TREATIES AND AGREEMENTS: TAX TREATY

G.R. No. 188550 – DEUTSCHE BANK AG MANILA v. COMMISSIONER OF INTERNAL REVENUE

SERENO, C.J.

Under Sec. 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. In accordance with this
petitioner Deutsche Bank paid the BIR this 15%. Art. 10(6) of the RP-Germany Tax Treaty, however, provides that where
a resident of Germany has a branch in the RP, this branch may be subjected to BPRT, but this 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,
petitioner Deutsche Bank should be entitled to a preferential rate equivalent to 10% BRPT, and in turn, a tax refund or a
tax credit certificate. On the other hand BIR issued RMO No. 1-2000 which requires that any availment of tax treaty relief
must be preceded by an application with ITAD at least 15 days before the transaction. The issue here lies in the
implementation of RMO No. 1-2000. The Court ruled that the rules of the RP-Germany Tax Treaty are binding, and must
override the rules of RMO No. 1-2000.

DOCTRINE
ART. 2, Sec. 2 of the 1987 Constitution provides for adherence to the general principles of int’l law as part of the law
of the land. The int’l principle of pacta sund servanda demands the performance in good faith of treaty obligations on the
part of the states that enter into agreement. Treaties are binding, and have the force and effect of law in this
jurisdiction.

IMPORTANT PEOPLE
 Deutsche Bank AG Manila Branch (petitioner)
 Commissioner of Internal Revenue (respondent)

FACTS
 This is a petition for review on certiorari assailing the decision and resolution of the CTA En Banc.
 Section 28(A)(5) of the National Internal Revenue Code (NIRC) states that any profit remitted to its head office
shall be subject to a tax of 15% based on total profits applied for or earmarked for remittance without any
deduction of the tax component. In accordance with this petitioner Deutsche Bank remitted to respondent CIR the
amount of PHP 67,688,553.51, which is the 15% branch profit remittance tax (BPRT) from its regular banking unit
(RBU) net income remitted to DB Germany for 2002 and prior taxable years.
 However, Par. 6, Art. 10 of the RP-Germany Tax Treaty provides that where a resident of Germany has a branch
in the RP, this branch may be subjected to BPRT, but this shall not exceed 10% of the gross amount of the profits
remitted by that branch to the head office. On this ground, petitioner believed that it made an overpayment of its
BRPT and filed with the BIR Large Taxpayers Assessment and Investigation Division an administrative claim for
refund or issuance of its tax credit certificate in the total amount of PHP 22,562,851.17. Petitioner also requested
from the Int’l Tax Affairs Division (ITAD) a confirmation of its entitlement to the preferential tax rate of 10% under
the RP-Germany Tax Treaty.
 Because of BIR’s inaction on said request, petitioner filed a petition for review with the CTA. The CTA 2nd Div.
denied the petition on the ground that the application for a tax treaty relief was not filed with ITAD prior to the
petitioner’s payment of its BPRT and its remittance to DB Germany, or prior to its availment of the 10%
preferential tax rate. They stated that the petitioner violated the 15-day period mandated under Sec. III(2) of RMO
No. 1-2000. The CTA En Banc affirmed the decision of the CTA 2nd Div.
 Petitioner’s argument:
o CTA erred in denying its claim solely on the basis on the RMO No. 1-2000, given that it has met all the
conditions under Art. 10 of the RP-Germany Tax Treaty. The filing of a tax treaty relief application is not a
condition precedent to the availment of a preferential tax rate.
 Respondent’s argument:
o The requirement of prior application under RMO No. 1-2000 is mandatory in character. Non-compliance
with this prerequisite is fatal to the taxpayer’s availment of the preferential tax rate.

ISSUE with HOLDING

 W/N the failure to strictly comply with RMO No. 1-2000 will deprive persons/corporations of the benefit of a tax
treaty — NO
o The Court rules in favor of petitioner Deutsche Bank.

1
 o ART. 2, Sec. 2 of the 1987 Constitution provides for adherence to the general principles of int’l law as
part of the law of the land. The int’l principle of pacta sund servanda demands the performance in good
faith of treaty obligations on the part of the states that enter into agreement. Treaties are binding, and
have the force and effect of law in this jurisdiction.
o There is nothing in RMO No. 1-2000 that deprives entities of a tax treaty relief for failure to comply with
the 15-day period. Non-compliance to the 15-day period of application for the availment of the tax treaty
relief, as required by RMO No. 1-2000, should not operate to divest entitlement to a relief, as this is a
violation of the duty required by good faith in complying with a tax treaty. The obligation to comply with
a tax treaty must take precedence over the objective of RMO No. 1-2000.
o The underlying principle of the BIR with regards to prior application for tax treaty relief becomes moot in
refund cases, such as the present case. However, Sec. 299 of the NIRC provides the taxpayer a remedy
for tax recovery when there has been erroneous payment in tax.
o On these grounds, there is no reason to deprive petitioner Deutsche Bank of the benefit of a preferential
tax rate of 10% BPRT in accordance with the RP-Germany Tax Treaty.

DISPOSITIVE PORTION
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.

SO ORDERED.

DIGESTER:
KIT, Ma. Bianca Ysabelle C.
RIOFLORIDO, Cristina Andrea N.