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CIR v Solidbank Corporation in order to ensure its payment.

This amount that is used to settle the


tax liability is sourced from the proceeds constitutive of the tax base.
Facts:
Solidbank filed its Quarterly Percentage Tax Returns reflecting gross These proceeds are either actual or constructive. Both parties agree
receipts amounting to P1,474,693.44. It alleged that the total that there is no actual receipt by the bank. What needs to be
included P350,807,875.15 representing gross receipts from passive determined is if there is constructive receipt. Since the payee is the
income which was already subjected to 20%final withholding tax real taxpayer, the rule on constructive receipt can be rationalized.
(FWT).
The Court applied provisions of the Civil Code on actual and
The Court of Tax Appeals (CTA) held in Asian Ban Corp. v constructive possession. Article 531 of the Civil Code clearly
Commissioner, that the 20% FWT should not form part of its taxable provides that the acquisition of the right of possession is through the
gross receipts for purposes of computing the tax. proper acts and legal formalities established. The withholding
process is one such act. There may not be actual receipt of the
Solidbank, relying on the strength of this decision, filed with the BIR income withheld; however, as provided for in Article 532, possession
a letter-request for the refund or tax credit. It also filed a petition for by any person without any power shall be considered as acquired
review with the CTA where the it ordered the refund. when ratified by the person in whose name the act of possession is
executed.
The CA ruling, however, stated that the 20% FWT did not form part
of the taxable gross receipts because the FWT was not actually In our withholding tax system, possession is acquired by the payor
received by the bank but was directly remitted to the government. as the withholding agent of the government, because the taxpayer
ratifies the very act of possession for the government. There is thus
The Commissioner claims that although the FWT was not actually constructive receipt.
received by Solidbank, the fact that the amount redounded to the
bank’s benefit makes it part of the taxable gross receipts in The processes of bookkeeping and accounting for interest on
computing the Gross Receipts Tax. Solidbank says the CA ruling is deposits and yield on deposit substitutes that are subjected to FWT
correct. are tantamount to delivery, receipt or remittance. Besides, Solidbank
admits that its income is subjected to a tax burden immediately upon
Issue: “receipt”, although it claims that it derives no pecuniary benefit or
Whether or not the FWT forms part of the gross receipts tax. advantage through the withholding process.

Held: There being constructive receipt, part of which is withheld, that


Yes. In a withholding tax system, the payee is the taxpayer, the income is included as part of the tax base on which the gross receipts
person on whom the tax is imposed. The payor, a separate entity, acts tax is imposed.
as no more than an agent of the government for the collection of tax