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TAX Digest 3

The Supreme Court ruled that China Banking Corporation's (CBC) 20% final withholding tax on interest income forms part of its gross receipts for computing gross receipts tax. The Commissioner of Internal Revenue argued that CBC paid gross receipts tax on its income, including interest income. CBC sought a tax refund, claiming the withholding tax should be deducted from gross receipts. However, the Court held that CBC failed to cite any law allowing such a deduction. Exemptions are disfavored and CBC did not prove a legal right to exclude the withholding tax. Therefore, the withholding tax amounts formed part of CBC's taxable gross receipts.

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Barrymore Llegado Antonis II
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64 views2 pages

TAX Digest 3

The Supreme Court ruled that China Banking Corporation's (CBC) 20% final withholding tax on interest income forms part of its gross receipts for computing gross receipts tax. The Commissioner of Internal Revenue argued that CBC paid gross receipts tax on its income, including interest income. CBC sought a tax refund, claiming the withholding tax should be deducted from gross receipts. However, the Court held that CBC failed to cite any law allowing such a deduction. Exemptions are disfavored and CBC did not prove a legal right to exclude the withholding tax. Therefore, the withholding tax amounts formed part of CBC's taxable gross receipts.

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Barrymore Llegado Antonis II
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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China Banking Corporation Vs Commissioner Of Internal Revenue.

Facts: CBC is a universal banking corporation organized and existing under Philippine law. On
20 July 1994, CBC paid P12,354,933.00 as gross receipts tax on its income from interests on
loan investments, commissions, services, collection charges, foreign exchange profits and other
operating earnings during the second quarter of 1994.

On 30 January 1996, the Court of Tax Appeals in Asian Bank Corporation v. Commissioner
of Internal Revenue ruled that the 20% final withholding tax on a banks passive interest
income does not form part of its taxable gross receipts.

On 19 July 1996, CBC filed with the Commissioner of Internal Revenue (Commissioner) a
formal claim for tax refund or credit of P1,140,623.82 from the P12,354,933.00 gross receipts
tax that CBC paid for the second quarter of 1994.

The Commissioner asserted that CBC paid the gross receipts tax pursuant to Section 119 (now
Section 121) of the National Internal Revenue Code (Tax Code) and pertinent Bureau of Internal
Revenue (BIR) regulations. The Commissioner argued that the final withholding tax on a banks
interest income forms part of its gross receipts in computing the gross receipts tax.1 The
Commissioner contended that the term gross receipts means the entire income or receipt,
without any deduction.

Issue: Whether the 20% final withholding tax on interest income should form part of CBCs gross
receipts in computing the gross receipts tax on banks;

Held: We rule that the amount of interest income withheld in payment of the 20% final
withholding tax forms part of CBCs gross receipts in computing the gross receipts tax on banks.

CBCs contention that it can deduct the final withholding tax from its interest income amounts to
a claim of tax exemption. The cardinal rule in taxation is exemptions are highly disfavored and
whoever claims an exemption must justify his right by the clearest grant of organic or statute
law.

To overcome this presumption, CBC must point to a specific provision of law allowing the
deduction of the final withholding tax from its taxable gross receipts. CBC has failed to cite any
provision of law allowing the final tax as an exemption, deduction or exclusion. Thus, CBCs
claim has no legal leg to stand on.

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