CTA Case No. 4185 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS Quezon City CITIBANK, N. A., C. T. A. CASE NO. 4185 Petitioner, Pro�ulgated: - versus- SEP 16 1994 THE COMMISSIONER OF INTERNAL REVENUE, Respondent. )( - - - - - - - This is a judicial claim ror a tax credit or rerund in the amount or P38,386,674.86 representing rirteen percent <15~) branch prorit remittance tax riled by petitioner corporation against respondent Commissioner or Internal Revenue. Petitioner is a corporation duly organized and existing under the laws or the United States or America, and duly licensed to operate a branch and engage in banking � activities in the Philippines. For the year 1985 and prior years, petitioner generated total branch prorits in the amount or P1,706,074,483.91 out or which it paid on various 90 5

DECISION- eTA CASE NO. 4185 - 2- dates to the government the amount of P255,911,165.84 representing 15,C. branch profits remittance tax, summarized as follows: Date of pay�ent August 6, 1985 p 13,329,592.82 1985 2,358,741.80 August 14, 1985 3,254,345.92 1985 September 9, 1985 107,834,199.22 1986 1,050,014.67 October 2 , 1986 1,465,288.02 December 1o, 91,477,825.20 May 15 , May 16, TOTAL -1=-1-2-5-5-;9-1-1-,_-1-6-;5-: -8-4 Petitioner filed with respondent a claim for tax refund or credit for overpaid branch profit remittance tax in the amount of P38,386,674.86 as specified in its letter of July 20, 1986, stating, among others, that the aforesaid amou~t of P255,911,165.84 representing 15,C. profit remittance tax which it has paid is erroneous because the profits it actually remitted to its head office for the years in que~tion amounted to only P1,450,163,273.08 upon which it should have paid only the amount of P217,524,490.80, thus leaving a difference of P38,386,674.80 constituting overpaid profit remittance tax. Computed in detail as shown in Table 1 (next page> is the overpaid Profit Remittance Tax <PHP> for 1981 - 1985. 906

DECISION- eTA CASE NO. 4185 - 3- Respondent did not act on the claim for refund/tax credit filed by petitioner, hence the present petition for review to beat the two-year per i od prescribed in Section 243 of the National Internal Revenue Code. The facts are not disputed by the respondent, principally as to the quarterly returns of income tax withheld, the confirmation receipts, tax payments specified by the petitioner totalling P255,911,165.84 representing the 15" branch profit remittance tax, and the detailed computation of overpaid profit remittance tax ( 1981 to 1985) which also incorporated the profits actually remitted by the petitioner to its head office and upon which the 15" branch profit remittance tax should be based. Respondent however took exception to the "collective purpose" for which said evidence was offered maintaining that the tax base used in the computation of the 15" branch profit remittance tax is proper and correct, being in accordance with Revenue Memorandum �Circular No. 8-82, dated March 17' 1982, and in conformity with the decision of this Court in the case of Campania General de Tabacos de Filipinas <Philippine Offices>, CTA Case No. 3827, dated October 14, 90b

DECISION- CTA CASE NO. 4185 - 4- 1988, and the more recent case of Commercial Union Assurance Co. vs Commissioner of Internal Revenue, CTA Case No. 4189, dated Sept ember a, 1992. In her Answer, respondent further alluded to the decision of this Court in Bank of America NT & SA vs. the Commissioner of Internal Revenue, CTA Case No. 3799 which respondent stated was appealed to the Supreme Court. Respondent submitted her case on the basis of the records and pleadings "as well as the decision of the Supreme Court" <Minutes of court proceedings, April 22, 1993). After both parties filed their respective Memorandum, this case was submitted for decision. The only issue to be resolved in this case is the interpretation of Section 25 (a) ( 5) [formerly Section 24(b) <2> (ii)J of the National Internal Revenue Code which provides thus: "Rates of tax on foreign corporations." xxxx xxxx xxxx (a) Tax on resident foreign corporations xxxx xxxx xxxx ( 5) Tax on branch profit Any remittances. Q r:..Q_f_i . t a branch r.:_e l!)_t_t t_.~_g_ by to its 90 9

DECISION- CTA CASE NO. 4185 -5- head office shall be subject to a tax of 15'>'. [underscoring supplied) This issue has been finally put to rest in the ver y recent decision of the Supreme Court in "Bank of America NT and SA vs The Honorable Court of Appeals and the Commissioner of Internal Revenue, II G. R. No. 103092 and G. R. No. 103106, promulgated on July 21' 1994, which is in all fours with the present case and henceforth, the ruling case on this point which determines the result. In fact, this case of the high court originated from this Court which, as stated earlier, has been alluded by the respondent and of which, it expected to rely upon. It may be stated that in this case, i. e. , Bank of America NT & SA vs the Commissioner of Internal Revenue, CTA Case No. 3799, this Court upheld petitioner bank in its claim for refund of overpaid branch profit remittance t a><. Quoting from our decision in said case: " ther e is absolutely nothing in Section 24 (b) (2} (ii) supra, which indicates that the 15~ tax on branch profit remittance tax is on the total amount or prorit to be remitted abroad which shall be collected and paid in accor dance with the tax withholding device provided in Sections 53 annd 54 or the Tax Code. The statute employs "~ny prorit remitted abroad by a branch to its head orrice shall be subject to a tax or rirteen percent (15~) wi thotlt more. Nowhere is there said or :!_/;J_~E_ ed 810

DECISION- eTA CASE NO. 4185 - 6- Q!L_._ j'hL.iszJ_ct!._~ mount act ua.!_!.~Y!Pl i ed r or Ill!. the c b f2~I!._t;;_f]____...!:il.~tlL._t f]_e C~ n t a :t__f}_~_TJ_!i_._.Q_ r t h e Ph i 1J...J:J..12Ln e s as _......P_r _g...f._tt__ t; o _Jd.g__._C~J!I..il..t ~ct-~.Q.rq_i!_clJ_whi ch sh_iflll be .co 11 ect ed and__Qa i d as pro vi d~s;!__j_J]_ Sect i Q_l]__ 53 a T]_cj 54 o r ___J.._I]__t__~_t;;_q_!j___. " fdfu~_ r ~---the _!.~~ d g__~n o t fl.Y.fl.LU...L_ t!J a .L_:f.lJ.Jf__t<fil x ___j_.~___i mQOJ?.Jf..ct__tfilf1_t;/_~ o_L1J1...C t ed a t_.____.E._o _ ur:.�_~ _Q~_s ed_ _Q n _ p_r_g...fi t to be rem i t ted !�ibro_ad, __t!Jat .....flua!irica_t_ion should not be read .i.D..t...9...._.__:fh_e......Lil..!!!.� It is a basic rule or stat ut or y construction that there is no saFer or better canon or interpretaiton than that when the language or the law is clear and unambiguous, it should be applied as written. Rnd to our mind, the term "any proFit remitted abroad" can only mean such proFit as is "Forwarded, set or transmitted abroad" as the word "remitted" is commonly and popularly accepted and understood. To say thereror~e that the tax on branch proFit remittance is imposed and collected at soQr:ce and necessarily the tax base should be the amount actually applied For by the branch with the Central Bank as proFit to be remitted abroad is to ignore the unmistakable meaning or plain words. " Cnfilasis suppliPdl In this case <CTA 3799)' respondent Commissioner of Internal Revenue filed a timely ' appeal to the Supreme Court <docketed as G. R. No. 76512> which referred it to the Court of Appeals following the former's pronouncement in Development Bank of the Philippines vs Court of Appeals, et. al. <180 SCRA 609). On September 19, 1990, the Court of Appeals . in Commissioner of Internal Revenue vs Bank of America NT & SA and the Court of Tax Appeals, CA- GR Sp. No. 22529, set aside the appealed decision of this Court. Hence, the Petition for Review before the Supreme Court in G. R. No. 103092 and 91i

DECISION- eTA CASE NO. 4185 - 7- G. R. No. 103105 filed separately by two law firms in representation of the petitioner bank in the same case. We can only but quote the pertinent portion of the ratio decidendi of this precedent-setting decision of the Supreme Court <Vitug, J. ' ponente> which has affirmatively ruled on the issue at hand: 11 I ry__..___jl!_g___!_225_____t:_~.J!!.A_tt an c e t a.JU___t_l] e 1 a w E...Q_~_c;:_iji .J?...L___.i...t.L.2 wn tax ba_E_g___tg__b e_ o n _l_h e '.Br.JJ..fi t r e m. .i.tl e d____E.P..!:..P ad._'____Ih ere ~-s a /;J s o 1 l..!.."t._g_J_y__ no t hi !1.9. .~_fJJ!.L't..O c.~..L __Q.L._..Y h_c;.gr..t.~.iJL___~_QflJ:!_t_t h ~----j_a n 9.'::' a gg__ o f" t h 1?...-_.P..r CLI!.J�_j_Qfl_.___I he _'f_~):f_..fL_j_g}_f!p s e d on the ~JJ!._Qunt_...JLent ~.Q.!...Q_ad, _ and the 1 aw (then in Forqe) .�!�!11.~--.--.f...QL.f!.Jl t tJ..i.!J..B._.__.f .Mr.:ttJ er.� The taxpayer i s a single entity, and it should be understandable iF, such as in this case, it is the local branch or the corporation, using its own local Funds, which remits the tax to the Philippine Government. "The remittance tax was conceived in an attempt to equalize the income burden on Foreign corporations maintaining, on the one hand, local branch oFFices and organizing, on the other hand, subsidiary domestic corporations where at least a .majority or all the latter's shares or stock ar~ owned by such Foreign .corporations. Prior to the amendatory provisions or the Revenue Code, local branches were made to pay only the usual corporate income tax or 25%-35% on net income (now a uniForm 35% applicable to resident Foreign corporations doing . business in the Philippines). While Philippine subsidiaries or Foreign corporations were subject to the same rate or 25%- 35% (now also a uniForm 35%) on their net income, divident payments, however, were additionally subjected to a 15% (wi thhol ding) tax (redtlced conditionally rt~om 35%). In order to avert what would otherwise appear to be an unequal tax treatment on such subsidiaries y_j_~~~~yi~ local branch oFFices, a 91 2

DECISION- CTA CASE NO. 4185 - 8- 20%, later r~e duced to 15%, prorit remittance taH was imposed on local branches on their t~emittances or prorits abroad. But this is where the taH .P..~_c.L-:./2�!_~2...Y.. ends between domestic branches and subsidiaries or roreign corporations. "The Solicitor General suggests that the analogy should eHtend to the ordinary application or the withholding taH system and so with the rule on constructive remittance concept as well. It is dirricult to accept the proposition. In the operation or the wi thhol ding taH system, the payee is tht? taHpayer, the person on whom the taH is imposed, while the payor, a separatt? t?ntity, acts no mort? than an agent or the governmt?nt ror the c ollection or the taH in order to ensure its payment. Obviously, tht? amount thereby used to settle tht? taH liability is deemed sourced rrom the proceeds constitutivt? or the taH base. Since tht? payee, not the payot~ , is the r~eal taHpayer, the rul t? on constructive remittance (or receipt) can be t?asily rationalized, ir not indeed, made clearly manirest. It is hardly the case, however, in the imposition or the 15% remittance taH where there is but one taHpayer using its own domestic runds in the payment or the taH. To say that there is construct i Vi? remittance even or such runds would bt? stretching rar too much that imaginary rule. Sound logic does not dery but must concede to ract s. , [underscoring out~s] The Supreme Court therefore in this ruling case law reversed and set aside the decision of the Court o f A p p e a 1 s and :r..~ .tn.~.t.~.:!=..g _c;;_l t h e d e c i s i on of this Court in CTA Case No. 3799. We find no justifiable reason in discussing other matters raised by the parties in this case which may only sidetrack the crux of the matter 913

DECISION- eTA CASE NO. 4185 - 9- which has now been clearly resolved and finally disposed of by the Supreme Court. WHEREFORE, respondent is hereby ordered to grant petitioner a tax credit or refund in the amount of 1=138,385,674 representing overpaid branch profit remittance tax. No costs. SO ORDERED. ~- P.. J..fr RAMON 0. DE VEY Associate Judg WE CONCUR: cz~a(~ ERNESTO D. ACOSTA Presiding ~UE K. GRUBA Associate Judge G�:B.T.. tE.J. ~_f.l_IJ__Q_~ 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. Q.........~A.t12.. ~ ERNESTO D. ACOSTA P ~~ e s i d i n g J u d g e Court of Tax Appeals

TABLE 1 COMPUTATION OF OVERPAID PROFIT REMITTANCE TAX (PHP) p981 TO 1985~ Staff Fundings 1981 1982 1983 1984 . 1985 (Various Years) TOTAL 425,632,325.62 426 ,546 ,970.22 1,706 ,074,438 .91 A) Branch Profit 7,983,066.73 177,652,914.51 619,420,754.82 48,838,407.01 B) 15% Profit 1'197,460.01 26,647,927.18 63 ,844 ,848.84 63,982,045.53 92,913,113.22 7,325,761 .05 255,911 '155.83 Remittance Tax Paid C) Profits actually . remitted 6,785,606.72 151 ,004,977.33 361 ,787,476.78 362,564,924.69 526,507,641 .60 41 ,512,645.96 1,450,163,273.08 r- D) 15% Profit Remittance 1 ,017 ,841.01 22 ,650 ,746 .60 54,268,121 .52 54,384,738.70 78,976,146.24 6 ,226 ,896.90 217 ,524,490.97 0 Tax that should have cr':J been paid E) Overpaid Profit 179,619.00 3.997 ,180.58 9 .576.727 .32 9.597.306.83 13.936.966.98 1.098.864.15 38 .386.664 .86 Remittance Tax r (b) less (d) l