CTA Case No. 2915 (Decision)

.. REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ' SMITH, KLINE & FRENCH OVERSEAS CO., (PHILIPPINE BRANCH), Petitioner, versus - C.T.A. CASE NO. 2915 COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - - X DEC I S I 0 N Th5. <:; is about the 1 :i.abi l i t y to "'' clef .ic:iency / -J.i.thholcling t.a :-: at soun:e on r�o y ;:;~. l ty du.e '" non-- rf?.S i tlen t. �f nr.. F.~ .i. gn corporation whic h h ave accrued in p e t i t i o n er's ~ ook s. As set forth - petitioner foreign corporation inc: Dl'" p o r� "' t.t.-~d und r.~ r- thE:- l avJs of t. h E~ Lin i ted r;ta tes and li cen sed to do bu s iness in the Phjl ippin es throuqh .its local bra nch was assessed by the Y"f?S p n nden t. Comm:i. ~55 ioner" of In tE>r"na 1 r::evenu f.:> und e r l etter o f d e mand d ated July 9, 1976 for deficien cy wi th h old:i.ng t e:1:-: �at soun::: E�~ in the agqt-.. E~<] <~. t e C:lfnount. 4C

DECISION CTA CASE NO. 2915 - 2- �of P1~)1.~381.J-. 7:?.. inclusive of inteF. f?st.~ br-oken down 2.DJ.LJJ . ~.~�.:..t.~lL ___: : -_____;1,.J.Z..t F\oya J. ty paymf.?n t:.s . . ... . . . . . . . . �. . . . . . . . . . _.f_:.l:.:.~_:?. ,..Z.9-1 .!._4_;?_ T ,::\:-: due? .then~: on ����� � � � �� ���� �������� P 4:.?..~959.00 Less: T ax paid p e r- return - P3~498.91 Ta :-: over�� pa id �for� l. st. nt.r-. . �������� p :J~?...i...~.!2.12...~!. Bal ;,~nc:e � � � � � � � � � � ��� �� � � � � � � . 5~ ~':.74 . 09 Add: 1 / 2% int. fr-. 7 - 26-71. to 1 2-3 1. - 72. 461. 2 0 l'-1� /.. .i. n t . f r� � .1. �-� .1 -- 7 3 to 7 -- :.?.. 6 -� 7 4 � � � -� ...:l. ..,...l.ElQ..~---~~1.. TOH'\L At10Uf\.IT DUE . . . . . . . . . . . . . . . . . . . ... ~~---��-�:?,��'--~?_!_~-~.,1:8 ~.r:.~1.___Q.~..\.?:.V:.J,~~.!.::..... ::.....J..7..?..1... Rn y a 1 t y p r.~ y rn e n h ; � . . . . . . . . . . . . . . . . . . . . . E:J_~Z_.J.:>_�L~..2.S>. Tax due thereon ....... ..... . ........... 55~19.1.00 L e <:: s : {~moun t. p a i cf � � � � � � � � � � � � � � � � � � � __ J_._,___(;"~�:~Q..'!..:;;.~{>- B ,;:1. 1 ,;:1. n c: 12 . . . . . . . . . . . . . . . . . . . . . . . . .. F� 5:3 ~ 270. 64 Add: 1 /2 /. int . fr._lD-2 6-71 t.o 1 2-3 1 -72 3,772.63 .. 14~~ in -t. 'fr-. l - 1 -73 t:.o .10 - 26-74 .� .....1.2.,.2f..:>2 _!!.J .Z. T CJ T?~ L A1"11]UN T DUE � � � � � � � � � � � � � � � � � � � � � ~----~~-! ~g 5__:_~?.: F\~ n v ,::1 1 t. y pa y rnc:m t s � � � � � . � � � � � � � � � � � � � � E:J.. z.~~--' 2.{>_L~.c)(~~ T a:-: due t hc=r�eo n �������������������� L~ ::::; ~ ~.i98 . 00 U?ss: {~mount p <"li cl � . � � � � . � � � � � � � .. � � � __}.,_9~.9-~.3..9. 8 a J �C:l n c E' �� � � � � � � � � � � � � � � � � � � � � � � F' ::::. 9,r-t6.1. .O'l� Add: 1/2/. int. fr-. 1 -26 - 72 to 12-3 1 - 72 . 2~230.63 14% i n t . f ,~ . l �- .t--7 ~::. to 1. --2 6�-7 :3 � � __LL_,_.~,_zz_~ 2!2. .�: .__ T 0 T AL At�1CI U1\1 T DUE � � � � � � � � � � � � � � � � � � � � . ~:,;::?,~} . ~~-~ On August 25, 1976 � petit.i.cmer� pr� otest.ed the assessment:. but respond e nt Cnmmi. ssioner� nf In ten1a 1 Re vem .1 e denied the same <:mel r-e.i. t.er.at.e d the earl i.er d ema nd 'for- the payment. of the amount. of P131~384.72 as deficienc y ~-.~.i. t.hho l c:l ing ta:-:es at source 4C -

DECI S ION CTA CASE NO . 2 915 - 3- c orre s ponding to th- e.. three (3) qu a r t e rs of 1971 in 2:\ lr~ tt� pr� d �3t.ed Dct.nb<?r�� ? 4~ .1.r-177 but 1�� ec::Pi.vE�'d by th e p e titioner on December 2~ 1977. Hence this petition for review. F'et.:i. t.i.oner hnldr::; on to the pr�opos .i t.ion that t �.h e h'.i.t.hholdinq ta:-: at s our�c::e r.:\r.i.s:,p s onl y i':\t t .he t :\.rnP n �f t h f:? l'"~?rn it. tanc: E? o�f t h(7? r� oy a 1 ty to th E� non - re s id e nt licen s or and not upon the a c c ru a l thereof a s the non - resident corporation d e ri v e s no economi c ad v an t <:lqc~ 11n t. .i. 1 .i. n C C:HTlP actu.::\lly c on s tru c ti v ely remitted to it , a s explained in L.D. . s. , Caul k v l.J � .1.16 F " Su.pp " 8'..'.�:�t':l� ~ !.! ~i. AFTP !.l-9B ( 19~5~:) ) " "Ba s E?d on DUI.-� c l i.Pnt ~5 1'" (7?C n rei s on ro y alti es clu e to the non - re s ident li c en so r s .in 197 1, t .he � r�oya l ty to P".'i~~l ~ 674, the Cjt'"O SS 35% wi thholding tax on which amount s to F'185,0B5.90 ( <,:; .i.. c ) . 1�-1( '�'t�:'!ver� , only a por- �U . on nf s :':l.icl gr-o s s r �o ')l .::\ l t y of F'5~)1~674.00 h,::,\s been t�� pm:.\.t.t e d , a nd on s u c h remittances, CKtr" c: 1 .i en t paid F'E3H,.l~'i 4-.46 as withholding ta:-:, on cli �ffE~rent dates official r� ecf.:>.i.pts. Thf.:> unpaid ~"i thho 1 d .i.nq t:.a}�{' on - the unn~m.i. t.ted t"o y alt.i.es amounh:; to F'97,9 :3.1..44�." Fu r-the rrno r-e ~ "ThP C!"~ nt. r.. .:,\1 .Bank 1'"�-:��s tr.. icti.on pr.. oh.ibiting herein 4C 6

-.:. DECISION CTA CASE NO. 2915 - 4- pr-:.:> t i.. t. .i. on c.~ r� �f r�� om r-ern.i. t. t:. i. nq a P�" r- t of the ro y a.l t i. f.~s (Pl e a se see Regulati o n s implementing CB Circ ular 289 , copy attac h ed a s Annex "A") to the non- for-e.i. (Jn c cJr.. pnr�a-4:: i o n i s und Emi a bl y a ~::; u h s �1-_,:-:\ n t .i. ,:;~_ J l .i .rni t .3 t.i.on on such a r: cr �Lt e d r- o ya lties; . He n ce , o n l y that p a r t whi c h was' . co n s titute s inco me. Logically, ther e for e , the duty t o withhol d ari s es only wh e n the Ce ntra l Bank pP t ..it.ion F~ r- to r-f."m i t the r �o yi':\l ties i::\ c r -r-uPd, b f.'-~c:au s f? i t .i�:; only .3. t that point of time ltJh r.:~ n t h e~:;e r-oy a 1 t.: :i.r-~s mr.:\ y b e;~ c: o n s i. cfp r-r.-?cl .A. D.c. cu.n.~~ to Before that, the would - be recipient c:.::\nnot Y f.�? t s;ubjE>c: t the s e r-o y altie s In fact, it cannot as yet contro l them, neither can i t .3l ~::; o w.i.thdra.w tht-:?m �fr-o m t.hf.0 F'hilippinE~ s. 11 Res pondent Commi s sioner of Internal Revenue c:lo f�:~ s po E-.i. t ,::\n unvar-y .i.nq i'.\ SSPr- tion t:. h .;,\ t ''t.-J .i thho J. d .inq t <.~:-~ :i.. ~:; not dep(�?ndf.~nt on r-emittance o �f the income p a yablE> to the ~cin - resident foreig n corporation but on the accrua l thereof. Such being the case, a l thouqh <:':\ por�t.i.cHJ .of thE� afl\ cu nt. du e .t o the non-- re s ident foreign corporation cannot be remitted on a cc ount o �f CE'!ritr-a l Bank rest.t�-iction s, the t<~ )-: duE~ 4�(

DECISION CTA CASE NO . 2915 - 5- on said ' pol'"� ticm s hould be deducted and 1--d. thhelrl as ii' t.hei'"P is; no r� estr�ict.ie>ns, 11 (BIR Ruling No. 71- 003, 1=-e bnJ ar�y ::?.6 ~~ . .1.97 .1.) Su �f'f.i.ce .it, t.hf:~ issuE:~ now r�;:l.i.st-~d was squar�ely - �.:. ~2J:_.J. o.~~g_r:na..L... ReY..�!..l~:!.g_.!l CTA Case No. 2846, Mar- c h 16, 1972; cer-tior-ar-i denied in Comm.i.s~ioner- of Inter-nal Revenue v. Court. of T ax Appeals, et. a l. , G.R. No. 72054, September- 29, 1986, si milar in many or so in tenor.. C.:\n d c: i r.. c: um s t. <~n c:: t-~s , w hf:? r �e "' ~:; t. h E? r� e, .:::. o h~'? ,,.e, th e r� u 1 inc} E� qua 11 y applies, to .tg..r~~1.t�, thu~; �-- " f.-3 incf? the r-oy .::d ties could not. be remitted to Bayer- ~ due to Ce~tral Bank no:~ s t.or-.i.c:t.i.ons, .::"ts st.e:\t.e d by r �espo nd e nt himse lf i n his decision a ppe aled 'fr-om , S LIIrP J. y , t�� e~ ~..:; ponc:lent' s cotln~::.e l �should not e:.:pect. p�~ tit.i.oner- to ma ke ri�f:(or�t. s , a lbeit. unlc~wful, to r �e rnit the sa mE~ . And on l"'f:~s pondent ' s.; p n . i .n t. t:h at sine~=.~ the roya lt ies had been accrued in pet.ifioner's honk s t h r::'! i nc ome th e rl'*"n bf.~camr::'! s ubject to withholding even if r e mittanc e was ef fe cte d later, s uffi ce it to say that the C:lCC Y"LI<':\ 1 nf the r�� oya 1 t..i. es in pE.�t i t io nE.�t... ' s b C)o 1=: ::5 , c.1 s t1 e 1d .i. n t 1�1e I.:::..!JL.-. ~.J~~b!..!l=~ , c1 j_ d n o t <J.mot.l n t to q <:'l.i.ns', pr� o�f .i. t: s .:J. nd in c ome on thE'' pat�� t of non-�r.. es :.i.den t. Ba yp r� an d, ther-efore , no necessi t y to withhold tax devol v ed on petitioner- . "fh1 t. !' acc:cJ r�� cj irH;_~l y!l r�u. l e that s ince t.he r�o yB l t i E?s .i.n que s t..ion cou 1 d !J..Q_t. be pa.i. d or- r�e m.i. t +. eel .i.n 1972 by pet.i tioner Ba yer Fhann ac eu t..i.ca 1 s , In c:. , to non - re si c:len t fore.i. qn corpo r at i.on Ba yer AktienqesPllsc:hal'ft, Lever-ku sen Bayermerc:: k 4

. .... DECISION CTA CASE NO. 2915 - 6- due to Centr- .3 1 Bank r-e�s+:r-� i.cticms~ p e titioner was under no obligation to \�-Ji t.hho let and P�~Y income tc:~.>: --a t.--source on �3r."'l.i c:l r�oy altiE�~s <':lnd, t.hE~r� r-~for��p ~ 1.s not liable for the deficiency withholding tax - a t -source asses sm~nt of respondent Commissi.onf:~r- of Inter-�nal Revenue :-: :�:. 11 Going by the pronoun c Pm e nt and insofar- as the same i s brought to bear upon the cir-cumstances no obt.a.in:i nq, there can be occasion to further s p ec:u li':l.t.E? when t.hr.:? chip s mu st fall~ s n to speak~ 11 The t :.i.me n �f p i:lymen t:. c~ �f the royalties is the maturatio n point of thP ~-~.i.thh o ld.i.ng duty . 11 (Bayer'� ~ We hesitate to furth e r fa s hion an issue into a sa t i s ~c tor-ily settled leg a l situation. ~\IHEF\F FUF<E, r��e~; p on c:I E~ nt 's d e�f j c i e ncy assess ment �for'- thf:? pet-.i.od i.nvc:> l ve d is hpr�e by set aside. No costs .. Que~on City, Metro Ma n i la, July 29, 1988. ~REVES A!s s ociate Jud ~ 4

-- . ._ DECISION - 7- CTA CASE NO. 2915 l�JE CDI\ICl..Jn = AMANTE FI Judqe c'. - -- ROAQUIN CERT I F I CAT I 0 N I hereby certify that this deci s ion was r e a ched after due con s ultation among the members of the Cour t of Tax Appeals in accordanc e with Section 13, Article VII I of the Cbnstitution. AMANTE Pr-esid inq Judge Court of Ta\ Appeal s 4 7~