CTA Case No. 3657 (Decision)

-- - / REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY GENERAL FOODS CORPORATION, F'f:-?t.i t.i.o n er ~ -�- ver�s us -- C.T.A. CASE NO. 3657 COMMISSIONER OF INTERNAL REVENUE, }~ --� - ON.. - Respondent. -- -. - --- }~ DE C I s I 0 N This is a claim for tax refund or cred it to P81,522.98, representing overpaid tax yalty withheld at source. Petitioner, corporation or-ganize d a nd existing under the State o f Delaware, U. S .A., concluded a licen si ng agree ment ( Exh. A) dated October 4, 1974, wi t h Genera l Foods (Philippines)~ In c., (h ereina fter referred to as GFC - Phils. ), whereby the former granted t h e lat~er the right to use in the Philippines its processes, technical infor mation an d know- how, and the exclusive li cen se to use the trademarks of its products. In '-

DEC ISION CTA CASE NO. 3 6 5 7 - 2- c o n s ideration thereof, the GFC-Phils. will pay roy a ltie s to pet~tioner equal to the sum of 1 1/ 2 % (E x h. A- 1) of GFC - Phils. gro s s s ale s . . The for e going agreement is valid for a period - of five (5) years or until October 4, 1979. Prior to the e >:piration of the s ubject agr-e e me nt GFC- F'hil s . applied for the renewal and r e gi st ration of the licensing agr-e eme nt with the Tec hnology Tran s f e r Boa rd (TTB), in a ccordanc e with S ec ti o n 5 of P.D. 152 0 "r��equiring r e gistration of t ec hnolo <l:. Y tr a n s f e r a r-r a ng e ment e ntered into d.i.r-ect. J.y o r- i nd i r� ec: tly lo'Jith foreign companies or- �f o r-e ign o wn e d comp a ni es ". P e nd i ng appr�o v a 1 of the a greement GFC - Phi 1 s . acc ru e d r oy a lty payabl e to pet i tione~ for the qu a r-t e r� e nded Marc h 3 1., 198.1 to F e bruary 1982 th e total a mount of F'6 3 0, 332.27, and withhe ld a nd pa id ta>:es the rein amounting to F' 220 , 6.16. 2 9 based on the .1 1/ 2 % of GFC - Phils. gross sa l es . On July 2 2 , 1981, the Technology Transfer Boa rd (TTB) appr�ov e d (E>:h s . B 8.~ D), the s ubject agreement r e du c ing the royalty p a yment to 1% of GFC - Phil s . n e t s ale s .

DECIBION -- CTA CASE NO. 3657 - 3- Conse quently, petitioner through its external auditor filed on June 30, 1983 a written claim for ta:�: r�� e �fund/cr�edit (Exh. ~l) �for over-paid taxes on royalty withheld at source amounting to P81,522.98. The issues presented for determination are as f 0 l 1 01-'IS ~ 1!-J-ETI�-ER F'ET I TI Cl'-ER IS 00 IlLED TO F"\f.:Fl.ND I:F TAX CF-�D IT IN ll-� N"'...NT CF F'Bl , 522. 98 F"\f.:F'FESENTI!\13 Pi.LEEED av'EF:PAID WilHO...DII\13 TAX AT sar~ CJ\1 F.:EDI. l:I:TI F-.1JYPi._TY I:F .1.% Ft.F:8L.r-NT TO "Jl� FQJih�J"ENf CF TI�� TEO-NJ..LBY Tr~ E00F<f) PM> I\OT CJ\1 1. 1/2"/. f..QYPi..TY PCTIX~LL.Y F-�MITTED BY IXN FOOD H-IILS. 1!-~��ETI-ER ll� RIG-IT TO Will+�LD TAX AT SO...F.'CE CF 35/. f.l\J .1. 1.12"1. f..QYPi...TY ATTAO��IT.AT TI-E TII"E CF PCCFi.r-L, OR AT ll� Tit1::: lF PCl1.J)4_ PAYJVENT CF< F-.8'1IlTPN.."E ll-�RF:.CF. We will take up these issues at the same time. Under the Tax Code, a foreign corporation not enqaged in �:rade or business in the Phi 1ippines is subject to lax at the rate of 35/. of qross income received fnJrn all soLwces within the Phi 1ippines such as royalties under Section 24(8)(1.) of the Tax Code. The Tax Code in Section 53(b) also requires corporation in whatever capacity acting having control of royalties to deduct and withheld the tax ., due t.her�� eon. And finally, the Tax Code, under Section 54(b), requires a written statement of the 5 . ')L 1-..-

DECISION ����� CT A CASE NO. 3657 -� 4 - r�� oya l ties paid and the d e duction of the t.a}: due t.her�f?on. The GFC -- F'hi 1. s. h ad wi thhe 1d a nd dedu cted 35% of the 1 1/2 % - ro y a l t i e s to the General Foods .:. Cor�po ra tion. Petitioner, howe ver, is of the opinion that .it is entitled to refund of the amount of F'81,522 .98, representing alleged overpaid withholding tax at soLu �-ce em the bc":\si s of the appr�ova 1 of the GFC -- F'hil s . of the application for registration of technology tran s f er by TTB, which reduced the base of r o y alty from 1 1/ 2% of the gro ss sa les to 1% of net. sa l es. It. will bf.~ nob:?d that. at the time subject royalties were accrued, a nd that is from Marc h 3 1, 1 981 to Februar�� y, 1 982 , the application for technolo<;JY tr-ansfer� was sti ll pending be �fore the Tec hnology Transf er Board of the Ministry of Trade unt i l its final ~3 pproval on July 22, 198.1, their agree me nt � ~ s amended as approved by the Technology Trans f e r Board stating among others "To reflect in Ar�tic le 6 of the Fourth Amendment to the Licensee A<;J r�eernent" that Licensee shall pay to General Foods Corporation, the pet.i ti.oner� , for all the benefits

DECISION ���� CTA CASE NO. 3657 - 5- ac:cor�ded to 1. icensee ( Get1. Foods-Phi 1 s. ) a roy a 1 ty equal to the sum of 1% of Licensee's net sales of the products. D, p . ..: 30' CTA rec. ) . According 1. y, the roy a 1 ty t h a t should be returned and paid as 35% w.i.thholdir~ tax from March, 1981 to J anuar�� y - February, 1. 982 shou J.d be the sum of 1% of Gen. Foods- Phils. net sales and should be withheld at the time of payment of the tax. Of th e indicated overpayment of P81,522.98, hoviE~ver� , thE:? amount. of P7,825.67, corr�esponding to the quarter ended March 31, 1981, was paid on April 27, 1.981, or a lapse of over two years before the claim for refund was filed on June 30, 1983. Hence, this amount cannot be refunded. Consequently, we hold respOndent should grant a claim for or� cr�edi t of P73, 697.31 . as overpaid royalty for the period from June, 1981 to Jan. - Feb., 1982, computed as follows: II Yg9..r. 1981 June P21,.158.07 September 16,998.40 December 27,275.01 1982 -~Jan. -Feb. Tax Refundable/Credit

DECISION - CTA CASE NO. 3657 - 6- WHEREFORE, respondent Commissioner of Internal Revenue is hereby ordered to refund/credit to petitioner General Foods Corporation the sum . of P73 ,697.2l. Without pronouncement as to costs. SO ORDERED. Que zon City, Metro Manila, August 1.988. ----. ROAQUIN WE CONCUR: a:~i:?/ F'resid i. g Judge . 5 ~ ..... .....

DEC IS I UN ��� CTA CA SE NO. 3657 - 7 �- CE RT I F I CAT I 0 N I hereby certify that this decision was reached afte , due consultation among the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. AMANTE F Presidin Judge Court of Tax Appeals 5 ~6