SDM Agreement US$236,000.00
CM Agreement 296,000.00
SIM Application Agreement 15,822.45
Total US$547,822.454
Particulars Amount (in US$) 1. CM 296,000.00 2. SIM Application 15,822.45 Total US$311,822.45
Particulars Amount Tax Base US$311,822.45 Multiply by: Withholding Tax Rate 25% Final Withholding Tax US$ 77,955.61 Multiply by: Prevailing Exchange Rate 51.176 Tax Refund Due P3,989,456.43
WHEREFORE, premises considered, the instant petition is partially GRANTED. Accordingly, respondent Commissioner of Internal Revenue is hereby ORDERED to REFUND or ISSUE a TAX CREDIT CERTIFICATE to petitioner Smart Communications, Inc. in the amount of P3,989,456.43, representing overpaid final withholding taxes for the month of August 2001.
SO ORDERED.27
WHEREFORE, the instant petition is hereby DISMISSED. Accordingly, the assailed Decision and Resolution are hereby AFFIRMED.
SO ORDERED.35
Sec. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. - The Commissioner may -
x x x x
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund.
x x x x
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.
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: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. (Emphasis supplied)
The term "taxpayer" is defined in our NIRC as referring to "any person subject to tax imposed by the Title [on Tax on Income]." It thus becomes important to note that under Section 53(c)41 of the NIRC, the withholding agent who is "required to deduct and withhold any tax" is made "personally liable for such tax" and indeed is indemnified against any claims and demands which the stockholder might wish to make in questioning the amount of payments effected by the withholding agent in accordance with the provisions of the NIRC. The withholding agent, P&G-Phil., is directly and independently liable for the correct amount of the tax that should be withheld from the dividend remittances. The withholding agent is, moreover, subject to and liable for deficiency assessments, surcharges and penalties should the amount of the tax withheld be finally found to be less than the amount that should have been withheld under law.
A "person liable for tax" has been held to be a "person subject to tax" and properly considered a "taxpayer." The terms "liable for tax" and "subject to tax" both connote legal obligation or duty to pay a tax. It is very difficult, indeed conceptually impossible, to consider a person who is statutorily made "liable for tax" as not "subject to tax." By any reasonable standard, such a person should be regarded as a party in interest, or as a person having sufficient legal interest, to bring a suit for refund of taxes he believes were illegally collected from him.
In Philippine Guaranty Company, Inc. v. Commissioner of Internal Revenue, this Court pointed out that a withholding agent is in fact the agent both of the government and of the taxpayer, and that the withholding agent is not an ordinary government agent:"The law sets no condition for the personal liability of the withholding agent to attach. The reason is to compel the withholding agent to withhold the tax under all circumstances. In effect, the responsibility for the collection of the tax as well as the payment thereof is concentrated upon the person over whom the Government has jurisdiction. Thus, the withholding agent is constituted the agent of both the Government and the taxpayer. With respect to the collection and/or withholding of the tax, he is the Government's agent. In regard to the filing of the necessary income tax return and the payment of the tax to the Government, he is the agent of the taxpayer. The withholding agent, therefore, is no ordinary government agent especially because under Section 53 (c) he is held personally liable for the tax he is duty bound to withhold; whereas the Commissioner and his deputies are not made liable by law."
If, as pointed out in Philippine Guaranty, the withholding agent is also an agent of the beneficial owner of the dividends with respect to the filing of the necessary income tax return and with respect to actual payment of the tax to the government, such authority may reasonably be held to include the authority to file a claim for refund and to bring an action for recovery of such claim. This implied authority is especially warranted where, as in the instant case, the withholding agent is the wholly owned subsidiary of the parent-stockholder and therefore, at all times, under the effective control of such parent-stockholder. In the circumstances of this case, it seems particularly unreal to deny the implied authority of P&G-Phil. to claim a refund and to commence an action for such refund.
x x x x
We believe and so hold that, under the circumstances of this case, P&G-Phil. is properly regarded as a "taxpayer" within the meaning of Section 309,42 NIRC, and as impliedly authorized to file the claim for refund and the suit to recover such claim. (Emphasis supplied.)
1.3 Intellectual Property Rights (IPR)
The SDM shall be installed by PRISM, including the SDM Libraries, the IPR of which shall be retained by PRISM. PRISM, however, shall provide the Client the APIs for the SDM at no cost to the Client. The Client shall be permitted to develop programs to interface with the SDM or the SDM Libraries, using the related APIs as appropriate.50 (Emphasis supplied.)
1.4 Intellectual Property Rights (IPR)
The IPR of all components of the CM belong to the Client with the exception of the following components, which are provided, without technical or commercial restraints or obligations:x x x x
- ConfigurationException.java
- DataStructures (DblLinkedListjava, DbIListNodejava, List
- EmptyException.java, ListFullException.java, ListNodeNotFoundException.java,
- QueueEmptyException.java, QueueFullException.java, QueueList.java, QueuListEx.java, and QueueNodeNotFoundException.java)
- Field MappedObjeet.java
- LogFileEx.java
- Logging (BaseLogger.java and Logger.java)
- PrismGeneric Exception.java
- PrismGenericObject.java
- ProtocolBuilders/CIMD2 (Alive.java, BaseMessageData.
- java, DeliverMessage.java, Login.java, Logout.java, Nack.java, SubmitMessage.java,
- TemplateManagement (FileTemplateDataBag.java, Template
- DataBag.java, TemplateManagerExBag.java, and TemplateParserExBag.java)
- TemplateManager.class
- TemplateServer.class
- TemplateServer$RequestThread.class
- Template Server_skel.class
- TemplateServer_stub.class
- TemplateService.class
- Prism Crypto Server module for PHP451
1.3 Intellectual Property Rights (IPR)
The Client shall own the IPR for the Specifications and the Source Code for the SIM Applications. PRISM shall develop an executable compiled code (the "Executable Version") of the SIM Applications for use on the aSIMetric card which, however, shall only be for the Client's use. The Executable Version may not be provided by PRISM to any third [party] without the prior written consent of the Client. It is further recognized that the Client anticipates licensing the use of the SIM Applications, but it is agreed that no license fee will be charged to PRISM or to a licensee of the aSIMetrix card from PRISM when SIMs are supplied to the Client.52 (Emphases supplied.)
The provisions in the agreements are clear. Prism has intellectual property right over the SDM program, but not over the CM and SIM Application programs as the proprietary rights of these programs belong to respondent. In other words, out of the payments made to Prism, only the payment for the SDM program is a royalty subject to a 25% withholding tax. A refund of the erroneously withheld royalty taxes for the payments pertaining to the CM and SIM Application Agreements is therefore in order.
Indeed, the government has no right to retain what does not belong to it. "No one, not even the State, should enrich oneself at the expense of another."53
WHEREFORE, the petition is DENIED. The assailed Decision dated June 28, 2007 and the Resolution dated July 31, 2007 of the Court of Tax Appeals En Banc are hereby AFFIRMED. The Bureau of Internal Revenue is hereby ordered to issue a Tax Credit Certificate to Prism Transactive (M) Sdn. Bhd. in the amount of P3,989,456.43 representing the overpaid final withholding taxes for the month of August 2001.
SO ORDERED.
Corona, C.J., (Chairperson), Velasco, Jr., Leonardo-De Castro, and Perez, JJ., concur.
Endnotes:
* Sometimes referred to as Smart Communications, Inc. in other parts of the records.
1 Rollo, pp. 47-71; penned by Associate Justice Lovell R. Bautista and concurred in by Presiding Justice Ernesto D. Acosta and Associate Justices Juanito C. Castañeda, Jr., Erlinda P. Uy, Caesar A. Casanova, and Olga Palanca-Enriquez.
2 Id. at 72-74.
3 BIR records, pp. 63-9.
4 Id. at 1.
5 Id. at 3; see also rollo, p. 17; US$547,822.45 x 25% = US$136,955.61 x 51.176 = P7,008,840.43 (Tax Base x Tax Rate = Final Withholding Tax (FWT) x Prevailing Exchange Rate = FWT remitted to the BIR)
6 The Agreement between the Government of the Republic of the Philippines and the Government of Malaysia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, signed in Manila on April 27, 1982 and took effect on July 27, 1984.
7 BIR records, p. 4.
8 Id. at 105-96.
9 CTA Second Division rollo, pp. 1-14, with Annexes.
10 Id. at 10.
11 Id. at 11.
12 Id. at 8.
13 Id. at 8-10.
14 Id. at 11.
15 Id. at 12.
16 Id. at 130-136.
17 Id. at 132.
18 Id.
19 Id. at 341-367.
20 243 Phil. 717 (1988).
21 G.R. No. 66838, December 2, 1991, 204 SCRA 377.
22 G.R. No. 93901, February 11, 1992 (Minute Resolution).
23 CTA Second Division rollo, p. 362.
24 Id. at 364.
25 Id. at 358.
26 Id. at 365.
27 Id. at 365-366.
28 Id. at 372-381 for respondent; id. at 382-393 for petitioner.
29 Id. at 430-435.
30 The Petition for Review filed by the CIR was docketed as CTA EB No. 206, while the Petition for Review filed by Smart was docketed as CTA EB No. 207.
31 CTA En Banc rollo of C.T.A. EB No. 206, pp. 107-108.
32 Id. at 171.
33 Id. at 176-178.
34 Id. at 180.
35 Id. at 182.
36 Id. at 194-204.
37 Id. at 207-209.
38 G.R. No. 173594, February 6, 2008, 544 SCRA 100.
39 Id. at 112.
40 Supra note 21 at 384-387.
41 Now Section 57 of the National Internal Revenue Code.
42 Now Section 204 (c) of the National Internal Revenue Code.
43 Supra note 38 at 112.
44 RP-Malaysia Tax Treaty, Article 12, Paragraph 4(a).
45 RP-Malaysia Tax Treaty, Article 12, Paragraph 2(b)(ii).
46 Article 7
BUSINESS PROFITS
1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only on so much thereof as is attributable to that permanent establishment.
47 Article 5
PERMANENT ESTABLISHMENT
1. For the purposes of this Agreement, the term 'permanent establishment' means a fixed place of business in which the business of the enterprise is wholly or partly carried on.
2. The term 'permanent establishment' shall include especially:
(a) a place of management;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop;
(f) a mine, an oil or gas well, a quarry or other place of extraction of natural resources including timber or other forest produce;
(g) a farm or plantation;
(h) building site or construction, installation or assembly project which exists for more than 6 months.
x x x x
48 Article 5
x x x x
4. An enterprise of a Contracting State shall be deemed to have a permanent establishment in the other Contracting State if:
(a) it carries on supervisory activities in that other State for more than 6 months in connection with a construction, installation or assembly project which is being undertaken in that other State; or
(b) substantial equipment is in that other State being used or installed by, for or under contract with, the enterprise.
49 BIR records, pp. 63-47.
50 Id. at 49.
51 Id. at 32.
52 Id. at 14.
53 BPI-Family Savings Bank, Inc. v. Court of Appeals, 386 Phil. 719, 721 (2000).