CTA Case No. 3799 (Decision)

\lttf'UBUC 0 'P flM! r t-ULLPE'll'il"9 t.!OURT OF TAX APPUU QIJtl.ON ct~Y BANK OF AMERICA NT & SA, Petitioner," - versus - C. T.A. CASE NO. 3799 THE COMMISSIONER OF INTERNAL HEVENUE, Respondent . X- - - - - - - - - - - - - - X - 0 EC I S I 0 N This is a suit to recover alleged overpaid branch profit remittance tax paid by petitioner Bank of America National Trust and Savings Association under Section 24(b)(2)(ii) of the 1977 National Internal Revenue Code. The material facts are not in dispute, petitioner havjng submi ~ ted, without objection of respondent Com - missioner of Internal Revenue, the case for decision on the basis of the pleadings and the records. As borne by the pleadings and summarized by respondent: Petitioner is a foreign corporation duly licensed to engage in business in the Philippines with Philippine branch office at BA Lepanto Bldg., Paseo de Roxas, Makati, Metro Manila. On July 20, 1982 it paid 15% branch profit remittance tax in the amount of e7,53B,460.72 on profits from its regular banking unit operations and e445,790.25 on profits 24 3 \

DECISION - CTA CASE NO. 3799 - 2- from its foreign currency deposlt unit operations or a to tal of 87,984,250.97. The tax was based on net profits after income tax without deducting the amount corresponding to the 15% tax. Petitioner fil~d a claim for refund with the Burenu of Internal Revenue of that portion of the payment which corres- ponds to the 15% branch profit remittance tax, on the ground that the tax should have been ~omputed actually remitted, on the basis of p0r8o8f.i8t5s ~ which is 845 244 and not on the amount before profit remit- tance tax, v~hl.ch is 8)3, 228,, 339.82 � .......Sub- sequently, without awaiting respondent's decision, petitioner filed a petition for review on June 14, 1984 with this Honorable Court for the recovery of the amount of ----- El,041,424.03 computed as follows: . Net Profit s After Profit Tax Due Alleged Income Tax But Remittance Alleged by Overpayment Before Profit Tax Paid Petitioner Item 1-2 Remittance Ta x A. Regular Banking Un it Op erations (1:!50,256',404.82 ) 1. Comput~ion of BIR 1 590 -x / 50 , 2 56 ;-4.0 4 � 8 2 - E7 , 5 3 B , 4 6 0 � 7 2 �2. Computation of 86,555,183.24 - 8983, 277.48 Petitioner -E50,256,404.82 X 15% 1.15 < ( B. Foreign Currepcy Deposit Unit Operations ( E2,971,935)/ 24 4 .

DECISION - CTA CASE NO. 3799 - 3- 1. Computation of BIR 15% x -E2,971,935.00 E 445,790.25 2. Computation of Petitioner -E2,971,935.00 X 15% 1.] 5 T 0 TAL � � � ~ I The issue being purely legal in nature, i� the parties agreed to submit the case on the basis of the pleadings and the BIR records. L The only issue in this case is the proper and correc~ � tax 1 base in computing the 151 profit remittance tax. The controlling statute is Seotion 24(b)(2)(ii) of the 1977 National Internal Revenue Code, as amended, which, insofar as pertinent hereto, textually reads: "(ii) Tax on branch profits remit- tances:- Any profit remitted abroad by a branch to its head office shall be sub- ject to a tax of fifteen per cent (15%) X X x." In Burroughs Limited vs. Commissioner of Internal Revenue, CTA Case No. 3204, June 27, 1983, affirmed by the Supreme Court in Commissioner of Internal Re~enue vs. Burroughs Limited and the Court of Tax Appeals, G:R. No. 66653, June 19, 1986, this Court observed that: Without in the least attempting to express, in this proceeding, an opinion as to the proper tax base of the 15% 24 5 '

DECISION - CTA CASE NO. 3799 branch profit remittanc~ tax provided for under Section 24(b)(2) of the Revenue Code , it will be not~d that in his ruling dated January 21, 1980, respondent clearly and specifically held that "the 15% brarch profit re- mittance tax shall be imposed on the profit actually remitted and not on the total branch profit out oTWhich the remittance is to be made". The accent is on the words "profit actually remitted". And the ruling even stressed that it is "not on the total branch pro ... fit out of wh~ch the remittance is to be made". ~!e are not to indulge in statutory construction. Based on said ruling, petitioner has overpaid, as shown earlier, the amount of 8172,058.90 and entitled, therefore, to the refund or tax credit thereof. If there was miscomprehension or misconception on the part of responde nt as to the correct interpretation of Section 24(b)(2), the issuance of Revenue Memorandum Circular No. 8-82 on March 17, 1982 prescribing that the tax base of the 15% branch profit remittance tax should be the amount actually aeplied for by the branch with the Central Bank as profit to be remitted abroad should not be given retroactive application. It should be stated that in response to a query of the Sycip, Gorres, Velayo & Co. dated November 3, 1978, the Bureau of Inte rnal Revenue rendered a ruling, con- tained in a letter dated January 21, 1980, on the tax base upon which the 15% profit remittance tax should be imposed. The ruling is quoted in full as follows: 24 6

DECISION - CTA CASE NO. 3799 - 5- "January 21, 1980 In reply to your letter of November 3, 1978, relative to your query as to the tax base upon which the 15% branch pro~it remit- tance tax provided for under Section 24(b)(2) of the 1977 Tax Code shall be impnserl, please be advised that the 15% branch profit remit- tance tax shall be imposed on the profit actually remitted abroad and not on the total branch profit out of which the remit- tance is to b~ made. Please be guided accordingly. Very truly yours, EFREN I. PLANA Acting Commissioner of Internal Revenue" The said ruling makes reference to Section 24(b)(2) of the 1977 Tax Code, but Section 24(b)(2) and Section 24(b)(2)(ii) of the applicable National Internal Revenue Code both contain similar provisions as quoted above. In Burroughs Limited vs. Commissioner of Internal Revenue, supra, respondent Commissioner of Internal Revenue contended that the taxpayer is no longer en- titled to the refund involved therein because Revenue Memorandum Circular No. 8-82 dated March 17, 1982 had revoked and/or repealed Bureau of Internal Revenue ruling of January 21, 1980. The said memorandum circular enjoins that: 24 7

DECISION - CTA CASE NO. 3799 - 6- 11 Co n s i de r i ng t h at the 1 5 ~6 b r a nc h profit remittance tax is imposed and collected at source, necessarily the tax base should be the ~mount actually appli~d for by the branch with the Central B~nk of the Philippines as profit to be remitted abroad," In finding the Commissioner's contention without merit, this Court however ruled against the applicability of Revenue Memorandum Circular No. 8-82 dated March 17, .. - - - 1982 to the Burroughs Limited case because the taxpayer paid the branch profit remittance tax involved therein on March 14, 1979 in accordance with the ruling of the Com- - - - - - missioner of Internal Revenue dated January 21, 1980. In view of Section 327 of the then in force National Internal Revenue Code, Revenue Memorandum Circular No. 8-82 dated March 17, 1982 cannot be given retroactive effect because any'revocation or modification of any ruling or circular of the Bureau of Internal Revenue should not be given retroactive application if such revocation or modification will, subject to c e rtain exceptions not pertinent. thereto, prejudice taxpayers. As stated above, the Supreme Court upheld _the decision of this Court in Burroughs Limited, Since the branch profit remittance tax involved in this appeal was paid by petitioner Bank of America on July 20, 1982, ~fter the effectivity of Revenue Memorandum 24 8

DECISION - CTA CASE NO. 3799 - 7- Circula r dated March 17, 1982, we see no significance "---- - - - therefore in the argument of petitioner that the case should be decided in the light of Burroughs Limited. ( - Theorizing that the 15% branch projit remittance I tax is imposed and collected at source, respondent argues that the proper tax base upon which the tax is to be computed should be the amount actuall~ applied for by the branch office with the Central Bank of the Philippines as profit to be remitted abroad. Respon- dent's th eory is not implausible but it must yield to ) the specific language of the law wbich is controlling. ) The controlling legal provision employs the tE(rm "any I profit remitted abroad" - . NOT "any profit to be remitted . ' - abroad~ The difference between profits remitted and ,..., I profits t'o be emitted , is obvious: the first refers ~~~~~~~~~--~----- to such profits actually remitted while the second would refer to profits to be remitted . If it had been the intent to impose and collect the branch profit remit- tance tax on the amount applied for remittance before the remittance tax, the law-making authority could have easily done so by stating "any profit to be remitted abroad", and the like. We cann ot ignore the principle 249 . .,.,.

DECISION - CTA CASE NO. 3799 - 8- that statutes imposing taxes 'are not to be construed \ to include within the subject taxed anything which is not clearly intended by the legislature to be so in- \ eluded. (51 Am. Jur. 360-361; Gould vs. Gould, 245 U. S. 151.) As stated in Manila Railro a d vs. Collector of Customs, 52 Phil. 950, burdens are not to be imposed nor presume d to be imposed, beyond what the statutes expressly and clearly declare. The statutory language clearly and specifically refers only to "any profit remitted abroad" as being subject to the branch profit remittance tax of 15%. By "remitted" is simply meant "sent", "transmitted", or "forward ed" . (Hollowell vs. Life Insurance Company, l 35 S.E. 616; Nicolleti vs. Bank of Los Banos, 214 P. 51.) Nothing there speaks of "E.E_ofit to be remitted abroad" or "profit actually applied for by the branch with the Central Bank". The law is clear and unequivocal. It is well-settled that a statute, free from any con~titu- tional infirmity, should be enforced as written. To our mind, the law is plain and unambiguous. It merely calls for application as thus worded. There is no room for interpretation. 250

DECISION - CTA CASE NO. 3799 - 9- Nonetheless, respondent would unfold a thesis that the 15% branch profit remittance tax under the provision of Section 24(b)(2)(ii) of the Tax Code is a withholding tax at source, with the branch acting as withholding agent of the 15% profit remittance tax on the profits remitted by it to its head office upon whom the tax is imposed and collected. Thus, respon- dent would argue that "in all situations or cases where the mechanism of withholding at source operates to ensure the current collection of a tax or contri- bution, the base on which the tax or contribution is computed has always been the amount to be paid or re- mitted or sent by the payor or remitter (branch in the instant case) to the payee or recipient (head office in the case at bar) without first deducting the tax or contribution". And "citing familiar examples under the Tax Code on the mechanism of withholding a particular tax at source to ensure collection of most taxes Jn a current manner (as against the erstwhile out-mode 'year- end' or 'end-of-fiscal period' manner) are the with- holding tax on interests earned on savings deposits payable by the bank to the depositor (at 15%), on divi- dends payable by a domestic corporation say to a citizen 251

DECISION - CTA CASE NO. 3799 - 10 - s har eholder (at 15%), or on r'ental payments payable by the lessee to the lessor (at 5%), x x x the base o n which the tax to be withhel d is to be computed is t h ~ amount of interests earned on the savings deposit payable by the bank to the depositor, the amount of tl e dividends payable by the corporation to the share- holder, the amount of the rental payment payable by the l e ssee to the lessor, without in each case first deduct- inq the . tax from the interest, dividend or rental" (pp. 5 2- 53, CTA rec o rds) , respondent would thus consider the 15% branch profit remittance tax a~ imposed and collected at source and fix the amount actually applied for by the branch with the Central Bank as profits to be remitted ab ro ad as the tax base, � Respondent misses the point. In all the situations or cases cited by him where the me ch anism of withholding of taxes at source operates to ensure collection of the tax , and which respondent claims the base on which the I l tax is computed is the amo unt to be paid or remitted, the law applicable express ly, specifically and unequi- vocally mandates that the tax is on the total amount thereof which shall be co llec ted and paid as provided I in Sections 53 and 54 of the Tax Code. Thus: 25 2

DECISION - CTA CASE NO. 3799 - 11 - "Dividends received by an indivi- dual who is a citizen or resident of the Philippines from a domestic corpo- ration, shall be subjedt to a final tax at the rate of fifteen (15%) per cent on th e total amount thereof, which shall be collected and paid as provided in Sections 53 and 54 of this Code � 11 (Emphasis supplied; Sec. 21, Tax Code) "Interest from Philippine Currency bank deposits and yield from deposit substitutes whether received by citi- zens of the Philippines or by resident alien individuals, sha l l be subject to a final tax as follows: (a) 15% of the interest or savings deposits, and (b) 20% of the interest on time deposits and yield from deposits substitutes, which sh a ll be collected and paid as Jrovided in Sections 53 and 54 of this Code: x x x1 Underlining supplied; ; Sec. 21, Tax Code applica b le.) And on rental payments payable by the lessee to the lessor (a t 5%), also cited by respondent, Section 1, paragraph (C), of Revenue Regulations No . 13-78, , November 1, 1978, provides that: Section 1. Income payments s ubject to withholding tax and rates prescribed therein.- Except as therein otherwise provided, there shall be withheld a creditable income tax at the rates here- in spec if i e.d for each c 1 ass of payee from the (allowing items of income payments to persons residing in t he Philippines. XXX XXX XXX 25 3

DECISION - CTA CASE NO. 3799 - 12 - (C) Rentals - When the gross rental or the payment required to be made as a condition to the continued use or possession of property, whether real or personal, to which the payor or obligor has not taken or is not taking title or in which he has no equity, exceeds five hundred pesos (B500.00) per contract or payment whichever is greater- five per centum (5%). (Under- scoring supplied.) Note that the basis of the 5% withholding tax, as expressly and unambiguously provided therein, is on the .9!-0SS rental. Revenue Regulations No. 13-78 was promul- gated pursuant to Section 53(f) of the then in force National Internal Revenue Cod~ which authorizes the Minister of Finance, upon recommendation of the Com- missioner of Internal Revenue, to require the withholding of income tax on the same items of income payable t o per~ons (natural or judicial) r e siding in the Philippines by the persons making such payments at the rate of not less than 2~% but not more than 35% which are to be ere- dited against the income tax liability of the taxpayer for the taxable year. On the other hand, there is absolutely nothing in Section 24(b)(2)(ii), supra, which indicates that the 15% tax on branch profit remittance is on the total .---- amount of profit to be remitted abroad which shall be 25 4

DECISION - CTA CASE NO. 3799 - 13 - collected and paid in accord~nce with the tax with- holding device provided in Sections 53 and 54 of the Tax Code, The statute employs "i\ny profit remitted abro ad by a branch to its head office shall be subject to a tax of fifteen per cent (15%)"- \<Jithout more. Nowhere is there said of "base on the total amount / actually ap�lied for by the branch with the Central Bank of the Philippines as profit to be remitted abr oad; which shall be collected and paid as provided in Sections 53 and 54 of this Code". Where the law does not qualify that the tax is impos ed and coll ec ted at source based on profit to be remitted abroad , that qualification should not be read into the law . It is a basic rule of statu- tory co nstruction that there is no safer nor better canon of interpretation than that when the language of the law is clear and unambiguous, it should be applied as writt en . I L / And to our mind, the term "any profit remitted a broad" can only mean such profit as is "for\'larded , sent, . or l transmi tted abroad" as the word "remitted" is commonly and popularly accepted and understood, To say therefore ) that the tax on branch profit remittance is imposed and ( collected at s ource and nec essa rily the tax base should be the am~unt actually applied for by the branch with th e 25 5

.. DECISION - CTA CASE NO. 3799 - 14 - Central Bank as profit to be remitted abroad is to ignore the unmistakable meaning of plain words. The conclusion reached is bolstered by the incidence of the tax which is levied and imposed, ns clenrly a nd specifically provided by Section 24(b)(2)(ii) , on a re sident foreign corporation engaged in trade or bLJ 0 i- ness within the Philippines on profits ~emitted abroad by the branch to its head office; and ~ot on a foreign corporation not engaged in trade or business in the Philippines, which is taxable on its gross income re- ceived from all sources within the ~hilippines, on an item of income taxable to the latter and which is s ubject to withholding tax at source. Hence: II SEC � 14. Rates of tax on corporations.- (a) Tax on domestic corporations.- xxx XXX XXX (b) Tax on foreign corporations.- (l) Non- re sident co rporations.- xxx xxx xxx XXX XXX (2 ) Resident corp orations - (a) In general.- XXX XXX XXX (z)(ii). Tax on branch profits remittances.- XXX XXX XXX To our mind , profits , for purposes of the branch profits remittance tax , are not synonymous with taxable income subject to income tax, but rather are based upon 256

-" - � - - DECISION - CTA CASE NO. 3799 .. 15 - actual net inc o me and expenses, after income tax, ns s t ated by respondent in hi s statement of facts quoted above . The concept is much closer to the earn e d sur- .J?.}us determined by the accountant than to taxable net income or income subject to tax. And since profits have already been subjected to incom e tox, and upon their remittance abroud by the branch to it.s heucl offico, again to profit s rern.i.ttnnce tax, v<hicll likewise mi~]hL be declared for taxation purposes by the head office thereat, the philosophy behind the "law in imposing the profit remittance tax on profits actually remitted , it might be said, is to mitigate at least the harshness -- - of s uccess ive taxation of the same profits. _ ~------------------------------- In the light of the above, ~nd it appearing that the parties are not in dispute on the computation of the branch profit remittance tax paid by, and the amount ref undable to petitioner, as the case moy be , thi~ Cou rt finds petitioner Bank of America National Trust and Savings Association entitled to the recovery of overpa id branch profits remittance tux in the amount of 81,041,424.03 for taxable year 1982. 25 7

'. DECISION - CTA CASE NO. 3799 - 16 - WHERErORC , Finding the petition for review to bo well-taken, the same is granted and the refu nd /credit of the amount soug ht is hereby ordered. No pronounce- ment as to costs. SO ORDERED. Qu e z o n C.i t y , He t r o ~1 a n .i l a , 0 c t o b e r 29 , 19 8 6 , 25 8