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1. Dumaguete Cathedral Credit Cooperative vs.
Commissioner of Internal Revenue
[G.R. No. 182722, January 22, 2010]
Doctrines:
         Cooperatives are not required to withhold
taxes on interest from savings and time deposits
of their members.
    To encourage the formation of cooperatives
and to create an atmosphere conducive to their
growth and development, the State extends all
forms of assistance to them, one of which is
providing cooperatives a preferential tax
treatment.
    Although the tax exemption only mentions
cooperatives, this should be construed to
include the members. It must be emphasized
that cooperatives exist for the benefit of their
members. In fact, the primary objective of every
cooperative is to provide goods and services to
its members to enable them to attain increased
income, savings, investments, and productivity.
Therefore, limiting the application of the tax
exemption to cooperatives would go against the
very purpose of a credit cooperative. Extending
the exemption to members of cooperatives, on
the other hand, would be consistent with the
intent of the legislature.
Facts:
Petitioner Dumaguete Cathedral Credit
Cooperative (DCCCO) is a credit cooperative
duly registered with and regulated by the
Cooperative Development Authority (CDA). On
November 27, 2001, the Bureau of Internal
Revenue (BIR) Operations Group Deputy
Commissioner, Lilian B. Hefti, issued Letters of
Authority Nos. 63222 and 63223, authorizing
BIR officers to examine petitioners books of
accounts and other accounting records for all
internal revenue taxes for the taxable years
1999 and 2000.
On October 16, 2002, petitioner received two
other Pre-Assessment Notices for deficiency
withholding taxes also for taxable years 1999
and 2000.[10] The deficiency withholding taxes
cover the payments of the honorarium of the
Board of Directors, security and janitorial
services, legal and professional fees, and
interest on savings and time deposits of its
members.
On October 22, 2002, petitioner informed BIR
Regional Director Sonia L. Flores that it would
only pay the deficiency withholding taxes
corresponding to the honorarium of the Board
of Directors, security and janitorial services,
legal and professional fees for the year 1999 in
the amount of P87,977.86, excluding penalties
and interest.
On November 29, 2002, petitioner availed of
the VAAP and paid the amounts of P105,574.62
and P143,867.24. corresponding to the
withholding taxes on the payments for the
compensation, honorarium of the Board of
Directors, security and janitorial services, and
legal and professional services, for the years
1999 and 2000, respectively.
On April 24, 2003, petitioner received from the
BIR Regional Director Flores, Letters of Demand
ordering petitioner to pay the deficiency
withholding taxes, inclusive of penalties, for the
years 1999 and 2000 in the amounts of
P1,489,065.30 and P1,462,644.90, respectively.
Issue: Whether or not it is liable to pay the
deficiency withholding taxes on interest from
savings and time deposits of its members for
the taxable years 1999 and 2000, as well as the
delinquency interest of 20% per annum.
Held: Petitioners invocation of BIR Ruling No.
551-888, reiterated in BIR Ruling [DA-591-
2006], is proper. On November 16, 1988, the
BIR declared in BIR Ruling No. 551-888 that
cooperatives are not required to withhold taxes
on interest from savings and time deposits of
their members.
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According to the CTA En Banc, the BIR Ruling
was based on the premise that the savings and
time deposits were placed by the members of
the cooperative in the bank. Consequently, it
ruled that the BIR Ruling does not apply when
the deposits are maintained in the cooperative
such as the instant case.
There is nothing in the ruling to suggest that it
applies only when deposits are maintained in a
bank. Rather, the ruling clearly states, without
any qualification, that since interest from any
Philippine currency bank deposit and yield or
any other monetary benefit from deposit
substitutes are paid by banks, cooperatives are
not required to withhold the corresponding tax
on the interest from savings and time deposits
of their members.
In BIR Ruling [DA-591-2006] dated
October 5, 2006 the BIR opined that:
xxxx
3. Exemption of interest income on members deposit
(over and above the share capital holdings) from the
20% Final Withholding Tax.
The National Internal Revenue Code states
that a final tax at the rate of twenty percent (20%) is
hereby imposed upon the amount of interest on
currency bank deposit and yield or any other
monetary benefit from the deposit substitutes and
from trust funds and similar arrangement x x x for
individuals under Section 24(B)(1) and for domestic
corporations under Section 27(D)(1). Considering
the members deposits with the cooperatives are not
currency bank deposits nor deposit substitutes,
Section 24(B)(1) and Section 27(D)(1), therefore, do
not apply to members of cooperatives and to
deposits of primaries with federations, respectively.
In this case, BIR Ruling No. 551-888 and
BIR Ruling [DA-591-2006] are in perfect
harmony with the Constitution and the laws
they seek to implement. Accordingly, the
interpretation in BIR Ruling No. 551-888 that
cooperatives are not required to withhold the
corresponding tax on the interest from savings
and time deposits of their members, which was
reiterated in BIR Ruling [DA-591-2006], applies
to the instant case.
Members of cooperatives deserve a
preferential tax treatment pursuant to RA
6938, as amended by RA 9520.
Given that petitioner is a credit
cooperative duly registered with the
Cooperative Development Authority (CDA),
Section 24(B)(1) of the NIRC must be read
together with RA 6938, as amended by RA 9520.
Under Article 2 of RA 6938, as amended by RA
9520, Thus, to encourage the formation of
cooperatives and to create an atmosphere
conducive to their growth and development,
the State extends all forms of assistance to
them, one of which is providing cooperatives a
preferential tax treatment.
         
The legislative intent to give cooperatives a
preferential tax treatment is apparent in Articles 61
and 62 of RA 6938, which read:
ART. 61. Tax Treatment of Cooperatives. Duly
registered cooperatives under this Code which do
not transact any business with non-members or the
general public shall not be subject to any
government taxes and fees imposed under the
Internal Revenue Laws and other tax laws.
Cooperatives not falling under this article shall be
governed by the succeeding section.
ART. 62. Tax and Other Exemptions. Cooperatives
transacting business with both members and
nonmembers shall not be subject to tax on their
transactions to members. Notwithstanding the
provision of any law or regulation to the contrary,
such cooperatives dealing with nonmembers shall
enjoy the following tax exemptions; x x x.
This exemption extends to members of
cooperatives. It must be emphasized that
cooperatives exist for the benefit of their
members. In fact, the primary objective of every
cooperative is to provide goods and services to its
members to enable them to attain increased
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income, savings, investments and productivity.
Therefore, limiting the application of the tax
exemption to cooperatives would go against the
very purpose of a credit cooperative. Extending the
exemption to members of cooperatives, on the
other hand, would be consistent with the intent of
the legislature. Thus, although the tax exemption
only mentions cooperatives, this should be
construed to include the members, pursuant to
Article 126 of RA 6938, which provides:
ART. 126. Interpretation and Construction. In case of
doubt as to the meaning of any provision of this
Code or the regulations issued in pursuance
thereof, the same shall be resolved liberally in favor
of the cooperatives and their members.
All told, we hold that petitioner is not liable
to pay the assessed deficiency withholding taxes on
interest from the savings and time deposits of its
members, as well as the delinquency interest of 20%
per annum.
In closing, cooperatives, including their members,
deserve a preferential tax treatment because of the
vital role they play in the attainment of economic
development and social justice. Thus, although taxes
are the lifeblood of the government, the States
power to tax must give way to foster the creation
and growth of cooperatives. To borrow the words of
Justice Isagani A. Cruz: The power of taxation, while
indispensable, is not absolute and may be
subordinated to the demands of social justice.
2. BDO VS. RP G.R. NO. 198756, 1-13-15
FACTS
The Bureau of Treasury (BTr) in a notice
announced the auction of 10- year Zero-Coupon
Bonds denominated as the Poverty Eradication
and Alleviation Certificates or the PEACE Bonds
on October 16, 2001, which the BTr states shall
not be subject to 20% final withholding tax since
the issue is limited to 19 buyers/lenders.
At the auction, Rizal Commercial Banking
Corporation (RCBC) participated on behalf of
Caucus of Development NGO Networks (CODE-
NGO) and won the bid.
Thus, bonds were issued to RCBC, who, as
appointed issue manager and lead underwriter
of CODE-NGO, then sold and distributed said
government bonds to petitioner-banks.
On October 7, 2011, barely 11 days before
maturity of the PEACe Bonds, the BIR issued the
following:
BIR Ruling No. 370- 201119 declaring that the
PEACe Bonds, being deposit substitutes, were
subject to 20% final withholding tax . Under
this, DOF directed BTr to withhold 20% final tax
from the face value of the PEACe Bonds. BIR
Ruling No. DA 378-201157 clarified that the final
withholding tax should be imposed and
withheld not only on RCBC/CODE NGO but also
on all subsequent holders of the Bonds.
Banco de Oro, et al. thus filed a petition for
Certiorari, Prohibition and Mandamus under
Rule 65 to the Supreme Court contending the
assailed 2011 BIR Ruling, with urgent
application of TRO and/or writ of Preliminary
Injuction.
SC then issued a TRO enjoining the
implementation of the BIR ruling, subject to the
condition that 20% FWT be delivered to the
banks to be placed in escrow. SC Decision
promulgated January 13, 2015, SC granted
petition and ruled that the number of lenders/
investors at every transaction determines
whether a debt instrument is a deposit
substitute subject to 20% FWT. When at any
transaction, funds are simultaneously obtained
from 20 or more lenders/investors, there is
deemed to be public borrowing and bonds are
deemed deposit substitutes. Hence, seller is
required to withhold 20% FWT on the imputed
interest income from the bonds.
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The two BIR Rulings is void for disregarding the
20-lender rule provided in Section 22 (Y) of the
Tax Code. BTr reprimanded for its continued
retention of the amount corresponding to 20%
FWT. Separate Motions for Reconsideration and
clarification were filed both by BDO, et al and
the Republic, et al.
ISSUES
1. Does CTA have jurisdiction to determine the
constitutionality or validity of tax laws, rules
and regulations, and other administrative
issuances of CIR?
2. May the 20-lender rule apply to PEACe Bonds?
3. Assuming the PEACe Bonds are considered
“deposit substitutes,” whether government or
the Bureau of Internal Revenue is estopped
from imposing and/or collecting the 20% final
withholding tax from the face value of these
Bonds?
4. Whether BTr is liable to pay 6% legal interest
rate?
HELD
#1
YES. CTA has jurisdiction and may take
cognizance of cases directly challenging
constitutionality or validity of a tax law,
regulation or administrative issuance such as
revenue order, revenue memorandum circular,
and ruling.
RA 9282: appeals from the decisions of quasi-
judicial agencies on tax-related problems must
be brought exclusively to the CTA
#2
YES. The 20-lender rule may apply to PEACe
Bonds, depending on the number of lenders “at
any one time”
The definition of deposit substitutes in Section
22(Y) specifically defined “public” to mean
“twenty (20) or more individual or corporate
lenders at any one time.” Hence, if there are 20
or more lenders, the debt instrument is
considered a deposit substitute which is subject
to the 20% FWT.
“The reckoning of the phrase “20 or more
lenders” should be at the time when the
petitioner-intervenor RCBC Capital sold the
PEACe bonds to investors. Should the number
of investor to whom petitioner-intervenor RCBC
Capital distributes the PEACe bonds, therefore,
be found to be 20 or more, the PEACe Bonds
are considered deposit substitutes subject to
20% final withholding tax. Petitioner-
intervenors RCBC/CODE-NGO and RCBC Capital,
as well as the final bondholders who have
recourse to government upon maturity are
liable to pay the 20% final withholding tax.”
#3
YES. The Bureau of Internal Revenue is
estopped from imposing and/or collecting the
20% final withholding tax from the face value of
these Bonds
The Supreme Court interpretation in its January
2015 decision of the phrase “at any one time”
to determine the phrase “20 or more lenders”
to include both the primary and secondary
market cannot be applied to the PEACe Bonds
and should be applied prospectively.
RCBC and the rest of the investors relied in
good faith on the BIR Rulings which provide that
PEACe Bonds are not treated as deposit
substitutes and are subject to the 20% final
withholding tax.
HELD
#4
YES. BTr may be held liable.
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The BTr made no effort to release the amount 134,659 shares as stock dividend declarations.
corresponding to the 20% FWT which is an utter Correspondingly, one-half of that shareholdings
disregard and defiance of the order of the Court or 92,577 shares were transferred to his wife,
Doña Carmen Soriano, as her conjugal share.
The offer half formed part of his estate.
BTr is ordered to immediately release and pay
the bondholders the amount of A day after Don Andres died, ANSCOR increased
P4,966,207,796.41, representing the 20% final its capital stock to P20M and in 1966 further
withholding tax on the PEACe Bonds, with legal increased it to P30M. In the same year
interest of 6% per annum from October 19, (December 1966), stock dividends worth 46,290
2011 until full payment. and 46,287 shares were respectively received
by the Don Andres estate and Doña Carmen
from ANSCOR. Hence, increasing their
 3. CIR VS. CA GR. NO. 108576, 1-20-1999 accumulated shareholdings to 138,867 and
138,864 common shares each.
Facts: Sometime in the 1930’s, Don Andres
On December 28, 1967, Doña Carmen
Soriano, a citizen and resident of the United
requested a ruling from the United States
States, formed the corporation “A. Soriano Y
Internal Revenue Service (IRS), inquiring if an
Cia”, predecessor of ANSCOR with a
exchange of common with preferred shares
1,000,000.00 capitalization divided into 10,000
may be considered as a tax avoidance scheme.
common shares at a par value of P100/share.
By January 2, 1968, ANSCOR reclassified its
ANSCOR is wholly owned and controlled by the
existing 300,000 common shares into 150,000
family of Don Andres, who are all non-resident
common and 150,000 preferred shares.
aliens. In 1937, Don Andres subscribed to 4,963
shares of the 5,000 shares originally issued.
In a letter-reply dated February 1968, the IRS
opined that the exchange is only a
On September 12, 1945, ANSCOR’s authorized
recapitalization scheme and not tax avoidance.
capital stock was increased to P2,500,000.00
Consequently, on March 31, 1968 Doña Carmen
divided into 25,000 common shares with the
exchanged her whole 138,864 common shares
same par value. Of the additional 15,000 shares,
for 138,860 of the preferred shares. The estate
only 10,000 was issued which were all
of Don Andres in turn exchanged 11,140 of its
subscribed by Don Andres, after the other
common shares for the remaining 11,140
stockholders waived in favor of the former their
preferred shares.
pre-emptive rights to subscribe to the new
issues. This increased his subscription to 14,963
In 1973, after examining ANSCOR’s books of
common shares. A month later, Don Andres
account and record Revenue examiners issued a
transferred 1,250 shares each to his two sons,
report proposing that ANSCOR be assessed for
Jose and Andres Jr., as their initial investments
deficiency withholding tax-at-source, for the
in ANSCOR. Both sons are foreigners.
year 1968 and the 2nd quarter of 1969 based
on the transaction of exchange and redemption
By 1947, ANSCOR declared stock dividends.
of stocks. BIR made the corresponding
Other stock dividend declarations were made
assessments. ANSCOR’s subsequent protest on
between 1949 and December 20, 1963. On
the assessments was denied in 1983 by
December 30, 1964 Don Andres died. As of that
petitioner. ANSCOR filed a petition for review
date, the records revealed that he has a total
with the CTA, the Tax Court reversed petitioners
shareholdings of 185,154 shares. 50,495 of
ruling. CA affirmed the ruling of the CTA. Hence
which are original issues and the balance of
this position.

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Issue: Whether or not a person assessed for
deficiency withholding tax under Sec. 53 and 54
of the Tax Code is being held liable in its
capacity as a withholding agent.
Held: An income taxpayer covers all persons
who derive taxable income. ANSCOR was
assessed by petitioner for deficiency
withholding tax, as such, it is being held liable in
its capacity as a withholding agent and not in its
personality as taxpayer. A withholding agent, A.
Soriano Corp. in this case, cannot be deemed a
taxpayer for it to avail of a tax amnesty under a
Presidential decree that condones “the
collection of all internal revenue taxes including
the increments or penalties on account of non-
payment as well as all civil, criminal, or
administrative liabilities arising from or incident
to voluntary disclosures under the NIRC of
previously untaxed income and/or wealth
realized here or abroad by any taxpayer, natural
or juridical.” The Court explains: “The
withholding agent is not a taxpayer, he is a
mere tax collector. Under the withholding
system, however, the agent-payer becomes a
payee by fiction of law. His liability is direct and
independent from the taxpayer, because the
income tax is still imposed and due from the
latter. The agent is not liable for the tax as no
wealth flowed into him, he earned no income.”
4.MARUBENI CORP VS. CIR/ GR NO 66838/ 9-
14-1989
Facts:
CIR assails the CA decision which affirmed CTA,
ordering CIR to desist from collecting the 1985
deficiency income, branch profit remittance and
contractor’s taxes from Marubeni Corp after
finding the latter to have properly availed of the
tax amnesty under EO 41 & 64, as amended.
Marubeni, a Japanese corporation, engaged in
general import and export trading, financing
and construction, is duly registered in the
Philippines with Manila branch office. CIR
examined the Manila branch’s books of
accounts for fiscal year ending March 1985, and
found that respondent had undeclared income
from contracts with NDC and Philphos for
construction of a wharf/port complex and
ammonia storage complex respectively.
On August 27, 1986, Marubeni received a letter
from CIR assessing it for several deficiency
taxes. CIR claims that the income respondent
derived were income from Philippine sources,
hence subject to internal revenue taxes. On
Sept 1986, respondent filed 2 petitions for
review with CTA: the first, questioned the
deficiency income, branch profit remittance and
contractor’s tax assessments and second
questioned the deficiency commercial broker’s
assessment.
On Aug 2, 1986, EO 41 declared a tax amnesty
for unpaid income taxes for 1981-85, and that
taxpayers who wished to avail this should on or
before Oct 31, 1986. Marubeni filed its tax
amnesty return on Oct 30, 1986.
On Nov 17, 1986, EO 64 expanded EO 41’s
scope to include estate and donor’s taxes under
Title 3 and business tax under Chap 2, Title 5 of
NIRC, extended the period of availment to Dec
15, 1986 and stated those who already availed
amnesty under EO 41 should file an amended
return to avail of the new benefits. Marubeni
filed a supplemental tax amnesty return on Dec
15, 1986.
CTA found that Marubeni properly availed of
the tax amnesty and deemed cancelled the
deficiency taxes. CA affirmed on appeal.
 
Issue:
W/N Marubeni is exempted from paying tax
 
Held:
Yes.
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1. On date of effectivity  and no vested right or obligations of contract
CIR claims Marubeni is disqualified from the tax
amnesty because it falls under the exception in
Sec 4b of EO 41:
“Sec. 4. Exceptions.—The following taxpayers
may not avail themselves of the amnesty herein
granted: xxx b)    Those with income tax cases
already filed in Court as of the effectivity
hereof;”
Petitioner argues that at the time respondent
filed for income tax amnesty on Oct 30, 1986, a
case had already been filed and was pending
before the CTA and Marubeni therefore fell
under the exception. However, the point of
reference is the date of effectivity of EO 41 and
that the filing of income tax cases must have
been made before and as of its effectivity.
EO 41 took effect on Aug 22, 1986. The case
questioning the 1985 deficiency was filed with
CTA on Sept 26, 1986. When EO 41 became
effective, the case had not yet been filed.
Marubeni does not fall in the exception and is
thus, not disqualified from availing of the
amnesty under EO 41 for taxes on income and
branch profit remittance.
The difficulty herein is with respect to the
contractor’s tax assessment (business tax) and
respondent’s availment of the amnesty under
EO 64, which expanded EO 41’s coverage. When
EO 64 took effect on Nov 17, 1986, it did not
provide for exceptions to the coverage of the
amnesty for business, estate and donor’s taxes.
Instead, Section 8 said EO provided that:
“Section 8. The provisions of Executive Orders
Nos. 41 and 54 which are not contrary to or
inconsistent with this amendatory Executive
Order shall remain in full force and effect.”
Due to the EO 64 amendment, Sec 4b cannot be
construed to refer to EO 41 and its date of
effectivity. The general rule is that an
amendatory act operates prospectively. It may
not be given a retroactive effect unless it is so
provided expressly or by necessary implication
are thereby impaired.
2. On situs of taxation 
Marubeni contends that assuming it did not
validly avail of the amnesty, it is still not liable
for the deficiency tax because the income from
the projects came from the “Offshore Portion”
as opposed to “Onshore Portion”. It claims all
materials and equipment in the contract under
the “Offshore Portion” were manufactured and
completed in Japan, not in the Philippines, and
are therefore not subject to Philippine taxes.
(BG: Marubeni won in the public bidding for
projects with government corporations NDC
and Philphos. In the contracts, the prices were
broken down into a Japanese Yen Portion (I and
II) and Philippine Pesos Portion and financed
either by OECF or by supplier’s credit. The
Japanese Yen Portion I corresponds to the
Foreign Offshore Portion, while Japanese Yen
Portion II and the Philippine Pesos Portion
correspond to the Philippine Onshore Portion.
Marubeni has already paid the Onshore Portion,
a fact that CIR does not deny.)
CIR argues that since the two agreements are
turn-key, they call for the supply of both
materials and services to the client, they are
contracts for a piece of work and are indivisible.
The situs  of the two projects is in the
Philippines, and the materials provided and
services rendered were all done and completed
within the territorial jurisdiction of the
Philippines. Accordingly, respondent’s entire
receipts from the contracts, including its
receipts from the Offshore Portion, constitute
income from Philippine sources. The total gross
receipts covering both labor and materials
should be subjected to contractor’s tax (a tax on
the exercise of a privilege of selling services or
labor rather than a sale on products).
Marubeni, however, was able to sufficiently
prove in trial that not all its work was
performed in the Philippines because some of
them were completed in Japan (and in fact
subcontracted) in accordance with the
provisions of the contracts. All services for the
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design, fabrication, engineering and
manufacture of the materials and equipment
under Japanese Yen Portion I were made and
completed in Japan. These services were
rendered outside Philippines’ taxing
jurisdiction and are therefore not subject to
contractor’s tax. Petition denied.
5.CIR VS. PROCTER&GAMBLE/ GR. NO.
66838/12-2-1991
NON-RESIDENT FOREIGN CORPORATION-
DIVIDENDS
Sec 24 (b) (1) of the NIRC states that an ordinary
35% tax rate will be applied to dividend
remittances to non-resident corporate
stockholders of a Philippine corporation. This
rate goes down to 15% ONLY IF the country of
domicile of the foreign stockholder corporation
“shall allow” such foreign corporation a tax
credit for “taxes deemed paid in the
Philippines,” applicable against the tax payable
to the domiciliary country by the foreign
stockholder corporation. However, such tax
credit for “taxes deemed paid in the
Philippines” MUST, as a minimum, reach an
amount equivalent to 20 percentage points
FACTS:
Procter and Gamble Philippines declared
dividends payable to its parent company and
sole stockholder, P&G USA. Such dividends
amounted to Php 24.1M. P&G Phil paid a 35%
dividend withholding tax to the BIR which
amounted to Php 8.3M It subsequently filed a
claim with the Commissioner of Internal
Revenue for a refund or tax credit, claiming that
pursuant to Section 24(b)(1) of the National
Internal Revenue Code, as amended by
Presidential Decree No. 369, the applicable rate
of withholding tax on the dividends remitted
was only 15%.
MAIN ISSUE:
Whether or not P&G Philippines is entitled to
the refund or tax credit.
HELD:
YES. P&G Philippines is entitled.
Sec 24 (b) (1) of the NIRC states that an ordinary
35% tax rate will be applied to dividend
remittances to non-resident corporate
stockholders of a Philippine corporation. This
rate goes down to 15% ONLY IF  he country of
domicile of the foreign stockholder corporation
“shall allow” such foreign corporation a tax
credit for “taxes deemed paid in the
Philippines,” applicable against the tax payable
to the domiciliary country by the foreign
stockholder corporation. However, such tax
credit for “taxes deemed paid in the
Philippines” MUST, as a minimum, reach an
amount equivalent to 20 percentage points
which represents the difference between the
regular 35% dividend tax rate and the reduced
15% tax rate. Thus, the test is if USA “shall
allow” P&G USA a tax credit for ”taxes deemed
paid in the Philippines” applicable against the
US taxes of P&G USA, and such tax credit must
reach at least 20 percentage points.
Requirements were met.
NOTES: Breakdown:
a) Deemed paid requirement: US Internal
Revenue Code, Sec 902: a domestic corporation
(owning 10% of remitting foreign corporation)
shall be deemed to have paid a proportionate
extent of taxes paid by such foreign corporation
upon its remittance of dividends to domestic
corporation.
b) 20 percentage points requirement:
(computation is as follows)
P 100.00 -- corporate income earned by P&G
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Phils Since the US Congress desires to avoid or

x 35% -- Philippine income tax rate reduce double taxation of the same income
P 35.00 -- paid by P&G Phil as corporate income stream, it allows a tax credit of both (i) the
tax Philippine dividend tax actually withheld, and
(ii) the tax credit for the Philippine corporate
P 100.00
income tax actually paid by P&G Philippines but
- 35.00
“deemed paid” by P&G USA.
65. 00 -- available for remittance

Moreover, under the Philippines-United States

P 65. 00
Convention “With Respect to Taxes on Income,”
x 35% -- Regular Philippine dividend tax rate
the Philippines, by treaty commitment, reduced
P 22.75 -- regular dividend tax
the regular rate of dividend tax to a maximum
of 20% of  he gross amount of dividends paid to
P 65.0o US parent corporations, and established a
x 15% -- Reduced dividend tax rate treaty obligation on the part of the United
P 9.75 -- reduced dividend tax States that it “shall allow” to a US parent
corporation receiving dividends from its 
P 65.00 -- dividends remittable
Philippine subsidiary “a [tax] credit for the
- 9.75 -- dividend tax withheld at reduced rate
appropriate amount of taxes paid or accrued to
P 55.25 -- dividends actually remitted to P&G
the Philippines by the Philippine [subsidiary].
USA

Dividends actually
remitted by P&G Phil = P 55.25
---------------------------------- ------------- x P35 =
P29.75
Amount of accumulated P 65.00
profits earned
P35 is the income tax paid.
P29.75 is the tax credit allowed by Sec 902 of US
Tax Code for Phil corporate income tax ‘deemed
paid’ by the parent company. Since P29.75 is
much higher than P13, Sec 902 US Tax Code
complies with the requirements of sec 24 NIRC.
(I did not understand why these were divided
and multiplied. Point is, requirements were
met)
Reason behind the law:
Note:
The NIRC does not require that the US tax law
deem the parent corporation to have paid the
20 percentage points of dividend tax waived by
the Philippines. It only requires that the US
“shall allow” P&G-USA a “deemed paid” tax
credit in an amount equivalent to the 20
percentage points waived by the Philippines.
Section 24(b)(1) does not create a tax
exemption nor does it provide a tax credit; it is a
provision which specifies when a particular
(reduced) tax rate is legally applicable.
Section 24(b)(1) of the NIRC seeks to promote
the in-flow of foreign equity investment in the
Philippines by reducing the tax cost of earning
profits here and thereby increasing the net
dividends remittable to the investor. The
foreign investor, however, would not benefit
from the reduction of the Philippine dividend
tax rate unless its home country gives it some
relief from double taxation by allowing the
investor additional tax credits which would be
applicable against the tax payable to such home
country. Accordingly Section 24(b)(1) of the

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NIRC requires the home or domiciliary country
to give the investor corporation a “deemed
paid” tax credit at least equal in amount to the
20 percentage points of dividend tax foregone
by the Philippines, in the assumption that a
positive incentive effect would thereby be felt
by the investor.
6.CIR VS. GOOD YEAR PHIL/ GR NO.
216130/ 8-3-2016
Facts:
On 15 October 2008, respondent filed an
application for relief from double taxation
before the International Tax Affairs division of
the BIR to confirm that the redemption of
respondent’s preferred shares owned by an
American company was not subject to
Philippine income tax.
Section 228 of the Tax Code only required that
an administrative claim be first filed. It bears
stressing that respondent could not be faulted
for resorting to court action considering that
the prescriptive period stated therein was about
to expire. Had respondent awaited the action of
petitioner knowing fully well that the
prescriptive period was about to lapse, it would
have resultantly forfeited its right to seek a
judicial review of its claim, thereby suffering
irreparable damage.

Nonetheless, respondent still withheld and

remitted 15% final withholding tax (FWT) to the
BIR on 03 November 2008.

On 21 October 2010, respondent filed an

administrative claim for refund or issuance of
tax credit certificate (TCC) before the BIR. On 03
November 2010, it filed a judicial claim by way
of petitioner for review before the CTA.

Issue:
Whether respondent correctly and timely
sought judicial redress, notwithstanding that its
administrative and judicial claims were filed
only 13 days apart.

Held:
YES. Section 229 of the Tax Code does not mean
that the taxpayer must await the final
resolution of its administrative claim for refund,
since doing so would be tantamount to the
taxpayer’s forfeiture of its right to seek judicial
recourse should the two-year prescriptive
period expire without the appropriate judicial
claim being filed.

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