CTA Case No. 4665 (Decision)

v RePUBLIC 0 THE PH LIPPI OtJfH OF TAX A ALS 111 �zoN en v SY~l _MATICS lNC. and J\1-\NI< OF fHE PHILIPP N JSU-lNT>S, COMMISSION Jt JN R �� T. A. CASE NO. 4G65 R VENUE~ SEP 02 1994 Re~p nd~nt. J( - - - - - lSI N nv v1� �or ,.. e f 1..1n d n f a 1 1 e g e d 1 y fee in th amount of Pl , :514,877.30 forth y <11"' YW:1 . Pet1t1ontH' ~::>y s em 1 1 .~ Inc. <SI> is a non-resldent fore 1 gn cor� pot~ ion wtttt b1.1s1n ~ , -; ddre s s at 4001 Rodney Represented hereto by the withholdtng agent/p titioner Bank of Phi 1 i pp in e Is 1 and s <BIJ i ) , � corpora ton dr.1ly organized and existing under the laws of the Phi -lippines. Un April 30, 1989, BPI ent red into an agreement ~oolith Sl entitled "Investment Charter So tware L1cense AqrP.ement" (ptJrtion of whtch was amended on July 20, �' 854

DECISION - � C.T.A. Cas e No. 4Gb5 - 2- l'J/39 ). J. Th is agreement was duly reg iste re d and approved by the Technology I r�ans fer Board of the Department of rrade and Industry o n J uly 21, 1989 undel~ C erti ficate of Registrat1on No. '3 50 . :~.:: The said Aqre em ent granted BPl a llcense to use certain sr c mputer programs. Further a pay men of a licensP feE.> 1n the amou n t of f-27 1, 800 .00 P6 , 05'3 , 509 .. 20 w s st tpul atf'tf I'" yabl up tl.n compl l:?t ion of or qinally payab le 1..1pon e x erut 1011 of the greement> . pet1 tioner l:IP l f ile d its Un Novem r' l o, Monthly Hen11tt a n e Hetur� n "f Incom Taxe s Withh eld f or t;he month nf' Uc:tob r 19HY s howtnq f inal Wlthholding ta~>C o f ~3,t:HH,.5...i'��::>':;l whi c h "'las paid undor Payment Ordet~ No. Jb37466 and CD C on f1rma 1on Receipt No . 17080580 both d<lt ecJ Novenber 10, 1 '::J/49 . �3 ehl toner� BPl c:dlt>ged that thi s amount includes the ~ � :... , 120,826. 2 2 in orne ta)( payrnent of petitio ner S l oi P6,059,509.20 J C f'nse fee. "� On f..\pr ' 1 1 2 G, BPI rt>ques ted for BIR ruling confirming its opin1on that the l icE>nse feE's an d royalties paid by 1 t to SI were subj e ct only to a 10" withholdin g tax pur�su ant to Arti cle 13 , paragraph 1 Exh. "t-1". "G'' . ~Ex h. "t..:'', "L:-1'' .,nd ''B" a nd "B- 1". "C-"" ()5 5

lH t: I SIUN - C. �1. n . Case No~ 4665 - 3- i:?( b> ( lii) of h RP - US r.'\ x l r- eat y 1 n re l at ion t o Art1 c le 12 , pa r agraph ~ <b > ot the H~ - W a s G r man y la x l reaty . ~ I n response , the Comm i s s1on e r of l nt erni'l f~ e venu e J ose U. Un!:] i s su d 13tR Ru ll ng N o . 079-9 1 on Ma y ,I J, 1991 �- o n f 1 r m1 n q BP l ' s opi n i on � . Th i s ru l ing provid s 1 n p ~r t: :::..::-_-i=~M'-'t.fJ r� '!l..ru:.L........J:!.at y o u r .~.1 icefL_ ~es a nd """""..-...:::'"t"''-e= �a ~.i ~~ nc., a Pur s l~C!J:.l.!.. t o___y_p u r ~~~~--~-~~~~~~n~t~�-� ----~w i th_____ ~~!J! i.thholding ~---:Z:=. J. b > <i i i > o f . (I) t_tL__Br t _i_�_l i__t_g_'L. ~ -~~ r t. _,G_E> r many T a>< C() tl t . l. ~" '..rnP.~ .. Un d r the most n~t i o n r:w 11V t o; inn o t tl RP-US r ax [Artic l P 1 �~ , p .:1 r�a q r� p h 2 { b ) ( i ii>J, t he tax 1mposabl e on r ov ~ l ie~ <whi c h li~ew is e e mb r a c P license fees> de rived b y a r E'5oi dent of the United States tr am sources w1thin the Phili p pines sh a ll b e the lowest rate of Phili p pine tax that ma y be imposed on royalties ot the same kin d paid under similar circum s tanc es to a resident of a th . rd state. Ar�t ic l e 1 2 , par-agraph 2 (b) of the RP-West Germany Ta>< Tre>aty , effective January 1, 1 9 85 provides that t'oyalttes at~ising :in the Philippines and pa1d to a resident of West Germany may a 1 s o be t a x ed i n the Ph i 1 i p pi n e s, but the tax so charged s hall not exceed 10~ of th e g r oss amount of r oyal ties arising f rom the use of or the t' ight to u s e of, any patent, tradem a rk, de s 1gn o r model, plan , secret formul a , or from the u se of, ol~ the right to use, industrial, c ommercial or scientific e;Exhs . " D" and " D- 1". 6 Exh. " 1::. " . 8t5 6

IH f:ISION - t.:. I. A. Case No . 4665 -4 P><PI?l"iPnc.� � lhr:> ~aid t r ~ty al o pr ovi des that t� or� c; l n tH] 5 he t rp n sfAr of t echn o l ogy und er Phi l i p pi n P. law ub .Je t to approv al, the llmltatlons of the tax ratP mentio n ed un der <b> c;hall, 1n c c;e of royalttes ari 1n g i n the Republi c of the Ph i 1 1 o p 111"' c; , on 1 y a p p 1 y i f the contr.;H:t giYJn rlse to such royalties has be en appro v f'd by th Philipp lne competent au thor i t 1 ~. XKX ln lintl wi!:M t t bov t' tl I 1 11 Q, Petit :i on r BP 1 f i 1 e d on J ty :-� t, l t;l'-l l t:: laJ m tor� f<e rund W1 . 11 respondent's <nrl ~~sea 1��ch tl:iV ll:>Jon a ~ony for the +' l.P.(}l ].;\tjvf� Hullt-11) h t? amo�Jnt of P1 , 514,H/I, . ~'! p id by r et l l;ton~ S l. " The ove r remi ttanc e Licenst f ,. hi ~ 2 '71, 8<)0.00 '*d tip l y b'to' in nP ow _____??0 . 29:._ L1cens e f p~ _6 , 059, 509 . 20 - -~~- Multiply by regular aH r te 1->2 ,1 20 ,82 8. 22 fatal ~ aM remitt Pd to ATR ~.....:6:::;.Q;; g 950. 9 _c;_ (-kt u a l tax liab i l i t y P 1, 5 14, 877 . 30 (b, 059,509.20 }( 10?< ) Over r~mit ted withho ldinq tax However, responrlPnt did no t grant the refund nor pve n ans~o<1ered BPI's lett~:> r le a ving no re>course b ut to ft le a suit before th1s Court. T het~efore, a petition for t� ev ie"'' was filed on Novemb Pr s , 1 99 1 in ord er to jnterrupt tl1e running of the two-year prescriptive per1od under� Sec . i::.3 0 of the Nat 1onal Internal RevE'nUE' Cod�>, as amend e d. 7 Ex hs. "F" and "F-1".

11 .L:l ' J UN �� L:~ I . f..\ . C<l~.f' No. 4bb� -~ - lhi <:> ca ~ "'1 .:1~ 5Uilmttl 1�d by �" ,.-.pan ent' s c ou nse l fo r-� rlects1on tHl thl? b .S L S !lf th~ f:\ 11~ t~e cot~ de, pet i t t o n e r ' s evide n ce� a n d t h e ple~d1 n 4 �� Bo h p a rti es f ailed t o su b mit th i m rno l he sol r r-t~ l vr d b v t hi s C ourt is 1--1heth e r o t�� not petit i OtiPt '"> nttt l e to t h e l~efund of Pl,~5 1 4,8 77 . 30 r pr .'l el1tHHJ flV t"fl id w h hol di ng tax of SI , a n o n -resi d e nt forei qn c orporat i on , pur s u a n t to the ,I HP- US Ta )( Trea ty. Hased on the ev1den c ~ pr es ented , t h 1s Court f in ds n o rea so n why We ca n n ot gra n t p e t i t i oners' clai m. As stated by Com mi ss i oner J o se U. Dng o n hi s rulin g: <i >nasmuch a s t h e 'Software L ic en s e Agr ee me nt' b e t ~r1een you and Sys tem a t ics Inc. ha d bee n du l y registered and approved by th e Te c h n o l o q y Tran s f e t ' Bo a rd o f t he De par t men t o f Tra d e a n d In dustry on J u ly 21 , 198 9 un o r: C~r t lf i r: l:t+ o Req i stt-ati on No. 950, "" tiyal �b :i e And l i C('H Hi �~ f ~ ari s in n t.!-le Phi 1 fj bi n es a nd p a y a bl e t o Sy s tema tics In c ., a no n-resi dent for-eiq n c orpor at ion bM.c;P d in Ar k a nsas . u . s . A. , are s ub j f'c t to the Phi lippine tax at the rat e of l O K b e c ause this r a tP a ppears i n t he RP - We s t Gt?r m ~ ''Y T a )( Tre a ty and p u r- suan t to Art icle 1 .3, p r.;u:r anM 0 ( b ) Ci ii> of the RP-US T ax Tr a ty. )(){)(. S ince petition E> r s wer e able to p r o v e th a t the w1 th holding tax on lice ns e fe e they p ai d and remitted to 6 Th e B I R records was not transmitted t o the Court. ~c oun s el f o r respo nd ent did n ot ob j e c t to the adm 1 s sion o t p e titione r s ' ex h 1b i ts .

�' nu:I.-JON - C. T.~. C SP Nu. 4665 - b- m un t s to 35", where i t I o1.ald be ref mded to them . 1r h � ~~ y ord~red to REFUND to pet 1 t i o 11"' r� � l!ltHH"I t1 I re presenting o v e r' p a i d w L t h h o ! i n q t n mP )( on 1 i n~!" fee purs1..1ant to RP-US fa~ lreaty. SO ORDE RED . f~ ~ ~ tHNES TO D. ACOSTA Presi d i n g Judge WF CONCUR : 1\..:1<. GRIJBA Ass - e Judge I '"'~~- ~~.~ I Associat e J ud~:r;; ~60

' I 111- C J S J ON - n. C. I . Cas~! No. 1i� bb ~) I- C E H - r IF-- I c.: AT I 01 lu:>r'Pb y CE>rtif y t h .::lt this decision was reached .~fter d1..1P. cons 1 fllt:itl tl monq l.tH� mt rnbef'�s f the Lo~trt o �F r ~ )( ~.\ p o e ~ l s n ��eo d � ~ e r \>ll t: h S ~ t. t i o h t 3 fh� t i c 1 e V1 J I o �f CA �� JZ ct2-~ i:w-.u:. StU U. At:USJA ' 11' �'s 1 d 1 nQ Judge CniiY't of 1.-=tH Appeal s 85 9