CTA Case No. 3702 (Decision)

Olf"UBLJe o' mz Piltt.a~�,.,.. ~OURT OF TAX API'EAU -~� CitY II COMMERCIAL UNION C. T.A . CASE NO . 3702 ASSURANCE CO . PLC , Petitioner , - versus - THE COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - X DECI S I 0 N The question presented in this case is whether the 15% branch profit remittance tax should be based on the total profits to be remitted without deducting the branch profit tax or on the profits actuallj remitted . Petitioner is a corporation duly organized and existing under the laws of England with a duly autho- rized Philippine branch located at Atheneum Building, Salcedo Village , Makati , Metro Manila . 185

.'. DECISION - CTA CASE NO. 3702 2 II On January 20, 1983, petitioner applied to purchase foreign exchange for remittance of its branch profits, ' for the p~riod covering the years 1971 to 1981, to its Far East Regional Head Office in Singapore, from the Central Bank through the Chartered Bank in the amount of B3,635,206.00 (Exh. "A", p. 12, BIR recs.). On February 22, 1983, it paid the branch profit remittance tax of B641,507.00 representing 15% of the total accumulated profit after income tax amounting to B4,276,713.DO, instead of B3,635,206.DO, the amount actually remitted and approved by the Central Bank on May 12, 1983 (Exhibit "F", p. 11, BIR recs.), to its Fai East Regional Head Office in Singapore. On this basis, petitioner now seek the refund of B96,226.10 computed as follows: 15% X B4,276,713.00 B64L,507 .DO 15% X B3,635,206.00 = ' :-545,280.90 Overpaid tax - '8 '9'6,'226' .'10 Respondent, on the other hand, rejected the claim for refund, filed by the petitioner on June 24, 1983, in its letter dated July 21; 1983 stating its reason as follows, to wit: "The pHrase 'any profit remitted abroad' whith is the tax base for the 15% imposition 1BG

DECISION - CTA CASE NO. 3702 3 II should be construed to mean the profit to be remitted; as distinguished from the total profit which is remittable. To given an example: If the total branch profit is e155,000.00 but for certain reason~ the amount to be remitted is only elOO,OOO.OO then the tax base shoul.d be e1oo,ooo.oo. Besides, the profit remittance tax is imposed under Section 24(b)(2 .) of the Tax Code as an income tax hence, the tax is non- deductible from the gross income. The payment, therefore, of the branch profit remittance tax in the amount of e641,507.00 is proper and legal." (pp. 19-20, BIR recs . ) Hence, petitioner on November 11, 19~3 filed the instant petition to review the final decision of the Deputy Commissioner of the Bureau of Internal Revenue. The facts not being controverted in the instant case, respondent submitted the case for decision on the basis of the pleading and the evidence presented by petitioner. Section 24(b)(2)(ii) of the National Internal Revenue Code provides: "Sec. 24. Rates of tax ori corporations. - (a) Tax on domestic corporations. x x x (b) Tax on foreign corporations. x x x (1) Non-resident corporations. x x x (2) Resident corporations. x x x (i) In general - x x x (ii) t~x on branch profits remittances. - Any profit r~~itted abroad by a branch to its head office shall be

DECISION - CTA CASE NO. 3702 4 II subject to a tax of fifteen per cent (15~~) x x x . " (Underscoring supplied.) It i~ respondent's theory that the tax base in computing the 15% branch profit r~mittance tax should be the pr'tifit tti be� I'e~itted contrary to petitioner's theory that the tax base should be the profit actually remitted , as stated in his answer (pp . 28-29, CTA recs.) . This theory is without merit for this issue has already been settled in the case of Bank of America NT & SA vs . The Commissioner of Internal Revenue (C . T. A. Case No . 3799 , October 29, 1986), portions of the decision is hereby reproduced as follows: "x x x . The controlling legal provision employs the term 'any profit remitted abroad' - NOT 'any profit to be remi t .ted abroad'. The difference between �p�r�o�fi.ts� �r�e�m�i �t�t �ed and �pr.ofi' t �s� �to� 'be� � r� e� ~it� ted, is obvious; the first refers to such profits ~~t0~lly remitted while the second would refer to profits to be remitted . If it had been the intent to impose and collect the branch profit remittance tax on the amount applied for remittance before the remittance tax , the law-making authority could have easily done ~ so by stating 'any profit to be remitted abroad', and the like. We cannot ignore the principle that statutes imposing taxes are not to be construed to include within the subject taxed anything which is not clearly inten~ed by the legislature to be so included . (51 Am. Jur. 360-361; 186

DECISION - CTA CASE NO . 3702 5 II Gould vs . Gould , 245 U. S . 151 . ) As stated in Manila Railroad vs . Collector of Customs , 52 Phil . 950 , burdens are not to be imposed nor presumed to be imposed , beyond what the statutes ex- pressly and c l early declare . The statutory language clearly and specifically refers only to ' any profit remitted abroad ' as being subject to the branch profit remittarlce tax of 15% . By ' remitted ' is simply meant ' se nt ', ' transmitted ', or ' forwa r ded '. (Hollowell vs . Life Insurance Company , 35 S . E. 616; Nicolleti vs . Bank of Los Banos , 214 P. 51 . ) Nothing there speaks of ' prdfit to b~ r~mitt~d abrtiad ' or 'p rofit a~t~~lly a~~li~d f6r by � th~ brari~h with .the Central B~ n k '. The law is clear and unequivocal . rr-Ts well-settled that a statute , free from any constitutional infirmity , should be enforced as written~ To our mind , the law is plain and unambiguous . It merely calls for application as thus worded . There is no room for interpretation . " (Bank of America NT & SA vs . The Commissioner of Internal Revenue, pp . 7~8 , C . T . A . Case No . 3702 , October 29 , 1986) However , respondent emphatically stressed in his Memorandum that what is to be applied in the instant case i~ Revenu~ M~~orarid u m Circul~r Nd . 8-82 dated Mar~h 17 , 1982 , taking note of the fact that petitioner paid its branch profit remittance tax ori F~bruary 22 , . T 9 8.3 , � e 1 e v e n mo nth s a f t e r Re v e nu e Mem o r a n d u m Ci r c u1 a r took effect and it should prevail instead of the BIR 183

DECISION - CTA CASE NO . 3702 6 '\ Ruling dated January 21, 1980 . Respnndent cited the case of Comn1 i ssi oner of Internal Revenue vs . Burroughs Limited and the Court of Tax Appeals (G . R. No . L-66653, June 23, 1986) , and stated that the Supreme Court impliedly held that if the 15% branch profit remittance tax was paid ori 6~ ~fter M~~~h 17 , 1982, then Revenue Memorandum Circular No . 8-82 should apply . REVENUE MEMORANDUM CIRCULAR NO . 8-82 11 X X X XXX X X X. On January 21, 1980, this Office, in another ruling issued in answer to a query as to fue tax base upon which the 15 % branch profit remittance tax should be imposed held that 'the 15 % branch profit remittance tax shall be imposed on the profit actually remitted abroad and riot on the total branch profit out of which the remittance is to be made . As the latter ruling see ms to have given rise to some misconception that it modified BIR Ruling No . 016-79 with respect to the manner of computation of the 15% branch profit remittance tax, this Office issued a clarificatory ruling on October 23 , 1981 explaining - ' The above ruling (of January 21, 1980) merely em- phasized the distinction bet- ween the total branch profit which is ~emittable and that portion of the branch profit actually remitt~d without deduction on account of the tax to be paid . 190

DECISION - CTA CASE NO . 3 702 7 '' 'The phra se "any profit remitted abroad" s hould 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 give an example: If the total branch profit is e115,000 . 00 but the amount to be remitted is only eloo,ooo,oo , then the tax base should be elOO,OOO . OO . 'Moreover, the 15% profit remittance tax imposed by Section 24(b)(Z) 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 ta x is an exaction on profit realized for remittance abroad , the deduction thereof as an ex pense is not sustained by law since nowhere in Section 30 of the Ta x Code i s it provided that the sa me is deductible . Besides deduction s from gross income are matter s of legislative grace, what is not expressly granted by law is deemed withheld. ' Consid eri ng that the 15% branch profit .�remittance tax is imposed and collected at source , necessarily the tax base should be the amount actually ~pplied for by the branch wi~h the Central Bank of the Philippines as profit to be remitted abroad . XXX XXX xxx." In the case of Bank of America NT & SA vs . Com- missione r of Internal Re~enue (C . T . A. Case No . 3799, 191

--- .. DECISION - CTA CASE NO . 3702 8 II October 29 , 1986) this Court ruled against the appli- cability of the Burroughs Limited case , it appearing t hat t he branc h profit remittance tax was paid on July 20 , 1982 after the effectivity of Revenue Memo - randum Circular No . 8-82 dated March 17 , 1982 , similar to the case at bar , while in the case of Commissioner of Internal Revenue vs . Burroughs Limited and The Court of Tax Appeals (G . R . No . L-66653 , June 19 , 1986) the 15% branch profit remittance tax wa s paid before Revenue Memorandum Circular No . 8-82 took effect , pay- ment of which was made on March 14 , 1979 even prior to the Revenue Ruling dat ed January 21 , 1980 . Thus, the Supreme Court held , the contention of t he Commissioner of Internal Revenue that respondent Burroughs Limited is no longer entitled to a refund because Memorandum Circular No . 8-82 dated March 17 , 1982 had revoked and/o~ repeal e d BIR Ruling of January 21 , 1980 is without merit for what is applicable is still the Revenue Rul ing of January 21, 1980 because respondent paid the branch profit tax on March 14 , 1979 . Memorandum Circular No . 8 - 82 dated March 17 , 1982 182

DECISION - CTA CASE NO . 3702 '9 II cannot be given retroactive effect in the light of Section 327 of the National Internal Revenue Code since it would result to the prejudice of the taxpayer , it appearing that respondent does not fall under any of the enumerated exceptions (Commissioner of Internal Revenue vs . Burroughs Limited and The Court of Tax Appeals, 142 SCRA 328- 3 29 . ) Inasmuch as petitioner in its application to purchase foreign exchange for remittance of earnings , profits or dividends to non-residents (Exh . "A", p . 12 , BIR recs . ) had applied to remit, and in fact actually remitted , only the amount of E3,635 , 206 . 00 (Exh . "A-2", p . 12 , BIR recs.) , and not E4 , 276 , 713 . 00 , then the basis of the 15% branch profit remittance tax should be the ~~o~nt actually re~itted which in this case is e3 , 6.3 5 , 2o6 � oo � (undeflininq s~pplied . ) Therefore, the amount of branch profit remittance tax should be computed as follows : Amount applied to be E3 , 635 , 206 . 00 remitted and approved by the Central Bank 15% Branch Profit X 15% Remittance Tax :e 545 , 280 . 90 Branch Profit Remittance Tax 193

DECISION - CTA CASE NO . 3702 10 '' There is no question that petitioner has overpaid its 15% branch profit remittance tax in the amount of E96 , 226 . 10 computed as follows: Amount of branch profit E641 , 507 . 00 remittance tax paid (15% X E4 , 276 , 713 . 00) Less : Branch Profit Remittance Tax (15% X E3 , 635 , 206) 545 , 280 . 90 Overpaid Branch Profit e 96 , 226 . 10 Remittance Tax WHEREFORE , respondent Commissioner of Internal Revenue is hereby ordered to refund in favor of peti- tioner , Commercial Union Assurance Co . PLC , the amount of E96,226 . 10 , representing overpaid branch profit remittance tax , without pronouncement as to costs . SO ORDERED . Quezon City , 1988. r-........ � ROAQU IN WE CONCUR : Associate 1L

...... . . DECISION - CTA CASE NO . 3702 11 II CERTIFICATION I hereby certify that this decision was re a ched after due consultation amo n g the members of the Court of Tax Appeals in accordance with Section 13 , Article VIII of the Constitution . AMANTE Presidi 190