CTA Case No. 3421 (Decision)

-, ... - ---- REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY FILIPINAS SYNTHETIC FIBER CORPORATION , P e t i. t i o n e t '' , -- vet"�S US C.T.A. CASE NO. 3421 COMMISSIONER OF INTERNAL REVENU E , F~e r,; p o nd ent . x --�---- -- X DEc I I0N Petitioner see l-<s null ifica tinn of the c!Pcisinn of resp ondent Co mm issioner dated, Sept em bet~ 1 0 , 1 'JBl, denyin~1 it s pt'otest of the a ss essment, dated nr.wi 1 3 , 1.981' p e t i t. i o n e t ' was Cl.ssessed deficiency withholding taxes at source for payments of i. n t e t' e 5 t o n f tlt' f~ i q n 1 o an s , t' o 't' a l t i E' 5 "' q d d i v i d e n d s f o t~ the period co v ~ring the fourt h quar ter of 1 '375 until t h (~ f o ut�� t; h qu a1 �te1��� o �f 1976 , in the total amo �..tnt of P:<"7':J , 700. f,f\ . r:�e t i t :i. o n e t~ is a duly Philippi ne manu fact �. t t''~? o f pt' i m.::w i l. y 'J the 1n t; OII'JS , p o 1 y e s t e t' f i bet' and yat' n . P e t i t i on e t~' s o b l 1 q;..:\'\; inn to p i'~ y \IJ i. t: h h D 1 d .i. n g t c-:\ x f' s of p .-,,yment s of intf.'t' f:�st on fot' e :i~ln Jua n s , t' o y alties a nd divide nd s to certain non - resident foreig n corporati on s u n c:l e t ' s e v e t' a l a g t' e e mr~ n t s (Exh s � E I t o " 111111 , incl usive, and "(.) R ..�- 1 11 ) . D �..t t' i n n t h !? pet' i od covered by the asr:;�>ss ment , p etitio ner' s pr actice was to withhold the .. taxes du e on said payments when the same became due and 4UO

--- .,. .,. DECISION - - 2- C.T.A. CASE NO. 342 1 dr>m ;,ndahl�? under' ttl!? <:>.ppl :i. c i:~bl(�? contt' c'\r~ t s and n o t when t h C�' y we t�e dec 1 at�ed i.:I.Cct' '. le d in its boo~< s. In ,, d i'l.I:.Pd Apt� il 198:1.' which wus ,., ~" c e :i v e d b y p e t i t i o n e t ' n n IYI <.:1 y 1. ;;::- , :l 'J R 1 ( _I.l;lj._Q.. , p p � ;::~so- i? f.=,;-::: ) ' t ' f? s p o n d e n t info r med petitioner that "upon in v es ti~] atio n, n o cleficiE�ncy jncome tax h2\s been found ) due from (petitioner) for the year 197 6 . How!? v er , the in vest igation also disclosed that there is s till due from (pet itioner) def ic iency withho lding tax a t S 0 Ut'C e in the sum of ~379,700.68 for the 1st and 4th o f the same year, details of which are as f' ollows: Withholding Tax a~ Source <In terest on Fo r eign Loan) For_wth f) o_lat�' t�~t' - 1975 J~:~ n '=~~}..':.'::.Y_ ~~.:!_'1_ .t~:) 7 �. I nt e t�'e s t t:)cc t�u ed ~'+ 17' 307. 8 7 l 5 ~~ T c3 X d IJ e t h e t~ e 0 n . � � � � � . � � � . � � � � . . Fl 812,307.87 28 , 75;::: . 08 1 Lf :I. i n t . f t' � 1 I ;;:: 5 I 7 6 t o Lf I ;;:: 5 I 7 6 � � � � � 50 .00 Compromise- l ate payment ���������.. n mn u n t d �..1 f? o n Lf I ;~: E I 7 C � � � � � � � � � � � � � � � Fl f:i47 , 398. 2 6 1.. ~ <;:, s : A mo ' .In t p a i d : 1. :~ o , 3 31. . oo TC 11 n -- 00508 - �f.l .. ~ 71' ()/1�0. 00 em tt ;::~8;:~96;::: c. 1~::; , 17G. no on n ;::::B79E,c::~:; n." l<'lnce of t ax as of Li� 1~~61 17E, � �� ����� Fl 711 , 0E.7.2 6 1~:1. int. fr . 4 126176 to 7126176 � � . . . c:Lf , 887. 35 nmount due o n 71 2~ 176 ��� �� ��.������� ~ 735 , 954.6 1 Less : P a yments made o n 7126176: OR# 2997120 ~ 92,947.00 29971 2 1 1, 598 , 26 1. 00 2997 122 4 2 ,030.00 1,733, 238.00 ----�--------, BAl a n ce of Payment to be Ap plied to First Ouat�t et� , 19 76 � � � � � � � � � � . � � � � . � . � � � . � . (f=!9'37, 283 . 3'3) - - - - - - - - - - � - - - -~------�------- 4u .J.

DECISION - - 3- C.T.A. CASE NO. 3421 F i rst Quart er - 1976 nrw :i 1. ;:~ 5 , 1. 976 I n l: e r�� e s t nc c �r' u e d � � � . � � � � � � � � . . � � � � � � l 51- T a >< d u ~~ the t' eon . . . . . .. . . . . . . . . . . 67 f: , lf':J~) . r.) (l 1 11;<. i nt. ft� . 'I�I C.:EI 7 f.:, to 10. E:E. . 7f.:, � �� � � Co mpromise - late payment ....���..�. C~3 , 5 3 7. 5C> 5 0.00 Amount due on 1012 5 1 76 Less: Balance of Payment made 69E, ~ 087. Lf(l on lO I C::517E. ������������������� 997,283.39) Ba l a n c e of P a yment to be Applied to S e c ond Ot.1.::n� t e t' , 1 9 7 6 � � � � � � � � � � � � � � � � � � � � � � � <f=t 3 0 1, 19 5 � 9 9 > ::-: ':'.:':":"':': =::::============= Second Quar ter - 19 7 6 Jt_\l y c::~i, :1.976 I nt e t'e s t ncct�� ued f=t 4' 08<~:' 379. 99 1 ~:; Y. T a x rJ ' .I (~ �t h e t' e o n � � � � � � � � � � � � � � � � � 61E:, 357. 00 1'fY. int. f 'r"' . Lfli-=:.61 7 6 to 10. 2 6. 76 ����� 21, lf3i=:.. 50 C o mpromise - late payment �..���.�.�� 50.00 Amount du e on 101251 76 301, 195.99) Le s s: Balance of Payment ma de 33C:, 5'+ 3 . 51 ClTl :1. 012517E, ������ ' ~ �� ����������� 11, f.Lfi?. . 5 2 B ,"l 1 a n c e of T ax �. . . . . . . . . . . . . . . . .' .I . . . 1L1 Y. int. ft.. . 101i:?: 517G to 11;:::~5 17'7 ���� f-4mo u n t d t.H ? o n 1. I;?. 5 I 7 7 � � � � .) � � � � � � � � � � L~ s s : Payment made on l / ;-=;:SIT?: DR 1t ~;, o ,:::5398 f=t ~.,. o, 1,.98. CH) :tt ~:i(X~6399 ' fO, 8~::~f. oo tl= ~30c~EAOO 805,390.00 tt 50~::f.Lf01 301,312.00 tt. 502E=AOC:: lflf, 339. 00 (f=t 1' C::32, 3E.3. (l(l) - - - - - - - - - - - -,- - - Balance of Pa yment to be Applied to Third Ouat� ter , 1975 � . � � . . . . . . . � . . . � . . � . � � � (f:l 888,076.98) -------------------------- 4u ~ .I

DECISION - - 4- C.T.A. CASE NO. 342 1 Th i l ~ d O�.t.,�:n ' t (~ �r' �-- 1 37 C Oct otH?t' ;:::5 , 197(, Interest Accrued ���� �.���.��. ���� ��. f=! 3 , 1 ~3 2 , 7 3 5 . 55 l ~51- Tax due �the 1�' en n �� . ����� � ������ � � 'r�78, 310. 35 llf1- int . f1�'. 10/ C::If/7t":, to l/ i~~5 /T7 .... . Co mp t ' o mi s e -- 1 at '! pay men t . . . . . . . � . . . 15,761.85 50.00 Amo �.mt d'-1e o n 1 /i?. ~5/ T7 � . � . � . � .����.�� 888,075.38) Less: Balance of P a yment mad e on 1 / c~5 /77 � � � � � � � � � � � � � � � � � � � � Balance of Payment to be Applied to Fourth Q�Jat' t et', l '37E, � � � .. � � � � � � � � � � � � � � � � � � � (Ft 3'32 , 35-4�. 77) ====-=-=== = ========== Four th Quarter - 19 7 G ,Ja n 1�.1<'.'\t"' y c~ !':j, 1. r977 In t F.?t'e st Acc t'Ue d 15~{. Tax due thfH't?Dn ��� . ������������� 552, 432 . '~2 Less: Balance of Payment mad e 3'3;:::' 35-4�. 77.) on 1 /C.:5/77 � � ��� ���������� ����� 170,077.55 B ,?, l '" n c ~? o f Tax � � � � � � � � ~� � � � � � � � � � � � � � 7 1 , Lf 3i::: � b 1 llr ~~ :int . h��. 10/;;:: Lf /76 to 1/ 2:5/T? �� �� 50.00 . .I C o mpromi s ~ - late payment . � � � � � � � � � � --�--�--�---- --- - - - -~ - - - - AMOUNT BriLL DUE AND COLLECTIBLE 400 �. r

-- DECISION - - 5- C.T.A. CASE NO. 3421 <HoyaJ.ty) Fourth Quarter - 1975 Ja.nu ;:\ r�' y ;::: '5 , 197(; -r ~3 ~3 i~ ax d u r-? t 1�1e t"' t? o n . " . . . . . . .. . . . .. . . . . 519,770.35 lB, 1~31 . 97 J.L~jl. i n t . fr~ . 11;::~;317G t o L~lc:~517F:. � � � � � 50.00 Compromise- late payment ...�....... Amount due on 41 26175 ..� . ..�........ 5~3�1, , ()12 .. 32 Less: Amount credited 511, C::7E. . 00 <TDC #030-4 -2 6-75) . . . . . . �.. �.� B a l~ r1ce ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amount due on o. 1 ~=~5. 75 . � � . . . . . . . . . . � 1,87L5L~ L.e s s: Amount paid on 1012517.. unde r~ ;::8, C0 7. BE. ClR f\lo. E:9971.l ~; 508,7�.9.00 __ ___________ __ _ B :"\ 1 a n c f? o f P a y me n t t o b e a p p 1 i e d t o F iJ-~ s t 0 u c:n�� t e r~ , 1 9 7 S � � � � � � � � � � � � � � � � � � � � � � � <f.! -- ,. ��-- -�- -- ~-� -�- ���- -- -�� - -- --~-- --� First Quart e r - 1~7 6 Rpr�' il 25, l97E.. f~oyalty f-)ccr~ued '+07, 558. 05 35~ Tax due thereon �.� :~ �. .. � � � . . . . . 1'~-;:::, 583. BE: 9,987 . 87 1 4 ~ i n t . f t~ � 1 I ;;:=: :::; I 7 (:; t o L, I ;::_: 5 I 7 6 � � � � � 5 0.00 Co mpt�omi se -- late payment ��� � � � � 1 �� � � Tota l 1. 52 , 7E:1 . E..9 Le ss : Bal a nce of P aymen t uhd er '+BO, 151. 14> OR H 29971 1. 5 dated 101 25/ 76 ... Balance of Payment to be applied to First Q '-' 0 .t' t e t ' , l 9 7 5 � � � � � � � � � � � � � � � � � � � � � � � <Fl 327, '+39. '+5) -- ------------------------------� 4U�1

DEC I S ION - 6- C. T.A. CASE NO. 342 1 Second Quarter - 1'376 J�.dy ;::~s, 1.'376 I=' l,OEA, 1 30.8'3 T,:~�..: d 1.1. c~ t h e t ' e o n � � � � � � � � � � � � � � � � � 376,655 .81 int. fr. 7125/76 to 10/25176 ���� l.J, (lL~~~. '35 nmount due on 101i:::~3176 ����.��.�����. 385,6'38.76 Le ss : Balance of Payment made on 32( , L1.3'3. 45) 10125176 under OR# 29'37115 ��� D<::~ l a ncp of tax . . . . . . . . � . . . . . .� . . . . . � 58,25'3.31 1-ld d: l'~il. i nt. ft' . 1 /i:::~:i/7 6 3 , 733 . 63 ~ t o ,,.I i=.::5 I 7 E ����������� ��� ������� Compromise - late payment � . . . .� . �.�. 50.00 T n t a 1 n mo u n t d u e on '~ I l 1 I T7 � � � � � � � � � Le ss: nmount paid under OR# 0666256 L~/:f.l./77 � � � � � � � � � � � � � � � � � � � � � �� Ba l ance . o f Payment to be ap pli e d to Third (~ r_t a t ' t e t ' , 1. '-:3 7 6 � � � � � � � � � � � � � � � � � � � � � � � ( Fl 385,463.06 ) === ============== Third Quarter - 1'3 76 Octo bet' C::5, 1'376 Roy c:d �ty Acct'rJed 671, 85E,. 76 c; ., :~ ::~ il. Tax d �..t e t h e t' ro> on . . . . � . . . . . . � � � . . . ~:::3~1, 1'+'3. 87 1 ~3 , 06'3. ':3 1 t.,1. jl. i n t . f �r'� � 1 0 I i::: ~3 / 7 (.:. t o Lf I :1. 1 I T7 � � � � . Com promi s e - late payment ..���. . . ... 50. 00 ��-�----�-. ---�:--�-�---�- Total amoun t due on 411117~.......... F' 250, ;:.::6'3. 7 8 Les s : Balance o f Payment made on 4111 177 under OR # 666E25E, 4111177 ��� ( 385, ''�63. 06) Bala n ce of Pa ym ent to be applied to Fourth -------------_-__--_ __ ____________ Q r..l at' t e t' , 19 7 6 � � � � � � � � � � � � � � � � � � � � � � � ( J:.l 1 3 5 , 1'3 3 .�. 2 8 ) 4Uu .I

DECISION - - 7- C.T. A. CASE NO. 3421 Four th Quar t er - 1975 J.:mu.,"\ l 'Y �=: 5, 1. 97 7 Roya lty Acc rue d . . . . . . . . . . . . . . . . . . . . . ;3 5 Y. T i':\ x d '-' e t h e t ' e o n � � � � � � � � � � � � � � � � � � ;:::09, ;::L�L� . 81 1. '-�Y. I n t . fl.- . 1 I �?. 5/7 7 t o L�l 1 l I T7 � � � � � � 6 , 166.4'3 nm nun t due on L� /1 1/7'7 ��������� ����� � � f=t 2 j 5 ' 411. 30 t 35, 193. ;:~8 > Le ss : Bal a nce of Pay men t ma d e on 4/11/ 7 7 u n d e t ' U R No . 0�, CCZ:: 55 . � � � � � � � � � � ( Balance of Tax . . .....�..��..���.�.�.. 80, 2 18.02 ' (-"'ldd: 1'~� 1- int . ft'. L�/11/77 to 1/i=:5/BO. 31, 3 1 L�� 6'3 Compromise - l ate payment � ����� � ����� 50.00 AMO UNT ST I LL DUE AND COLLECTIBLE ..�.. __ ___1._1_.1._'_5_8__2_...7_1_ ~-- ...- -��--- --- -��-a- - <Divid e nd ) F :i. 1�' s t C~u a t' t et' -�- l 97E, npt ' i 1 ;:::5 , 1.:�'176 Dividend (~k c~r- ued Teijin Ltd. <Tok yo , Japan> . . . � . � � . . . . . . . I=' 1.,L�78,377.50 Ma delein Vlacho s <N IR F o t ' e i !] n e t' � � � � � � � � � � � 5 , 552.50 Toyo Me nk a Kai s hu, Ltd. <R es ide nt ) . � . . . . . . . . 21 1.,193.00 "" 1,536 , 139.00 vJi. 1; h h o 1 d i n g t a x .~ l; s o tJ r' c ~? d un thet'eo n: 351- on P 1 ,478 , 3 77.5 0 �� I=' 51. 7 , 5 ZX>. 1 3 301- on P 5 , 562.50 .� 1., 968.7 5 �=�e go ~ 19� 1 1 01- on P C::11 , 1.39 . 00 .� �-�~J, .1. � � �. 540,520.78 ()clc.l : lL,.~~ i n t. ft'. ,, ;;::: 5/76 to 7/25/76 �� � 1. '3 , 1c~5 . 21.~ Compro mi se- l ate payment.J �...��...... 50.00 nmount due on 7/ 25/76 . . . � . . . . � . � � � � . � � � f=t 55'3 , 596.02 Le ss : Payment made on 7/25/76 5L�0 , 520 . 78 under DR No . 782534 ��������������� B a 1 an c e ���� � �� � �� �� �� �� � ������ �� � J3 1.'3 , 175 . 2 4 Add: l L�Y. i nt. f t'. 7/25/76 to L� /i:-::5/79 �� 7,38 8. 47 RMO UNT ST ILL DUE AND COLLECTIBLE .. . ... ---------.J..----- f=t 26' 557. 7 1 ,. ---�------------------- .. 4uo .I .

DECISION - -8- C.T.A. CASE NO. 3421 The ass essm ent was based on the firdings invcsti~l<".tion conducted by t h e But' e au o f I nt et'na 1 Reven ue <BIR> which s ho~ed, among others, that: "() s t' e ~FH'd s t o ( sic) the wit; tl h o 1 d i Tl ~~ t a>< at source liability of Filsyn, it was gathered th at for the year under review, Filsyn <si c) method of payment nf withholding tax at source is based on act ua l remittance o�r' p ay ment of r�'oyalty , inte�,-es t and divide,nds .::l bl ' 0,1 cl and not on accr-ual basi s put'suant to B. I.R. Ruling No. 7-003, dated February 26, 1'371. Following the said t'uling, a recomputation of the taxpayer's withholding ta>< at source liability on intere st paid and accrued to several foreign bank s and lending institutions and royalty paid and accrued to Teijin, Tokyo, Japan was made a nd it Wi:\S gath er ed that Filsyn is still further liable to pay the following deficiency interest for failure to pay on time the corresponding withholding tax at source based on accrual thet�'e of, wh ich is as follows.: Deficiency interest on withholding tax on interest to foreign loans ����.������� ~ 166,653.61 Deficiency interest on withhol~ing ta x , o t1 t' o y a 1 t y. . � � . � � � � � . 53, 76E:. 2'+ _______ ___ I=! 85 _,. i:-=:30 , __ '+15. .,. ,. -- �-- ..~ �---- ..... -�~ --- - �-- ><X>< t , XXX >< ){)( "(-:>., c_:, t' e ~FH' cl ~; t o <-:-, i C' ) t h. ,e w i t h h o l. d i n g t a >< o n c a !5 h d i v i d e n d s , i t I�H1 !5 f �.n' �t- h e �r' g at h e t ' e d that Filsyn failed to pay on time the corresponding withhol~ing tax of 1='540,520.78 due on ~1~6 96, 139.00 cash dividends as computed in the attached working papers mat..�l-<ed Anne>< C-1. Ft~om the t'ecot'ds , it was found out that Filsyn declared cash dividends p.'"'\yable on Mat'ch 26, 1976, hence the withholding tax is due on April 26, 1975, which is after 25 days from the end of the first calendar quarter of 1'376, as provided for under Section 54 of the Tax Code. However, the withholding tax at so~rce due on 4u, .I

DECI SION - C.T.A. CASE NO. 3 4 21 - 9- t h P. a f m-~ e s a :i. c1 <~ m!) u n t D f c a s h d :i. v i d e n d s wa s only paid on July 26, 1976, hence the correspo nd ing deficiency inter e s t for payment amounting to P 18,918.22 l~te ~-�. e c o mme n d e d h f? 1�' e :i. n f o ~~ c o 1 1 e c t i o n . 11 is Reco~~ ds , pp. c:Li3-- �~:'l-'+; Exh. 11 5-- t"> ( BIR On lvta y 1 8, 1.'3 B1, petitionet' the as s- essment on the ground, among others, that the BIR in ho ld ing that its obligation to remi t the withholding taxes arose fr o m the mom e nt said payme n ts we r e accrued in petitioner's book s , regardless of when a c t u .::\l t�� e rn i t t a n c e of t he p a y 111 e n t s wa s rn ad e ( E >< h � " B 11 )� In the assailed decision, dat ed Sept em bet~ 1 () ' l '::lE:\ 1 ' resp o n d ent denied "petitione r' s and adv i s ed the latter th a t its decision was already f i n a l c <E >-:h. II II) � Thus , this petition fil ed with Us on F e bruary 4, 1982. The lo n e is s ue to be resolved by Us is whethet~ pet:i.tione1�� is requi red to withhold taxes at s o urce on i 1:; s f Ot' e i g n 1 o a n , t' o y a 1t y an d d i v i d e n d p a y rn e n t s t o n o n - r; t��e s i dent which ha.,ve bee n as li.:,bil:i.ties i n it s books , but have not yet b ecome d ue a nd demandable nor been ac~ually pai d . L-Je fi nd n o t o d i s t ,_n~ b t h e assai led decisio n. We h av e had occasi o ns i n th e past to rule on t he is s ue of whe n taxe s must be withh e l d in case t he ' pa yo r <withho l din g agen t under the Ta x Code > uses t h e accr ua l method of acco,Jnt ing. I n the cases of 4U ~ ' �. I '

DECISION - C.T.A. CASE NO. 3421 - 10 - <CTA l [:,' 1 979)' J.l.l.:\::.Q.!~_D...0..1 13.~-Y.-~..!L~ <CTA Ci::'\ s e No. 3307, Nove mbet�' C.:5, 1. 983) , h r~ Jd th,::\t: as a general rule, the withholding of taxes ft� om in c ome duf? n on�- t�~sident an d that the only t o t h i s t ' u l e -�--- t h <'-" t i s. , the on 1 y t i me that ~-;i t h h () 1 d inn of te~xe �:; upon the actual 1"� <.\yment, E:Hl d n ot th e C'.CC t'ual in the boo~<S of the pay cw is v;hr~n thel .' f? 1 ~; <c~ g c> v et��n ment which pl ' Pvents t h e a c t �..t a 1 t' e rn i t t an c e o f t h e. i nco me due the non -- t ' e s i d f? n t Cl.!?ar� l y , in the .) s ). nee no government res triction exi sted at the time - ~he suhjec t acc r ua l was m,:~ d e, to pt�even l: a~t u a l remittance of the sub je ct i ncomes; then , the g e neral rule appl i es . That is' pel::itioneY' was obliged under the l aw to withhold and taxes at source on such incomes accrued in its books . Thi s holding is further bolstered by t h e ruling of the Supr�e me Cout��l; in the t'ecent case of Co mmis sioner' of 4u ~ .I

.J DECISION - 11 - C.T.A. CASE NO. 3421 which II I,..J y e t h ~:; I .I, <"l.C 0 q u e s t i 0 11 s t h r> l p g a ] i t: y 0 f th e t � ~~gulc>. tion imp o�;ed by the P.u n :?c.:\1.\ nf In t~ rnal Re venue of requiring a withho l din g ,::~qen �l~ ot~ t~ x pi::\'y' f.? "r'' to t''P mi \; tht? t ,::~ xPs ded1 .\c t e d and wit hheld at so u rce on inc om e s whi ch h e not yet be en pairl. I t maintajns t he sta n d th 0.t \.'Ji t hhnJcling t.:~x at so u.t~c e c;"1ou l d on!'y be r-� ~?mit: t e d t o t 11 e B '..\ r~ ~?a'\ o f Int.~? r�� n a 1 fh? v t~ nut~ once the incomes s ubject to withhol ding t ax at so urce have 2ctually been paid. Thu s , p 1��� i. v a t e t ' e ~; p P n d r.> n t "" v f.! t '' s t h at i t wa s n o t l i <21 b 1 f? t l1 t�� '�? mi t . t h I? t <H : e s '-' i t h h e l d at s o '�n' c e nn t�� o yalt �i. es 2nd rlividen ds 1.m less the s e in co mes ha v~ b ee n actua lly p a id to its forei gn li ce n so r s a nd st ockhold ers . "xxx ><XX X>< X " Mo t~ e o v r.> t '' , t h e t~ e c o t~ c~ s s h n ~�J t h a t Wy e t h Suac o adopted the accr ual method of <'\cco unting wh ere in the effect of transactions and ether events on asse t s and li a biliti es are r ecogn ized a nrl r e po r ted in t he tim e p P r� i o d s t o ~�J ll i c h t h f? y r~ !? 1 a t 1~ r' i:.' t h I? r t h an rJ n 1 y when c ash is Y'ecr~ ived o r~ p aid . The "Repor~ t of In v estig a t ion " s l\bmit ted tJy the t.::\x r><2miner indicat ed that Accrua l was the basis of t h e ta><pc:\yet~ ' s r�� etur~ n. Thus, pl-~iv.3te re s pondent recorded accrued royalties and dividends payab le as well as the withholding t a x ~ t so ur~ e pay~ble on thes e incomes. Having de ducted and withheld th e tax at s o,. w r:~e ancl h a �J ill~] t~e cor~cled t:he Ji.t hh oldi.ng l: i::\ >: at so u 1 �� ct~ p <.'tY''.hlP jn i.�l;~.; boo ~<�::. of �'\ c c t <' m 1.. s , r.n� j v <'\ t e t~ e s p n n d e T1 t s \.'J .;"). o h ] i g .:~ t r> d t o of I n t ~~ t~ n .~ l y�,., mi t the <:. "' 111 t? to t 1�1 P E\ u l-~ e.:~ u r. c v ~, n �..\ e � " Petitioner ma kes much of t h e f act that th e s u b j ect ac ~rued inco mes havp not y et become due an d de man d a b le at t h e t ime t h e accn.ta l was made. 'tto sin c e such accrued inco mes hav e no t yet )

DECISION - C.T.A. CASE NO. 3421 - 12 - due and d~mandabl e , there i s a~ yet , as f ar as the CO t"' f.JIH'' ,;d; i 0 Tl ~; - y' PC' i. pi I? nt S of such p.::;ymen t s are concerned, no taxable ~ncome r etit i oner mu s t with hol d taxes. Petiti oner g oes on to con !~ end that: "The t~ationc"'lle of the pa_y: et_~ decision><><>< was that although the non-resident foreign corporation h ad the th e oreti ca l right to col lect th e royalties, it was f orbidde n the right to receiv e them or dispose of them. Wit hout th e p ower to co mmand payment to itself nor the power to di spose of th e 'i ncome ,' no eco nomi c advantage accrue d to t h e nr.:m-t~pr:;ir.:l~rd; fo t~ei~]n CClt�pot~atin n. The �. i T1c o me ' wa s t h e 1�' r.~ f o �r~ f? urn~ e a 1 i z e d and h i g h 1 y at-� t :i. f i c i a 1 \�J i t h n u t t h e e l e me n t o f c o n t t~ o 1 o v e t' t h e a mo u n t s � 1-l c c o t~ d_j. n ~] l y , n o g t:~ i n , profit o r income was thereby created. Th ere be ing no in co me subject to wit hholding of t,,,u:-��at--sol. n-�ce , no duty to wit hhold and p ay t h e t ~""'~ x at~ o s.e a t t h ;,, I~ t .i me � x x x "Altho_tt gh the case a t b.::n~ does not involve any 'b l ocking proc l am3tion ' against t h e t "' e mi t t a 11 c f~ o f f u n cl s-, , t h e n o n - t~ e s i c:l e 11 t f oreign corpor2tions involved in this case, C:\ t t h e t i me t h e a rn o u. n t s wet~ e e. c c t~ 1.1 e d i n F i 1 �.; y n ' s b o o k s l i I<e ~-~ i '=� ~? d i. d n o \; h ~ v e t h ~? ,., i Dh t t o t�' e c �~ i v e t h �e m o t"' cl i "'pose of them an cl neither did they h ave the power to command pm ym e nt to th emse lve s or othI ers , u nt il these amounts become due an d demand a bl e und er th e relev~n t contract. No eco nomic gain accrued to the non -resident fbreign corporati6n prior t o t h D. t t i me � R s i n t h e !;:1 a y e t~ and L. D. Cau 1 k cases, the non-resident foreign corporati ons did n ot yet h ave gains, pro fit s , and income,' at the ti me of accrual by the debto r ccn~prn�'a t ion. " We canno t agree with pe titioner. The qu es t i p n , of whether or not the subject accrued in c ome s ha v e become due and demandable at th e tim e of suct�1 ac ct~ual, is not pivota l in this case. 4l .L

DECI S IO N - C. T.A . CASE NO. 3421 - 13 - In the fir st p l ace , as state d b y p e ti t ion er i n its me mo t' ;.-,, n d 1..1 111 , St .:~ te ment 1\10 . pat�. 7<e > of the n c count i n g St an d ard s Coun c il define s the ter m J.i r,,b i lities " as con s ti tu ti n g " li c:-\t.:>i. l i ties fo t' expe n ses o n tn ' b e f o t' e t h e balc::'l n c e s he et d ate bu t .) J:.!..?.~_'t:..�..bl.~ a t_ 9. l ~J e t' ~.:!.~_g_ , u s u a l l y to s pe c i f ic p e t'so n s , d e t e t' mi n ab 1 e ~"it h t' e asonab le <Und e rscor ing suppl ie d>. Cl ear ly, l i abi li t ies such as t h e sub j e ct in co me s - - may on l y b e accrue d if they ar' e In other wor d s, t h e subj ec t i nc o mes wer e acc rued in t h e l:w o I<s of p e t it i o n e r�' ru:_~~s:j. s e l_y_ be c a u s e t he y i.'J e t' e not y e t d u e and d em an d able. In t: he s e c ond pl ace , t he p rese nt ca se miJ St be d if f er�' e n t i a t e d ft 'D ill In the c::�a se , th e wi t h holding ag ent, Ba y er Pha r ma ce iJ t i ca l s, c ould not , ev e n i f i t wanted t o , t he coY' pO t'at i on - !; pa yment s to t heir non -res id e nt for e i g n 'I 1��� cc ipien t . Th e Ce llt t-�r:,'. l D,::~ n~< pt�oh:i.bi t ion , wh i ch wa s b e y ond the c ont rol of bo~h Ba yer and the n o n-t'e s i dent f o 1' P i ~~ n c n t' p o t ' at i o n , t' e mo v e d a 1 1 p <) s s i b i 1 i t y of siJc h re mit t a n ce b eing made. On t he o t h et' h a nd, in t -he pt'esent c a se , the t' e is no such circum stan ce or f orce e ffe c t i ve ly bl ockiHg th e n o n -- t' e s i d e n t fo r eign corp o ra tion s fro m receiv i ng the i nco mes acct�� ue d i n p e t i t i o n e t' ' s bo ok s . I,n 41 .:., � ..

DECISION - C.T.A. CASE NO. 3 4 2 1 - 14 - Pt he 1��� v.�o r'cl s , t h f? r�� e i s n o l;; l�l i n [~ b e y n n d t h e contr-o l of r:.l ~ t j t i 0 n e 'r'' vlh icl1 ~�JO l..t. J. d p r� e ven t O'r' stop i t rem itt in g .t h e said i ncomes ev e n b efore th e y become du e ~n d dem a nd a ble und er th e pe r tin e n t c ontracts . Finally, to c ountenan c e th e po<;it.i. on of the p et i t i o n e r' '-"Jo u 1 d b e t a nt am o u n t t o say i n g t ha t , i n c as e the p a y o r' actual l y r� emit s 1 o c.<.n p a yments, .) l�' oy c;~. lt ie s , an d /o r dividends to a non - r e s id e nt f o t' e i gn s u c h pay or d oe s n ot have an o b l i g ation to withh o ld the t: <..\ X p ~~ at s rJ tn' c e on ~; a :i. d act u a 1 paymen t s unt i l the m <-C~tu.r- it�y' d a t e o f t h e o blig at i o~s. This i s c l ear-ly u n t en a bl e . WHEREFORE p t' emi s es con s ider-e d, the instan t p e tition for re v iew i s DISM I SSED. The � ss a i led d eci sion o f res p o nd e nt C o mmi ss ion e r , date d Septemb er 1 0 , 13tH , is hereb y nF F IRM ED. Pet it i on e r i s ordered t o remit to r-�espo n dent t h e a mount � ~f ~ 379 , 700.68 , as d efic i enc y ., with h ol d in g tax a t so u rce f or t he year 1976 , all in teres ts and pe nalt ie s a c c r u ing on it. I SO ORDERED. Qu e z on Ci ty, Metro Manil a , 1.393. ~ p>-~~~ . I RAMON 0. DE V A . Ass ocia�te Ju rJ e 41~ . ..

DECISION - - 15 - C.T.A. CASE NO. 3421 WE CONCUR: ct~~� ~ ERNESTO D. ACOSTA P1��' e ~; :i. di n M L K. GRUBA n,, s o c i a-t e \r..uc1 g e CERTIFICATION I hereby certify that this de cisio n was reached aftor due con sul tation among the members of the Court of Tax Appeals in accordance with Section 13 Article VIII of the Constitution . <;,~ ~' Q~ ERNESTO D. ACOSTA P~~er.; id.i. ng Ju dge 'I 41 ~ .I