CTA Case No. 3890 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY POLYGRAM CORPORATION, Petitioner-~ -- ver-sus - C.T.A. Case No. 3890 THE COMMISSIONER OF INTERNAL REVENUE~ Respondent. >~ ---- - -.. - - - - > ( DEC I s I DN A simple claim for- r-efund/tax cr-edit of alleged over-paid withholding tax on film r�entals based on the "most- favor-ed nation" c laL1se of the Republic of the Philippines-United States Tax Tr-eaty. Petitioner-~ a non-r-esident for-eign cor-poration or-ganized and existing under- the laws of the State of Delawar-e~ U.S.A., is engaged in the business of film distr-ibution and had license contr-acts with local television stations and adver-tising agencies, mor-e par-ticular-ly, the Gr-eater- Manila Ar-ea Radio and Te 1ev is ion Ar� ts ( GMA) and At 1 as Pr-omotion and Mar-keting Cor-por-ations~ which on var-ious dates withheld and paid t.a:-:es on film r-entals or- r-oyalties payable to petitioner- at the r-ate of 25% 51 3

DEC ISION CTA CASE NO. 3890 - 2- pursuant to Section 24(b)(1) (IV) of the Internal Revenue Code of 1977J detailed as follows: Gross Ta>: at Date Receipts/ 25/. Paid Royalties A. ~ (1) Take Ya..1r ls$ 3125 US$ 781.25 781.25 2- 1-83 Pest Shot 3125 1562.~) 3-31-B3 (2) Isabel's Choice 62::'<1 B. AlLAS ( 1) Elephant Parts 1::'(.'Xl 375 1::'(X) 375 5- 3- B3 (2) Gnones 10(1() 250 1-21-8.3 (3) Magic FlL1te 1000 250 5- 3- 83 {4) Bert Kaempfert 1::'(.10 375 5- 3-B3 (5) 1-btline 2000 ::'(."X) c. T 0 T AL __:f(X)Q_ -�---~= "9__ 4- 6- 84 ~~~;~-~.~ ~.~.!l~~�~ The payment of the rate of 25/. withholding tax l nonetheless~ petitioner took exception by asserting that the rate of only 10/. tax applies on royalties and rentals pursuant to the "most-favored nation" clause in Article 13 of the RP-US Tax Treaty taken in conjunction with Article VIII of the Kingdom of Sweden-Republic of the Phi 1 i ppines Ta:< Convention and Article IX of the Denmark - RF' Tax Convention. Under the provision s of the RP-US Ta >: Convention~ royalti es or rentals derived by a resident of the United States for the use of~ or� the right to use cinematographic films, or tapes 51 3

DECISION CTA CASE NO. 3890 - 3- used for radio or television broadcasting are subject to the lowest rate of Philippine tax imposed on similar type of income derived by a resident of a third State. The lowest rate of tax that may be imposed by the Phi 1ippines on such royal ties is foLmd in the ta>: conventions of the )r' .. >. Philippines with Denmark and the Kingdom of Sweden. 1r 0 Article VIII of the Kingdom of Sweden-Republic of the Philippines Tax Convention provides: " ( 1) Income which a resident or corporation of Sweden derives from \ rentals or other amounts paid by a Y esident or corporation of the Philippines as consideration for the use, or the right to use motion picture films, films or ta ~es for radio or television broadcastin , may be taxed in the Philippines at ten percent (lOX) of such rentals or amount paid." Article IX of the Denmark-Republic of the Philippines Tax Convention likewise provides: " ( 1) Income which a resident or corporation of Denmark derives from rentals or other amounts paid by a resident or corporation of the Philippines as consideration for the use of, or the right to use, motion picture films, films or tapes for radio or television broadcasting, may be taxed in the Phi 1ippines at ten percent (lOX) of the gross rentals or amounts paid." Accordingly, since the royalties derived by petitioner from its contracts with local licensees for the LISe of motion picture films or- f i 1ms or tapes for radio and television broadcasting are of 520

DECISION CTA CASE NO. 3890 - 4- the same kind as fil m renta l s under the tax conventions of the Philippines with Denmark and the Kingdom of Sweden, they are subject to a ten percent (10% ) tax pursuant to Article 13 , paragraph 2(b) (iii) of the RP - US Tax Convention. rate ~ hus applied, the ten percent (10%) vis-a-vi s the twenty five percent (25%) earlier -l computed, shows an el�:cess payment of P3 6, 444.84 '-----" i ~~ Z II : Ta:-: at Over- Refundable or lOX Payment Creditable in Pesos (1) Take Yo...tr Best Shot $312. 50 $468.75 p 4, 3:56.09 4,3:56.CR 312.50 468.75 4,6~). (X) (2 ) Isabel's Choi ce 312. ~) 468.75 ___...:~ts_Q~-!-~.~~1 312. ~) . 468.75 P18,012.18 B. BJlA?. (1) Elephant parts $1!50 $225 p 2 ,090.92 225 (2) GnO'T'!eS 1~) 3 !1723. 37 1~) (2 ) GnO'T'!eS 100 1,393.95 1~) 1,489.35 (3 ) Magic Flute 100 2,234.02 225 (4) Bert Kaempfert 150 4 ' 2()0 � 61.) ::::~x> _,_:;;l,_~~~.!.1~ (5) 1-btline 2tX> 300 200 TOTPL l~n January 21, 1984 petitioner filed a claim for the refund or tax credit of the overpaid amount of withholding tax on film rentals or royalties but which remains unacted to date by the respondent. 521

DECISION CTA CASE NO. 3890 - 5- Hence this petition. Be that as it may~ it needs neither argument nor citation of authorities to establish the validity of the claimed refund or tax credit as the law is clear and the language used amply sufficient to dispel any pall cif uncertainty over the same. Moreover~ respondent's ruling so provides that "This Office hereby confirms that the royalties derived by Polygram Corporation (petitioner) for the LISe of motion pictLtre films or films or tapes for radio or television broadcasting are subject to 10'Y. withholding tax pursuant to Section 13(2) (iii) of the RP-US Tax Treaty." (BJR Ruling No. 065-85 ~ We do not think any different conclusion ought to be reached � Certainly the law requires no more and e>:pects no less. Petitioner has fared consistent with the relevant legal standards in proving entitlement to a favorable determination of the desired relief. WHEREFORE, respondent is hereby ordered to refund or grant a tax credit in favor of the petitioner for the amount sought. No costs. SO ORDERED. Quezon City, Metro Manila, December 15, 1989. !}:;&, REYE Associate Judge 522

DECISION - 6- CTA CASE NO. 3890 WE CONCUR: Judge CERTIFICATION 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. Presidin Judge Court of Ta x Appeals 52J