CTA Case No. 2872 (Decision)

UOBLIC 0 rHt'! PH!UPP!Ni'\ COURT OF TAX APPEAL..~ Q.U.EZON Ct't'V QHIL IPPINE REFINING CO., INC., Petitioner, - versus - C.T.A. CASE NO, 2872 COMMISSIO NER OF INTERNAL REVE NUE , Respondent. X- - - - ------X DEC �� r ION This is an appeal fr om respondent's decision datE; d March 7, 1977 den ying t.1e request. for reconsideration of the tax as sessments against petitioner in Lhe s~ms of ?3,330, ~17.37 and ?27,145.73 rep 1esenting deficiency withholding tax at source for the years 1966-1971 and �delinquency withholding tax at source for the years 1966-1967, respectively. As originally demanded in respondent's letter of July 26, 1974, details of the contested tax assessment follov-1: 1966 Total royalties, dividends & interest remitted ��������������������������� P2,529,750.00 Withho ldi ng tax due thereon ��������. P 758,925.00 Less: Amount already paid.P629,734.00 Deduct 25% withhold- ing tax at source on individuals � ���.��� 5,484.00 624,450.00 Balance ���������� � �� ����������� �� � �� P 134,475.00 Add: 50% surcharge �������������� � ��� ? 67,237.50 ~% mo. int. fr. 4/16/67 to 4/15/70 � 0 � ���� 24,205 .50 TOTAL AMOUNT DUE AND COLLECTIBLE �� � ~ -_fl _-_-_2-2_-5_---9j_ _ 1-__-8_-.0-_ 0-_ 20 /

DECISION - CTA CASE NO. 2872 - 2- .. 1967 Total roy.lties , dividends & interests rernitted ��w���� ������� � � �c��o�� .. � ���c � 112,92)!156 . 00 Withholding tax due thereon ������������ 877,5'-+7 . 00 Less : Amount already paid �� ?725, 942 .00 Deduct 25% withhold- ing tax at source on individu als....... ... !~,309.00 72l 2 633.0..Q_ 155, 914.00 Balance ������ o� ~� ������"" ��� ���:)���"�� � � � P Add: 50% surcharge � ��� �� ���� � ��������� 77,957.00 \% m~. int. fr. 4/G/68 to 4/15/71 ��������� _ ~�4. DO_ TOT AL /\t<10 UNT DUE AND COLLEC~ IB 1 r:: ������ � L_f~!J_222_._2~ 1968 Total royal ties, dividends &4interosts re mitted ��������� ������������� � � , � � � � � p') 1_348, 332. 00 Withholding tax due thereon ������ � ����� Vl,l55,7u8.00 Less: Amount al eady paid �� ?823 ,14 5.35 Deduct 25% withhold- ing tax at source on individuals �� � �� � ���� ___3t_)25.00 f!_l9,820.00 B8lance ����� �ac��� ... ~��� � �� .. �������e>ooa"' P315,8L)8 . 00 Add: 50 % surcharge �����.���������� ���� 157,944.00 Def. inte r es ts (6% & 14% per v-�- annum) .� �� � �. 56_; 859.00 TOTAL AMOUNT STILL DUE & COLLECTIBLE -- -�53_o_J_6_9_1__�_sL_. 1969 Total royalties, dividends & interests remitted ���������������������������.� . V6,365-t.?iJ.:�..� OO Withholding tax due thereon ������������ ?2,227 ,842.00 Less: Amount already paid, P2,Q33,207.14 Deduct 25% withhold- ing tax at source on i nc! j viduals .. ...... 5 836 .14. ~2,027,3 7l.fl.Q.. Balance � � �������������������� � �������� 200,471.00 Add: 50% surcharge �������������������� 100,235 . 50 Def. interests (6% & 14% per annum) , � � � � � � __3_�.LllQ_:.2_2. f __ 2~�. ~!Z.!.~Z TOTAL M,10UNT STILL DUE & COLLECTIBL E 1970 Total rc;�alties, divi,dends? interests remitted ���������� � ��������.�����.�.� V~34,258.00 Withholding tax due thereon ��������~��� Pl,026,990.00 21

- .~�� .. DEC ISI ON - CTA CASE NO. 2872 - 3- ,. Less: Amount al ready paid �� ?562,870.73 Deduct 25% withhold- i ng tax at source on indi idual s . ~ ���.� �� ~ . 6,170.73 . 556,695.00 .oo� Bal anee ....��.�..� o ~ ������ .a � ���� � � e ���� P 47D , 295 Add: 50% surcharge .~ ������������������ 235,147.50 Def. interests (6% & 14% pe r annum) ��� � ��� 110 '789_. 75 ~-- ~1�~ n~ .. ~2 TOTAL AMOUNT STILL DUE & COLLECTIBLE 1971 Iota] royalties, dividends & inter 2s ls t7, 768,49l.OQ rem i tted ���� � �� � ���� � ���� � � ?2 '71(-l '9 72.00 Withholdin 1 t ax dee thereon ��� � ������ � � Less: Amount already paid. ?2,077 , 605.00 ~U7~..J..]8lt.OO Deduct 25% withhold- V 647,788.00 ing tax- at-SO!Jrce on 4 :23,894.00 individuals ��o������-~421.00 Balance ���������������.���� ��� ����.�� �� 187,340.00 Add: 50% surcharge ��� � ���������������� ~l,J22J.Q~~!.I~Q Def. interests (6% & 14% pur annum) �.�...� TOTAL AMOUNT STILL DUE & COLLECTIBLE 196(, Withholding tax- at-source per return P 629,734 .00 Less: Amount already paid on 4/14/67 314,867.00 per on 928768 �������������������� P 314,867.00 Balance � � ����� � �� � �����.��� � ����� ��� � �� Add: 1% mo. int. Fr. 4/ 6/67 to 314,313.00 9,Lf46.0l 7/14/67 .�����.��� 3,117.18 Amount collect i ble as of 7/ 14/67 ������� 50.00 Less: Ampunt paid on 7/14/67 per 12 563.19 If_ _ _ _ __ 2_ _____ _ DR 1328675 ��������� � ������� � . � ��� Balance as of 7/15/67 ����� � ����������� . Add: l~~ m � int. fr. 7/16/67 to Lt/16/70 ���������� Camp -omisf-) penalty for late payment � . �� ~ �������� e � ~ �� � ��� 0 � c � TOTAL AMOU~T STILL DUE & COLLECTIBLE 1967 Withholding lax-at- s ource per retu ~n P 725,942.00 Less: Amount already paid o 4/ 0/68 362,971 00 per OR 2853230 ����� � �� �� � ��.�� � � . P 362,971.00 Balance ������� � ������ ��� ������ � �������� 10,889.13 Add: 1% mo. int. fr. 4/16/68 to 7/12/68 .����� ~ ��� 22

- --- - - - , . - . DECISION - CTA CASE NO. 2872 - 4- Amount collectible as of 7/13/68 ������� V 373,8~0.13 Less: Amount paid on 7/12/68 per v-� 362.! 971.00 OR 3221311 ����~ ���� a����o~e� ~���� 10' 889.13 Balance as of 7/13/68 ������������������ 3,593.41 Add: 1% mo. int. fr. 7/1/68 to 50.00 4/15/71 ��� ~.~ ���� Compromise penalty fo late payment ., �� TOTAL AMOUNT STILL DUE & COLLECTIBLE ��� Petitioner, Philippine Refin:inrJ Compa;,y, Inc. (PRC for short), is a domestic corporation duly rirgAnized and existing under and by vi tL ~ of the Jaws of the Philippines. Sometime on May 15, 1962 it entered into an Agreem ent with the Unilever Limited (Limited for short), a non-resident foreign corporation n t engaged in business in the Philippines orgb 1zed and exi~t ng � under the la~'<ls of Eng land (Exh. "G"). Under this Ag r e e me n t L i nli t e d d i r e c t 1 y o r t h r o u g h i t s " As s ':! c. i at e d . c o rn p a n i e s ." 'd u 1 d � r e n de r t h e s e r v i c e s : 2. 'IN ccnsideration��of the payments to be made byPRC (petitioner) under Clause 3 of thi s co ntract , Limited shall, during the contj- nuance of this Agreement, either by itself or at its option through one or !nor e of t. he Ass o- ciated Companies, render ce~tain services as hereinafter set out:- (a) Trair~ In order Lo implement Unilever 1 s policy of encouraging nationals of the country of operation to assume positions of responsibility L"mited shall provide full-time training within Lim ited o the Asoociated Companies for such employees as Li i ted and PRC may from time to tlme jointly select. The fares from anrl returning to the PhiJippines and the salaries of .uch employees fo � the period of their absence from the Pliilippines shall.be for the acco"n t of PRC. 23

DE CISION - C A CASE NO. 2872 - 5- .. (b) Research Make available to PR those re- sults of Unileve . ' research in res - pect of the Agreement Products that Limited considers to be of mutual benefit for Unilever and PRC. (c) Avoilabi1il_1 of Servi ce and Advi- sory Oep~rtment~ Buy�ng of Raw Mate ri als (i ) Use of its knowledge of and c o n t a c t vt i t !\ a 11 p r i n c i p a 1 111 or 1 d markets lu ussist it i handling on PRC's behalf the complex task o f purchasing at the most favour- able prices such quantit ies of ra w materials ~s mny frcm time to time be requ i r d fo the manufscture of the Agreement P oducts having regard particularly to the nerd for continuity of supplies anJ the prob l ems of shipping. (ii) Render such anci l lary ser- vices in connection with the above in cl uding (by way of illus- tration but not of limitat i on) providing from ime to time mark e t r eports with price movements of raw materials in which PRC is in- terested checking contr ac ts giving packing marking ond nthGr jnstruc- tion s to sellers neqotiatiil9 en quality clai ms and Jencrally as required from time to time oy PRC acting as a~ent betwe dn PRC ond buye~s and sellers outside of the Ph ilippines. ~i!2_g_of Pla~ Hachiner & Sund1:y Supplie s Use its best enc'cavou :s to purchase as a principal or agent at the best prices its experienc~ enables it to obtain such of PRC's ma n i f o 1 d r e q u i r _e me , 1t s l n d i v r s e fie ld s includjng (by way of illus - � tration but not of 1i mitation). meci J- nical and electrical plant and 24

DECISION - CTA CASE NO. 2872 - 6- equipment and pack ng materials and sundry suppli~s for lhe Agree- ment Products as PRC shall from time to time request. Perfumery Assist PRC by checking such of the Agreement �Products as con- tain perfume for stability of per- fume and for compatibility of product with perfume; advise PRC in regard to new perfume and per- fumery pr'Jd ;cts for the Philippine market ar, ,~ advise PRC generally in connection with perfumery matters. Make availatle to PRC the advice of the Unilever Specialist Departments in London on prorl �. cl~ion and technical matters, market2.119 and distribution, insurance, bus~ ness administration and fina~cialr legal, taxction and accounting matters. (d) Trade Harks Swcure to PRC the right during the con- tinuance of this Agreement to apply to the Agreement Products the trade m~rks referred to in the First Schedule hereto and such further trade marks of Limited or any nf the Associa Led Companies as Limited and PRC may from tdm~ to timd mutually agree upon. (e) Communication f Patents Secret Processes etc Limited shall communicate and make available to PRC for the purposes of the ma n u fa c t u r e o f t t. L. 1\ g r e c me n t P r o d u c t s s u c ;, secret processes inventions and irnproverr.er1ts now or hereafte r directly or indirectly owned by Li mited or any of the Associated Companies as in Limited's opinion are nece~ sary t enable the Agreement P~oducts to" be man factured with the eff~cieG y and to the stflnd.Jrds of quality r .qu-' red by Uni- levcr of the Associated Companies. 25 /

DEC IS I 0 r,J - CTA CASE NO. 2872 - 7- If any of such secret processes invent i o11s or i m1) rove n: en t s so communi- cated and made available to PRC by Limited are protected by Let ,8 1'S Patent or othe, equival~nt protect:on within the Philip- pines Limited shall grant or procure to be g ranted to PRC a royalty - free non- excl usive licence under such Letters Pate nt or other equivalent protection for the unexpired re s idue of t~e term thereo f and any prolongation or extensior. (hereof which Limited in its discretion may obtain. Such licence shall be granted with effect frJm ~.he date hereof in respect of the Letters Pcttent and Applications for Letters Patent r e '~rred to in the Second Schedule hereto. All exp8ns e and renewal fees i~ connection with the gront- ing a n d maintainonce in force of ::1ny such Letters Patent or ~quivalent prntection shall be for the account of PRC. PR0 VIDE D THAT however , not h . n g h c r c i r� contai ned shall impose upon Limited any obligation to accord to PRC priorit ove ~ any of the Associated Companies in re~ard to lhe deployment of any of the services enumerated in this clause 2. 3. (a) I n consideration of Limited's securing for PRC the services hereinbefor2 sp ec ified PRC shall pay to Limited within fourteen days of the e nd of each quarter : - (i) For the service s of tra .i.ni.1g research and of Uni~e~cr's Service and AdvJsory Departments - as spe- cified under ( u) (b) and (c) of claus e 2 of this contract - a ser- vice of 1/2 per cent of ths total net sales v al ue of the A~r ee ment Products during the quarter. (ii) For the services specified under (d) a nd (e) of thi s 2ontroct a service fee nf l/2 per cent of t hc tot a 1 !1e t . s a 1e s value of the Agreement Products during tl e quarter . By all a pearanc2s, the cas e b~ gan just lhe way the tax informer would have wished. The derogatory informalion 28

DECISIO N - CTA CASE NO. 2871 - 8- '"furni shed the res pond ent somehow evoking a sense of a deja v u as to petitioner's alleged defrauding the Go ve r n- ment o f income t axe s due by way of de c laring as deduc - tions the value of its betterment s and improvements ins tead of capitalizing the same carr i ed over f or s ome 10 years commencing in 1961 , drumm e d an investigat~on and culmina ting into the tax assessm en t de mands f o r 1) deficien cy wi thh oldin g t& ~ bt source for the taxable years 1966 to 1971 and delinquency with ~o ldi ng tax pe r retu rn s for 1966-1967 on findings that the remitted legal and a dvisor y fees to Unil ev e r Limited were act uall y royalty paym ents s ubject to withh olding; an d 2) de fi - ciency . corpo rate in come t a x for 1968 consequenced by the incre ase d rates prescribed in R.A . No . 5431. On July 2 7, 1974, petitioner protest e d a n d sou ght the reconsideration and cancellation of the assessme ts. Respondent o n Mar ch 2 3, 1976 after d ue inve s tigation withdrew and cancelled t he deficie ncy corporat e income ta x assessment of the sum of ?~37,568.8 8 for the year 1968 for obvio us lack of l e gal bisis, but sustained the defic iency withho l ding tax at so ur ce for tho years involved (19 66 -1977 and 196 6-1967), supra. Pe ti ti on e r s r equest for a nother r econsi dera ti on was de nied by th e respondent un der letter dated Marc h 7, 1977. He nce, thi s appeal. By and large respond e nt Commissioner of Internal Re venue holds on t he v iew th n t the payments made by 27 _/

.. DECI SION CTA CASE NO. 2872 - 9- .. petiti one r to Unilever Lim ited , a non-resident foreign corpo ration no ~ engaged in trade o r business in the Philippines are not for servi~es allegedly rendered by t he latter, but ar e a c tually 'oya 1ty fees for market- ing p r o ducts car r ying the trade marks, labe l s or n~ mes o f Un il ever Li mit ed which petition e r is licensed to manufac t ur e and sel l in the Phili ppin e s; that t he Agreemen t be t\-1 e e n p e tit ion e J.: :1 , d Un i 1 eve r Limited p 2 r - takes t he na ture of a li c ense and that whatever train- ing extended to petitioner's ~ersonnel, res e ar hes t o imrrove or maintain the qua l iti e s and standards of the Agr eeme nt produc ts , t he availability of ser v i ce s, use of t rade ~arks and co mmun i cat ion s on se c ret proces se s in the ma n u facture of pr o ducts of Unil e ve r Limited, in 'the Philippines ar e all re l ated to the a ales of th e a gre ement p roducts in t h e Philippines a nd not for se rvi ces all egedly rendered by said firm; that if the contractin g parti es inten ded to tre at the alleg e d ser- vices as suc h, there sh ou l d have been a contractual price for each a nd ever y service actually render e d and not an a rb it rar y fee on the net sales of th e agree - me n t products in the Philippines; as such ~ payments made by pet i tione r t o Unil e v er Li mi ted of Londo n are royalt y payments \'thich or e inc om e fro m s o!J rc es v1i th i n t he Philippines of a non-resident foreign corporation, a nd, th e refore the income t a x due t he r eon should be 28

DECISION CTA CASE NO. 287 2 - 10 - "w" ithheld by pe titioner ~ I n a scbsequent lett e r dated March 7, 1977 , respondent has t ened to rectify thal "co ntrn r y to your under st an ding, the assessment of J$3,330 1 617.30 is not pre d icrted on '.he assumpti��n that products of Un i leve r Li mited were exported to the Pi�1 ilippines and sold h ere by your client (pet i tioner). Said asse s sme nt is based on our findings that the amou nt s r e p re ::- ented a s l egal a ; .d advisory fe es, allegedly earn e d outs ide the juri sd ictio 11 of th e Philippines is actually pa rt of the royal"ty fees payabl e by yo u r client to manufac tu re th e so- cal le d 'Agreement Products' and ap ply th e r eo n th e tr a demarks of Uni l eve r pro ducts . " Petitioner wraps ~p its p osition t h is wise: ''It was agr eed that fo r servic es un der (a), (b) and ( c) a �ser vic e fe e of ;\z% (increased to 1% under Exh. "G - 2 11 ) of the net sa l es valu e of the Agreem en t Products will be pai d by PRC (peti ti oner) to Unilever. For services und e r (d) an d (e) , a service fee of\% (in c rease d to 1% und er Exh . "G-2") of the net s~les value of the Agree- ment Pr oduc ts wil l be r~id by PRC to Unilev c r . During t he years 1966 to 197 1 voluminous services wer e render ed by Unilever in favor of PRC (Exhs. " 0" - iiP -1 " ; Exh "Y"; Exhs . "DD" - 11 00 - 915" ; Exh s. "EE" - "EE-859-a") p ur- suan t to the sai d Agre eme nt (Exh. "G"). Since tr ain - ing, rese ar c h, ass ist ance in purchasi ng o~ materials ; purchasing of plant , ma c hi n ery a n d sundry supplies ; 29

DECISID r~ - CT A CAS E NO. 2872 - 11 - "p' erfumery and genera l adv isory service s wer e all pe r - formed abr oad ~ y Unile : e r Ltd., the remittances made by PRC of its paym e nts for the fo re going services were no t subject ed to with h oldin g i n accordance with Secti o n 37 (c )( 3 ) of the Tax Co de which co ns i der s compensat ion f r ser vices performej outside of the Philipp i nes as i ncome from withou t the Phili pinos a n d t h e r e fo r e n o t s u l; j e c t t c. 'tL t h h o 1 d i ng v-1 h e r e t h e r ecip ie n t of said income is a non - r Lsident foreig n cor p oration not doing bus ine~s in th e Philippines. \~ ith � r e gar ds to the payments by Pi\C for its u se of Un il ev er 1 s tradema k s) patents and secret proces~ cs under the �Agre e ;re nt ( L' h � " G" ) said r em it t. an c e s VJ e re su bject ed to withholding (Exhs. "H" - "H-10 11 ) togethe r �with r em i t t an c es of dividends, royalt1es and i n terests. Prior to 1966 no deficiency inc ome tax a ssess ment and withholding tax asse ssment similar to the case a t bar was made as a result of the BIR investigation of PI\C ( TSt: , p . 4 6, P.pril 25, 1989 h r:: aring, testimony o f Mr . fernando Mana lo ). rrior to 1966 a nd during the per i o cJ i :1 \ ' o 1 ve d in the pet i 'cion ( 19 6 6-19 7 1) all remit tances were approved by th~ Centr Gl Bank. All of said re mittances wer e deducted by PRC as bu~in e ss expenses in its Co rporat e In come Tax Returns; no di s- a ll owances thereof we r e ever made by the BIR; and the reasonableness th e r eof were nev e r questioned by t he BIR (TSN, pp. 10 1-1 03, April 29, 1980 hearing , 30 ,� /

DECISIO I CTA CASE NO. 2872 - 12 - ,. testimony of Mr. Fernando Manalo) . On the metter by which PRC withheld taxes on the remittances, advice of cou i~sels were s~,licited and the inanner of v1it.hhold- ing were upheld by PRC's tax l o1y ers. (TSN, pp. 44-4:), April 25, 1980 hearing, t esti mo ny of Mr. Fern a ndo t�1 analo) ." All told the material facts &le ~elatively simple and so 1s the issue under r~~8 ~ :e which is essentially addressed to the question of whether or not the peti- tioner is liable for de f i c i e n~c y \vi t hh o1 d i ng tax sou r ce on the represented amounts of legal and ad vj so ry fees remitted to the foreign corporation for tha l~x- able years involved. The case before U� hardly pre s ents a gripping � questioQ. The Agreement (Exh. "G") itself furnishes the best means of it s own exposition. Enumer a t .d in C1 aU S e 2 ( EXll. !! G--- 3 II) are th e agree d scrvl.ces o f (a) Traini ng, (b) Research, (c) Availnbility of ser- vice and advisory departments, _(J) Trademarks, � nd ( e ) c�om mu n i cat i on o f p a t ro nt s and s c c r .t pro c e s s e s � ,n.s pointed c 1 :.. bj the petitioner the contrnct consists mainly of two parts, vi z.: l) Performance of the ser- vices constituted in Items (a), (b) and (c) hy Unilcver Limited in London and 2) Availment of the use of paten ts, trademarks a ,d s c:;cret ro ces ses mentioned in Items (d) and (e ) by the petitioner in lh8 Philippin es . 31

DECISION ��� CTA CASE NO. 2872 - 13 - "F" urther dist inction has be en drawn for purpose of con s ideration under C 1 au s e 3 ( Ex h � "c�- i} 11 ) of t. he Ag r eement, t hus, 11 Fo r the service of trainj_ng, r e - search and of Ut.ilever's service 3nd advisory dt;part - ments - as specified u~der (a), (b) .and (c) of C'ause 2 c f th i s c o n trac t - a service fe e of ~% (increased to 1 %) of the total net sales val u e of t he Agreement Products" und "For the ser v i.:~P. �, :-;pecified undor (d) and (e' of this contract a ser.ice f ee of~% (increased to 1%) o f the total net sale~ value of thG Ag~ecmen t Products. 11 I f we go by the records, the remitta nces in ~dy- m nt for the ~ denominat ed as ~1 and a.~iso�1:. f ees were deemed compen ation for the services rendered outside the Philippines, hence, a non-taxable income of the recipi ent non-resident fo reign corpor~tion not s ' . -, d ol.ng b usl. ness l.n +~I1e p h l. 1 l.pp1. nes per ec~1 on J7�\I C ~, ( .~) ~, of the Tax Ccje. As to th e availment of t h~ second t h e p a y me n L i n c o n s i de r a t i o n t h e r c f o r \'I e r e s ub j e c t e d to withhol.Jj ng tax at sot_:rce pursuant to Sec:tions 5 3 and 54 of the Ta ~ Code inasmuch a~ th ey are royalties for the li cense to use the trademarks , p atents a nd secret processes. Thi s appears to be where the peti - tioner and Unileve:r Limited stood with rt::spect. to tLe tax consequence brought by the ~greemen t as conslruerl and implemented since 19 62 until ~- 1' -- .a_, respondent '- 32 /

DECISIO~I �- CTA CASE NO. 2872 - 14 - Commissioner of Internal Revenue 'endered the arraiJ98 �-� ment passe' in 1966. As further disclosed, "D�1ring the years 196(; to 1971 volum ~~ous services were r ndered by Unile �er in favor of PRC Ct:-1e herein petitioner) (Exhs. "0 11 - "P-1"; Exh. "Y"; Exhs. "DD"- "DD-915"; Exhs . "CE"- "EE-859-a") pursua11t to the A'=- reerr.: .. t'' 'flhlch explicitLy reckoned wiLh the ac tual pe� fo mnnce of the serv::.ces and stamped a cefinite resolve as to the locus cf the undertaking. If we are righ~ in our understanding that in determining whether an earned inco~e is from sources within or without the P~ilippines, th8 ~�e ~e where the .services are performed and not where the compensation is paid, controls (BIR Ruling No. 332, July 15, 1960), then the language of Section 37(c)(3) o f t h e T ax Co de , ~~.2_r a , p o s e s no am b i g u i t y i n s o f a r n s the same is brought to bear upon th circ~mstanc~s of the case at bar. The legal and advisory s2~vice fees refTlittecl by lhe petitioner to Unilevcr Limited in Lo~don ''represent charges for such services rendered abroad and, therefore, not subject to Philip ine income tax pursuart to Section 37(c) of the Tax Code (Rep. vs. J. Razon, et al. CTA 1556, January 13, 1957; Sec. 1(, Rev. Re s s. No. 2; BIR Ruli ng No. 156, May 12, 1 9 6 1 ) " � P e t i t i o n e r h 8 s f a r e d c on s i s t e n L wi �~ h l e '"' a n d rule. Mo r e o v e r , 11 P r i L r t o l S' 0 6 n o d e f i c i e n c y ~~ i u-, h o lc]i n g 33

DECISION - CTA CASE NO. 2872 - 15 - ~ tax asses sment on the leoal and advisory fees similar a to the case a t bar l'>~as ever ma de as result of 8itY BIR investig at ion of the petitiorer. P..ll the remit- tances were deducted by the petitioner as business expenses in the corporate income Lax returns. No dis - allowances were ever made by the Bureau of Inter~al Revenue and the reasonableness tnereof v~ere never h<ne been quastioned by the BIR. ' \e it he r was there Rny showing of any excep t ional syndrome of change in the implementation of the terms df the service c ntracl as woul d warrant a quir k of a varia~ce in the tax treatment on such remittances For the ta xab le y e~�s involved. � We therefore hesitate to further fash1on an issue into an otherwise satisfactorily s8ttleJ l egal situation. Although the reach of the issue upon which we res t our decision re nders resolution of other subsi- diary questions unnece s sary, suffi ce it to state that . the apparent contentious quibble on the nature and purp bse of the le gal anJ advisory service fees as creating an impression and evoking a connotaLion of royalty payments, the rulings in Ing.rarn vs , Bo~vers, 5 F 2d 65; and Oppen hein vs. Commissioner of Internal Revenue, 31 BT 563, appear in point, that to dis- tinguish b~Lween compeDsation for service and royalty payments one must inquire on whether the payee has 34 ./