COMMISSIONER OF INTERNAL REVENUE vs.

BURROUGHS LIMITED AND THE COURT OF TAX APPEALS

G.R. No. L-66653, June 19, 1986

PARAS, J.:

DOCTRINE:

1977 Tax Code

Sec. 24. Rates of tax on corporations....

(b) Tax on foreign corporations. ...

(2) (ii) Tax on branch profits remittances. Any profit remitted abroad by a branch to its head
office shall be subject to a tax of fifteen per cent (15%)… “based on the branch profits actually
remitted abroad and not on the total branch profits out of which the remittance is to be made.”

FACTS:

Private respondent Burroughs Limited is a foreign corporation authorized to engage in trade or

business in the Philippines through a branch office in Metro Manila. In 1979, its branch office applied
with the Central Bank for authority to remit its branch profit to its parent company abroad. Upon the
grant of the authority, the branch office paid for the 15% branch profit remittance tax pursuant to
Section 24(b)(2) of the 1977 Tax Code. The computation is as follows: The amount applied for
remittance is P7.647 Million from which the 15% branch profit remittance tax was to be deducted,
amounting to P1.147 Million, the total of P6.5 Million became the net amount the branch actually
remitted.

However, in 1980, private respondent filed a claim for refund or tax credit that was allegedly
due to their overpayment of branch profit remittance tax amounting to P172k. They claimed that the
15% profit remittance tax should have been computed based on the actual amount they remitted and
not on the amount applied for remittance.

In 1981, private respondent filed with the Court of Tax Appeals a petition for review for the
recovery of the tax credit, which in turn ruled in their favor and consequently ordered the CIR to grant
the tax credit to Burroughs Limited.

Hence, this petition.

ISSUE:

Whether or not the tax base for the 15% branch profit remittance tax is the amount actually
remitted by the corporation.
RULING:

Yes, the tax base for the 15% branch profit remittance tax is the amount actually remitted by
the corporation.

The pertinent provision of the National Revenue Code is Sec. 24 (b) (2) (ii) which states:

Sec. 24. Rates of tax on corporations....

(b) Tax on foreign corporations. ...

(2) (ii) Tax on branch profits remittances. Any profit remitted abroad by a branch to its head
office shall be subject to a tax of fifteen per cent (15%)…

In a Bureau of Internal Revenue ruling dated January 21, 1980 by then Acting Commissioner of
Internal Revenue Hon. Efren I. Plana in response to a November 3, 1978 letter, the aforequoted
provision had been interpreted to mean that "the tax base upon which the 15% branch profit remittance
tax ... shall be imposed...(is) the profit actually remitted abroad and not on the total branch profits out
of which the remittance is to be made. "

Applying, therefore, the aforequoted ruling, the claim of private respondent that it made an
overpayment is well-taken.

Petitioner contends that respondent is no longer entitled to a refund because Memorandum

Circular No. 8-82 dated March 17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1980.
The said memorandum circular states that:

“Considering that the 15% branch profit remittance tax is imposed and collected at
source, necessarily the tax base should be the amount actually applied for by the branch
with the Central Bank of the Philippines as profit to be remitted abroad.”

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 for the non-retroactivity of rulings.

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 P172k.

WHEREFORE, the assailed decision of respondent Court of Tax Appeals is hereby AFFIRMED.
No pronouncement as to costs.

SO ORDERED.
NOTE: New provision of Sec. 24 (b) (2) (ii) is now Sec. 28(A)(4).

SEC. 28. Rates of Income Tax on Foreign Corporations.

(A) Tax on Resident Foreign Corporations

(4) Tax on Branch Profits Remittances. - Any profit remitted by a branch to its head office shall
be subject to a tax of fifteen (15%) which shall be based on the total profits applied or
earmarked for remittance without any deduction for the tax component thereof (except those
activities which are registered with the Philippine Economic Zone Authority).

The tax shall be collected and paid in the same manner as provided in Sections 57 and 58 of this
Code: provided, that interests, dividends, rents, royalties, including remuneration for technical
services, salaries, wages premiums, annuities, emoluments or other fixed or determinable
annual, periodic or casual gains, profits, income and capital gains received by a foreign
corporation during each taxable year from all sources within the Philippines shall not be treated
as branch profits unless the same are effectively connected with the conduct of its trade or
business in the Philippines.