CTA Case No. 5002 (Decision)

REPUBLIC OF THE PI-IILIPPINES COURT OF TAX APPEALS QUEZON CITY THE COCA-COLA EXPORT CORPORAT IONy C.T.A. CASE NO. 5002 Petit i oner. PrAUGgrtmm ;ig: - versus - COMI'IISSIONER OF INTERNAL REVENUEy Respondent. K- - - - - - - - - - - - - - - - - - - - - - - - - - - K DECISION This is a petition fot' review co��enced by petitioner,- The Coca-Cola Export Corporation, to seek fro� respondent a refund or tax credit of alleged overpaid withholding tax on dividend income for 1991 in the a�ount of Pl,870,540.00. Petit i onet"', rept"'esent s it!Soelf as a organized and existing under the laws of the State of Delaware, U.S.A~, and duly licensed to do business in the Philippines through its Philippines Branch in the manufacture and sale of beverage base and concentrate. Petitioner alleged in its petition filed with this Court on June 23, 1993 that it owns, together with its Philippine Branch, 405,000 common shares of stocks of :.094

DECISION - C.T.R. Case No. 5002. - 2- Coca-Cola Bottlers Philippines~ Inc.~ of which 300~000 shares are held by it while 105,000 shares are held by its Philippine Branch. Petitioner further alleged that Coca-Cola Bottlers Philippines~ Inc. declared a "cash dividend of P1G8,348~ 600.00 to all stockholders of record as of April 22~ 1991~" and petitioner was paid a gross dividend of P37, 41 0~ 800. 00, 20" taM amounting to P7,482,1GO.OO was re�itted to the Bureau of Internal Revenue covered by BIR Payment Order No. C 11097558 and Confir�ation Receipt No. B 18773838, both dated June 28, 1-991. Petitioner, on July 30, 1992, believing that the 20" taM withheld on dividends it received fro� a do�estic corporation was erroneous on the ground th~t under Section 25<b><5><B> of the TaM Code, the taM due thereon should only be 15" and not 20", insisted that the taM withheld in eMcess by P1,870,540.00 should be refunded to it � . Petitioner further invoked the ruling of the Supre�e Court in the case of <Marubeni Corporation vs. of Internal Revenue, G. R. No. 76573 Septe111ber 14, 1989) to the effect that dividends on investments in domestic corporation remitted to non- 1095

DECISION - C.T.A. Case No. 5002. - 3- resident foreign corporation is subject only to 15~ ta~ and the resolution of the Supreme Court in the case of <Co��issioner of Internal Revenue vs. Proter and Ga�ble Philippine Manufacturing Corporation, G. R. No. 66838 December 2, 1991) which declares that "Section 902, u.s. Ta~ Code, specifically and clearly complies with the requirements of Section 24(b)(3) [now Section 25 (b) ( 5) (B) J ' N I RC. II Respondent has not acted on petitioner's request for refund or ta~ credit. Petitioner filed the instant petition for review and therefore prays for judgment against respondent and such other relief as this Court I d~em j~st and equitable under the premisses. may Respondent in her answer filed on September 8, 1993 specifically and qualifiedly denied practically all the allegations in the petition except those relating to her personality as Commissioner of Internal Revenue and the jurisdiction of this Court, on grounds of lack of knowledge and information to form a belief as to the truth thereof or that the allegations are mere opinions, arguments and erroneous conclusions of fact and/or of law. And as special and affirmative defenses alleged among others, that: a) Petitioner's claim for ta* credit/refund is still under the usual routine 1096

DECISION - C.T.A. Case No. 5002. -4 investigation and/or e>ea11ination by respondent's bureau; b) The dividends pay11ents made by Coca- Cola Bottlers Philippines, lnc. is subject to the 35~ final withholding ta>e pursuant to section 25(b) of the Ta>e Code, as a�ended; c) The withholding ta>e on dividend allegedly remitted and paid to respondent was collected and paid in accordance with law and pertinent BJR i11ple11enting rules and regulations, hence, the salle is not refundable; d> ln order for petitionel~ herein to validly avail of a reduced 15~ final ta>e on dividends received by petitioner fro� Coca-Coal Bottlers Philippines, lnc., petitioner must co�ply with .the require�ents set forth therein under Section 25(b)(5)(8) as well as BJR Ruling No. 080-92 dated March 17~ 1992, i�ple�enting the said provision of the Tax Code; e> Clai11s for refund are construed strictly against clai�ant, the same being in the nature of e>eemption from ta>eation; and f) ln an action for refund or ta>e credit the ta>epayer has the burden of showing that the ta>ees were erroneously or illegally paid, and failure to sustain �said burden is fatal to the action for ta>e refund or credit. The main issue presented for resolution of this Court is whether of not petitioner is entitled to the refund or ta>e credit of P1,870,540.00 representing its alleged overpaid withholding ta>e on its dividend income for '1991. During the trial of this case, petitioner through counsel introduce in evidence the testimony of its lone witne.ss Mr. Berardo E. Espiridion to prove that: !.097

DECISION - C.T.A. Case No. 5002. -5 1> cash dividend was declared by the Coca- .Cola Bottlers Philippines, Inc., a domestic corporation; 2> the cash dividend due to the Coca-Cola Export Corporation was re�itted abroad; and 3> the 20~ tax withheld on said cash dividend was actually re�itted to the Bureau of Internal Revenue. Pe~itioner's witness thus testified that he is as Tax Supervisor of Coca-Coia Bottlers Philippines Inc., a corporation duly organized and existing undet~ the laws of the Philippines, registered with the Securities and Exchanged 'Commission under Registration Certificate No. 0098792 issued on May 5, 1981; that the stockholders of Coca-Cola Bottlers Philippine Inc. are San Miguel Corporation, the Head Office and the Philippine Branch of petitioner; that petitioner is, a foreign corporation duly organized and existing under the laws of the State of Delaware, U.S.A., licensed to engage in business in the Philippines; that as Tax Supervisor of Foca-Cola Bottlers Philippines, Inc. he perfor� tax audits and review pay�ent of the tax by Coca-Cola Bottlers Philippines, Inc. tax, value added tax and withholding tax on dividends; that Coca-Cola Bottlers Philippines, Inc. declared cash dividends on April 23, 1991; that Coca-Cola Bottlers Philippines, Inc. through the Bank of the Philippine ~.098

DECISION - C.T.A. Case No. 5002. - 6- Islands applied with the Central Bank and was granted approval to remit the dividends due The Coca-Cola E~port Corporation; that the Coca-Cola Bottlers of the Philippines, Inc. withheld 20~ of the cash dividends a�ounting to P7,482,160 as ta~; and that Coca-Cola Bottlers of the Philippines, Inc. re�itted to respondent the taM withheld on the cash dividends as shown by its Monthly Re�ittance Returns of Income Ta~ Withheld for June 1991, Pay�ent Order No. C 119097558 and CB Confir�ation Receipt No. B 18773838, both dated June 28, 1991 <Pls. see t.s.n. hearing on October 20, 1993>. During the hearing on May 17, 1994 counsel for respondent �manifested that while she was able to trace their records of the case to Makati West office of the BIR and inspite of the service of a subpoena duces tecu�. no record was produced in Court, hence she is constrained to submit the case for decision on the basis of the pleadings. Petitioner then filed its me�orandu� on June 14, 1994 while respondent filed her �e�orandu� on August 15, 1994. As stated earlier, respondent in the instant case, specifically denies all the allegations in the petition for review e~cept for the juridical personality of the !099

DECISION .- C.T.A. Case No. 5002. - 7- BIR and the jurisdiction of this Court. It is therefore, incumbent on the part of petitioner to prove its material allegations as well as to the truth of its claim. After careful consideration of the parties pleadings, their arguments and the evidence presented in this case, we are convinced that petitioner has complied with the requirements in order that the dividends received by its non-resident parent corporation in the U.S.A. may be subject to the preferential 15" tax rate instead of the 20". Petitioner has presented testimonial and documentary evidence bearing on the declaration by Coca-Cola Bottlers Philippines, Inc., of cash dividends to all the� stockholders, approval by the Central Bank of cash dividend due petitioner to be remitted to the U.S.A., Monthly Remittance Return of Income Tax Withheld, BIR Payment Order and CB Confirmation Receipt among ~thers, which are deemed sufficient. � In other words, petitioner was able to meet the conditions in consonance with the Resolution En Bane* of the Supreme Court, dated December 2, 1991, in the case of Commissioner of Internal Revenue vs. Procter & Ga�ble Philippine Manufacturing Corporation, 204 SCRA 377, in this wise: *This reversed the decision of the Second Division in ~o��issioner of Internal Revenue vs. Procter & Ga�ble PMC, No. L-66839, April 15, 1988, 160 SCRA 560. tlOO

DECISION - C.T.A. Case No. 5002. 8- It is important to note that Section 34(b)(1), NIRC, now Section 25(bJ(5J<B> of the Tan Code, does not require that the US must give a "d�>�>��>d paid" tax crE>di t f"o�r the di vidt:>nd tax (2fJ p�>1~c�>ntag�> points) wai vE>d by thE> PhilippinE's in �aking applicable the preferred dividend tan.rate of fifteen percent (15~>. In other words, our NIRC does not l.,equire that the US tan law d�>�>� thE> par�>nt- corpo1~ation t o hatl�> paid thE> twE>nty (20) p�>1~c�>ntag�> points of di vidt:>nds ta.Jt wai VE>d by the Philippines. The NIRC only requires that the US "shall allow" P&G-USA a "deemed paid" tan credit in an a�ount equivalent to the twenty fZO.J p�>1~c�>ntag�> points waived by the Philippines. By and 1arge, we have to recognize the principle of reciprocity which is the rationale behind gl.,anting preferential tan rate of 15~ under Section 25(bJ(5J(BJ of the Tan Code and avoid double tanation. As to �respondent's argument that claims for refund are construed strictly against clai�ants, it may not be a�iss to state that the Supreme Court has considered a total enemption by the country of do�icile of non- resident corporate stockholder on dividends received, as a�ple basis for the applicability of the 15~ tan rate (Pl s. see Co��issioner of Internal Revenue vs. Wander Philippines, Inc., 160 SCRA 573). In fine petitioner has sufficiently established validity of its claims and entitle�ent to the refund of the amount prayed for. ~-101

-- DECISION - C.T.A. Case No. 5002. - 9- WHEREFORE, respondent is hereby Ordered to Refund or Issue a Tax Credit Certificate of Pl, 870,540.00. ~-~:�' SO ORDERED. RAMON D.. DE VEV. � Associate Judg / WE CONCUR: t~Q.~ ERNESTO D.. ACOSTA J\tdge GRUBA Judge CERTIFICATION I hereby certify that this decision was reached after due consultation a�ong the �e�bers of the Court pf Tax Appeals in accordance with Section 13 Article VIII of the Constitution. c..;:;;; l9.. ~ ERNESTO D.. ACOSTA Presiding J\tdge Court of Tax Appeals 1102