G.R. No.

188550               August 19, 2013 predictable and reasonable international investment climate and the protection
against double taxation is crucial in creating such a climate.” Simply put, tax
DEUTSCHE BANK AG MANILA BRANCH, PETITIONER, treaties are entered into to minimize, if not eliminate the harshness of international
vs. juridical double taxation, which is why they are also known as double tax treaty or
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. double tax agreements.

Same; Same; Same; A state that has contracted valid international obligations is
bound to make in its legislations those modifications that may be necessary to
ensure the fulfillment of the obligations undertaken.―“A state that has contracted
Taxation; National Internal Revenue Code; Foreign Corporations; Under Section
valid international obligations is bound to make in its legislations those
28(A)(5) of the National Internal Revenue Code (NIRC), any profit remitted to its
modifications that may be necessary to ensure the fulfillment of the obligations
head office shall be subject to a tax of 15% based on the total profits applied for or
undertaken.” Thus, laws and issuances must ensure that the reliefs granted under
earmarked for remittance without any deduction of the tax component.―Under
tax treaties are accorded to the parties entitled thereto. The BIR must not impose
Section 28(A)(5) of the NIRC, any profit remitted to its head office shall be subject
additional requirements that would negate the availment of the reliefs provided for
to a tax of 15% based on the total profits applied for or earmarked for remittance
under international agreements. More so, when the RP-Germany Tax Treaty does
without any deduction of the tax component. However, petitioner invokes
not provide for any pre-requisite for the availment of the benefits under said
paragraph 6, Article 10 of the RP-Germany Tax Treaty, which provides that where
agreement.
a resident of the Federal Republic of Germany has a branch in the Republic of the
Philippines, this branch may be subjected to the branch profits remittance tax
withheld at source in accordance with Philippine law but shall not exceed 10% of Same; Same; Same; Bearing in mind the rationale of tax treaties, the period of
the gross amount of the profits remitted by that branch to the head office. application for the availment of tax treaty relief as required by RMO No. 1-2000
should not operate to divest entitlement to the relief as it would constitute a
violation of the duty required by good faith in complying with a tax treaty.―Bearing
International Law; Treaties; Pacta Sunt Servanda; The time-honored international
in mind the rationale of tax treaties, the period of application for the availment of
principle of pacta sunt servanda demands the performance in good faith of treaty
tax treaty relief as required by RMO No. 1-2000 should not operate to divest
obligations on the part of the states that enter into the agreement.―Our
entitlement to the relief as it would constitute a violation of the duty required by
Constitution provides for adherence to the general principles of international law as
part of the law of the land. The time-honored international principle of pacta sunt good faith in complying with a tax treaty. The denial of the availment of tax relief for
the failure of a taxpayer to apply within the prescribed period under the
servanda demands the performance in good faith of treaty obligations on the part
administrative issuance would impair the value of the tax treaty. At most, the
of the states that enter into the agreement. Every treaty in force is binding upon the
application for a tax treaty relief from the BIR should merely operate to confirm the
parties, and obligations under the treaty must be performed by them in good faith.
entitlement of the taxpayer to the relief.
More importantly, treaties have the force and effect of law in this jurisdiction.

Same; Tax Refunds; National Internal Revenue Code; Section 229 of the National
Same; Same; Taxation; Tax treaties are entered into to minimize, if not eliminate
Internal Revenue Code (NIRC) provides the taxpayer a remedy for tax recovery
the harshness of international juridical double taxation, which is why they are also
when there has been an erroneous payment of tax.―Section 229 of the NIRC
known as double tax treaty or double tax agreements.―Tax treaties are entered
provides the taxpayer a remedy for tax recovery when there has been an
into “to reconcile the national fiscal legislations of the contracting parties and, in
erroneous payment of tax. The outright denial of petitioner’s claim for a refund, on
turn, help the taxpayer avoid simultaneous taxations in two different jurisdictions.”
the sole ground of failure to apply for a tax treaty relief prior to the payment of the
CIR v. S.C. Johnson and Son, Inc., 309 SCRA 37 (1999), further clarifies that “tax
BPRT, would defeat the purpose of Section 229. Duetsche Bank AG Manila
conventions are drafted with a view towards the elimination of international juridical
Branch vs. Commissioner of Internal Revenue, 704 SCRA 216, G.R. No. 188550
double taxation, which is defined as the imposition of comparable taxes in two or
August 28, 2013
more states on the same taxpayer in respect of the same subject matter and for
identical periods. The apparent rationale for doing away with double taxation is to
encourage the free flow of goods and services and the movement of capital, DECISION
technology and persons between countries, conditions deemed vital in creating
robust and dynamic economies. Foreign investments will only thrive in a fairly SERENO, CJ.:

1|Branch Profit Remittance Tax

This is a Petition for Review1 filed by Deutsche Bank AG Manila Branch (petitioner)
under Rule 45 of the 1997 Rules of Civil Procedure assailing the Court of Tax
Appeals En Banc (CTA En Banc) Decision2 dated 29 May 2009 and
Resolution3 dated 1 July 2009 in C.T.A. EB No. 456.
THE FACTS
In accordance with Section 28(A)(5)4 of the National Internal Revenue Code
(NIRC) of 1997, petitioner withheld and remitted to respondent on 21 October 2003
the amount of PHP 67,688,553.51, which represented the fifteen percent (15%)
branch profit remittance tax (BPRT) on its regular banking unit (RBU) net income
remitted to Deutsche Bank Germany (DB Germany) for 2002 and prior taxable
years.5
Believing that it made an overpayment of the BPRT, petitioner filed with the BIR
Large Taxpayers Assessment and Investigation Division on 4 October 2005 an
administrative claim for refund or issuance of its tax credit certificate in the total
amount of PHP 22,562,851.17. On the same date, petitioner requested from the
International Tax Affairs Division (ITAD) a confirmation of its entitlement to the
preferential tax rate of 10% under the RP-Germany Tax Treaty.6
Alleging the inaction of the BIR on its administrative claim, petitioner filed a Petition
for Review7 with the CTA on 18 October 2005. Petitioner reiterated its claim for the
refund or issuance of its tax credit certificate for the amount of PHP 22,562,851.17
representing the alleged excess BPRT paid on branch profits remittance to DB
Germany.
THE CTA SECOND DIVISION RULING8
After trial on the merits, the CTA Second Division found that petitioner indeed paid
the total amount of PHP 67,688,553.51 representing the 15% BPRT on its RBU
profits amounting to PHP 451,257,023.29 for 2002 and prior taxable years.
Records also disclose that for the year 2003, petitioner remitted to DB Germany
the amount of EURO 5,174,847.38 (or PHP 330,175,961.88 at the exchange rate
of PHP 63.804:1 EURO), which is net of the 15% BPRT.
However, the claim of petitioner for a refund was denied on the ground that the
application for a tax treaty relief was not filed with ITAD prior to the payment by the
former of its BPRT and actual remittance of its branch profits to DB Germany, or
prior to its availment of the preferential rate of ten percent (10%) under the RP-
Germany Tax Treaty provision. The court a quo held that petitioner violated the
fifteen (15) day period mandated under Section III paragraph (2) of Revenue
Memorandum Order (RMO) No. 1-2000.
2|Branch Profit Remittance Tax
Further, the CTA Second Division relied on Mirant (Philippines) Operations
Corporation (formerly Southern Energy Asia-Pacific Operations [Phils.], Inc.) v.
Commissioner of Internal Revenue9 (Mirant) where the CTA En Banc ruled that
before the benefits of the tax treaty may be extended to a foreign corporation
wishing to avail itself thereof, the latter should first invoke the provisions of the tax
treaty and prove that they indeed apply to the corporation.
THE CTA EN BANC RULING10
The CTA En Banc affirmed the CTA Second Division’s Decision dated 29 August
2008 and Resolution dated 14 January 2009. Citing Mirant, the CTA En Banc held
that a ruling from the ITAD of the BIR must be secured prior to the availment of a
preferential tax rate under a tax treaty. Applying the principle of stare decisis et
non quieta movere, the CTA En Banc took into consideration that this Court had
denied the Petition in G.R. No. 168531 filed by Mirant for failure to sufficiently
show any reversible error in the assailed judgment.11 The CTA En Banc ruled that
once a case has been decided in one way, any other case involving exactly the
same point at issue should be decided in the same manner.
The court likewise ruled that the 15-day rule for tax treaty relief application under
RMO No. 1-2000 cannot be relaxed for petitioner, unlike in CBK Power Company
Limited v. Commissioner of Internal Revenue.12 In that case, the rule was relaxed
and the claim for refund of excess final withholding taxes was partially granted.
While it issued a ruling to CBK Power Company Limited after the payment of
withholding taxes, the ITAD did not issue any ruling to petitioner even if it filed a
request for confirmation on 4 October 2005 that the remittance of branch profits to
DB Germany is subject to a preferential tax rate of 10% pursuant to Article 10 of
the RP-Germany Tax Treaty.
ISSUE
This Court is now confronted with the issue of whether the failure to strictly comply
with RMO No. 1-2000 will deprive persons or corporations of the benefit of a tax
treaty.
THE COURT’S RULING
The Petition is meritorious.
Under Section 28(A)(5) of the NIRC, any profit remitted to its head office shall be
subject to a tax of 15% based on the total profits applied for or earmarked for
remittance without any deduction of the tax component. However, petitioner
invokes paragraph 6, Article 10 of the RP-Germany Tax Treaty, which provides
that where a resident of the Federal Republic of Germany has a branch in the
Republic of the Philippines, this branch may be subjected to the branch profits
remittance tax withheld at source in accordance with Philippine law but shall not
exceed 10% of the gross amount of the profits remitted by that branch to the head
office.
By virtue of the RP-Germany Tax Treaty, we are bound to extend to a branch in
the Philippines, remitting to its head office in Germany, the benefit of a preferential
rate equivalent to 10% BPRT.
On the other hand, the BIR issued RMO No. 1-2000, which requires that any
availment of the tax treaty relief must be preceded by an application with ITAD at
least 15 days before the transaction. The Order was issued to streamline the
processing of the application of tax treaty relief in order to improve efficiency and
service to the taxpayers. Further, it also aims to prevent the consequences of an
erroneous interpretation and/or application of the treaty provisions (i.e., filing a
claim for a tax refund/credit for the overpayment of taxes or for deficiency tax
liabilities for underpayment).13
The crux of the controversy lies in the implementation of RMO No. 1-2000.
Petitioner argues that, considering that it has met all the conditions under Article
10 of the RP-Germany Tax Treaty, the CTA erred in denying its claim solely on the
basis of RMO No. 1-2000. The filing of a tax treaty relief application is not a
condition precedent to the availment of a preferential tax rate. Further, petitioner
posits that, contrary to the ruling of the CTA, Mirant is not a binding judicial
precedent to deny a claim for refund solely on the basis of noncompliance with
RMO No. 1-2000.
Respondent counters that the requirement of prior application under RMO No. 1-
2000 is mandatory in character. RMO No. 1-2000 was issued pursuant to the
unquestioned authority of the Secretary of Finance to promulgate rules and
regulations for the effective implementation of the NIRC. Thus, courts cannot
ignore administrative issuances which partakes the nature of a statute and have in
their favor a presumption of legality.
The CTA ruled that prior application for a tax treaty relief is mandatory, and
noncompliance with this prerequisite is fatal to the taxpayer’s availment of the
preferential tax rate.
We disagree.
A minute resolution is not a binding precedent
3|Branch Profit Remittance Tax
At the outset, this Court’s minute resolution on Mirant is not a binding precedent.
The Court has clarified this matter in Philippine Health Care Providers, Inc. v.
Commissioner of Internal Revenue14 as follows:
It is true that, although contained in a minute resolution, our dismissal of the
petition was a disposition of the merits of the case. When we dismissed the
petition, we effectively affirmed the CA ruling being questioned. As a result, our
ruling in that case has already become final. When a minute resolution denies or
dismisses a petition for failure to comply with formal and substantive requirements,
the challenged decision, together with its findings of fact and legal conclusions, are
deemed sustained. But what is its effect on other cases?
With respect to the same subject matter and the same issues concerning the same
parties, it constitutes res judicata. However, if other parties or another subject
matter (even with the same parties and issues) is involved, the minute resolution is
not binding precedent. Thus, in CIR v. Baier-Nickel, the Court noted that a
previous case, CIR v. Baier-Nickel involving the same parties and the same
issues, was previously disposed of by the Court thru a minute resolution dated
February 17, 2003 sustaining the ruling of the CA. Nonetheless, the Court ruled
that the previous case "ha(d) no bearing" on the latter case because the two cases
involved different subject matters as they were concerned with the taxable income
of different taxable years.
Besides, there are substantial, not simply formal, distinctions between a minute
resolution and a decision. The constitutional requirement under the first paragraph
of Section 14, Article VIII of the Constitution that the facts and the law on which the
judgment is based must be expressed clearly and distinctly applies only to
decisions, not to minute resolutions. A minute resolution is signed only by the clerk
of court by authority of the justices, unlike a decision. It does not require the
certification of the Chief Justice. Moreover, unlike decisions, minute resolutions are
not published in the Philippine Reports. Finally, the proviso of Section 4(3) of
Article VIII speaks of a decision. Indeed, as a rule, this Court lays down doctrines
or principles of law which constitute binding precedent in a decision duly signed by
the members of the Court and certified by the Chief Justice. (Emphasis supplied)
Even if we had affirmed the CTA in Mirant, the doctrine laid down in that Decision
cannot bind this Court in cases of a similar nature. There are differences in parties,
taxes, taxable periods, and treaties involved; more importantly, the disposition of
that case was made only through a minute resolution.
Tax Treaty vs. RMO No. 1-2000
Our Constitution provides for adherence to the general principles of international
law as part of the law of the land.15 The time-honored international principle of
pacta sunt servanda demands the performance in good faith of treaty obligations
on the part of the states that enter into the agreement. Every treaty in force is
binding upon the parties, and obligations under the treaty must be performed by
them in good faith.16 More importantly, treaties have the force and effect of law in
this jurisdiction.17
Tax treaties are entered into "to reconcile the national fiscal legislations of the
contracting parties and, in turn, help the taxpayer avoid simultaneous taxations in
two different jurisdictions."18 CIR v. S.C. Johnson and Son, Inc. further clarifies that
"tax conventions are drafted with a view towards the elimination of international
juridical double taxation, which is defined as the imposition of comparable taxes in
two or more states on the same taxpayer in respect of the same subject matter
and for identical periods. The apparent rationale for doing away with double
taxation is to encourage the free flow of goods and services and the movement of
capital, technology and persons between countries, conditions deemed vital in
creating robust and dynamic economies. Foreign investments will only thrive in a
fairly predictable and reasonable international investment climate and the
protection against double taxation is crucial in creating such a climate."19
Simply put, tax treaties are entered into to minimize, if not eliminate the harshness
of international juridical double taxation, which is why they are also known as
double tax treaty or double tax agreements.
"A state that has contracted valid international obligations is bound to make in its
legislations those modifications that may be necessary to ensure the fulfillment of
the obligations undertaken."20 Thus, laws and issuances must ensure that the
reliefs granted under tax treaties are accorded to the parties entitled thereto. The
BIR must not impose additional requirements that would negate the availment of
the reliefs provided for under international agreements. More so, when the RP-
Germany Tax Treaty does not provide for any pre-requisite for the availment of the
benefits under said agreement.
Likewise, it must be stressed that there is nothing in RMO No. 1-2000 which would
indicate a deprivation of entitlement to a tax treaty relief for failure to comply with
the 15-day period. We recognize the clear intention of the BIR in implementing
RMO No. 1-2000, but the CTA’s outright denial of a tax treaty relief for failure to
strictly comply with the prescribed period is not in harmony with the objectives of
the contracting state to ensure that the benefits granted under tax treaties are
enjoyed by duly entitled persons or corporations.
Bearing in mind the rationale of tax treaties, the period of application for the
availment of tax treaty relief as required by RMO No. 1-2000 should not operate to
divest entitlement to the relief as it would constitute a violation of the duty required
by good faith in complying with a tax treaty. The denial of the availment of tax relief
4|Branch Profit Remittance Tax
for the failure of a taxpayer to apply within the prescribed period under the
administrative issuance would impair the value of the tax treaty. At most, the
application for a tax treaty relief from the BIR should merely operate to confirm the
entitlement of the taxpayer to the relief.
The obligation to comply with a tax treaty must take precedence over the objective
of RMO No. 1-2000.1âwphi1 Logically, noncompliance with tax treaties has
negative implications on international relations, and unduly discourages foreign
investors. While the consequences sought to be prevented by RMO No. 1-2000
involve an administrative procedure, these may be remedied through other system
management processes, e.g., the imposition of a fine or penalty. But we cannot
totally deprive those who are entitled to the benefit of a treaty for failure to strictly
comply with an administrative issuance requiring prior application for tax treaty
relief.
Prior Application vs. Claim for Refund
Again, RMO No. 1-2000 was implemented to obviate any erroneous interpretation
and/or application of the treaty provisions. The objective of the BIR is to forestall
assessments against corporations who erroneously availed themselves of the
benefits of the tax treaty but are not legally entitled thereto, as well as to save such
investors from the tedious process of claims for a refund due to an inaccurate
application of the tax treaty provisions. However, as earlier discussed,
noncompliance with the 15-day period for prior application should not operate to
automatically divest entitlement to the tax treaty relief especially in claims for
refund.
The underlying principle of prior application with the BIR becomes moot in refund
cases, such as the present case, where the very basis of the claim is erroneous or
there is excessive payment arising from non-availment of a tax treaty relief at the
first instance. In this case, petitioner should not be faulted for not complying with
RMO No. 1-2000 prior to the transaction. It could not have applied for a tax treaty
relief within the period prescribed, or 15 days prior to the payment of its BPRT,
precisely because it erroneously paid the BPRT not on the basis of the preferential
tax rate under
the RP-Germany Tax Treaty, but on the regular rate as prescribed by the NIRC.
Hence, the prior application requirement becomes illogical. Therefore, the fact that
petitioner invoked the provisions of the RP-Germany Tax Treaty when it requested
for a confirmation from the ITAD before filing an administrative claim for a refund
should be deemed substantial compliance with RMO No. 1-2000.
Corollary thereto, Section 22921 of the NIRC provides the taxpayer a remedy for
tax recovery when there has been an erroneous payment of tax.1âwphi1 The
outright denial of petitioner’s claim for a refund, on the sole ground of failure to
apply for a tax treaty relief prior to the payment of the BPRT, would defeat the
purpose of Section 229.
Petitioner is entitled to a refund
It is significant to emphasize that petitioner applied – though belatedly – for a tax
treaty relief, in substantial compliance with RMO No. 1-2000. A ruling by the BIR
would have confirmed whether petitioner was entitled to the lower rate of 10%
BPRT pursuant to the RP-Germany Tax Treaty.
Nevertheless, even without the BIR ruling, the CTA Second Division found as
follows:
Based on the evidence presented, both documentary and testimonial, petitioner
was able to establish the following facts:
a. That petitioner is a branch office in the Philippines of Deutsche Bank
AG, a corporation organized and existing under the laws of the Federal
Republic of Germany;
b. That on October 21, 2003, it filed its Monthly Remittance Return of Final
Income Taxes Withheld under BIR Form No. 1601-F and remitted the
amount of ₱67,688,553.51 as branch profits remittance tax with the BIR;
and
c. That on October 29, 2003, the Bangko Sentral ng Pilipinas having
issued a clearance, petitioner remitted to Frankfurt Head Office the
amount of EUR5,174,847.38 (or ₱330,175,961.88 at 63.804 Peso/Euro)
representing its 2002 profits remittance.22
The amount of PHP 67,688,553.51 paid by petitioner represented the 15% BPRT
on its RBU net income, due for remittance to DB Germany amounting to PHP
451,257,023.29 for 2002 and prior taxable years.23
Likewise, both the administrative and the judicial actions were filed within the two-
year prescriptive period pursuant to Section 229 of the NIRC.24
Clearly, there is no reason to deprive petitioner of the benefit of a preferential tax
rate of 10% BPRT in accordance with the RP-Germany Tax Treaty.
Petitioner is liable to pay only the amount of PHP 45,125,702.34 on its RBU net
income amounting to PHP 451,257,023.29 for 2002 and prior taxable years,
5|Branch Profit Remittance Tax
applying the 10% BPRT. Thus, it is proper to grant petitioner a refund ofthe
difference between the PHP 67,688,553.51 (15% BPRT) and PHP 45,125,702.34
(10% BPRT) or a total of PHP 22,562,851.17.
WHEREFORE, premises considered, the instant Petition is GRANTED.
Accordingly, the Court of Tax Appeals En Banc Decision dated 29 May 2009 and
Resolution dated 1 July 2009 are REVERSED and SET ASIDE. A new one is
hereby entered ordering respondent Commissioner of Internal Revenue to refund
or issue a tax credit certificate in favor of petitioner Deutsche Bank AG Manila
Branch the amount of TWENTY TWO MILLION FIVE HUNDRED SIXTY TWO
THOUSAND EIGHT HUNDRED FIFTY ONE PESOS AND SEVENTEEN
CENTAVOS (PHP 22,562,851.17), Philippine currency, representing the
erroneously paid BPRT for 2002 and prior taxable years.
SO ORDERED.
G.R. No. 76573 September 14, 1989
MARUBENI CORPORATION (formerly Marubeni — Iida, Co., Ltd.), petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE AND COURT OF TAX
APPEALS, respondents.
Melquiades C. Gutierrez for petitioner.
The Solicitor General for respondents.
Taxation; Resident foreign corporation defined; Marubeni Corporation is a resident
foreign corporation; Reason.—Under the Tax Code, a resident foreign corporation
is one that is “engaged in trade or business” within the Philippines. Petitioner
contends that precisely because it is engaged in business in the Philippines
through its Philippine branch that it must be considered as a resident foreign
corporation. Petitioner reasons that since the Philippine branch and the Tokyo
head office are one and the same entity, whoever made the investment in AG&P,
Manila does not matter at all. A single corporate entity cannot be both a resident
and a non-resident corporation depending on the nature of the particular
transaction involved. Accordingly, whether the dividends are paid directly to the
head office or coursed through its local branch is of no moment for after all, the
head office and the office branch constitute but one corporate entity, the Marubeni
Corporation, which, under both Philippine tax and corporate laws, is a resident
foreign corporation because it is transacting business in the Philippines.

Same; Petitioner having made independent investment attributable only to the
head office, cannot now claim the increments as ordinary consequence of its trade
or business in the Philippines; Case at bar.—In other words, the alleged overpaid
taxes were incurred for the remittance of dividend income to the head office in
Japan which is a separate and distinct income taxpayer from the branch in the
Philippines. There can be no other logical conclusion considering the undisputed
fact that the investment (totalling 283,260 shares including that of nominee) was
made for purposes peculiarly germane to the conduct of the corporate affairs of
Marubeni, Japan, but certainly not of the branch in the Philippines. It is thus clear
that petitioner, having made this independent investment attributable only to the
head office, cannot now claim the increments as ordinary consequences of its
trade or business in the Philippines and avail itself of the lower tax rate of 10%
Same; Tax refund; While public respondents correctly concluded that dividends in
dispute were neither subject to the 15% profit remittance tax nor to the 10%
intercorporate dividend tax, they grossly erred in holding that no refund was
forthcoming to the petitioner; Reason.—But while public respondents correctly
concluded that the dividends in dispute were neither subject to the 15% profit
remittance tax nor to the 10% intercorporate dividend tax, the recipient being a
non-resident stockholder, they grossly erred in holding that no refund was
forthcoming to the petitioner because the taxes thus withheld totalled the 25% rate
imposed by the Philippine-Japan Tax Convention pursuant to Article 10 (2) (b).
Same; To simply add the two taxes to arrive at the 25% tax rate is to disregard a
basic rule that each tax has a different basis; Case at bar.—To simply add the two
taxes to arrive at the 25% tax rate is to disregard a basic rule in taxation that each
tax has a different tax basis. While the tax on dividends is directly levied on the
dividends received, “the tax base upon which the 15% branch profit remittance tax
is imposed is the profit actually remitted abroad.”
Same; Tax Treaty; Public respondent erred in automatically imposing the 25% rate
under Article 10 (2) (b) of the Tax Treaty; Reasons.—Public respondents likewise
erred in automatically imposing the 25% rate under Article 10 (2) (b) of the Tax
Treaty as if this were a flat rate. A closer look at the Treaty reveals that the tax
rates fixed by Article 10 are the maximum rates as reflected in the phrase “shall
not exceed.” This means that any tax imposable by the contracting state
concerned should not exceed the 25% limitation and that said rate would apply
only if the tax imposed by our laws exceeds the same. In other words, by reason of
our bilateral negotiations with Japan, we have agreed to have our right to tax
limited to a certain extent to attain the goals set forth in the Treaty.
Same; Petitioner being a non-resident foreign corporation with respect to the
transaction in question, as a general rule is taxed 35% of its gross income from all
sources within the Philippines.—Petitioner, being a non-resident foreign
6|Branch Profit Remittance Tax
corporation with respect to the transaction in question, the applicable provision of
the Tax Code is Section 24 (b) (1) (iii) in conjunction with the Philippine-Japan
Treaty of 1980. xxx Proceeding to apply the above section to the case at bar,
petitioner, being a non-resident foreign corporation, as a general rule, is taxed 35%
of its gross income from all sources within the Philippines. [Section 24 (b) (1)].
Same; Tax Credit; Discounted rate of 15% is given to petitioner on dividends
received from a domestic corporation; Required condition of tax credit of not less
than 20%; Case at bar.—However, a discounted rate of 15% is given to petitioner
on dividends received from a domestic corporation (AG&P) on the condition that its
domicile state (Japan) extends in favor of petitioner, a tax credit of not less than
20% of the dividends received. This 20% represents the difference between the
regular tax of 35% on non-resident foreign corporations which petitioner would
have ordinarily paid, and the 15% special rate on dividends received from a
domestic corporation.
Same; Tax Remedies; Court of Tax Appeals; The instant appeal was perfected
within the 30-day period provided under R.A. 1125; Reasons.—Records show that
petitioner received notice of the Court of Tax Appeals’s decision denying its claim
for refund on April 15, 1986. On the 30th day, or on May 15, 1986 (the last day for
appeal), petitioner filed a motion for reconsideration which respondent court
subsequently denied on November 17, 1986, and notice of which was received by
petitioner on November 26, 1986. Two days later, or on November 28, 1986,
petitioner simultaneously filed a notice of appeal with the Court of Tax Appeals and
a petition for review with the Supreme Court. From the foregoing, it is evident that
the instant appeal was perfected well within the 30-day period provided under R.A.
No. 1125, the whole 30-day period to appeal having begun to run again from
notice of the denial of petitioner’s motion for reconsideration. Marubeni Corporation
vs. Commissioner of Internal Revenue, 177 SCRA 500, G.R. No. 76573
September 14, 1989
FERNAN, C.J.:
Petitioner, Marubeni Corporation, representing itself as a foreign corporation duly
organized and existing under the laws of Japan and duly licensed to engage in
business under Philippine laws with branch office at the 4th Floor, FEEMI Building,
Aduana Street, Intramuros, Manila seeks the reversal of the decision of the Court
of Tax Appeals 1 dated February 12, 1986 denying its claim for refund or tax credit
in the amount of P229,424.40 representing alleged overpayment of branch profit
remittance tax withheld from dividends by Atlantic Gulf and Pacific Co. of Manila
(AG&P).
The following facts are undisputed: Marubeni Corporation of Japan has equity
investments in AG&P of Manila. For the first quarter of 1981 ending March 31,
AG&P declared and paid cash dividends to petitioner in the amount of P849,720 head office in Tokyo in the total amount of P229,424.40 on April 20 and August 4,
and withheld the corresponding 10% final dividend tax thereon. Similarly, for the 1981. 5
third quarter of 1981 ending September 30, AG&P declared and paid P849,720 as
cash dividends to petitioner and withheld the corresponding 10% final dividend tax In a letter dated January 29, 1981, petitioner, through the accounting firm Sycip,
thereon. 2 Gorres, Velayo and Company, sought a ruling from the Bureau of Internal
Revenue on whether or not the dividends petitioner received from AG&P are
AG&P directly remitted the cash dividends to petitioner's head office in Tokyo, effectively connected with its conduct or business in the Philippines as to be
Japan, net not only of the 10% final dividend tax in the amounts of P764,748 for considered branch profits subject to the 15% profit remittance tax imposed under
the first and third quarters of 1981, but also of the withheld 15% profit remittance Section 24 (b) (2) of the National Internal Revenue Code as amended by
tax based on the remittable amount after deducting the final withholding tax of Presidential Decrees Nos. 1705 and 1773.
10%. A schedule of dividends declared and paid by AG&P to its stockholder
Marubeni Corporation of Japan, the 10% final intercorporate dividend tax and the In reply to petitioner's query, Acting Commissioner Ruben Ancheta ruled:
15% branch profit remittance tax paid thereon, is shown below:
Pursuant to Section 24 (b) (2) of the Tax Code, as amended, only
1981 FIRST THIRD TOTAL OF profits remitted abroad by a branch office to its head office which
QUARTER QUARTER FIRST and are effectively connected with its trade or business in the
(three months (three months THIRD quarters Philippines are subject to the 15% profit remittance tax. To be
ended 3.31.81) ended 9.30.81) effectively connected it is not necessary that the income be
(In Pesos) derived from the actual operation of taxpayer-corporation's trade
or business; it is sufficient that the income arises from the
Cash Dividends Paid 849,720.44 849,720.00 1,699,440.00 business activity in which the corporation is engaged. For
example, if a resident foreign corporation is engaged in the buying
10% Dividend Tax 84,972.00 84,972.00 169,944.00 and selling of machineries in the Philippines and invests in some
Withheld shares of stock on which dividends are subsequently received, the
dividends thus earned are not considered 'effectively connected'
Cash Dividend net of 10% 764,748.00 764,748.00 1,529,496.00 with its trade or business in this country. (Revenue Memorandum
Dividend Tax Withheld Circular No. 55-80).

15% Branch Profit 114,712.20 114,712.20 229,424.40 3 In the instant case, the dividends received by Marubeni from
Remittance Tax Withheld AG&P are not income arising from the business activity in which
Marubeni is engaged. Accordingly, said dividends if remitted
Net Amount Remitted to 650,035.80 650,035.80 1,300,071.60 abroad are not considered branch profits for purposes of the 15%
Petitioner profit remittance tax imposed by Section 24 (b) (2) of the Tax
Code, as amended . . . 6
The 10% final dividend tax of P84,972 and the 15% branch profit remittance tax of
P114,712.20 for the first quarter of 1981 were paid to the Bureau of Internal Consequently, in a letter dated September 21, 1981 and filed with the
Revenue by AG&P on April 20, 1981 under Central Bank Receipt No. 6757880. Commissioner of Internal Revenue on September 24, 1981, petitioner claimed for
Likewise, the 10% final dividend tax of P84,972 and the 15% branch profit the refund or issuance of a tax credit of P229,424.40 "representing profit tax
remittance tax of P114,712 for the third quarter of 1981 were paid to the Bureau of remittance erroneously paid on the dividends remitted by Atlantic Gulf and Pacific
Internal Revenue by AG&P on August 4, 1981 under Central Bank Confirmation Co. of Manila (AG&P) on April 20 and August 4, 1981 to ... head office in Tokyo. 7
Receipt No. 7905930. 4
On June 14, 1982, respondent Commissioner of Internal Revenue denied
Thus, for the first and third quarters of 1981, AG&P as withholding agent paid 15% petitioner's claim for refund/credit of P229,424.40 on the following grounds:
branch profit remittance on cash dividends declared and remitted to petitioner at its
7|Branch Profit Remittance Tax
 While it is true that said dividends remitted were not subject to the
15% profit remittance tax as the same were not income earned by
a Philippine Branch of Marubeni Corporation of Japan; and neither
is it subject to the 10% intercorporate dividend tax, the recipient of
the dividends, being a non-resident stockholder, nevertheless,
said dividend income is subject to the 25 % tax pursuant to Article
10 (2) (b) of the Tax Treaty dated February 13, 1980 between the
Philippines and Japan.
Inasmuch as the cash dividends remitted by AG&P to Marubeni
Corporation, Japan is subject to 25 % tax, and that the taxes
withheld of 10 % as intercorporate dividend tax and 15 % as profit
remittance tax totals (sic) 25 %, the amount refundable offsets the
liability, hence, nothing is left to be refunded. 8
Petitioner appealed to the Court of Tax Appeals which affirmed the denial of the
refund by the Commissioner of Internal Revenue in its assailed judgment of
February 12, 1986. 9
In support of its rejection of petitioner's claimed refund, respondent Tax Court
explained:
Whatever the dialectics employed, no amount of sophistry can
ignore the fact that the dividends in question are income taxable to
the Marubeni Corporation of Tokyo, Japan. The said dividends
were distributions made by the Atlantic, Gulf and Pacific Company
of Manila to its shareholder out of its profits on the investments of
the Marubeni Corporation of Japan, a non-resident foreign
corporation. The investments in the Atlantic Gulf & Pacific
Company of the Marubeni Corporation of Japan were directly
made by it and the dividends on the investments were likewise
directly remitted to and received by the Marubeni Corporation of
Japan. Petitioner Marubeni Corporation Philippine Branch has no
participation or intervention, directly or indirectly, in the
investments and in the receipt of the dividends. And it appears
that the funds invested in the Atlantic Gulf & Pacific Company did
not come out of the funds infused by the Marubeni Corporation of
Japan to the Marubeni Corporation Philippine Branch. As a matter
of fact, the Central Bank of the Philippines, in authorizing the
remittance of the foreign exchange equivalent of (sic) the
dividends in question, treated the Marubeni Corporation of Japan
as a non-resident stockholder of the Atlantic Gulf & Pacific
Company based on the supporting documents submitted to it.
8|Branch Profit Remittance Tax
Subject to certain exceptions not pertinent hereto, income is
taxable to the person who earned it. Admittedly, the dividends
under consideration were earned by the Marubeni Corporation of
Japan, and hence, taxable to the said corporation. While it is true
that the Marubeni Corporation Philippine Branch is duly licensed
to engage in business under Philippine laws, such dividends are
not the income of the Philippine Branch and are not taxable to the
said Philippine branch. We see no significance thereto in the
identity concept or principal-agent relationship theory of petitioner
because such dividends are the income of and taxable to the
Japanese corporation in Japan and not to the Philippine branch. 10
Hence, the instant petition for review.
It is the argument of petitioner corporation that following the principal-agent
relationship theory, Marubeni Japan is likewise a resident foreign corporation
subject only to the 10 % intercorporate final tax on dividends received from a
domestic corporation in accordance with Section 24(c) (1) of the Tax Code of 1977
which states:
Dividends received by a domestic or resident foreign corporation
liable to tax under this Code — (1) Shall be subject to a final tax of
10% on the total amount thereof, which shall be collected and paid
as provided in Sections 53 and 54 of this Code ....
Public respondents, however, are of the contrary view that Marubeni, Japan, being
a non-resident foreign corporation and not engaged in trade or business in the
Philippines, is subject to tax on income earned from Philippine sources at the rate
of 35 % of its gross income under Section 24 (b) (1) of the same Code which
reads:
(b) Tax on foreign corporations — (1) Non-resident corporations.
— A foreign corporation not engaged in trade or business in the
Philippines shall pay a tax equal to thirty-five per cent of the gross
income received during each taxable year from all sources within
the Philippines as ... dividends ....
but expressly made subject to the special rate of 25% under Article 10(2) (b) of the
Tax Treaty of 1980 concluded between the Philippines and Japan. 11 Thus:
Article 10 (1) Dividends paid by a company which is a resident of a
Contracting State to a resident of the other Contracting State may
be taxed in that other Contracting State.
 (2) However, such dividends may also be taxed in the Contracting
State of which the company paying the dividends is a resident,
and according to the laws of that Contracting State, but if the
recipient is the beneficial owner of the dividends the tax so
charged shall not exceed;
(a) . . .
(b) 25 per cent of the gross amount of the dividends in all other
cases.
Central to the issue of Marubeni Japan's tax liability on its dividend income from
Philippine sources is therefore the determination of whether it is a resident or a
non-resident foreign corporation under Philippine laws.
Under the Tax Code, a resident foreign corporation is one that is "engaged in trade
or business" within the Philippines. Petitioner contends that precisely because it is
engaged in business in the Philippines through its Philippine branch that it must be
considered as a resident foreign corporation. Petitioner reasons that since the
Philippine branch and the Tokyo head office are one and the same entity, whoever
made the investment in AG&P, Manila does not matter at all. A single corporate
entity cannot be both a resident and a non-resident corporation depending on the
nature of the particular transaction involved. Accordingly, whether the dividends
are paid directly to the head office or coursed through its local branch is of no
moment for after all, the head office and the office branch constitute but one
corporate entity, the Marubeni Corporation, which, under both Philippine tax and
corporate laws, is a resident foreign corporation because it is transacting business
in the Philippines.
The Solicitor General has adequately refuted petitioner's arguments in this wise:
The general rule that a foreign corporation is the same juridical
entity as its branch office in the Philippines cannot apply here.
This rule is based on the premise that the business of the foreign
corporation is conducted through its branch office, following the
principal agent relationship theory. It is understood that the branch
becomes its agent here. So that when the foreign corporation
transacts business in the Philippines independently of its branch,
the principal-agent relationship is set aside. The transaction
becomes one of the foreign corporation, not of the branch.
Consequently, the taxpayer is the foreign corporation, not the
branch or the resident foreign corporation.
9|Branch Profit Remittance Tax
Corollarily, if the business transaction is conducted through the
branch office, the latter becomes the taxpayer, and not the foreign
corporation. 12
In other words, the alleged overpaid taxes were incurred for the remittance of
dividend income to the head office in Japan which is a separate and distinct
income taxpayer from the branch in the Philippines. There can be no other logical
conclusion considering the undisputed fact that the investment (totalling 283.260
shares including that of nominee) was made for purposes peculiarly germane to
the conduct of the corporate affairs of Marubeni Japan, but certainly not of the
branch in the Philippines. It is thus clear that petitioner, having made this
independent investment attributable only to the head office, cannot now claim the
increments as ordinary consequences of its trade or business in the Philippines
and avail itself of the lower tax rate of 10 %.
But while public respondents correctly concluded that the dividends in dispute
were neither subject to the 15 % profit remittance tax nor to the 10 %
intercorporate dividend tax, the recipient being a non-resident stockholder, they
grossly erred in holding that no refund was forthcoming to the petitioner because
the taxes thus withheld totalled the 25 % rate imposed by the Philippine-Japan Tax
Convention pursuant to Article 10 (2) (b).
To simply add the two taxes to arrive at the 25 % tax rate is to disregard a basic
rule in taxation that each tax has a different tax basis. While the tax on dividends is
directly levied on the dividends received, "the tax base upon which the 15 %
branch profit remittance tax is imposed is the profit actually remitted abroad." 13
Public respondents likewise erred in automatically imposing the 25 % rate under
Article 10 (2) (b) of the Tax Treaty as if this were a flat rate. A closer look at the
Treaty reveals that the tax rates fixed by Article 10 are the maximum rates as
reflected in the phrase "shall not exceed." This means that any tax imposable by
the contracting state concerned should not exceed the 25 % limitation and that
said rate would apply only if the tax imposed by our laws exceeds the same. In
other words, by reason of our bilateral negotiations with Japan, we have agreed to
have our right to tax limited to a certain extent to attain the goals set forth in the
Treaty.
Petitioner, being a non-resident foreign corporation with respect to the transaction
in question, the applicable provision of the Tax Code is Section 24 (b) (1) (iii) in
conjunction with the Philippine-Japan Treaty of 1980. Said section provides:
(b) Tax on foreign corporations. — (1) Non-resident corporations
— ... (iii) On dividends received from a domestic corporation liable
to tax under this Chapter, the tax shall be 15% of the dividends
 received, which shall be collected and paid as provided in Section
53 (d) of this Code, subject to the condition that the country in
which the non-resident foreign corporation is domiciled shall allow
a credit against the tax due from the non-resident foreign
corporation, taxes deemed to have been paid in the Philippines
equivalent to 20 % which represents the difference between the
regular tax (35 %) on corporations and the tax (15 %) on dividends
as provided in this Section; ....
Proceeding to apply the above section to the case at bar, petitioner, being a non-
resident foreign corporation, as a general rule, is taxed 35 % of its gross income
from all sources within the Philippines. [Section 24 (b) (1)].
However, a discounted rate of 15% is given to petitioner on dividends received
from a domestic corporation (AG&P) on the condition that its domicile state
(Japan) extends in favor of petitioner, a tax credit of not less than 20 % of the
dividends received. This 20 % represents the difference between the regular tax of
35 % on non-resident foreign corporations which petitioner would have ordinarily
paid, and the 15 % special rate on dividends received from a domestic corporation.
Consequently, petitioner is entitled to a refund on the transaction in question to be
computed as follows:
Total cash dividend paid ................P1,699,440.00
less 15% under Sec. 24
(b) (1) (iii ) .........................................254,916.00
------------------
Cash dividend net of 15 % tax
due petitioner ...............................P1,444.524.00
less net amount
actually remitted .............................1,300,071.60
-------------------
Amount to be refunded to petitioner
representing overpayment of
taxes on dividends remitted ..............P 144 452.40
===========
It is readily apparent that the 15 % tax rate imposed on the dividends received by a
foreign non-resident stockholder from a domestic corporation under Section 24 (b)
(1) (iii) is easily within the maximum ceiling of 25 % of the gross amount of the
dividends as decreed in Article 10 (2) (b) of the Tax Treaty.
10|Branch Profit Remittance Tax
There is one final point that must be settled. Respondent Commissioner of Internal
Revenue is laboring under the impression that the Court of Tax Appeals is covered
by Batas Pambansa Blg. 129, otherwise known as the Judiciary Reorganization
Act of 1980. He alleges that the instant petition for review was not perfected in
accordance with Batas Pambansa Blg. 129 which provides that "the period of
appeal from final orders, resolutions, awards, judgments, or decisions of any court
in all cases shall be fifteen (15) days counted from the notice of the final order,
resolution, award, judgment or decision appealed from ....
This is completely untenable. The cited BP Blg. 129 does not include the Court of
Tax Appeals which has been created by virtue of a special law, Republic Act No.
1125. Respondent court is not among those courts specifically mentioned in
Section 2 of BP Blg. 129 as falling within its scope.
Thus, under Section 18 of Republic Act No. 1125, a party adversely affected by an
order, ruling or decision of the Court of Tax Appeals is given thirty (30) days from
notice to appeal therefrom. Otherwise, said order, ruling, or decision shall become
final.
Records show that petitioner received notice of the Court of Tax Appeals's
decision denying its claim for refund on April 15, 1986. On the 30th day, or on May
15, 1986 (the last day for appeal), petitioner filed a motion for reconsideration
which respondent court subsequently denied on November 17, 1986, and notice of
which was received by petitioner on November 26, 1986. Two days later, or on
November 28, 1986, petitioner simultaneously filed a notice of appeal with the
Court of Tax Appeals and a petition for review with the Supreme Court. 14 From the
foregoing, it is evident that the instant appeal was perfected well within the 30-day
period provided under R.A. No. 1125, the whole 30-day period to appeal having
begun to run again from notice of the denial of petitioner's motion for
reconsideration.
WHEREFORE, the questioned decision of respondent Court of Tax Appeals dated
February 12, 1986 which affirmed the denial by respondent Commissioner of
Internal Revenue of petitioner Marubeni Corporation's claim for refund is hereby
REVERSED. The Commissioner of Internal Revenue is ordered to refund or grant
as tax credit in favor of petitioner the amount of P144,452.40 representing
overpayment of taxes on dividends received. No costs.
So ordered.
G.R. No. 103092 July 21, 1994
BANK OF AMERICA NT & SA, petitioner,
vs.
HONORABLE COURT OF APPEALS, AND THE COMMISSIONER OF
INTERNAL REVENUE, respondents.
G.R. No. 103106 July 21, 1994
BANK OF AMERICA NT & SA, petitioner,
vs.
THE HONORABLE COURT OF APPEALS AND THE COMMISSIONER OF
INTERNAL REVENUE, respondents.
Sycip, Salazar, Hernandez & Gatmaitan and Agcaoili & Associates for petitioner.
Taxation; Withholding Tax System; Almost invariably in an ad valorem tax, as well
as in income tax estate and gift taxes, and the value added tax, the tax paid or
withheld is not deducted from the tax base.—The Solicitor General correctly points
out that almost invariably in an ad valorem tax, the tax paid or withheld is not
deducted from the tax base. Such impositions as the ordinary income tax, estate
and gift taxes, and the value added tax are generally computed in like manner. In
these cases, however, it is so because the law, in defining the tax base and in
providing for tax withholding, clearly spells it out to be such.
Same; Same; Remittance Tax; The tax is imposed on the amount sent abroad and
the law (then in force) calls for nothing further.—In the 15% remittance tax, the law
specifies its own tax base to be on the “profit remitted abroad.” There is absolutely
nothing equivocal or uncertain about the language of the provision. The tax is
imposed on the amount sent abroad, and the law (then in force) calls for nothing
further. The taxpayer is a single entity, and it should be understand-able if, such as
in this case, it is the local branch of the corporation, using its own local funds,
which remits the tax to the Philippine Government.
Same; Same; Same; Background of the remittance tax.—The remittance tax was
conceived in an attempt to equalize the income tax burden on foreign corporations
maintaining, on the one hand, local branch offices and organizing, on the other
hand, subsidiary domestic corporations where at least a majority of all the latter’s
shares of stock are owned by such foreign corporations. Prior to the amendatory
provisions of the Revenue Code, local branches were made to pay only the usual
corporate income tax of 25%-35% on net income (now a uniform 35%) applicable
to resident foreign corporations (foreign corporations doing business in the
Philippines). While Philippine subsi-diaries of foreign corporations were subject to
the same rate of 25%-35% (now also a uniform 35%) on their net income, dividend
payments, however, were additionally subjected to a 15% (withholding) tax
11|Branch Profit Remittance Tax
(reduced conditionally from 35%). In order to avert what would otherwise appear to
be an unequal tax treatment on such subsidiaries vis-a-vis local branch offices, a
20%, later reduced to 15%, profit remittance tax was imposed on local branches
on their remittances of profits abroad. But this is where the tax pari-passu ends
between domestic branches and subsidiaries of foreign corporations.
Same; Same; Same; Words and Phrases; Withholding tax system and constructive
remittance concept, explained.—The Solicitor General suggests that the analogy
should extend to the ordinary application of the withholding tax system and so with
the rule on constructive remittance concept as well. It is difficult to accept the
proposition. In the operation of the withholding tax system, the payee is the
taxpayer, the person on whom the tax is imposed, while the payor, a separate
entity, acts no more than an agent of the government for the collection of the tax in
order to ensure its payment. Obviously, the amount thereby used to settle the tax
liability is deemed sourced from the proceeds constitutive of the tax base. Since
the payee, not the payor, is the real taxpayer, the rule on constructive remittance
(or receipt) can be easily rationalized, if not indeed, made clearly manifest.
Same; Same; Same; Concept of constructive remittance not applicable to the
imposition of the 15% remittance tax; Sound logic does not defy but must concede
to facts.—It is hardly the case, however, in the imposition of the 15% remittance
tax where there is but one taxpayer using its own domestic funds in the payment of
the tax. To say that there is constructive remittance even of such funds would be
stretching far too much that imaginary rule. Sound logic does not defy but must
concede to facts. Bank of America NT & SA vs. Court of Appeals, 234 SCRA 302,
G.R. No. 103092, G.R. No. 103106 July 21, 1994
VITUG, J.:
Section 24(b) (2) (ii) of the National Internal Revenue Code, in the language it was
worded in 1982 (the taxable period relevant to the case at bench), provided, in
part, thusly:
Sec. 24. Rates of tax on corporations. . . .
(b) Tax on foreign corporations. . . .
(2) (ii) Tax on branch profit and remittances. —
Any  profit remitted abroad by a branch to its head office shall be
subject to a tax of fifteen per cent (15%) . . . ."
Petitioner Bank of America NT & SA argues that the 15% branch profit remittance
tax on the basis of the above provision should be assessed on the amount actually
remitted abroad, which is to say that the 15% profit remittance tax itself should not
form part of the tax base. Respondent Commissioner of Internal Revenue,
contending otherwise, holds the position that, in computing the 15% remittance
tax, the tax should be inclusive of the sum deemed remitted.
The statement of facts made by the Court of Tax Appeals, later adopted by the
Court of Appeals, and not in any serious dispute by the parties, can be quoted
thusly:
Petitioner is a foreign corporation duly licensed to engage in
business in the Philippines with Philippine branch office at BA
Lepanto Bldg., Paseo de Roxas, Makati, Metro Manila. On July
20, 1982 it paid 15% branch profit remittance tax in the amount of
P7,538,460.72 on profit from its regular banking unit operations
and P445,790.25 on profit from its foreign currency deposit unit
operations or a total of P7,984,250.97. The tax was based on net
profits after income tax without deducting the amount
corresponding to the 15% tax.
Petitioner filed a claim for refund with the Bureau of Internal
Revenue of that portion of the payment which corresponds to the
15% branch profit remittance tax, on the ground that the tax
should have been computed on the basis of profits actually
remitted, which is P45,244,088.85, and not on the amount before
profit remittance tax, which is P53,228,339.82. Subsequently,
without awaiting respondent's decision, petitioner filed a petition
for review on June 14, 1984 with this Honorable Court for the
recovery of the amount of P1,041,424.03 computed as follows:
Net Profits After Profit Tax Due Alleged
Income Tax But Remittance Alleged by Overpayment
Before Profit Tax Paid Petitioner Item 1-2
Remittance Tax _________ _________ ___________
A. Regular Banking
Unit Operations
(P50,256,404.82)
1. Computation of BIR
15% x P50,256,404.82 - P7,538,460.72
12|Branch Profit Remittance Tax
2. Computation of
Petitioner
- P50,256,404.82 x 15% P6,555,183.24 — P983,277.48
1.15
B. Foreign Currency
Deposit Unit
Operations
(P2,971,935)
1. Computation of BIR
15% x - P2,971,935.00 P445,790.25
2. Computation of
Petitioner
- P2,971,935.00 x 15% P387,643.70 P58,146.55
T O T A L. . P7,984,250.97 P6,942,286.94 P1,041,424.02"1
The Court of Tax Appeals upheld petitioner bank in its claim for refund. The
Commissioner of Internal Revenue filed a timely appeal to the Supreme Court
(docketed G.R. No. 76512) which referred it to the Court of Appeals following this
Court's pronouncement in Development Bank of the Philippines vs. Court of
Appeals, et al. (180 SCRA 609). On 19 September 1990, the Court of Appeals set
aside the decision of the Court of Tax Appeals. Explaining its reversal of the tax
court's decision, the appellate court said:
The Court of Tax Appeals sought to deduce legislative intent vis-
a-vis the aforesaid law through an analysis of the wordings
thereof, which to their minds reveal an intent to mitigate at least
the harshness of successive taxation. 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.2
Hence, these petitions for review in G.R. No. 103092 and G.R.
No. 103106 (filed separately due to inadvertence) by the law firms of "Agcaoili and
Associates" and of "Sycip, Salazar, Hernandez and Gatmaitan" in representation
of petitioner bank.
We agree with the Court of Appeals that not much reliance can be made on our
decision in Burroughs Limited vs. Commission of Internal Revenue (142 SCRA
324), for there we ruled against the Commissioner mainly on the basis of what the
Court so then perceived as his position in a 21 January 1980 ruling the reversal of
which, by his subsequent ruling of 17 March 1982, could not apply retroactively
against Burroughs in conformity with Section 327 (now Section 246, re: non-
retroactivity of rulings) of the National Internal Revenue Code. Hence, we held:
Petitioner's aforesaid contention is without merit. What is
applicable in the case at bar is still the Revenue Ruling of January
21, 1980 because private respondent Burroughs Limited paid the
branch profit remittance tax in question on March 14, 1979.
Memorandum Circular
No. 8-82 dated March 17, 1982 cannot be given retroactive effect
in the light of Section 327 of the National Internal Revenue Code
which
provides —
Sec. 327. Non-retroactivity of rulings. Any
revocation, modification, or reversal of any of the
rules and regulations promulgated in accordance
with the preceding section or any of the rulings or
circulars promulgated by the Commissioner shall
not be given retroactive application if the
revocation, modification, or reversal will be
prejudicial to the taxpayer except in the following
cases (a) where the taxpayer deliberately
misstates or omits material facts from his return or
in any document required of him by the Bureau of
Internal Revenue; (b) where the facts
subsequently gathered by the Bureau of Internal
Revenue are materially different from the facts on
which the ruling is based, or (c) where the
taxpayer acted in bad faith. (ABS-CBN
Broadcasting Corp. v. CTA, 108 SCRA 151-152)
The prejudice that would result to private respondent Burroughs
Limited by a retroactive application of Memorandum Circular No.
8-82 is beyond question for it would be deprived of the substantial
amount of P172,058.90. And, insofar as the enumerated
13|Branch Profit Remittance Tax
exceptions are concerned, admittedly, Burroughs Limited does not
fall under any of them.
The Court of Tax Appeals itself commented similarly when it observed
thusly in its decision:
In finding the Commissioner's contention without merit, this Court
however ruled against the applicability of Revenue Memorandum
Circular No. 8-82 dated March 17, 1982 to the Burroughs Limited
case because the taxpayer paid the branch profit remittance tax
involved therein on March 14, 1979 in accordance with the ruling
of the Commissioner of Internal Revenue dated January 21, 1980.
In view of Section 327 of the then in force National Internal
Revenue Code, Revenue Memorandum Circular No. 8-82 dated
March 17, 1982 cannot be given retroactive effect because any
revocation or modification of any ruling or circular of the Bureau of
Internal Revenue should not be given retroactive application if
such revocation or modification will, subject to certain exceptions
not pertinent thereto, prejudice taxpayers.3
The Solicitor General correctly points out that almost invariably in an ad
valorem tax, the tax paid or withheld is not deducted from the tax base. Such
impositions as the ordinary income tax, estate and gift taxes, and the value added
tax are generally computed in like manner. In these cases, however, it is so
because the law, in defining the tax base and in providing for tax withholding,
clearly spells it out to be such. As so well expounded by the Tax Court —
. . . In all the situations . . . 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,
specifically 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 of 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 (15%) per cent on
the total amount thereof, which shall be collected
and paid as provided in Sections 53 and 54 of this
Code. (Emphasis supplied; Sec. 21, Tax Code)
 Interest from Philippine Currency bank deposits making such payments at the rate of not less than 2 1/2% but not
and yield from deposit substitutes whether more than 35% which are to be credited against the income tax
received by citizens of the Philippines or by liability of the taxpayer for the taxable year.
resident alien individuals, shall be subject to a
final tax as follows: (a) 15% of the interest or On the other hand, there is absolutely nothing in Section 24(b) (2)
savings deposits, and (b) 20% of the interest on (ii), supra, which indicates that the 15% tax on branch profit
time deposits and yield from deposits remittance is on the total amount of profit to be remitted abroad
substitutes, which shall be collected and paid as which shall be collected and paid in accordance with the tax
provided in Sections 53 and 54 of this Code: . . . withholding device provided in Sections 53 and 54 of the Tax
(Emphasis supplied; Sec. 21, Tax Code Code. The statute employs "Any profit remitted abroad by a
applicable.) branch to its head office shall be subject to a tax of fifteen per cent
(15%)" — without more. Nowhere is there said of "base on the
And on rental payments payable by the lessee to the lessor (at total amount actually applied for by the branch with the Central
5%), also cited by respondent, Section 1, paragraph (C), of Bank of the Philippines as profit to be remitted abroad, which shall
Revenue Regulations No. 13-78, November 1, 1978, provides be collected and paid as provided in Sections 53 and 54 of this
that: Code." Where the law does not qualify that the tax is imposed and
collected at source based on profit to be remitted abroad, that
Section 1. Income payments subject to qualification should not be read into the law. It is a basic rule of
withholding tax and rates prescribed therein. — statutory construction that there is no safer nor better canon of
Except as therein otherwise provided, there shall interpretation than that when the language of the law is clear and
be withheld a creditable income tax at the rates unambiguous, it should be applied as written. And to our mind, the
herein specified for each class of payee from the term "any profit remitted abroad" can only mean such profit as is
following items of income payments to persons "forwarded, sent, or transmitted abroad" as the word "remitted" is
residing in the Philippines. commonly and popularly accepted and understood. To say
therefore that the tax on branch profit remittance is imposed and
xxx xxx xxx 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
(C) Rentals — When the gross rental  or the of plain words.4
payment required to be made as a condition to the
continued use or possession of property, whether
In the 15% remittance tax, the law specifies its own tax base to be on the "profit
real or personal, to which the payor or obligor has
remitted abroad." There is absolutely nothing equivocal or uncertain about the
not taken or is not taking title or in which he has
language of the provision. The tax is imposed on the amount sent abroad, and the
no equity, exceeds five hundred pesos (P500.00)
law (then in force) calls for nothing further. The taxpayer is a single entity, and it
per contract or payment whichever is greater —
should be understandable if, such as in this case, it is the local branch of the
five per centum (5%).
corporation, using its own local funds, which remits the tax to the Philippine
Government.
Note that the basis of the 5% withholding tax, as expressly and
unambiguously provided therein, is on the gross rental. Revenue
The remittance tax was conceived in an attempt to equalize the income tax burden
Regulations No. 13-78 was promulgated pursuant to Section 53(f)
on foreign corporations maintaining, on the one hand, local branch offices and
of the then in force National Internal Revenue Code which
organizing, on the other hand, subsidiary domestic corporations where at least a
authorized the Minister of Finance, upon recommendation of the
majority of all the latter's shares of stock are owned by such foreign corporations.
Commissioner of Internal Revenue, to require the withholding of
Prior to the amendatory provisions of the Revenue Code, local branches were
income tax on the same items of income payable to persons
made to pay only the usual corporate income tax of 25%-35% on net income (now
(natural or judicial) residing in the Philippines by the persons

14|Branch Profit Remittance Tax

a uniform 35%) applicable to resident foreign corporations (foreign corporations
doing business in the Philippines). While Philippine subsidiaries of foreign
corporations were subject to the same rate of 25%-35% (now also a uniform 35%)
on their net income, dividend payments, however, were additionally subjected to a
15% (withholding) tax (reduced conditionally from 35%). In order to avert what
would otherwise appear to be an unequal tax treatment on such subsidiaries vis-a-
vis local branch offices, a 20%, later reduced to 15%, profit remittance tax was
imposed on local branches on their remittances of profits abroad. But this is where
the tax  pari-passu ends between domestic branches and subsidiaries of foreign
corporations.

The Solicitor General suggests that the analogy should extend to the ordinary
application of the withholding tax system and so with the rule on constructive
remittance concept as well. It is difficult to accept the proposition. In the operation
of the withholding tax system, the payee is the taxpayer, the person on whom the
tax is imposed, while the payor, a separate entity, acts no more than an agent of
the government for the collection of the tax in order to ensure its payment.
Obviously, the amount thereby used to settle the tax liability is deemed sourced
from the proceeds constitutive of the tax base. Since the payee, not the payor, is
the real taxpayer, the rule on constructive remittance (or receipt) can be easily
rationalized, if not indeed, made clearly manifest. It is hardly the case, however, in
the imposition of the 15% remittance tax where there is but one taxpayer using its
own domestic funds in the payment of the tax. To say that there is constructive
remittance even of such funds would be stretching far too much that imaginary
rule. Sound logic does not defy but must concede to facts.

We hold, accordingly, that the written claim for refund of the excess tax payment
filed, within the two-year prescriptive period, with the Court of Tax Appeals has
been lawfully made.

WHEREFORE, the decision of the Court of Appeals appealed from is REVERSED

and SET ASIDE, and that of the Court of Tax Appeals is REINSTATED.

SO ORDERED.

15|Branch Profit Remittance Tax