BANK OF AMERICA NT & SA, PETITIONER, VS. HONORABLE COURT OF APPEALS, AND THE COMMISSIONER OF INTERNAL REVENUE, RESPONDENTS.

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. x x x

“(b) Tax on foreign corporations. x x x

“(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%) x x
x.”

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

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                                             P 445,790.25

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 6,942,286.94 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 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 –

“x x x In all the situations x x x 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 and yield from
deposit substitutes whether received by citizens of the Philippines or by
resident alien individuals, shall be subject to a final tax as follows: (a) 15% of the interest or savings deposits,
and (b) 20% of the interest on time deposits and yield from deposits substitutes,
which shall be collected and paid as
provided in Sections
53 and 54 of this Code: x x x (Underlining supplied; Sec. 21, Tax
Code applicable.)’

“And on rental payments payable by the lessee to the lessor
(at 5%), also cited by respondent, Section 1, paragraph (C), of Revenue
Regulations No. 13-78, November 1, 1978, provides that:

“°Section 1. Income
payments subject to withholding tax and
rates prescribed therein. – Except as therein otherwise provided, there shall be withheld a
creditable income tax at the rates herein specified for each class of payee
from the following items of income payments to persons residing in the
Philippines.

“x x x                                 x x x                               x x x

°(C) Rentals
– When the gross rental or the payment required to be made as a
condition to the continued use or possession of property, whether real or
personal, to which the payor or obligor has not taken or is not taking title or
in which he has no equity, exceeds five hundred pesos (P500.00) per contract or
payment whichever is greater – five per centum (5%).’

“Note that the basis of the 5% withholding tax, as expressly
and unambiguously provided therein, is on the gross rental. Revenue Regulations No. 13-78 was
promulgated pursuant to Section 53(f) of the then in force National Internal
Revenue Code which authorized the Minister of Finance, upon recommendation of
the Commissioner of Internal Revenue, to require the withholding of income tax
on the same items of income payable to persons (natural or judicial) residing
in the Philippines by the persons making such payments at the rate of not less
than 2 1/2% but not more than 35% which are to be credited against the income
tax liability of the taxpayer for the taxable year.

“On the other hand, 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 per cent (15%)’ – without more. Nowhere is there said of ‘base 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 at
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 actually applied for the branch with the Central Bank as profit to
be remitted abroad is to ignore the unmistakable meaning of plain words.”^[4]

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 understandable 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.

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
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.

Bidin, Romero, and Melo,
JJ., concur.

Feliciano, J., (Chairman), no
part.

^[1]
Rollo of G.R. No. 103106, pp. 47-48.

^[2]
Rollo of G.R. No. 103106, p. 54.

^[3]
Rollo of G.R. No. 103106, p. 50.

^[4]
Rollo of G.R. No. 103106, pp. 133-135.