CTA Case No. 3076 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY � HYATT HONG ~ QNG LIMI TED C. T.A. CASE NO. 3076 (PHI LIPPINE , RANCH) a nd HYATT REGENCY MANILA, F'eti tioner�s, THE ACTING COMMISS IONER OF INTERNAL REVENUE , Respondent . X- - - - - - - - - - - - X DEC I s I 0N After no action was taken seasonably by respondent Commissioner of Internal Revenue on their request for the refund of alleged overpaid branc: h pr-of .it r�emi t tanc:e ta:<es which we>r-e paid in - �.:. the years 1978 and 1979 amounting to F'16,355.67 a nd F'46,749.86 respectively, or a total of F'63,105.53, petitioners Hyatt Hong Kong Limited ( Philippine Branch) and Hyatt Regency Manila filed the instant petition for review asking that respondent be ordered to grant their claim.

.� �. DECISION CTA CASE NO. 3076 - 2- The backgr-ound �facts ar-e not disputed, � r-espondent havi ng s ubmitted this case for- decision on the basis of the p 1ead ings, after- petitioner-s have pr-esented their- evidence. As alleged in the amended petition for- r-eview and admitted by r-espondent: 1. Petition er- Hyatt Regency Manila is a domestic co r�por-at.i.on duly or-ganized and e:�~ .i.sting und er- and by vir-tue of Philippine laws, doing business and with pr-incipal offic~? at 2702 Ro:<as Boulevar-d, Pasay City, while petitioner- Hyatt Hong Kong Limited is a r-esident for-eign cor-por-ation with office in the Philippines at Hyatt Regency Manila. 2. Respondent is the duly designated, qualified and incumbent Acting Commissioner- of Inter-nal Reve nue of the Philippines vested with autht:H"ity to act as such, and with office at the BIR National Office Building, East Avenue, Diliman, Quezon City, where he may be served with summon s. 3. For- year-s 1978 and 1979, the petitioner-s pCil..id ranch pr-ofit r-emittance taxes in the amounts �f P98,134.02 and P179,207.80 or- a ~ (�

DECISION CTA CASE NO. 3076 - 3- tota 1 of P277, 341.82 for p r o f i t s r-�ea 1 i zed in the years 1976, 1977 and 1978. 4. The above payments were made by the petitioners in the belief that the tax base of the br-�anch profit. remittan ce ta:�: is the "tot a 1 branch profit out of wh ich the remittance is to be made." 5. Section 2 4(b)( 2 ) of the applicable National Inte~n~l Revenue Code, in relevant provision, provides: ":�: :-: :�:. _ .. Provided fur�ther, that ~.!JY. p_r_g_f.!..!:___ ..r:::g.m. :i.:._t._t.~?...9..._. ~.9J:.Q.�.'_Q_ by a branch off i c: e to its mothP r company shall be subject to tax of fifteen per cent (except those registered with the Export Processing Zone Author-ity). :�: :-: :-:" [Underscoring supplied] 6. In a ruling dated Januar-y 21, 1980, r-espondent Commis sion e r held th<:\t "the 15/. branch profit remittance tax s hall be imposed on the pn::>f i. t ac tua 11 y remit ted abroad and !J_9J;. on the total branch profit out 6f which the remittance is to be made". 7. Based on the manner of computing the branch profit remitt~nce tax, the petitioners should have only paid the total amount of P214,236.29, instead of P277,341.82, on the above-mentioned branch profit remi ttanceis. As a

DECISION CTA CASE NO. 3076 - 4- result, petitioners herein have mad e an overpaymeni of the said tax in the total amount of P63~105.53. 8. On April 1, 1980 and April 2, 1980, respectively, petitioner s filed with the respond~nt a claim for refund and a supplemental letter thereto in the total amount 'of F'63,105.53 r~ epr�esen ting overpaid br�a n c h pr�of i t remittance taxes of petition er Hy a tt Hong Kond Limit ed. Since respondent, within the presc r� .i pti ve pe riod, ha s not acted favo~ably on their claim for refund of the amount of F'63,105.53, petitioners filed with this Court the present petition for r�ev.iew. The only issue in this case is the proper and correc t tax oase in computing the profit remittance taxes involved in this amended petition for review at the time o f payments on April 13, 1978 and April 23, 1979" Thi s issue is not one of first impression. In Comm i ss i one r of Internal R~venue vs . Burro ughs Li mited and the Court of Tax Appeals, G.R. No. 66653, June 19, 1986, where the factual setting is s imi 1. ar to that in the case at bar�, the SL1preme

DECISION CTA CASE NO. 3076 - 5- Cour�t unequivocally r-uled that under- Section � 24 (b) ( 2) of the TaN Code the br-anch pr-ofit r-emittance tax. sha ll be imposed on the pr-ofit 9s:_.t!o-J_S\._U ..Y- .....r:::gJI!.i...t .t.s>.Q__~q.r._g_.~.9. and .O..fl:t. on the tota 1 br-anch pr-ofit o ut of which the r-emittance is to be made in accordance with Bur-eau of Inter-nal Revenue r-uling dated Januar-y 21, .1.980 .if paid befor-e its r-evocation and/or- r-epeal by Bur-eau of Inter-nal Revenue Memor-andum Ci r�cu 1 ar- No. 8-82 dated March .1. 7 ' 1.982. Since the br-anch pr-ofit r-emittance taxes involved .i.n t.h.i.s case wer-e paid on Apr-i 1 �--:r�~ 1978 and , Apr�i 1 1979 before the revocation and/or r-epea 1 of Bur�eau of In ter-r1a 1 Rf:?Venue ruling dated J~:-\nuar-y 21., 1.980 on March 1.7, 1982, petitioners Hyatt Hong Kong Limited (Philippine Br-anch) and Hyatt Regency Manila ar-e legally entitled to a r-efund of the aforemention ed amount of P63,105.53. As stated by the S.. upr-eme Court in Burroughs Limited: We rule in the affir-mative. The per-tinent provision Internal Revenue Code of the National (ii) which states: is Sec. 24(b) (2) "Sec. 24. Rates of taH on cor-porations.

DECIS I ON CTA CASE NO. 3076 - 6- ( b) Tax on foreign corpo- � r� a t.ions. (2) (i.i) Tax on branch profits remittances. Any profit remitted abroad by a branch to its head office shall be subject to a tax of fifteen per cent ( 15%) H :�~ :< � I I In a Bureau of Internal Revenue ruling dated January 21, 1980 by then Acting Commissioner of Internal Revenue Hem. Efren I. Plana the afor�equoted provision had been interpreted to mean that "the t.a:-: base upon which the 15% b1���an c h profit remittance ta:-: ,., :<:�:shall he impo s; ed :-: :-: :�: (is) the profit ?..�;.1!::~~-U.Y remitted abroad and not on the total \ t;-~~-~�~h�--prof its out of which the ;~� emittance is to be matjef." Th::= said ruling is hereinbelow quoted as follows: "In reply to your letter of November 3, 1978, relative to your query as to the tax bas e upon which the 15% branch profits remittance tax provided for under Se c tion 24(b) (2) of the 1.977 Ta:< Code shall be imposed, please be a d v ised that the 1.5% branch profit tax shall be imposed on the branch profits actually remitted abroad and not on the total branch profits out o~ which the remittance is to be made. Please be guided . accor�d - ingly." Applying, therefore, the aforequoted ruling, the claim of private respondent ( Burr�oughs L.imi ted) -1: h a t it made an overpaymt-:m t in the amount of P1.72,058.90 which is the difference between the remittance tax actually paid of

DEC I SION CTA CASE NO. 3076 - 7- F' 1 ~ 147 ~ 058.70 and the remittance ta:�: that � should have been paid of F'974~999.89, ',.'..'.,!,',.,' is welJ. --�taken. As correctly held by respondent Court in its assailed deci- sian - "Respondent concedes at least that in his ruling dated January 21, 1980 he held that under Section 24� (b) ( 2) of the Tax Code the 15% branch profit remittance tax shall be imposed on the profit e.<;.i:..l::.!.�.J.J:.Y.._r_~m.;i,.,..!;,j.~d 9l>r..9..�l..Q. and O.Q.t on the tota 1 branch profit out of which the rem.i. t. tance is to be made. Based on sue h ru 1 ing pet.i t.ioner shou 1d have paid only the amount of F'974,999.89 in remittance tax computed by taking the 15% of the profits of F'6,499,999.89 in remittance ta:�: actually remitted to its head off ice in the United States, {nstead of F'1,147,058.70, on its net profits of F'7,647,058.00. Undoubtedly,peti- tioner had overpaid its branch pr-ofit r� ~n.i>t tance t~;~ in the amount of F'172,058.90." F'eti tioner (Commissioner of In tern a 1 Revenue) contends that respondent is no longer- en tit 1ed to a r-efund because Memorandum Circular No. 8-82 dated March 17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1980. The said memorandum c:irc:ular states - "Considering that the 15% branch profit remittance taN is imposed and collected at source, necessarily the tax base s'hould be the amount actually applied

DECISION CTA CASE NO. 3076 - 8- for by t.he branch with the � Central Bank of t.he Philippines as pr-ofit to be remit ted -ab road. 11 F'eti tioner' s afor�esaid contention is without mer� it. What is applicable . in the case at bar is still the Revenue Ruling of January 21, 1980 -� because private r- e ~;ponden t Burroughs Limited paid the br-an c h pr-ofit renli ttance ta:-: in question on tL~r.::.~ ~L_J__4_,..........J...~_?-~. Memorandum Ci r c ul a r No. 8 - �82 dated -March 17 ~ 1982 cannot be given retroactive ef feet in the 1 ight of Section 327 of the National Internal Revenue Code which provides - 11 Sec . 32 7 . NqJJ_:::r.:_~_t_r_::_g_~!;_!; i y:J,J:._y_ g_'f______r_\,._t___!_J,_o__g_�. � An y rev o c a t i on ~ modification~ or revers a 1 of any of the rules and regulations promulgated in accordance with the prec~d ing section or any of the ruling s or circulars pro mulgated by the Commissioner sha ll not be given retroactive application if the revocation~ modification, or reversal will be pre judicial to the taxpayer except in the following cases (a) wh e re the taxpayer deliberately misstates or omits material fa c ts from his return or in any doc:ume n t required o �f him by the Bur-eau o �f Internal Revenue; (b) wh ere the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based, or (c) where the ta:-: payer acted in bad faith. 11 ( ABS CBN Broadca sting Corp. v. CTA 108 SCRA 151-152) The p re j~Jice that would re~ult to private respondent Burroughs Limited by a retroac:t~ve application of Memorandum 3

DECISION CTA CASE NO . 3076 .:. - 9 - Circulatr� No. 8 -� 82 is beyond question for � it would be deprived of the s ubstantial amount of F'172~058.90. And~ insofar as the enumerated e:-:cept.ions are concerned~ ad mittedly~ Burroughs Limited does not fall under any of them. We see no significance in respondent's special and a f �firm a t.i. ve defense that the 11 refund of the ta:�: under O.R. No. 28538996 dated April 3, 1978 (in the amount o �f F'16,35~5.67) ha s a 1 rea.dy pn:?sc r i bed 11 , apparently because the pet ition fer review was a mr:mded on April 17, 1980. The or ig ina 1 petition �for� r�eview was filed on April 1, 1980. The rule has been established that where an appeal is filed with the Court of Tax Appeals in connection with a c laim for refund of an internal revenue tax and the peti t.i.on fot review is later amended~ the two - year period .i.s sus pended from the date of filing of the original pet itio n for review~ not from the date of f i 1 ing of the amended peti ticm �for.. review. ( Cebu Po rtl a nd Cement Co . v s . Collector of Internal Revenue, L -205 63, Oct. 29, 1968, 25 SCRA 789.) ACCORDINGLY, res pondent Commissioner of Inte rnal Revenue i s hereby o r dered to refund to petit i one rs Hya tt Hong Kong Limite d (Phil i ppine Bran c h) a nd Hya tt Re g e n c y Ma nila the amount of

DECISION CTA CASE NO. 3076 - 10 - P63,105.53 representing overpaid branch profie remittance taxes paid in 1978 and 1979. SO ORDERED. Qu ezo n City, Metro Manila, Septe mber 14, 1988. AMANTE Presidi. WE CONCUR: C. ROAQUIN ,Judge z~ CERT I F I CAT I 0 N I cel~ ti fy that this decision was reached after due consulta~{on among the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. AMANTE F'residi g Judge Court of Tax Appeals u ~5