GOODYEAR PHILIPPINES, INC. v. COMMISSIONER OF INTERNAL REVENUE

Republic of t he Phi lippines COURT OF TAX APPEALS Quezon City FIRST DIVISION GOODYEAR PHILIPPINES, CTA Case No. 9023 INC ., For: Refund Petitioner, Members: -versus- DEL ROSARIO, P.J., Chairperson, UY, and MINDARO-GRULLA, JJ . COMMISSIONER OF Promulgated: INTERNAL REVENUE, n�.C 01 20,7 . . ~ Respondent. u x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x DECISION MINDARO-GRULLA, J.: This resolves the Petition for Review filed by Goodyear Philippines, Inc., pursuant to Section 7(a)(2)1 of Republic Act (RA) No. 1125, otherwise known as "An AFt Creating the Court of Tax Appeals", as amended, as well as Section 3(a)(2)2 of Rule 4 and Section 4(a)3 of Rule 8 of the Revised Rules of the Court of Tax Appea ls, as amended. 1 SEC. 7. Jurisdiction. - The CTA shall exercise : (a) Exclusive appellate jurisdiction to review by appeal, as herein provided: XXX (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or dther charges, penalties in relations thereto, or other matters arising under the National lnternJI Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in wh ich case the inaction shall be deemed a denial; 2 SEC. 3. Cases within thejurisdiction ofthe Court in Division. - The Court in Division shall exercise: (a) Exclusive original over or appellate jurisdiction to review by appeal the following : XXX (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code or other applicable law provides a specific period for action: xxx; 3 SEC. 4. Where to appeal� mode of appeal. - t.

CTA CASE NO. 9023 Page 2 of 30 Goodyear Philippines, Inc. vs. CIR DECISION Petitioner seeks the refun~ of the alleged erroneously withheld and remitted final withholding tax (FWr) in relation to the redemption of its preferred shares on pril 11, 2013 in the amount of P18,784,742.85. Petitioner Goodyear Phil ppines, Inc. (GPI) is a domestic corporation duly registered with he Philippine Securities and Exchange Commission (SEC) under Co pany Registration No. 2394, with registered address at the 15th Fl or Picadilly Star Building, 4th Avenue comer 27th St., Bonifacio Globa City, Taguig.4 It is registered with the Bureau of Internal Reven e (BIR) as a large taxpayer, with Taxpayer Identification Number TIN) 000-409-561-000.5 On the other hand, re pondent Commissioner of Internal Revenue (CIR) is sued in his o icial capacity as the head of the BIR, having been duly appointed and empowered to perform the duties of his office, including the duty to act and approve claims for refund or tax credit as provided by law. H holds office at the BIR National Office Building, Agham Road, Diliman, uezon City. On August 19, 2003, the EC approved petitioner's application for the increase of its authorize capital stock from P400,000,000.00, divided into 4,000,000 shares ith par value of PlOO.OO each, to P1,731,863,000.00, divided into 4,000,000 common shares with par value of PlOO.OO each and 13, 18,630 preferred shares with a par value of PlOO.OO each.6 Article 7(4) of petitioner's Articles of Incorporation states that each and every certificate of referred shares shall be subject to redemption, and may, at the option of the Board of Directors, regardless of the existence of nrestricted retained earnings in the books of the Corporation, on a y semi-annual dividend date at any (a) An appeal from a decision or ruling or t e inaction of the Commissioner of Internal Revenue on disputed assessments or claim for refu d of internal revenue taxes erroneously or illegally collected, the decision or ruling of the Co missioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry, the Secret ry of Agriculture, and the Regional Trial Court in the exercise of their original jurisdiction, shall e taken to the Court by filing before it a petition for review as provided in Rule 42 of the Rules f Court. The Court in Division shall act on the appeal. 4 Exhibits "P-2" and "P-3", Formal Offer of Ex ibits (FOE) Folder. 5 Par. 1, Admitted Facts, Joint Stipulation of acts and Issues (JSFI), Docket, pp. 338-339; Exhibit "P-44", FOE Folder. 6 Exhibits "P-3" and "P-3-3", FOE Folder. c.

CTA CASE NO. 9023 Page 3 of 30 Goodyear Philippines, Inc. vs. CIR DECISION time after one (1) year from the~ate of the issuance of such certificate, be called and retired at the pri e of P100.00 for each share and the amount of dividends accrued and unpaid at the date of the redemption.l On March 5, 2013, the Bo rd of Directors and the Stockholders of petitioner unanimously appro ed the redemption on April 11, 20138 of the 2,597,133 preferred share issued to Goodyear Tire and Rubber Company (GTRC); a non-reside t foreign corporation duly organized and existing under the laws of the State of Ohio, United States of America, with office address at 144 East Market Street Akron, Ohio.9 GTRC is not registered as a corporation or partnership in the Philippines. Petitioner paid the tot~l redemption price amounting to P384,944,919.00 to GTRC.10 On April 3, 201311, petitio er withheld and remitted to the BIR the amount of P18,784,742.8 12, representing the fifteen percent (15�/o) FWT imposed under Secti n 28(B)(5)(b) of the National Internal Revenue Code (NIRC) of 1997, as amended, computed on the basis of the difference between the Red mption Price and the aggregate par value/cost of the shares redeem d, as follows: Redemption Price P384,944,919.00 P259,713,300.00 sPhaarrVeaxlu2e,/5C9o7s,t1o33f Ascqhu�a���r1e�s�s.i)tioDnif(ff~1r0en0ceper Redemption Price 125.231,619.00 Multiplied with 15�/o FWT p 18,784,742.85 On April 8, 2013, before t e payment of the redemption price to GTRC, petitioner filed an Applic tion for Relief from Double Taxation (BIR Form No. 0901-C)13 with he International Tax Affairs Division (ITAD) of the BIR, requesting onfirmation, among others, that the 7 Exhibit "P-3-4", FOE Folder. 8 Exhibit "P-10-3", FOE Folder. 9 Exhibits "P-40" and "P-41", FOE Folder. 10 Exhibits "P-17" and "P-17-2", FOE Folder. 11 Exhibit "P-4-2", FOE Folder. 12 Exhibits "P-4", "P-4-3", "P-5" and "P-6", FOE Folder. 13 Exhibit "P-36", FOE Folder. {

CTA CASE NO. 9023 Page 4 of 30 Goodyear Philippines, Inc. vs. CIR DECISION redemption by petitioner of its 2,597,133 preferred shares held by GTRC is not subject to Philippin income tax pursuant to paragraph 2 of Article 14 (Capital Gains) and Article 1 of the Reservation Clause of the Republic of the Philippines- nited States (RP-US) Tax Treaty.14 However, despite alleged lumerous inquiries, the BIR ITAD has yet to issue a confirmation o the income tax exemption of the redemption by petitioner of its preferred shares. Believing that it is enti led to the refund of the alleged erroneously withheld and r mitted FWT, petitioner filed an administrative claim15 for refun on March 31, 2015 before the BIR - Large Taxpayer Regular Audit Di ision (LTRAD) I, pursuant to Sections 204 and 229 of the NIRC of 199 , as amended. To date, respondent has y~t to act on petitioner's administrative claim for refund. Thus, petitioner filed the instant Petition for Review on March 31, 201516� Within the extended tim granted by the Court,17 respondent filed his Answer18 through re istered mail on May 29, 2015 and received by this Court on Jun 4, 2015, interposing the following special and affirmative defenses: "SPECIAL AND AliFIRMATIVE DEFENSES Respondent incorporats and repleads all the foregoing averments and in further su port of the Specific Denials herein set forth, respondent respec ully alleges as her defense that: The Preferred Sha es Issued to Goodyear ire and Rubber Comp ny (GTRC) and the Amount of Dividends Accrued nd Unpaid at the Date of 14 Exhibit "P-37", FOE Folder. I 15 Exhibits "P-7", "P-8", and "P-9", FOE Folder. 16 Docket, p. 10. 17 Order dated April 28, 2015, Docket, p. 20..... 18 Docket, pp. 209-214. {

CTA CASE NO. 9023 Page 5 of 30 Goodyear Philippines, Inc. vs. CIR DECISION Redemption is Subject Ito Final Withholding Tax Under the National Int rnal Revenue Code of 1997, there is a stand-alone definition o dividend, which, provides that a dividend is a distribution made by a corporation to its shareholders out of its ear ing or profits. Clearly therefore, under the tax law dividends re paid to shareholders out of the profits of the company, nd not necessarily out of the unrestricted retained earnin As here, it must be emphasized that petitioner paid Goodyear Tire and Rubber Company (GTRC) the amount of P384,944,919, representin the outstanding 2,597,133 preferred shares issued to GTRC at 100 per share and the amount of dividends accr ed and unpaid at the date of redemption. Now, petitioner argue that the gain resulting from the redemption is not dividends but capital gain. This should not and cannot be countenan ed to breach the tax law on dividends. And in trying to aise a point, petitioner reiterated Wise &. Co., Inc. et al. vs Bi iano L. Meer, G.R. No. 48231, 30 June 1947, arguing that th fact that the distributions were called dividends is not contr lling. The determining element is whether the distributions w re made in the ordinary course of business and with intent to aintain the corporation as a going concern, or after deciding t quit and with intent to liquidate the business. Respondent respectfully posits that the instant case was misapplied by petitioner. It is not amiss to state that in that case the Honorable Supr me Court refers to 'liquidating dividends'. The stockholders surrendered and relinquished their stock in return for the distributions made, thus ceasing to be stockholders of the corpora ion. The corporation was, wiping out all parts of the stock alders' interest in the company, hence, in that case the Hon rable Supreme Court: 'Amounts distributed in the liquidation of a corporation shall b treated as payments in exchange for the sto k or share, and any gain or profit realized there y shall be taxed to the distribute [sic] as other gains or profits' (underscoring supplie ) (

CTA CASE NO. 9023 Page 6 of 30 Goodyear Philippines, Inc. vs. CIR DECISION Clearly therefore, the case of Wise & Co., Inc. et al. vs Bibiano L. Meer, is not on al fours in the instant petition. The dividends were issued and aid by a going corporation out of current earnings or accumul ted surplus. It being clear that the distribution under considera ion was ordinary dividend, it must therefore be taxed under S ction 28(B)(S)(b) of the NIRC of 1997, as amended. Petitioner Failed Exhaust Administrativ Remedies Petitioner miserably failed to exhaust administrative remedies before elevating the case to this Honorable Court. In Jariol v COMEL~C, 80 SCAD 910, 270 SCRA (1997), the Highest Tribunal had occasion to rule the following: 'The aggrieved party must not merely initiate the prescribed administrative procedure to obtain relief, but m st also pursue it to its appropriate concl sion before seeking judicial interventio in order to give that administrative agency an opportunity to decide the matter by itself correctly and prevent unnecessa and premature resort to the court.' (emph sis supplied) In the instant case it may be gleaned that the administrative claim for tax r fund was filed with the Bureau of Internal Revenue only on 3 Marc[h] 2015 and the Petition for Review was filed with he Court of Tax Appeals on 31 Marc[h] 2015. Evidently, r spondent was not given sufficient time and information to e aluate petitioner's administrative claim for refund, nor was sh given sufficient facts to evaluate the administrative claim. In Ampil, Jr. vs. cqMELEC, the Supreme Court has repeatedly pronounced the fpllowing: 'xxx In a long line of cases, this Court has held consistently that efore a party is allowed to seek the intervention of the Court, it is a pre- condition that he should have availed of all the means of administrati e processes afforded him. c

CTA CASE NO. 9023 Page 7 of 30 Goodyear Philippines, Inc. vs. CIR DECISION Hence, if a remedy within the administrative machinery can still b resorted to by giving the administrative officer oncerned every opportunity to decide on a rna er that comes within his jurisdiction, then uch remedy should be exhausted first befor the court's judicial power can be sought. The pr mature invocation of court's intervention is fatal to one's cause of action' The purpose of req iring submission of supporting documents relevant to a cl im for tax refund is to give the administrative agency the o portunity to ascertain the veracity and validity of the claim. his is the very essence, the very substance of the doctrine of exhaustion of administrative remedies. The doctrine res s upon the presumption that the administrative body, board, or officer, if given the chance to correct its mistake or error, ay amend its decision on a given matter and decide it properl . It is well settled rule i tax laws, that the taxpayer who feels aggrieved by the actio s taken by tax authorities may not seek redress in the courts f justice without first exhausting available administrative re edies, except for certain well- recognized exceptions. It i the policy of the law and good practice to discourage court litigations and encourage resort to administrative action whene er the latter is feasible, adequate, and speedy. Another thing, he respect and consideration due to each branch of the gov rnment demand that the judicial department abstain, whene er possible from interfering in the acts of the other departmen except when the latter transcend their respective shares of a ion and suitable remedies cannot be obtained by them. Respondent Is Not Entitled To A Refund Basic as the hornb ok principle that taxes are the lifeblood of the governmen and should be collected without unnecessary hindrance: t is upon taxation that the Government chiefly relies t obtain the means to carry on its operations and it is of the tmost importance that the means adopted to enforce the col ection of taxes levied should be summary and interfered wit as little as possible. Hence, tax refunds a~ in the nature of tax exemptions and are to be interpreted inl the strictest manner. Considering {

CTA CASE NO. 9023 Page 8 of 30 Goodyear Philippines, Inc. vs. CIR 1 DECISION that tax refunds consist monetary amounts which are currently in the hands of the government, the validity of petitioner's claim should be eticulously verified. As held, the right of taxation cannot easily be surrendered, statutes granti g tax exemptions are considered as a derogation of the sover ign authority. Statutes that grant tax exemptions are constr ed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. The general rule is that claimant of tax refunds bear the burden of proving the factual basis of their claims. Again, taxes are the lifeblood of the nation. Therefore, statutes that allow exemptions are construed strictly against the grantee and liberally in favor of the gove nment." On June 18, 2015, petitioner filed its Reply19, stating the following arguments: a. Petitioner's payment ~o GTRC does not qualify as taxable dividends unde~ Section 73(A) of the 1997 Tax Code; b. The difference betwee the redemption price and the par value of the shares is a capital gain, not a dividend; c. The redemption of pre rred shares is not "equivalent" to distribution of divide ds; d. Payment to GTRC did not come from accumulated surplus of the Corporati n; a , e. The case of Wise & Inc. et a/ vs. Bibiano Meer is applicable, in so far as i clarifies when a distribution can be considered as "divid nds"; and f. The doctrine of exhau tion of administrative remedies admits exceptions. The Pre-Trial Conference was set on July 23, 2015.20 Thus, petitioner filed its Pre-Trial B ief21 on July 20, 2015, while the Respondent's Pre-Trial Brief22 w s filed through registered mail on July 20, 2015 and received by this C urt on July 23, 2015. 19 Docket, pp. 218-229. 20 Notice of Pre-Trial Conference, Docket, pp.l 216-217. 21 Docket, pp. 232-248. 22 Docket, pp. 296-298. (

CTA CASE NO. 9023 Page 9 of 30 Goodyear Philippines, Inc. vs. CIR DECISION On August 7, 2015, respon ent filed a Motion to Dismiss23 on the ground that Mr. Ronaldo Jai e D. Castro, petitioner's incumbent president, was not authorized t sign the Certification and Verification of Non-Forum Shopping, to file he instant Petition for Review, and to represent petitioner in court pro eedings. Meanwhile, the parties fil~d their Joint Stipulation of Facts and Issues24 on August 20, 2015. In the Resolution25 dated October 19, 2015, the Court denied respondent's Motion to Dismiss r lack of merit but directed petitioner to submit the appropriate autho ization in favor of Mr. Ronaldo Jaime D. Castro to represent petition r and to perform all other necessary acts in relation to the instant ase. The Court also approved the parties' Joint Stipulation of Fact and Issues and terminated the Pre- Trial. On November 4, 2015, petitioner filed a Manifestation and Compliance26 to the order issue~ by the Court in the Resolution dated October 19, 2015. Thereafter, the Court issued the Pre-Trial Order27 on December 9, 2015. During trial, petitioner ~resented its Finance Manager, Ms. Marilou F. Rodas28, as its lone witness. Petitioner's Formal Offer o Exhibits with Manifestation29 was filed on May 18, 2016. In the Resol tion30 dated July 15, 2016, the Court admitted petitioner's Exhibits " -2", "P-2-1 ", "P-2-2", "P-3", "P-3-1 ", ""PP--73--25""'' ""PP--83"-'3""P' "-8P--13"-'4""P' -"9P"-'4""P' "1P0-"5'""'P"-P1-06-"1' ""'P"P-7-"1'0"-P2-"7' -"2P"-1' 0"P-3-"7'-"4P"-' 23 Docket, pp. 327-333. 24 Docket, pp. 338-345. 2s Docket, pp. 402-407. 26 Docket, pp. 410-414. 27 Docket, pp. 433-452. 28 Minutes of the Hearing dated April 19, 2~16, Docket, pp. 553-557; Exhibit "P-47", Amended Judicial Affidavit In Lieu Of Direct Testimo~y, Docket, pp. 509-547. 29 Docket, pp. 562-587. 3o Docket, pp. 598-599. (.

CTA CASE NO. 9023 Page 10 of 30 Goodyear Philippines, Inc. vs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fdoP60er-n""3''fiea5""id"PlP'u-"t-r4h4Pe1e6-"t3-o'a15d""-pmP'1r-"ei"4'ssP1"se-Pi-n4o1-tn63II-t'5h2o-"e"f2P'i"rE-'4"xo"P2hrP"-iig-b5'3ii0"nt6' "'-'"I4sP"a2Pfn-o-4-d2r33"7"c'"'"oP"'"m-P"P4P-p-74-4a"34r3.8i"-s'"2o'""nH"P' .Po"--4Pw34-e94-v"18'e"""r'''P"a-Ptn3h-d94e-5"1"PC"''-o4""uPP9r--"t Petitioner's documentary exhibits are as follows: Exhibit: I Description: P-2 I Amended Articlels of Incorporation of Goodyear P-2-1 P-2-2 Philippines, Inc. (GPI) duly approved by the SEC on P-3 March 1, 1995 P-3-1 P-3-2 I SEC Certified Tru~ Copy Stamp P-3-3 I Article 4 of the Arriended Articles of Incorporation of GPI P-3-4 P-4 duly approved by ~he SEC ON March 1, 1995 P-5 I Certificate of Filin~of Amended Articles of Incorporation P-6 P-7 of GPI issued by the SEC on August 19, 2003 with attached Amende Articles of Incorporation I SEC Certified Tru~ Copy Stamp I Certification of; majority directors of Goodyear Philippines, Inc. ttached to the Certificate of Filing of Amended Articl s of Incorporation of Goodyear Philippines, Inc. i sued by the SEC on Auqust 19, 2003 I Article 7 of Amen~ed Articles of Incorporation approved on August 19, 2003 Article 7 A 4 of he Amended Articles of Incor oration Monthly Remitta ce Return of Final Income Taxes Withheld BIR For No. 1601-F filed and paid on April 3, 2013 via electroni Filing and Payment System (eFPS) I Filinq Reference No. 201300007104928 for the eFPS I Bank of the Philippine Island (BPI) Online Confirmation Receipt No. 1350]3287 for the eFPS I Application for Tat Credit/Refunds BIR Form No. 1914 for erroneously p id tax amounting to P18,784,742.85 stamped "Receive "by the BIR dated March 30, 2015 c

erA CASE NO. 9023 Page 11 of 30 Goodyear Philippines, Inc. vs. CIR DECISION P-7-2 Siqnature of Ms. Malou Rodas P-7-4 Date of receipt ofihe application for Tax Credit/Refunds P-7-5 BIR Form No. 19 4 for erroneously paid tax amounting P-8 to P18,784,742. 5 stamped "Received" by the BIR dated March 30, 015 P-8-1 Claim for tax refu~d amounting to P18,784,742.85 P-9 P-10 Cover letter for tte Application for Tax Credit/Refunds P-10-1 P-10-2 by Punongbayan & Araullo for erroneously paid tax P-10-3 P-10-4 amounting to P1 ,784,742.85 stamped "Received" by P-10-5 the BIR dated Ma ch 30, 2015 P-11 P-11-1 Certified True Copy Stamp of Punongbayan & Araullo P-11-2 P-11-3 signed by Eleanor\ Roque P-12 Special Power qf Attorney executed in favor of P-12-1 P-13 Punongbayan & Araullo P-13-1 P-14 Audited Financiai\Statement (AFS) for the year ended P-14-1 December 31, 20i3 P-15 SEC Certified Truci Copy Stamp P-15-1 Statement of Cha~ges in Equity comparative figures P-15-2 Note 17- Paid in capital: Treasury Shares P-15-3 Note 17 - Share tapital: Treasury Shares stating that P-16 GPI did not decla~e dividend Balance Sheet of\ Audited Financial Statement for the year ended December 31, 2013 Certificate of Incr~ase of Capital Stock which was issued by the SEC on Au~ust 19, 2003 SEC Certified Truci Copy Stamp Provision of the Treasurer's Affidavit Portion of the C~rtificate of Increase of Capital Stock providing that th 13,318,630 shares were solely and exclusively subscr bed by GTRC Stock Certificate No. 156 of Goodyear Philippines Inc. Certified True Cowy Stamp and Signature of Corporate Secretary of GPI Stock Certificate No. 157 of Goodyear Philippines Inc. Certified True Cowy Stamp and Signature of Corporate Secretary of GPI Stock Certificate No. 158 of Goodyear Philippines Inc. Certified True Cowy Stamp and Signature of Corporate Secretary General Informatipn Sheet su.bmitted by the Petitioner for the annual/special meetinq on March 5, 2013 to SEC SEC Certified Truci Copy Stamp Portion of GIS p~oviding for details of redemption of shares Portion of GIS p~oviding that no dividend declaration was made durinq the year 2012 General Informatipn Sheet submitted by the Petitioner for the annualjsp�cial meeting on February 17, 2014 to SEC c

CTACA iE NO. 9023 Page 12 of 30 Goodye Jr Philippines, Inc. vs. CIR DEC I 5 I 0 N P-16-1 SEC Certified TruE Copy Stamp P-16-2 Portion of the Gic providing details on the redemption : of preferred sharEs P-16-3 Portion of the C: IS providing that no dividend was declared on the PI evious year (2013) P-17 Minutes of the A~nual Stockholders' Meeting held on March 5, 2013 J P-17-1 Certified True Co~IY Stamp and signature of custodian I P-17-2 Provision pertai ~ing to the resolution of the ' 1 P-17-3 Stockholders on r ~demption of shares i Provision pertair1ing to the resolution of the Stockholders on rE tirement of redeemed shares P-18 Audited Financial )tatement for the year 2004 prepared by Joaquin Cunan an & Co. P-18-1 SEC Certified TruE Copy Stamp P-18-2 Portion of the Balance Sheet in the Audited Financial Statement for th e year 2004 prepared by Joaquin Cunanan & Co., st owing the retained earnings deficit of P-19 the Petitioner Audited Financial ~tatement for the year 2005 prepared by Joaquin Cunan ~n & Co. P-19-1 SEC Certified TruE Copy Stamp P-19-2 Portion of the Balance Sheet in the Audited Financial Statement for t~ e year 2005 prepared by Joaquin Cunanan & Co., st owing the retained earnings deficit of the Petitioner P-20 Audited Financial ptatement for the year 2006 prepared by Joaquin Cunan an & Co. P-20-1 SEC Certified TruE Copy Stamp P-20-2 Portion of the Balance Sheet in the Audited Financial Statement for th e year 2006 prepared by Joaquin Cunanan & Co., st owing the retained earnings deficit of the Petitioner P-21 Audited Financial )tatement for the year 2007 prepared by Joaquin Cunan an & Co. P-21-1 SEC Certified TruE Copy Stamp P-21-2 Portion of the Balance Sheet in the Audited Financial Statement for t~ e year 2007 prepared by Joaquin Cunanan & Co., st owing the retained earnings deficit of P-22 the Petitioner Audited Financial ~tatement for the year 2008 prepared by Isla Lipana & C0. P-22-1 SEC Certified TruE Copy Stamp P-22-2 Portion of the Balance Sheet in the Audited Financial Statement for the year 2008 prepared by Isla Lipana & Co., showing th ~ retained earnings deficit of the Petitioner P-23 Audited Financial :>tatement for the year 2009 prepared -- --- _ by Isi~Jipana & Co.

CTACA )E NO. 9023 Page 13 of 30 Goodye ~r Philippines, Inc. vs. CIR DEC I 5 I 0 N P-23-1 SEC Certified TruE Copy Stamp P-23-2 Portion of Note 18 - Share Capital of the Audited Financial Stateme ~t showing that the Petitioner did not P-23-3 declare dividend cn the year 2009 P-24 P-24-1 Portion of the Balance Sheet in the Audited Financial P-24-2 Statement for the ~ear 2009 prepared by the Isla Lipana & Co., showing he retained earnings deficit of the P-24-3 Petitioner Audited Financial ~tatement for the year 2010 prepared P-25 P-25-1 by Isla Lipana & Co. P-25-2 P-25-3 SEC Certified True Copy Stamp Portion of Note 18 - Share Capital of the Audited P-26 Financial Stateme 1t showing that the Petitioner did not P-26-1 declare dividend cn the year 2010 P-26-2 Portion of the Balance Sheet in the Audited Financial P-26-3 Statement for the year 2010 prepared by the Isla Lipana & Co., showing he retained earnings deficit of the P-26-4 Petitioner Audited Financial ~tatement for the year 2011 prepared P-27 by Isla Lipana & Co. P-27-1 P-27-2 SEC Certified TruE Copy Stamp P-28 Note 16 - Share Capital: Treasury Shares of Audited Financial Stateme ~t for the year 2011 P-28-1 Portion of the Balance Sheet in the Audited Financial Statement for the year 2011 prepared by Isla Lipana & Co., showing th ~ retained earnings deficit of the Petitioner Audited Financial 5tatement for the year 2012 prepared by Isla Lipana & Co. SEC Certified TruE Copy Stamp Note 16- Share CapitaI: Treasury Shares Portion of the Balance Sheet in the Audited Financial Statement for the year 2012 prepared by Isla Lipana & Co., showing th e retained earnings deficit of the Petitioner Portion of the E~lance Sheet of Audited Financial Statement for the year ended December 31, 2012 showing the net property and equipment of GPI General Informatipn Sheet submitted by the Petitioner for the annual/spE cial meeting on February 16, 2004 to SEC for the fiscal vear ended December 31, 2003 SEC Certified TruE Copy Stamp Portion in the GI~ stating that GPI did not declare any dividend cash, pre perty or stock for the year 2003 General Informati on Sheet submitted by the Petitioner for the annualjspe cial meeting on February 23, 2005 to SEC for the fiscal ~tear ended December 31, 2004 SEC Certified TruE Copy Stamp {

CTACA iE NO. 9023 Page 14 of 30 Goodye ~r Philippines, Inc. vs. CIR DEC I 5 I 0 N P-28-2 Portion in the GI5 stating that GPI did not declare any dividend cash, pretperty or stock for the year 2004 I P-29 General Informatipn Sheet submitted by the Petitioner I for the annualjspE cial meeting on February 14, 2006 to SEC for the fiscal vear ended December 31 2005 P-29-1 SEC Certified TruE Copy Stamp P-29-2 Portion in the GI5 stating that GPI did not declare any dividend cash prelperty or stock for the year 2005 P-30 General Informatipn Sheet submitted by the Petitioner for the annualjspE cial meeting on February 20, 2007 to P-30-1 SEC for the fiscal 11ear ended December 31, 2006 P-30-2 SEC Certified TruE Copy Stamp Portion in the GI5 stating that GPI did not declare any P-31 dividend cash,. pre1perty or stock for the year 2006 General Information Sheet submitted by the Petitioner P-31-1 for the annualjspE cial meeting on February 20, 2008 to P-31-2 SEC for the fiscal 11ear ended December 31, 2007 SEC Certified TruE Copy Stamp P-33 Portion in the GI5 stating that GPI did not declare any : dividend cash, prelperty or stock for the year 2007 P-33-1 General Informatipn Sheet submitted by the Petitioner P-33-2 for the annualjspE cial meeting on February 19, 2010 to SEC for the fiscal vear ended December 31, 2010 P-34 SEC Certified TruE Copy Stamp Portion in the GI5 stating that GPI did not declare any P-34-1 dividend cash prelperty or stock for the year 2009 P-34-2 General Informatipn Sheet submitted by the Petitioner for the annualjspE cial meeting on March 1, 2011 to SEC P-35 for the fiscal year ended December 31 2011 SEC Certified TruE Copy Stamp_ P-35-1 Portion in the GI5 stating that GPI did not declare any P-35-2 dividend cash, pretperty or stock for the year 2011 General Information Sheet submitted by the Petitioner P-36 for the annualjspE cial meeting on February 28, 2012 to SEC for the fiscal 11ear ended December 31 2012 P-37 SEC Certified TruE Copy Stamp Portion in the GI5 stating that GPI did not declare any P-38 dividend cash, prelperty or stock for the year 2012 P-39 Application for Rei1ef from Double Taxation (TTRA) Form No. 0901-C stam~ ed "Received" by the BIR dated April 8, 2013 Application letter or relief from Double Taxation filed by Punongbayan & Araullo stamped "Received" by the BIR dated April 8, 2013 Payment Form BI ~ Form No. 0605 stamped "Received" on April 8, 2013 Revenue Accour ting Division (RAD) Certification showing that the amount of P18,784,742.85 was received by the B R (

CTACA :>E NO. 9023 Page 15 of 30 Goodye :!r Philippines, Inc. vs. CIR DEC I S I 0 N P-39-1 Portion of the RA[>Certification showing the amount of P-40 final withholding t ax paid by the Petitioner Consularized certiFication from the Department of the P-41 Treasury of the I 1ternal Revenue Service (IRS) of the P-41-1 United States of America dated January 22 2013 P-42 Certification from the Department of Treasury of the P-42-2 United States of America dated January 22, 2013 P-44 Declaration of Nar cy Aiello that GTRC is resident of the United States P-44-1 Comparative sche jule of property, plant and equipment P-45 (PPE) of Goodyea Philippines Inc. from 2011-2013 Signature of Ms. ~1arilou Rodas P-46 Certificate of Re~ istration (COR)/BIR Form No. 2303 P-46-1 issued by the Bu eau of Internal Revenue (BIR) with P-46-2 OCN No.: 8RCOOO P016936 P-47 P-50 Certified True Co~IY stamp Special Power of Attorney (SPA) authorizing Punongbayan & A aullo to file the request for ruling with the BIR Audited Financial Statement of Goodyear Philippines, Inc. for the year ended December 31, 2003 SEC Certified True Copy Stamp Statement of Chc nges in Equity of Audited Financial Statement of GPI or the year ended December 31, 2003 Judicial Affidavit cf Marilou F. Rodas dated January 29, 2016 Secretary's Certifi f-ate dated October 24, 2013 for the Board Meeting on June 20 2013 During the hearing on Pctober 11, 2016, respondent was consi lered to have waived the ri ~ht to present his evidence in this case consi lering that the presentatior of respondent's evidence had aiready been reset upon motion of his counsel, yet no Judicial Affida\ it of respo 1dent's witness had been filed, and his counsel of record was absent without any explanation. 1 Petitioner filed its Memc randum32 on November 10, 2016. Resp, 1ndent, on the other hand, failed to file his Memorandl m.33 Thus in the Resol ution34 dated December 20, 2016, the instant Pe: ition for R !View was declared submitt ed for decision. 31 Dock'et, pp. 609-610. 32 Dock'et, pp. 618-643. 33 Reco rds Verification dated December 5, 20 ~6, Docket, p. 646. 34 Docket, p. 651. c

CTA CASE NO. 9023 Page 16 of 30 Goodyear Philippines, Inc. vs. CIR DECISION The parties stipulated on the following issue35 for resolution of this Court: Whether or not peti ioner is entitled to its claim for refund/issuance of tax redit certificate {TCC) in the amount of P18,784,742.8 representing Final Withholding Tax withheld and paid on pril 4, 2013. Sections 204(C) and 229 ~f the National Internal Revenue Code of 1997, as amended, state the requirements for the recovery of tax erroneously or illegally collected to wit: "SEC. 204. Authotfty of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner may - XXX XXX XXX (C) Credit or refun taxes erroneously or illegally received or penalties impo ed without authority, refund the value of internal revenue s amps when they are returned in good condition by the purch ser, and, in his discretion, redeem or change unused stamps t at have been rendered unfit for use and refund their valu upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer iles in writing with the Commissioner a claim f r credit or refund within two (2) years after the pay ent of the tax or penalty: Provided, however, that are urn filed showing an overpayment shall be considered as a w itten claim for credit or refund." (Emphasis supplied) "SEC. 229. Recover of Tax Erroneously or Illegally Collected. - No suit or proc eding shall be maintained in any court for the recovery of ny national internal revenue tax hereafter alleged to have be n erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of ny sum alleged to have been excessively or in any manne wrongfully collected, until a claim for refund or credit has bee duly filed with the Commissioner; 35 Stipulated Issue, JSFI, Docket, p. 339. ('

CTA CASE NO. 9023 Page 17 of 30 Goodyear Philippines, Inc. vs. CIR DECISION but such suit or proceeding rjnay be maintained, whether or not such tax, penalty, or sum I has been paid under protest or duress. In any case, no su h suit or proceeding shall be filed after the expiration f two (2) years from the date of payment of the tax r penalty regardless of any supervening cause tha may arise after payment: Provided, however, That th Commissioner may, even without a written claim therefor, ref nd or credit any tax, where on the face of the return upon hich payment was made, such payment appears clearly t have been erroneously paid." (Emphasis supplied) Pursuant to the above-mertioned provisions, to be entitled to a refund of erroneously or illegally! collected tax, the following requisites must be complied with: (1) that the tax ha been erroneously or illegally collected, or the penal has been collected without authority, and/or any sum has been excessively or in any manner wrongfully collect d; and (2) that the claim fo~ refund or credit has been filed within two (2) years from the date of payment of tax, or penalty, regardless of an supervening cause that may arise after payment. Petitioner's administrative and judicial claims for refund were timely filed The Court shall first dete mine the timeliness of the filing of petitioner's claim in the admini trative and judicial levels. The law mandates that both the adminis rative and judicial claims for refund of erroneously paid tax must be do e within two (2) years from the date of payment of the tax. Moreover, jurisprudence p~ovides that when the two-year period is about to prescribe and the claim for refund with the Commissioner ~

CTA CASE NO. 9023 Page 18 of 30 Goodyear Philippines, Inc. vs. CIR DECISION of Internal Revenue (CIR) has n t been acted upon, for the protection of the interest of the taxpayer, h should file a Petition for Review with this Court within the said two-ye r period; otherwise, if the decision of the Commissioner is adverse to he taxpayer and it was made after the two-year period he can no Ion er appeal the same to this Court.36 Thus, it is not necessary for th CIR to act unfavorably on the claim for refund before this Court m y acquire jurisdiction because of the positive requirement of Section 29 and the doctrine that delay of the Commissioner in rendering deci ion does not extend the peremptory period fixed by the statute. Nether is it required under the law that the claim for refund be filed at t e earliest instance in order to give the CIR an opportunity to rule on it and the Court to review the ruling of the CIR on appeal. The law fix the same period- two years- for filing a claim for refund with th CIR [Section 204(C)], and for filing suit in Court (Section 229)37 an as long as these two acts fall within this period then, there is no leg I impediment to the judicial claim for refund. 38 Section 229 of the NI C of 1997, as amended, only requires that the administrative claim be priorly filed. 39 In the case of Commissio er of Internal Revenue vs. Goodyear Philippines, Inc.40, the Suprem Court held that Section 229 of the NIRC of 1997, as amended, stat s that judicial claims for refund must be filed within two (2) years fr m the date of payment of the tax or penalty, providing further that t e same may not be maintained until a claim for refund or credit has een duly filed with the CIR. Thus, the settled rule is t~at both the claim for refund with the BIR and the subsequent appeal to the Court of Tax Appeals must be filed within the two-year period rom the date of payment of the tax.41 A perusal of the records\ shows that petitioner remitted the subject 15�/o FWT in the amount of P18,784,742.85 on April 3, 2013. 36 Commissioner of Internal Revenue vs. Hit~chi Computed Produds (Asia) Corporation, CA-G.R. SP No. 63340, February 7, 2002. 37 Commissioner ofInternal Revenue vs. Ban~ ofthe Philippine Islands, as Liquidator ofParamount Acceptance Corporation and the Court of rax Appeals, CA-G.R. SP No. 34102, September 19, 1994. 38 Manila Electric Company vs. The Commissidrer ofInternal Revenue, CTA Case No. 5091, October 2, 1997. 39 CBK Power Company Limited vs. Commitsioner of Internal Revenue, G.R. Nos. 193383-84, January 14, 2015. 40 G.R. No. 216130, August 3, 2016. 41 Commissioner ofInternal Revenue vs. Vidprias Milling Co., Inc. and The Court of Tax Appeals, G.R. No. L-24108, January 3, 1968. c.

CTA CASE NO. 9023 Page 19 of 30 Goodyear Philippines, Inc. vs. CIR DECISION Petitioner presented its Monthl Remittance of Final Income Taxes Withheld (BIR Form No. 1601 F), the corresponding Bank of the Philippine Islands (BPI) Online ayment Confirmation Receipt42, and the Certification43 issued by the evenue Accounting Division as proof. Counting two years from t e said date, petitioner had until April 3, 2015 to file its claim both in he administrative and judicial levels. Clearly, petitioner's administrati e claim44 filed on March 30, 2015 and petitioner's immediate appeal b fore this Court on March 31, 201545 were well within the two-year p escriptive period. Petitioner's payment of 15% FWT on dividends is erroneous In an earlier case involvin the same parties and issues entitled Commissioner of Internal Re~ nue vs. Goodyear Philippine~ Inc.46 (Goodyear case), the Supreme ourt ruled that the gain realized by Goodyear Tire and Rubber Com any (GTRC) from the redemption of its preferred shares is not a divi end under Article 11(5) of the RP-US Tax Treaty and Section 73(A)(B) of the NIRC of 1997, as amended, to wit: 15to "The imposition of FWT on intercorporate dividends received by a non-residen foreign corporation is found in Section 28 (B) (5) (b) of the Tax Code which reads: SEC. 28. Rates ~f Income Tax on Foreign Corporations. - XXX XXX XXX (B) Tax on Nonreslpent Foreign Corporation.- 42 Exhibits "P-4", "P-5", and "P-6", FOE Folde.,. 43 Exhibit "P-39", FOE Folder. 44 Exhibits "P-7", "P-8" and "P-9", FOE Folder 45 Petition for Review, Docket, pp. 10-25. 46 Commissioner of Internal Revenue vs. Gotpyear Philippines, Inc., G.R. No. 216130, August 3, 2016. c.

CTA CASE NO. 9023 Page 20 of 30 Goodyear Philippines, Inc. vs. CIR DECISION XXX XXX XXX (5) Tax on Cert~in Incomes Received by a Nonresident Foreign Co(poration. - (b) Intercorpora~ Dividends. - A final withholdin tax at t e rate of fifteen ercent 15�/o is hereb im osed on the amount of cash and or ro e dividends received from a domestic cor o ation which shall be collected and aid as rovided in Section 57 A of this Code, subjec to the condition that the country in which the n nresident foreign corporation is domiciled, shall allow a credit against the tax due from the nonresident foreign corporation taxes deemed to have be n paid in the Philippines equivalent to twenty pe ent (20�/o), which represents the difference betwee the regular income tax of thirty-five percent (35 o) and the fifteen percent (15�/o) tax on divid nds as provided in this subparagraph: Provide , That effective January 1, 2009, the credit aga nst the tax due shall be equivalent to fifteen per ent (15�/o), which represents the difference betwee the regular income tax of thirty percent (30�/o) a d the fifteen percent (15�/o) tax on dividends; XXX lXXX XXX (Emphasis and ~nderscoring supplied) It must be noted, ho ever, that GTRC is a non-resident foreign corporation, specifi ally a resident of the US. Thus, pursuant to the cardinal pri ciple that treaties have the force and effect of law in this j risdiction, the RP-US Tax Treaty complementarily governs th tax implications of respondent's transactions with GTRC. Under Article 11 (5) f the RP-US Tax Treaty, the term 'dividends' should be unders ood according to the taxation law of the State in which the co poration making the distribution is a resident, which, in this cas , pertains to respondent, a resident of the Philippines. AccordingI , attention should be drawn to the statutory definition of what onstitutes 'dividends,' pursuant to (

CfA CASE NO. 9023 Page 21 of 30 Goodyear Philippines, Inc. vs. CIR DECISION Section 73 (A) of the Tax Co e which provides that '[tlhe term 'dividends' . . . means an distribution mad b a cor oration to its share olders out of its earnin s or profits and payable to its sh reholders, whether in money or in other property.' In light of the foregoi g, the Court therefore holds that the redemption price representing the amount of P97,732,314.00 received b GTRC could not be treated as accumulated dividends in a rears that could be subjected to 15�/o FWT. Verily, responde t's AFS covering the years 2003 to 2009 show that it did not h ve unrestricted retained earnings, and in fact, operated from a position of deficit. Thus, absent the availability of unres ricted retained earnings, the board of directors of res ondent had no power to issue dividends. Consistent with ection 73 (A) of the Tax Code, this rule on dividend declaration i.e., that it is dependent upon the availability of unrestricted etained earnings - was further edified in Section 43 of The orporation Code of the Philippines which reads: Section 43. Power to Declare Dividends. - The board of directors o a stock cor oration rna declare dividends ut of the unrestricted retained earnin s hich shall be a able in cash in ro e or i stock to all stockholders on the basis of outst ndin stock held b them: Provided, That any cas dividends due on delinquent stock shall first be appl ed to the unpaid balance on the subscription plus co ts and expenses, while stock dividends shall be wi hheld from the delinquent stockholder until his un aid subscription is fully paid: Provided, further, That no stock dividend shall be issued without the approval of stockholders representing not less han two-thirds (2/3) of the outstanding capital st ck at a regular or special meeting duly called for he purpose. XXX JXXX XXX (Emphasis and nderscoring supplied) It is also worth me~tioning that one of the primary features of an ordinary divi end is that the distribution should be in the nature of a recurri g return on stock which, however, (

CTA CASE NO. 9023 Page 22 of 30 Goodyear Philippines, Inc. vs. CIR DECISION does not obtain in this case. s aptly pointed out by the CTA En Bane, the amount of P97,73 ,314.00 received by GTRC did not represent a periodic distri ution of dividend, but rather a payment by respondent fort e redemption of GTRC's 3,729,216 preferred shares. In Wise & o., Inc. v. Meer: The amounts thus distributed amon laintiffs were not in the nature of a recurrin return on stock- in act the surrendered and relin uished their tock in return for said distributions, thus ceasing to be stockholders of the Hongkong Company, w ich in turn ceased to exist in its own right as a goin concern during its more or less brief administration of the business as trustee for the Manila Company, a d finally disappeared even as such trustee. All told, the amount of P97,732,314.00 received by GTRC from respondent for the red mption of its 3,729,216 preferred shares were not accumulate dividends in arrears. Contrary to petitioner's claims, it is ther fore not subject to 15�/o FWT on dividends in accordance wit Section 28 (B) (5) (b) of the Tax Code." c.

CTA CASE NO. 9023 Page 23 of 30 Goodyear Philippines, Inc. vs. CIR DECISION The present petition is simi ar to the aforecited case. The records show that GTRC owns 13,318,63 preferred shares of petitioner, which were subscribed by GTRC at a ar value of PlOO.OO per share. The said preferred shares have t e following rights, privileges, and restrictions: 47 1. The holders of Pr ferred Shares shall be entitled to and paid a yearly cumul tive dividend at the rate of five percent (5�/o) per annum and no more, payable semi- annually, commencing on ne Hundred Eighty (180) days from the date of subscrip ion and payment in full of the Preferred Shares thereof. 2. Preferred Share and all accrued and unpaid dividends, if any, to whic they are entitled, shall have a First (1st) lien on the as ets of the Corporation. In the event of liquidation or dis elution or winding up, whether voluntary or involuntary, o the Corporation, the holders of Preferred Shares shall be entitled to be paid in full both the par amount of their sha es and any unpaid dividends accrued thereon, before a y amount shall be paid to the holders of other stock. 3. Preferred Shares! shall not be convertible into Common Stock. 4. Each and eve certificate of Preferred Shares shall be subject o redemption, and may at the option of the Board of Directors, regardless of the existence of unrestricted r tained earnings in the books of the Corporation, on any s mi-annual dividend date at any time after one (1) year fr m the date of the issuance of such certificate, be called nd retired at the price of One Hundred (PlOO.OO) for each share and the amount of dividends accrued a d unpaid at the date of the redemption. 47 Exhibit "P-11", FOE Folder. (.

CTA CASE NO. 9023 Page 24 of 30 Goodyear Philippines, Inc. vs. CIR DECISION 5. Except where at erwise prescribed by law, the holders of Preferred Shar s shall not be entitled to any voice in the management of the Corporation, or to any voting powers at any Stoc holders meeting. The 2,597,133 preferred shares issued to GTRC, covered by Stock Certificate Nos. 156 to 1 848, were redeemed by petitioner at the total Redemption Price of P 84,944,919.0049; which consisted of the aggregate par value o the shares in the amount of P259,713,300.00 and accrued a d unpaid dividends in the amount of P125,231,619.00, broken down s follows: 50 Aqqreqate Par Value (P100 per share x ~,597,133 shares) p 259,713,300.00 Accrued and unpaid dividends 125.231,619.00 Redemption Price P384,944,919.00 While GTRC was able to ~alize a gain of P125,231,619.0051 on the redemption of its preferre shares, such cannot be considered dividends subject to 15�/o FWT nder Section 28(B)(5)(b) of the NIRC of 1997, as amended. Petitioner's Audited Finant1al Statements for the years 2003 to 2013 show that it did not have u restricted retained earnings or profits during those years to cover any ividend declaration, to wit: Exhibit Year Retained Earnings (deficit) "P-18" 2003 (P2,085,557 ,538.00) "P-19" 2004 (2 010,786 090.00) "P-19-2" 2005 (1,658, 184,812.00) "P-20-2" 2006 (1 ,554,486,001.00) "P-21-2" 2007 (1,415,231,943.001 "P-22-2" 2008 (1,422,712,090.00) "P-23-3" 2009 (1,621 010,996.00) "P-24-3" 2010 ( 1,438,866,204.00) "P-25-3" 2011 ( 1,282,441,348.001 "P-10" 2012 (112,857,126.00) "P-10" 2013 (927 ,684 ,632.00) 48 Exhibits "P-12" to "P-14", FOE Folder. 49 Exhibits "P-17-2" and "P-17-3", FOE Folder 50 Exhibit "P-10-3", FOE Folder. 51 The difference between the redemption pri�e of P384,944,919.00 and GRTC's cost of acquisition of the 2,597,133 shares of P259,713,300.00. �.

CTA CASE NO. 9023 Page 25 of 30 Goodyear Philippines, Inc. vs. CIR DECISION Clearly, GTRC's gain does ot represent a recurring return on the shares redeemed but as pay ent by petitioner to GTRC for the redemption of the preferred sha es. The mention of "dividends" in the payment of redemption price wa only used to compute and determine the total redemption price to be paid to GTRC and was not meant as distribution of profits accumulat d by petitioner. In fine, the gain resulting rom the redemption is not "dividend" as contemplated under the NIR of 1997, as amended, but a capital gain subject to the 5�/o or 1 �/o capital gains tax under Section 28(B)(S)(c) of the NIRC of 1997 as amended, which states: "SEC. 28. Rates ofIncome Tax on Foreign Corporations. - XXX XXX XXX (B) Tax on Nonresid$t Foreign Corporation. - XXX XXX XXX (5) Tax on Certain I1comes Received by a Nonresident Foreign Corporation. - XXX XXX XXX (c) Capital Gains fli m Sale of Shares of Stock not Traded in the Stock Excha ye. - A final tax at the rates prescribed below is he eby imposed upon the net capital gains realized du ing the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic cor oration, except shares sold, or disposed of through the stoc exchange: Not over PlOO,OOO ............... 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5�/o On any amount in excess of PlOO,OOO ...................... 10�/o" (Emphasis supplied) ~

CTA CASE NO. 9023 Page 26 of 30 Goodyear Philippines, Inc. vs. CIR DECISION However, as enunciated b: the Supreme Court in the Goodyear case, considering that GTRC is resident of the US, the provision of the RP-US Tax Treaty on incom earned by GTRC shall also apply. The CTA En Bane in th case of Commissioner of Internal Revenue vs. Goodyear Philippin ~ Inc. 52 held that the gains derived from the disposition of shares wned by a resident of the US in a domestic corporation will be t xable if the latter's assets consist principally of real property inter sts located in the Philippines, thus: "Hence, in general, w en preferred shares are redeemed and classified as treasury s ares in the books of the issuing corporation, pursuant to RR No. 006-08, the net capital gain derived from the redemp ion of the preferred shares is generally subject to the 5�/o and 10�/o capital gains tax. In the case of a nonresident foreig corporation, the net capital gain shall generally be subject to the capital gains tax imposed under Section 28(B)(S)(c) of the N RC of 1997, as amended, which is quoted hereunder: XXX XXX XXX However, in the insta t case, since GTRC is a resident of the US, the provisions of the RP-US Tax Treaty shall also apply in determining the Philippine income taxation of the net capital gain that GTRC derived on t e redemption by (respondent) of its 3,729,216 preferred sh res, which were reclassified as treasury shares in the books of (respondent). Article 14 of the RP-U$ Tax Treaty provides as follows: Ar1:icle 14 CAPitAL GAINS (1) Gains from the alienation of tangible personal (movable) p operty forming part of the business property of permanent establishment which a resident of a ontracting State has in the other Contracting St te or of tangible personal (movable) property ertaining to a fixed base 52 CTA EB No. 1041 (CTA Case No. 8188), August 14, 2014. ~

CTA CASE NO. 9023 Page 27 of 30 Goodyear Philippines, Inc. vs. CIR DECISION available to a resident of a Contracting State in the other Contracting S te for the purpose of performing indepen ent personal services, including such gains f om the alienation of such a permanent establishm nt (alone or together with the whole enterprise) r of such a fixed base, may be taxed in the ot er State. However, gains derived by a resident fa Contracting State from the alienation of sh ps, aircraft or containers operated by such res dent in international traffic shall be taxable onl in that State, and gains described in Article 13 (Royalties) shall be taxable only in accordance w th the provisions of Article 13. (2) Gains fro the alienation of any property other th n those mentioned in paragraph (1) or i Article 7 (Income from Real Property) sha I be taxable only in the Contracting State o which the alienator is a resident. (Emphasis upplied) Furthermore, the Res~rvation Clause of the same Treaty provides, in part, as follows: icle 1 Notwithstanding the provisions of Article 14 of the Convention rei ting to capital gains, both the Philippines an the United States may tax gain from the isposition of an interest in a corporation if its assets consist principally of a real roperty interest located in that country. Like ise, both countries may tax gain from the dispo ition of an interest in a partnership, trust or e tate to the extent the gain is attributable to a real property interest in one of the countries. The ter 'real property interest' is to have the mea ing it has under the law of the country in hich the underlying real property is located. (Emphasis supplied) ~

CTA CASE NO. 9023 Page 28 of 30 Goodyear Philippines, Inc. vs. CIR DECISION Therefore, any gain th t may be derived by a resident of the US from the alienation f its properties, other than those mentioned in paragraph (1 of Article 14 of the RP-US Tax Treaty, shall be taxable onl in the US. However, under the Reservation Clause of the P-US Tax Treaty, the Philippines may tax the gains derived fr m the disposition of shares owned by a resident of the US in a omestic corporation, if the latter's assets consist principally of real property interests located in the Philippines. Under RR No. 4-86 d ted April 2, 1986, the term 'Real Property Interest' shall be understood to include real properties as understood under Philip ine laws. 'Real Property Interest' means any properties enum rated in Section 3 of RR No. 4-86 which, are not, however, ex lusive of others that are similarly situated. Moreover, the term Principally' means more than 50�/o of the entire assets in terms of value." In the present case, th Audited Financial Statements53 of petitioner for the years 2012 a d 2013 show that the real property components of its Property, Pia t and Equipment (PPE) comprise less than 50�/o of its assets, broken own as follows: PPE 2012 AFS 2013 AFS P8,866,008.00 P6,330,781.00 Leasehold Improvements Furniture, Fixtures and Office equipmen 7,482,783.00 6,228,559.00 Other equipment 1.252,831.00 1,820.130.00 Construction-in-progress 1,156.504.00 Subtotal 743,672.00 15.535.974.00 Total Assets 18,345,294.00 1,020.302.091.00 %of Subtotal to Total Assets 1,260,240,576.00 1.52% 1.46% Evidently, petitioner's ass t does not consist primarily of real property interest. Thus, the ne capital gain derived by GTRC on the redemption of its preferred sh res is exempt from the 5�/o or 10�/o capital gains tax imposed unde Section 28(8)(5)(c) of the NIRC of 1997, as amended. In sum, considering th~ the redemption of the 2,597,133 preferred shares issued to GTR resulted in capital gain amounting to P125,231,619.00 and not dividends and that the capital gain realized 53 Exhibit "P-10-5", FOE Folder. c.

CTA CASE NO. 9023 Page 29 of 30 Goodyear Philippines, Inc. vs. CIR DECISION therefrom was exempt from ca ital gains tax pursuant to the RP-US Tax Treaty, the amount of P1 ,784,742.85 representing 15�/o FWT withheld and remitted by pe itioner on the said transaction is erroneous, thus, refundable un er Sections 204(C) and 229 of the NIRC of 1997, as amended. To borrow from Commisst ner of Internal Revenue vs. Fortune Tobacco Corporation54, if the tate expects taxpayers to observe fairness and honesty in paying heir taxes, it must hold itself against the same standard in refunding erroneous exactions and payment of such taxes. It thus behooves the government to refund what it erroneously collected. 55 WHEREFORE, premises considered, the instant Petition for Review is GRANTED. Accord ngly, respondent is ORDERED TO REFUND in favor of petition r the amount of P18,784,742.85 representing erroneously withhe d and remitted FWT in relation to the redemption of 2,597,133 preferr d shares issued to GTRC on April 11, 2013. SO ORDERED. ~~,lJ; N. MMIN~LDAA..R.O---~~RU~ LLA LITO N. Associate Justice WE CONCUR: .. _ OSARIO ER~P.UY Presiding Justice Associate Justice 54 G.R. Nos. 167274-75, July 21, 2008. 55 Commissioner of Internal Revenue and C~mmissioner of Customs vs. Philippine Airlines, Inc., G.R. No. 212536-37, August 27, 2014.

CTA CASE NO. 9023 Page 30 of 30 Goodyear Philippines, Inc. vs. CIR DECISION CERTIFICATION Pursuant to Article VIII, Se!ion 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was a signed to the writer of the opinion of the Court's Division. Presiding Justice Chairperson, 1st Division