CTA Case No. 3204 (Decision)

I l' !/ ! ._.,:,-v uur~ 01' 1�11E HUUPJ"Mo/.i. ! -. :"'OURT Of , r"E,~J-1 I �� �.:fr�l<l ~1.,..., ( BURROUGHS L IMITED , C . Te A. CAS E NO . 32 04 Pe ti t..ione r , � - ver sus - COMMIS SIONER OF I N'l'ERNAL REVENUE , Responden t . X - .- - DE C I S I 0 N The factual backgr ound of t h is su it i s no t in con tr oversy, r esponde nt Commis s ioner of In ter nal Reve nue having submit.ted th~ c ase f or de.ci sion on the basis of the. pleadings and the records o f the Bur eau of In terna Revenu e bearing bn the case . Pe titi one r Burr oug hs Limited i s a f orei gn cor poration authorized to engage i n trade or busi- nes s in the Phi li ppines , with pri nc ipal of fice and busine ss address at De l a Ros a c orner Esteban Stre et.s, Legasp i Vi llage , Maka ti , Metr o Manila . In March 1979 , peti tioner remit ted t o its head o fice in the Uni ted States branch prof its amounting to P6 ,499 , 999 . 30 and paid on Ma rch 14 , 1979 151 b anch I profi t r emittance t ax in the s um of Pl,l47, 058 . 7 0 . I The lSI branch profit r emittance t a x of Pl ,l 47 , 058 . 70 was arri ved a t as f ollows : t_ .

\ II : . ( i I I DECISION - CTA CASE NO . 32 0 4- I I - 2- i Net. profit afte r Pt-.ilippine i ncome t ax P7 , 647 ,u58.00 ~- 15% bl.'anch prof1t r emitt ance t:ax 15% ~!~~~z~g1a~1~ Tax paid t o tne government 1 t-Jet. ;;>ro.d t- after Pnilipp �ne incane tax fl7 , 647 , 058. 00 Less : Tax pc:1id to the gcverrunent -~47 ,058 �.7_Q. I Ne t amoun~ actually r~mitted ~g!~221- ~~~~~Q II Relying howeve r on t he provisions of Section I I 24 ~b ) (. 2 ) .of t he 19 7 7 Nati ona l I n t e r na.1. Re ve n ue Code , I as a mende a , the p ert1 ne nt port ion of wh i ch r ead s a t I' t.,e ti me c.S follows: "\ 2 ) Residen t C orpor at~ons - A c orporat-ion-org anized , a uthorized, or I ex isting nder the laws of a ny f ore ign cou ntry , eng.ag,ed i n trade or bus ines s wi th in the Philippines , sha l l be tax - abl e as pr o vided in sub sect-io_l1 a ) of / th i s s ection upon the t ota l ne t income rec e i ved i n the preceding taxable year / fr om al l sources wit hi n t h e Ph ilippines; X X X X Provided , furthe r , rr�:.at. a ny i: profit- r erni t't"e<rat.:>r'Oag �by a br '-lnc h o ff ic e I to i ts mother c ompany shal l be subj ect to t ax of fifteen p e r c e nt. (except. those r egiste r ed with the Export Pr oc-ess ing Zone Au tho r i t.y) � " (Und er s co ri ng supplied e ) And t he ru lin<;J d ated Janu ary 21 , 1980 o f r esponden t. cons t ruing. Sect ion 24 (b) (_ 2 ) '� whe r ein he he ld th at : "In r eply to your letter of November 3 , 1 97 8 , re la t ive t o y ou r q u ery as to the tax base upon whic h the 1 5!1. branc h prof it rem ittan ce t ax. provided f or unde r Sec t ion 24(b) (2) of the 1 9 7 7 Tax Code shall be im~os ~d , I please be a dv ised t hat. the 15% branch profit r emitt ance tax shall be i mposea l �!} t he pro fit actually r emi t ted abroac! an d not on the tota l branc h prof i t ..-~l of whic h the rem ittance i s to be ma de." ,\, (Underscor � ng suppl ied . ) -- - \ � .18

DEC I SION CTA CASE NO . 20 4 ' - 3- I Peti tioner avers tha t it. s hou ld have p aid on y l t h e amoun t .of P974 999 . 89 in remittanc e t ax com- \ I puted by t aki ng 15% of t he profi ts actually ! remitted , t hus: I II Pr o f it s ac tua lly r em i tte d - - ~ P6 , 499 , 999.30 I Remi t tance Ta x rate � - - - - - 1 5% Rem i ttance Tax due -- ------ !==~1!&~~~~~2 I I Petitioner the r efore claims an overpayment in the i I amount of Pl72 , 058 . 90 c omputed as t he di f ference between the remi ttance tax ac t ual ly pa i d of Pl ,l47 ,0 58 . 70 and t he remittance t ax t ha t should have been paid of P974,999 . 89 . On Decembe r 24 , 198 0 , peti t ioner f iled with re sponde nt 0 s off ice a c laim f o r r e f u~ d or t ax i �.: cred i t of the amoun t of Pl7 2 , 058.90 r e p resenting its a lleged over paid branch profi t remit tance tax And a pparently, the cl a i m f o r refund or t ax credit was fil ed withi n two ye ars f rom March 14 , 1979 when the alleged overpayme nt of t he branc h profit. re mit:t- ance t ax was made . Howe ve r, without wa iting for the dec i s ion o f re s pondent Commissione r of I nt erna l Re ven ue on i ts claim for efund or t ax credit , peti - \ t i one r c ommenced this su it on Feb rua r y 24 , 1981 f o r I r ecove ry o f the amount of P ~ 72 , 0 58 . 90 rep r esenting I al eged erroneously pai d branch profit remittance lI I Ii \ I 182

;:.:i~ l I lI // '. l. \ DECIS ION - CTA CAS E NO . 3 20 4 - 4- . t ax pa id by i t , pu r suan t . t o Se ct ion 292 o f the present Nat i onal I ntern al Reven ue Code . I n his answer t o t he. petition f or r e view, l r espondent alleges as spec i a l and cff i rmati ve I I \J defen s es, among other s , t ha t : ! Responden t may r e c t i fy a ny e rro r he may have i I c omm i tted in t he impleme nta t .i on o f t ax aw"' and I r egulati ons on t he ground tha t t he governmen t is ! no t bou nd by t he mi stakes o f i t s agent s (P i neda v . Cour t o f First Instance of Taya ba s, 52 Ph i l. 303 ) �. Re s ponde n t has the a utho rity to rev oke, r epe al or abr ogate the rul i ng s o f his pr edec e ssor in offi ce because t he constr uc t ion of a f3tatute by tho s e who admin i s t e r it , i s not bind i ng on their successor s if the reafte r t he l a tte r becomes sat .ir;f ied t ha t a dif ferent cons tr uc t ion should be 9 ive n Asso- c i ation of Cle ri cal Employe es v s . Brot he r hood of i' I Ra ilwa y & St eamshi p Cl e rks , 85F ( 2d ) .1 52 , 109 , I A. C. R. 34 5 c i t e d i n Hil ad o vs .. Col lec tor, L-94 08, Oc to be r 31 , 1 956 , 1 0 0 Phi l . 2 88 )~ l I Responde nt conc e de s a t leas t th a t � n his r u l i ng. I da t ed Januar y 21 , 198 0 he held t ha t unde r Section ! I 24( b) ( 2 ) .of t he Tax Cod e t he 1 5% branch p ro f i t r e - mit tance t ax shal l be impos e d on t he pr o fi t actua l l X I remi tted abroad and not on t he t ot al br anch prof1 t l I I I I,. 18 3

'. II ;-' DECISION - CTA CASE NO . 320 4 - 5- i out of whic h the r emittance is to be made . Based I on such ruiing pe tit ioner should have paid only I I ! the amcunt of P9 74 , 999.89 . in remi ttance tax c om- lI, puted by t aking the 15% of the pr ofits o f l ~6 , 499 , 999 .3 0 actuall y remitted t6 i ts head office l in the United States , instead of Pl , l 47 , 058 .7 0 , on I l its net profit of P7 , 64 7,058. 00 . Undou b tedly, peti - I I tione r has overpaid its branch profit remittance I tax in t he amount of Pl72 , 05 8 . 90 . Il / Respondent con t e nds , howeve r , as sta t.ed I earlier, that he has the authority t o r evoke , repeal or abrogate the rul ings of his predecessor in office because the c onstruction of a statute !' ..' by those who admi ni ster it i s not binding on him if thereafter he becomes satisf i ed t hat a different constr uc tion should be given. Nevertheless, the records of t his case and the pleadings , on t he. basis of which re~ ponden t submi tied tl}is cas e for de c ision , do no t show of any reyocati on , mod ~f i -:- cation o r r eversa l of r espo nde n t '~ r uling of I I and 39 o f the BIR r ecords a cer tif ied xe rox c opy I I of a Revenue Memorandum Circ ula r No. 8-82 is sued 1 to all i nternal r evenue offi cers and others con- cerned, t he subjec t of which is: 184

. - '-� DECISION - CTA CAS E NO. 3204 - 6- �, I I "Clarif i cation as to proper tax base Ij in th~ computation of the 1 5% branch refit remittance tax. " I and which prescribes : I l "Considering t hat the 15% branc h \1 at p r ofit remittanc e tax i s imposed and collected source , necessar i ly the t ax base should .be the amoun t -actually_ I ~EEJ.ieSI for by the branc h with the I Cen tral Bank of the Philippines as ) profi t to be remitted abroad . I ! the s aid revenue memorandum cir cular is dated March 17 , 1982 an d it i s devoid of an revi s ion or i n te nt t hat: it: operates r etrospectively . ?vw On t he assump~ion t ha t Reven ue Memorandum Circular No . 8-82 revoked , r e peale d or abrogated responden t' ~ ruling of Ja nuary 21, 1 q 10 and the proper tax base of the 15% branch p rof it remit-tance tax should be the a mount ~u ;:lll y apElied Jar by the branch with the Centra l Bank as pr ofit to be remitted a nd not on the profit;.,.!ctu ~ lly re mi tted abroad, i n point is Section 327 of the National I nternal Revenue Code which provides : Sec . 327 . Non- r etxoactivity of r ulings. - Any r evoca t ion , modif ic a t i on , or r eversal of any of t he r ules and I r egulations promulgated in accordance wi th t he preced ing section or any of I t he rulings or circulars promulgated by the Commissioner shall not be given II r etroact ive appl icati on if t he revo- cation , modifi cat i on, or reversal will be pr ej udicial to the t axpayers except in the foll owing cases : {a ) where the \ l ! ; i I 185

...~ ~.~ - ~ ''; '; ' ~ �~ . I I� ~ I i DECISION - CTA CASE NO . 3204 - 7- ., I I t axpayer del i berat e ly mis states or i omits mate ri al f acts f rom h is return I or in "any documen t requ i red of him I I by the Bureau of In t .ernal Reven ue; (b) where t he f acts subsequently I I g at~ered by t h e Bu r eau of Interna l ) Revenue are ma teri al ly di f ferent f r om \' t he facts on wh i c h the r ul ing i s based ; I or (c ) where t he taxpayer ac ted i n bad faith . � I I t is clear from t he foregoing t hat rulings or circulars promulgated by the Comr: tin sioner of Internal Revenue have no r etroactive applic a tion whe re to so apply them would be p rej udic i al t o taxpayers . The p re j udice t o petit.ione r of the r etr oact i ve a pplicati on o f Revenue Memo randum Circular No . 8-82 is beyond ques t ion . It wa s is sued only on March l 7, 1 98 2 , or a _,nos t one and one-half years after petitioner had f iled wi th r espondent ' s o f fice its tt1r itten claim f o r refund or tax c r ed i t of overpaid branch profit r emittance t .ax , and more t han one ye ar a f t er t he su it for recovery of suc h over pa i d bra nc h profit re mi ttance I i tax had bee n commenced i n this Court. As a matter I of fac , r e s ponden t has not den i ed or taken any I I action on pe titioner ' s claim for r e fund or tax I credit except t he bar e allegations i n hi s answer I I that he may re cti fy any e rror he may ha ve comm i tted \ in t he i mplementation of tax l aws and regu l a tions on -t he ground tha t t he gove r nmen t is not bound bY 18G

.- - :\.~l f l I I �"I I ' I I ~. I DECISION - CTA CASE NO. 3204 - 8- i i I the mi stak esof its ag ents; and hi s a uthori ty to I I r evoke , rep�e al or a br ogate rulings of his prede- ! l I I I c es sor in office . And i n so far a s t he enumerated I I e xceptions are conce rned , adm ittedly, peti tione r I \' does not fall under any of them. Se e ABS -CBN Broadcast ing Corporation vs. Cour t of Tax Appea l s l and Comm issi one r o f I~ter n al Revenue , L- $230 6 , Octobe r 12 , 1 981 , 108 SCRA 1 42 .) \ Wi thout i n the least attempt i ng to expr es s , I in this proceed ing, an opin ion as to the proper tax I base of the l Si branch profit remittance t ax pro- I l vided f or under Sec t ion 24(b) (2 ) o f t he Revenue i ~ Code,J it wil l be noted that h:s r �1 ... i. ng da t.ed \ I I !�.; January 21 , 1 980 , r espondent c l early and specifi- cally held that " the 15% branch profit remittance tax shall be i mpose d on the profi t actually r emitted and !!,2l on the total branch profit out of which the re mi ttance is to be made'. The accent i s on the words ; l "pr o fit actu a lly r e mit ted" . And the ruling even I stressed that it is "not on t he total br anch prof it l I ou t o f which the remi ttance i s to be made". We are I I not t o indulge in statu tory c onstruction . /'Based on I sai d r uling, petition er has o ver aj.d, ilS s hown ear- II \ l i er , t he amo un t of Pl72, 05 8 . 90 and entitled, ther e- I for~ , to the refu nd or tax credit thereof . If t~ere l ! ! :I 18 '1

\. I DECISION - CTA CASE NO. 32 04 - 9- . was mi scomprehension or misc o nception on the part of r espondent as to the correc t interpretation of ! Sec t ion 24( b ) ( 2) ~ the i ss uance of Reven ue Memo- I\ , randum Circular No . 8- 82 on Ma rch 17 , 1982 pr es- cr ib i ng t ha t t he tax base of the 15% branc h p rofit remittance tax should be the amount actually appl i ed f or by th e branch with the Ce nt ral Bank as profit to be remitted abroad should not be given retro- . active application. We ar e not unaware of the well- ~ntre nche d principle that the Government is never estopped I from collecting taxe s because of mis takes or errors 'l'' ... on t he part of it s agents . (V i say21 n �: �:;bu Terminal I I i Co . Inc. vs . Commissi oner o f I n ternal Revenue, 13 I SCRA 357 , 1965 ; Zamora vs . Cour t of Tax Appeals , I 36 SCRA 77 , 1 970; Balmaced a v s o Corom i nas & Co . I nc., I !l . 66 SCRA 55 5 , 19 75 . ) In fact , utmos t cau tion should be taken i n this r ega rd e (Senator J ames Couzens, i 11 BTA 1 040 , 1928 ; 48 Harvard Law Rev iew 1281, 13 00 , ) I I ci t ed in lOA Mertens , Law o f Federal Income Taxa t i on , I Se c . 60 .1 3, p. 189 .) . But , like other pr i nc i ples I of law, this also admits of exception i n the in ter est j. l of justice and f ai rplay . Th e i nse rt i on of Sec t ion II I ~38-A in to the Na t iona l I n te rnal Rev e nue Code , whic h I l is .now Section 327 , as held i n t he c ase of Tuasori ,Jr. t

. ~ ./ .. rl .. .. ."'' DECISION - CTA CAS~ NO . 3204 - 10 - vs . Lingad , 58 SCRA 170 , 1974 , is i ndicative of legislative intention t o suppor t the principle of I good f a ith.. In fact , in �the United States, from I l where Section 24 ( b) ...-;as patte r ned , it: has been held \' tha t the Commiss i oner or Co l lec tor is precluded from l adopting a position inconsistent with one previously I l taken where injustice would r esult therefrom (Ford l Motor Co . vs . u. s. , 9 F . Supp .. 590, 1935 )~ o r where I there has been a misrepresenta t ion to the taxpayer I (Tuason , Jr . vs o Lingad, 58 SCRA 170 , 1974; Connel l Bros. Co . LPhil~7 vs . Collector of Internal Revenue, 1 I I 10 SCRA 470 , 1964 ) �. (See ABS - CBN Broadcasting Corpo- I l. : ration vs. Cou r t of Tax Appeals & CoJUnlissione r of I' " Internal Revenue, supra.) . ! ! ACCORDINGLY , respondent Commissioner of Internal Revenue is hereby ordered to gran t a t ax c redit in favor of petitioner Burroughs Limited the amount of Pl72 , 058 . 90 . Wi thout pronounceme n t as to costs . I SO ORDERED . I I Quezon Ci t y , Metro Manila , June 27 , 1983 . \ I I / aAu MANT~E ~-10L1~V I� Pres i ding Judge I I WE CONCUR : i l I I \ !i 1 8~ .J