Principle/s:
- Alien residents deduction of Income Taxation from Gross Income paid in their
home country
- Double Taxation
Commissioner of Internal Revenue vs W.E. Lednicky and Maria Lednicky
GR Nos. L-18262 and L-21434, 1964
FACTS:
Spouses are both American citizens residing in the Philippines and have derived
all their income from Philippine sources for taxable years in question.
On March, 1957, filed their ITR for 1956, reporting gross income of P1,017,287.65
and a net income of P 733,809.44. On March 1959, file an amended claimed
deduction of P 205,939.24 paid in 1956 to the United States government as
federal income tax of 1956.
ISSUE:
Whether a citizen of the United States residing in the Philippines, who derives
wholly from sources within the Philippines, may deduct his gross income from the
income taxes he has paid to the United States government for the said taxable
year?
HELD:
An alien resident who derives income wholly from sources within the Philippines
may not deduct from gross income the income taxes he paid to his home
country for the taxable year. The right to deduct foreign income taxes paid
given only where alternative right to tax credit exists.
Section 30 of the NIRC, Gross Income Par. C (3): Credits against tax per taxes of
foreign countries.
If the taxpayer signifies in his return his desire to have the benefits of this
paragraph, the tax imposed by this shall be credited with: Paragraph (B), Alien
resident of the Philippines; and, Paragraph C (4), Limitation on credit.
An alien resident not entitled to tax credit for foreign income taxes paid when
his income is derived wholly from sources within the Philippines.
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Double taxation becomes obnoxious only where the taxpayer is taxed twice for
the benefit of the same governmental entity. In the present case, although the
taxpayer would have to pay two taxes on the same income but the Philippine
government only receives the proceeds of one tax, there is no obnoxious
double taxation.
FISHER v. TRINIDAD
FACTS:
Frederick Fisher was a stockholder of Philippine
American Drug Company, a domestic corporation. For the
year 1919 he declared a stock dividend in the amount of
P24,800 for which he was subsequently taxed by the
respondent Collector of Internal Revenue for thesum of
P889.91 as income tax. Fisher paid under protest and
brought action for recovery. Trinidad demurred which was
sustained hence this appeal.
ISSUE:
WON stock dividends are income taxable as such under
Sec. 25 of Act No. 2833 [the Income Tax Law].
HELD:
No. Following Eisner vs. Macomber and other US cases, the
Court held that stock dividends are income taxable
under the Income Tax Law. They justified the applicability of
the ruling by saying that there is but slight difference in the
wording of the two laws1 which defined dividends as part
of taxable income. The receipt of stock dividends merely
represents an increase in value of the assets of a
corporation. The court defines stock dividends as increase
in capital of corps, firms, partnerships, etc for a particular
period. They represent the increase in the proportional
share of each stockholder in the companys capital. It is not
a distribution of the corporations profits to the stockholder.
It only increases the stockholders SOURCE of income
(capital), but does not increase income itself. On definition
of income tax: Act No. 2833 taxed any distribution by a
corporation out of its earnings or profits. From the various
definitions of income tax cited, an income tax is a tax on 1
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Act of Congress (1916): That the term "dividends" as used
in this title shall be held to mean any distribution made or
ordered to made by a corporation, . . . which stock dividend
shall be considered income, to the amount of its cash value.
Act No. 2833 of the Philippine Legislature: The term
"dividends" as used in this Law shall be held to mean any
distribution made or ordered to be made by a corporation. . .
out of its earnings or profits accrued xxx, whether in cash or
in stock of the corporation, . . . . Stock dividend shall be
considered income, to the amount of the earnings or profits
distributed. The yearly profits arising from property, salary,
private revenue, capital invested, and all other sources of
income. What is taxed is the profit, not the source. When
income is realized (Test of Realization): Stock dividend in
this case is not taxable for income because the stockholder
has received nothing out of the company's assets for his
separate use and benefit. Instead, his original investment
along with whatever gains which resulted from the use of his
and other stockholders money remains property of the
company. The fact that it is not yet his means the capital is
still subject to business risks that can wipe out his entire
investment. All he has received is a stock certificate
indicating the increase in his capital in the company. Thus
we can say that income has been realized when there has
been a separation of the interest of the stockholder from the
general capital of the corporation. This separation of interest
happens when the company declares a cash dividend on the
shares of shareholders.
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BANK OF
COMMERCE, respondent.
[G.R. No. 149636. June 8, 2005]
Bank of Commerce derived passive income in the form of interests or discounts
from its investments in government securities and private commercial papers, it
paid 5% gross receipts tax on its income, as reflected in its quarterly percentage
tax returns. Included therein were the respondent banks passive income from
the said investments amounting to P85,384,254.51, which had already been
subjected to a final tax of 20%.
Meanwhile, the CTA rendered judgment in Asia Bank Corporation v.
Commissioner of Internal Revenue,holding that the 20% final withholding tax on
interest income from banks does not form part of taxable gross receipts for Gross
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Receipts Tax (GRT) purposes. The CTA relied on Section 4(e) of Revenue
Regulations (Rev. Reg.) No. 12-80.
The respondent bank then filed an administrative claim for refund, claimed that
it had overpaid its gross receipts tax for 1994 to 1995 by P853,842.54. Granted.
Issue: DOES THE 20% FINAL WITHHOLDING TAX ON BANKS INTEREST INCOME
FORM PART OF THE TAXABLE GROSS RECEIPTS IN COMPUTING THE 5% GROSS
RECEIPTS TAX?
Ruling:
YES. In Far East Bank & Trust Co. v. Commissioner and Standard Chartered Bank
v. Commissioner, both promulgated on 16 November 2001, the tax court ruled
that the final withholding tax forms part of the banks gross receipts in
computing the gross receipts tax. The tax court held that Section 4(e) of
Revenue Regulations No. 12-80 did not prescribe the computation of the
amount of gross receipts but merely authorized the determination of the
amount of gross receipts on the basis of the method of accounting being used
by the taxpayer.
The word gross must be used in its plain and ordinary meaning. It is defined as
whole, entire, total, without deduction.
CIR VS BANK OF COMMERCE
-In 1994 and 1995, the respondent Bank of Commerce derived passive
income in the form of interests or discounts from its investments in government
securities and private commercial papers.
-
On several occasions during that period, it paid 5% gross receipts tax on its
income. Included therein were the respondent banks passive income from
the said investments amounting to P
85M+, which had already been subjected to a final tax of 20%.
-
Meanwhile, CTA held in the Case ASIA BANK CORP. VS CIR, thatthe 20% final
withholdingtax on interest income from banks does not form part of taxable
gross receipts for Gross ReceiptsTax (GRT) purposes. The CTA relied on Sec 4(e)
of Revenue Regulations.12-80.
-
Relying on the said decision, the respondent bank filed an administrative claim
for refund with theCommissioner of Internal Revenue on July 19, 1996. It claimed
that it had overpaid its grossreceipts tax for 1994 to 1995 by P853K+ submitted
its own computation-Before the Commissioner could resolve the claim,
the respondent bank filed a petition for reviewwith the CTA
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-
CIR ANSWERED
:-The alleged refundable/creditable gross receipts taxes were
collected and paid pursuant to law and pertinent BIR implementing rules
and regulations; hence, the same are not refundable. Petitioner must prove that
the income from which the refundable/creditable taxes were paid from,
weredeclared and included in its gross income during the taxable year under
review;-That the alleged excessive payment does automatically warrant
the refund/credit
-
Claims for tax refund/credit are construed in
strictissimi juris
against the taxpayer as it partakesthe nature of an exemption from tax and it is
incumbent upon the petitioner to prove that it isentitled thereto under the law.
Otherwise refund will not be allowed.
CTA summarized the issues:
-WON the final income tax withheld should form part of the gross
receipts of the taxpayer for GRT purposes;
-
WON the respondent bank was entitled to a refund of P853,842.54.
RESPONDENT BANKs contends
:that for purposes of computing the 5% gross receipts tax, the final withholding
tax does not form part of gross receipts
CIR contends:
that the Court defined "gross receipts" as "all receipts of taxpayers excluding
those which have beenespecially earmarked by law or regulation for the
government or some person other than the taxpayer" in
CIR v. Manila Jockey Club, Inc.
,
7
he claimed that such definition was applicable only to a proprietor of
anamusement place, not a banking institution which is an entirely different
entity altogether. As such,according to the Commissioner, the ruling of the
Court in
Manila Jockey Club
was inapplicable.
CTA HELD:
-
ORDERED
to
REFUND
in favor of petitioner Bank of Commerce the amount of P355k+representing
validly proven erroneously withheld taxes from interest income derived from
itsinvestments in government securities for the years 1994 and 1995.
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-
relied on the ruling in
Manila Jockey Club
, and held that the term "gross receipts" excluded thosewhich had been
especially earmarked by law or regulation for the government or persons
other than the taxpayer.
CIR filed for petition for review with CA alleging that:
-There is no provision of law which excludes the 20% final income tax
withheld under Section50(a) of the Tax Code in the computation of the 5%
gross receipts tax.
-
that the ruling of this Court in
Manila Jockey Club
, which was affirmed in
Visayan Cebu Terminal Co., Inc. v. Commissioner of Internal Revenue,
14
is not decisive. He averred that the factual milieuin the said case is different,
involving as it did the "wager fund."
-
The Commissioner further pointed out that in
Manila Jockey Club,
the Court ruled that the racetracks commission did not form part of the gross
receipts, and as such were not subjected to the20% amusement tax.
-
the issue in
Visayan Cebu Terminal
was whether or not the gross receipts corresponding to 28% of the total gross
income of the service contractor delivered to the Bureau of Customs formed
part of the gross receipts was subject to 3% of contractors tax under Section 191
of the Tax Code.- On the other hand, resp Bank was a banking institution
and not a contractor. The petitioner insisted that the term "gross receipts" is
self-evident; it includes all items of income of therespondent bank regardless of
whether or not the same were allocated or earmarked for a specific purpose, to
distinguish it from net receipts.
CA rendered judgment dismissing the petition
.
-
CA held that the P17,076,850.90 representing the final withholding tax derived
from passiveinvestments subjected to final tax should not be construed as
forming part of the gross receipts of the respondent bank upon which the 5%
gross receipts tax should be imposed.-That the final withholding tax was a
trust fund for the government; hence, does not form part of the
respondents gross receipts. The legal ownership of the amount had already
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been vested in thegovernment.-That subjecting the Final Withholding Tax
(FWT) to the 5% of gross receipts tax would result indouble taxation.- I n
f a v o r o f r e s p B a n k . Hence the petition by CIR THE COURT OF APPEALS
ERRED IN HOLDING THAT THE 20% FINAL WITHHOLDING TAX ONBANKS INTEREST INCOME
DOES NOT FORM PART OF THE TAXABLE GROSS RECEIPTS INCOMPUTING THE 5% GROSS
RECEIPTS TAX
ISSUE: IS THERE DOUBLE TAXATION?HELD:
SC reverse the ruling of the CA that subjecting the Final Withholding Tax (FWT) to
the 5% of grossreceipts tax would result in double taxation.
-
In
CIR v. Solidbank CorporatioN, SC
said that the two taxes, subject of this litigation, are differentfrom each other.
The basis of their imposition may be the same, but their natures are different.-
NO DOUBLE TAXATION
Double taxation
means taxing the same property twice when it should be taxed only once; that
is, "xxxtaxing the same person twice by the same jurisdiction for the same thing."
It is obnoxious when thetaxpayer is taxed twice, when it should be but once.
Otherwise described as "direct duplicate taxation," thetwo taxes must be
imposed on the same subject matter, for the same purpose, by the same taxing
authority,within the same jurisdiction, during the same taxing period; and they
must be of the same kind or character.
First,
the taxes herein are imposed on two different subject matters. The subject
matter of theFWT is the passive income generated in the form of interest on
deposits and yield on depositsubstitutes, while the subject matter of the GRT is
the privilege of engaging in the business of banking.
A tax based on receipts is a tax on business rather than on the property; hence,
it is an excise rather than a property tax. It is not an income tax, unlike the FWT.
In fact, we have already held that onecan be taxed for engaging in business
and further taxed differently for the income derivedtherefrom. Akin to our ruling
in
Velilla v. Posadas,
these two taxes are entirely distinct and areassessed under different provisions.
Second
,
although both taxes are national in scope because they are imposed by
the same taxingauthority the national government under the Tax Code and
operate within the same Philippine jurisdiction for the same purpose of raising
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revenues, the taxing periods they affect are different.The FWT is deducted and
withheld as soon as the income is earned, and is paid after every
calendar
quarter in which it is earned. On the other hand, the GRT is neither deducted
nor withheld, but is paid only after every taxable quarter in which it is earned.
Third,
these two taxes are of different kinds or characters. The FWT is an income
tax subject towithholding, while the GRT is a percentage tax not subject to
withholding.In short, there is no double taxation, because there is no taxing
twice, by the same taxing authority, withinthe same jurisdiction, for the same
purpose, in different taxing periods, some of the property in
the territory.Subjecting interest income to a 20% FWT and including it in the
computation of the 5% GRT is clearly notdouble taxation.
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