CTA Case No. 3981 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY WYETH SUACO LABORATORIES, C.T.A. CASE NO. 3 981 INC., Petitioner, versus -�- COMMISSIONER OF INTERNAL REVENUE, F:espondent. -- �- - - - - }�{ DEC I S I 0 N to whet her- or not the obl .igation to withhold and pay income ta~~at-source on interests, royalt.i.f?s, etc. ~ d ue a non - resident corporation k .1 at:.t <:1ches l..IJ:mna.l or actual payment is the simple issue i n the ctse at bar. As i ':: a ppears, p e t i t i o n e r.. corporation organized and e:�:.isting under and by virtue of Philippine laws was assessed for de f iciency income tax and withho l di n g tax-at- source under a letter of demand date;�d November.. :?8~ 1980 of the respondent Commissioner bf Internal Revenue for the respective amounts as follows: 4f t

DECISION -��� .. ,,~, CTA CASE NO . -2 1 ) Deficiency Income Tax p 10~661.87 Interest of 14% from February 16~ 1976 to February 15~. 1~79 Amount still due and collectible 2) vJi V1holding Ta :�:-At-Source P106~ :317.56 14% lnterest from July 26~ 197 6 to January 26~ 1979 Amount still due and collectible The deficiency income ta:�: assessment in the amount of P15~139.86 which was subsequently paid as evidenced by Confirmation Receipt No. 873 04599 and Payment Order No. 609152 both dated October 2~ 1985 (Annexes C and C- 1) draws the curtain of c on c lusion over petitioner's liability~ leaving only the question of the deficiency withholding ta:�:- at - source for resolution. Said asses smen then administratively protested by petitioner on January 29~ 1981 on the gr-ound that the ta:-: attaches only upon remittance .. and not on accrual thereof (Bayer Pharmaceuticals~ Inc. vs. Commissioner of Internal Rev~nue~ CTA Case No. 2846~ t-1arc h 16~ 1979; Certiorari den.ied~ Commissioner of Internal Revenue v. CTA et al. G.R. 72054 S eptember 29~ 1986) proved to no avail as the

DECISIOI\l - CTA CASE NO. -3 1re s ponden t em Ju 1 y .1.1 ~ 19135 denied the same and r-eiter-ated the-~ ear-lier demand citing the decision November- 25~ .1983 (Petition for- Cer-tior-ar-i by taxpayer denied in Resolution of the Supr-eme Cour-t G.R. No. 68413 December- 10~ 1984) whe r- e i t was held that the liability to withhold and pay income tax- at- source on inter-est due to a non-r-esident for-eign corpor-ation attaches at the time of accrual and not upon actual payment ther-eof. Hence this P.eti tion. The facts ar-e not in dispute but we ar-e a little str-uck by the quibble on the appar-ent -.:. d isc::oncer-t.ing app 1 ica tion of the ho 1dings in the c ases above-cited ~~hic::h seems to leave much to be desir-ed. It need no ~ be str-essed however- that the decision in the Bayer case~ supr-a~ was never- intended as a sor-t of a conundr-um as would incite endless possibilities for- conjectur-e. Far- be it fr-om a tr-ivial pur-suit~ the Cour-t .Plainly said~ that We accor-dingly r-ule that. since the royalties in question could not be paid or- r-emit. ted in 1972 by petitioner- Bayer-

DECISION I 2A tJ CTA CASE NO. Jl/!!!lf!!llfl7 ,fl ~ 0 - 4- Phannaceutica 1s ~ Inc. to non-resident foreign corporation Bayer Ak tengese 11- schal ft ~ Leved::usen Bayermerck due to Central Bank restrictions~ petitioner was under no ob 1 iga tion to wi t.hho ld and pay income tax-at-so~rce on said royalties and~ therefore, i t is not liable for deficiency withholding tax-at-source asses :.ment of respondent Commissioner of Intern , :~l Revenue in the amount of P36,834.73 for the ye~r 1975. The circumstance obtaining in the case at bar finds no legal constraint to the remittance to speak of~ hence the 1 iabi 1 i ty to wi thho 1 d and pay the .income tax at source on the roya 1 ties due the non-resident foreign corporation attaches at the time of the accrual and not on actual payment or remittance thereof. What may seem to be considered an elusi~e and subtle casuistry in the said� decision as petitioner would have i t impressed~ the subsequent decision in the case o �f ~orJstru ~tion Resources g_f Asl..a.,._ supra~ relied upon by the respondent provides . a definitive statement~ thus The 1 iabi 1 i t .y of :petitioner to withholding and pay the income tax withheld-at-source from interests due to a non-r�esiden t foreign corporation at taches at the time of the accrual of said interests and not at the time of actual payment or remittance thereof. 4C

.. tlf DECISION CTA CASE NO. -- J-.& fG;l, ~, -- 5 - P~yment of the withholding tax-at- source due from a foreign lender attaches upon accrual of the interest to be remitted e:~br" oad. The interest accr-ues at the time i t is earned. At such time~ the tax on the interest attaches and the contr-actor is ob 1 iga ted tD r-emit the ta>: to the gDvernment. � Indeed~ there is no reason why the overseas contractor~ peti tiDner� in this case~ whD is based in the Philippines~ would wait until it. remits the interest due the foreign lender before pay i.ng the wi thho 1 ding ta:�:-a t- source. Otherwise, the government will be at the mercy of the taxpayer who may take time in remitting the interest to the foreign lender. And, finally-, .. the r e cent decision in the We s tern Palawan Timber CorporatiQn v. Commissioner of Int.er�nal Revenue, CTA Case No. :::;;544, aune 5, 1987 toughens the appropriate legal moorings of the said holdings, to wit.: This court unequi vocab 1 y rl.1 J. ed t.ha t s ince the roya 1 ties cou 1d not be remit ted t.o the non-resident foreign corporation to Central Bank restrictions. the time of payment of the ~yal .ties is the maturation point of the w.i thholding duty. It bears emphasis, therefore~ that. i f the income payable to a non-resident foreign corporation can be paid �� -or renli tted because ther;e are no restrictions against its payment. or remittance thereqf, the liability to withhold and pay the tax then2on attaches at t:'f1e time of accrual, not at the time of actual remittance. Here in the c~se at bar, there is no allegation <::>r ,showing whatsot:?ver that petitioner was restricted from remitting in 1975 the interest on its foreign loan 4

.. DEC I !:1 I ()1\1 CT(.) CASE NO. a:IMJWi' - 6 -�� fr-om non -- n?s.ident Mi tsubishi Cor-por- C~. tion. The li.ability of petitioner- to withhold i?.nd pi?.Y the income ta:�: wi thhe 1d ��- C~. t -sour-c: e fr-om inter-est due . its for-eign creditor- attac he s ther-efo~e at the time of the ac:: c: n .1a 1 of s,::~i d in ter� es t and not "'' t t: he t:i.mf:> of ac:: tua 1 p,::~ymen t or� r� enli t tance thereo �f. As was the said case, so her-e with petitioner-. Ther-e is no allegation, muc::h le ss any evidence, to show that it was r-estr-icted fr-om remitting the r-�oya 1 ties to the- n'bn - r-esiden t �fon?.ign � cor- pora tic.m. The withholding tax-at-sour-c::e m~st be upon ac::cr-ual. ACCOF:DINGLY, petitioner� is or-dPr-ed to pi?.Y to the respondent Commissioner- of Internal Revenue the a mount of P143,528.71 as deficiency withholding tax -a t -sour-c::e for- the fourth quarter- of 1975, plus surc har-ges and inter-est incident to the delinquency pur-�s:. uan t to t .hE? per-tin('? n t: pr-�ovisions of the Nation a l Inter-nal Rtvenue Code, as amended. E~D ORDERED. Que zon City, Metr-o Manila, July 29, 1988. -~~xcizat.e Judge 4t2

DECISICJN CTA CASE ND. - 7 -- I CONCUR: (Did not take part) AMA!\ITE ILLER Pres . �:1- g Judge CERT I F I C AT I 0 N I hereby certify that this decision was reached after due consultation among the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. ... �.:. c . ~QUIN Judge Appeals 4C3