CTA Case No. 2846 (Decision)

H" 0. ' : T ... ' ;;>t't~ c . c.: 1 ~: : /_ �ALS QUEZO ~ ClTY c u.. c , n � I . l' � � � c.� . .� . 2 6 Petiti n r, - versus - L � -X D c v 1' t t~tion br u ht by y.r 'h rm c ~ticcl s , lnc. , to revi sion r of Internal Rev nue d ted epte 1 r 17 , 1976 h !ding it 11 bl for d ici ncy withhclding t - t - s urc_ for h ar 1972 in t e ot 1 mcunt o 36 , � J � 73 , inc s .ive cf int r t nd 25 surch rh b si of th ficicncy s- Q~O ment iu th. f ilure o y r harmc ce_utical , . Inc. , to d duct, i h old, nd ~ y tt crres ond- i g �ithhclcing t x on the amount of rcyalti s du t no-r ident for ign ccr or ' tion- Th p t i t i n recite~ , an th �new r ~h.r o d;. it � th t 1 ion r is� cme. tic c r or ti n c,rga. iz un er th 1 "" 0~ the ~hili iT1<'>S 1 with of fie 6 t 622 Sha� 0 1 v rd , nd luv ng , d . 1. tition r i n. gt. in th . sin sf"! # 'n oth r I of manuf cturJn , r�-c s.:in'} , b, y ir g 1 4: 7

D C1 8IO"'' - C l.. CA._) C . 2846 - 2- lling, and , in g nera1 , de ling in 11 kind of che ica1, m dicin�l. ph n. c utic l n bi logic 1 products . Son ~tim in 196 � p titi ner nd ayer xtieng�sellscha t , ~everkus n y .r- merk (h.r~in ft r r f .rr d to a~ y . r) � non- r si ent foreign c r por tion, ,nt r into n agr emcnt h r by p tition r w s c;rant by ay_r th righ t �1ufacture certain phar m pre uct from activ ingre i nt of 8 y r , in ccordanc ith ayer ' s prescriptions , n t s 11 ch prod1cto und .r the tr dew rk regi t red in t e hilippin s in ay r�s nc;on � ln cor�~side- � ration o~ such ri~ht. pe iti n agre d o pay y_r a royalty of 5. on the n~t gles ~roc eds of th licen.. u pr ducts . V rific~tion f � tition~r�s ho ~ o~ ccount~ and ot.h r r 1 t d !\CC.J l'l- inJ ~ .c..::.rds by an 'a in -_r c r�s rc.od nt � .ce.1. tiV"' tu 't� r_ u zt for r f m.; of 11 g ovc-rp :l.d inc�;,n - t I Lclos d tha th ye 1972, l..h a1�.0 nt of roy lty u frt r:t tition r 0 ynr urvu nt to the r lty <r t unte to 9 , 529 . 00 , i eJ, iz d .;;> fol l� s: Roy-l.ty on phc.rmc;.ceutic� 1 product cld Roy l y ori veterin -Y )3, 508 . 0 produc s ....vl 6 ,529. 00 Tot 1 o_y 1 i.s

� 2845 - 3- '�It wa 1 0 1-..cov r d th t th id roy 1- ti in th ount 0 69 , 52 .oo h db n t up in ok nd r cor s 0 p titi n r li bi- lity n th m cl i ed d auction fro i t :~ro ... incc 1972. nd r h Cl likewf issu a bit m I 0 to 'p tition r f r th roy 1- t � ccor .ingly, f<r failure of etiticn r t withh ld nd p y the tax on th roy lti , r on nt i su d fie ncy . B nt for 36, B3 . 73 in :> tition r throu h tis nd 1 tt r t d ove r 5 , 1 7 , com ut d ollo : - 72 oy lti _s ia ton n-re i nt for ign cor ra i n � � � � � � � � � � � Y du "th r n � � � � � � � � � � �d: 25, urch r �������� 6 , 0 3.75 14t int . fr. l-~6-73 t 11- -74 a 6,~45. Com ro.i c il r t fil 70,00 34,73 return n 1 te p ym nt � � ot 1 and e ll ctibl � � r . in 1 t r t J nu ry 10, 1975, COl t hs �- nt, r uing th t it h no lia ility na y t I inc h 0 li tion t nd p y tn t ri only P n c u 1 . ent o nc � n l tte -< c~ i o � t rt 7�r 1 on- dent how v r r it r t th ici ncy 65 m nt

fer 36, 34 . 73, inc u i f urch r e nd int - r st, nd d! n h ym nt th r o!. cJn nding ' th t th 0 lie ti n �t 1 h ,1 y the ris th ~im of rcy ti 5 nd n th time o -c r mit nc- or y nt ther <.. � nee, th r cour �e . ~ :~.h 1 n ::;xuestic n . d r_ c r lu i o . L.. h th r r no ...h ..uliga ion t. . it ld nd p y inc m~ t - t-s urc n tt . r o 1 .i i u ...on ecru l cf th rcy lti or p .....n th ctu 1 re i � nc or p y nt tt r f � . tition r mint ins tl t h r no obli- g ti n t ct, ithh 1 �. nd y t it h ld- in in 1 72 . inc th In ~ r y 1 i could not b .- - r str:ction � r itt d u t c ntr 1 / 7 th 1 i1i y to lith- su d ::.i g , h v r , h 1 �nd p y th c '< ithhcl t cure fr� royalty y . t to non - r ""id ent foreign corpor tion, lik i r g e. r- n y rn rk, i t h t )\ �inly venuP. '1 ..,. --- J 71-003 , ertin nt s follo s: 50

D Cl I CT CA � � 28 4 - 5- 'This r f r t ebru ry 16, 1971 r to th b i of on til r ntal you to non-re i corp r ion � II X X X "ln tter, ycu conten d th t shou b b ~ed 3 5 ;;, 1 is no r � bank moun e, n- to h non-r including e C ntr 1 ia r mitt d 5, p r � tX .ntir y bl or ti � ns cc unt of yt b 5 .l�

DECIDIO � 2845 CT C o� -6 s e xpressly stat ed th r in , t h Bureau o f Inter nal Revenue rule th t wi t hholding tax is not dependent on remitt nee of the income p y- abl to the non- resid nt for ign corpor tion but o' n accrual th reo� . nd as � suc h , although the incom c nnot be remitted on ccount of Cen- tr l ank restrictions , the tax due th r eon should be deducted nd withheld s i f there is no .. r estr iction . The.statut involv d is ~ection 53(b) (2) of th a t ional Int rnal evenue Code, th con- t rolling provisions of 1ich read as follows: " ec . 53(b) (2) on-resident for i gn corpora~ions . - In the case of for ign corporations subject to tax under this Ti tle, not engaged in trade or business wi thin the Philippines , th.re sh 11 b deducted and withh ld at the sourc in the s e manner and u on the same items as is provided in Subsection (b) (1) of this sec tion, x x x , a tax qual to 35 per cent t h reef . This sh-11 be r turned and paid i n the same manner and subject to th sam conditions as provided in s ction 54 . xxxx' And Section 53(b) (1) of the same Code per- t inently pro vides~ (b) Non- resident aliens and for ign corpcretions . - (1) . on- res i dent aliens . - Ev ery i ndividual, c orporation, partnership, o r association, in what ver capacity acting, including a less e or mortgagor of r eal or personal property, t r ustee ac ting i n any trust c a~ city , xec uto r� adminis - t r tor, receiver, conservator, fiduciary, mployer, -nd ev ry officer or employee of the Gov ernm nt of th epublic of the

0 C wl CT. C .,:;. � 2&45 - 7- X X X Y. � X r m rely ~h se provision , by the y , im rt_ and co ied cl. st v rb ti frcm simil r withh lding t x revision of t nit d tat LS v nue Co e cti �n l43(bl/. ccordingly , in conscn nc with s ttled rule~ of at tutcry cons- tructi n, the interpretation t .ey have r c� ived in th rnited ...t te rV authorit tiv_ ffect in "'"h � ro r c un:>t ructicm and int .cpret tion of our 1 "� Thus; as corrC"ctly nc d by p tition r anc wh:i ch � is not dis .. u , ,d by r sponuent: 1 . n rrivin.; t I Ruling t: � �n-003, d ted ~ ru ry 2 # 1971 , our ~ur au of Int.... rn 1 evenue qu t d as u rity th excerpt o ... United t .s In rnal ev u ervic r lin hich is foun t I.) .t � 875 . 405 of CCh , 1 69 . Volum ~ 5 . t apt: ears that th said u~s. ruling

DECISI N - CTA CA 'E O. 2845 - 8- i s actually irneograph Ruling o . 5075, which was is~ued b j the Off ic of t.he Commissioner of Int rnal Rev nue, ~ashington, D. c . , on July 8 , 1940 an can b fcund at the Cumulative Bulletin 1940- 2, at p ge 141. 2 . Th said Mimeograph Ruling o . 5075 h s been a e cl r d obsol~te by the Unit~d States In- ternal Revenue Service itself in its Revenu Ruling � o . 70-2 9 3. (u.~. �Int rnal v nue ul- letin ~o . 197n-23 , d t~d Jun 8 , 1970) It is thus evi dent th t in issuing its IR ruling r;o . 71- 003 on F bruary 26 , 1971 , our own ure u of Int rnal Revenue has relied on a nited tates Internal Rev nue �ervice ruling th t has already , been ov rrul d , the sa e having been d eclared � obsolet~ as of June , 1970 . 3 . Follo~ing the decision of Lhe nited States District Court in L. D. Caulk Co , vs . nited Stat s , 11 F. upp . 835_, rendered on No- vember 19, 1953, to the effect that corporation which held licenses und r patents own d by non- resident li ns ho s r sult of blocking proc- la ation cr forbidden right to receive or d is- . poP of roy ltics was n t bound to withheld tax before paym nt f roy 1ti �.s, the rule th t is / nov1 observed in the nit d ....;ta tes is-th-a-t t-h -. '

DECI IO CT CASE NO . 28 45 - 9- oblig tion to withhold nd pay~.~~4~~~u l payment or remittanc of the income to a non- re- --- sident alien . In the setting, law involved nd issue litigat d re practically on all fours with he c se at bar, laintiff, a Dela are corporation, held licenses under patents owned by two ncn- resident ali ns , Robert Doge and mmanuel d Trey . Loth pat entees wer Swiss . Under the lie nsing agreements , plain- tiff oblig ted itself to pay royalties to Doge. and de Trey . In its treatm nt of the i mpact of r oyalties on its operations , plaintiff, adh-ring to the accrual method of accounting, ntered net r oyalti.s nd ithhelc tax s as accrued liabili- ties of 1941 nd 1942 , the periods involved in the case. Thus, 1941 and 1942 r oyalti s and taxes were set up as accounts payable on plain- tiff's books and as art of its cost of doing business for those y ars. No ithholding returns for non- resident ali ns D ge and de Trey were pre- par d for 1941 cr 1942 . hile the critical issue is when the returns were due for royalties attri- butable to sales made by plaintiff dur ing the . years 19 41 and 1942 , th i nqui r y shifted from "when was th return du 11 t o''when , if at all, was ~s

� NO . 2845 - 10 - pl inti f re uir d t wit held th t X frcm the royalti � fl h r w ;;;) no que ti n r i d by 1 intiff s to xi t c of it duty to ithhold on th r Y ties. Th uwhen" of the m tter * not th "who" or th "wh t" th int of disp t nd in uiry b c u I w re u1t cf lac inq pr c- l m tion ,. non-resi ent liens w r fvrbid en righ to rec iv or dispo of royalti u th m und r ccntr ct with c 'r or ti n which ld lie nseo un- der ali ns � p t nt � (L.D. Caulk Co. vs. Unite tati~ , 116 � 835 , 8 0 . ) ~tat d oth rwis , th qu stion a to hen to withhold th t x rom th~ 1941 nd 1942 roy lti aro~ b c u~ , lt ugh th roy ti ere accru d in the p1 lntiff�~ books in 1941 nd 19 . 2 . s io.bi ity to th n n- r sident lie n ors, th !:> m could n t b p id 0 ren itted to the 1 tt r r ult of a blocking prccl m tion. Th Unit d t tes FecAeral Court rul d th t wh re , s r sult of lee ing procl rn t1on , non- r id nt lieni'.> r for idd .n righ � to XcC iv or dis cse of roy lti s �ue t. under C<..;ntr ct ith cor~or tion hich h 1 licens nd r aliens' p t nts , such lie ~ h n "g ins, profits nd inccme11 w~t in int.ernal r enu st tute requiring all �erscns h~vin~ con rol , rec 1pt, cust dy,

l . 2 45 - 11 - di pes 1 or paym nt of fixed or d t rroin bl n- nu 1 or riodic 1 g 1 , profits , n� inc Me of ny non-r ident 11 n to wit h ld t x nd. th r - for , no nee s ity of filing .ithh l ing t x re- urn d volv do cor .cr ticn �hil corp ration ret n d bl eked rc ltie � ult i th t th i u.on o y ent or remitt nee ~f d -----------------~ St tes eriv d incom to th non-re nt reci- pi n � ' c use of it if not controlling ffects, on the r s nt ca , w �ill uote at length from th n. " h o us c th. wit:hh~ 1 ing re- quire~ent on pl intif i i ~c~ d by s l43(bL 1 �.� C .: .. All er on wh tev r c p city ctin�, * h ving th c ntrol, recei t, custody. dispo- s 1, or p yment of ~ ~ fixeu or d - t rmin ble nnu 1 r periodic l gain , profit , and inco. of any resident alien � hall d duct nd 1tl h ld from s�tch nnu 1 or p rio- die 1 g ins, rofits , nd incom � " On the wh( 1 , thi lrovisi n not cone rri itself with nwh n" i thholding should taJ.� p 1 ce. r, ,1 t simply sp _cifi ;;;;. "who" .,.ha11 .. h t". Ho�eve:or, t:1is uc Ji0l t o sh d. rhe uty to it hold presup1 os , he exist nc of" nnual or eriodical g� .ins, pro itu, nd in- com �� . The ection irects t:h �dth hol .ing from uc sum a re iden i-� fi bl � as g ins, ,:>rc. .r-1 ts , and inco .e of th ncnr si.dent lien. bviou ly . if iere r nc -..uch "gains, oroti � s ., nd inc m 11 , t duty to �ithhold is nonexistent. On h oth r hand, if there re such u v~ilabl , th st tut ry l JH uag _ 1., inconclu.�ive in 7

. - DEC !..!' cr c ( � 2845 - 12 - . d c iding " h n" the withhold i n uty arcs~ . l do not ground my d ci ion on ny subtlety of construction, but I o ad- vert, in fact , to it. er the roy 1- . t ies 'qains, J.rofits , n inco e' to thE> li n Dog and de Tr y hile olaintiff ret in d th m ndcr these circumst nces I t in not up n re~list1c vie. of th m tt-r . Th blocking ~rc�cl'lm ticn pluck d every el m nt of c cn rol ov r th f nds from h ~lien � ~ thccretical bundl- of o n r- ship rights . This lvr. o � th s nc of private own~rsh in occurred hil re v 1- t i s wcr still in pl intiff ' s o s ssion, sine th~ b, eking fr�eze pplied to in- d i vi u 1 ebtors of ~ i ~ naticn l � As con s roy l~i ccr d to the liens under th~ co ntract ~ his cr�zy pr aic ment f ced h m: t1ey ad th or tical right to coll ct � ~ r y Jtie )Ut ~er for id- den right to r CPiv t em or ais t hem . ~o cor. rnic dvdnt 9 wa~ ~uch a ho low Hright .. do not h core of n fit suffici nt to co titut. "gai 1 profits , and inc m .. � �ven th u )i quitou doctrine of ccnstruc�tiv r - c ipt of income h no t ntacle long nough to r ch t roy 1 i ~� Cf. eg. 103 , � 19- 2-2 . As said ith r-f�r nc t 22 - (b) (2) , l.~.c., in Industri l Trust Co . v. arod rick , 1 c.ir . , 94 � 2d �927, at p ~ 930, "Tiro chcut t ~ ev . u a~~ th or s gain, profit , or incvrr� mean n ctual, not fictiti u g-in or ;ro- fit ." Cert nly, th s w r n t. __.--: "incc � an , if "ga n~, or p r fit , or ~ l Lnr aliz d nd highly rti ici 1. }urt r, t.h lin h r hac n .power to comm�nd payment to hem ves or ot r , unl ik th donor of th intere8t cc ons in hel- v ring v . Horst, 311 u . ~ . 112, at page 11 , 61 .ct. 14, 147, ... s .Ld. 75, wh r- i is s io: ..Th pow r to di .� os of 1 uiv_lent of o er hi~ of lt �o 1 cern, then , t �r being no "g in , prcfits, or inccm " of the liens t 1 t urin<; th tim pl intif.f. ret� ined h~ir ~ 1 ck d r oy l~ies , n withh l~ing duty d.v.lv a on I laintiff nd no p n l ti s r * rqper . '' 58

\ D'C c�Jl s '_ t-.o . 28 5 <.."'T' I - 13 - g inst this bac r p, t h s i t ti n h r r s nt d ,. while h roy 1 ty i n t he amount of 69 , 529 . 00 ( lthough o s t up in the becks of ~ p titi n r s a li b i lity to ay r ) could not b r itt t that ti . , would no cr "gc.ins, prcfi ts or inccme�� to n n- r "'id nt for _!gn ccr .o�_ tion y-r . �o ectncmic fits ere riv by ithhol ing cf ta:- t- urc � hcccr in_ly , p - \ ------ ti ion r h d n uty to ithhold ond ay the t --- t Y. . c v n mor , ad r t d si for th ueci i c th ni e< t t s Court i th 1egi 1 i e . histr ry c ..,ecti n l43(b) of Unit d .. t t T Coce, from whic c io 53 (b) of our tion 1 Int rnal ev nu w s r ctic 1ly c pi. � n 1ints d riv d ro. th u lis ronc nee- nts of h lln't d �t t ur . u of Int rn 1 R v nu �n_ c urts , which cisclos that uty f ithhol in~ rises quot r o 143(b) , is trac d b .ct c Octc 1913 . ~ of Lh t re perti- raqra1�h pr-- v id 11 havin the c ntr 1 , r cei~t , oaym n of f'x Gr ~ t r- 1 53 1

DECI~Iu � 2845 CT CASE - 14 - minabl annual or periodical gains , pro- fits , and incom of anothe r person sub- ject to a , sh 11 in b half of such erson deduct and wi thhold from the pay- ment an mount quiv lent to th normal inc me tax * * * � " rag r aph B o f the s*a m* e Act in a rt s~ec ' fi d: " 11 persons having the control, receipt , custo- dy , d ispos 1 , or p ym nt of * * * oth r fixed or determinabl annu 1 gains, pr o- fits , and income of a oth r per son, ex- ceeding $3, 000 for any taxable year * * who are r equired to mak nd render a return in behalf of anoth r , s pr ovided herein, * * are hereby aut horized nd required to deduct and ithhold from such nnual gains, profits, and income such sum as will be sufficient t v pay the nor- mal tax * * and they ar each h r by made p rsonally liable for such t x . " aragraph D is x licit in dir cting with- holding from th "payment" hile its com- panions cticn auth rizeo �the d duction nd imposes pers~nal liability on the withholding ag nt . In its R port to the Hous of Representatives on the B ill~ the Committ on ays nd M ans said, "Fro- bably two- thiras of the inc me tax p ro- pos ed as t o individuals ould be ded uc~ed and withheld at the source of the income and paid in full t the Government. * * By this method the amount of tax due or to bec ome d ue upon every fixed or determi- nable annual income is ithheld and pai d to the Government before the income re ch- es th taxpayer". Nonresident aliens as well as citi zens were subject to this withholding system . In the 1916 Act , quoted paragraph D was r peated as section 8(d) und r the significant h ading � eturns" . r agraph � , as quoted, was r peated s section 9 (b) under th heading "Assessment nd Ad inistration" . By th evenue Act of 1917 , par - graph 8(a) of the 191� Act (par . D o f th 1913 ct) was repealed so as to r n- der unnecessary any "withholding at the co

o. 2 45 - 15 - s urc or in- 11. In- itut d . i Th evenu c of 1918 m d no ch nge in th pertin nt 1 n u < of th � amended � 9(b) but did increas th withhc l ing rate nd renumb r d the s c- ti . a 221. Bo ev r , th... ort of h Ways and _ n Co mitt of t Hcus i ds e rch in i'l co. Ut nts on I Collectio n t th . ource� 1 "The d. bill, as un er exis ing 1 , r only the ith ol in o f in owe ca~e of n nts by indi idu 1 , c o r por tic ns, rtn rshirs cf ix d ond d .te in nual o r e io�� 1.c 1 g in , profits , nd i ncc . to ncnr $1dent clien in ividu ls or ncnr sla nt c r pr rations". ~,1~ c om- ment i an i oc ic ti n th int nt cf . ex_;;re.;>"" ~d in parag ra r~h ct nc wa c o ntinued in 1917 Act hen th f rmer aled . tc chang , as � t1ho l in ~ revisions pp ly n y t o non si- wer dent Th time of p y. nt ras the time �ithh lc ing cuty r o e . Th v nu ct of 1921 a .e n ndm nt to the ~ ction p rti n nt to incuiry , n r d i d th ct of 192 � HowQ ev r, both the .ious Re or nd the en-te � ~ ort on the 192 ct h v this ccrr.ment: .. Secti n 221; .: ubdi visicn (a) of this secti0n of ~h p r 1 w ro- vid ~fer t e Jith. v din t # qu 1 t the nor.al t x , on fix o determi- � 61

D C .;,~ � 2845 CT C "' E - 16 - n bl incom to nonr sident lien indivi ual, rtner hin com s d in hc.l or in of nonr .sidcnt li n . " uir1ng h wit oth lso r hol-:linq o n p y nts" t rtnr...rs i � d d rene i!; to wi tJ ,} c .l d .::. n f th 1. ln the ~hol - s le arr ng<-"- . 144. � e~tion , v-n te re~,en . law �r o�.r;.. c: th source, in t~� of 5 per cent id tc n nresi .�t r evenue ct of 1932, the pect ~umtier 143 and th r te without a f.ecting th ~ f revision under c .�n i Th .Hct of 1934 rn no � on uron our incuiry, ut in ...cr�. s �� f nd in .... n t clding o! t x re cc:uch G2

D CI I �, ~' - ...,f: r� � 2845 CT - 17 - The 1 36 ct did n t chang terms cf � .143 s they und r inves'tigation. H w v r . in t e ...e t Report c nfir th .rior st t l>.ents: "S c ion 32 o th- existing 1 w provid s th�t 1 t x it.h 1d t sourc una r s ction 143 fr~m nts to an individual t xpay r sh 11 cr dit ag inst such � vp yer ' s tax" . R fer~nce is lso mnd_ to "withholding in th of p a 'f .ent to for _i q n c o r- l�w''. : .K.eceiv(. bl a ~ of c ur "', 1 s- cri tiv of minuf: d. vL iom O- t:lr;;c f~ c . th~- lir� t m melt ot ecru 1 to the last �econd b for r c ipt o! p,ym nt .. The ouse Report on thP ~Vt n11 ct o e 193 . ) e r~ t r affirm th rlier interpr t tions PV�n 'if th~ 1937 Report b- vie d a a devl tion. In r f rring to consent dlvi nda, th Committee en ays and .e ns r ported: ''ln c se any sh reholc r ma' in9 con~ nt is a per~on QU1 ject th ~revisions of cti n 143 (b) nd C> ction .144, ~elatint;:" to t .he de- too ductiot~ �nd ithhclding of t x t sourc # s cti .~ n 28(d}5 requires that such cons ht i i l d by th cor �or ticn with it return shall be ccom ani.d by c~sh t ~ equ 1 to th mount hich the corr~ration ulc h ve b en requir .d to d "uct nd ithhold by such s ction 143 (b) or 144 if the cunt s : ec .i fJ:;.d 1 such c...;.n nt h d b � n ;�_id tc s uch har .- holder. on th last day of th0 t x bl year of the corpor tion, in e h as a ax bl ( i vi end . '' Th � � n te e rt useJ :.J rn l nguag in re... rrin0 to 143 (b). ~o p .rtinent comrr nt. \�I _ ound in the Co~ i t t ~ports on the other Rev- nu Act~ down t 1941 nd 1942 , th_ 63

� DECISIO CTA C E O. 2845 - 18 - t x ye rs in u stion . However, one fur- ther reference is made to a later com- mitt e report reflecting current thinking . he Hous Report on th evenu ct of 1950 in referring to reposed ~ 13ll(a} states: 'This subs ction also provides that any p rson required to de- duc t and withhold a tax under s c ion 143 or 144 r * on th payment of a dividend shall not be re ir d to deduct nd withhold a ta under this section upon such payment". Regulations promulgat d by th C m- missioner contain abundant references t o payment as indicating th crystalliza- tion of the withholding duty . Treasury Regulations 111, � 29 . 143-l(a} states: "Withholding of a ta of 30 percent * * is required in th c se of fixed or determinabl annual or periodical in- come paid to a nonresident alien in- dividual* "" *" � Th subsections of � 29 . 143 are r pl te with ref r ences to withholding upon payment, such as "Th tax mu$t be withheld at the sourc from the gross amount of any distribution made by a corporation�� (29.143-1); * an nnual return * ., showing 11 the amount of tax required to b with- held from ~ach nonresident al ien * * * to which income oth r than interest was paid during the pr vious taxable year" (29 . 143-7); "Tax withheld at the source upon * incom paid to non- resident al~en fiduciaries * * +II ( 29 � 14.3- 9 } � And ev n on the qu s tion of ~hether ith- holding should b a t the rpte in effect at the time payments were due or at the rate wh n pay- ments wer ctually ~' the United States Court rul d that the time payment is ~ governs the rate. ~e again quote from the Caulk decision: 64

D CISI ( � 2 45 � - 19 - c� c , n lien irne of G5

D Cl o. 2845 CT - 20 n t dop- t- ./ h s �inl , , r et �nd c t. there b <ror u~ not t p ly .:.o -ti tic.1 r th . rul in of th Unit tat re ra cour~ in for hicn Day- r l, � r�, c tic 1... ~ :nc. , iml- 1 rly u 1 w. nicrt i .... cl ~Y. ~tly si i l r to o r .1 � r u.nd ( g.ic i' net to b � LtJ.:- y br -cco.:.m 'tOd tc our uli �J 0;~.. 'Wl"l - u of l. t J.'O J e�.rcn� d utlor't1 the �c .r: 1: r.: \ nit: . t tc:.. In- t L"L'l l v nu rulin . l::ut ~. c na en d cl r y he: s~: '"- ~ai - .,..... ~ ...... tt-.~ !a- t rn 1 .Rev �nue wervJc a - r o:>Ult of �ch _ _,.~.J � c ch.icn. As '� . i . �) thi- le dl �u: "::,lcm, w fin no co:; nt: 111: v~.lid r ~;:;en t m... ify, muc. l ... dc;.art. trcn: t.. c�- nc l d itl ~- Caul � , ..:t tc!J c trt th r , ar.d th oi th �nL. , o~.&l re...o b Eore u in t . i � =oc~ ofn~ . the w 11- .... ~tle~ ~ i .ciQle or c ion that oiinc �� c...:r ir o�.. tG.:- lc v ; v p r ct.i c ly cc i f.rvl:t th �- t o tl.e rit ti ff c in d� r :� r cc..ns :.::- 'Cticr.. ..n , GG

.,; � 28 5 � - 21 - pplication of our 1 � ~ore so in th c s of our ithholding tax- t-~ourc provi i o n .mbodied in ... ct o n 53 ( b } of our ati o 1 1 nt rnal evenue Cod, 1hich, a s 1own ab ve , w s merely impcrt d and copied al.ost v rbatiro from section 1 3( ) f th Unit d ,t t s Tax Cod durin th e r II involv d in the ~ ccording ly. the ccnclusio n r a.chE~d in � � Caulk, wh ich is rn f llo wed by th nit . d ~t t s lnt 1 R ~venu Servic - th t the tim of p�,yment of the r yal- ti s i the n,tur t ion tnt of th it h �ld ing duty - shou d govern thi pr ce dJn If Not much need b said on res on ent ' tion th t , baed on thP report of ti1e inv- tig ing x ,,iner , no thin9 is state t at petitic ,r t- t m ted to remit the roy l'""'es to D y r. By res- pond nt ' o n d ci ion- it is explicitly eel r d "that the roy 6 � 52.' . oo ere not re mitt ct ' by l (p titi n.r herein) t / Sa r ue to Central ank r trictions." � (Exh . "5 , " xh. "F~ -1 . ' p . 30 , 1 ~ r c c.- r s) inc . the� roy .ti s could not :.> r mi t d to ay r due to c ntral n re trictiona, s stat�d by respon- den him elf in . is d .ciaion p al d rom, surely . res~oncent's c 1ng shoul not ex ct t i ion r to m ke fort~ , lb i t unl wful, to rendt the me. nd on r ~pon d nt � s point th t 67

D�Cl ~"' l o. 2845 C'l'A C ~ - 22 - inc th .. r y l i h db n ccrued in p titioner� book th incom t er on b c ubject t it - holding even if r .�it anc s f ct d 1 t r . uffice it t .0 y hat t ccr al of the roy l- ti in eti 1 ner � s bo. k # s held in he ....:........:. C ulk ~ did net . ount t "gains . pr fit nd . /' inc me" on rt o n n-r - ;: nt- y- ;-nd, \ \ th re ore ~ no n d\ \ w1thhold t x devolv on p tit! ner � �1 , � ccordingly. rul th t ince th roy 1- 1 s in question c ul .!!�.!;. b p id or r . itt in 1972 by p titicn r yer h rmac utic 1;:.. ., nc � � to n n-r si e t or ign cor cr t1on yer ktif.n9 ll c I lft, L y rk u to Centr 1 ank r�strictio n~, petiti ner ~as und r no obli tion to ithh ld n p y 1ncom tax- t-sourc on id roy lti m, th ref re, it is not 11 le for th fici ncy ithh 1 in� tax..: t-sourc 13 of Intern 1 fer th y ar ~ 72. 0 I th 1 from ho ~ it i t r. Y. rev rs d. o costs. OORD � 68

�Cl~l o � 2845 CTA C - 23 - uezon City , rch 16 , 197~ . I C~ !CU : � 69