METROPOLITAN BANK & TRUST COMPANY v. COMMISSIONER OF INTERNAL REVENUE

REPUBliC OF THE PHiliPPINES Coon of Tax Appeals QUEZON CITY SECOND DIVISION METROPOLITAN BANK & TRUST C.T.A. CASE NO. 6923 COMPANY, Members: Petitioner, CASTANEDA, JR., Chairperson -versus- UY, and PALANCA-ENRIQUEZ, JJ. COMMISSIONER OF INTERNAL Promulgated: � REVENUE, AUG 7/ Respondent. 0 20 7 � --------- X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISION CASTANEDA, JR.,~.: This case involves the claim of petitioner Metropolitan Bank & Trust Company (Metrobank) filed against respondent Commissioner of Internal Revenue for the refund or issuance of tax credit certificate in the total amount of SEVENTY NINE MILLION SIX HUNDRED THOUSAND SEVENTY SIX AND 83/100 PESOS (P79,600,076.83), allegedly representing petitioner's erroneously withheld and paid final income taxes on the gains realized from its sale or exchange of foreign currency-denominated debt securities, bonds, uebentures or other certificates of indebtedness with a maturity of more than five (5) years for calendar year 2002. ~

DECISION r: .T .A . CASE NO. 6923 The facts of the case are stated as follows : Petitioner is a corporation duly organized and existing under and by virtue of the laws of the Philippines with principal office at Metrobank Plaza , Sen. Gil Puyat Avenue , Makati City. It is engaged in the business of expanded commercial banking and the business of a trust company which includes provid ing services such as deposit products , loans and trade finance , domestic and foreign fund transfers , treasury , foreign exchange , trading and remittances , trust services incident to its operation as a bank.1 Petitioner is registered with the Bureau of Internal Revenue (BIR) and was issued Tax Identification Number (TIN) 000-477-863-000 on April 6, 1962. On April 15, 2004, its status as a VAT-registered entity was converted to that of a NON- VAT taxpayer and was accordingly issued BIR Certificate of Registration No. 8RC0000016899 .2 On the other hand , respondent is the duly appointed Commissioner of Internal Revenue , vested with authority to act as such , including inter alia , the power to decide , approve and grant refunds or tax credit of erroneously or illegally collected internal revenue taxes as provided by law. For calendar year 2002, petitioner filed its Monthly Remittance Returns of Final Income Taxes Withheld (BIR Form No. 1601-F) 3 , with details as follows : 1 Paragraph 6 and 7, Joint Stipu lation of Facts and Issues, Records, pages 138- 139 2 Par. 8, Joint Stipu lation of Facts and Issues, Records, pages 138-1 39 3 Exhibits "C" to "N", inc lusive of sub-marki ngs

DECISION C.T.A. CASE NO. 6923 A. SUMMARY OF INFORMATION BASED ON MONTHLY REMITTANCE RETURNS OF FINAL TAXES WITHHELD PER BIR FORM 1601-F Calendar Date of Filing 10% Final Tax on 10% Final Tax on 20% Final 25% Final Total Amount Year 2002 of Original Interest and Other Interest and Other Tax on All Tax on Pa i d/Withh e ld Monthly Income Payments Income Payments Kinds of Month Remittance Payments to Returns of on Foreign on Foreign Royalty Non-Resident Cur rency Currency Payments to Final Income Transactions/Loan Transactions/Loan Alien in Taxes Payable to FCDUs Payable to OBUs Domestic Trade or and Resident Business Withheld Foreign Corporations January Feb. 11, 2002 10,129,312 .47 1,472 ,257 .78 92 ,530.80 11 ,694 ,101.05 Feb ruary Mar. 11 , 2002 8,322 ,281 .84 88,110.68 2,236,872 .00 3,908 ,045.03 14,555,309 .55 Ma rch Apr. 10, 2002 10,225,868 .77 150 ,314 .72 29 ,866 .09 868 ,356 .67 11 ,274,406.25 April May 10, 2002 10,602 ,364 .47 364,676 .37 10'967 '040.84 May June 10, 2002 12 ,125 ,2 17 .22 620,858.40 8,012,450.53 20,758 ,526.15 June July 10, 2002 10 ,296 ,654.89 1,009,031 .86 927 ,235 .22 12,232,921 .97 July Aug . 12, 2002 10 ,80 1,710 .64 1,308,707 .51 12,110,418 .15 August Sept. 10, 2002 6,115,040.33 1,204,848 .63 530 ,836 .96 7, 850,725. 92 September Oct. 10, 2002 5,122 ,565.43 2 ,028 ,6 10 .29 489 ,025.47 7,640 ,201 .19 October Nov. 11 , 2002 6 ,394 ,787 .83 1,285,101.61 10,917,780 .65 18, 597,670.09 November Dec. 10, 2002 6,144,354 .51 1,666 ,930 .94 309 ,907.92 8,121 '193.37 December Jan. 10, 2003 63,046,370 .03 698,507. 16 4,106,694.00 67 ,851 ,571.1 9 Total 159,326 ,528 .43 11 ,897,955.95 27,560,668.84 4,868,932.50 203,654,085.72 Petitioner, via letter dated February 10, 2004 , requested respondent's opinion on whether gains realized by the FCDU of Metrobank from the sale or t::xchange or retirement of bonds, debentures or other certificate of indebtedness with a maturity of more than five (5) years fall within the ambit of the exclusion from gross income as provided in Section 32(B)(7)(g) of the 1997 NIRC. In response to petitioner's Request for a Ruling on the matter, the BIR ruled in BIR Ruling No. DA-124-20044 dated March 22 , 2004 , that the "gains realized by Metrobank on its FCDU transactions , from the sale, exchange or Jik-- retirement of bonds, debentures or other certificate of indebtedness with a 4 Exhibit " BB "

DECISION C.T.A. CASE NO . 6923 maturity of more than five (5) years shall be excluded from gross income as prescribed in Section 32(B)(7)(g) of the Tax Code of 1997 and consequently from the final income tax of 10% imposed under Section 27(0)(3) of the same Code ." Relying on the said Ruling , petitioner then filed on April 5, 2004 a written claim for refund of the ten percent (10%) final income taxes withheld and paid in the amount of P79,600,076 .83.5 On April 6, 2004, petitioner elevated this instant Petition before it could be barred by prescription . On May 4, 2004, respondent filed his Answer, raising the following as his Special and Affirmative Defenses: "4. Petitioner's alleged claim for refund is subject to administrative routinary investigation/examination by the Bureau ; 5. The amount of P79,600 ,076 .83 being claimed by petitioner as allegedly representing erroneously paid withholding final income taxes for taxable year 2002 was not properly documented ; 6. In an action for refund , the burden of proof is on the taxpayer to establish its right to refund , and failure to sustain the burden is fatal to the claim for refund/credit; 7. Petitioner must show that it has complied with the provisions of Sections 204(C) and 229 of the Tax Code on the prescriptive period for claiming tax refund/credit; 8. Claims for refund are construed strictly against the claimant a for the same partake the nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA V"'---- 95) and as such , they are looked upon with disfavor (Western Minolco Corp. VS. Commissioner of Internal Revenue, 124 SCRA 1211) ." 5 Exhi bit " CC"

DECISION C.T.A . CASE NO. 6923 Considering that petitioner had filed its Memorandum within the period given , th is case was submitted for decision on March 5, 2007 , without any Memorandum being filed by respondent. The issues6 as stipulated by the parties for the consideration of the Court are as follows: "1. Whether or not Petitioner is entitled to a tax refund or a tax credit certificate in the amount of Seventy Nine Million Six Hundred Thousand Seventy Six Pesos and 83/1 00 (P79,600 ,076.83) representing erroneously paid withholding final income taxes for calendar year 2002 ; 2. Whether or not Petitioner realized gains from the sale or exchange of its investments in foreign currency-denominated debt securities , bonds, debentures or other certificates of indebtedness with a maturity of more than five (5) years amounting to P796,000,768.28 for calendar year 2002 ; 3. Whether or not Petitioner erroneously withheld and remitted to the Bureau of Internal Revenue final income taxes amounting to P79,600,076.83 erroneously withheld on the gains from the sale or exchange of foreign currency- denominated debt securities, bonds , debentures or other certificate of indebtedness with a maturity of more that five (5) years of P796 ,000,768.28 for calendar year 2002; and 4. Whether or not Petitioner had duly filed the administrative claim for the refund or issuance of a tax credit certificate for overpaid withholding taxes for calendar year 2002 amounting to P79,600,076.83." This Court addresses first the issue of whether or not the administrative and judicial claims for refund or issuance of a tax credit certificate for its lleged erroneously paid final income taxes for calendar year 2002 amounting to P79,600 ,076.83 had been timely filed by petitioner, pursuant to Section 204(C) in relation to Section 229 of the NIRC of 1997, as amended , which 9Z- provide that: 6 Joint Stipu lation of Facts and Issues, Records, page 140

DECISION C.T.A. CASE NO . 6923 "SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner may- XXX XXX XXX (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and , in his discretion , redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund . XXX XXX xxx" "SEC. 229. Recovery of Tax Erroneously or Illegally Collected.- XXX XXX XXX In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefore , refund or credit any tax , where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid." (Emphasis supplied) In order to prove its timely remittance and payment of its final income taxes , petitioner presented in evidence its Monthly Remittance Returns of Final Income Taxes Withheld 7 for calendar year 2002 , with the following details : 7 Exhibits "C" to "N"

DECISION C.T.A. CASE NO. 6923 h ge 7 of 18 Calendar Year 2002 Date of Filing of Original Amount of Withholding Taxes Remitted Monthly Remittance Returns of on Gains Realized from the Sale or Final Income Taxes Withheld Exchange of Investments in Foreign Currency-Denominated Debt Securities , Bonds, Debentures or Other Certificate of Indebtedness with a Maturity of More Than Five (5) Years January February 11 , 2002 142,263.90 February March 11 , 2002 92 ,132.68 March April10 , 2002 April May 10, 2002 1,068 ,032.66 May June 10, 2002 3,101 ,00 1.38 June July 10, 2002 3,455,84 0.82 July August 12,2002 2 ,022 ,279 .04 August 1,700 ,644 .09 September September 10, 2002 4,167,242.52 October October 10, 2002 2,318 ,078 .89 November November 11 , 2002 December December 10, 2002 480,976.05 TOTAL January 10, 2003 3,410 ,379 .90 57 ,641 ,204.90 79 ,600 ,076.83 Based on the aforementioned information, petitioner should have filed both its administrative and judicial claims for refund/issuance of tax credit certificate on February 10, 2004 for the entire claim to fall with in the two (2)- year prescriptive period allowed by law;8 otherwise, any amount not timely claimed shall be barred . In this instant case , petitioner filed its administrative claim and Petition for Review on April 5 and 6, 2004, respectively. Effectively, rafund claims of its final tax payments made prior to April 6, 2002 is thus barred by prescription . In th is regard , petitioner's claim of erroneous final tax remittance and payment for the months of January and February 2002, which were correspondingly filed and remitted on February 11 , 2002 and March 11 , 2002, in the total amount of P234,396.58, has already prescribed for {jk- petitioner' failure to timely claim the same. 8 Section 229, National Internal Revenue Code of 1997

DECISION C.T.A. CASE NO. 6923 As regards the other issues raised , this Court will discuss them together inasmuch as they are interrelated . For the year ended December 31 , 2002, petitioner's FCDU realized a total gain of US$15 ,087 ,926.42 , which is equivalent to P796,000 ,768.28, from the sale of its investments in foreign currency denominated bonds with maturities of more than five years. 9 Relative to such sales, petitioner filed its Monthly Remittance Returns of Final Income Taxes Withheld (BIR Form No.1601-F)10 for withholding income taxes on February 11 , 2002; March 11 , 2002; April 10, 2002 ; May 10, 2002; June 10, 2002; July 10, 2002; August 12, 2002; September 10, 2002 ; October 10, 2002; November 11 , 2002; December 10, 2002 and January 10, 2003, respectively.11 Pursuant to Section 27(D)(3) of the National Internal Revenue Code (NIRC) of 1997, as amended , and implemented by Revenue Regulations No. 10-98, petitioner withheld and remitted a ten percent (1 0%) final income tax on its gross income payments for the said debt securities . Section 27(D)(3) provides thus : "SEC . 27 . Rates of Income Tax on Domestic Corporations.- XXX XXX XXX (D) Rates of Tax on Certain Passive Incomes.- XXX XXX XXX (3) Tax on Income Derived under the Expanded Foreign cfl- Currency Deposit System.-lncome derived by a depository bank under the expanded foreign currency deposit system from foreign currency transactions with local commercial banks, including branches of foreign banks that may be authorized by the Bangko Sentral ng Pilipinas (BSP) to transact business with foreign currency depository system units and other depository 9 Exhibit " UU" with sub-marki ngs, An nex Ill 10 Exh ibits "C" to "N" 11 Paragraph 11 , Joint Stipulation of Facts and Issues

DECISION C.T.A. CASE NO . 6923 banks under the expanded foreign currency deposit system , including interest income from foreign currency loans granted by such depository banks under said expanded foreign currency deposit system to residents, shall be subject to a final income tax at the rate of ten percent (1 0%) of such income. Any income of nonresidents, whether individuals or corporations, from transactions with depository banks under the expanded system shall be exempt from income tax. " Petitioner withheld and remitted the amount of 10% from the total amount of P796,000 ,768.28 gains , or an amount of P79 ,600,076.83. However, on April 5, 2004, petitioner filed an administrative claim for refund/issuance of a tax credit certificate with the Office of respondent laying as basis Section 32(8)(7)(g) of the NIRC of 1997, as amended , which provides that gains realized from the sale or exchange or retirement of bonds, debentures or other certificate of indebtedness with a maturity of more than five (5) years are excluded from gross income. Section 32(8)(7)(g) of the NIRC of 1997 is hereunder quoted: "SEC. 32. Gross Income.- (B) Exclusion from Gross Income.-The following items shall not be included in gross income and shall be exempt from taxation under this Title: XXX XXX XXX (7) Miscellaneous Items.- XXX XXX XXX (g) Gains from the Sale of Bonds, Debentures or other Certificate of lndebtedness.-Gains realized from the same or exchange or retirement of bonds , debentures or other certificate of indebtedness with a maturity of more than five (5) years ." This Court finds for petitioner.

DECISION C.T.A. CASE NO. 6923 Page 10 ofl8 The exclusion from gross income of the gains realized from the sale or exchange or retirement of bonds, debentures or other certificate of indebtedness with a maturity of more than five (5) years , and its corresponding exemption thereof from income tax, has consistently been confirmed by the Office of respondent. In fact, respondent declared in BIR Ruling No. DA-124-200412 dated March 22, 2004 , that: "xxx. Gains realized from the sale or exchange or retirement of bonds , debentures or other certificate of indebtedness with a maturity of more than five (5) years are excluded from gross income by clear provision of Section 32(B)(7)(g) of the Tax Code of 1997 xxx. XXX XXX XXX IN VIEW OF THE FOREGOING , this Office holds that gains realized by Metrobank on its FCDU transactions , from the sale, exchange or retirement of bonds, debentures or other certificate of indebtedness with a maturity of more than five (5) years shall be excluded from gross income as prescribed in Section 32(B)(7)(g) of the Tax Code of 1997 and consequently from the final income tax of 10% imposed under Section 27(0)(3) of the same Code." Moreover, in support of his findings , respondent held that "the exemption does not distinguish as to the type of currency the bond , debentures or other certificate of indebtedness is made nor does it discriminate as to the nature of the business of the taxpayer involved in the transaction . Accordingly, the exemption in Section 32(B)(7)(g) applies to the transaction itself regardless as to who derives the gains such that, as long as the gain is derived from the sale or exchange or retirement of bonds, debentures or other certificate of indebtedness, it is exempt from income tax without qualification." ~ 12 Exhibit " BB"

DECISION C.T.A. CASE NO. 6923 Page I I of 18 In this regard , this Court finds that petitioner has sufficiently proven that it had realized gains from the sale or exchange of its investments in foreign currency-denominated debt securities, bonds, debentures or other certificate of indebtedness with maturities of more than five years ; taking into consideration petitioner's Sales Confirmation Form , Fixed Income Transactions Taking Value , Self Responding Ticket and FCDU Fixed Income Daily Gain/Loss Report13. The amount of P796,000,768.28 was declared as part of petitioner's total gross onshore income of P3,783,697,999.00 for calendar year 2002.14 More specifically, the amount of P796 ,000,768.28 is shown as part of the line gain (loss) on securities amounting to P863,803 ,09515 under column D for Gross Onshore Income. The total gross onshore income of P3,783,697,999.00 formed part of the total gross income of P5,874,718 ,895 16 under the Schedule of Onshore and Offshore Income and the Corresponding Income Tax for Calendar Year Ended December 31 , 2002. In turn , this total gross income of P5,874,718,895 is included in the net profit before taxes of P3,367 ,132,943 17 under the same schedule . The net profit before taxes of P3,367,132,943 was also shown under the line Income Before Provision of Income Tax of P3,367,132,943 18 in petitioner's Comparative Statements of Income and Expenses for the years ended December 31 , 2002 and 2001 , which were attached to its Annual Income Tax ?<--- Return 19. Thus, in relation to the provisions of Section 32(8)(7)(g) of the NIRC 13 Exhibits " QQI -364," Exhibits "SS1-3 18," Exhibits "RR 1-2 19" and Exhibits "TTI-350 14 Exhibit "8-1 " 15 Exh ibit "8-2" 16 Exhibit "8-3'' 17 Exhibit "8-4" 18 Exhibit "8-5'' ~>' Exhibit "A"

DECISION C.T.A. CASE NO. 6923 of 1997, as amended , there was indeed an erroneous withholding and payment of the final income taxes amounting to P79,600,076.83 . As correctly presented by the Report of the Court Commissioned Independent Certified Public Accountant (CPA) , the following tables pertaining to petitioner's investments in bonds with maturities of more than five years provide this Court with information necessary for the evaluation of petitioner's claim , thus: A. SUMMARY OF INFORMATION BASED ON MONTHLY REMITTANCE RETURNS OF FINAL TAXES WITHHELD PER BIR FORM 1601-F Calendar Date of 10% Final Tax on 10% Final Tax on 20% Final 25% Final Total Amount Ex hibit Year2002 Filing of Interest and Other Interest and Other Tax on All Tax on Paid/Withheld No. Original Income Payments Income Payments Kinds of Month Monthly Payments Remittance on Foreign on Foreign Royalty to Non- Returns of Currency Currency Payments to Res i dent Transactions/Loans Transactions/Loans Alien in Final Payable to FCDUs Payable to OBUs Domestic Trade or Income and Resident Business Taxes Withheld Foreign Corporations February January 11,2002 10,129,312.47 1,472 ,257 .78 92 ,530.80 11 ,694,101 .05 "C" March 11 , February 2002 8,322 ,281 .84 88 ,110.68 2,236,872.00 3,908,045.03 14 ,555 ,309.55 "D" April10, March 2002 10 ,225 ,868 .77 150,314 .72 29,866.09 868,356.67 11 ,274,406 .25 "E" May 10, April 2002 10,602 ,364.47 36 4 ,676 .37 10 ,967 ,040 .84 "F" June 10, May 2002 12 , 125 ,217.22 620,858.40 8,012 ,450 .53 20 ,758,526.15 "G" July 10, June 2002 10,296 ,654.89 1,009,031 .86 927 ,235 .22 12,232,921 .97 "H" August 12, July 2002 10,801 ,710.64 1,308 ,707 .51 12 ,110 ,4 18 . 15 " I" September August 10, 2002 6 ,115,040.33 1,204 ,848 .63 530 ,836 .96 7 ,850 ,725 .92 "J" September October 10, 5 ,122 ,565 .4 3 2,028 ,610.29 489 ,025.47 2002 7,640,201 .19 "K" November October 11 , 2002 6 ,394 ,787 .83 1,285 ,101.61 10,917,780.65 18 ,597 ,670 .09 "L" December November 10, 2002 6,144 ,354 .51 1,666 ,930.94 309 ,907 .92 8,121 ,193.37 "M" January 10, December 2003 63 ,046,370.03 698,507.16 4,106,694.00 67 ,851 ,571 .19 "N" Total 159,326 ,528 .43 11 ,897,955.95 27,560,668.84 4,868,932.50 203,654,085.72 Jz-

DECISION C.T.A. CASE NO . 6923 B. SUMMARY OF MONTHLY REMITTANCE OF 10% FINAL INCOME TAXES REMITTED Calendar 10% Final 10% Final Tax 10% Final Tax Total Amount of Total Amount of Exhibit Year 2002 Tax on FCDU on Gains on Gains Taxes Withheld Taxes Withheld on No. on Gross Income Gross Income on Month Income (A) Realized from Realized from Foreign Currency the Sale or the Sale or on Foreign Transactions Paid Exchange of Exchange of Currency to FCDUs per BIR Transactions Paid Investment with Investment with to FCDUs per Form 1601-F Maturity of Five Maturity of More Years or Less than Five Years Books (D=A+B+C) (PHP) (B) (Php) (C) January 9,705,482 .91 281,565 .66 142,263.90 10 ,129 ,312.47 10,129,31 2.47 "0" February 7,551,873.33 678 ,275 .83 92 ,132.68 8,322,281.84 8,322 ,281.84 "P" March 8,4 24 ,42 1 .15 733,414 .97 1,068,032 .66 10,225,868.78 10,225 ,868.78 "Q" Apri l 7 ,250 ,073.56 251,289 .54 3,101 ,001 .38 10,602,364.48 10,602 ,364.48 "R" May 8,429,684 .92 239 ,691.48 3,455 ,840.83 12 ,125 ,217 .23 12,125,217.23 "S" June 7,885 ,383 .55 388,992 .29 2 ,022 ,279 .04 10 ,296 ,65 4 .88 10,296,654.88 "T" July 8,91 3,042 .00 188 ,024 .54 1,700,644.09 10,801 ,710.63 10,801 ,710 .63 "U" August 1,828 ,579 .36 119,218.45 4 ,167 ,242.52 6 ,115 ,040 .33 6,115,040.33 'V" September 2,669,442.53 135 ,044 .01 2,318 ,078.89 5 ,122 ,565 .43 5,122,565 .43 'W" October 5,759 ,029 .75 154 ,782 .03 480 ,976.05 6 ,39 4 ,787 .83 6,394 ,787.83 "X" November 2,680,257.2 1 53 ,717.40 3,4 10 ,379 .90 6, 144,354.51 6,14 4 ,3 54 .51 "Y " December 5,386 ,087 .85 19,077.29 57 ,641 ,204.90 63,046 ,370.04 63 ,046,370.04 "Z" Total 76 ,483 ,358 .12 3,243 ,093 .49 79 ,600 ,076 .83 159 ,326 ,528.44 159 ,326 ,528 .44 C. SUMMARY OF MONTHLY GAIN ON SALE OF INVESTMENTS WITH MATURITIES OF MORE THAN FIVE YEARS Calendar Gains Realized Current Gains Realized from 10% Final Tax on 10% Final Tax on Year 2002 from the Sale or Month the Sale or Gains Realized from Gains Realized from Exchange the Sale or Exchange Month Exchange of Rate Exchange of FCDU the Sale or of FCDU with Maturity FCDU with with Maturity of Exchange of FCDU January Maturity of More 51.20 More than Five of More than Five February than Five Years 51.28 Years (Php) (C) with Maturity of Years (Php) per More than Five (USD) p 1,422 ,639.00 Years (Php) per Schedule 921 ,326.77 $ 27,784.29 Books p 142,263.90 17 ,965 .89 p 142,263.90 92 ,132.68 92 ,132.68 March 209 ,024 .70 51.10 10 ,680 ,326.58 1,068 ,032 .66 1,068 ,032 .66 April 613 ,027 .85 50.59 31 ,010,013.79 3,101 ,001 .38 3,101 ,001 .38 May 690 ,698 .50 50 .03 34,558,408 .25 3,455 ,840.83 3,455 ,840 .83 June 400 ,126.44 50 .54 20 ,222 ,790.40 2,022 ,279.04 2,022 ,279 .04 July 332,189.48 51.20 17,006,440.94 1,700 ,6 44 .09 1'700 ,644.09 August 804,052 .35 51 .83 41,672 ,425 .20 4,167 ,242.52 4,167,242 .52 September 442 ,297.06 52.41 23,180,788 .91 2,318 ,078.89 2,3 18,078.89 Octobe r 53 .22 November 90,371 .66 53.57 4 ,809 ,760.49 480 ,976 .05 480 ,976 .05 December 636,561 .84 53.25 34 , 103 ,798 .97 3,410 ,379.90 3,410 ,379 .90 Total 10,823,826.36 576,412 ,048.98 57,641 ,204.90 57,641 ,204.90 $ 15,087,926.42 p 796,000,768.28 p 79,600,076.83 p 79,600,076.83 ~

DECISION C.T.A. CASE NO . 6923 The first table , or the "Summary of Information Based on Monthly Remittance Returns of Final Income Taxes Withheld per BIR Form 1601-F20", shows that petitioner, in accordance with Revenue Regulations (RR) No. 10- 98, duly withheld and remitted the total final taxes due on its onshore income in the amount of P203,654,085.72 for calendar year 2002. Out of the P203,654,085.72 , P159,326,528.43 represents the 10% final income taxes on foreign currency transactions payable to FCDUs, which was duly remitted to respondent. The taxes were filed and paid within ten (1 0) days following the end of each of the corresponding month or on the date it was due, as prescribed under Section 2.58(A)(2)(a) of RR No. 2-98, to wit: Sec. 2.58. RETURNS AND PAYMENT OF TAXES WITHHELD AT SOURCE (A) Monthly return and payment of taxes withheld at source- XXX XXX XXX (2) WHEN TO FILE- (a) The withholding tax return , whether creditable or final , shall be filed and payments should be made within ten (1 0) days after the end of each month except for taxes withheld for December which shall be filed on or before January 25 of the following year. (Emphasis supplied) Based on the second table , the total amount of P159,326,528.44, representing 10% final income taxes on foreign currency transactions payable to FCDUs, is composed of the 10% final tax on FCDU income, the 10% final tax on gains realized from the sale or exchange of investment with maturity of ?z- five (5) years or less, and 10% final tax on gains realized from the sale or 20 Exhibits " C" to " N"

DECISION C.T.A. CASE NO. 6923 exchange of investment with maturity of more than five (5) years (P76,483,358.12 + P3,243,093.49 + P79,600,076.83) . The third table shows that the amount of P79,600,076.83, which is the subject claim for refund/issuance of a tax credit certificate, represents the 10% of the gains realized from the sale or exchange of foreign currency denominated debt securities , bonds , debentures or other certificate of indebtedness with a maturity of more than five (5) years of P796,000,768.28, which , as expla ined above, is shown as part of petitioner's total gross onshore income of P3,783,697,999.00. After considering that petitioner is entitled to the refund claimed , th is Court now examines whether or not the total amount of P79,600,076.83 is refundable . It is ascertained that out of the total cla im of P79,600,076.83, the amount of P6,072,553.41 should be disallowed since the same represents petitioner's investment with maturity of five years and less, thus : Deal No. Exhibits Amount Current Peso Value 10% Final Month Tax Exchange Rate MAY QQ-76/ RR-53/ SS-89m-77 173,586.12 50 .03 8,684 ,513.58 868 ,451 .36 1003775 QQ-77/ RR-54/ SS-92m-79 8,870.38 50.03 443 ,785.11 44 ,378 .51 1003812 QQ-79/ RR-56/ SS-97m-83 50 .03 510 ,809 .30 51 ,080.93 1003842 QQ-80/ RR-57/ SS-99m-85 10,210 .06 50.03 346 ,100.54 34 ,610 .05 1003859 QQ-92/ RR-66/ SS-113m-97 6,917.86 50 .03 179,114.40 17,911 .44 1003936 QQ-93/ RR-67/ SS-115m-99 3,580 .14 50 .03 320 ,680 .29 32 ,068.03 1003925 QQ-94/ RR-68/ SS-115m-99 6 ,409 .76 50.03 285 ,716 .33 28 ,571 .63 1003649 5,710 .90 QQ-99/ RR-71/ SS-127m-107 50 .54 608 ,989 .31 60 ,89 8 .93 JUNE QQ-107/ RR-76/ SS-137m-115 12,049 .65 50.54 2,033,782 .67 203 ,378.27 1004066 40,241 .05 1004176 QQ-111/ RR-80/ SS-1 43m-119 51 .20 671 ,217 .66 67 ,121.77 QQ-112/ RR-80/ SS-143m-119 13,109.72 51 .20 671 ,217 .66 67 ,121.77 JULY QQ-115/ RR-82/ SS-145m-121 13,109.72 51 .20 960 ,447.49 1004222 18 ,758 .74 l L 96,044.75 1004223 1004229 ~0

DECISION C.T.A. CASE NO. 6923 1004211 QQ-118/ SS-148/TT-125 16 ,127 .81 51 .20 825,743 .87 82 ,574 .39 1004262 QQ-124/ RR-85/ SS-153ffi-129 5 ,038 .80 51 .20 257,986 .56 25 ,798 .66 1004296 51 .20 2,013,473 .28 201 ,347.33 QQ-130/ SS-159ffi-137 39,325 .65 AUGUST QQ-139/ RR-94/ SS-170ffi-151 228 .884 .31 51.83 11 ,863,073.79 1,186 ,307.38 QQ-140/ RR-95/ SS-171ffi-155 1 5 0 ,517.83 51 .83 7 ,801 ,339.13 780 ,133 .91 1004368 QQ-141/ RR-96/ SS-173ffi-155 51 .83 42 ,916.59 1004381 QQ-144/ RR-97/ SS-175ffi-159 8,280.26 51.83 429,165.88 22 ,342.46 1004390 QQ-145/ RR-98/ SS-176ffi-161 4 ,310.72 51 .83 223,424 .62 6 ,103.86 1004399 QQ-146/ RR-98/ SS-177ffi-161 1,177.67 51.83 6 ,561.63 1004429 1,265 .99 51 .83 61 ,038.64 319 .204.49 1004431 SS-179/ TT-163 61 ,586.82 51 .83 65 ,616 .26 10,936 .91 1004450 QQ-150/ RR-99/ SS-180ffi-167 2,110.15 3,192 ,044.88 1004461 109,369.07 2 ,285.42 SEPTEMBER QQ-153/ RR-101/ SS-183ffi-172 20,011 .02 52.41 119,778 .86 11 ,977.89 QQ-1 SS-189/TT-181 51,471 .00 52.41 1,048 ,777.56 104 ,877 .76 1004462 SS-189ffi-180 52.41 2 ,697 ,595.11 269 ,759.51 1004479 38.38 1004486 39 ,930.85 O':TOBER SS-225ffi-234 (0.02) 53 .22 2,042 .58 204 .26 QQ-244/ SS-225/ TT-235 46 ,485 .75 53 .22 2 ,125,119.84 212 ,511 .98 1004701 144,143.97 1004703 36 ,616.33 NOVEMBER SS-246ffi-267 53.57 (1.07) (0.11 ) QQ-269/ SS-247/ TT-268 53 .57 2 ,490,241.63 249 ,024.16 1004866 QQ-273/ SS-252/ TT-274 53 .57 7 ,721 ,792 .47 772 ,179.25 1004868 QQ-274/ SS-253/ TT-277 53.57 1,961 ,536.80 196 ,153 .68 1004891 60 ,725 ,534.10 6 ,072 ,553 .41 1004892 TOTAL In view of the above find ings, petitioner's claim for refund or issuance of tax credit certificate in the amount of Seventy Nine Million Six Hundred Thousand Seventy Six Pesos and 83/100 (P79,600,076.83) representing its erroneously paid final income taxes for the calendar year 2002 should be granted, less the prescribed and disallowed claims . WHEREFORE , this instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, respondent is hereby ORDERED TO REFUND or ISSUE A TAX CREDIT CERTIFICATE in the reduced amount of SEVENTY THREE MILLION TWO HUNDRED NINETY THREE THOUSAND ONE 9c- HUNDRED TWENTY SIX AND 84/100 PESOS (P73,293,126.84),

DECISION C.T.A . CASE NO . 6923 representing petitioner's erroneously withheld and paid final income taxes , computed as follows : Claimed Refund/Tax Credit p 234,396.58 p 79,600,076.83 Less : 6,072,553.41 6,306,949.99 Barred by Prescription p 73.293.126.84 Maturity of less than Five (5) years Total SO ORDERED. 0Q'u_"A_NIT.Ov Q_ -~~ ~- CASTANEDA,'rR. c. Associate Justice WE CONCUR: ~~~~ ~ OLGA PALANCA-ENRIQUEZ Associate Justice ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division . �.?.:~ Q - ~~ . \:)___ JUANITO C. CASTANEDA;'.IF[" , Associate Justice Chairperson

DEC ISION C.T.A. CASE NO. 6923 CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution , and the Division Chairperson 's Attestation , it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. D ~~~ Q__ ERNESTO D. ACOSTA Presiding Justice