CTA Case No. 3720 (Decision)

REPUB L I C OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SMITH KLINE & FRENCH OVERSEAS CO., & SMITH KLINE & FRENCH INTERNATIONAL CO., Peti tioner- , ..... Ve i"'S l.H:; ..... C.T.A. CASE NO . 3720 THE COMMISSIONER OF INTERNAL REVENUE, Respondent . >! ��-� �-�� ��-� ���- _,, ��- -��� _,. ��-� ���- >! DECI s I 0 N The case si mpl y addresses the que s tion of whether petitioners have esta bl ished a valid c l ai m t:o t tl E! r�e �fun cl a ll eqed paid tax at source on roya lties due a non - rr� f.?.si cl f.�~ nt f o l'" f::?i<Jn co r.. p or- .::~t.ion nn t f::? ng aqed i n t r. adf.�~ o r busi n ess in t he Philippin es. The pe titioners are Smi th Kline & French Overseas Company ( SKFD), a foreign corporation dul y li censed to e ng aqed in bus iness in the Philippines a nd S mit h Kline & French Int er n ational Company ( HI<F' I), a n o n - resident for eign co rpor ati on not e nq age cl i n trade or bu s ine ss in th e Philippine s . As i t a ppear s ~ fo r a thr ee month p e riod~ i.e. ~ De: t.obf.�? r� t.o D E�~CE�~ mbf.�:? l'" , .1. 90.1. ~ p<'�~ ti t i oner. !:'J f<F D ace r�u e d 328

DECISION CTA CASE NO. 3720 - 2- r� nyal ties dUf.?. pet.:i. tinnf?r- m<FI, USA; F:;: hone Pi:Ju l enc: h ~ Fl'"a n ce and ,Jans~;e n ,Je.n sse n N .V.~ i n the tot:.e.l amount. of F'4 7 .1~59 9.58. F'f? t..i. t. i cJn e r� S I<FCJ vJ .i. t h h e 1 cl t hf? t:.n ti:~ 1 a mount F:� .165 ~ 059.85 ( E :�:hs. A and A --� .1 ) representing 35% tax on said royalties and remitted th e sa me to the gnvernme n t under the following nfficial receipts: CEC F\<::Nenue Ta:�: E~::~;!'.?..:i,JJ.t. .N<=l..!. ~3~~:.!'.?.J,p:~ ...N9..!. 801067.1. 77219:::H l ""'l :::::�--f:r? F74, ::'94. ~)8 B, 13-....l 8T.)5ll.4 l -�-2 5--f.-r.::~ B--2 , B ...::::; c, c--1 c-�2~ c-::::: 80<:X?019 l 4 , 6Z ? . O O D, D-�..l D-2 ~ f}....:~-:; 8735ZZ3 f)( l<f,?Ol8 F, F~.....1 E-:,~ ~ F:>-~:;. Said ace: n ..tecl in the amoun t of P47.1~599.58 were ba sed o n the following percentages of nE-' t sa lr.;~s fol'" thf? per�iod in que c.:~ tion ~ pur-s uant to agree me nt s e n te r ed into by petitioner SKFCJ, and the non - res ident f oreig n corporations named below: F\oyi:\ 1 t.y (:*::_<;.:r.:t)g:J. I9.;::.....W.:i.ttlt:l(:-:'.1.9 Sm.i. th f=::l.i.ne 8( Fn;:�~�l c::h Internati<::JI"la l F'hc"''r"rTk::\C:eut:.ic:i:\l Pn::x:iuc:t.s F'fi,::::64~9B1.15 ~:i% P4lB, 2 49.07 PlLI�6~::'::S7.1.7 0:~1 sumer� F'n:x::luc: t s 23 ~ 433. 64 ::::.Y. 703.01 2LI.f.:>.05 32 9

DEC I S ION CTA CASE NO. 3 720 - 3- Vials and otJEn; 6f:l, :320 . f:lB 6"1. 4,099.25 .1.,1.).:34.74 75:::;' ~:3~5"7 �f:l7 ~3"1. ~!.7 '677 .l::l<:j> .C!.' 1.87. :?6 T<~b l et.s ,Jan!5Sf.�?l"l r:� h~, nn,;:~. �- C:PUticaJ.s; TD"f'(.)I .... S B.~sed CHl the above computation, pet..i t..i.oner SKFD accrued the amount. of P4.1.8,952.08 as royalties clue to the p F.:�' t:..i. t i on e ,... and pa:i.d thF~ corresponding withholding tax of P.1.46,633.22 (firs t two items above). The latter amount formed part. of the total tax paid of P165,059.f:l5. F'f.'i'r- 1 et. ter.. dated (~ugu s t ,, (~:.:�:h. ... ) thf?. Tee hno log y [loa r.. d (TTB) C::\ p p I'"CJVf.0cl t.he l.icensi n q o'q r�eE~mf.�~n t bf.'~ ti-'Jf.�~en pi?. t i t .ion e r� ~; S f::: FD an c:l SKF I ( E :-: h . G), effective from December 8, 1978 (exh. G- 3) and up to Dec:f?. mbe l'" 7, 198 ~:r, (E:. :-:h. G-�-4). Sai d c::lp prOVi::t l was s ubject to certain amendments as follow s : " :�: :-: :�: ~:; ubjf:?ct tu the attached q enE' r.. .::~ 1 t:.F.:~r - ms c:~ n d c ond .it .i. on <.; of reqistratiun and t he followi n g: Pre-Registration Condition: Amendment uf the Contract as �fo 11 ow!:;: 1. To r�e �flf.�?c:t:. in Ar.. t. III, Sees. ::~. 0 and 3. 0 2 l'�uya 1 ty r�a tes of 330

DECI SION CTA CASE NO. 3720 - 4- 3% of n et sa l es on ph ar ma - ceutical product s an d 2% of net sa les on consumer health pt,.�o c:luc:: t~;: 11 (E x h s. Hand H- .1.) Accordingly~ SKFD adjusted i t s intercompany account with in t:.o c: or�� r� ec: t:. o ve racc:ruec:l ro ya l ty clue to the d ecrea se in the approved royalty rat es above- mentioned. ,.J -��� 1 ~ ,J �����::? ~ K and 1<-�l) � A~5 '"' I"" E~sult o �f the q u a l i f i e d approval by t:. h f-~ Tec:hnoloq y T t'"'c::\ n s�fr:! r-� B oa r� d~ S I<F D s hould hi':\Ve only r.'cc:: r� u e cl i:\ S") r��ny c':l 1 tie~::; the total a mount F'2~l.1.~4.1.8.1.0 c::\nd ~oJ.i.thh f.? ld the c::\ mount of F=-87~996. ::~: :::; t �.a)�: t:. h E~ I'" f.�?O n. 1-�lenc::f.:.> ~ Wi::\~'5 c::\n DVE~I'"aCC:I'" Uc::ll of r-oyalty o �f f=-.1.67,:'5 ~):3.98 (E:-:h. I) and ovc-?. r� pc':l ymen t D f withhnldinq by F=-58~636.89~ broken dnwn as follow s : 1\k'.Jn�- n::>s.idr:-~-~ t TTB F\oyc::\1 ty F'c::\yrnent.: ::)5% Fotr-eiqn C'.o1'....... AppnJVE'l:1 pgl~:�.\t:tg_l_ . .. 1:'-k.:-:?.:t f.J~::~Jf;~~.?. tl-li':lt ~:; hould h.::~ve Withhold --� F~ a_t.es Flt<F'I I::)(::>E�~n C:\c::cn..lf.:.>d ... ..........:.tU(] TC::\):: F'hc':lnna--- CE�ut.i.cal F'roduc:: ts F13 ~ :::!'.f.Yt, 981 � 1. 5 Co-ls t.une t�� z::; ~ 4::.3 �64 2% F'n:::duc t:s TClTPL.S F':.?5.1.,41.B � .1.0 33 1

DECISION CTA CASE NO. 3 720 - 5- Consequently~ the a mount of P58~636.89 or t h e cli �f �fe l~ence between thE? t.a:-: p c~.id (P.1.46~63:3.2::~) and t hr.-? cOl'" r��ec t i'~mo un t. o �f ta :-: t. hat. s hou l cl hE~ ve b eE? n p a i c:l ( P 8 7 ~ 9 9 6 � :_!. 3 ) ( E :-: h s � I ~ I -- .1 ~ I - 2 an c:l I - 3 ) was erroneously with h eld and paid to the government. Cln cJanuc::\ry .t:::::~ 1.984 PE~titionE!r-�s.; f i l e d t.hr.-?.ir� B u reau~ likewise ~ t h e instant petition for review. The C:C.:~!:;p b t�?for�� e Us pr��r.�?!::;E>nts no dispute c::\S to the r-elat.i.vE"ly simple matpr� ia l f acts . petitio n ers for ma l l y of f ere d t h eir evidence t h e r�ef:;pon d e n t:. f="Nped.i.ently ~;ub rn .i.ttE~d the dec::.i~;.ion on thE? bas:i. ~; oi' thP p l e,::\cl.ing s ? �r.}..� . t h e r-f2qu.i. ~; i t.P B IF~ P I'"Ohi':\ h 1 y "l ost .in t .he oblivion o �f �fo l~qot.t.Pn l or� e. '' And~ s i.ncr.~� onE�" who ju d q me n t o n p l ead.i.n c.Js 1.-1 i. t. h ou t offering proof as to the truth of his alleqations~ must be unde i'" St.ood t .o hc::\Vf? s ubmitted the tr-�ut h o �f a l l the;:> mat.e r� i a l <~nd r� elE'V<:~nt c::\lleqat.i.ons for� the opposing party~ and to rest his motion for judgment on t:. h e!::>e C:\llr.:>qat. io n ~; t,,~ken t:.oqet h pr� 1--1ith suc h of h .i.!::> o~o-Jn ac..:; ar-e admitted ( Bauermann v. Case s .� .tO Ph.il � .386.: Evangelista v. De la Rosa, et al � .� 7f:.�, 332

DECISION CTA CASE NO . 3 7 2 0 - 6- Phi.l. .t .t s) ~ poi n ted out by petitioner� may be consider. ed as not que s tioning seriousl y petitioner's entitlement to its claim for More s o when the evidence pre se nted~ which wa s not di s puted . by r-e<:c,ponden t�: !:'".u f f i c i en tl y f~ s t<~bli s h es pr:~ t.i tinnr:~r� � s f"iqht to the rF.?fund." ( Comm o nwealth Hanagement and S ervice Co rp o ration v. Commi ss ion e r of Internal Revenue ~ CTA C a s t? No. 3232~ Jun e 26 ~ .t98S) . Going b y suc h pronounc e me nt and insofar a s the sa me i s brought to bear upon t he petitinner 's case at bar~ there can be no occasion to s p ec ul a t e upon what rule s hould appl y. All told~ t h e b as i s of the clai m is not. s hort nf s pec ific s upport in terms of tracta ble data opE~ nly laid C':\ nd fu l ly c!i~~; clo c.5 Pd~ a~~� s u c h cle ~:; er� vr,~s thf.-:! c r.. edenc:P th at f,>hnulc:l nor. m .:.~ ll y b e ac:cn r. c:l e cl in i:.:hf.-? i::\bc.;F.?nce n �f contr� a r� y f~viciPnc:(::> of rE!lev,::\nce and co mpetence r e quir~d to ba s h th a t patina of va l idity over. the c:: l ,::\i m. And t h e r ecor d s mak e it clear that thf~ lr� e qu.i.c.; it.e s t..::, tem e nt s Ol'" c::e r� t.i.f.i.cations of t.hr-~ ta :-: v1.ithheld~ paid <:i nd r�e mitt E~ d upon ~�Jh.i. c h tc:\ckecl the refundable amount c laime d could readily fur n i s h 33 3

DECISI ON CTA CAS E NO. 3 720 - 7- 1 E~ga l d~? �f i n i te r.. eso l ve hut a ppropriate action thereon appears dawdled in a l imbo of l ingering verification, wh ich comes as an ag<;JI'"<'J.V c.~ted c hu tzpa h , s o to ~; pf::>ak. Peti tiDne r.. nr� .:my si m.i.la lr ly c i. r�c: urn s t.?.n c: ed for that matter de ser ve s a mea s ure Df fair dealing in a mDre expeditious and c:Dmpete n t l y re s pon s ive action. f.-)uff.ice i t t.her.. e�fol~e, both the c i r c u ms tan ces obt.a.ininq <:\nd t .h ce r-l7~ 1 E~Vc':\ nt:. leqa l s tand ,::\l'" c:I S compF.~ l cone: 1 u ~~ ion t. hc.~t. pet.i. t.i.on e r.. ~;:; ha v ~? pr� o v ~? d c-:~ n tit l E'mf.�? n t t .o a �f,?. v or. ab l P df.~~t.c=~ l'" m.i.nat.ion fo1"' the WHEREFORE, the refund of the amount sought is hereby ordered the respondent. No pronouncement as to cos t s. SO ORDERED. Quezon City, Metro Ma n i l a, June 3 0, 1989. ~-

- - DECISION CTA CASE NO. 3 720 - 8- W I~~ CCJI\.ICUF\ : AMANTE ILLER Pr� e s .i.d .i.nq .JudcJ!'? (em leavE:>) CONSTANTE C. ROAQUIN n r";~;:; o c .ia t e ~JuciqE? CERTIFICATION I hen::> by certify that this decision reached after due con s ultation amonq the members of t.hE? Cou r� t Ta:�: A p pe.=~ 1 s .in w.it:h Section 1 3 ~ Article VIII of the Con s titution. AMANTE F'l'"e s.i.d.i.r q ,JudcJe Court of Ta x Appeal s 335