CTA Case No. 5183 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY BANK OF AMERICA NT & SA. C.T .A. CASE NO. 5183 Petiti()ner. r(;i THE (OMMI SSIONER OF INTERtiAL REVENUE. PromulgaR 11 1997 RE-::.pondent. X- - - - - - - - - - -- - - - - - - -- -- - - - - - - - - - - - - - - - - -X DECISION Tl-11. �:; ,.�� ;.:.�}. -::; :-;. 1.11!t� hJ. �;-:.:�;:- 1n�- ;:--;.t-1. t- �1e- :l�.�r;:--;. 1� � ..::> c- 1'�:-�'-1- 111 f..���r� .+L � ;:.: fllt:Iri C- �t� t:'r __. ... - � -� � � - 1992. branr::l1 in tllt? Philippins aut.lorized to -?ngagE> in tho? banking / ... .../ ;. . busin<:>ss. - C�n l�..t. ;_r 20, 1992, p-?tition:?r r-?cl?iVI?d a 1-?tter, dat-:-rJ lv!a;.r 1 c:, lQ(i} t�r�r�.tl'l t-.1�1;-::. F0t-;::.1.qt1 - E:r"� - ... ... l1:-:l�fio fY ;::. O- n r� - r�a- t.t't:-� t1 :-=> r'l !1�._:.-_l l11;:.:s�t.r�r�1;:-;.t1ts -� -� J -� - -o - .. , - - � �- -- .. -�� 1 -� Departm-:-nt d t11t?. B::.mgl:o Sentral ng Pilipina�; (P.SP) autllt:��rizing

DECISION- LT.A. CASE HO. :)18J -2 - tllE- remitt3.nc::;; or branch pr�.)fits 1:3'arned in 1991 tl) its Head Office � t.-.a.11�1�c.nu�a. T.)T,.�:.�:.. . atnount.-l� ng tf) rr--' t�'��:� u��'��9.. 1V���,)r:r): _.....).(O)\(..�!_. net. 0f 11_:}"�f: O!;� 111 branch pr�.)fit. remitt.rJ.tKe tax of P2�.570/i97.20. On Deceml)er 2t\ 1 (;;;, (:."'�w �� } .rr�.A._. t_..t t..l. r,.')tlP._. !" ft"lp..... ,j tllP... lll4�.")tl�t_11 1 Il l"P�-�llll. t_. ta.tl-'.'_.I't";'' t�r..:...- t�JJ1"11 l.'...�f l.l}l.'..i�1-� !JlP... taxe:; V�lithhdd WIR Form 174.3 vV) corresponding t) t11e branch profit remittance ta.x of P25,570,897.20 which amount v.;ras withheld by f:.P. ::;\)metime 1993, petitioner applied for an authority to remit branch profits for 1992 to its Head Offke. BSP granted the remittance of the amount of P86,448,497.30, net of. 15% branch . . �.,( , pr\)fit remittan�.e tax of P12_.6,32,454.70, per BSP letter dated f.,.1ay 14. 199.3. The tax v..i. thlle1d amounting to P12,6.32,4l4.70 vv".:r3 reported to the t:IR on July 9.. 199.3 under f:.IR Form 1745 vV. On October Z 1, 1994, petitioner filed vvitll tlH? Appellate Division of the Bureau �.)f Internal Revenue a letter. dated Od.ober -..�v -::-�o_,. '1 (:lJ:oJ 4.I.J �����la� 1.1lll.t1o� fr�r .... (:1 t��llPv t� ;=. fJJtl�(._ l o� r l. ""l' atlrP r.f d . l..,C..\.. .,a". \. ,�-�l� "V"(-.tl�t� :J..C: ��� v cert.ifh:a.te of t11e alleged overpaid branch profit remittance t.az for tll'2- years 1991 and 1992 in t11e sum of P4/W9,567.65, computed a.s foll.Y . INS : 1991: a) Profit ren11ttance t::.x p;:l.id P164,106,2 3.4.00 x 15: =

DECISION- C.T_A_ CASE HO_ 5183 -3 - b) FTofit remitt.:nt.ce , . 1 rn 1 h. /""';' 1 f.l. f... .�1:.. ?J -tJi.. n. n- { r-): : �"- = 1 '} 1 ,'..f. _()C:.,, f.J().'{-1,� r:): r- --1 t..d.- .,�.:r � at .��1C 4� l. 1 :) -,1-l" t t t t;" �T;�� ,::.c.��- L � � �-��-��-��-� tk-�,� I��.J:. t.-Li-.-111 Ij-��, r-(__. .�I-,�.:-I.: .ll� 1� .-.�<.-�.\ 1�1\�.��.,..:..: 1 i.-. .:1.u \.. rr)� ��":\'. 1. 1._ p \210.774.1� a '1 Prr:��fit ri?mittanc<? tx p:::1id P t\.366,414 00 x 1 :% = P 1wuld be: b) Pr�.!fit remittance 6,�)6 6,414 .0 0 : 11)% = c> ")0.401. .::. - 1 .15 F� E��r�\-_--.,:. :...;--.r,:--. )- f '" l ;_ �:�.tl\�."�- "l rr-�-'r-'.�-��,fl. t-� r-"<::-1-I-11. t.t..2'"' 1-l ,v" t::- . paid taX p Tl.)t::1.l 1991 Overpa.id E>ra.ncll Profit p \))),i")4.42 Remitta.tKe Taz 1992 a) Pre)fit remittance '1"1".(,)(_-.i 1.'... 1 r_:): lq;o- = F. , 11 , \C)o .i ,',.-_,- 7 _?_.1, p1-';�, 6., 40-,. 0./ 6.,. "/ ._c;,.c_.;. b;1 Profit rernitt::Jn(:e tax pa1d f� ?A,27\117_t)l) X 1)% = 1.15

DECISIOH- c_r .A. CASE HO. 5183 ., -4 - p ;J) f-T(:�fit. remittance 1 �-� 1 .?_.7I t:�-".,_r:}: (Q) . (�-�)(l 4\T_ _c:)/�:0r� = !n" b) Prdit. r<?mittatE<? ta.z paid P 2 76 c,?, 1 00 X 1 c:)f, = -I i-�I(')'I1C:J. 't7;.:.; 1. 1 :.i .,..�-�:.,_-.':-;:':- ::-.r::. t)� 1,.c- 1.1-1c- .t�1 pt-o. 1. . t.. 1-e' !Il- l. t..ta1-1c- e' p �=- 1� (-1 t_.�.:o::f-.-..::&.-. -� �:�. - 1 p ;.,411. 7 �;; Total 1992 Overpaid P.ranch Profit F) 1 1f�'I 1:1 -/-;r,.:..: �)) -l.C...:.. :. .)-, R.:;.mittanc.s- Tax GRAND TOTAL On [lecernber 2 6, 1994, petitioner filed the mstant petition in order t'.J suspend the runmng of tl1e tv.;o-year prescriptive penod for judidc:Jly claiming a refund or tax credit. 'etitioner anchors !ts claim for refund or tax credit on the ba::.es of the Suprer.ne Court decisions m "Commissioner oi Hnt� c� pp. 1'=' . '(, l-. .. ,,.-,1-!"11"I"l1�C-�-e-�1(.-_.��t--, '��� \:: l!. /���=-�� � �.� L....,t-C=� -tt -,lp.,. l-�(vil-lt�t, Jf J:�-'�'>�r") ,.i:i -� -c-.\-Lrt' Tl�1p -.� -'>!" C�! -�� � �� �-�� The High Cc�nrt. ruled in both c;:ses that the branch profit rermttance tax

DECISION - C_LA_ CASE HO _ 5183 -5 - shall b (Otnput&d t)ased on the profit "actu.ally remitted" abroad and tK�t (,11 thE:' pr(�fits to b remitted abroad. Rt:-spondE.-nt. hov"ever contended tllat the 15% branch profit remittance tG<: is impvsed and collected at source. Therefore, the basis shc�uh:i be tlle amount actually applied for by the branch V�lith r.:P a:. the profit tv be remitted abroad folloNing the guiclelines set in Revenue Memorandum Circular No. �3-(32, :Mardl 17, 19��2, and follovving the case of Compania General de Tabacos de Filipinas - Phil. Brandl vs. Commissi()ner of Internal Revenue, CL!:.. Ca.::.& No. ,YJZ 7, October 14, 19<:;&. The only issue to be determined in tlle present case is \1�.;het11er or not the 1y; branch profit remitta.nce t:lx 3hould be <.,.)mputecl (!tl the pr()fits actually remitted abroad i.)r on t11e 11. H-=ltl��- lr) .t.�. t.-). r�l� t�.::. ':�jr-�' 1) ,-�:�':> �--1 ft..�_,.r� r�..:...-1.11...1. _r _. .J, '.,_� ..., . The lav,r in force is Section 25(a)(5) \A tlle Tax (:()de, whkh }) r. �l._-.J.�.r. 1� �1 - � {._ l:.:"J. �sECTION. 25- ll:tes of tax on foifl'ig.n co.rpoiafj,,- .o_ - {a) Tff.X ,.,n Iesident ft'>.reign Ct'>.rpo.rafjons. ( 1) In general - x x x. &XX XXX X XX_ (5 ) Tax vn branch piofiL remittances.. - Any profit re-mitted by a bra.nc11 to its head office �;hall bt:.- subject to a tmr of 15: (except . those r-s>gi�3t?red with thl? ExpN�t Processing Zono:> Authority)� x x x. � (Emphasis ours.)

DECISION- C.I.A. CASE HO. 5183 -6 - .,..1, -�- p ��, -�1f��.�'. !-' rt 1 1':': -"J1-�'� _.; 1 t:': 111 <.:.. i._.t..h. ,...t o..... '.�,.. t_.J��:\:' �.:,i 1�,�,} 111� T,,l� �"t:.- Vll-11 Jt_-.11, (�'��-c-..�..,:.... t.:.' '!�-l� f 1l):� .....11 1 1� f \)��� __ ' AmE-rica NT D: :,!!., vs. Tht:- Commissioner of Intt3-rna.l Revenue, CTA Case. No . .3.799. Octc.ber 29, 1906 in its recent ded:;ion in the case of Bank of America NT & SA, et. aL vs. The Court of Appeals, et. aL, G.R. No. 103092, and Bank of America NT & SA, vs. The Hon_ Court of Appeals, et_ aL, G _R_ No. 10 3106, July 21, 1994, tllUsly: "x x z In all the situations x x x v..rh<?r>? t11;;. mE>chanism of TArithlwlding c�f taxe:: at source operates to ensure collection oi the tax, and which respondent da.ims tlw base on V�lllkll t.lel b:t: x is (Otnputed is tlle amount t;) b..:: pa.id or remitted, the law� applicable expressly, spedfically and unequivocally mandates t11at the t:t:x is �-:�n thE> total am0unt thE>reof �v�hid1 shall te. (:ollected ::mel paid as provided in Sections . and )4 of the Tax Code. Tllus: 'Dividends received by an individual TvV'ho is a citizen or resident of the Philippines fr0m a domestic corporation, s11all be subj ect to a final tax at tlle rate of fiften ( 11)%) pE.-r cent on tliE.- t.A.al ::J.ilh)tJ!lt thereof. Volhich :::11:3.11 be collected and paid -1 0:' r�, t�( ,�le( :l '- ._. p�� .1. ) ITl� .J. . 1' uf�J'tl� j nr (,_'t "'V (!l"!C' ., .._.. .._a C') "'o ,_. anr:i 1)4 of this Code. (Ernphasis <::upplied; Sec:. 2 1, Tax Code)

DECISION- LLA. CASE NO. 518) -7 - 'Interest from Philippine Currency bani::. dposits and yield from depo:;lt sub:;titutes .hlhether received bv, citizens or the Philippines x \)y resklent alin indi,.tidua1s, shall be subje :; :t to ;;:t. final tax as follov%: (J.) 1 :):i of the inte-rest 0r sav� ings rlepo':;it;;, ;:l.nd (b) 20% of tJw interest on time deposits and yield from deposits su.l)stitutes. ""lT licll 11 '11 sJo. ... �" \-. �:j1' �' _J ..:�11:..... 1.�-.a....r �'t;::. ��i t :;'t... _..�. \.. ratld n :� > . (1 1 , j?:>f"l <;'�'V'tl� . t't} '.--'j�,,:-' lr", i+�1'.._)T.T<11� V' ... f l �"l" �-� C'J �)) ..) ._. .;,. 1._. ;:!Jld r;.4 of tlliS Code: X X X (l.lnderlining supplied; Sec. 2 1, Tax Code applicable.)' �J:-4 '.n . 7. .�.:(.-. �on the other llancl.. there is ab::;olutel'. ' nothinQ' in Section ,_. 24(b)(2)(ii), supra. which indicates t11at the 15% tax on branch prc�fit remittance if: on tne t.ot21 amount ot prNit to be remitted abroad v..rhich shall be vAlected and paid in ac:cordanc:e V�litll the t:1.x V.fitltlwlding device prJvided in Sedions y::. and A of the Tax Code. The st3.tute employs 'Any profit remittd abroad by a branch to its head office - shall be subject to a tax of fifteen per ent ( 1 :s;) - without more. Nowhere is there said of 'base on the total amount ;Jduallv ;:1ppli.ed for by the branch with t11e Central Eia.nk of the Philippines as

DECISION- C.T.A. CASE NO. 518J -a - [.'1��1�.)� r�1� t.. t.l'v) t."�:�f� 1�Pv fi11� tt.I�';.::'U" a� l)' 1�V�' .o.,.'�j, ��;��i�i'11. '��-'�11 t�) p �- '1.1' ,��.�,f�-�111.��:� :.c.�_.�t-�u��-� <��l .:'.=..'.. !"1,.-�.l. 1 'I.:t"J, !d. .lf�,v -�lIT1. r�-lP�-� r�."_l .�=_1�t1�l1-_t.ll ;� �a- .<_-.� in Sedi(:.t1e 5.3 and 54 of this Code.� Where the lm.v does not qualify tha.t tll.s tax i; imposed and collected at source ba;ed on profit to \)e remitted abroad. tltat. qu;Jlifi(:ation should not tH7 re;:.v.i into U1 la.H. It is a basic rul of -:;ta.tu.torv' construction that there is no ::;afer nor better canon of interpret.J.tion than that vlhen tlle language of tlw la-vv is dear ;:Jnd unarnbiguous, it should \)e ;:.pplied as Volntten. And to our rnind. the tE>rm �any profit rernitted abroad ' can (:.nly rne::u1 sud1 prcJfit as is 'f\)rwarded.. sent, or transmitt.e.d al)[oad' a.s the v.rord 'remitt.ed ' is commonly and popularly accepted and underst(locl. To :;ay t11erefore that the tax on branch prrAit. remittanc<:> is imposed a.nd <::ollect.ed at source and neces:;arilv, the ..:-:�.1\-1'.--,� ',-\1� '1 bi.C-.> t.-.-.:1.Y�>T. ll.� oa:..�-::��P� tl�1p,. c�a. t�I�lv-�ut�1t "c.(-�- t.'u'ac. llT,1r applied for the bnu1ch o/ith the Central Bculk as profit to be remitted abr�.)ad is t/.) ignore th& unmista.ta.ble meaninq of Ll '-' rr:-�.1�'=-1�1� !+"1� T\,',(!(-)t�\.l-;. 0 In the 15.;1; ro:r:> nitta:tKe tax, the lm�ll specifies its ovm t3.X base to be on the �proflt remitted abroad.� There 1s absolut.E>lv, notllinq._. en'1lJlvocal or uncertain ;:"l.bout. the language of the pn:N:.ision. The t3.X is imposed on the amount sent abr�.)ad.. aw:l the la..v (then in fone) calls for notlling further. The taxpayer is a single entity, and it should be understandable i( such as in tl1is case, it is the local branch of the corporation, using its ovln lo(:al funds, vv-hi<:h: rernits the tax to the Philippine Government. XXX X X X.

DECISION- C.LA. CASE HO. )183 -9- The ::;t)licitor General suggests that the anah)gy '311ould e1rt.end t(J the on:iinary application of the Nithholding�-�' t-J.x svstetn and so with the rule on I r::r)nstructive rernittance concept as v.,re11. It is difflcu.lt tc! accept Uw proposition. In the operation of the Nitl11lolding tax system, the payee is the t;::,xpa.;ler. the person on whom the tax is imposed, V�lhile the payor. a :;epa.rate entity, acts no more than a.n ;:.112ent of the Eovernment for tlle collection of the �-� '-' tax in order to ensure its payment. Obviously_. the amount tlwrebv u.sed to settle the tax liabilitv' is ' �:lec:>med sourcc:>d from the proceeds constitutive of tlw t:r:I b.:1: se Smce t.lle payee.. twt the payor, is the real tazp:::1.yer, the rule on (:onstruc:tive remittance ,..:_. �.:.3_.�_.:1:�- 1u,. {\.�-.-.Jr� 1 � ,::. ,.-_'. .._:. .: l� rr� -�.r-�;� .�.�- .. .�-�r�1 l-��1.��-:.: r?._t_t_-,<lt�_� .��r�l��:-"J�ll� �.. ....-.1.. l.f t�1vnt� 1.11,�..-l>�=>A�., ...-.l, ._,. !Uc\d cl.,;.arly ma.nife:;t. It is hardly the c:as!:!, h�.)V!e".rer. in t.lle imposithm of the 15% remittance tax V�.llere there is but one t:.t Z:T.&..!.J-' aver using its ovm I -' domestic funds in the paynwnt of tlle tax. Tel say that there is u:;.nstru.ctive remittance o?VE>n of such funds -vvonlcl be stretchmg tar t1)0 much t.lla.t imagmary rule. Sound logic does not def y but must concede to f::t:d::;_�� It is tlwrMort:' th)VvT C:\ settled rule tlla.t t.lle l <1: bran..::ll profit. remitt:J.tlGE- tax is ba:::ed on tlie "profit rernitt.ed a.broad ��. Tli sarn dt.)(.trine VvTa.s folh:..�vved in tlle tlh)re recent ..:a.se of Fit"i'.:ling therefore n.). en�.)r in t11e t:.<:..rnpu.t.3.t.k�n of petitioner's d:J.im for refund or tax (:re.Jit in tlw sum �A representing excess branc1l remit.t:m..:. t.:txes p.3.W f�)f t>rancll profits earn;2.�.:l in 1991 a.tKl 1992. thE- ;:..:uu is 1lE-reby avian:led in its favor.

DECISION- C.LA. CASE HO. 5183 - 10 - WHEREFORE. in vieN of the foregoing_. the petition is ll<7r.?,by GRANTED. .lvxorcling1y, respondent Conunis:3ioner of Internal Revenue is herebv' ordered to refund or issue in favor of t1� t1� �it. t Jt.d.-.i'"- � 1������r� �� 1... ' �-� .�-:� .:t-t1�1�1� ,v.O... t.::..�-.�. 1� 11 t11.-� :� :. (,-_.,f\ . . !r) -� -� r).= t-\� 1 t�:�j 1,,) 11.-.:.� .:1� a- t .a tl1.'1lll p� ''f} q�: f,J. 1":'1) _:.): 1')..- 'i" t._. _ representing overpaid branch profit remittance tax for the years 199 1 and 1992. No pronouncement as to costs of suit. SO ORDERED. I CONCUR: a. Q ERflESTO D. ACOSTA Presiding Judge C E R T I F rc A T I 0 N I h<?.reby certify tha.t this dE>cisiNl v..rsa readwd after due consultation an1r:mg tlw members of the Court of Tax Appeals in J.(C(lrda.n,>? TNith Section 13, Article VII I of the ((�nstitutkln. LQ.D ERNESTO D. ACOSTA Presiding Judge Court (Jf "I:ax Ap.pe:J.l:::