4.
PHILAMLIFE vs CA GR SP 31283, April 25,1995
PHILIPPINE AMERICAN LIFE INSURANCE COMPANY,
INC., ET AL., petitioner, vs. HON. COURT OF TAX
APPEALS, AND THE COMMISSIONER OF INTERNAL
REVENUE, respondent.
FACTS:
Petitioner Philippine American Life Insurance Co., Inc.
(PHILAMLIFE) a domestic corporation entered into a
Management Services Agreement with American
International Reinsurance Co., Inc. (AIRCO), a non-resident
foreign corporation with principal place of business in
Pembroke, Bermuda, whereby, effective January 1, 1972,
for a fee of not exceeding $250,000.00 per annum,
‘where AIRCO shall supply technical and commercial
information, knowledge, advice, assistance o services in
connection with technical management or administration
of an insurance business.
AIRCO subsequently merged with Amereican International
Group inc (AIGI) with AIGI as the ssuccessor-in-interes in
AIRCOs Management Services Agreement with Philamlife.
Respondent CIR issued in favor of Philamlife a tax credit
memo in the amount o p643,125 representing erroneous
payment of withholding tax at source on remittances to
AIGI for services rendered abroad.
Hence Philamlife sought for a refund.
Without waiting for respondent to resolve the claim for
refund, petitioners filed a petition with the CTA seeking
for refund.
During the pendency of the case, respondent derived
Philamlifes claim for refund and cancelled the tax Credit
Memo issued to Philamlife and requested the latter to pay
the amount pf P613 125 as deficiency withholding tax.
Petitioners filed before the CTA seeking annulment of such
assessment.
CTA ruled in facor of CIR.
petitioners insist that there is no legal nor factual bias for
the respondent court to conclude that the compensation
paid for advisory services rendered outside the Philippines
to petitioner AIGI, a non-resident foreign corporation not
engaged in trade or business in the Philippines, is
considered "rentals and royalties from properties located
in the Philippines" pursuant to Section 37 (a) (4) of the
National Internal Revenue Code..
Petitioners contend that petitioner AIGI is not covered by
the above provision of the Tax Code considering that it has
no properties located in the Philippines from which rentals
and royalties can be derived.
ISSUE: The definition of royalty will be touched in
deciding the issue of WON compensation paid for advisory
services rendered outside the Philippines to petitioner
AIGI, a non-resident foreign corporation not engaged in
trade or business in the Philippines, is considered "rentals
and royalties from properties located in the Philippines"
RULING:
we agree with respondent court's ruling
Section 37. Income from Services within the
Philippines,
A. Gross income from sources within the Philippines — the
following items of gross income shall be treated as gross
income from source within the Philippines.
(1) . . .
(2) . . .
(3) . . .
(4) Rentals and royalties — Rentals and royalties
from properties located in the Philippines or from
any interest in such property, including rentals or
royalties for —
(a) . . .
(b) . . .
(c) The supply of scientific, technical,
industrial or commercial knowledge or
informations;
(d) The supply of any assistance that is
auxiliary and subsidiary to, and is
furnished as a means of enabling the
application or enjoyment of, any property,
or right as is mentioned in paragraph (a),
any such equipment as is mentioned in
paragraph (b) or any such knowledge or
information as is mentioned in paragraph
(c); or
(e) . . .
(f) Technical advice, assistance or services
rendered in connection with the technical
management and administration of any
scientific, industrial or commercial
undertaking, venture, project of scheme;
and
(g) . . .
A reading of the various management services enumerated
in the said Management Services Agreement will show that
they can easily fall under any of the aforequoted expanded
meaning of royalties.
Basically, from the heading 'Investments' to 'Personnel',
the services call for the supply by the non-resident foreign
corporation of technical and commercial information,
knowledge, advice, assistance or services in connection
with technical management or administration of an
insurance business — a commercial undertaking.
Therefore, the income derived for the services performed
by AIGI for PHILAMLIFE under the said management
contract shall be considered as income from services
within the Philippines.
AIGI being a non-resident foreign corporation not engaged
in trade or business in the Philippines 'shall pay a tax equal
to thirty-five (35%) percent of the gross income received
during each taxable year from all sources within the
Philippines as interest, dividends, rents, royalties
(including remuneration for technical services), salaries,
premiums, annuities, emoluments or other fixed or
determinable annual, periodical or casual gains, profits
and income and capital gains: . . . (Section 12(6) (I) of the
National Internal Revenue Code. (Underscoring for
emphasis).