Whether or not the strict compliance with RMO No.
1-200 will deprive persons and
FIRST DIVISION
[G.R. No. 188550. August 19, 2013.]
DEUTSCHE BANK AG MANILA BRANCH, petitioner vs. COMMISSIONER OF INTERNAL
REVENUE, respondent.
Facts:
Petitioner, Deutsche Bank AG Manila Branch (DB), in accordance with the National
Internal Revenue Code of 1997 (NIRC), withheld and remitted on 21 October 2003
fifteen percent (15%) of their branch profit remittance tax (BPRT), amounting to PHP
67. 688, 553.51, which represented its regular banking unit (RBU) net income remitted
to Deutsche Bank Germany (DB Gemany) for the year of 2002, and prior taxable years.
Believing they overpaid, DB on 4 October 2005 then filed an administrative claim for
refund or issuance of its tax credit certificate with the BIR’s investigative division,
amounting to PHP 22,562,851.17. Concurrently, petitioners also requested for a
confirmation of its entitlement to the preferential tax rate of 10% under the RP-
Germany Tax Treaty to the BIR’s International Tax Affairs Division (ITAD).
The BIR, after DB’s filing for an administrative claim, remained inactive, which
prompted the petitioners to file a petition for review with the Court of Tax Appeals
(CTA), reiterating its claim for refund or issuance of tax credit certificate. However,
petition was denied by the CTA Second Division on the ground the petitioners failed
to obtain the confirmation of the tax treaty relief from the ITAD prior to their payment
of their BPRT, or prior to its availment of the preferential rate of 10% under the RP-
Germany Tax Treaty, citing the case of Mirant Operations Corporation v. CIR (Mirant
case), wherein the CTA ruled that before the benefits of the tax treaty may be
extended to a foreign corporation, they should first prove that the corresponding
provisions apply to them. Furthermore, the court also ruled that the petitioners
violated the 15-day period mandated under Revenue Memorandum Order (RMO) No.
1-2000.
The CTA En Banc also affirmed the CTA Second Division’s ruling citing again the Mirant
case that the BIR ITAD must first be secured prior to the availment of a preferential
tax rate under a tax treaty. The court also ruled that the 15-day rule for the application
for the tax treaty relief must strictly be implemented. Pursuant to the decision of the
CTA En Banc, the petitioners then filed a petition for review under Rule 45 of the 1997
Rules of Civil Procedure, assailing the lower court’s decision.
Issue/s:
corporations the benefit of a tax treaty.
Ruling:
The petition is meritorious, and is therefore GRANTED. The CTA En Banc’s decisions
are REVERSED and SET ASIDE.
The NIRC provides that any profit remitted by persons or corporations to its head
office shall be subject to a 15% tax based on the total profits applied for or earmarked
for remittance. However, the RP-Germany Tax Treaty provides that in the case that a
resident of Germany has a branch in the Philippines, the BPRT shall be withheld at
source, but shall not exceed 10% of the gross amount remitted to the head office.
On the other hand, RMO No. 1-2000 requires that any availment of the tax treaty relief
must be preceded with an application to BIR ITAD at least 15 days prior to the
transaction. This application of this policy is where the controversy lies.
The SC disagrees with the lower courts’ decision that the prior application for a tax
treaty relief is mandatory, and that the Mirant case cited was not a binding precedent
as the cases circumstances are different with regards to parties, taxes, taxable periods,
and treaties involved. More importantly, the disposition of the Mirant case was made
only through a minute resolution.
Furthermore, the SC invoked the doctrine of incorporation stated in the Article II,
section 2 of the 1987 constitution, providing for adherence to the general principles
of international law as part of the law of the land. They stated that every treaty in force
is binding upon parties and the obligations under the treaty must be performed in
good faith. Furthermore, the SC also stated that the primary reason for tax treaties is
for the parties to avoid simultaneous taxations in two difference jurisdictions in
respect to the same subject matter and for identical periods. Furthermore, RMO No.
1-2000 does not state that the failure to comply with the 15-day period would deprive
parties of entitlement to tax relief.
The SC then concluded that they recognize the intention of the BIR in implementing
RM No. 1-2000, however, the lower courts’ denial of a tax treaty relief was not in
harmony with the objectives of the contracting state to ensure that the benefits
granted under tax treaties are enjoyed by duly entitled persons or corporations, and
that the obligation to comply with tax treaties must take precedence over the
objectives of RMO No. 1-2000.