JOHN DARYL C.

ROSARIO
JD – 2A

INCOME TAXATION

F. Taxable Corporations – R.A. No. 11534

1. JOSE GATCHALIAN, ET AL., vs. THE COLLECTOR OF INTERNAL

REVENUE, G.R. No. L-45425, April 29, 1939

FACTS:
On December 15, 1934, the plaintiffs, all 15 of them, each contributed
to buy a sweepstakes ticket worth Php 2.00. That immediately
thereafter but prior to December 16, 1934, plaintiffs purchased, in the
ordinary course of business, from one of the duly authorized agents of
the National Charity Sweepstakes Office one ticket bearing No. 178637
for the sum of two pesos (P2) and that the said ticket was registered in
the name of Jose Gatchalian and Company.

The above-mentioned ticket bearing No. 178637 won one of the third
prizes in the amount of P50,000 and that the corresponding check
covering the above-mentioned prize of P50,000 was drawn by the
National Charity Sweepstakes Office in favor of Jose Gatchalian &
Company against the Philippine National Bank, which check was
cashed during the latter part of December 1934 by Jose Gatchalian &
Company

Thereafter, Jose Gatchalian was required by income tax examiner

Alfredo David to file the corresponding income tax return covering the
prize won by Jose Gatchalian & Company and that on December 29,
1934.

The defendant made an assessment against Jose Gatchalian &

Company requesting the payment of P1,499.94 to the deputy
provincial treasurer of Pulilan, Bulacan. The plaintiffs requested
exemption from the payment of the income tax, but it was rejected.
The plaintiffs paid in protest the tax assessment given to them.

ISSUE:
Whether or not the plaintiffs formed a partnership, thus not exempted
from paying income tax

RULING:
Yes, the plaintiffs formed a partnership.
The Supreme Court held that according to the stipulated facts the
plaintiffs organized a partnership of a civil nature because each of
them put up money to buy a sweepstakes ticket for the sole purpose of
dividing equally the prize which they may win, as they did in fact in the
amount of P50,000.
 The partnership was not only formed, but upon the organization
thereof and the winning of the prize, Jose Gatchalian personally
appeared in the office of the Philippine Charity Sweepstakes, in his
capacity as co-partner, as such collected the prize, the office issued
the check for P50,000 in favor of Jose Gatchalian and company, and
the said partner. in the same capacity, collected the said check.

Having organized and constituted a partnership of a civil nature, the

said entity is the one bound to pay the income tax which the defendant
collected under the aforesaid section 10 (a) of Act No. 2833, as
amended by section 2 of Act No. 3761.

2. JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS

and REMEDIOS P. OBILLOS, vs. COMMISSIONER OF INTERNAL
REVENUE and COURT OF TAX APPEALS, G.R. No. L-68118
October 29, 1985

FACTS:
On March 2, 1973, Jose Obillos, Sr. bought two lots with areas of 1,124
and 963 square meters of located at Greenhills, San Juan, Rizal. The
next day he transferred his rights to his four children, the petitioners,
to enable them to build their residences. The Torrens titles issued to
them showed that they were co-owners of the two lots. In 1974, or
after having held the two lots for more than a year, the petitioners
resold them to the Walled City Securities Corporation and Olga Cruz
Canada for the total sum of P313,050. They derived from the sale a
total profit of P134, 341.88 or P33,584 for each of them. They treated
the profit as a capital gain and paid an income tax on one-half thereof
or of P16,792.

In April 1980, the Commissioner of Internal Revenue required the four

petitioners to pay corporate income tax on the total profit of P134,336
in addition to individual income tax on their shares thereof. The
petitioners are being held liable for deficiency income taxes and
penalties totaling P127,781.76 on their profit of P134,336, in addition
to the tax on capital gains already paid by them. The Commissioner
acted on the theory that the four petitioners had formed an
unregistered partnership or joint venture. The petitioners contested the
assessments. Two Judges of the Tax Court sustained the same. Hence,
the instant appeal.

ISSUE:
Whether or not the petitioners had indeed formed a partnership or joint
venture and thus liable for corporate tax.

RULING:
The Supreme Court held that the petitioners should not be considered
to have formed a partnership just because they allegedly contributed
P178,708.12 to buy the two lots, resell the same and divided the profit
 among themselves. To regard so would result in oppressive taxation
and confirm the dictum that the power to tax involves the power to
destroy. That eventuality should be obviated. As testified by Jose
Obillos, Jr., they had no such intention. They were pure and simple co-
owners. To consider them as partners would obliterate the distinction
between a co-ownership and a partnership. The petitioners were not
engaged in any joint venture because of that isolated transaction.

Article 1769(3) of the Civil Code provides that "the sharing of gross
returns does not of itself establish a partnership, whether or not the
persons sharing them have a joint or common right or interest in any
property from which the returns are derived". There must be an
unmistakable intention to form a partnership or joint venture.

3. MARIANO P. PASCUAL and RENATO P. DRAGON, vs. THE

COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, G.R. No. 78133 October 18, 1988

FACTS:
Pascual and Dragon bought two (2) parcels of land and a year after;
they bought another three (3) parcels of land. They subsequently sold
the said lots in 1968 and 1970 and realized net profits. The
corresponding capital gains taxes were paid in 1973 and 1974 by
availing of the tax amnesty granted in the said years.

The Acting BIR Commissioner assessed and required Pascual and

Dragon to pay a total amount of P107,101.70 as alleged deficiency
corporate income taxes for the years 1968 and 1970. Pascual and
Dragon protested the said assessment asserting that they had availed
of tax amnesties way back in 1974.

Respondent Commissioner informed Pascual and Dragon that in the

years 1968 and 1970, Pascual and Dragon as co-owners in the real
estate transactions formed an unregistered partnership or joint venture
taxable as a corporation under Section 20(b) and its income was
subject to the taxes prescribed under Section 24, both of the National
Internal Revenue Code that the unregistered partnership was subject
to corporate income tax as distinguished from profits derived from the
partnership by them which is subject to individual income tax; and that
the availment of tax amnesty under P.D. No. 23, as amended, by
Pascual and Dragon, relieved them of their individual income tax
liabilities but did not relieve them from the tax liability of the
unregistered partnership. Hence, Pascual and Dragon were required to
pay the deficiency income tax assessed.

ISSUE:
Whether or not the Petitioners should be treated as an unregistered
partnership or a co-ownership for the purposes of income tax. (co-
ownership)
 RULING:
No, The Petitioners are simply under the regime of co-ownership and
not under an unregistered partnership. Article 1769 of the new Civil
Code lays down the rule for determining when a transaction should be
deemed a partnership or a co-ownership. Said article paragraphs 2 and
3, provide: (2) Co-ownership or co-possession does not itself establish
a partnership, whether such co-owners or co-possessors do or do not
share any profits made by the use of the property; (3) The sharing of
gross returns does not of itself establish a partnership, whether or not
the persons sharing them have a joint or common right or interest in
any property from which the returns are derived.

The sharing of returns does not in itself establish a partnership whether

or not the persons sharing therein have a joint or common right or
interest in the property. There must be a clear intent to form a
partnership, the existence of a juridical personality different from the
individual partners, and the freedom of each party to transfer or assign
the whole property. In the present case, there is clear evidence of co-
ownership between the petitioners. There is no adequate basis to
support the proposition that they thereby formed an unregistered
partnership. The two isolated transactions whereby they purchased
properties and sold the same a few years thereafter did not thereby
make them partners. They shared the gross profits as co-owners and
paid their capital gains taxes on their net profits and availed them of
the tax amnesty thereby. Under the circumstances, they cannot be
considered to have formed an unregistered partnership which is
thereby liable for corporate income tax, as the respondent
commissioner proposes.

4. EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and

FRANCISCA EVANGELISTA, vs. THE COLLECTOR OF INTERNAL
REVENUE and THE COURT OF TAX APPEALS, G.R. No. L-9996,
October 15, 1957

FACTS:
Petitioners borrowed a sum of money from their father and together
with their own personal funds they used the said money to buy several
real properties. They then appointed their brother (Simeon) as
manager of the said real properties with powers and authority to sell,
lease or rent out said properties to third persons. They realized rental
income from the said properties for the period 1945-1949. On
September 24, 1954, respondent Collector of Internal Revenue
demanded the payment of income tax on corporations, real estate
dealer's fixed tax and corporation residence tax for the years 1945-
1949. The letter of demand and corresponding assessments were
delivered to petitioners on December 3, 1954, whereupon they
instituted the present case in the Court of Tax Appeals, with a prayer
that "the decision of the respondent contained in his letter of demand
 dated September 24, 1954" be reversed, and that they be absolved
from the payment of the taxes in question. CTA denied their petition
and subsequent MR and New Trials were denied. Hence this petition.

ISSUE:
Whether or not petitioners have formed a partnership and
consequently, are subject to the tax on corporations provided for in
section 24 of the Commonwealth Act. No. 466, otherwise known as the
National Internal Revenue Code, as well as to the residence tax for
corporations and the real estate dealers fixed tax.

RULING:
YES. The essential elements of a partnership are two, namely: (a) an
agreement to contribute money, property or industry to a common
fund; and (b) with intent to divide the profits among the contracting
parties. The first element is undoubtedly present in the case at bar, for,
admittedly, petitioners have agreed to, and did, contribute money and
property to a common fund. Upon consideration of all the facts and
circumstances surrounding the case, we are fully satisfied that their
purpose was to engage in real estate transactions for monetary gain
and then divide the same among themselves, because of the following
observations, among others: (1) Said common fund was not something
they found already in existence; (2) They invested the same, not
merely in one transaction, but in a series of transactions; (3) The
aforesaid lots were not devoted to residential purposes, or to other
personal uses, of petitioners herein.

Although, taken singly, they might not suffice to establish the intent
necessary to constitute a partnership, the collective effect of these
circumstances is such as to leave no room for doubt on the existence
of said intent in petitioners herein.
For the purposes of the tax on corporations, our National Internal
Revenue Code includes these partnerships — with the exception only
of duly registered general co-partnerships — within the purview of the
term "corporation." It is, therefore, clear to our mind that petitioners
herein constitute a partnership, insofar as said Code is concerned and
are subject to the income tax for corporations.

5. LORENZO T. OÑA and HEIRS OF JULIA BUÑALES, namely:

RODOLFO B. OÑA, MARIANO B. OÑA, LUZ B. OÑA, VIRGINIA B.
OÑA and LORENZO B. OÑA, JR., vs. THE COMMISSIONER OF
INTERNAL REVENUE, G.R. No. L-19342, May 25, 1972

FACTS:
Julia Bunales died, leaving as heirs her surviving spouse and five
children. A case was filed for the settlement of her estate. Later the
surviving spouse was appointed administrator of the estate. He then
submitted the project partition, which was approved by the Court. The
Court appointed him to be the guardian of the persons and property of
the 3 minor children. No attempt was made to divide the properties
which remained under the management of the spouse and used the
said properties in business by leasing or selling them and investing the
income derived from them. As a result, the properties and investments
gradually increased. The children usually come back to the spouse for
payment of taxes.

Respondent decided that the petitioners formed an unregistered

partnership and therefore, subject to the corporate income tax and was
assessed. Petitioners protested the assessment and asked for
reconsideration which was denied. They then filed a petition for review
of the decision of the Court of Tax Appeals.

ISSUE:
Whether or not petitioners formed an unregistered partnership and
thus subject to corporate taxes.

RULING:
Yes. The project of partition was approved in 1949 yet, the properties
remained under the management of the spouse who used said
properties in business by leasing or selling them and investing the
income derived from it which increased the value of the properties.

The corporate tax law states that in case of inheritance there should be
a period when the heirs can be considered as co-owners rather than
unregistered co-partners.

For tax purposes, the co-ownership of inherited properties is

automatically converted into an unregistered partnership the moment
the said common properties and/or the incomes derived therefrom are
used as a common fund with intent to produce profits for the heirs in
proportion to their respective shares in the inheritance as determined
in a project partition either duly executed in an extra-judicial
settlement or approved by the court in the corresponding testate or
intestate proceeding.

From the moment of such partition, the heirs are entitled already to
their respective definite shares of the estate and the incomes thereof,
for each of them to manage and dispose of as exclusively his own
without the intervention of the other heirs, and, accordingly, he
becomes liable individually for all taxes in connection therewith. If after
such partition, he allows his share to be held in common with his co-
heirs under a single management to be used with the intent of making
profit thereby in proportion to his share, there can be no doubt that,
even if no document or instrument were executed for the purpose, for
tax purposes, at least, an unregistered partnership is formed.
6. FLORENCIO REYES and ANGEL REYES, vs. COMMISSIONER OF
INTERNAL REVENUE and HON. COURT OF TAX APPEALS, G.R.
Nos. L-24020-21, July 29, 1968

FACTS:
Father and son, Florencio and Angel Reyes, herein petitioners,
purchased a lot
and building in 1950 which they continued the leasing business of the
previous
owner. Their building administrator, who collected the rents, kept its
books and
records and rendered statements, reported an annual gross income of
P90,000.00.
The CIR assessed them income tax, surcharge and compromise for the
years 1951
to 1952 and 1955-1956 of P46,647.00 and P37,528.00 respectively.
These taxes
liabilities, according to the CIR, allegedly arising “from the partnership
formed” by
the petitioners.

The appeal and subsequent motion for reconsideration by the

petitioners with the CTA, although the amounts reduced, were both
denied. The CTA relying on the
provision of the NIRC which imposes income tax on corporations
“organized in, or
existing under the laws of the Philippines, no matter how created or
organized but
not including registered general partnerships, … a term, which
according to the
second provision cited, includes partnerships “no matter how created
or organized,
…,”
Hence, this petition was filed before the Supreme Court. This time the
petitioners insisted that they could not be considered as a partnership
as their intention was not to engage in rental business collectively, but
rather, divide and
use the building to house their own enterprises after 10 years. This
intention was
expressed in an affidavit that they filed with the BIR. Therefore, they
could not be
held liable to income tax for partnerships as embodied in the NIRC
provision.
However, it was also noted that after almost 15 years from the
acquisition of the
property there was no division made.

ISSUE:
 Whether or not herein petitioners acquired the personality of a
partnership
when they continue to earn income from the rents of the building, they
both owned
for almost 15 years for them to be subjected to income tax for
corporations and
partnerships under the NIRC.

RULING:
Yes, the Supreme Court affirmed the ruling of the CTA conforming to
the
rationale that the NIRC is clear and equivocal in its provisions that
except for those
duly registered as general partnerships, a partnership, “no matter how
created or
organized” is similarly taxed as a corporation. Hence, the father and
son petitioners
were ordered to pay the reduced assessments with costs.

7. COMMISSIONER OF INTERNAL REVENUE, VS. DE LA SALLE

UNIVERSITY, INC., G.R. No. 196596, November 09, 2016

FACTS:
The BIR assessed DLSU of deficiency taxes involving, among others,
income tax on rental earnings from restaurants/canteens and
bookstores operating within the campus.

DLSU, a non-stock, non-profit educational institution, principally

anchored its petition on Article XIV, Section 4 (3) of the Constitution,
which states that all revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and exclusively for
educational purposes shall be exempt from taxes and duties.

The CIR submits that DLSU's operations of canteens and bookstores

within its campus even though exclusively serving the university
community do not negate income tax liability. The CIR contends that
Article XIV, Section 4 (3) of the Constitution must be harmonized with
Section 30 (H) of the Tax Code, which states among others, that the
income of whatever kind and character of a non-stock and non-profit
educational institution from any of its properties, real or personal, or
from any of its activities conducted for profit regardless of the
disposition made of such income, shall be subject to tax imposed by
this Code. The CIR posits that a tax-exempt organization like DLSU is
exempt only from property tax but not from income tax on the rentals
earned from property. Thus, DLSU's income from the leases of its real
properties is not exempt from taxation even if the income would be
used for educational purposes.

ISSUE:
 Whether or not DLSU's income and revenues proved to have been
used, directly and exclusively for educational purposes are exempt
from duties and taxes.

RULING:
Yes, the income and revenues of DLSU were proven to have been used,
directly and exclusively for educational purposes are exempt from
duties and taxes.

The Court found that unlike Article VI, Section 28 (3) of the Constitution
(pertaining to charitable institutions, churches, parsonages or
convents, mosques, and non-profit cemeteries), which exempts from
tax only the assets, i.e., "all lands, buildings, and improvements,
actually, directly, and exclusively used for religious, charitable, or
educational purposes...," Article XIV, Section 4 (3) categorically states
that "all revenues and assets... used actually, directly, and exclusively
for educational purposes shall be exempt from taxes and duties."

The addition and express use of the word revenues in Article XIV,
Section 4 (3) of the Constitution, is not without significance. The Court
found that the text demonstrates the policy of the 1987 Constitution,
discernible from the records of the 1986 Constitutional Commission to
provide broader tax privilege to non-stock, non-profit educational
institutions in recognition of their role in assisting the State provide a
public good. The tax exemption was seen as beneficial to students who
may otherwise be charged unreasonable tuition fees if not for the tax
exemption extended to all revenues and assets of non-stock, non-profit
educational institutions.

Further, a plain reading of the Constitution would show that Article XIV,
Section 4 (3) does not require that the revenues and income must have
also been sourced from educational activities or activities related to
the purposes of an educational institution. The phrase all revenues is
unqualified by any reference to the source of revenues. Thus, so long
as the revenues and income are used actually, directly and exclusively
for educational purposes, then said revenues and income shall be
exempt from taxes and duties.

The tax exemption granted by the Constitution to non-stock, non-profit

educational institutions, unlike the exemption that may be availed of
by proprietary educational institutions, is not subject to limitations
imposed by law. While a non-stock, non-profit educational institution is
classified as a tax-exempt entity under Section 30 (Exemptions from
Tax on Corporations) of the Tax Code, a proprietary educational
institution is covered by Section 27 (Rates of Income Tax on Domestic
Corporations).
 Domestic Corporations and Resident Foreign
Corporations
8. MARUBENI CORPORATION (formerly Marubeni — Iida, Co., Ltd.),
vs. COMMISSIONER OF INTERNAL REVENUE AND COURT OF TAX
APPEALS, G.R. No. 76573 September 14, 1989

FACTS:

Marubeni Corporation is a foreign corporation existing under the laws

of Japan and licensed to engage in business in the Philippines. It has a
branch office in Manila.

Petitioners have equity investments in AG&P of Manila. AG&P declared

and paid cash dividends to petitioner and withheld 10% as final
intercorporate dividend tax. AG&P directly remitted the cash dividends
to petitioner’s head office in Tokyo and withheld 15% profit remittance
tax after deducting the 10% final withholding tax.

Marubeni sought a ruling from the BIR on WON the dividends received
from AG&P are effectively connected with its business in the PH to be
considered branch profits subject to 15% profit remittance tax.

- Acting Commissioner Ancheta ruled that the dividends

received from AG&P are not income arising from the business in
which Marubeni is engaged, thus not subject to 15%

Marubeni claimed for a refund or issuance of tax credits. The

Commissioner denied the claim. While it is true that it was not subject
to the 10% and 15%, being a non-resident stockholder, 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. CTA affirmed.

ISSUE:

Whether or not Marubeni is a resident or non-resident foreign

corporation.

RULING:

Yes. Marubeni is a resident or non-resident foreign corporation.

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 corporations,
not of the branch. Consequently, the taxpayer is the foreign
corporation, not the branch or the resident foreign corporation.

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.

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. Proceeding to apply the above section to the case at bar,
petitioner, being a non-resident foreign corporation, as a 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 petitioners would have ordinarily paid, and the 15
% special rate on dividends received from a domestic corporation.
Petitioner is entitled to a refund on the transaction in question

9. BANK OF AMERICA NT & SA, vs. HONORABLE COURT OF

APPEALS, AND THE COMMISSIONER OF INTERNAL REVENUE,
G.R. No. 103092, July 21, 1994

FACTS:
The petitioner, Bank of America, paid a 15% branch profit remittance
tax on July 20, 1982, amounting to P7,984,250.97. This tax was based
on net profits after income tax, without deducting the 15% tax itself
from the tax base.

The petitioner filed a claim for refund, arguing that the 15% tax should
be computed on the actual profits remitted abroad (P45,244,088.85)
rather than the amount before the tax (P53,228,339.82). The petitioner
contended that the 15% branch profit remittance tax should not
include the tax itself in the tax base. The respondent Commissioner of
Internal Revenue argued that the tax base should include the 15% tax.
The Court of Tax Appeals ruled in favor of the petitioner, ordering a
refund. The Court of Appeals reversed this decision, prompting the
petitioner to file separate petitions for review with the Supreme Court.

ISSUE:
Whether or not the 15% branch profit remittance tax should be
assessed on the amount remitted abroad.

RULING:
Yes. It should be assessed on the amount remitted abroad. 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. There
is absolutely nothing in Section 24(b) (2) (ii), supra, which indicates
 that the 15% tax on branch profit remittance is on the total amount of
profit to be remitted abroad which shall be collected and paid in
accordance with the tax withholding device provided in Sections 53
and 54 of the Tax Code. The statute employs "Any profit remitted
abroad by a branch to its head office shall be subject to a tax of fifteen
percent (15%)" — without more. Nowhere is there said of "based on
the total amount actually applied for by the branch with the Central
Bank of the Philippines as profit to be remitted abroad, which shall be
collected and paid as provided in Sections 53 and 54 of this
Code." Where the law does not qualify that the tax is imposed and
collected as source based on profit to be remitted abroad, that
qualification should not be read into the law. It is a basic rule of
statutory construction that there is no safer nor
better canon of interpretation than that when the language of the law
is clear
and unambiguous, it should be applied as written. And to our mind, the
term "any
profit remitted abroad" can only mean such profit as is "forwarded,
sent, or
transmitted abroad" as the word "remitted" is commonly and popularly
accepted and understood. To say therefore that the tax on branch
profit remittance is imposed and collected at source and necessarily
the tax base should be the amount applied to the branch with the
Central Bank as profit to be remitted abroad is to ignore the
unmistakable meaning of plain words.

 Non-Resident Foreign Corporations

10. COMMISSIONER OF INTERNAL REVENUE, vs. PROCTER &
GAMBLE PHILIPPINE MANUFACTURING CORPORATION and THE
COURT OF TAX APPEALS, G.R. No. L-66838, December 2, 1991

FACTS:
On 5 January 1977, private respondent P&G-Phil. filed with petitioner
Commissioner of Internal Revenue a claim for refund or tax credit in
the amount of P4,832,989.26 claiming, among other things, that
pursuant to Section 24 (b) (1) of the National Internal Revenue Code
("NITC"), 1 as amended by Presidential Decree No. 369, the applicable
rate of withholding tax on the dividends remitted was only fifteen
percent (15%) (and not thirty-five percent [35%]) of the dividends.

There being no responsive action on the part of the Commissioner,

P&G-Phil., on 13 July 1977, filed a petition for review with public
respondent Court of Tax Appeals ("CTA") docketed as CTA Case No.
2883. On 31 January 1984, the CTA rendered a decision ordering
petitioner Commissioner to refund or grant the tax credit in the amount
of P4,832,989.00.
 On appeal by the Commissioner, the Court through its Second Division
reversed the decision of the CTA and held that:
(a) P&G-USA, and not private respondent P&G-Phil., was the proper
party to claim the refund or tax credit involved.

1. There are certain preliminary aspects of the question of the

capacity of P&G-Phil. to bring the present claim for refund or tax
credit, which need to be examined. This question was raised for
the first time on appeal, i.e., in proceedings before this Court on
the Petition for Review filed by the Commissioner of Internal
Revenue. The question was not raised by the Commissioner on
an administrative level, and neither was it raised by him before
the CTA.

ISSUE:
Whether or not P&G Philippines is entitled to the refund or tax credit.

RULING:
Yes. We believe that the Bureau of Internal Revenue ("BIR") should not
be allowed to defeat an otherwise valid claim for refund by raising this
question of alleged incapacity for the first time on appeal before this
Court. This is clearly a matter of procedure. Petitioners do not pretend
that P&G-Phil., should it succeed in the claim for refund, is likely to run
away, as it were, with the refund instead of transmitting such a refund
or tax credit to its parent and sole stockholder. It is commonplace that
in the absence of explicit statutory provisions to the contrary, the
government must follow the same rules of procedure which bind
private parties. It is, for instance, clear that the government is held to
compliance with the provisions of Circular No. 1-88 of this Court in the
same way that private litigants are held to such compliance, save only
in respect of the matter of filing fees from which the Republic of the
Philippines is exempt by the Rules of Court.

More importantly, there arises here a question of fairness should the

BIR, unlike any other litigant, be allowed to raise for the first time on
appeal questions which had not been litigated either in the lower court
or on the administrative level. For, if the petitioner had at the earliest
possible opportunity, i.e., at the administrative level, demanded that
P&G-Phil. produce an express authorization from its parent corporation
to bring the claim for a refund, then P&G-Phil. would have been able
forthwith to secure and produce such authorization before filing the
action in the instant case. The action here commenced just before the
expiration of the two (2)-year prescriptive period.

11. COMMISSIONER OF INTERNAL REVENUE, vs. WANDER

PHILIPPINES, INC. AND THE COURT OF TAX APPEALS, G.R. No.
L-68375, April 15, 1988.

FACTS:
Private respondent, Wander, is a domestic corporation organized under
Philippine laws. It is wholly owned subsidiary of the Glaro, a Swiss
corporation not engaged in trade or business in the Philippines. On
July 18, 1975, Wander filed its withholding tax return for the second
quarter and remitted it to its parent company, Glaro dividends on
which 35% withholding tax was withheld and paid to the BIR. On the
following year, Wander again filed a withholding tax return for the
second quarter on the dividends it remitted to Glaro, on which 35% tax
was withheld and paid to the BIR. On 1977, Wander filed with the
Appellate Division of the Internal Revenue a claim for refund and/or tax
credit in the amount of P115,400.00, contending that it is liable only to
15% withholding tax in accordance with Section 24 (b) (1) of the Tax
Code, as amended by Presidential Decree Nos. 369 and 778, and not
on the basis of 35% which was withheld and paid to and collected by
the government. The petitioner failed to act on the above-said claim
for refund, on July 15, 1977, Wander filed a petition with CTA. The
petitioner then filed its answer. The CTA rendered decision ordering
respondent to grant a refund and/or tax credit to petitioner in the
amount of P115,440.00 representing overpaid withholding tax on
dividends remitted by it to the Glaro S.A. Ltd. of Switzerland during the
second quarter of the years 1975 and 1976. Petitioner filed a Motion
for Reconsideration but the same was denied.. Hence, a petition for
review on certiorari was filed against CTA decision.

ISSUE:
Whether or not Wander Philippines, Inc. is entitled to the preferential
rate of 15% withholding tax on the dividends remitted to its foreign
parent company, the Glaro S.A. Ltd. of Switzerland, a non-resident
foreign corporation.

HELD:
Yes. Switzerland did not impose any tax on the dividends received by
Glaro. While it may be true that claims for refund are construed strictly
against the claimant, nevertheless, the fact that Switzerland did not
impose any tax, or the dividends received by Glaro from the Philippines
should be considered as a full satisfaction of the given condition.

For, as aptly stated by respondent Court, to deny private respondent

the privilege to withhold only 15% tax provided for under Presidential
Decree No. 369, amending Section 24 (b) (1) of the Tax Code, would
run counter to the very spirit and intent of said law and will adversely
affect foreign corporations" interest here and discourage them from
investing capital in our country. ----Besides, it is significant to note that
the conclusion reached by respondent Court is but a confirmation of
the May 19, 1977, ruling of petitioner that "since the Swiss
Government does not impose any tax on the dividends to be received
by the said parent corporation in the Philippines, the condition imposed
under the above-mentioned section is satisfied. Accordingly, the
withholding tax rate of 15% is hereby affirmed."