CTA Case No. 5184 (Decision)

I~�---- REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY STANDARD CHARTERED BANK. Petit i onet~, - verslls - C.T.A. CASE NO. 5184 COMMISSIONER OF INTERNAL _Pt~-mo _'�o_cr_t2_d1:_19_96_~ REVENUE, Respondent. X- - - - - --------------- X DECISION This petition is a claim for refllnd or tax credit in the total amollnt of P692,900.72 representing overpaid branch profit remittance taxes. Petitioner is a foreign corporation dllly licensed to engage in banking bllsiness in the Philippines. The record reveals that on December 3, 1993 and Jllly 26, 1994, prititioner paid the amollnts of P4,981,590.73 and P330,648. 15, respectively, or a total of P5,312,238.88 branch remittance tax for its remittance of profits to its Head Office in the United Kingdom. The bt~anch profits remittance tax <BPRT> payments� were compllted based on petitioner's reported branch profits. In two lettet~sJ dated July 1, 1993 and July 18, 1994, the Central Bank of the Philippines authorized petitioner to t~em it the foreign exchange equivalent of its remittable profits net of the 15'1. branch profits remittance tax. The amounts of profits actually remitted were computed as follows: 11.33

DECISION C.T.A. CASE NO. 5184 - 2- YEAR BRANCH 15" BPRT DATE BRANCH PROFIT ACTUALLY REMITTED PROFIT PAID P28,878,786.84 1992 P33,210,604.87 P4,981,590.73 12-3-93 1,873,672.83 1993 2.204,320.98 330,648.15 7-26-94 P30,752,459.67 P35,414,925.85 P5,312,238.88 On October 1..:~, 1994, petitioner through its accounting fit~m, filed with the Bureau of Internal Revenue a claim for refund in the sum of P692,900.72, representing alleged overpaid branch profits remittance tax for 1992 and 1993 as shown below: Actual branch tax remittance tax paid: 1992 4,981,590.73 1993 330,648.15 P5,312,238.88 Less: BPRT on profits actually remitted: 1992 33,210,604.87/1.15 X 15~ 1993 2,204,320.98/1.15 X 15~ 4,619.338.16 692,900.72 Alleged overpaid BPRT Petitioner alleged that by virtue of the ruling of the Supreme Court in the case of Commissioner of Internal Revenue vs. Btn~roughs Limited, 142 SCRA 324, the 151- tax on branch profits remitted abroad applies to the actually remitted, not the amount applied for remittance, ptn~suant to BIR r~uling,dated Januat~y 21, 1':380. On December 24, 1994, without waiting fen~ respondent's decision, petitioner filed the instant petition in accordance with Sec.230 of the Revenue Code 113Li

DECISION C.T.A. CASE NO. 5184 3 in order to toll the running of the prescriptive period for filing a suit for the recovery of an erroneously paid tax. On February 27, 1995, respondent answered that considering the 15% branch profit remittance tax was imposed and collected at source, necessarily the tax base should be the amount actually applied for by the branch with the Central Bank of the Philippines as profit to be remitted abroad, citing Revenue Memorandum Circular No.8- 82, dated March 17, 1982, and Campania General de Tabacos de Filipinas <Phil. branch) vs. CIR CTA Case No.3827. The question to be resolved in this case is the intet~pretation of Sec.25 (a) (5) of the National Intet~n.::d Revenue Code which provides thus: "Sec. 25. Rates of tax on foreign corporation. (a) Tax on resident foreign corporation x x x (5) Tax on branch profits remittances.-Any profit remitted by a branch to its head office shall be subject to a tax of 15% (except those registered with the Export Processing Zone Authority). Provided, that any profit remitted by a branch to its head office authorized to engage in petroleum operations in the Philippines shall be subject to a tax at 71/2%. In both cases, the tax shall be collected and paid in the same manner as '�1135

DECISION C.T.A. CASE NO. 5184 -4 provided in Sec.51 and r:::�-� ...10::. of this code x x x." This issue has been finally put to rest in the decision of the Supreme Court in the case of Bank of America N.T. and� S.A. vs. The Honorable Court of Appeals and the Commissioner of Internal Revenue (234 SCRA 302>, which is in all fours with the present case and hencefor~th, the r~uling case on this point which determines the result. We can only but quote the pertinent portion of the ratio decidendi of this precedent-setting decision of the Supr~eme Court <Vi tug, J. ' ponente> which has affirmatively ruled on the issue at hand: "In the 15'1- r~emittance tax, the law specifies its own tax base to be on the "pt~ofit remitted abt~oad." Thet~e is absolutely nothing equivocal or uncertain about the language of the provision. The tax is imposed on the amount sent abroad, and the law (then in force) calls for nothing f�.wther~. The taxpayer~ is a sin~Jle entity, and it should be understandable if, such as in this case, it is the local bt~anch of the cot~pot~ation, using i t s own local funds, which remits the tax to the Philippine Government. The remittance tax was conceived in an attempt to equalize the income tax burden on foreign corporations maintaining, on the one hand, local bt~anch offices and organizing, on the other hand, subsidiary domestic corporations where at least a majority of all the latter's shares of stock are owned by such foreign corporations. Prior to the amendatory provisions of the Revenue Code, local branches were made to pay only the usual 1136

DECISION C.T.A. CASE NO. 5184 5- corporate income tax of 25~-35~ on net income <now a uniform 35~) applicable to resident foreign corporations (foreign corporations doing business in the Philippines). While Philippine subsidiaries of foreign corporations were subject to the same rate of 25~-35~ (now also a uniform 35~) on their net income, divideMd payments, however, were additionally subjected to a 15~ (withholding) tax (reduced conditionally from 35~). In order to avert what would otherwise appear to be an unequal tax treatment on such subsidiaries vis-a-vis local bt~anch offices, a 20~, later~ r~educed to 15~, profit remittance tax was imposed on local branches on their remittances of pr~ofits abr~oad. But this is whet~e theta>< pat-~ipassu ends between domestic br~anches and subsidiaries of foreign corporations. The Solicitor General suggests that the analogy should extend to the ordinary application of the withholding ta>< system and so with the rule on constructive remittance concept as well. It is difficult_ to accept the pl�~oposition. In the operation of the withholding tax system, the payee is the taxpayer~, the person on whom the tax is imposed, while the payor~, a separ~ate entity, acts no mo1�~e than an agent of the government for the collection of the tax in order to ensure its payment. Obviously, the amount thereby used to settle the tax liability is deemed sourced from the proceeds constitutive of the tax base. Since the payee, not the payor~, is the r~eal taxpayer, the rule on constructive remittance (or receipt) can be easily r~ationalized, i f not indeed, made clear~ly manifest. It is hardly the case, however, in the imposition of the 15~ remittance tax where there is but one taxpayer using its own domestic funds in the payment of the tax. To say that there is constructive remittance even of such funds would be stretching far too much that imaginary rule. Sound logic does not defy but must concede to facts." (Under~scor~ing ours)

DECISION C.T.A. CASE NO. 5184 - 6- The Supreme Court, law reversed and set aside the decision of the Court of Appeals, which has been alluded by the respondent and of which it expected to rely upon and reinstated the decision of this Court in CTA Case No.3799, which states in part as follows: " thet~e is absolutely nothing in Section 24 (b) <2> <ii) supt~a, which indicates that the 15~ tax on branch profit remittance tax is on the total amount of profit remittance to be remitted abroad which shall be collected and paid in accordance with the tax withholding device provided in Sections 53 and 54 of the Tax Code. The statute employs "Any profit remitted abroad by a branch to its head office shall be subject to a tax of fifteen pet~cent <15~)-without mot~e. Nowhet~e is ther�e said of "based on the total amount actually applied for by the branch with the Central Bank of the Philippines as profit to be remitted abroad, which shall be collected and paid as provided in Section 53 and 54 of this Code." Whet~e the law does not gualifv that the tax is imposed and collected at source based on profit to be remitted abroad, that qualification should not be read into the law. It is a basic rule of statutory construction that there is no safer or better canon of interpretation than that when the language of the law is clear and unambiguous, it should be applied as written. And to our mind, the ter~m "any pt~ofit t~emitted abt~oad" can only mec.~n such profit as is "fot~wat~ded, set ot~ tr~ansmitted abt~oad" as the word "l�~emitted" is commonly and popularly accepted and ttndet~stood. To say thet~efot~e that the tc.~x on branch profit remittance is imposed and collected at source and necessarily the tax base should be the amount actually

DECISION C.T.A. CASE NO. 5184 - 7- applied for by the branch with the Central Bank as profit to be remitted abroad is to ignore the unmistakable meaning of plain [emphasis supplied] wol"~ds." thus, with the above pronouncements, the ambiguous provision has now been clearly resolved and fully disposed of. WHEREFORE, l"~e s pond ent is hereby ordered to grant petitioner a tax credit or refund in the amount of P592,900.72 rep!"~esent i ng o v et~pa i d pl�~ofi t / remittance tax. No costs. SO ORDERED. I CONCUFx: I ~~LS2.. ~ ERNESTO D. ACOSTA Presiding Judge CERTIFICATION I hereby certify that this decision was reached after due consultation with the member of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. c.~(C.. ~ ERNESTO D. ACOSTA PJ�~esiding Judge Court of Tax Appeals 1135 ��-~