CTA Case No. 4129 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY BANK OF AMERICA NT AND SA MAN I LA,;.BRANCH, C.T.A. CASE NO. 4129 COMMISSI ONER OF INTERNAL REVENUE, x-- - �---� Respondent. �-- -�- .... �- -- )( DEC I I D N This petition invol ves a clai m of pet it icorH? t' Bank of Arnet' ica 1\!T and SA, Manila Bt' al"1Ch fot' t h e refund of alleged over pai d 5~ gross receipt s tax for The sole i ss ue is wh ether�� not the additional 1~ ta>< imposed on ev~ry sale or purchase of exchange sho1.1ld be included i 1"1 the r eceipts for purposes of computi n g the 5~ ba nk tax pursuant to Section 260 ( c ) [now 11. 9 (c) J of the Na ti onal Internal Revenue Code. Pet it i or1et' is a authot'i zed to eY1gage ir1 the ba nk ir1 g busine ss ir1 the Phi 1 i p p i nes. On Oct obet' 1.;::;:, 1984, Reve n ue Regulations No. 16--84 wa s pa s sed imposing ar1 add it i or1a J. 1 ~ t a>< on 185

�. DECISION CTA CASE NO. 4129 - 2- the gross peso value of every sale or purchase of fot~e i gr�1 exchange by banks ~-~hi ch We Clu ot e in fuJ. J., as follO::�WS: "Republi c of the PhiJ.ippir1es Ministry of Finance BUREAU OF INTERNAL REVENUE Quezon City O cto bet~ 1E:, 1'381.~ REVENUE REGU LATIONS NO. 16 - 84 SUBJECT: Imposition of Addit iona l One Per T0 Cent <1~> Tax on the Gross Value Received by Bar1ks, Non-Bank Financial Intermediaries and Authorized Foreign Exchange Dealers. All Internal Revenue Officers and Others Concerned. Purs uant to the prov ision of Section 326, in relation to Section 4 of the National Internal Revenue Code of 1'377, a s a mend ed, these Reg1.1lat ions a~~ e het~ eby pt~ omulgated to gc�vet~n the mannet~ of imposition of the additio:�nal tax qf or1e pet~ cent <1~ ) o n the sa le or purchase of foreign exchange by banks, non- bank financial int ermed i aries and other authorized foreign exchange dealers . SECTION 1. Tax on foreign exchange tt~ ansactior1s. Ar1 additior1al tax of or1e per ce r1 t ( 1 ~ ) sha 11 be imposed or1 the gt~ oss va 1 ue of every sale or purchase of foreign exchange by all banks, non - b ~nk financial intermediaries and other aut h orized foreign exchange dealers. SECTION 2. t"1ar.rret... c�f cc� rn putat ic�r� r:�f ta>< base. Fa t~ purpose s of determining the gro ss peso value of every sA le or purchase of 186

DECI SION CTA CASE NO. 4129 - 3- foreign eM c h a nge such v alue shall be computed by applying t he offici a l rate o f ex c hange betWf?.en the P hilippine p es o ar-,d the fot~ eign currency that is prevailing on the date of the actual consummation of the sale or purchase. I y-, the case of sa 1e of fo::�t~e i gn exchange arising from export proceeds and other inward remittances, the gross value shall not be diminished by commissions paid, document a ry stamps and other charges incurred on s uch transactions. Similarly, in the case of foreign exchange licenses to cover imports and other outward remittances , the gross value shall not be ir-,ct~ eased by cc�rm11is s ions paid, documentary stamps and other charges incurred on such tran s actions~ SECTION 3. Time of decl a ration and payrner-,t of taxes. The tax impo s ed o::�n the fc�t~ e i gn e><change, t t~ansact ed with i y-, one week, sha 11 be payab 1e on the f tt~st bank i ng day of the succeeding week and it shall be the duty of every bank and non-bank financial i r-,t et�' med i at~y and aut hot~ i zed fot~ei ~Jn exchange dealer to make a true and complete return <B. I.R. Form No. ) of the value of foreign exchange s old or purchased during the week and pay the tax due thereon. SECTION 4. Penalties . (1) Failm~e to file ar-,d pay the t ax . If the required return i s not filed or the tax n o t pa id within the time speci fied by law, the a mount of the tax shall be increased by t wer-,t y -- f i ve pet~ cey,t ( 2 5 i0 , the i nct~ emeY,t to f o t~ rn pat~ t of the tax and the entit~ e unp a id amount sha 11 be co 11 ect ed i y, the same ma y-,r-,et~ as the tax. (2) Willful neglect to:� file, ot~ false ot~ fra udulent return. In case of willful neglect to file the returns wi thin the period s pecified by l aw, or in case of fa l se or fraudulent return is willfully filed, there shall be added to the tax or to the deficiency tax in cas e any payment has been made on the basis of s u c h t~ettn~n befot~e the discovet~ y of the fa 1 s i t y ot~ ft~ aud, a sm~charge of f i f t y (50i0 of the amount . The arnc�unt S(::t added to 187

DECISION CTA CASE NO. 4129 - 4- any tax s hal l be collected in the same manner and as part fo the tax unless the tax has been paid befot~ e thP discovet~y o:�f the fal s ity ot~ fraud, in which case, the a mount s o added shall be collected in the same manner a s the tax. In add it ion to the i':l.bove adrnir-,i s tt~ at ive penalties, the cri minal and civil penalties as provided for under Section 337 of the Tax Code of 1977 shall be imposed. SECTION Repealing c 1a use. All regulations, rules, orders or portions thereof whi c h are inconsistent with the provisions of these Regulations are hereby revoked. SECTION 5 . Effectivity. These Reg u l at i or-.s shall take effect on fot~ei gn exchange transaction s effected beg i r-m i ng Oct o b et~ 15, 1984. <SGD. ) ALFREDO PIO DE RODA Acting Minister of Finance RECOMMENDED BY1 <St3D. ) RUBEN B. ANCHETA Act i ng Comm iss i onet~" F�:�t~ the pet~ iod ft~o:�m O ctobet~ 22, 1984 to Jar-.uat~y ;;::, 1985, pet .it i or-. et~ paid a total of P9, 5E,8, 7'+9. 28 representing the additional 1~ t ax on gross value received from the sa l e or purchase of foreign exchange. Aside from the additional 1 ~ tax, banks like the pet itioner were also required to pay the percentage tax on gross receipts pursuant to Section 250 (now 119 ) of the National I y�,t et~na 1 Rever-.ue Code, as a mended by 188

) DECISION CTA CASE NO. 4129 - 3- Pt~es i dent i a 1 Dect~ee No. 17 39, effect ive Sep t e mb et~ 17, 1980. Section C:~50 <c) impo s e s a t a >< c:�f 5 '1- on t he gt~ c:o s s t~an s a c tion s wi t hin the Philippines. On Janua ry 2 1, 1985, p e titioner paid it s g ros s receipts tax for the fourth qua~ter o f 1 9 84 amountin~ t o P1 5 ,408, 152 .93 pursuant to Section 2 60 <Exhs.V, V- 1 and V-2). On Febt~ ual�'y 2 0, 1985 , petit i o:�net' paid a ddition a 1 gt~o:.ss t~ eceipts tax fot~ the ye a t~ endiF�Q De c::en1b e t' 3 1, 1.984 amounting to P47,B99.56 <Exhs. T, T- 1 and T- 2). On September 16, 1. 985, the Bureau of Internal Revey-,ue tht'U Revenue Memor a ndum Circ ul ar No. 3 9 -- 8 5 published acid it i o:�na 1 que s tion s anr.1 t he implemented by Revenue Regulations No. 1E, -- 8'+. Th e as appli c able provides : C~ue s ti o n 3 1. -- With o ut ch.::n' ging g t' osse d - up t~at es , can finaF.cial. ir. s tituti�: �F� S b e allowed t o t' epot' t -Fot~ gt~ oss t~ ecei p t s ta >< a nd net income tax purposes o nly the actual amount eat~n e d, without adding the 1'1- ta x assumed by the client? Ar.s. Yes. Thet~ e will be no:� pyt~ arniding of the 1'1- tax passed on t o the client for the financial ir.s titution. On May 22 , 1986, petit i onet~ t~e 1 y i ng on Re v. MenK�. Cit~ . No. 39- 85 filed a c laim fo:�t~ t' efund with t'e s ponclent 189

DECISION CTA CASE NO . 4 129 - 6- <Exh. U>. It alleged that the 1% additional taxes paid of its gross receipt s subjected anew to the 5 % bank tax pursuant to Section 260 (c). In other words, the gros s receipts was overstated by P9,568,749.28. i Neces s at~ 1 y, the 5'1- tax P9,568,749.28 P478,437.46 was erroneously paid by petitioner following the interpretation placed by respondent on Rev. Reg. No 16- 84 through its Rev. Memo. Cir. No. 39- 85 particularly Question No. 31 thereof. As of pres ent time, respondent has not acted upon petitioner's claim for refund of P478,437.46 on the alleged excess 5% gro s s receipts tax for the fourth On .Tar��-t a t~ y 19, 1987, petitior.et~ filed the instant petition for review pursuant to Sections 2 92 and 295 (now 230 and 204) of the National Internal Revenue Code, as amended. In his answer, respondent contends that petitioner failed to support by evidence payment o f th e additional 1% tax totallir�g P9,568,749.28. to respondent's claim, after examining the records, found that petitioner was able to prove payment of at least P9,229,054.35 (Exhs. A - S- 2, inclusive, pp. 65 - 102, CTA rec. ). However, payment made on January 2, 1985 amounting to P339,694.85 was not presented as part 1 90

DECISION CTA CASE NO. 4129 - 7- of petitioner's evidence. Therefore, the same cannot be Petitioner also presented proof that the additional 1~ tax was added as part of the gross receipts of petitioner for the fourth quarter of 1984 <Exhs. X, X-1, There is no dispute that the 1~ tt~arrsact ion taxes paid wet~e indeed irrcluded irr th e cc:.rnputatir:�n of the 5~ bank tax. The ct~ucial questiorr which has to be t~ esc�lved is whether or not the additional 1~ tax should be added as of the 5~ bank tax. We hold that it should be included as pat~ t of the gross receipts subjected to the 5~ bank tax. The 5~ bank tax under Section 260 is based on the t~ecei p t s 11 det~i ved sout~ ces w i t h i n t h e Philippines. The t errn "gt~oss receipts" was i rrt et~ pt~ et ed to mearr "the wh ole arnourrt t~eceived with o ut deductir:�ns, 11 otherwise, i t wi 11 be cc�rrs idet~ ed a 11 Y"ret receipts 11 � <National City Bank of New York v. Commissioner of Internal Revenue, BTR Case No. 5 �;:) ' July 12, 1952. ) ""'" Though the t e t~ rn 11 grc�ss receipts 11 ord i nat~ i 1 y rnearr s the arnoLmt collected arrd Lmcollected of all the sales, orr which amourrt the must be computed 1 91

DECISION CTA CASE NO. 4129 - 8- det et~m i r.e the tax. <Eppstein v. State, Tex., 138 S. W. 1 u ::4 , 1125. It i s neoteweot~ thy t o stt~ess that the additional 1'1- liability impc�sed c�n the bank. If the 1'1- transaction tax is shifted by the bank to its clients then the 1'1- tax collected ft~orn the c1 ients st i 11 fot~m pat~t of the gross receipt s of the bank because wh at was received was actually earned and should be treated as income~ Section 260 provides for the basis of computing the 5'1- bank tax, that is, the receipts der ived by all banks business i rt the Philippines d i l SCO::ol.. rtt s, dividends, corm11 iss i orts, t~ oya 1 ties, and Sect ior� 29 (b) defi rtes as to "i rtc 1 ude gains, det~i ved pt~o fe ss ions, vocations, business, co:::ornrnerce, property or any interest therein; and from interest, rents, dividends, securities, eor the transactions of any business carried on for gain or profit, 182

DECISION CTA CASE NO. 4129 - 9- s c~_t!:�.~.� �' Ir.stead eof the bank burden was �Shifted teo the clients. As such, the additior.al 11- tax chat~ged by petitior.et~ to i t s clients at'e actually gair.s eot~ ir.corne of the bank. <W.r�Q.!'!J:::...L~...Dir:!.!l revenue laws are given great weight. <Mol ina v. Rafferty, 37 Phil. 545; Madrigal and Paterno v. Rafferty and Concepcion, 38 Phil. 414; People v. Hernandez, 59 Phil 272; Anderson v. Posadas, 66 Phil. 205.) Howevet', this pt'inciple is r.eot absc:.lute. It may be o:� vet'come by T h us, i f t h t' o ugh a r�lisappt'ehensio:�r� of the law ar� officet' (in this case respondent> has erroneously executed it for a long time, the error may be corrected when the true construction is Ir.cider.tally, the doctt'i ne of estoppel does neot app 1y het'e. (Phi 1 i ppi ne Long Distance Telephone Co., v. Collector of Internal Revenue, 90 Phil. 674.) Ir. th~ case at bat' , the ir.tet' pt'etatieon placed by respc�r�der.t eoh Rev. Reg. No. 16- 84 tht'co ugh Rev. Memo:� '. Cit'. Neo. 39- 85 pat' ticulat' lY ar.s wet' tc� questior� no. 31 thereof is not in consonance with the provisions of Sections 260 and 29 (b) of the National Internal Revenue Code. The of ar. officet' chat'ged with th e duty cof 193

DECISION CTA CASE NO. 41 29 - 10 - given effect. Fi ndir�g r,o legal b as is teo supp cq�~ t the interpretation of respondent in Rev. Memeo. Cir. No:r. 39- 85 question r�o:�. 31 it feollo:rw s that such ir,t en~pt~etatic�n of Rev. Reg. No:�. 15- 84 dc�es r�c�t hav e the feot~ce and effect cof law. Claims for refund are in the n ature eof claims fo:rr exe mption ft~eo m tax at i c�r ,. <Commissioner of Internal Revenue v. Ledesma, 31 SCRA 95; Resins, Inc. v. Auditor General, 25 SC RA 754.) When exemption frorn taxation is c la i r11 ed, it mu st be shc�wr' ir,dubi tabl y t c� exist. The pres umpt io n is al ways against any surrender eof the taxi r,g p eo wet~ . <Mol ina v. Rafferty, supt~~. > As such, exe mp tic�n " cannot be allo wed unless gt~a nted ir, the mc�st explicit ar,d categc�t~ical lar,guage". <Resins, Inc. v. Auditor General, Commissioner of Internal Revenue v. Guerrero, 21 SCRA 180; Republic Flour Mills, Inc. v. Commissioner of Internal Revenue, 31 SCRA 520; Union Garment Co., Inc. v. Court of Tax Appeals, 4 SCRA 30 4.) The law does no:rt leoeok with fav or a tax exemption ar1d that he wh�:� wc�uld seek tc� be thus privileged mu st justify it by WC�t~ ds too plair1 tc� be mi staken ar1d toe� cat e g eot~ i ca 1 to be misinterpreted. <Reagan v. Commissioner of Internal Revenue, 30 SCRA 958; Wonder Mechanical Engineering Corp. v. CTA, 54 SCRA 555; Commissioner of Internal Revenue. v. P. J. Keiner Co.,

DECISION CTA CASE NO. 4129 - 11 - Ltd., 65 SCRA 143; Manila Electric Co. v. Vera, 67 SCRA 351. ) In view of the fcq�~egoir.g, this cotwt is of the opinion and so holds that the additional 1~ tax paid by Rev. Reg. No. 16-84 was rightfully included in its gross receipts for the period for purposes of computing the 5~ bank tax under Section 260. WHEREFORE, f i r�d i r.g the instant petit i or� fm~ t~ev i ew the san1e is DISMISSED . P e t i t ior.et~' s claim for t~efur.d of 5~ gt~oss t~ ecei pts tax for the fourth quarter of 1984 amounting to P478,437.46 � is thet~efor DENIED. Costs against petitioner. SO ORDERED. Quezon City, Met t~o Man i 1a, Mat~ch 30, 199�~- ~- fft t;r--. TANT� C. ROAQUIN Judge I CONCUR: ~~~. ~ ERNESTO D. ACOSTA Presidir�g Judge 195

-u DEC ISION CTA CASE NO. 4129 - 12 - . CE RT I F I CAT I 0 N I het~eby cet~ tify that t h i s decisior-1 was t~eached after due consultation between the members of the Court of Tax Appea 1 s i r-1 acco t~dance w i t h Sect i or-1 13, At~ t i c 1 e VIII of the Consti t ution. ~~Q'"~ ERNESTO D. ACOSTA Pt~esi d ing Judge Court of Tax Appeals 196