1. The Supreme Court ruled that compensation received by a non-resident foreign corporation for advisory services performed abroad for a domestic corporation is subject to Philippine withholding tax.
2. The Court also ruled that the Commissioner of Internal Revenue was not barred by prescription, laches, estoppel, or equity from cancelling a previous tax refund approval over 5 years later.
3. Finally, the Court upheld the Court of Tax Appeals' decision to amend its ruling on a motion for reconsideration, ordering the domestic corporation to pay deficiencies in withholding tax plus interest.
1. The Supreme Court ruled that compensation received by a non-resident foreign corporation for advisory services performed abroad for a domestic corporation is subject to Philippine withholding tax.
2. The Court also ruled that the Commissioner of Internal Revenue was not barred by prescription, laches, estoppel, or equity from cancelling a previous tax refund approval over 5 years later.
3. Finally, the Court upheld the Court of Tax Appeals' decision to amend its ruling on a motion for reconsideration, ordering the domestic corporation to pay deficiencies in withholding tax plus interest.
1. The Supreme Court ruled that compensation received by a non-resident foreign corporation for advisory services performed abroad for a domestic corporation is subject to Philippine withholding tax.
2. The Court also ruled that the Commissioner of Internal Revenue was not barred by prescription, laches, estoppel, or equity from cancelling a previous tax refund approval over 5 years later.
3. Finally, the Court upheld the Court of Tax Appeals' decision to amend its ruling on a motion for reconsideration, ordering the domestic corporation to pay deficiencies in withholding tax plus interest.
, ET AL., v. HON. COURT OF TAX APPEALS, AND THE COMMISSIONER OF INTERNAL REVENUE CA-G.R. SP No. 31283 25 April 1995
rate of twenty per centum (20%) per annum from March 9,
1981 until paid.
Doctrine:
1.
Whether or not compensation for advisory services
admittedly performed abroad by the personnel of a nonresident foreign corporation not doing business in the Philippines are subject to Philippine withholding income tax YES
2.
Whether or not respondent CIR is barred by prescription,
laches, estoppel, or equitable considerations in cancelling the previous approval of petitioners claim for refund more than 5 years thereafter, after it has determined, after investigation, that the advisory services were rendered or performed abroad by the personnel of AIGI, a non-resident foreign corporation not doing business in the Philippines NO
3.
Whether or not respondent tax court can amend its
decision on a motion for reconsideration by respondent Commissioner, ordering petitioner PHILAMLIFE to pay Php643,125.00 with interest at 20% per annum until paid on the presumption that it has utilized the tax credit memo already issued and without evidence being presented of actual usage of the tax credit memo YES
Issues:
The test of taxability is the source, and the source of an
income is that activity which produced the income. Facts: Petitioner Philippine American Life Insurance Co., Inc. (PHILAMLIFE), a domestic corporation entered into a Management Services Agreement with American International Reinsurance Co., Inc. (AIRCO), a non-resident foreign corporation with principal place of business in Pembroke, Bermuda whereby, effective January 1, 1972, for a fee of not exceeding $250,000.00 per annum, AIRCO shall perform for PHILAMLIFE various management services. On September 30, 1978, AIRCO merged with petitioner American International Group, Inc. (AIGI) with the latter as the surviving corporation and successor-in-interest in AIRCOs Management Services Agreement with PHILAMLIFE. On November 18, 1980, respondent Commission of Internal Revenue (CIR) issued in favour of PHILAMLIFE Tax Credit Memo in the amount of Php643,125.00 representing erroneous payment of withholding tax at source on remittances to AIGI for services rendered abroad in 1979. On the basis of the said issuance of tax credit, PHILAMLIFE, through a letter dated March 21, 1981, filed with CIR a claim for refund of the second erroneous tax payment of Php643,125.00 which was made on December 16, 1980. Another letter dated July 6, 1982 was sent wherein PHILAMLIFE alleged that the claim for refund of the amount paid in 1980 is exactly the same subject matter as in the previous claim for refund in 1979. Without waiting for CIR to resolve the claim, petitioners filed with the Court of Tax Appeals (CTA) on July 29, 1982 the petition docketed as CTA Case No. 3540, seeking said refund. During pendency of said case, respondent denied PHILAMLIFEs claim for refund of Php643,125.00 as withholding tax at source for 1980. Respondent also cancelled the tax credit memo in the amount of Php643,125.00 previously issued to PHILAMLIFE on November 18, 1980 and requested the latter to pay the amount of Php643,125.00 as deficiency withholding tax at source for 1979 plus increments. Without protesting the assessment, petitioners filed a petition with CTA on June 14, 1985, docketed as CTA Case No. 3943, seeking the annulment of said assessment. After trial on the merits, respondent tax court rendered the decision dated March 10, 1993 denying both petitions for review and subsequent motions for reconsiderations. Both parties filed motion for reconsideration on the March 10, 1993 decision wherein the respondent tax court issued a resolution dated May 19, 1993 which modified the dispositive portion of the said decision ordering the PHILAMLIFE to pay respondent the amount of Php643,125.00 with interest at the
Ratio: 1.
In our jurisprudence, the test of taxability is the source,
and the source of an income is that activity which produced the income. It is not the presence of any property from which one derives rentals and royalties that is controlling, but rather as expressed under the expanded meaning of royalties in Section 37 (a) of National Internal Revenue Code, it includes royalties for the supply of scientific, technical, industrial, or commercial knowledge or information; and the technical advice, assistance or services rendered in connection with the technical management and administration of any scientific, industrial or commercial undertaking, venture, project or scheme.
The Management Services Agreement falls under the expanded
meaning of royalties as it provides for the supply of a nonresident foreign corporation of technical and commercial information, knowledge, advice, assistance or services in connection with technical management or administration of an insurance business a commercial undertaking. Therefore, the income derived for the services performed by AIGI for PHILAMLIFE under the said agreement contract shall be considered as income from services within the Philippines. AIGI, being a non-resident foreign corporation not engage in trade and business in the Philippines shall pay tax equal to 35% of the gross income received during each taxable year from all sources within the Philippines as interest, dividends, rents, royalties (including remuneration for technical services), salaries, premiums, annuities, emoluments, or other fixed or determinable annual, periodical or casual gains, profits and income. On the second issue, this Court believes that the rule on prescription of assessment and the filing of formal protest will not apply.
Pursuant to Section 229 of NIRC, no such suit or proceeding
shall be begun after the expiration of two years from the date of payment of tax penalty regardless of any supervening cause that may arise after payment. Although counting from the original date of payment of the tax on December 3, 1979, the filing of the instant Petition for Review on June 14, 1985 would appear to have been filed out of time, nevertheless, justice and equity demand that the period during which respondent approved the herein claim for refund up to the time it was subsequently cancelled should be deducted from the counting of the two years prescriptive period. By deducting the period when Petitioner received the tax credit memo on March 9, 1981 to May 15, 1985 when the same was cancelled by the respondent only one year and four months had elapsed from the two year period of prescription when petitioner filed CTA 3943 on June 4, 1985. In like manner, CIRs failure to raise before the CTA the issue relating to the real party in interest to claim the refund cannot, and should not, prejudice the government. It is axiomatic that the government can never be in estoppel, particularly in matters involving taxes. The errors or omissions of certain administrative officers should never be allowed to jeopardize the governments financial position. On the third issue, this Court finds no error on the part of respondent tax court in amending its March 10, 1993 decision acting upon timely motion for reconsiderations filed by both petitioner and respondent. Said decision having not attained its finality, the same may still be amended, corrected or modified by the respondent court. Moreover, it has been the long standing policy and practice of this Court to respect the conclusions of quasi-judicial agencies, such as the Court of tax Appeals which, by nature of its function, is dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority or discretion, the decision of respondent court, affirming the decision of the Court of Tax Appeals, must consequently be upheld. By: Michael Evans Castromayor Pastor