CTA Case No. 5023 (Decision)

Republic of the Philippines COURT OF TAX APPEALS Quezon City CITIBANK N.A�� C.T.A. CASE NO. 5023 Petitioner, Promulgated: ~ - versus - AUG 03 1995 COftftiSSIONER OF INTERNAL REVENUE. Respondent. X- DEC I S I 0 N This case involves a claim for refund of alleged overpaid branch profit remittance tax in the amount of P1,307,920.58 for the year 1991~ Petitioner is a resident foreign corporation existing under Philippine laws, with principal office at 6th floor Citibank Centre Paseo de Roxas, Makati, Metro Manila. On August 22, 1991, petitioners application for profit remittance to its head office abroad in the amount of P802, 866, 196. 50 was approved by the Central Bank whfch is computed as follows: CB-DRD Registered Assigned Capital x Branch Profit Total Assigned Capital RBU = P768,650,937.00 x P19,037,872.00 P15,925,185.91 P918,889,000.00 Less: 15Y. profit remittance tax 2,388,777.89 Sub-total P13,536,408.02 l .:'\ ~033

Decision - C.T.A. Case No. 5023 - -2- FCDU= P768,650,937.00 x P60,880,114.00 P50,926,234.48 P918,889,000.00 <Subject to remittance tax> Less: 15Y. pro�it remittance tax 7,638,935.17 Sub-total p 43.287,299.31 P802,866,196.50 Then, on August 26, 1991, the portion pertaining to the branch pro�it remittance tax <15Y. o� P66,851,420.39 or P10,027,713.06> was paid to the government. On February 22, 1993, petitioner, through its auditors �iled a request for refund in the amount o� P1, 307,920.58 representing its alleged overpaid branch pro�it remittance tax for 1991, computed as follows: Net profit before pro�it remittance tax <P15,925,185.91 + P50,926,234.48> P66,851,420.39 X 15Y. 15Y. profit remittance tax actually paid <P2,388,777.89 + P7,638,935.17) P10,027,713.06 ============== Net profit before profit remittance tax P66,851,420.39 I 1.15 P58,131,669.90 X 15Y. 15Y. profit remittance tax that 8,719,750.48 should have been paid Erroneous 15Y. profit remittance tax P10,027,713.06 actually paid Less: 15Y. profit remittance that 8,719,750.48 should have been paid p 1,307,962.58 Excess 15Y. pro�it remittance tax ~.034

Decision - C.T.A. Case No. 5023- -3 - _Up to the filing of the petition for review on August 25, 1993, respondent has not acted on petitioner's claim. The sole issue to be resolved in this case is whether or not the branch profits tax are computed based on the profits actually remitted abroad or on the total branch profits out of which the remittance is made. First. Petitioner contends that the 15X Branch Profit Remittance Tax should be based on the profits actually remitted abroad and cited as authority Section 25<a><5> of the National Internal Revenue Code. Likewise, petitioner relies on the case of Bank of America NT & SA vs. Commissioner of Internal Revenue <CTA Case No. 3799, October 29, 1986>. While respondent stressed that what is applicable in this� case is Revenue Memorandum No. 8-82 (dated March 17, 1982> which reads in part as: "considering that the 15X branch profit remittance tax is imposed and collected at source, necessarily the tax base should be the amount actually applied for by the branch with the/ Central Bank of the Philippines as profit to be remitted abroad." Moreover, respondent also cites as basis Section 24<b><2><ii) of the Tax Code. Insofar as pertinent Revenue Memorandum Circular No. 8- 82 <dated March 17, 1982> is herein quoted for reference: ).035

- Decision - C.T.A. Case No. 5023 - -4- "Subject: Classi�ication as to the proper tax base in computation o� the 15Y. branch pro�it remittance tax. To: All Internal Revenue O��icers and Others Concerned In BIR Ruling No. 016-79 dated April 18, 1979 anent the 15Y. branch profit remittance tax as an income tax imposed under. Section 24<b><2>, National Internal Revenue Code o� 1977, as amended, this office ruled that xxx the 15Y. branch profit remittance tax should be based on the amount o� P1,504,330.43 representing pro�it derived �rom the disposition o� the shares, 15Y. o� which is P225,649.57. It will be noted that the basis o� computation in accordance with the ruling is pro�it without deduction �or the 15Y. tax. Again on January 21, 1980, the BIR in another ruling issued in answer to a query as to the tax base upon which the 15Y. branch profit remittance tax shall be imposed on the pro�it actually remitted abroad and not on the total branch pro�it out of which the remittance is to be made. As the latter ruling seems to have given rise to some misconception that it modified BIR Ruling No. 016-79 i with respect to the manner of computation o� the 15Y. branch profit remittance t_ax, this O�fice issued a clari�icatory ruling on October 23, 1981 explaining - The above ruling <of 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 o� the tax to be paid. ~-036

Decision - C.T.A. Case No. 5023- -5- 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 is remittable. To give an example: If the total branch profit is P115,000.00 but the amount to be remitted is PlOO,OOO.OO then the tax base should be PlOO,OOO.OO. Moreover, the 15X profit remittance tax imposed by Section 24(b)(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 realized for remittance abroad, the deduction thereof as an expense is not sustained by law nowhere in Section 30 of the Tax Code is it provided that the same is deductible. Besides deduction from gross income are matters of legislative grace, what is not expressly granted by the law is deemed withheld. Considering that the 15X branch profit remittance tax is imposed and collected at source, necessarily the tax base should be the amount actually applied for by the branch with the Central Bank of the Philippines as profit to be remitted abroad. It is desired that this Circular be given as wide publicity as possible. <Sgd.> Ruben B. Ancheta Acting Coaaissioner l Since Section 24<b><2><ii) of the NIRC is material to the issues on hand, we find it necessary to reproduce the provision which reads: � (ii) Tax on branch pro�its re�ittances. Any profit remitted by a branch to its head office shall be subject to a tax of 15Y. [except those registered with the Export Processing Zone Authority]. Provided, That any profit remitted by a branch to its head office authorized to engage 1037

Decision - C.T.A. Case No. 5023 - -6- in petroleum operations in the Philippines shall be subject to tax at 7-1/2X. In both cases, the tax shall be collected and paid in the same manner as provided in Sections 51 and 52 of this Code and Provided, further, That interest, dividends, rents, royalties, including remunerations for technical services, salaries, wages, premiums, annuities, emoluments or other fixed or determinable annual, periodical or casual gains, profits, income and capital gains received by a foreign corporation during each taxable year from all sources within the Philippines shall not be considered as branch profits unless the same are effectively connected with the conduct of trade or business in the Philippines. (as amended by P. D. 1705, P.O. 1773 and P.O. 1994. > In the case of Commissioner of Internal Revenue v. Bank of America NT & SA, the Court of Appeals upheld the validity of Revenue Memorandum Circular No. 8-82 which reads: 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 the rates without in effect requiring the relatively novel and complicated way of computing the tax, as envisioned by the herein private respondent. The same result would have been achieved. "The attempt to deduce legislative intent with regard to Section 24(b)(2)(ii> o:f the Ta~ Code would only serve to allow a captious and strained intendment of the law. NIMIA SUBTILITAS IN JURE REPROBATUR, ET TALIS CERTITUDO CERTITUDIMEM CONFUNDIT �(The law does not allow of a captious and strained intendment for such nice pretence of certainty confounds true and legal certainty> As held in the case of United States vs. Wurzbach, 280 U.S. 396, 398: 1. 038

Decision - C.T.A. Case No. 5023- -7- There is no warrant �or seeking re�ined arguments to show that the statute does not mean what is says. " <Bank of America NT & SA and the Court of Tax Appeals CA GR. SP No. 22529, September 19, 1990> The High Court in its latest pronouncement in the case o� Banko� America NT & SA vs. The Court o� Appeals, et.al., G. R. Nos. 103092 and 103106, July 21, 1994 reversed the ruling laid down by the Court of Appeals in this case and sustained the decision of the Court of Tax Appeals when it held thus: �x x x In all the situations x x x where the mechanism of withholding of taxes at source operates to ensure collection of the tax, and which respondent claims the base on which the tax is computed is the amount to be paid or remitted, the law applicable expressly, speci�ically and unequivocally mandates that the tax is on the total amount thereof which shall be collected and paid as provided in Sections 53 and 54 o� the Tax Code. Thus: "Dividends received by an individual who is a citizen or resident of the Philippines from a domestic corporation, shall be subject to a final tax at the rate of fifteen <151.) per cent on the total amount thereof, which shall be collected and paid as provided in Sections 53 and 54 o� this Code. <Emphasis supplied; Sec. 21, Tax Code> 'Interest from Philippine Currency bank deposits and yield �rom deposit substitutes whether received by citizens of the Philippines or by resident alien individuals, shall be subject to a final tax as follows: <a> 151. of the interest or savings deposits, and (b) 201. o� the interest on time deposits and yield from deposits substitutes, which shall be collected and paid as provided in Sections 53 and 54 of this Code: x x x 1039

Decision - C.T.A. Case No. 5023 - - 8 �- <Underlining supplied; Sec. 21, Tax Code applicable.>' �on the other hand, there is absolutely nothing in Sect ion 24 <b > <2) <ii >, suDra, which indicates that the 15Y. tax on branch profit remittance is on the total amount of profit to be remitted abroad which shall be collected and paid in accordance with the tax withholding device provided in Sections 53 and 54 of the Tax Code. The statute employs 'Any profit remitted abroad by a branch to its head office shall be subject to a tax of fifteen per cent <15Y.)' -without more. Nowhere is there said of 'base on the total amount actually applied for by the branch with the Central Bank of the Philippines as profit to be remitted abroad, which shall be collected and paid as provided in Sections 53 and 54 of this Code. ' Where the law does not qualify that the tax is imposed and collected at source based on profit to be remitted abroad, that qualification should not be read into the law. It is a basic rule of statutory construction that there is no safer nor better canon of interpretation than that when the language of the law is clear and unambiguous, it should be applied as written. And to our mind, the term 'any profit remitted abroad' can only mean such profit as is 'forwarded sent, or transmitted abroad' as the word 'remitted' is commonly and popularly accepted and understood. To say therefore that the tax on branch profit remittance is imposed and collected at source and necessarily the tax base should be the amount actually applied for the branch with the Central Bank as profit to be remitted abroad is to ignore the unmistakable meaning of plain words.w <Underscoring supplied> { From the foregoing it is settled that insofar as the 15Y. remittance tax is concerned the tax base should be wthe profit remitted abroadw. The law speaks clearly and is no longer capable of any other interpretation. Here, the tax is imposed on the amount sent .t040

... Decision - C.T.A. Case No. 5023- -9- abroad pursuant to Section 25 <a> ( 5 > of' the Tax Code which provides: "Tax on branch prof'its remittances. Any prof'it remitted by a branch to its head of':fice shall be subject to a tax o:f 15Y. <except those registered with the Export Processing Zone Authority> x x x" Accordingly, as the 15Y. tax is imposed only on the prof'it "remitted", that portion of' the prof'it corresponding to the prof'it remittance tax itself' which is not remitted abroad <as it is paid to the government>, should not f'orm part of' the tax base �or purposes of' computing the branch prof'its remittance tax. r WHEREFORE, in view of' the :foregoing premises, respondent is hereby ordered to ref'und or issue a tax credit certif'icate in f'avor of' the petitioner �or the amount of' P1,307,962.58 representing overpaid branch pro:fits remittance tax �or the year 1991. SO ORDERED. GRUB4 Judge CQ.~ ESTO D. ~~~:ZA :?i!~vd RAitOH 0. DE VE Associate Jud 1.041

Decision - C.T.A. Case No. 5023 - - 10 - CERTIFICATION I hereby certi�y that this decision was reached a�ter due consultation among the members o� the Court o� Tax Appeals in accordance with Section 13, Article VIII o� the Constitution. C~IQ-~ ERNESTO D. ACOSTA Presiding Judge Court o� Tax Appeals "