FIRST DIVISION
G.R. No. 216130, August 03, 2016
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. GOODYEAR PHILIPPINES, INC., Respondent.
D E C I S I O N
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated August 14, 2014 and the Resolution3 dated January 5, 2015 of the Court of Tax Appeals (CTA) En Banc in C.T.A. EB No. 1041, which affirmed the Decision4 dated March 25, 2013 and the Resolution5 dated June 26, 2013 of the CTA Second Division (CTA Division) in C.T.A. Case No. 8188, ordering petitioner Commissioner of Internal Revenue (petitioner) to refund or issue a tax credit certificate (TCC) in the sum of P14,659,847.10 to respondent Goodyear Philippines, Inc. (respondent), representing erroneously withheld and remitted final withholding tax (FWT).
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. – No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.Verily, the primary purpose of filing an administrative claim was to serve as a notice of warning to the CIR that court action would follow unless the tax or penalty alleged to have been collected erroneously or illegally is refunded. To clarify, Section 229 of the Tax Code – [then Section 306 of the old Tax Code] – however 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 (2)-year prescriptive period expire without the appropriate judicial claim being filed. In CBK Power Company, Ltd. v. CIR,36 the Court enunciated:
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment x x x. (Emphases and underscoring supplied)
In the foregoing instances, attention must be drawn to the Court's ruling in P.J. Kiener Co., Ltd. v. David (Kiener), wherein it was held that in no wise does the law, i.e., Section 306 of the old Tax Code (now, Section 229 of the NIRC), imply that the Collector of Internal Revenue first act upon the taxpayer's claim, and that the taxpayer shall not go to court before he is notified of the Collector's action. In Kiener, the Court went on to say that the claim with the Collector of Internal Revenue was intended primarily as a notice of warning that unless the tax or penalty alleged to have been collected erroneously or illegally is refunded, court action will follow x x x.37 (Emphases and underscoring supplied)In the case at bar, records show that both the administrative and judicial claims for refund of respondent for its erroneous withholding and remittance of FWT were indubitably filed within the two-year prescriptive period.38 Notably, Section 229 of the Tax Code, as worded, only required that an administrative claim should first be 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.
SEC. 28. Rates of Income Tax on Foreign Corporations. –It must be noted, however, that GTRC is a non-resident foreign corporation, specifically a resident of the US. Thus, pursuant to the cardinal principle that treaties have the force and effect of law in this jurisdiction,40 the RP-US Tax Treaty complementarily governs the tax implications of respondent's transactions with GTRC.
xxxx
(B) Tax on Nonresident Foreign Corporation. –
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(5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. –(b) Intercorporate Dividends. – A final withholding tax at the rate of fifteen percent (15%) is hereby imposed on the amount of cash and/or property dividends received from a domestic corporation, which shall be collected and paid as provided in Section 57 (A) of this Code, subject to the condition that the country in which the nonresident foreign corporation is domiciled, shall allow a credit against the tax due from the nonresident foreign corporation taxes deemed to have been paid in the Philippines equivalent to twenty percent (20%), which represents the difference between the regular income tax of thirty-five percent (35%) and the fifteen percent (15%) tax on dividends as provided in this subparagraph: Provided, That effective January 1, 2009, the credit against the tax due shall be equivalent to fifteen percent (15%), which represents the difference between the regular income tax of thirty percent (30%) and the fifteen percent (15%) tax on dividends;
xxxx (Emphasis and underscoring supplied)
Section 43. Power to Declare Dividends. – The board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be payable in cash, in property, or in stock to all stockholders on the basis of outstanding stock held by them: Provided, That any cash dividends due on delinquent stock shall first be applied to the unpaid balance on the subscription plus costs and expenses, while stock dividends shall be withheld from the delinquent stockholder until his unpaid subscription is fully paid: Provided, further, That no stock dividend shall be issued without the approval of stockholders representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose.It is also worth mentioning that one of the primary features of an ordinary dividend is that the distribution should be in the nature of a recurring return on stock46 which, however, does not obtain in this case. As aptly pointed out by the CTA En Banc, the amount of P97,732,314.00 received by GTRC did not represent a periodic distribution of dividend, but rather a payment by respondent for the redemption47 of GTRC's 3,729,216 preferred shares. In Wise & Co., Inc. v. Meer:48
x x x x (Emphasis and underscoring supplied)
The amounts thus distributed among the plaintiffs were not in the nature of a recurring return on stock — in fact, they surrendered and relinquished their stock in return for said distributions, thus ceasing to be stockholders of the Hongkong Company, which in turn ceased to exist in its own right as a going concern during its more or less brief administration of the business as trustee for the Manila Company, and finally disappeared even as such trustee.All told, the amount of P97,732,314.00 received by GTRC from respondent for the redemption of its 3,729,216 preferred shares were not accumulated dividends in arrears. Contrary to petitioner's claims, it is therefore not subject to 15% FWT on dividends in accordance with Section 28 (B) (5) (b) of the Tax Code."The distinction between a distribution in liquidation and an ordinary dividend is factual; the result in each case depending on the particular circumstances of the case and the intent of the parties. If the distribution is in the nature of a recurring return on stock it is an ordinary dividend. However, if the corporation is really winding up its business or recapitalizing and narrowing its activities, the distribution may properly be treated as in complete or partial liquidation and as payment by the corporation to the stockholder for his stock. The corporation is, in the latter instances, wiping out all parts of the stockholders' interest in the company * * * ." (Montgomery, Federal Income Tax Handbook [1938-1939], 258 x x x)49 (Emphases and underscoring supplied)
Endnotes:
* Designated as Additional Member per Raffle dated July 25, 2016.
1Rollo, pp. 9-23.
2 Id. at 25-52. Penned by Associate Justice Esperanza R. Fabon-Victorino with Presiding Justice Roman G. Del Rosario and Associate Justices Juanito C. Castañeda, Jr., Erlinda P. Uy, Caesar A. Casanova, Cielito N. Mindaro-Grulla, Amelia R. Cotangco-Manalastas, and Ma. Belen M. Ringpis-Liban concurring.
3 Id. at 53-56. Penned by Associate Justice Esperanza R. Fabon-Victorino with Presiding Justice Roman G. Del Rosario and Associate Justices Juanito C. Castañeda, Jr., Lovell R. Bautista, Erlinda P. Uy, Caesar A. Casanova, Cielito N. Mindaro-Grulla, Amelia R. Cotangco-Manalastas, and Ma. Belen M. Ringpis-Liban concurring.
3 Id. at 63-104. Penned by Associate Justice Cielito N. Mindaro-Grulla with Associate Justices Juanito C. Castaneda, Jr. and Caesar A. Casanova concurring.
4 Resolved by the CTA Special Second Division.
5 Id. at 105-107.
6 Id. at 63-64.
7 Id. at 64.
8 Id. at 64-65.
9 Entitled "CONVENTION BETWEEN THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES AND THE GOVERNMENT OF THE UNITED STATES OF AMERICA WITH RESPECT TO TAXES ON INCOME," which entered into force on October 16, 1982.
10Rollo, p. 65.
11 Id. at 84-85.
12 Id. at 28 and 66-70.
13 Id. at 63-104.
14 Id. at 103-104.
15 Id. at 87-88.
16 SEC. 28. Rates of Income Tax on Foreign Corporations. –
x x x x
(B) Tax on Nonresident Foreign Corporation. –
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(5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. –
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(c) Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange. – A final tax at the rates prescribed below is hereby imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold, or disposed of through the stock exchange:
chanRoblesvirtualLawlibrary(See also id. at 93-94.)
Not over P100,000 ............................................ 5% On any amount in excess of P100,000 ................ 10%
17 Id. at 94.
18 Article 14 of the RP-US Tax Treaty states:
chanRoblesvirtualLawlibraryArticle 14
CAPITAL GAINS(See also id. at 94.)
- Gains from the alienation of tangible personal (movable) property forming part of the business property of a permanent establishment which a resident of a Contracting State has in the other Contracting State or of tangible personal (movable) property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or together with the whole enterprise) or of such a fixed base, may be taxed in the other State. However, gains derived by a resident of a Contracting State from the alienation of ships, aircraft or containers operated by such resident in international traffic shall be taxable only in that State, and gains described in Article 13 (Royalties) shall be taxable only in accordance with the provisions of Article 13 (Royalties).
- Gains from the alienation of any property other than those mentioned in paragraph 1 or in Article 7 (Income from Real Property) shall be taxable only in the Contracting State of which the alienator is a resident.
19 Id. at 95
20 "Principally" means more than 50% of the entire assets in terms of value. See id. at 96.
21 Id. at 91-97.
22 (b) Intercorporate Dividends. – A final withholding tax at the rate of fifteen percent (15%) is hereby imposed on the amount of cash and/or property dividends received from a domestic corporation, which shall be collected and paid as provided in Section 57 (A) of this Code, subject to the condition that the country in which the nonresident foreign corporation is domiciled, shall allow a credit against the tax due from the nonresident foreign corporation taxes deemed to have been paid in the Philippines equivalent to twenty percent (20%), which represents the difference between the regular income tax of thirty-five percent (35%) and the fifteen percent (15%) tax on dividends as provided in this subparagraph: Provided, that effective January 1, 2009, the credit against the tax due shall be equivalent to fifteen percent (15%), which represents the difference between the regular income tax of thirty percent (30%) and the fifteen percent (15%) tax on dividends;
(See also id. at 97-98)
23 Id. at 98.
24 SEC. 73. Distribution of Dividends or Assets by Corporations. –
(A) –Definition of Dividends. – The term ''dividends" when used in this Title means any distribution made by a corporation to its shareholders out of its earnings or profits and payable to its shareholders, whether in money or in other property.
Where a corporation distributes all of its assets in complete liquidation or dissolution, the gain realized or loss sustained by the stockholder, whether individual or corporate, is a taxable income or a deductible loss, as the case may be.
(See also id. at 99.)
25cralawred Id. at 97-100.
26 SEC. 73. Distribution of Dividends or Assets by Corporations. –
x x x x
(B) Stock Dividend. – A stock dividend representing the transfer of surplus to capital account shall not be subject to tax. However, if a corporation cancels or redeems stock issued as a dividend at such time and in such manner as to make the distribution and cancellation or redemption, in whole or in part, essentially equivalent to the distribution of a taxable dividend, the amount so distributed in redemption or cancellation of the stock shall be considered as taxable income to the extent that it represents a distribution of earnings or profits. (See also id. at 101.)
27 Id. at 101-102.
28 Not attached to the rollo.
29Rollo, pp. 105-107.
30 Not attached to the rollo.
31Rollo, pp. 25-52.
32 Id. at 35-50.
33 Not attached to the rollo.
34Rollo, pp. 53-56.
35 Id. at 17.
36 G.R. Nos. 193383-84 & 193407-08, January 14, 2015, 746 SCRA 93.
37 Id. at 110-111; citation omitted.
38 Date of payment was November 3, 2008, while the administrative and judicial claims were respectively filed on October 21, 2010 and November 3, 2010. Rollo, pp. 27-28.
39 Id. at 14-17.
40Deutsche Bank AG Manila Branch v. CJR, 716 Phil. 676, 686 (2013).
41 Article 11 (5) of the RP-US Tax Treaty reads:
chanRoblesvirtualLawlibraryArticle 11
Dividends
x x x x
5. The term "dividends" as used in this Convention means income from shares, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights assimilated to income from shares by the taxation law of the State of which the corporation making the distribution is a resident. (See id. at 98.)
42 Section 73 (A) of the Tax Code states:
chanRoblesvirtualLawlibrarySEC. 73. Distribution of Dividends or Assets by Corporations. –
(A) Definition of Dividends. – The term "dividends" when used in this Title means any distribution made by a corporation to its shareholders out of its earnings or profits and payable to its shareholders, whether in money or in other property.
Where a corporation distributes all of its assets in complete liquidation or dissolution, the gain realized or loss sustained by the stockholder, whether individual or corporate, is a taxable income or a deductible loss, as the case may be. (Emphases and underscoring supplied)
43Rollo, p. 118.
44 See Crucillo v. Office of the Ombudsman, 552 Phil. 699, 624 (2007);and Republic Planters Bank v. Agana, Sr., 336 Phil. 1, 9-11 (1997).
45 Batas Pambansa Bilang 68 (May 1, 1980).
46 See Wise & Co., Inc. v. Meer, 78 Phil. 655 (1947).
47 "Redemption is repurchase, a reacquisition of stock by a corporation which issued the stock in exchange for property, whether or not the acquired stock is cancelled, retired or held in the treasury." (CIR v. Court of Appeals, 361 Phil. 103, 124 (1999); citations omitted.)
48 Supra note 46.
49 Id. at 669.