner oi Intern al Hevenue;

but such s u i t or proceeding may be maintain e d, whether or not s uch tax, pen a lty, or su m ha s b e en paid under prote~ t or duresE:.

l n a ; y c ase , no s uch s ui o r proceed i n£t sl 1 a ~l l1 e b e\;1\HJ ai t .er t. 1e e ;·tpira ion of ·t wo ye ;:n El :fx ·o m h e date eli pa y rnen tl" he ta::-c o r p e•nal·t. y :rega:rciless o:f a n y SUJ..Ie:t verd fl{;l 558 - 9 - cause that may arise <Italics supplied) a:fter payment:

XXX, n "Section ::JOY.

J\utho1 ·i-Ly o:f Commissioner to Take CornpromiE.;E'S aiJd to Hef und Taxes .

The Cornntissictne:r may: )C)()t <::rJ c redit u1 refun d ta,tes erroneously or illeqally :recei vee!, ;o:x .

No credit or reit~nd of tax~s or p e nalt ies sbal~ be allowed unless the taxpayer 1~~es in writing with the Commissi oner a c~aim 1or credit or refund within two ( 2 ) year s a:fte:r the payment of the t.a .: or pr.,.nalty."

(A s amended by P. D.

No.

b9) <Emphasis su~plied) S ince the claim for re:fun d was filed by P&G- Phil., the q uestion which a rises is:

is P&G- Phil. a "t axpaJ·er" under Secti on 309 C 3 > o:f the NIRC?

The te:rm "taxpayer" is defined in our NIRC as referring to "any person subject to tax imposed by the Titl e [on Ta}t on lncomeJ."

lt thu s becomes import.ant to note that under · Section 53Cc) o:f the NIRC, the withholding ag&n t wh o is "re quired to deduct and withhold any taz" is madt? " personally liable for such tax" aod ir1deed is inclemni£i ed against any cJ.a :i. ms and d E•marlcl to: wh ic h t!Je stoclthol de:r mi~Jht.

wish to make in questioning the amount o1 pay rnent s: ef :f ec t eel .by the wi thlwlding age.nt in accctl"d <-HJCE' wi LlJ lh ~? J-'l"llvisi ons o:f the NIRC.

The wi t hholding aqent , P&G - Phi1., is direct~y and independently l2able £or the correct amount.

ol t h e tax that ~ hould be withheld f:rom t he eli v idend remittances .

The wi t .hholding agent il3 , .. moTeover, ~~ d.tje L~t to and liable :for de:f i c ieiJcy aSBS'SS III ""' Jl t S , S\.n·chai·\:;JE'S an d p e nalties Bhoul d the a no u n o .f t .}Je t a;'l: withhel d be iinally o u n d ,, be less t ln::~ n the amoun ·hat E~h c-tu lci h::l''E' '•€'!?' wi h h eld md e r law.

1\ n r IE' r !'' C· n l i ;J I I I_ e i u l l i:l X " h a .s b E'en 1-1 e·l cl t [I lt::

<1 "p e :rP'tr!

L'txbjF_ct to l a :·t" and pr<..tperly C'LlTl"''idPrc·d u 'i:a:··payer.

The terms ~lialde ior ld- " ar1d n.,..

t jPt t L't l a:>;"

bui 11 cc•rtJH..:tt> lto>q.3] 559

DECISION -

C.T.A. CAHE NO. 478 1 -

HI -·

obligation ur duty to pay a tax.

lt is very difficult, i11deed concept.ut-~lly .iJnposE:ible, to consider a pE•rson wl1u is statutorily made "liabl e ior tax" 3B not "subject to ta x ."

By any :ceasonable standard , such a person s:hould bE' :ce!:JardE"::>d as a party in interest , or as a person haviTl\;1 s u:f.i :i.cient legal int.ereE:t., to bri np a sui l for rei uod oi ta)tes he believes were illegally collected from him. In PhiLippine Guaranty Company, Jnc .

v.

Cornmissi oner o:t.

J nternal Ji'e o,·enu e , t .his Court pointed out that a withholding a!:Jent is in :fact t .tJE:' a~o-Jent bot.h oi the government and o:f the ta;.~payE·r, and that the witl•holdin~J agent is not an ordinary government agent: "The JaJo· sets no condition :for the pe:rscmal liability o:f the wi t.hholding agent. ·to attach.

The reason is to compel the wi hholdin~r a~1ent to wi ·thhold the ta)c under all circumstances.

In e:f:fect , t he respo n sibility ±or the collection of the tax as well as t he payment thereof is concentrated upon the person over whom the Government ha s jurisdiction.

Thus, the l+'it!Jholding agent is constituted the agent of both the Government and the taxpayer.

With respect to the collection and/or w i thhol dilltl o1 the t a:·{ , he is the Government ' s a~]E'Jrt.

Jn re(;~ard to t he filing o:f the necessar")-' income tax return and t.he paJ·ment o:t" the tax to t-he Government, he is the Bflent of the tax payer.

The withholding af}Pnt , there1 ore, ~ s no ord~nary government a9ent.

eBpec i ally because unde1· Sect.i on 53( c) h e is held pessonaJJy liable for the tax he is duty f,ound to wi tllho l d;

whereas the Co.mmissi cmer and his deputies are not made liable by law."

<It alics su pplied> li , as poiot eel out iTJ 1-'hi lippine Ciuarant y , :t.h.fit ._. ~_:j_th[Joldinq agent is also an agent of t .he £l?J\_e_;Li_9_;i.al ___ g _~_r..)!='~-::_ . __ g_;L :\:.)1_E? . d:j__y idends with resperd..t l_Q__·Lhe ___ ;filing of the necessary income ta)t r t;> L _\l.! -_n_ ··-· __ ?.!.l,...Q -~-;Lt.!! . .. _L §' s p s:_~ _t_ :1,;_ o _____ _?_Qj; __ ~.s!_L p a y m e_Il..:L_..Q.!" ttw::-J?!.<·t __ _i_q _ th\:i::.. .... ..9.QY..~ I ·· ~"lrneut_t. sue[! authori t .y may r: ~aS .. QJl _atJ_.j. Y. be . tle.ld 1~9- __ ;i,ncJ._t,.~._gg_ I_:JJ!=L..i:lU tJ:tQ.!.::..;\,JJ::__ to i.;i..J. .. E? ___ .9__.s;:_l i:.'l_:i rn ___ ;f O[:_LS'....;L1:!!1..t;L and to briTlQ _ _ a..rL act_;i...Q.D t.9J"". __ ..!~ CQ..'{~r y ___ ..Q_:l; ___ !?. U_~ h ______ ,;,_.j._?_;i,_J.ll · This implied 560 DECISION - .

C.T.4. CASE NU. 47581 -~ Ld =< authority is especially warranted where, as in the instant case, the withhalding agent igs the wholly owned subsidiary at the prarent- stoackheider and therefore, at all times, under the effective central ot such parent- stockholder. °.i1in the circumstances of this case, it seems particularly. unreal ta deny the implied authority of P&G-Phil. toa claim a refund and tai commence an action fer such refund.

We helieve that, even naw, there is nothing to preclude the BIR from requiring P&G- Phil. to show same written or telexed contirmatian by P&G-USA af the subsidiary’s authority to claim the refund or tax credit and te remit the proceeds of the refund, er ta apply the tax credit ‘te same Philippine tax obligation af, P&G-USA, before actual payment ef the refund oar issuance of a tax credit certificate. What appears to be vitiated by basic unfairness is pebtitioner’s position that, although P&G-Phil. is directly and personally liable to the Government for the taxes and any deficiency assessments to be collected, the Government is not legally tiable fur a refund Simply hecause it did not demand a written confirmation of P&G-Phil."s implied authority tram the very heginning. A sovereign government should act honorably and fairly at all times, even vis-a-vis taxpayers.

We believe and so hold that, under the circumstances of this case, P&G-Phil. is properly reqarded as a “taxpayer” within the meaning of Section 309, NIRC, and as impliedly authorized to file the claim for refund and the suit to recover such claim. (Underscoring supplied) We find it very ironic tor respondent to rely on the decision of the Secund Division of the Supreme Caurt and assert that ait constitutes the Law of the case between the parties when: in fact the Supreme Court sitting en banc has reconsidered its Second Division decision on o61

DECISION ·

C . T. A .

CASE NO. 4781 - l:l - December 2 , l~Yl, the d is positi ve portion of which as iolJ.ows :

"WH.EHEFORE, ior all the foregoing, the Cour·t resol v e d to GHANT private respondent Mot ion for Heconsiderati on da ·ted 11 May 1 Y88 , to SET ASIDE the decision · of t h e Second Division of the Supreme Court promulgated on April 15, 1988 and in lieu thereof , REINSTATE and affirm the decision of the Co urt of Tax /\pJ•E'8ls iJJ CTA Case Nu. 2883 dated January 1984 an0 to DENY the Petition for Heview for lack of merit."

Needless to say, the decision of t h e Supreme read Court sittinq e n bane, B£~ ttin~ l a s ide -Lhe decision of the Secon d Division, now constitutes the ruling case law in Ulis particular case.

Tl1e Supr·erne Court is t he final a rbiter of all legal questions prope1 ·1y ~rough before it and its decision in any qiven case constitutes the law of t ha t particular case .

< Sesbrefio vs. Co urt o f Appeals , G. R .

NO.

1105: .. Hb, Se:pternber 4 ,

1992 ,

2 13 SCRA 581 >

As earlier men·tioned , reE:pondent. has not presen·t.ecl any e•lidence to controver·L the co:crect.ness o:t petit.ion e•r's claim for refund . Instead she submitted her case on the l•asis of the recorciE:

and ple·aclings.

t.tJerei ore, may be considered to have no serious objection or opposition to peti ·t.ioner's entitlement to the rej: und <Dataprep vs .

C omm~ss i o n er o± in-ternal Hevenue, CTA Case N o .

Marc h 20, 1 984 ) ;

562

DECISLUN ~

C.T.A. CASE NU. 4781 - 1 - Hteneo de Manila University vs. Commissioner of Internal 7 Revenwe, (ia No. S632, duly 8, LOAD).

IN VIEW GF THE FOREGOING, respondent Commissioner of Internal Revenue 2s hereby ardered to REFUND toa petitioner Wriaplay fMhikippines, inc. the Sum of BL, O44, 2h, OP, representing averpnaid withholding tax oan adavidernia for the year loud, 50 ORDERED.

Ghuezan City, Metro Manila, July &@, RAMON QO. DE ¥V ; Associate Fuck)

WE LUOMCUR:

Cuz a. Glr— ERNESIU D. ACOSTA reg dean ducue GRUBA duce 063

DECLSLON -

G.T.A. CASE NU. 4781 CERTIFICATION 1 hereby certify that this decision was reached after due consultation among the members of the Court of Jax Appeals in accordance with Gection 13, Article VIII of the Constitution.

QT Q- Chak ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals o64 ;