CTA Case No. 4182 (Decision)

-� .., REPUBLI C OF THE PHI LIPPINES COURT OF TAX APPEALS QUEZON CITY BANK OF AMERICA NT & SA , MANILA BRANCH . P e t i t i o ne r. - versus - C.I.A. CASE NO. 4 182 COMMISSIONER OF INTERNAL REVENUE . Respondent. X- - - - - - - - - - - - - - X DEC. I S I O N This case involves petitioner 's claim for refund of alleged �)Verpaid branc:ll profits remittance tax amounting to Petitioner is a resi(lent foreig- n ban!(, dulv' org-;mize(l a.tKl . existing under tlle lav.,rs of the State of California, U.S.A., an(l is aut11orized to engage in business as a branch in tll' Philippine:;. T11 r�;::ou.:>-::>lr� t11�::>t A t"A''lt� �l �� "' f: l QC!C �J V �..._. 0. �=- ~ � -� �� \ . . \_ .� t:l. � \�.' 1 (._).,��v ' t (l iL'l A�-� ! " .�:)., C_) J : () J) '1::~>f}(�-l (�- �l� 1.'.,.�. t-�t�-'�lt �A���. f" - � �- � 20, 19t.6, petitioner pai;j tlie amounts of PS6,5.02,730.00 and P. l, 104/d 1. 10, respe(:tively, or a tt.)t..al of P.5�7,6()7,6 11. 10 t)ranc11 profits remittanc:e tax for its remittanc:e of profits to its Hea.cl

OECISION - C.TA. CASE NO. 4182 - Page 2 - r)ffic~ in Calift)rnia., U.S.A.. The branch profits remitt:uKe tax payments were computed based on petitioner 's net profits after deducting the income tax but v.titllout deducting tlle branch profits remitt:mc:e tax. In thre~?. letters dated July o, 198 5, Jul;r 19, 1955 and July 16, 19<)l\ the Central Banl~ of the Philippines authorized petitioner to remit the foreign ex(:hange equivalent of its remittable profits net of tlle 15% branch profits remittance tax. The amc�unts of profits actually remitted are computed as follovv'S: Net Profi Date Branch Profits Actually Remitted After In<:ome Tax Paid 1)% BPRT P- 75,47b.Oo3.l3 10-25-85 1 P-11..7 7 1,4 12.;.o P- 66.. 704..6 7o . e~ ?) ~ 11 6 () .'.!., 10-2 5-8 5 ( 4 4, 7 3 1 ,36 7 . ~) 0 25.3,477,749.17 r-~:>J ,.f_) J�~1 () (l I 7 ~ �.,. f .. " 7,.y~;:l.874 .00 10-2 0-86 1, 154,8!d .10 6.714,042 .90 On February 12, 1987. petitioner filed with the Bureau of Internal Revenue through its accounting firm a daim for refund in the sum of P.o, 6:> ~), 141 .67, representing alleged overpaid braw:h profits remittance tax for 19 8 ::~ and 1986, computed as (ollOVvW:. : Adual Br~.nch Profits P-57,637,6 11.1 0 Remitt:t.nt >- Tax Paid for 1935 and 1936 Less: :erand1 Profits Remitt::mce Tax on profits actually rernitted 15% of P326,896,462 .90 Alleged Overpr. .id BPRT

,� DEOSION - C.T .A. CASE NO. 4182 - P11ge 3 - P~tit.ir:'lner allegE>d that by virtue of the ruling of the Supreme CN1rt in the cJse ,:,f Commissioner of Internal Revenue v _ Bur ro~ghs Limited and the Court of Tax Appeals, G.R. No . 66653. June 19. 1986. t11e basis for cornputing the branch profits remit.tano~ tax should be the profits ::_~,::tu:31l;7 remitted abroad pu �su.::.l.nt tt:' BIR R1 .ling (\ated Ja.nuary 2 1, 19,::'/t Since th~ prr)fits 3.r:-tu::,J1y remitted :1 \xoo.o::l amounted r,:-nly to ~.)21), 8c;H), .. 62 9 \ h'?' 15% br8.tl(h profits remittanr:�e t:J.X sh(~uld be b:3sed c�t Pj2E, 696. 462 9r. 1.1.nd not P-}~4 .5eA.074 . 00, the :::urtr)tU1t. ::.\,~tually ;. pplied for 'Ao'itll the Centr 1 Bank as branch pr,:'liits t(' be r-:>mitted . On July 2't. ~t~~�ithou. t ~~\~.itin�g-� for respondent's decision filed the in�::tant petition for revieV�l in 1Xder to t�::'lll the run!1ing ()f the prescriptive period for filing :J suit for the n;�(:overv of a.n errr.:meouslv f-'3.id tax.I I R .-,. ti�--�� t11 �. , t �-� \. ~-~�-.:��r-.',.-..'lir".�l ~.�.tlt. �:t. .: , ~.'\'�.~�. ~-~_. r�l _ -:,1, .- t_1�1.�~. Lt:)�l_lt� l-'._'. l_l_�.:;::�, li�-~~ is not 1 1-,-,t- (�()t�r�rJ)lltl�l-1'-r r- -� .� ;::, .� .� t �:-ov�~t-, 1~ tY::t�=-~ t�.,�t��o::-to. t�r,--.�-1-1 f-' 1�,-, t�l�t�=� t."�:'-:1o. &�:~r ."':!, .A,:.,;_., �� --� w '- � �-� ��. � t11~ c_:}: �,.~,_, r- ~11-Il� tt �-:.tl'-- ~ L � � �- - �- � J. . �-� � �-' .�. � � ,.s:f. � � �� � r 1 Tl-,-. rl�:> 1�r�11 17 P�) -.~r,�--�, . '!-):! - .._).... 1L. .,1-.0. ,. 11,�--��11 f-'1- ,----,1�1-t--s t�~�-�1-I1-1.t-�t.��::>�.ll '�-�'�~-� �- 0 t ~�-�,--..4~ 11�-.1l ��::>�. �-� I �' C1 c� ? 1':." ;. (_).... . -- - tax if: a t3.X imp~)SBd and collBded at source and therefore_. the ta:z;3b1e t'ase should be the ::Jtn('>Unt adu:3.lly applied for by the brand1 V�.rith the Centr:3.1 Banl: of the Philippines as profits t(' be remitted :3.bnxld.

DECISION �� C.T.A. CASE NO. 4182 - Page 4 - The i:;:::ue is V�lhetller ('r not the br:J.nch profits remitta.nce t:tx is c:Nnputed based on the profits actually rE>mitted :3.bn:,ad or ~~�n the tot::!.l branch profits out oi '.:�lhkh the r~7tnit.tJ.w::e is nnde . Revenue Iviemoranr:lum Cir��: ul::.\r No. i)-i:""\2, dated ~'I.Ya.rch 17. "�:~"'\ f_.T1P.. _...fE~(T. �. c.~ 1assll..tcatJ'on as t;) tJ1.lt? proper t.ax I~):::r;e m. U1e computation 1)f the 1 5:~ bra.nch profi t remittJnce t<~x T�) All Internal Revenue Officers and Others Conr.::erned . In BIR Ruling No, 0 16-79 da.ted Apnl 1(3.. 1979 anent the 1:,,% brand1 profit rs-mitt;3.tlo:e t:1x as an in�:>)m>? tax imposed under Section 24(h)(2) . N;:Jth:mal I nternal Revenue ((,(le of 1977, as a.mended, tlli::: Office ruled that � :r .x x the 1S.:16 bram:ll profit remittance t;3.X should be ba:3<:-r:l on the amount d- ~ l 504. }Y).4.3. representing profit derived ffi)tn the disp%ition of the sharE>:;, 1:)% /Of v..rhich is P-22 ;.,649.::.7.' It. v..rill be noted t.ll::Jt. tlle 1\:J::.:is of c�:,mput.3tion i -t J�:con:latKe v.rith the ruiing i�; profit without deducti�)n for the 1:=.~:~ t::).X. On January 2 1, l9i30, this Office, in another ru.ling issue(! in ans�Ner to a query as to the ta.x base upon which , the 15% branch profit remitt:J.nce t.::1.x should be imposed held thr.J.t 'tJ1e 15% branch pr.:Ait remittance tB.x shall l)e imposed on the prrAit actua.lly . remitted al}rOc:tcl :3.nd not on the t0taJ branch profit ()ut of V�Thich thB remittance is t0 be mrde .� A8 the tatter ruli 1g :::eems to h3.ve given rise tf.) sc�nP misconception tlHt it modified BI R Ruling No. I) 16-79 v1ith n?sp~?.ct to t11e nEmn<?r of c:omt�utat on oi the 15?6 branch profit remitt3.nce t:J.x, this Office

DECISION- C.T.A. CASE NO. 4182 - Page 5 - tssued a darificatory r1J1ing on OctJ)ber 23.. 19(~ 1 explaining - The a.b..::;.ve ruling (of January 2 l. 19(Yi) merely emphasize,.j the distinction b>?.tv..reen the total branch pr(:ofit V�thkll is remittable and that portion of the bra.nch prr)fit actt.\ally remitted ~Nithout. deduction on account of the tax to be paid. The phrase �any profit remitted e.brt)8.d � should be C()ns rued to mean tJ1e profit to be remit. .e Heance. t.h~re must l)e J.n actual remittance, ;Js distinguished fr om profit which is remittable. To give n exa.mple: ff the total l)ranch pr )fit is P. ll S,OOO .)0 but the ::nnou.nt b) be rernit~d is P 100,000 .00, U1<:>n the tax base should bo?. P 100,000.00. Iv!oreover, the 1~' % profit remittance ta.x imposed by Sectic�n 24(b)(2) of the Tax (rxle is ::l.n inconre ta.x, it is therefore clear that tll>:? s:une is non-der:luctible from the gross (profit) inconw . Inasmuch a.s the tax is an exaction on profit re:;).lized for remitt:ulCe abroad, the deduction U1ereof as an expew::e i:3 not sustained by laV�l nov.1wre in Section .30 of the Tax Code is it pr(1Vided that the same is deductible. Be, sides dedudions from uQToss income are matters of legislative grace, what is not expre~sly granted by the laV�l is deemed withheld .' Considering that .the 1)% branch profit rernittanc:e tax is itnposed awl collected<. g.t source. ne<:essa.rily the tax base should be the amount actuallv applied for by tlle branch ~Nitll the Central EianR of the Philippines as profit to be remitted abroad . [ t�� 1.,.-:.) (��l.t�::�.C�- ':t.f"t��:.>.�rj t11�"> t t�l�!l '-:-.� (t' t� '' 111 0�">.1" }t)���A-� 0O'1.uV f.:-':.: fl 0...,. -,-:-. '<IYV l.t�-lA'-" fv .- �:1. �� �- � -� publicity as possible." (Emphasis Our:;.)

DECISION - C.TA. CASE NO. 4182 - Page b - Tht:; court in the case of Compaiiia General De Tabacos De Filipinas (Philippine Branch), v . the Commissioner of Internal Revenue, CTA Case No. 3827, October 14, 1988, upheld that the Burroughs case recognizes the v~hdity of Memorandum CiP:u.1ar No. ()-i)2 , dated Ivla.rch 17, 19()2, tl.) ~~>tit: "A fortiori, the holding in the Burroughs Limit>td case ls-nds settling cognizance tr) the validity of the Iviemora.ndum Cirr::u.lar No. 8-02, V.Jl1ere as ruJ-2o::l by the Supreme Court - 'vVha.t v.r::y:; applica.ble in the ca.se ;3.t ba.r i�3 still the Revenue Ruhn!2' of fanuarv�I '-� 2 l . 19(.\0 bec:J.use the private respondent Burroughs Limited paid the branch profit rernitt:mce tax in question on J�.Jarch 14, 19.)2 . r-..Iemorandum Circular No . f~-.32 (late(l Ivla.rch 17, 19(>2 cannot l:H? given retroactive effect. in the light of Section .?.~2 7 of the Na.tioml1 Internal Revenue Code St::1.ted othervvise, the ctrcula.r must be prospective in application. E:;tablished at bar is a pa~.rment I effed.ed on Auob�ust 16.� 1 9 �~� 2 subse(tus-nt to .a. t11e issuance t11s-reoi. Hence petitioner 's case falls v.,;ithin the compelling imp�:rrt and force of the Revenue lvlemoratidum Circular No. 8-62 dated Ivia.rch 17, 19a2 ... Lik~v.;rise Court of Appeals in th~ case of Commissioner of Internal Revenue v . Bank of America NT & SA and the Court of Tax Appeals, CA -G .R_ SP No . 2 2569, September 19, 1990, upheld the validity and prospective application of Revenue l�:femorandum Circula.r V�lhen I it ruled: ,I

DECJSION- C.T.A. CASE NO. 4182 - Page7 - "x x x. Tht::> us~? of the V�lord remitted may ~..vell be u.nderstx)Oci as referrini2'-'' to t11at rn- art of the s::_~.id t..)I:J.l branch profits :\�\rhich ~hmu.ld be sent to the hea.d offi r:e as distingt: ished from tl1e t~tal profits of the branch (not all of V�!hic:h need be $ent or wouh:l l)e 6rdered r~mi .t~d abroad) , If the legislature indeed lnd Vlanted to mitig-ate. the harshness of .successive t;3xation. it would h8.'fe been simpler to just lower the rab?S without in effect requiring the relati~.rely novel a.nd complh> tJ.?.d vvav of comput.itw the t1.x. asI . ~ envisione� by the herein privatA respondent. The s21.me result v\!ould 11 ve been achieved. The at .tE-mpt tr. deductE> 1egislati 1e intent -vvith regard to Section 24(b){2)(ii) 0 the Tax Code 'Nr:,u.ld only ~5e rve b) allow .::ap iou.s a.nd strained intendment of the law. NIMI A SUBTILITAS IN JURE REPROBATUR ET TALI S CERTITUDO CERTI TUD IIv!Efvi CONFUNDIT (Tlit? lav; does not allow of a captious and :::trained intendment. fc-�r such nice pretence of CE�rtainty confi)lJ.Wls true ancllegal cert:linty). As held in the case of United States v::;. v�rurzbach, 2(>0 US . �-�;�~.-:-l 6�' .-.~.. q- a. : There i :; no ~Nar ra nt for seeking refined argument; to :;how that the statute doe~; not mean Vlh ;J.t it savs. ' In viev-l of t11e fc�regoing, this Cou.rt finds that the cle3.r import c�f Section 241J:.)(2 )(ii ) of the Tax ((:U:ie � rn:Jndates the impo:;ition of the fifteen per cent ( 1:,::r;) t1x ori the branch profits remitt::mce, which in t::rx f- 1A " _�.,a�1:..t�l0�".'t-!t�_��. ou;::- 1� ..;~:. c-~.11 J__J_ (..1.. A..<. (�-l t)._�., .C,..t"c"-' t-�l�!Av< 1 t- �l-!A...<, - " � �.,. } lla !-!( ' �T't tll " t_Q.,..V.o.ll. '�"'�' -� total arrwunt remitted (not the total amount of the branch r;rofi ts) 'a::; base .for the tax." [Cited in the cases of Commercial Union Assuran'ce Company v . The Commissioner of Internal Re venue. CTA Case No _ 4189. September 8. 1992; Compania Ge neral De Tabacos De Filipinas (Philippine Offices), v . The Commissioner of Internal Re venue, CTA Case No. 445 1, August 2 3.. 1993; and Warner Bros_ (F _EJ Inc_ v _Commissioner of

DECISION- C.T.1 � CASE NO. 4182 - Page 8 - lnternal Revenue, CTA Case No . 4207, December 2 1, 1993L ( .:,nsidering that petitioner 's t�ranch profits remitt:lnce tax r.,ver~ paid on Od.ober 25~ 1985 i� ncl Odober 20. 19(36 or during tilE- eifed ivity of Revenue t.;lemoratElum Circular No. (~>- (3 2 Uvla.rcll I 17. 191) 2 '!_. the tax8.ble base for computing tlw 15.% branch profits r emi tt:Hl ( E> tax sllou d be the_8tn(11Jnt :tppli<?d for �v..lit.h the Centra l Bant of the Philippine::: :3.s profits to be remitted abroad by the bran..:�h ~i�athout dedu.ct.ing the l 5% branC'l1 profit remittance tax from the t.a;~Jble base and rl('t t.h' profits actually remitted as .::=-tnb�:.died in BIR Ruling dated January 2 l . 19<)0. Revenue I�.,.lemoran:-lum Circular d-f>2 should be applied prospectivelY' . Therefore. the :: arne should gov.::=-rn payinents of branch profits rernitta. nc>? tax in 191):,. and 1~ () 6 :3.S in the <:as<:> on hand. WHEREFORE, in vi~w �) f th.:;. foregoing. W~ find th~ t.h~ same is her~bv ' .:Hsmis�::<?d Petiti()n<?r'�; claim fo r r Mund is tllo?retor~ DENIED . Costs of suits against tll<?. petitioner. SO ORDERED . ~TO WE CONCU~IQ .~ . D. ACOSTA ~~d:;:;:;~ / l\:::sodato? Jtv:lge I

DECISION- C.T.A. CASE NO. 4182 - Page9- CERTIFICATION hereby certify that this decision -vvas reached after due consultation among the members of tl1e Court of Tax Appeals in acc<>rdatKe ~Nith Se(:tion 19, Artide \lii I of the Constitution _ ~-~~~ ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals -t _,