Source: http://lawlibrary.chanrobles.com/index.php?option=com_content&view=article&id=82107:g-r-no-188550,-august-19,-2013-deutsche-bank-ag-manila-branch,-petitioner,-v-commissioner-of-internal-revenue,-respondent&catid=1573&Itemid=566
Timestamp: 2019-04-20 09:17:36+00:00

Document:
DEUTSCHE BANK AG MANILA BRANCH, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
This is a Petition for Review1 filed by Deutsche Bank AG Manila Branch (petitioner) under Rule 45 of the 1997 Rules of Civil Procedure assailing the Court of Tax Appeals En Banc (CTA En Banc) Decision2 dated 29 May 2009 and Resolution3 dated 1 July 2009 in C.T.A. EB No. 456.
Alleging the inaction of the BIR on its administrative claim, petitioner filed a Petition for Review7 with the CTA on 18 October 2005. Petitioner reiterated its claim for the refund or issuance of its tax credit certificate for the amount of PHP 22,562,851.17 representing the alleged excess BPRT paid on branch profits remittance to DB Germany.
After trial on the merits, the CTA Second Division found that petitioner indeed paid the total amount of PHP 67,688,553.51 representing the 15% BPRT on its RBU profits amounting to PHP 451,257,023.29 for 2002 and prior taxable years. Records also disclose that for the year 2003, petitioner remitted to DB Germany the amount of EURO 5,174,847.38 (or PHP 330,175,961.88 at the exchange rate of PHP 63.804:1 EURO), which is net of the 15% BPRT.
However, the claim of petitioner for a refund was denied on the ground that the application for a tax treaty relief was not filed with ITAD prior to the payment by the former of its BPRT and actual remittance of its branch profits to DB Germany, or prior to its availment of the preferential rate of ten percent (10%) under the RP-Germany Tax Treaty provision. The court a quo held that petitioner violated the fifteen (15) day period mandated under Section III paragraph (2) of Revenue Memorandum Order (RMO) No. 1-2000.
Further, the CTA Second Division relied on Mirant (Philippines) Operations Corporation (formerly Southern Energy Asia-Pacific Operations [Phils.], Inc.) v. Commissioner of Internal Revenue9(Mirant) where the CTA En Banc ruled that before the benefits of the tax treaty may be extended to a foreign corporation wishing to avail itself thereof, the latter should first invoke the provisions of the tax treaty and prove that they indeed apply to the corporation.
The CTA En Banc affirmed the CTA Second Division’s Decision dated 29 August 2008 and Resolution dated 14 January 2009. Citing Mirant, the CTA En Banc held that a ruling from the ITAD of the BIR must be secured prior to the availment of a preferential tax rate under a tax treaty. Applying the principle of stare decisis et non quieta movere, the CTA En Banc took into consideration that this Court had denied the Petition in G.R. No. 168531 filed by Mirant for failure to sufficiently show any reversible error in the assailed judgment.11 The CTA En Banc ruled that once a case has been decided in one way, any other case involving exactly the same point at issue should be decided in the same manner.
The court likewise ruled that the 15-day rule for tax treaty relief application under RMO No. 1-2000 cannot be relaxed for petitioner, unlike in CBK Power Company Limited v. Commissioner of Internal Revenue.12 In that case, the rule was relaxed and the claim for refund of excess final withholding taxes was partially granted. While it issued a ruling to CBK Power Company Limited after the payment of withholding taxes, the ITAD did not issue any ruling to petitioner even if it filed a request for confirmation on 4 October 2005 that the remittance of branch profits to DB Germany is subject to a preferential tax rate of 10% pursuant to Article 10 of the RP-Germany Tax Treaty.
This Court is now confronted with the issue of whether the failure to strictly comply with RMO No. 1-2000 will deprive persons or corporations of the benefit of a tax treaty.
Under Section 28(A)(5) of the NIRC, any profit remitted to its head office shall be subject to a tax of 15% based on the total profits applied for or earmarked for remittance without any deduction of the tax component. However, petitioner invokes paragraph 6, Article 10 of the RP-Germany Tax Treaty, which provides that where a resident of the Federal Republic of Germany has a branch in the Republic of the Philippines, this branch may be subjected to the branch profits remittance tax withheld at source in accordance with Philippine law but shall not exceed 10% of the gross amount of the profits remitted by that branch to the head office.
By virtue of the RP-Germany Tax Treaty, we are bound to extend to a branch in the Philippines, remitting to its head office in Germany, the benefit of a preferential rate equivalent to 10% BPRT.
The crux of the controversy lies in the implementation of RMO No. 1-2000.
Petitioner argues that, considering that it has met all the conditions under Article 10 of the RP-Germany Tax Treaty, the CTA erred in denying its claim solely on the basis of RMO No. 1-2000. The filing of a tax treaty relief application is not a condition precedent to the availment of a preferential tax rate. Further, petitioner posits that, contrary to the ruling of the CTA, Mirant is not a binding judicial precedent to deny a claim for refund solely on the basis of noncompliance with RMO No. 1-2000.
Respondent counters that the requirement of prior application under RMO No. 1-2000 is mandatory in character. RMO No. 1-2000 was issued pursuant to the unquestioned authority of the Secretary of Finance to promulgate rules and regulations for the effective implementation of the NIRC. Thus, courts cannot ignore administrative issuances which partakes the nature of a statute and have in their favor a presumption of legality.
The CTA ruled that prior application for a tax treaty relief is mandatory, and noncompliance with this prerequisite is fatal to the taxpayer’s availment of the preferential tax rate.
It is true that, although contained in a minute resolution, our dismissal of the petition was a disposition of the merits of the case. When we dismissed the petition, we effectively affirmed the CA ruling being questioned. As a result, our ruling in that case has already become final. When a minute resolution denies or dismisses a petition for failure to comply with formal and substantive requirements, the challenged decision, together with its findings of fact and legal conclusions, are deemed sustained. But what is its effect on other cases?
With respect to the same subject matter and the same issues concerning the same parties, it constitutes res judicata. However, if other parties or another subject matter (even with the same parties and issues) is involved, the minute resolution is not binding precedent. Thus, in CIR v. Baier-Nickel, the Court noted that a previous case, CIR v. Baier-Nickel involving the same parties and the same issues, was previously disposed of by the Court thru a minute resolution dated February 17, 2003 sustaining the ruling of the CA. Nonetheless, the Court ruled that the previous case “ha(d) no bearing” on the latter case because the two cases involved different subject matters as they were concerned with the taxable income of different taxable years.
Even if we had affirmed the CTA in Mirant, the doctrine laid down in that Decision cannot bind this Court in cases of a similar nature. There are differences in parties, taxes, taxable periods, and treaties involved; more importantly, the disposition of that case was made only through a minute resolution.
Simply put, tax treaties are entered into to minimize, if not eliminate the harshness of international juridical double taxation, which is why they are also known as double tax treaty or double tax agreements.
“A state that has contracted valid international obligations is bound to make in its legislations those modifications that may be necessary to ensure the fulfillment of the obligations undertaken.”20 Thus, laws and issuances must ensure that the reliefs granted under tax treaties are accorded to the parties entitled thereto. The BIR must not impose additional requirements that would negate the availment of the reliefs provided for under international agreements. More so, when the RP-Germany Tax Treaty does not provide for any pre-requisite for the availment of the benefits under said agreement.
Likewise, it must be stressed that there is nothing in RMO No. 1-2000 which would indicate a deprivation of entitlement to a tax treaty relief for failure to comply with the 15-day period. We recognize the clear intention of the BIR in implementing RMO No. 1-2000, but the CTA’s outright denial of a tax treaty relief for failure to strictly comply with the prescribed period is 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.
Bearing in mind the rationale of tax treaties, the period of application for the availment of tax treaty relief as required by RMO No. 1-2000 should not operate to divest entitlement to the relief as it would constitute a violation of the duty required by good faith in complying with a tax treaty. The denial of the availment of tax relief for the failure of a taxpayer to apply within the prescribed period under the administrative issuance would impair the value of the tax treaty. At most, the application for a tax treaty relief from the BIR should merely operate to confirm the entitlement of the taxpayer to the relief.
The obligation to comply with a tax treaty must take precedence over the objective of RMO No. 1-2000. Logically, noncompliance with tax treaties has negative implications on international relations, and unduly discourages foreign investors. While the consequences sought to be prevented by RMO No. 1-2000 involve an administrative procedure, these may be remedied through other system management processes, e.g., the imposition of a fine or penalty. But we cannot totally deprive those who are entitled to the benefit of a treaty for failure to strictly comply with an administrative issuance requiring prior application for tax treaty relief.
Again, RMO No. 1-2000 was implemented to obviate any erroneous interpretation and/or application of the treaty provisions. The objective of the BIR is to forestall assessments against corporations who erroneously availed themselves of the benefits of the tax treaty but are not legally entitled thereto, as well as to save such investors from the tedious process of claims for a refund due to an inaccurate application of the tax treaty provisions. However, as earlier discussed, noncompliance with the 15-day period for prior application should not operate to automatically divest entitlement to the tax treaty relief especially in claims for refund.
the RP-Germany Tax Treaty, but on the regular rate as prescribed by the NIRC. Hence, the prior application requirement becomes illogical. Therefore, the fact that petitioner invoked the provisions of the RP-Germany Tax Treaty when it requested for a confirmation from the ITAD before filing an administrative claim for a refund should be deemed substantial compliance with RMO No. 1-2000.
Corollary thereto, Section 22921 of the NIRC provides the taxpayer a remedy for tax recovery when there has been an erroneous payment of tax. The outright denial of petitioner’s claim for a refund, on the sole ground of failure to apply for a tax treaty relief prior to the payment of the BPRT, would defeat the purpose of Section 229.
It is significant to emphasize that petitioner applied – though belatedly – for a tax treaty relief, in substantial compliance with RMO No. 1-2000. A ruling by the BIR would have confirmed whether petitioner was entitled to the lower rate of 10% BPRT pursuant to the RP-Germany Tax Treaty.
Clearly, there is no reason to deprive petitioner of the benefit of a preferential tax rate of 10% BPRT in accordance with the RP-Germany Tax Treaty.
Petitioner is liable to pay only the amount of PHP 45,125,702.34 on its RBU net income amounting to PHP 451,257,023.29 for 2002 and prior taxable years, applying the 10% BPRT. Thus, it is proper to grant petitioner a refund ofthe difference between the PHP 67,688,553.51 (15% BPRT) and PHP 45,125,702.34 (10% BPRT) or a total of PHP 22,562,851.17.
WHEREFORE, premises considered, the instant Petition is GRANTED. Accordingly, the Court of Tax Appeals En Banc Decision dated 29 May 2009 and Resolution dated 1 July 2009 are REVERSED and SET ASIDE. A new one is hereby entered ordering respondent Commissioner of Internal Revenue to refund or issue a tax credit certificate in favor of petitioner Deutsche Bank AG Manila Branch the amount of TWENTY TWO MILLION FIVE HUNDRED SIXTY TWO THOUSAND EIGHT HUNDRED FIFTY ONE PESOS AND SEVENTEEN CENTAVOS (PHP 22,562,851.17), Philippine currency, representing the erroneously paid BPRT for 2002 and prior taxable years.
2 Id. at 68-78; penned by Associate Justice Lovell R. Bautista and concurred in by then Presiding Justice Ernesto D. Acosta, Associate Justices Juanito C. Castaneda Jr., Erlinda P. Uy, Caesar A. Casanova and Olga Palanca-Enriquez.
(5) Tax on Branch Profits Remittances. - Any profit remitted by a branch to its head office shall be subject to a tax of fifteen percent (15%) which shall be based on the total profits applied or earmarked for remittance without any deduction for the tax component thereof (except those activities which are registered with the Philippine Economic Zone Authority). The tax shall be collected and paid in the same manner as provided in Sections 57 and 58 of this Code: Provided, That interests, dividends, rents, royalties, including remuneration for technical services, salaries, wages, premiums, annuities, emoluments or other fixed or determinable annual, periodic or casual gains, profits, income and capital gains received by a foreign corporation during each taxable year from all sources within the Philippines shall not be treated as branch profits unless the same are effectively connected with the conduct of its trade or business in the Philippines.
“However, it must be remembered that a foreign corporation wishing to avail of the benefits of the tax treaty should invoke the provisions of the tax treaty and prove that indeed the provisions of the tax treaty applies to it, before the benefits may be extended to such corporation. In other words, a resident or non-resident foreign corporation shall be taxed according to the provisions of the National Internal Revenue Code, unless it is shown that the treaty provisions apply to the said corporation, and that, in cases the same are applicable, the option to avail of the tax benefits under the tax treaty has been successfully invoked.
11 SC Minute Resolutions dated 12 November 2007 and 18 February 2008.
12CBK Power Company Limited v. Commissioner of Internal Revenue, C.T.A. Case Nos. 6699, 6884 & 7166, 12 February 1999, penned by Associate Justice Caesar A. Casanova and concurred in by then Presiding Justice Ernesto D. Acosta and Associate Justice Lovell R. Bautista.
This Order is issued to streamline the processing of the tax treaty relief application in order to improve efficiency and service to the taxpayers.
Furthermore, it is to the best interest of both the taxpayer and the Bureau of Internal Revenue that any availment of the tax treaty provisions be preceded by an application for treaty relief with the International Tax Affairs Division (ITAD). In this way, the consequences of any erroneous interpretation and/or application of the treaty provisions (i.e., claim for tax refund/credit for overpayment of taxes, or deficiency tax liabilities for underpayment) can be averted before proceeding with the transaction and or paying the tax liability covered by the tax treaty.
2. Any availment of the tax treaty relief shall be preceded by an application by filing BIR Form No. 0901 (Application for Relief from Double Taxation) with ITAD at least 15 days before the transaction i.e. payment of dividends, royalties, etc., accompanied by supporting documents justifying the relief. Consequently, BIR Form Nos. TC 001 and TC 002 prescribed under RMO 10-92 are hereby declared obsolete.
14 G.R. No. 167330, 18 September 2009, 600 SCRA 413, 446-447.
15 Art. 2, Sec. 2.
16 Vienna Convention on the Law on Treaties (1969), Art. 26.
17Luna v. Court of Appeals, G.R. No. 100374-75, 27 November 1992, 216 SCRA 107, 111-112.
18CIR v. S.C. Johnson and Son, Inc., 368 Phil. 388, 404 (1999).
20Tañada v. Angara, 388 Phil. 546, 592 (1997).
21 Section 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, of any sum alleged to have been excessively or in any manner wrongfully 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.

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 Art. 2
 Art. 26
 v. 
 v. 
 v.