CTA Case No. 4242 (Decision)

Republic of the Philippines CO URT OF TAX APPEALS Quezon Ci ty STANDARD CHARTERED BANK <Phil.. Branch> � Petitioner, - versus - C.T.A. CASE NO. 4242 THE COMMISSIONER OF INTERNAL REVENUE. Respondent. X ----------------- - --- X Before this Court is a Petition for Review f iled by the petitioner seeking a refund of the total 1 amount of P713,870.95, representing alleged overpaid branch pr ofit remittance taxes during the year 1985. Petitioner is a resident foreign corporation duly licensed by Philippine laws to engage i n business with principal office at Petrophil Building, Makati Avenue, Makati, Metro Manila . In a letter dated May 30, 1986, petitioner's ap plication for profit remittance to its head office abroad was approved by the Central Bank in t he amount of P31 , 727 ,598.00. 38 2

- DE C I S I 0 N- C.T.A. Case No. 4242 - 2- On June 4, 1986, petitioner paid the 15% branch pro.fi t r emittance tax in the amount o.f ~4, 7 5'3 , 1 3'3 . 7 0. [ CB Confirmation Receipt No. B- 9 2 4177'3] On January 2 1, 1980, the BIR in another ruling issued in answer to a query as to the t~x base upon which t he 15% branch pro.fit remittance ta x should be imposed held that "the 15% branch p r ofit r e mittance �tax shall be imposed on the profit actually remitted abroad and not on the total branch profit out o.f which the remittance is to be made. " Relying on the above-mentioned Ruling of January 21, 1980 petitioner filed on March 1, 1988 a request for refund or tax credit, dated February 29, 1988, in the amount o.f P713,870.95, for allegedly overpaid branch profit remittance . tax for 1985, computed as follows: Profit for re�ittance after inco�e tax earned p 31,727,598.00 before profit reaittance tax 4, 759,139.70 Less: 15X profit reaittance tax paid Branch profit actually re1itted abroad 26,968,458.30 Kultiplied by rate of profit re11ittance tax Re11ittance tax that should have been paid X 15X Less: Profit re1ittance tax paid Overpayment 4,045,268.75 4,759,139.70 tP 713,870.951 ================= 383

- DEC I S I 0 N- C.T.A. Case No. 4242 -3- To date, r espondent has not acted on the �oregoing claim. Hence, petitioner �iled this peti tion �or review on March 14, 1988 as a way o� tolling the prescriptive period set �orth in Section 2 30 o� the 1988 Tax Code. In his answer to the petition �or review, respondent alleged as special and a��irmative de�enses, among others, that: 1. Petitioner �ailed to �ully substantiate its entitlement to a tax re�und or tax credit on branch pro�it remittances; it did not submit its Financial Statement needed to determine and compute petitioner's tax base and tax liability, Petitioner did not make su��icient averments as to the dates when the remittances were made; how much remittance was actually allowed as per its board resolution; and when the alleged pro�its were realized, in order �or respondent to have basis to determine whether said taxes paid by petitioner were correctly computed and paid on time; 2 . Revenue Memorandum Circular No. 8 - 8 2 states that "the 15% branch pro�it remittance tax is imposed & collected at source, necessarily the tax base should be the amount applied �or by the branch with the CB o� the Phils. as pro�it to be remitted abroad." 3 . The burden is on petitioner to show that the taxes paid were erroneously collect ed . 384

- DE C I S I 0 N - C.T.A. Case No. 4242 -4- The sole issue to be resolved in this case is whether or not the 1 5Y. branch pro�it remittance tax should be imposed on the pro�it actually remitted abroad and not on the total branch pro�it out o� which the remittance is to be made. REVENUE MEMORANDUM CIRCULAR NO. 8-82 <March 17~ 1982> SUBJECT: Clari�ication as to proper tax base in the computation o� .the 1 5Y. branch pro�it remittance tax. TO All Internal Revenue O��icers and Others Concerned. In BIR ruling no. 015-79 dated April 15~ 1979 anent the 15Y. branch pro�it remittance tax as an income tax imposed under Section 24 <b><2>, National Interna l Revenue Code o� 1977, as amended~ this O��ice ruled that "x x x x the 15Y. branch pro�it remittance tax should be based on the amount o� P1,540,330.43 representing pro�it derived �rom the disposition o� the shares, 15Y. o� which is P225~549.57." It will be noted that the basis o� computation in accordance with the ruling is profit without deduction for the 157. tax. On January ~ 1980~ this O��ice, in another ruling issued in answer to a query as to the tax base upon which the 15Y. branch pro�it remittance tax s hould be imposed held that "the 15Y. branch pro�it remittance tax shall be imposed Qn the profit actually remit ted abroad and not on the total branch pro�it out o� which the r emittance is to b~ made. " 385

- DECI S I 0 N- C.T.A. Case No. 4242 -5 - As the latter ruling seems to have given rise to some misconception that it modified BIR Ruling No. 016 - 79 with respect to the manner of computation of the 15Y. branch profit remittance tax, this Offic e issued a clarification ruling on Oct. 23, 1981 explaining: "The above ruling Co� January 21, 1980) merely emphasized the distinction between the total branch profit which is remittable and that portion of the branch profit actually remitted without deduction on account of the tax to be paid. "The phrase 'any profit remitted abroad' should be construed to mean the profit to be remitted. Hence, there must be an � actual remittance, as distinguished from profit which i.s remittable. "To gi.ve an example: I� the total branch profit is P115,000.00 but the amount to be remitted is only P100,000.00, then the tax base should be ~100,000.00. "Moreover, the 15Y. profit remittance tax imposed by Section 24 Cb)(2) of the Tax Code is an income tax, it is therefore, clear that the same is non - deductible from the gross <profit) income, inasmuch as the tax is an exaction on profit realize d f or remittance ab road, t he deduction thereo1 a s a n expense is not s us tained b la w s' nce no where Section 30 o the ~ax Code i s it rovi ed th et ~he s a me be deductible. Besides e duct ions from gros i ncome ar matters o _ legisla t i ve grace, what is 386

- DEC I S I 0 N- C.T.A. Case No. 4242 -6- not expr essly granted by law is deemed withheld. " Considering that the 15% branch pro�it remittance tax is imposed and collected at source, necessarily the tax base should be the amount actually applied �or ~ the branch with the Central Bank o� the Philippines as pro�it to be remitted abroad. <Sgd. > RUBEN B. ANCHETA Acting Commissioner Section 24<b><2><ii> <now Sec.25(5)) o� the Tax Code, provides: (ii) Ta~ on branch pro�~ts remittances. Any pro�it remitted abroad by a branch to its head o��ice shall be subject to a tax o� �i�teen per cent <15%> (except those registered with the Export Processing Zone Authority>; Provided, That any pro�it remitted by a branch to its head o��ice authorized to engage in petroleum operations in the Philippines shall be subject to tax at seven and one - hal� per cent <7.5%): And Provided, �urther, That interests, dividends, rents , royalties , including remunerations �or technical services, salaries, wages, premiums, annuities, emoluments or other �ixed or determinable annual, periodical or casual gains, pro�its, income and capital gains received by a �oreign corporation during each taxable year �rom all sources within the Philippines shall not be considered as branch pro�its unless the same are e��ectively connected with the conduct o� its trade or business in the Philippines. 38 7

- DEC I S I 0 N- C.T.A. Case No. 4242 -7 - In anothe r rul~ng ~ssued by the Bureau of Internal Revenue, dated October 2 3, 1981 as to the � manner of computat~on of the 15Y. branch prof~t rem~ttance tax , ~t merely emphas~zed the d~st~nction between the total branch profit which is remittable and that port~on of the branch profit .~ actually remitted without deduction on account of the tax to be paid. The phrase any profit remitted abroad should be Fconstrued to mean the profit remitted. Hence, ther e must be an actual remittance, as distinguished from profit which is remittable. In the recent case of of Internal Revenue v. Bank of America NT & SA and the Court of Tax Appeals, CA - G.R. SP No. 22529, September 19, 1990, the Court of Appeals upheld the validity of Revenue Memorandum Circular No. 8-82. This Court follows the reasoning of the Court of Appeals when it ruled: xxx. The use of the word remitted may well be understood as referring to that part of the said total branch profits which would be sent to the head office as distinguished from the total profits of the branch <not all of which need be sent or would be ordered remitted abroad>. If the legislature indeed had wanted to mitigate the harshness of successive taxation, it would have been simpler to just lower 388

.. - DEC I S I 0 N- C.T.A. Case No. 4242 -8 - the rates without in e��ect requiring the relatively novel and complicated way o � computing the tax, as envisioned by the her ein private respondent. The same result would have been achieved. "The attempt to deduce legislative intent with regard to Section 2 41b)( 2 llii) of the Tax Code would only serve to allow captious and strained intendment a� the law. Nima Subtilitas In Jure Reprobatur, Et Talis Certitude Certitudimen Con�undit <The law does not allow o� a Captious and strained intendment, for such nice pretence o� certainty con�ounds true and legal certainty>. As held in the case o� United States vs. Wurzbach, 280 U.S. 395, 398: Inasmuch as the 15X branch pro�it remittance tax is imposed and collected at source , i t follo ws that the tax base should be the amount actually applied for by the branch with the Central Bank of the Philippines as pro�it to be remitted abroad. In view of the �act that petitioner's branch pro�it remittance tax �or 1985 were paid on June 4, 1985, after the e��ectivity of Revenue Memorandum Circular No. 8 - 82 <March 17, 1982) , then what should apply as taxable base in computing the 15X branch pro�it remittance tax is the amo u nt �.f!plied �or with the Central Bank as pro�it to be remitted abroad and not the total amount o� branch pro�i ts. ''� 389

- DE C I S I 0 N- C.T.A. Case No~ 4242 -9- WHEREFORE, judgment is hereby rendered dismissing the instant petition for lack of merit. No pronouncement as to costs. SO ORDERED. Quezon City, Metro Manila, 19 May 19 WE CONCUR: ~\.~.~\Q. ~ ERNESTO D. ACOSTA Presiding Judge (on leave} RAHON 0. DE VEYRA Associate Judge CERTIFICATION I hereby certify that this decision was reached after due consultation between the members of the Court of Ta x Appeals in accordance with Section 13, Article VIII of the Constitution. ~Q_,~ ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals 390