CTA Case No. 4676 (Decision)

/ Republic of the Philippines COURT OF TAK APPEALS Quezon City CHINA BANKING CORPORATION, Petitioner, - versus - C.T.A. CASE N0.4676 . .! COftftiSSIONER OF INTERNAL REVENUE, Jlij; Pro�ul.gated: (: MAR 13 19~ Respondent. ':) �J' X ---------------------------------------------------- X ~� D E C :l: S :I: 0 N This case involves a claim for overpaid withholding tax on cash dividend in the amount of Ji29, 900. 20. As borne out by the records� petitioner is a !I commercial bankin~ corporation duly organized and .1 existing under the laws of the Philippines. I � . I' Petitioner has foreign or non-resident II iI stockholders, one of which is Fortron Services Limited, I a non-resident foreign corporation based in Hongkong. Pursuant to Article 9 of the Tax Treaty entered :0. t,,l ' ~;�~?S"'~~...:.~~~�~-.... ,�~�(t..;,.:~ between � t~e ~~~ba"~'Jiir~t:::':';:Jt.itain;. PpilipJ!iilt.s ' into <;. . . ,: � : 1-".~ '!,: �.. ; { ~~:- . ' � ~- �"!i' . �. �:''<���~....... �'.\' �, ... pet*t+9~�r .de~uq)ed a 25X ,~ii~~~~~~~~~- t"~' ~~ th'!;�: ~!"ount o I' ( > ~ � ' ~ ol 1 e': ': \ ~- ~ '"" ..., ... '"'!. "'if, f ',' .~t :� ' ' , ;, ' : ' ! ~ ~f i74;��!so. tl~�'; t~~ ~"' ~�-~~~~~~n~~�� ~~~d : t.~r ' r~rtfbn ''�; ��.-.: ~~n;.~~~\. Li~~~~~ :~~~ ~~~r~~t'~;;�\,~~~,..::Q.v ~~~tq~w H: i9a9;�' � petH~iori�h~� t-t~m~t�eti ~h' ~~e! �.-.~ :~r~;�. ~~~~'t~ ~f 498 /

0 ECI S I 0 N- � CjT.A. CASE NO. 4676 I -2- ~ithheld . amounta . ,. �-ir Interni:ll . �.I ., Reve~ue together with other � :1 ! :from its non-resident stockhold~rs amounting to .' P288, 346. 30. Under Article 9 of the Tax Tr~aty in relation to Article 2<b> thereof� dividends derived from a company resident of the Philippines by a company resident of the United Kingdom is subject to 25Y. tax to be withheld as provided in Sec~ion SO<a> of the Tax Code. Later, Fortran Services Limited sought reimbursement from petitioner the amount allegePdly overwithh.eld applying Section 25<b> <B> o� the T.ax Code and SIR Ruling nos. 275-88, 045-85 and 123-82. Petitioner alleged that with respect to non-resident :foreign corporation domiciled in Hongkong, the applicable tax rate 1s 15X thus, claiming an overpayment in the amount of P29p900.20 which is broken down as follows: Dividend due to Fortron , 299,002.20 .. A10unt e~~O!!f~uelr withheld C251) 74,850.50 Ctrr~t �~f (G.'t wit~�l4 11811 -. : t\J50.ap ~~~~ ~ ;~--~- .. .. ~ ~ ; ..:.:. : .�~ ':. �~: ~~~~ ~ � ' "::~; 1.; � ��� r<�~,~~: i;/~1 . . �,�- � '~t ~t~� "�u.~~(P.f~~~~' .~-. j ~ �� \ �:~:. �.":� :-� !':, �. '. ~. ' ..,' ~eJf~4PA�r l4~~~ � vtt~ th�... � . '.' ~~ ~n- ~..� ~" '!PRt+~~}t~n to PurchaS!e' Foreign '.'.' . �:: r ; . ; .� ~ , , ... ~- ~ ". ~~ChfiU'lQ. ~p~,l.uding '~h". H�Eit, .tp+lar "~~4Y~lent o� t~;� ': : ~-:� ': { : h!~~-t ;;< �I ,~,,900~:aq �lleged '. 499 (

DEC I S I 0 N- C.T.A. CASE NO. 4676 -3- On 15 August 1991, petitioner :filed with respondent a written claim :for re:fund. Subsequently, on 13 September 1991 and 21 November 1991, petitioner made _:follow-up letters reiterating its request :for re:fund, but to no avail the sam� remains unacted upon. Hence this appeal. Respondent on the other hand alleged thatt petitioner :failed to state any cause o:f action in accordance with Section 204 of the Tax CodeJ it :failed to show that the tax was erroneously or illegally collected~ tax re:fund are construed strictly ~gainst the taxpayer as they are in the nature o:f tax exemption; in an action for refund the taxpayer has the burden to show that the taxes paid were erroneously or illegally paid and failure to do so is fatal to the action for re:fund; and that the claim for refund is still under investigation. Tl'!t!. -~~~ '-~}~~~�i:fue to : ll~<~~_..CIJ,Y.,fJ in this case �< .._ �;? ~� � ' ~" t,acilt .~ < - I~ ~ ._ �� t#'. ~~~t~e~: -~f :~?t. f~\~~~~~,~�� '* ~nt~tled j: ;,'' .'> $~ . \ ;.�. . . ' . . ' .\o a ~ �. ,� ' . .' ~ f�~~n~ ~~ ~~! ,,A~"t pf f.~Sr~9q.~9, t�P~�~eot~~g QV.rpaid~- ... ~ �:,� �. �.. :. ;...... _.: ~��, .... ~;;,; . ~- : . ' .... './, . .'1. .�� ,: 500 -- J

.. DEC I S I 0 N- C.T.A. CASE NO. 4676 - 4- As shown by the evidence, the applicable law is Section 25<b><5><B> o� the Tax Code as amended, previously Section 24<b><l><iii>. The applicable tax rates on tax dividends due and payable to non-resident �oreign corporations is 15X. Section 24<b><S><B> o� the. National Intetrnal Revenue Code is herein quoted �or re�erence: <B> On dividends received �rom a domestic corporation liable to the tax under this Chapter the tax shall be 15X o� the dividends received which�shall be collected and paid as provided in Section 51~a> o� the National Internal Revenue Code as amended, subject to the condition that the country in which the non-resident �oreign corporation is domiciled shal~ allow a credit against the tax due �rom the non-resident �oreign corporation, taxes deemed' to have been paid in the Philippines equivalent to 20X which represents the di��erence between the tegular � tax (35X> on corporations and the tax <15X> on dividends as provided in this sub- paragraph. tram� the a�orecited provision o� the law it. can be deduced there�rom that dividends received ~' p oon-~~' ~-~' ;"�~.,ht f~~,;~~'- ~.f~~~~~~o~ :from a ~P~~~~H~ ~o~f~t"ri~r., ,~~�++.: ~,. ,~~~~~~. }o ~~ tax , ~h~ ~.t~ ~~ i~-. pr~VJ~-~~t~~{ i~� country in which the ,� -~. . ~: ~ hon~re~~~'~' :for~ig~ P~rroratf~ri. is domiciled shall ;;� ; . " ~ 1 .� . '. .~ ". : ' .. .. ~Jlo~ ~ cr~~�t againsi ~he . ~-~ . r; . ._ ' ' .o due the non-. have :� ' :~ ; .r. "tesid!ri! ~'f~ign corporatt~n� .� ) :. f. . -~ .it . ' �' :, �J �� �~, ~�n ~~:1.~ *~ the Ph:t.l:i.pJ1~1'J!t8 - .� . �- <the ~ �, ! . ~. � � 501

DEC I S I 0 N- C.T.A. CASE NO. 4676 - 5- di:f:ference between the regular 35Y. tax and the 15Y. tax on dividends>. I, No less than the Bureau o:f Internal Revenue had ruled that Hongkong does not impose tax on dividends received by corporations domiciled therein :from :foreign sources, dividends received by non ... resident corporations based in Hongkong :from domestic corporations shall be subject to 15Y. tax. BIR Ruling Nos. 275-85, 045-85� 123-82, is herein reproduced to wit: "RULING N0.275 June 28, 1988 Gentleman: This re:fers to your letter dated March 25, 1988 requesting a ruling on the rate o:f withholding tax on cash dividend declared by you to your stockholders on record as o:f May 15, 1988 payable on or be:fore May 31, 1988. It is represented that your stockholders are as :follows: CA. X X ~ . "t" �;�. �; -' II� 502

DE C I S I 0 N- C.T.A. CASE NO. 4676 -6- b. Non-resident �oreign based in the United States o� America, Canada, Hongkong, Australia, Columbia, Japan, England, China and India. In reply thereto, I have the honor to in�orm you as �ollows: XXXX E. Pursuant to Section 24<b><S><B> o� the Tax Code, as amended on dividends received �rom a domestic corporation by non-resident �oreign corporation in which the Philippines has not concluded a tax treaty like Hongkong, China. India and Columbia the tax shall be 15~ o� the dividends received, which shall be collected and paid as provided in Section 50(a) o� the Tax Code; as amended, subject to the condition that the country in which the non-resident �oreign corporation is domiciled shall allow a .credit against the tax due �rom the non-resident �oreign corporation is domiciled shall allow credit against the tax due �rom the non-resident �oreign corporations; taxes deemed to have been paid in the Philippines equivalent to 20~ which represents the di��erence between the regular tax <35~> and the tax <15~> on dividends x x x. Very truly yours," BIENVENIDO A. TAN, JR. Commissioner 503

D� C I S I 0 N C.T.A. CAS� NO. 4676 -7- "024-<b> 080-80 123-82 April 16, 1982 Jardine-Manila Finance, Inc. Jardine Davies Bldg. 222 Buendia Avenue Makati, Metro Manila A~~n.: ftr. Jesus P. Lukban Corpora~e Secre~ary Gentleman: In reply to your letter dated November 10, 1978� I have the honor to in�orm you that it having been established that Hongkong does not impose any tax on dividends received by corporations domiciled therein �rom �oreign \ sources, the dividends to be remitted by Jardine-Manila Finance, Inc. to Jardine- Barclays; Ltd.� a non-resident �oreign corporation domiciled in Hongkong are subject only to the 15~ withholding tax; prescribed by Section 24<b><I><ii> o� the Tax Code; as amended. Very truly yours;" <Sgd> RUBEN g. ANCHETA Acting Commissioner ,. 504

DEC I S I 0 N- C.T.A. CASE NO. 4676 -8- "24-b 126-83 045-85 March 22; 1985 Hongkong and Shanghai Banking Corporation Manila O��ice P.O. Box 1299 Commercial Centre Makati. M~tro Manila, Philippines Attention: Kr. A.R. Servinio Kanager Securities Dear Sir: This re�ers to your letter dated January 25, 1985 requesting �or a con�irmation that the cash dividends issued by a Philippine corporation in �avor o� your client, Drexel Burnham Lambert. Inc. is subject to the reduced 15Y. withholding tax pursuant to Section 24<b><I><iii> o� the Tax Code. It is represented that Drexel Burnham Lambert, Inc. is a Hongkong based company and that it derives dividends �rom San Miguel Corporation, a Philippine corporaiion. Considering that it has been established that Hongkong does not impose tax on dividend received by Drexel Burnham Lambert. Inc. �rom San Miguel Corporation shall be subject to 15Y. tax pursuant to Section 24<b><I><iii> o� the Tax Code. 505

DEC I S I 0 N- C.T.A. CASE NO. 4676 -9- Evidentlyt from the foregoing rulings it is well established that as Hongkong does not impose tax on dividend �income received by corporations domicilttd therein from foreign sources, the dividends received by Hongkong Corporations from the Philippines shall be subject to 15Y. tax pursUant to Section 25<b><S><B> . o� the Tax �Cadet as amendedt previously Section 24 ( b ><I ><i i i >� The applicable law above cited is too plain to be missed and too categorical to be misunderstood. Moreover, "tax statutes are to be construed strictly against the "government for taxt � being burdens are to be presumed beyond what the applicable statute expressly and clearly declares."<Republic vs. Intermediate Appellate Courtt 196 SCRA 335) Records show that respondent counsel's attitude shows laxity in the discharge of her duties� as manifested by his frequent non-appearance during Court hearings. Likewise, no memorandum was filed in this court inorder to lay his arg~m~~li~~~.?~gt:~B~0f:.~�:;�lf,~$.,,.:�t.~-~nd , ;. : '_.;.' .- . :ll~.\ ~���~~,c~.'~a:r\Pt;''�"'�"' ..��~ ..- ._�,~�....�... t��.�':>'�:_:~�..-��."'.. r;�� ~:.. of def~~~e 9~f,r;~ Jlr ,}~~- --~~m~-� ~~p~~�~- ~�'.�. ~ry~~~f"~, 0" . a ~"~f+P~. ~~~;� --~~i~~. ~�,. ~~~t~~+~~~ ~~-- ~~~ -~~~i~~ ~~t ~~ ;.~ gQo~ ~�:f~ri~ .. ~l.l. ith!Pt1 ~~~ Y;~tf ~~~~: .'.)C'~.i:b�:~.':~-~. .�.-.~' ~��.. ; ;'''; :_ d� . . ;i �t. __,_..i.f1 :� ~ .� - ~~ . . �. ::. -. ' . . ' . : ~: > -': / _., ~n~~�t! ~t i~ li~~�+�~ ob�erv�~� ;~h~~.w~~n ft was his 'i '� > ~� '' ' - '� I ~~Tn to pt~~erit evidenc~~ coun~~~ failed t~ appear which f .. ,; .(;.. �,~., � .r. 506

DEC I S I 0 N- C.T.A. CASE NO. 4676 - 10 - in effect is a waiver on his part to present evidence. Counsel for the respondent lacks diligence and zeal in. the performance of.his duty being ~n officer of the court. In the absence of material evidence on the part of the respondent and the observations mentioned~ this Court has no recourse but to afford relief to the petitioner. WHEREFORE� in view of all the foregoing, the respondent is hereby ordered to refund in favor of China Banking Corporation the amount of P29~900.20 representing overpaid withholding tax on cash dividend. SO ORDERED. ~ As so GRUBA Judge VE CONCUR: CERT::t:F::t:CAT::t:ON I hereby certify that the decision was reached after due consultation among the members of the Court of Tax Appeals in ~ccordance with Section 13� Article VIII of the Constitution. eHLZ"bt� ~ ERHESTO D. ACOSTA Presiding Judge Court of Tax Appeals 507