Compania General de Tabacos de Filipinas vs CIR

Facts:
Petitioner in this case is a foreign corporation duly licensed to engage business
( leaf tobacco dealer) in the Philippines through its local branch office, seeking a
refund ( 1.78 million), representing an alleged overpaid branch profit remittance
taxes during years 1980 to 1985. It claimed that interests received from savings
deposit with Philtrust , interests received from money market placements and
interest on land bank bonds and cash dividends received from PLDT and Tabacalera
Industrial Corp. are NOT effectively in connected with its trade.
Since respondent failed to act upon the petitioners request, the latter filed the
instant case to stop the running of prescriptive period for claims of refund. However,
respondent, by way of affirmative defense, averred that the claim for refund made
prior to April 9, 1985 has already prescribed. The profit remittance tax
corresponding to branch profit for 1980 was paid on Feb 7, 1984. However, this case
was filed in 1987 , more than 2 years have lapsed from the time the payment of tax
was made.
Petitioner contended that the correct tax base for computing branch profit
remittance is the profit actually remitted abroad effectively connected with tax
payers trade or business in the Philippines with net of income already
subject to final tax. To support its contention petitioner relied on BIR Ruling dated
Jan. 21, 1980 and case of CIR vs Burruoghs Limited ( That the tax base upon
which 15% branch profit remittance tax shall be imposed xxx is the profit
actually remitted abroad and not on the total branch profits out of which
the remittance is to be made) . While, respondent averred that the case of
Burroughs Limited is not applicable in the case because Revenue Circular 8-82
which states that the tax is imposed and collected at source , necessarily the tax
base should be the amount actually applied for by the branch with Central Bank as
profit to be remitted abroad. Respondent likewise argued that cash dividends
and interest income of petitioner are effectively connected with the
conduct of its trade or business in the Philippines should be subject to
branch profit remittance tax. Moreover, the 15% profit remittance tax imposed
by section 24 ( b) (2) of the tax code is an income tax, it is therefore non-deductible
from gross (profit) income. In as much as the tax is an exaction on profit realized
for remittance abroad, the deduction thereof as an expense is not sustained by law.
Besides deduction from gross income are matters of legislative grace , what is not
expressly granted by law is deem withheld.
Issues:
1. Whether the interest and dividends received are subject to branch profit
remittance tax?
2. Whether the tax base which 15% branch profit remittance tax should be
imposed is the profit actually remitted abroad or the amount actually applied
for by the branch with Central Bank?

HELD: 1. With regard to passive income already subjected to final tax, the same sec
24 b,2,ii of the Tax code provides that : interests, dividends,rents, remunerations
for technical services ,salaries wages,XXX gains, profits, income and capital gains
received by a foreign corp during each taxable year from all sources within the
Philippines shall not be considered as branch profits unless the same are
effectively connected with the conduct of trade or business in the
Philippines. Pursuant to the tax code,dividends and interests are subject
to final tax and to include them again as subject to branch profit
remittance tax would be contrary to law . Hence, petitioner successfully
established a right to be refunded the amount of branch remittance profit
remittance paid on these interests and dividends.
As regards to 1984 to 1985 , branch profit remittance taxes , no refund or tax credit
is due to petitioner since the latter did not present any proof of passive income it
received during the period . While, Respondent should refund petitioner the amount
of 152, 690, representing the overpaid 15% branch profit remittance taxes on
dividends, interest, and capital gain received during 1981 to 1983.
2. The tax base should be applied is the amount actually applied for by the branch
with Central Banks as profit to be remitted abroad. The branch profit remittance
taxes were paid after the effectivity of Revenue Circular 8-82. Hence, respondent is
correct. Having found that the questioned taxes were paid when the applicable
ruling is Revenue Memo Circular 8-82 :then what should apply as taxable base in
computing 15% branch profit remittance tax is the amount applied for with central
bank as profit to be remitted abroad.