CTA Case No. 4069 (Decision)

.. REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY CITIBANK, N.A. Petitioner, versus - C. T. A. CASE NO. 4069 Tt� COMMISSIONER OF INTE.RNAL REVENlE, Respor.dent . X- - - - - ----- X D E C: 0N Involved in the instant case is a claim fot~ refund or tax credit of allegedly overpaid 10~ excise tax on the sale of fc�reign exchar.ge, ir� the amount of P186,936.37. The facts as found by the Court are: 1. Petitioner, a foreign corporation duly licer�sed to er.gage ir1 banking activities in the Philippir.es, is authorized by the Central Bank to operate a Foreign Currency Deposit Unit or FCDU. Amohg the custornet~ s c�f petitioner's FCDU is the Philippine Long Distance and Telephone Company <PLOT> ; 2. In its lettet~ to the Central Bar1k <CB> dated May 23, 1984 <Rollo, pp. 62 - 63)' J:�LDT requested that it be provided, through petitioner, with fot~ei gn exchar.ge in the amount of 4 .::> ,... 0 t'

DECISION CTA CASE NO. 4069 - 2- Can$169,903.98, to be used for the partial payment o f its Cart$2.7M loar� ft~om the Expot~ t Developmer.t Corporation <EDC>; 3. The CB, in a letter, dated June 5, 1984, authorized petit ionet~ "to remit the amount of Can$169,903.98 to the Royal Bank of Canada, Ottawa, Car.ada, for credit to the accour.t of Export Development Corporation xxx to cover payment of the pt~incipal ar.d ir.terest due on captiorted lc�ar� xxx" (!.Q..' p. 65) ; 4. Armed with the CB authorization, petit i or.er, sc�met i me in June, 1984, so 1d to PLOT US$130,690. 14, which was the equivaler.t of Can$169, 903.98 pet~ the conversion rate prevai 1 ing at that time; 5. On June 15, 1984, pursuant to P. D. No. 1928 as implemented by Rev. Regs. No. 7-84 and Mir.istt~y Order No. 17-84, petitioner collected in behalf of the Bureau of Interr.al Revenue <BIR> a total of P235,268.39 as lOY. excise tax on the sale of foreign exchange to PLOT. This amount was reached using the following computation: Foreign exchange sold Principal US$1031 842.00 US$130 1 690.14 Interest 26,848.14 18.002 Multiply: USS - P P2,352,683.93 p 235, 268. 39 Exchange Rate 1~ Thereof <Excise Tax) 48 (;

DECISION CTA CASE NO. 4069 - 3- The payment of this tax is evidenced by Cor.firrnat ion Receipt No. 8321482'3 (!.Q_., p. 58); 6. On November 11, 1'384, petitioner filed with respondent's Appellate Division a letter- request for tax refund or credit of P186,'336.37 in allegedly overpaid excise tax on its sale of US$130,6'30. 14 to PLDT, therein contending that: "xxx XXX XXX In determining, however, - the tax base for computing the 10 percent excise tax, <petitionet~) included the principal of the loan in the amount of US$103,842.00. However, Ministry Order NO. 17- 84 specifically provides: XXX XXX XXX 3. Except ions. The Special Exc i se Tax shall Y1ot be levied, assessed ot~ collected on the following sales of foreigr� exchar.ge: XXX XXX XXX d. for capital transaction such as repatriation of capital and repayment of the principal foreign loans but not including interest port ior�� XXX XXX XXX Revenue Regulations No. 7 - 84 likewise provides: "Sec. 4. Except ions. - The Special Excise Tax shall not be levied, assessed or collected on the following sales c�f foreign exchange: XXX XXX XXX d. for capital transactions such as repatriation of capital

DECISION CTA CASE NO. 4069 - 4- c:md repaymer.t of the principal of foreign loans but not including interests portion. Thus, under both the Ministt~y Order and the Revenue Regulations, sales of foreign exchange for the repayment of principal of foreign loans, except for the payment of interest thereon, are exempt from the 10 percent excise tax. Hence, <petitioner> shou 1d have used as the tax base not the principal amount of the loan but rather the interest thereon for purposes of computing the 10 percent excise tax. Accordingly, (petitioner> should have paid the amount of P48,332.02 representing the 10 percent excise tax computed as follows: Foreign exchange sold Interest US$ 26,848.14 Exchange rate 18.002 Peso value 483 ,320.21 Excise Tax <10 percent> ===4:::::::::8='=3=3=2==�=0=2= <Petitio~er>, therefore, overpaid the 10 percer.t excise tax in the amount of P186,936.37 computed as follows: Excise tax paid P235,268.39 Excise tax that should 48,332.02 have been paid 186,936.. 37 Overpaid excise tax XXX XXX xxx" (ld.' pp. 59-60); 7. On June 13, 1986, as respondent had not. yet acted or. petitioner's request fot~ refund, ar.d in ordet~ to toll the rur.nir�g of the prescriptive period, petitior.er instituted the instar.t case by filing a petition for review with the Court. The issue presented before the Court for deterrnir.ation is whethe.r a tax refur1d or credit is proper in the case at bar. 49 ;

DECISION CTA CASE NO. 4069 -~ - Before the Court proceeds to discuss the merits of this case, We must first address the prejudicial issue raised by respondent regarding petit i or.er' s standi r�g. Respondent contends that petitioner herein is not the real party in interest vested by law to institute the instant action for refund or tax credit, notwithstanding the fact that i t was petitior.et~ which withheld ar.d t~emitted to the CB the 10~ special excise tax pursuant to P.O. 1'328, ar.d reftmded t�::t PLOT the amc��Jr�t it is now claiming as allegedly overpaid tax. On this point, respondent argues, thus: 11 Tt~ue, petit i or.et~ which wit hhe 1 d ar.d remitted to the Central Bank of the Phi 1 ippines the 10'1. special excise tax pursuant to the mandates fof (sic> P. D. No. 1'328, t~eftmded tc� PLOT the corresponding amount of P186,'336.37 as ovet~paid 10~ excise tax. Howevet~, nowhere is there evidence adduced by petitioner showing that PLOT assigned its right to the . fonner the right tc� claim the t~efund of the ovet~paid excise tax. The lettet~ dated August 14, 1'384 by PLOT's Vice Pt~esident, Dalisay C. Cadiz, addt~essed tc� the petitioner <Exh 11 F-2 11 > is r.ot the deed of assignment contemplated by law which could confer upc�n petit i or.er the t~ i ght ar.d authority to claim the refund of the overpaid taxes>. It must be one appeat~ing ir� a pub 1 i c i r.st t~ument as t~eq u i t~ed by At~t i c 1 e 1625 of the Ci vi 1 Code xxx. 11 <lQ.., p. 113) Respondent further cited the Supreme Court decisior� ir� the case of CoQ!missi9ner of' Internal Revenue v. Procter & Gamble Manufacturing Corp. (160 SCRA 560 E1'388J>, particularly this portion:

DECISION CTA CASE NO. 4069 - 6- "The submission of the Commissior-.er of Internal Revenue, that PMC-Phil. is but a withholding agent of the government and therefore cannot claim reimbursement of the alleged overpaid taxes, is completely meritot'ious. The real party in interest being the mother corporation in the United States, it follows that American entity is the real party in interest, and sho�Jld have been the claimant in this case." <Page 566> The Court notes, as petitioner states in its "Reply To Memorar-.durn Of Respondent" <!.l;!., pp. 118 to 120>, that the Supreme Court rendered an en bane resolution on December 2, 1'3'31, setting aside the said decision by allowing P&G-Phil. the tax refund or tax credit it sought. The resolution reads in part: "xxx Since the claim fot' refund was filed by P&G- Phil., the question which arises . is: is P&G - Phil. a 'taxpayer' undet' Sect ion 30'3 (3) of the NIRC? The term ' taxpayer' is defined in our NIRC as referring to 'anv oet'SOYJ subject to tax imposed by the Title <on Tax on Income>.' It thus becomes important to r-.ote that undet' Sect ion 53 <c> of the NI RC, the withholding agent who is 'required to deduct and withhold any tax' is made 'personally liable for such tax' and indeed is indemnified against any claims and demands which the stockholder might wish to make in questioning the amount of payments effected by the withholding agent in accot'dance with the provisic�ns of the NIRC. The withholding agent, P&G-Ph i 1. , is direct 1y and i Y1dependent 1y liable for the correct amount of the .tax that should be withheld from the dividend remittances. The withholdir.g agent is, moreovet', subject to and 1 iable fot' deficiency assessments, surcharges and penalties should the amount of the tax withheld be finally found to be less than the amount that should have been withheld ltnder law.

DECISION CTA CASE NO. -4069 - 7- A �person 1 iable fot"' tax' has been held to b~ a 'person subject to tax' and properly considered a �taxpayer.' The tet"'ms � 1 iable for tax' and � subject to tax' both connote legal obligation or duty to pay a tax. It is very difficult, indeed conceptually impc�ssible, to consider a person which is statutorily made � 1 iable for tax' as r.ot � subject to tax.' By any reasonable standard, such a persor� should be regat"'ded as a party in interest, or as a person having sufficient legal interest, to bring a suit for refund of taxes he believes were illegally collected from him. In Philippine Guaranty Company, Inc. ~ Commissioner of Internal Revenue, this Court pointed out that a withholding ager.t is in fact the agent both of the government and of the taxpayer, and that the withholding agent is not an ordinary government agent: XXX XXX XXX If, as pointed out in Philippir.e Guaranty, the withholding ager.t is also an agent of the beneficial owner of the divider.ds with respect to the filing of the necessary income tax return and with respect to actual payment of the tax to the government, such authority may reasonably be held to include the authority to file a claim for refund and tc� bring ar� act ion for recovery of such claim. xxx." Although the Prc�cter & Gamble case involves the withholdir�g of taxes on dividends by a wholly-owned subsidiary of the mother corporation, while the instant action involves the w,ithholding of taxes from CB-approved outward foreign exchange remittances by an agent bank, We believe that the guiding principle behind Procter & Gamble is applicable.

DECISION CTA CASE NO. 4069 - 8- As in the Proctet~ & Gamble case, respondent did not raise the question of petitioner's capacity to bring the instant claim for refund at the admi rti strati ve leve 1, meanir�g with the BIR. The ) records of the case show that respor.der.t received petitioner's request fot~ refund dated Nc�vember 5, 1984 <!.Q.., pp. 59-61> on November 8, 1984, while the instant act ior� was commer.ced by petit ic�ner on June 13, 1986, just before the two-year prescriptive p~riod was about to expire. All throughout that nineteen-month interval, respondent did not act on petitioner's request, much less ask for documentary proof of its right to claim for the refund of the allegedly overpaid taxes. In point is the pror.ouncemer.t of the Supreme Court in its December 2, 1991 Prc�cter & Gamble resolutior., to wit: "We believe that, ever� now, there is nothing to preclude the BIR from requiring P&G-Phil. to show some written or telexed confirmation by P&G-USA of the subsidiary's authority to claim the t~efund ot~ tax c~edit and to remit the proceeds of the refund, or to apply the tax credit to some Philippine tax obligation of P&G- USA before actual payroer.t of the refund or issuance of a tax Ct"'edit certificate. What appears to be vitiated by basic unfairness is petitioner's position that, although P&G- Ph i 1. is direct 1y ar�d persona 11 y 1 iable to the Government for the taxes and any deficiency assessments to be collected, the Government is not legally liable for a refund simply because it did not demand a written confirmation of P&G-Phil's implied authority from the

DECISION CTA CASE NO. 4069 - 9- very beg i Y�ni y,g. A sovereign governrner-.t should act hor-.orably ar-.d fairly at all tirnes, even vis-a-vis taxpayers. 11 Tt~ue, unlike in the Procter & Garnble case wherein � the issue of petitioner's standing was first raised on appeal with the Suprerne Court, respondent in the preser-.t case raised such issue in its rnernorandurn filed with this Court. However, the Court believes that this does not affect the applicability of the a bove-q uot ed prono ur-.cernent s of the S u prerne CoLtrt , rnore so in the light of the fact that PLDT wrote a letter to petitioner, dated August 14, 1984, as follows: II 14 August 1984 Citibar-.k, N.A. Citibank Bldg., Paseo d~ Roxas Makati, Metro Manila Attention: Ms. Daisy S. Yao Manager Subject: Purchase of Foreign Exchange to Service the Principal of Can$135,000.00 and Interest of Can$34,903.98 Due June 15, 1984 Sirs: In connection with captioned subject, this is to confit~rn our vet~bal agreement for the crediting to our account with you of the excess payrnent of the � excise tax in the arnount of P186, 936.37. Per our Statement of Bank Account for the rnonth of July 1984, the credited amount has been duly noted.

) DECISION CTA CASE NO. 4069 - 10 - We understand that you will now have to file the corresponding claim for t~efund with the tax authorities on yout~ own beha 1 f and accc�Urtt. At out~ end, we consider the matter closed. Regards. Very truly yours, <Exhibit "F-2", <sgd> supplied> DALISAY C. CADIZ Vice President" Rollo, p. 67, emphasis It is clear in the letter that the excess payment of the excise tax amounting to P186,936.37 had already been refunded by petitio~et~ to PLOT, and PLOT through its Vice-President, Dalisay C. Cadiz, then considered "the matter closed" as it allowed petitior.er "to file the corresponding claifn for refund with the authorities on your own behalf and account" <Emphasis supplied.) If the Supreme Court deemed it fair and just in the Prc�cter & Gamble case to consider P&G- Phil., which it found to have merely an Lmconfirmed implied authority to claim for refund of the overpaid withholding tax, as capacitated to file such a claim, with more reason should petitiorter in the instartt case be foLtrtd to have the same capacity. The Court finds Section 2, Rule 3 of the Rules of Court likewise relevant: "Sec. 2. Parties in interest. Every action must be prosecuted and defended in the name of the real party in

; DECISION CTA CASE NO. 4069 - 11 - interest. 811 persons having an intet~ est in the subject of the action and in obtainirtg the relief dernartded shall be jc1ined as plaintiffs. All persorts whc1 c 1aim art i r.t et~est in the cc1nt roversy ot~ the subject thet~ eof adverse to the plaintiff, or who . are necessary to a cc1mplete detet~ rnination ot~ settlement of the questions invc1lved thet~ ein shall be joined as defendants. 11 <Underscoring supplied> Cet~ta i nl y, petitioner has an i ntet~est in the subject of the present action and in 6btaining the t~ el ief demanded, fot~, having already retltt~r.ed to PLOT the amount of P186,936.37 herein sought to be t~efunded ot~ credited, petitionet~ i s the or.e which stands to suffer the loss of the said amount if the instant claim is rejected. In regard to the mair� issue, pet it i ortet~ submitted the follc~wir�g docwnent at~y evider.ce: Exhibit "A", which is a CB- certified true copy c1f petit iorter' s "Abstt~ act of Daily Collection Of Ir.ternal Revenue Taxes" for J�.me 15, 1984, shc1wir�g the amolmt of P235, 268. 39 co 11 ect ed frorn PLOT <!.Q_. , p. 56) ; Exhibit "B", which is the ackrtowledgement CQPY of petitioner's "Cc1nsolidated Report On Daily Collect ions Of Interr.al Revenue Taxes" for Jlme 15, 1984, showing the amount of P235,268.39 cc1llected by it as taxes undet" Cc1nf i rrnat ion .Receipt No. 3214879 (!.Q_., p. 57); Exhibit "C", which is Confirmation Receipt No. B-3214879, dated June 15, 1984 (!.Q_., p. 58); Exhibit "D", which is a letter

DECISION CTA CASE NO. 4069 - 12 - dated Nover.1bet' 1 '384, addt' essed to t' espondeYtt' s Appellate Division Chief, embodying petitioner's fot' ma l c l a i rn for refund of allegedly overpaid excise tax in the amount of P186,'336.3'3 ( _r._g_. ' PP� 5'3- 61) Exhibit "E"' which is a lett et' addressed to the CB, dated May 1 '384 ft' Ofll PLDT' s First Vice President, requesting for allocation, t ht'OUgh petit i onet' , of the total of Can$16'3, '303. '38 to be used fot' the payment of pat' t of the pt' incipal and intet'est OY� its fot'eign loan to fall due on June 15, 1 '384 <Ifl_. ' pp. 6i::: - 63) ; Exhibit "E- 1", which is a cet'tified tt'Ue copy of a cable dated April 13, 1 '384 ft'om EDC <Ottawa), PLDT' s fot' eign ct' editot', to PLDT, advising it that the total amount of Can$159, 903.98 was payable on is a 1'384 <-I�--d-�. ' p. 64) ; Exhibit "E - 2", which dated lettet' ft'om the CB to the petitionet', June 5, 1'384, authot'izing petitionet' to t' emit the arnount of Can$16'3, '303. '38 fot' the Ct'ed it of PLDT' s fot' e i gn ct' ed it ot' ( _I._Q.. , p. 65) ; Exhibit "F", which is the Statement of PLOT's Bank Account with petitionet' fot' the r.1onth of July, 1'384 showing, ar11ong ot het' things, the Ct'ed it i ng of the amount of P186,'336.37 to PLOT's account during the month covet'ed t het' eby; and Exhibit "F-2", which is a lett et', dated August 14, 1 '384, ft'ortl PLDT to petit ionet', conf i t' fll i ng the crediting to PLOT's

DECISION CTA CASE NO. 4069 - 13 - account the amount of P 186, 936. 37, and t~ em i nd i ng petitionet~ to " f i l e the cot~t~esponding claim fot~ t~efund with the tax authot~i t i e s on yout~ <petitionet~ ' s) own behalf ar-1d account", as PLOT thet~eby cor-.sidet~ed "the n1attet~ clc�sed" at theit~ end <.!_g_. , p. 6 7> � Pet i t i onet~ a 1 so pt~esent eel i y-, evidence the testimony of Julie Pua. Respondent offered neither testamentary nor document at~y evidence to p e t i t i onet~' s c 1 a i r11. finds p etitioner's cause to be met~ i t ot~ i ous. Pt~es i dent i a 1 Dect~ee No. 1928, dated Jtme 6, 1984 imposed , among othet' things , a special excise tax on fot'eign exchange sold by the CB and its agents within the period from June 6 , 1984 to Decem bet' 31 , 1985. Two t'egulat ions implement PD N o. 1928, na mely, Rev. Regs. No . 7 - 84, dated June 27, 1984, and Ministt~y Ot'det' No. 17-84 (entitled "PRESCRIBING RULES RND REGULRTIONS TO IIYIPLE IYIENT THE PROVISIONS OF PRESIDENTIRL DECREE N O. 1928"), effective June 6, 1984. Both Sect ion 4 (d) of Rev. Regs. No. 7-84 and Section 3(d) of Mir-dstt'Y Ot~det~ No . 17-84 t~ead the same, and are quoted : "Except ions. The Special Excise Tax shall not be levied, assessed or collected on the followin g sales of foreign exchange:

DECISION CTA CASE NO. 4069 - 14 - a. for paymertt of irnpot~ts tc� the Phi 1 ippir,es; b. by t he Central Bank of the Philippines to banking institutions or interbank trading; c. as consequen ce of fot~ward contracts consurnated pr ior to Jt.me 6, 1~84; d . for capital transacti ons such �' as,_ l"'eg at r;L~.!.~.m of sae ita l aY�d repay rnertt af .t~~Si.e of fOI"'~j,gn 1 oa rts but not !~sl~~ino int e re� t s portig~; e. tc� departir.g tourists en~ other te~pora~y vi~it ors to the Philippines, coveri ng th~ u nspent p sos converted frorn foreign exchange at . th e ti me of t hei r a rt" ival; f. conversion of the face value of fot~ eign exchan ge der.oM iY�at ed secur ities." <Em ph asi s su pplied . > It is clear fY-o m the cornrnon prc�v isions that while irrterests on for~eig n loan s were subject t�::> the ~peci 1 exc i e tax, t he po'rt ior� repre5enting repayment of the princi pal of the foreign l oan is not subj ect to the same tax. Respondent had not likewise Y-efuted this stand. We thus find that petitioner committed an e n�~or in cc:.rop1,1ting the 10% special excise tax or. t he basis of the Ph ilippine peso equi valent of the -. entira ameH.mt of' fol'" eign t? xc har�ge s old to PLOT, a foreign l oan (US$103, 842.00) a nd the interest (US$26, 848. 14> due th t"eOl"t. overpayment of the special exe ise tax in the amount

DECISION CTA CASE NO. 4069 - 1S - of P186, 936.37 which is ten percent of the peso equivalent of the foreign exchar.ge sold corresponding to the portion repaid as foreign loan <or US$103,842.00>. WHEREFORE, finding the instant petition for review meritorious, respondent is hereby ordered to refund to petitioner or issue a tax credit in i~� favor the amount of P186,936.37, representing overpaid 10" special excise tax on the sale of foreign exchange. SO ORDERED. Quezon City, Metro Manila, June 26, 1992. '' ST~ DADIVAS-FARR~S Acting Associate Judge I CONCUR1 ~Q.~~ �' ERNESTO D. ACOSTA Presidir�g Judge C:::ERTIF:J:C:::RT:J:ON I hereby certify that this decision was reached after due consultation between the members of the �Court of Tax Appeals �in accordance with Section 13, Article VIII of the Cons~itution. ~o. ~ ERNESTO D. ACOSTA Pt"es i ding Judge Court of Tax Appeals 501 I