The Coca-Cola Export Corporation vs. Commissioner of Internal Revenue

Republic of the Philippines

COURT OF TAX APPEALS

Quezon City

THE COCA-COLA EXPORT

CORPORATION,

Petitioner,

versus -

C.T.A. CASE NO. 4823

COMMISSIONER OF INTERNAL

REVENUE,

Respondent.

X ---------------------

X

D

E

c;

I

I

0

N

This is a claim for tax refund or tax

credit

in the amount of ~310,684.81.

Petitioner

alleges that it is a

corporation

organized and existing under the laws of the

State

of

Delaware,

United

States

of

America,

with

principal place of business in the City of Atlanta,

State

of

Georgia, United States of

America,

and

licensed to do business in the Philippines with its

Philippine Branch office at lOth Floor King's Court

Building,

2129 Pasong Tamo, Makati, Metro

Manila,

Philippines;

through

its

Philippine

Branch,

Petitioner

is engaged in the manufacture and

sale

of beverage base and concentrates, and in

addition

thereto,

petitioner is an investor,

independently

of

its Philippine

Branch,

in

Sixty

Thousand

-

D E C I S I 0 N -

C.T.A. Case No. 4823

-

2 -

<P60,000) Preferred Shares of the Capital Stock

of

Coca - Cola

Bottlers

Philippines, Inc.

<CCBPI

for

short>,

a domestic corporation duly organized

and

existing

under

the laws of the

Republic

of

the

Philippines. On April 19,1990, CCBPI declared

cash

dividends

and

it

paid

to

petitioner

a

gross

dividend

of

P6,213,698.63

from

which

20%

tax

amounting

to P1,242,739.60 was withheld

by

CCBPI

and

the said amount was remitted by CCBPI

to

the

respondent on June 25, 1990.

Petitioner contends that the aforesaid amount

of

~1,242,739.60 is

in

excess

by

P310,684.81

because

only 15% and not 20% of the dividend

paid

to

petitioner should have been the amount

of

tax

thereon.

Petitioner

argues that the

dividend

is

paid

to it as a non - resident

foreign

corporation

which

amount is taxable under Section

25<b><5><B>

of

the

National

Internal

Revenue

Code.

Respondent

failed

to

submit

his

answer

despite

repeated

motions

for

extension

of

the

period

to

do so.

On

January 7, 1993

petitioner

filed its Motion to Declare Respondent in

Default.

The following day, January B, 1993 respondent filed

a

Motion To Admit Answer.

Both motions were heard

on February 2, 1993 and in a Resolution promulgated

457

-

D E C I S I 0 N -

C.T.A. Case No. 4823

on

February

5,

1993,

-

3

-

petitioner's

motion

for

default

was

granted and

respondent's

motion

to

admit answer was denied.

The

case

was

then

set for

reception

of

petitioner's evidence and the following

were

then

offered and admitted:

Exhibit

"A"

"B"

"C"

"D"

Description

Central

Bank

Letter

of

Authority

to

remit

foreign

exchange

representing payment cash

dividends

on

preferred

shares, dated August

21,

1990.

Central Bank Confirmation

Receipt

No.

B20111590

dated

June 25, 1990

for

taxpayer

Coca - Cola

Bottlers Phils., Inc.

in

the

amount

of

p 1, 242, 739. 60.

Bureau

of

Internal

Revenue Payment Order No.

C 8242772 dated June

25,

1995

for taxpayer

Coca-

Cola

Bottlers

Phils.,

Inc.

in

the

amount

of

Jil1, 2 4 2,739.60.

BIR

Form

No.

174360

<Monthly

Remitta~ce

Return

of

Income

Taxes

Withheld>

filed on

June

26,

1990 by

withholding

agent Coca - Cola

Bottlers

Philippines, Inc. for tax

withheld in the amount of

P1,242,739.60.

458

-

D E C I S I 0 N -

C.T.A. Case No. 4823

"E"

-

4 -

Petitioner's

letter

request

dated

June

22,

1992 £or re£und or credit

o£

P310,684.81

representing

withheld

on

excess

tax

dividends

paid

by

Coca-Cola

Bottlers Philippines, Inc.

The

Court also admitted the

testimonies

o£

petitioner's

witness, namely:

Evangeline

Cayaba,

Melita V. Reyes and Atty. Nelson D. Empalmado.

We £ind £or petitioner.

Petitioner had su££iciently established

that

it is a non-resident £oreign corporation.

Although

it has

a

branch in

~he Philippines,

it holds

investment

directly

and

independently

o£

its

branch,

in the capital stock o£ CCBPI, a

domestic

corporation.

CCBPI paid dividends directly to

the

petitioner

a£ter

withholding

the

amount

o£

Pl,242,739.60

representing

20X

o£

the

gross

dividends; and that petitioner seasonably £iled its

claim

£or

re£und/credit with this

Court

in

the

amount

of

P310,684.81

on

the

basis

of

its

contention

that only 15X and not 20X

should

have

been

withheld as tax on the dividends remitted

to

it by the CCBPI.

As

contended

by

Petitioner,

the

Tax

on

dividends

is governed by Section 25 (b) 5

< B >

o£

459

..

-

D E C I S I 0 N -

C.T.A. Case No. 4823

-

5 -

the

National Internal Revenue Code which

provides

as follows:

"<B>

On dividends received from

a

domestic

corporation

liable to

tax

under this Chapter, the tax shall be 15%

of

the dividends receivedi which

shall

be

collected

and paid as

provided

in

Section

50(a) of the National

Internal

Revenue Code, as amended, subject to the

condition that the country in which

the

nonresident

foreign

corporation

is

domiciled

shall allow a credit

against

the tax due from the nonresident foreign

corporation,

taxes deemed to have

been

paid

in the Philippines

equivalent

to

20%

which

represents

the

difference

between

the

regular

tax

(35%)

on

corporations

and

the

tax

(15%)

on

dividends

as

provided

in

this

subparagraph."

Petitioner has established.

The

Supreme

Court

ruled

in

Marubeni

Corporation

vs. Commissioner of

Internal

Revenue

<G.R. No. 76573> that dividends on investments made

directly

by

a

corporation

which

are

remitted

directly

to its Home Office abroad are

considered

dividends

paid to nonresident corporation and

the

applicable, provision of the Tax Code is Section 24

(b) <1> (iii)

which is now Section 25

<b> <5> <B>

as

aforequoted.

Petitioner

has

also

shown,

through

its

counsel,

Atty.

Nelson

D.

Empalmado,

that

the

condition

in the aforequoted provision of the

Tax

460

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D E C I 5 I 0 N -

C.T.A. Case No. 4823

-

6 -

Code

is satisfied inasmuch as the Tax Code of

the

United States where Petitioner is domiciled

allows

a

credit against the tax payable to the U.S.

from

the

petitioner, taxes deemed to have been paid

in

the Philippines equivalent to 20Y. representing

the

difference

between

the regular 35Y.

tax

and

the

reduced 15Y. tax on dividends.

Petitioner cited the

following specific provisions of the U.S. Tax Code:

•sec.

901.

COUNTRIES AND OF

UNITED STATES.

TAXES OF POSSESSIONS FOREIGN OF THE

(a>

ALLONANCE OF CREDIT.

If the

taxpayer chooses to have the benefits of

this

subpart, the tax imposed

by

this

chapter shall, subject to the applicable

limitation

of Section 904, be

credited

with

the

amounts

provided

in

the

applicable

paragraph of subsection

(b)

plus, in the case of a corporation,

the

taxes

deemed

to have been

paid

under

Sections

902 and 960.

Such choice

for

any taxable year may be made or

changed

at any time before the expiration of the

period prescribed for making a claim for

credit

or refund of the tax imposed

by

this Chapter such taxable year.

< b >

A/fOUNT ALLONED.

the

applicable

limitation

904,

the

following

amounts

allowed

as the credit under

<a) :

Subject

to

of

Section

shall

be

subjection

<1>

CITIZENS AND

DOifESTIC

CORPORATIONS.

In the case of

a

citizen of the United States and of

a domestic corporation, the

amount

of

any

income, war

profits,

and

excess

profits

taxes

paid

or

461

-

D E C I S I 0 N -

C.T.A. Case No. 4823

-

7 -

accrued duri ng the taxable year

to

any

foreign

country

or

to

any

possession

of the

United

States;

and

>CXX XXX XXX

Sec.

902.

CREDIT FOR CORPORATE

STOCKHOLDER IN FOREIGN CORPORATION.

<a>

TAXES CORPORATION DOI1ESTIC PAID BY TREATED AS

CORPORATION.

FOREIGN PAID BY

For

purposes of this subpart,

domestic

corporation

which owns 10

percent

or

more of the voting stock

of

a

foreign

corporation from which

it

receives

dividends in any

taxable

year

shall be deemed to have

paid

the

same

proportion

of

such

corporation's

post-1986

foreign

income taxes as -

<1>

the

amount

of

such

without

dividends

(determined

regard to Section 78>, bears to

<2>

such foreign corporation's

post-1986 undistributed earnings.

XXX XXX XXX

Cc)

DEFINITIONS AND SPECIAL RULES.

-

For purposes of this section -

( 1>

POST- 1986

UHDISTRIBUTED

EARNINGS.

The

term

'post-1986

undistributed earnings means the

amount

of

the

earnings

and

profits

of

the

foreign

corporation

(computed

in

accordance with sections 964(a) and 986)

accumulated

in taxable years

after December 31, 1986 -

CA>

as of the close

taxable

year

of

the

corporation

in which the

is distributed, and

462

beginning

of

the

foreign

dividend

-

D E C I S I 0 N

C.T.A. Case No. 4823

-

8

-

<B>

without

diminution

by

reason

of

dividends

distributed

during such taxable year.

( 2)

TAXES.

POST- 1986

FOREIGN INCOKE

The term

'post-1986

foreign

income taxes' means the sum of -

with

the

the

<A>

the foreign income

taxes

respect to the taxable year of

foreign corporation

in

which

dividend is distributed; and

<B>

the foreign income

taxes

with respect to prior taxable years

beginning after December 31,

1986,

to

the extent such

foreign

taxes

were

not deemed paid with

respect

to

dividends

distributed

by

the

foreign

corporation

in

prior

ta>table years.

XXX XXX XXX

(4)

FOREIGN INCOME TAXES -

<A>

IN

GENERAL -

The

term

'foreign

income taxes'

means

any

income,

war

profits,

or

excess

profits

taxes paid by the

foreign

corporation to any foreign

country

or possession of the United States.

XXX XXX XXX

( 6)

TREATMENT OF DISTRIBUTIONS

FROM EARNINGS BEFORE 1987.

<A>

IN GENERAL -

In the

case

of

any

dividend

paid

by

a

foreign

corporation

out of accumulated

profits

<as defined in this section as in effect

on

the

day

before

the

date

of

the

enactment of the Tax Reform Act of 1986)

for

taxable years beginning before

the

1st taxable year taken into account

in

determining the post-1986

undistributed

earnings of such corporation -

463

-

D E C I S I 0 N -

C.T.A. Case No. 4823

-

9 -

<i>

this section <as

amended

by

the

Tax Reform

Act

of

1986)

shall not apply, but

(ii)

this

section

(as

in

effect

on the day before the

date

of the enactment of such Act> shall

apply.

<B>

DIVIDENDS PAID FIRST

OUT OF POST-1986 EARNINGS

Any

dividend

beginning

shall

be

post-1986

the extent

( 7)

in

a

taxable

year

after December 31,

1986,

treated as made

out

of

undistributed earnings to

thereof.

REGULATIONS.

The

Secretary

shall

provide

such

regulations as may be necessary

or

appropriate

to

carry

out

the

provisions

of

this section

and

section

960, including

provisions

which

provide

for

the

separate

application

of

this section

and

section 960 to reflect the separate

application

of

section

904

to

separate types of income and loss.

<d>

CROSS REFERENCES.

<1>

For inclusion in gross

income

of an amount equal to taxes deemed

paid

under subsection <a>, see section 78.

<2>

For application of

subsection

<a> and <b> with respect to taxes deemed

paid in a prior taxable year by a United

States

shareholder

with respect

to

a

controlled

foreign

corporation,

see

section 960.

<3>

For reduction of credit

with

respect

to dividends paid out of

post-

1986 undistributed earnings for year for

which

certain

information

is

not

furnished, see section 6038. "

46

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D E .C IS I 0 N -

C.T.A. Case No. 4823

-

10 -

•sec. 78. -

DIVIDENDS RECEIVED FROM

CERTAIN FOREIGN CORPORATION BY

DOMESTIC CORPORATIONS CHOOSING FOREIGN TAX

CREDIT.

"Sec. 11 -

TAX IMPOSED

<b>

AMOUNT OF TAX.

-

The amount o£

the tax imposed by Subsection <a>

shall

be the sum o£ -

<1>

15 percent o£ so much o£

the

taxable

income as

does

not

exceeds $50,000,

<2>

25 percent o£ so much o£

the

taxable

as

exceeds

$50,000

but does not exceeds $75,000.

<3>

34 percent o£ so much o£

the

taxable

income

as

exceeds

$75,000.

•sec.

904

<a> LIMITATION.

The

total

amount o£ the credit taken

under

Section

901

<a> shall not

exceed

the

same

proportion

o£

the

tax

against

which

such

credit is taken

which

the

taxpayer's

taxable income £rom

sources

without

the United States <but

not

in

excess of the taxpayer's entire

taxable

income>

bears

to

his

entire

taxable

income for the same taxable year.

KKK

K KK

KKK

<d> SEPARATE APPLICATION OF SECTION

WITH

RESPECT TO CERTAIN

CATEGORIES OF

INCOME -

( 1 )

IN GENERAL

The

provision o£ Subsections <a>,

(b),

and (c) and Sections 902, 907,

and

960

shall

be

applied

separately

with

respect

to

each

o£

the

£allowing items o£ income.

465

-

D E C I S I 0 N -

C.T.A. Case No. 4823

-

11 -

< e >

dividends

in a case

f"rom each

corporation" -

of"

a

corporation,

noncontrolled

902

Petitioner

has

f"urther shown that

the

tax

credit f"or tax deemed paid on dividend received

by

us

Corporations

f"rom

Philippine

corporation's

exceeds 20/. of" the dividend received:

In

the

case

of"

Commissioner

of Internal

Revenue

vs.

Procter

&

Gamble

Philippine

/'lanufacturing

Corporation,

G. R.

No.

66838,

December

2, 1991, the Supreme Court

had

occasion

to rule, thus:

"xxx, Section 24 (b)(l), NIRC, does

not

in

f"act require that

the

'deemed

paid'

tax

credit shall

have

actually

been

granted

before the

applicable

dividend tax rate goes down f"rom thirty-

f"ive (35/.) to f"if"teen percent (15/.).

As

noted several times earlier, Section

24

<b><1>

merely requires, in the case

at

bar; that the USA 'shall allow

a credit

against

the

tax due f"rom [p &

G

-USA

f"orJ

taxes deemed to have been paid

in

the

Philippines xxx.

There is neither

statutory

provision

nor

revenue

regulation

issued by the

Secretary

o£

Finance

requiring the actual

grant

o£

the

'deemed paid' tax credit by the

US

Internal

Revenue Service to P

&

G-USA

be£ore the pre£erential £i£teen

percent

<15/.) dividend rate becomes

applicable.

Section 24 <h><1>, NIRC, does nat create

a

tax exemption nor does it provide

a

tax

credit; it is

a

provision

which

specifies

when a

particular

(reduced)

tax

rate

is

legally

applicable. "

<Commissioner

a£ Internal

Revenue

vs.

Procter

&

Gamble

Philippine

466

.·'

. '

-

D E C I 5 I 0 N -

C.T.A. Case No. 4823

ttanufacturing

66838, December

-

12 -

Corporation

2, 1991.>"

WHEREFORE,

respondent

G. R.

No.

Commissioner

of

Internal Revenue is directed to refund to or credit

in favor of petitioner, the amount of Three Hundred

Ten

Thousand

Si~ Hundred Eighty

Four

Pesos

and

Eighty

One

Centavos (F310,684.81>

which

is the

excess

of

taxes

withheld

from

the

dividends

remitted .by CCBPI to the petitioner.

WE

No pronouncement as to cost.

SO ORDERED.

Quezon City,

::i1£g Jure

RArtOH 0~ ~--~

Associate ~l~~A

CERTIFICATION

I

hereby

certify that this