CTA Case No. 3222 (Decision)

~- REPUBLIC OF THE PHILIPPIMIS COURT OF TAX APPEALS QUBZOM CITY CHINA BANKING CORPORATION, Petitioner, -- ver s u s - C.T.A. CASE NO. 3222 THE COMMISSIONER OF INTERNAL REVENUE, _ ____ _ _Re. spond e nt. ){ >:--- - DE C 0N This i s a c: 1 aim �for the refund and ta>e credit of the amount~ of PB0,745.00 and P45,714.00 as alleged erroneously paid corpor.-.ta development tax on the income derived by the petit .ioenr from its Foreign Cur-rency Deposit Unit (FCDU) for 1978 and 1979, r~spectively . Petitioner- is a corporat .i.on duly licensed to engage .in gener.. al banking by the Central Bank of the Philippines . It al s o operates a Foreign Curr�e n c y Deposit Unit ( FCDU) for the pur�pose of a c c e pting foreign c ur r ency deposits. On Apr- .i 1 16, 1979 and April 1!\, 1990, petitioner- paid, pur-suant to Section 24(e) of th~=> .1977 T .-:~ >: Cod F.~ , as implemented by Revenue Rf?.gulat:l o ns No. 11- 77 dated October 6, 1977, the amounts of PB0,754.00 and P45,714.00

DECISION CTA CASE NO. 3222 - 2- corporate development for 1978 and 1979~ respectively~ or a total of P126~468.00 on i t s income from (foreign currency) deposits. (�Xh$.. A to G) Believing that the payment of the 5X corpor~te development on its income �from marginal depos.i. ts we~; erroneous, petitioner filed a claim for the refund and/or tax credit of the tot~l amount of P126~468.00 as indicated in its letter to the respondent Commissioner of Internal Revenue dated February 12~ 1981. (Exh. G.> apprehensive of the t~m-year reglementary period on the filing of the judicial action for the refund and/or tax credit of the amount of tax alleged to have been erroneously paid, petitioner instituted the instant petition for review on April 10, 1981. In the Special and Affirmative Defenses in hi~ An swer , respondent Commissioner of Intmrn~l Revenue stated that: 6. Only subsidiaries of foreign corporations doing bcu:;iness in the Phi 1 i ppines ar�e e>:empt from payment of the coporate development tax (BIR Ruling 55- 81 dated March 23, 1981); 7 . Nothing in the provisions of Se~tion 24(e) of the Tax Code or in its implementinQ C:i 4 ' J J u

DECISION CTA CASE NO. 3222 - 3- revenue regulations (Revenue Regulations No. 11-77) states that income from marginal deposits (Foreign Currency Deposits) is excepted from the imposition of the 5% corporate development tax (now 10%)- 8. Taxes are presumed to have been collected and paid in accordance with law; 9. In claims for r��efund or ta>: credit the bur�den is upon the ta>:payer to prove that it is legally entitled thereto; otherwise~ failure to substantiate the same is fatal to the ~ction; 10. A claim for refund is construed s trictly against the claimant as such claim is in the nature of an exemption from taxation fHanila El�ctric CD. L - 29987~ October 22, 1975. 67 SCRA J51J. The on 1 y i ssLie t.o be determined in this ca~e is ~lhether or not petitioner is entitled to the claim for refund or tax credit in the total amount of P126~468.00 as 5% corporate development tax paid for the years 1978 and 1979. Petitioner contends that it is entitled to the tax refund or tax credit of the sum of P126~468.00~ there being erroneous payment on account of misinterpretation that Foreign Currency Deposit Unit's income is subject to the 5X corporate development tax under Revenue Regulation No. 11-77.

DECISION CTA CASE NO. 3222 - 4- Respondent Commissioner~ through counsel~ however contends that nowhere in the provisions of Section 24(e) of the Ta~ Code, nor in R~venue Regulations No. 11-7'7 dated October 1977 cnmpl imr"'nt.ing the same~ can we find that interest income �from marginal c:leposi ts of Foreign Currency Deposit Units are e>:empted from the imposition of 5'Y. development ta>:. Neither WAS petitioner able to prove that any of the condition$ prescribed under Section 24(e) of the Tax Code, as implemented by Revenue Regulations Nos. 11-77~ relative to its rate of return on net worth or net assets (net worth ratio) and stock ownership 11nd/or con tro 1 e>: is ted. We agree with respondent Commissioner of Internal Revenue that petitioenr's evidence is wanting C:lr� that i t had not been able to prove the fact that its net worth or net assets do not exceed lOY. of its net worth, or is not a closely-held corporation, whi c h is one at least 50% in value of the outstanding stock or 50% of the combined voting power of all classes of stock entitled to vote at any time during the t.a>:able years, is owned directly by or� for not more than five persons, natural or juridical.

DECISION CTA CASE NO. 3222 - 5- Taxes are presumed to have been collect~d end paid in accordance with law. In claims for refund or- tr.n: cn::>dit, the burden a lway s is placed on the taxpayer to prove that i t is leg~lly entitled ther-eto. Otherwi se , f ai lure to do so becomes fatal to the action. A claim for refund is construed strictly against the claiman t as s uch claim is in the very nature of an exemption from taxation. <Hanila Electric Co. vs. Coaaissioner o., Internal Revenue , G. R. No . L-2'.':J987, Oct. 1'.~75 .. 67 SCRA .351) And it .i.s a car-dinal rule in ta>:ation that e>:~:!.mption fr-om payment thereof are highly disfavored by law ~ and the party claiming exemption must ju!:.t.ify his claim by a clear~ positive or express grant of such privilege of law. (Collector vs. Hanila Jockey Club, G.R. No. L- 8755, narch 23, 1956, 98 Phil. 670) And the law does not look with favor on tax exemption and that he who seeks to be thus privileged must justify it by words too plain to be mi s tak e n and too categorical to bf! misinterpreted. <Coaaissioner o., Internal Revenu� vs. P . J. Kiener Co., Ltd. , G.IL No . f_-24754 ; ,7uly 18, 1975, 65 SCRA 142) WHEREFORE, petitioner's claim for refund and/or tax credit in the amount of P126,468.00 i� ' hereby denied.

DECISION CTA CASE NO. 3222 - 6- With costs against petitioner. SO ORDERED. Que z on City, t1etro MO!Inila, Novemyr 12~ 1990. CONS~~AQUIN Associate Judge v I CONCUR: CERTIFICATION I hereby certify that this decision was reached after due consultation between the members of the Court of Tax Appeals in accordance with Sec:t:.ion 13, Ar-ticle VIII of t.hf.? Const.it,~tion. CONS~. ROAQUIN As/ociate Jt.1dge Court of Tax Appeals