Philippine Health Care Providers, Inc. v.

Commissioner of Internal Revenue

G.R. 167330 (September 18, 2009)

Corona, J.:

Facts: On January 27, 2000, the respondent CIR sent petitioner assessment of deficiency
taxes, both Value-Added Tax (VAT) and documentary stamp tax (DST) in the total amount of
P224,702,641.18 for taxable years 1996 and 1997.

Petitioner protested such assessment in a letter, but the respondent did not act on the protest
which led the petitioner to file a petition in the Court of Tax Appeals (CTA) seeking the
cancellation of said assessments. CTA partially granted the petition wherein the petitioner is
ordered to pay the deficiency VAT and set aside the DST deficiency tax.

Respondent appealed in Court of Appeals (CA) with regard to the cancellation of DST
assessment. CA granted the petition. The Court affirmed CA’s decision. Hence, petitioner filed a
motion for reconsideration.

Issue: Whether or not the petitioner is liable to pay the DST on its health care agreement
pursuant to Sec.185 of the National Internal Revenue Code of 1997

Held: Petition granted. Petitioner is not contemplated to be included in “or other branch
insurance” covered by Section 185 of NIRC because it is a Health Maintenance Organization
(HMO) and not an insurance company. HMOs primary purpose is rendering service to its
member by lowering prices and reducing the cost rather than the risk of medical health. On the
other hand, insurance businesses undertakes for a consideration to indemnify its clients against
loss, damage or liability arising from unknown or contingent event. The term “indemnify” therein
presuppose that a liability or claim has already been incurred. In HMOs, there is no indemnity
precisely because the member merely avails of medical services to be paid or already paid in
advance at a pre-agreed price under the agreements.

Moreover, HMOs play an important role in society as partners of the State in achieving its
constitutional mandate of providing citizens with affordable health services.

Also, the DST assessment of the petitioner for the years 1996 and 1997 became moot and
academic since it availed tax amnesty under RA 9480 on December 10, 2007. Thus, petitioner
is entitled to immunity from payment of taxes for taxable year 2005 and prior years.

BANK OF AMERICA NT & SA VS. CA- REMITTANCE TAX

Category: Income Taxation

In the 15% remittance tax, the law specifies its own tax base to be on the “profit remitted abroad.” There
is absolutely nothing equivocal or uncertain about the language of the provision. The tax is imposed on
the amount sent abroad, and the law calls for nothing further.

FACTS:

1. Bank of America is a foreign corporation licensed to engage in business in the Philippines through a
branch in Makati.
2. Bank of America paid 15% branch profit remittance tax amounting to PhP7.5M from its REGULAR
UNIT OPERATIONS and another 405K PhP from its FOREIGN CURRENCY DEPOSIT OPERATIONS
3. The tax was based on net profits after income tax without deducting the amount corresponding to the
15% tax.
4. Bank of America thereafter filed a claim for refund with the BIR for the portion the corresponds with
the 15% branch profit remittance tax. BOA’s claim: “BIR should tax us based on the profits actually
remitted (45M), and NOT on the amount before profit remittance tax (53M)... The basis should be the
amount actually remitted abroad.”
5. CIR contends otherwise and holds that in computing the 15% remittance tax, the tax should be
inclusive of the sum deemed remitted.

ISSUES: Whether or not the branch profit remittance tax should be base on the amount actually
remitted?

HELD: YES.

1. It should be based on the amount actually committed, NOT what was applied for.
2. There is nothing in Section 24which indicates that the 15% tax/branch profit remittance is on the total
amount of profit; where the law does NOT qualify that the tax is imposed and collected at source, the
qualification should not be read into law.
3. Rationale of 15%: To equalize/ share the burden of income taxation with foreign corporations

Republic of the Philippines

SUPREME COURT
Manila
 FIRST DIVISION

G.R. No. 168129 April 24, 2007

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
PHILIPPINE HEALTH CARE PROVIDERS, INC., Respondent.

DECISION

SANDOVAL-GUTIERREZ, J.:

For our resolution is the instant Petition for Review on Certiorari under Rule 45 of the 1997 Rules of
Civil Procedure, as amended, seeking to reverse the Decision1 dated February 18, 2005 and
Resolution dated May 9, 2005 of the Court of Appeals (Fifteenth Division) in CA-G.R. SP No. 76449.

The factual antecedents of this case, as culled from the records, are:

The Philippine Health Care Providers, Inc., herein respondent, is a corporation organized and
existing under the laws of the Republic of the Philippines. Pursuant to its Articles of
Incorporation,2 its primary purpose is "To establish, maintain, conduct and operate a prepaid group
practice health care delivery system or a health maintenance organization to take care of the sick
and disabled persons enrolled in the health care plan and to provide for the administrative, legal, and
financial responsibilities of the organization."
1^vvphi1.net

On July 25, 1987, President Corazon C. Aquino issued Executive Order (E.O.) No. 273, amending
the National Internal Revenue Code of 1977 (Presidential Decree No. 1158) by imposing Value-
Added Tax (VAT) on the sale of goods and services. This E.O. took effect on January 1, 1988.

Before the effectivity of E.O. No. 273, or on December 10, 1987, respondent wrote the
Commissioner of Internal Revenue (CIR), petitioner, inquiring whether the services it provides to the
participants in its health care program are exempt from the payment of the VAT.

On June 8, 1988, petitioner CIR, through the VAT Review Committee of the Bureau of Internal
Revenue (BIR), issued VAT Ruling No. 231-88 stating that respondent, as a provider of medical
services, is exempt from the VAT coverage. This Ruling was subsequently confirmed by Regional
Director Osmundo G. Umali of Revenue Region No. 8 in a letter dated April 22, 1994.

Meanwhile, on January 1, 1996, Republic Act (R.A.) No. 7716 (Expanded VAT or E-VAT Law) took
effect, amending further the National Internal Revenue Code of 1977. Then on January 1, 1998, R.A.
No. 8424 (National Internal Revenue Code of 1997) became effective. This new Tax Code
substantially adopted and reproduced the provisions of E.O. No. 273 on VAT and R.A. No. 7716 on
E-VAT.

In the interim, on October 1, 1999, the BIR sent respondent a Preliminary Assessment Notice for
deficiency in its payment of the VAT and documentary stamp taxes (DST) for taxable years 1996
and 1997.

On October 20, 1999, respondent filed a protest with the BIR.

On January 27, 2000, petitioner CIR sent respondent a letter demanding payment of "deficiency
VAT" in the amount of ₱100,505,030.26 and DST in the amount of ₱124,196,610.92, or a total of
₱224,702,641.18 for taxable years 1996 and 1997. Attached to the demand letter were four (4)
assessment notices.

On February 23, 2000, respondent filed another protest questioning the assessment notices.

Petitioner CIR did not take any action on respondent's protests. Hence, on September 21, 2000,
respondent filed with the Court of Tax Appeals (CTA) a petition for review, docketed as CTA Case
No. 6166.

On April 5, 2002, the CTA rendered its Decision, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED.
Petitioner is hereby ORDERED TO PAY the deficiency VAT amounting to ₱22,054,831.75 inclusive
of 25% surcharge plus 20% interest from January 20, 1997 until fully paid for the 1996 VAT
deficiency and ₱31,094,163.87 inclusive of 25% surcharge plus 20% interest from January 20, 1998
until paid for the 1997 VAT deficiency. Accordingly, VAT Ruling No. 231-88 is declared void and
1aw phi1.nét

without force and effect. The 1996 and 1997 deficiency DST assessment against petitioner is hereby
CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from collecting the said DST
deficiency tax.

SO ORDERED.

Respondent filed a motion for partial reconsideration of the above judgment concerning its liability to
pay the deficiency VAT.

In its Resolution3 dated March 23, 2003, the CTA granted respondent's motion, thus:

WHEREFORE, in view of the foregoing, the instant Motion for Partial Reconsideration is GRANTED.
Accordingly, the VAT assessment issued by herein respondent against petitioner for the taxable
years 1996 and 1997 is hereby WITHDRAWN and SET ASIDE.

SO ORDERED.

The CTA held:

Moreover, this court adheres to its conclusion that petitioner is a service contractor subject to VAT
since it does not actually render medical service but merely acts as a conduit between the members
and petitioner's accredited and recognized hospitals and clinics.

However, after a careful review of the facts of the case as well as the Law and jurisprudence
applicable, this court resolves to grant petitioner's "Motion for Partial Reconsideration." We are in
accord with the view of petitioner that it is entitled to the benefit of non-retroactivity of rulings
guaranteed under Section 246 of the Tax Code, in the absence of showing of bad faith on its part.
Section 246 of the Tax Code provides:

Sec. 246. Non-Retroactivity of Rulings. - Any revocation, modification or reversal of any of the
rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or
circulars promulgated by the Commissioner shall not be given retroactive application if the
revocation, modification or reversal will be prejudicial to the taxpayers, x x x.
Clearly, undue prejudice will be caused to petitioner if the revocation of VAT Ruling No. 231-88 will
be retroactively applied to its case. VAT Ruling No. 231-88 issued by no less than the respondent
itself has confirmed petitioner's entitlement to VAT exemption under Section 103 of the Tax Code. In
saying so, respondent has actually broadened the scope of "medical services" to include the case of
the petitioner. This VAT ruling was even confirmed subsequently by Regional Director Ormundo G.
Umali in his letter dated April 22, 1994 (Exhibit M). Exhibit P, which served as basis for the issuance
of the said VAT ruling in favor of the petitioner sufficiently described the business of petitioner and
there is no way BIR could be misled by the said representation as to the real nature of petitioner's
business. Such being the case, this court is convinced that petitioner's reliance on the said ruling is
premised on good faith. The facts of the case do not show that petitioner deliberately committed
mistakes or omitted material facts when it obtained the said ruling from the Bureau of Internal
Revenue. Thus, in the absence of such proof, this court upholds the application of Section 246 of the
Tax Code. Consequently, the pronouncement made by the BIR in VAT Ruling No. 231-88 as to the
VAT exemption of petitioner should be upheld.

Petitioner seasonably filed with the Court of Appeals a petition for review, docketed as CA-G.R. SP
No. 76449.

In its Decision dated February 18, 2005, the Court of Appeals affirmed the CTA Resolution.

Petitioner CIR filed a motion for reconsideration, but it was denied by the appellate court in its
Resolution4 dated May 9, 2005.

Hence, the instant petition for review on certiorari raising these two issues: (1) whether respondent's
services are subject to VAT; and (2) whether VAT Ruling No. 231-88 exempting respondent from
payment of VAT has retroactive application.

On the first issue, respondent is contesting petitioner's assessment of its VAT liabilities for taxable
years 1996 and 1997.

Section 1025 of the National Internal Revenue Code of 1977, as amended by E.O. No. 273 (VAT
Law) and R.A. No. 7716 (E-VAT Law), provides:

SEC. 102. Value-added tax on sale of services and use or lease of properties. - (a) Rate and base of
tax. - There shall be levied, assessed and collected, a value-added tax equivalent to 10% of gross
receipts derived from the sale or exchange of services, including the use or lease of properties.

The phrase "sale or exchange of service" means the performance of all kinds of services in the
Philippines for a fee, remuneration or consideration, including those performed or rendered by
construction and service contractors x x x.

Section 1036 of the same Code specifies the exempt transactions from the provision of Section 102,
thus:

SEC. 103. Exempt Transactions. - The following shall be exempt from the value-added tax:

xxx

(l) Medical, dental, hospital and veterinary services except those rendered by professionals

xxx
The import of the above provision is plain. It requires no interpretation. It contemplates the
exemption from VAT of taxpayers engaged in the performance of medical, dental, hospital, and
veterinary services. In Commissioner of International Revenue v. Seagate Technology
(Philippines),7 we defined an exempt transaction as one involving goods or services which, by their
nature, are specifically listed in and expressly exempted from the VAT, under the Tax Code, without
regard to the tax status of the party in the transaction. In Commissioner of Internal Revenue v.
Toshiba Information Equipment (Phils.) Inc.,8 we reiterated this definition.

In its letter to the BIR requesting confirmation of its VAT-exempt status, respondent described its
services as follows:

Under the prepaid group practice health care delivery system adopted by Health Care, individuals
enrolled in Health Care's health care program are entitled to preventive, diagnostic, and corrective
medical services to be dispensed by Health Care's duly licensed physicians, specialists, and other
professional technical staff participating in said group practice health care delivery system
established and operated by Health Care. Such medical services will be dispensed in a hospital or
clinic owned, operated, or accredited by Health Care. To be entitled to receive such medical services
from Health Care, an individual must enroll in Health Care's health care program and pay an annual
fee. Enrollment in Health Care's health care program is on a year-to-year basis and enrollees are
issued identification cards.

From the foregoing, the CTA made the following conclusions:

a) Respondent "is not actually rendering medical service but merely acting as a
conduit between the members and their accredited and recognized hospitals and
clinics."

b) It merely "provides and arranges for the provision of pre-need health care services
to its members for a fixed prepaid fee for a specified period of time."

c) It then "contracts the services of physicians, medical and dental practitioners,

clinics and hospitals to perform such services to its enrolled members;" and

d) Respondent "also enters into contract with clinics, hospitals, medical professionals
and then negotiates with them regarding payment schemes, financing and other
procedures in the delivery of health services."

We note that these factual findings of the CTA were neither modified nor reversed by the Court of
Appeals. It is a doctrine that findings of fact of the CTA, a special court exercising particular
expertise on the subject of tax, are generally regarded as final, binding, and conclusive upon this
Court, more so where these do not conflict with the findings of the Court of Appeals.9 Perforce, as
respondent does not actually provide medical and/or hospital services, as provided under
Section 103 on exempt transactions, but merely arranges for the same, its services are not
VAT-exempt.

Relative to the second issue, Section 246 of the 1997 Tax Code, as amended, provides that rulings,
circulars, rules and regulations promulgated by the Commissioner of Internal Revenue have no
retroactive application if to apply them would prejudice the taxpayer. The exceptions to this rule are:
(1) where the taxpayer deliberately misstates or omits material facts from his return or in any
document required of him by the Bureau of Internal Revenue; (2) where the facts subsequently
gathered by the Bureau of Internal Revenue are materially different from the facts on which the
ruling is based, or (3) where the taxpayer acted in bad faith.
We must now determine whether VAT Ruling No. 231-88 exempting respondent from paying its VAT
liabilities has retroactive application.

In its Resolution dated March 23, 2003, the CTA found that there is no showing that respondent
"deliberately committed mistakes or omitted material facts" when it obtained VAT Ruling No. 231-88
from the BIR. The CTA held that respondent's letter which served as the basis for the VAT ruling
"sufficiently described" its business and "there is no way the BIR could be misled by the said
representation as to the real nature" of said business.

In sustaining the CTA, the Court of Appeals found that "the failure of respondent to refer to itself as a
health maintenance organization is not an indication of bad faith or a deliberate attempt to make
false representations." As "the term health maintenance organization did not as yet have any
particular significance for tax purposes," respondent's failure "to include a term that has yet to
acquire its present definition and significance cannot be equated with bad faith."

We agree with both the Tax Court and the Court of Appeals that respondent acted in good faith.
In Civil Service Commission v. Maala,10 we described good faith as "that state of mind denoting
honesty of intention and freedom from knowledge of circumstances which ought to put the holder
upon inquiry; an honest intention to abstain from taking any unconscientious advantage of another,
even through technicalities of law, together with absence of all information, notice, or benefit or belief
of facts which render transaction unconscientious."

According to the Court of Appeals, respondent's failure to describe itself as a "health maintenance
organization," which is subject to VAT, is not tantamount to bad faith. We note that the term "health
maintenance organization" was first recorded in the Philippine statute books only upon the passage
of "The National Health Insurance Act of 1995" (Republic Act No. 7875). Section 4 (o) (3) thereof
defines a health maintenance organization as "an entity that provides, offers, or arranges for
coverage of designated health services needed by plan members for a fixed prepaid premium."
Under this law, a health maintenance organization is one of the classes of a "health care provider."

It is thus apparent that when VAT Ruling No. 231-88 was issued in respondent's favor, the term
"health maintenance organization" was yet unknown or had no significance for taxation purposes.
Respondent, therefore, believed in good faith that it was VAT exempt for the taxable years 1996 and
1997 on the basis of VAT Ruling No. 231-88.

In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals,11 this Court held that under Section 246 of
the 1997 Tax Code, the Commissioner of Internal Revenue is precluded from adopting a
position contrary to one previously taken where injustice would result to the taxpayer. Hence,
where an assessment for deficiency withholding income taxes was made, three years after a new
BIR Circular reversed a previous one upon which the taxpayer had relied upon, such an assessment
was prejudicial to the taxpayer. To rule otherwise, opined the Court, would be contrary to the tenets
of good faith, equity, and fair play.

This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting Corp. in the later cases
of Commissioner of Internal Revenue v. Borroughs, Ltd.,12 Commissioner of Internal Revenue v.
Mega Gen. Mdsg. Corp.13Commissioner of Internal Revenue v. Telefunken Semiconductor (Phils.)
Inc.,14 and Commissioner of Internal Revenue v. Court of Appeals.15 The rule is that the BIR rulings
have no retroactive effect where a grossly unfair deal would result to the prejudice of the taxpayer,
as in this case.

More recently, in Commissioner of Internal Revenue v. Benguet Corporation,16 wherein the taxpayer
was entitled to tax refunds or credits based on the BIR's own issuances but later was suddenly
saddled with deficiency taxes due to its subsequent ruling changing the category of the taxpayer's
transactions for the purpose of paying its VAT, this Court ruled that applying such ruling retroactively
would be prejudicial to the taxpayer.

WHEREFORE, we DENY the petition and AFFIRM the assailed Decision and Resolution of the
Court of Appeals in CA-G.R. SP No. 76449. No costs.

SO ORDERED.

ANGELINA SANDOVAL GUTIERREZ

Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice
Chairperson

RENATO C. CORONA ADOLFO S. AZCUNA

Associate Justice Asscociate Justice

CANCIO C. GARCIA
Associate Justice

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in
the above Decision were reached in consultation before the case was assigned to the writer of the
opinion of the Court's Division.

REYNATO S. PUNO
Chief Justice

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 103092 July 21, 1994

BANK OF AMERICA NT & SA, petitioner,

vs.
HONORABLE COURT OF APPEALS, AND THE COMMISSIONER OF INTERNAL
REVENUE, respondents.

G.R. No. 103106 July 21, 1994

BANK OF AMERICA NT & SA, petitioner,
vs.
THE HONORABLE COURT OF APPEALS AND THE COMMISSIONER OF INTERNAL
REVENUE, respondents.

Sycip, Salazar, Hernandez & Gatmaitan and Agcaoili & Associates for petitioner.

VITUG, J.:

Section 24(b) (2) (ii) of the National Internal Revenue Code, in the language it was worded in 1982
(the taxable period relevant to the case at bench), provided, in part, thusly:

Sec. 24. Rates of tax on corporations. . . .

(b) Tax on foreign corporations. . . .

(2) (ii) Tax on branch profit and remittances. —

Any profit remitted abroad by a branch to its head office shall be subject to a tax of
fifteen per cent (15%) . . . ."

Petitioner Bank of America NT & SA argues that the 15% branch profit remittance tax on the basis of
the above provision should be assessed on the amount actually remitted abroad, which is to say that
the 15% profit remittance tax itself should not form part of the tax base. Respondent Commissioner
of Internal Revenue, contending otherwise, holds the position that, in computing the 15% remittance
tax, the tax should be inclusive of the sum deemed remitted.

The statement of facts made by the Court of Tax Appeals, later adopted by the Court of Appeals,
and not in any serious dispute by the parties, can be quoted thusly:

Petitioner is a foreign corporation duly licensed to engage in business in the

Philippines with Philippine branch office at BA Lepanto Bldg., Paseo de Roxas,
Makati, Metro Manila. On July 20, 1982 it paid 15% branch profit remittance tax in
the amount of P7,538,460.72 on profit from its regular banking unit operations and
P445,790.25 on profit from its foreign currency deposit unit operations or a total of
P7,984,250.97. The tax was based on net profits after income tax without deducting
the amount corresponding to the 15% tax.

Petitioner filed a claim for refund with the Bureau of Internal Revenue of that portion
of the payment which corresponds to the 15% branch profit remittance tax, on the
ground that the tax should have been computed on the basis of profits actually
remitted, which is P45,244,088.85, and not on the amount before profit remittance
tax, which is P53,228,339.82. Subsequently, without awaiting respondent's decision,
petitioner filed a petition for review on June 14, 1984 with this Honorable Court for
the recovery of the amount of P1,041,424.03 computed as follows:

Net Profits After Profit Tax Due Alleged

Income Tax But Remittance Alleged by Overpayment
 Before Profit Tax Paid Petitioner Item 1-2
Remittance Tax _________ _________ ___________

A. Regular Banking
Unit Operations
(P50,256,404.82)

1. Computation of BIR
15% x P50,256,404.82 - P7,538,460.72

2. Computation of
Petitioner
- P50,256,404.82 x 15% P6,555,183.24 — P983,277.48
1.15

B. Foreign Currency
Deposit Unit
Operations
(P2,971,935)

1. Computation of BIR
15% x - P2,971,935.00 P445,790.25

2. Computation of
Petitioner
- P2,971,935.00 x 15% P387,643.70 P58,146.55

T O T A L. . P7,984,250.97 P6,942,286.94 P1,041,424.02"1

The Court of Tax Appeals upheld petitioner bank in its claim for refund. The Commissioner of
Internal Revenue filed a timely appeal to the Supreme Court (docketed G.R. No. 76512) which
referred it to the Court of Appeals following this Court's pronouncement in Development Bank of the
Philippines vs. Court of Appeals, et al. (180 SCRA 609). On 19 September 1990, the Court of
Appeals set aside the decision of the Court of Tax Appeals. Explaining its reversal of the tax court's
decision, the appellate court said:

The Court of Tax Appeals sought to deduce legislative intent vis-a-vis the aforesaid
law through an analysis of the wordings thereof, which to their minds reveal an intent
to mitigate at least the harshness of successive taxation. The use of the
word remitted may well be understood as referring to that part of the said total branch
profits which would be sent to the head office as distinguished from the total profits of
the branch (not all of which need be sent or would be ordered remitted abroad). If the
legislature indeed had wanted to mitigate the harshness of successive taxation, it
would have been simpler to just lower the rates without in effect requiring the
relatively novel and complicated way of computing the tax, as envisioned by the
herein private respondent. The same result would have been achieved.2

Hence, these petitions for review in G.R. No. 103092 and G.R.
No. 103106 (filed separately due to inadvertence) by the law firms of "Agcaoili and Associates" and
of "Sycip, Salazar, Hernandez and Gatmaitan" in representation of petitioner bank.
We agree with the Court of Appeals that not much reliance can be made on our decision in
Burroughs Limited vs. Commission of Internal Revenue (142 SCRA 324), for there we ruled against
the Commissioner mainly on the basis of what the Court so then perceived as his position in a 21
January 1980 ruling the reversal of which, by his subsequent ruling of 17 March 1982, could not
apply retroactively against Burroughs in conformity with Section 327 (now Section 246, re: non-
retroactivity of rulings) of the National Internal Revenue Code. Hence, we held:

Petitioner's aforesaid contention is without merit. What is applicable in the case at

bar is still the Revenue Ruling of January 21, 1980 because private respondent
Burroughs Limited paid the branch profit remittance tax in question on March 14,
1979. Memorandum Circular
No. 8-82 dated March 17, 1982 cannot be given retroactive effect in the light of
Section 327 of the National Internal Revenue Code which
provides —

Sec. 327. Non-retroactivity of rulings. Any revocation, modification, or

reversal of any of the rules and regulations promulgated in
accordance with the preceding section or any of the rulings or
circulars promulgated by the Commissioner shall not be given
retroactive application if the revocation, modification, or reversal will
be prejudicial to the taxpayer except in the following cases (a) where
the taxpayer deliberately misstates or omits material facts from his
return or in any document required of him by the Bureau of Internal
Revenue; (b) where the facts subsequently gathered by the Bureau of
Internal Revenue are materially different from the facts on which the
ruling is based, or (c) where the taxpayer acted in bad faith. (ABS-
CBN Broadcasting Corp. v. CTA, 108 SCRA 151-152)

The prejudice that would result to private respondent Burroughs Limited by a

retroactive application of Memorandum Circular No. 8-82 is beyond question for it
would be deprived of the substantial amount of P172,058.90. And, insofar as the
enumerated exceptions are concerned, admittedly, Burroughs Limited does not fall
under any of them.

The Court of Tax Appeals itself commented similarly when it observed thusly in its decision:

In finding the Commissioner's contention without merit, this Court however ruled
against the applicability of Revenue Memorandum Circular No. 8-82 dated March 17,
1982 to the Burroughs Limited case because the taxpayer paid the branch profit
remittance tax involved therein on March 14, 1979 in accordance with the ruling of
the Commissioner of Internal Revenue dated January 21, 1980. In view of Section
327 of the then in force National Internal Revenue Code, Revenue Memorandum
Circular No. 8-82 dated March 17, 1982 cannot be given retroactive effect because
any revocation or modification of any ruling or circular of the Bureau of Internal
Revenue should not be given retroactive application if such revocation or
modification will, subject to certain exceptions not pertinent thereto, prejudice
taxpayers.3

The Solicitor General correctly points out that almost invariably in an ad valorem tax, the tax paid or
withheld is not deducted from the tax base. Such impositions as the ordinary income tax, estate and
gift taxes, and the value added tax are generally computed in like manner. In these cases, however,
it is so because the law, in defining the tax base and in providing for tax withholding, clearly spells it
out to be such. As so well expounded by the Tax Court —

. . . In all the situations . . . where the mechanism of withholding of taxes at source

operates to ensure collection of the tax, and which respondent claims the base on
which the tax is computed is the amount to be paid or remitted, the law applicable
expressly, specifically and unequivocally mandates that the tax is on the total amount
thereof which shall be collected and paid as provided in Sections 53 and 54 of the
Tax Code. Thus:

Dividends received by an individual who is a citizen or resident of the

Philippines from a domestic corporation, shall be subject to a final tax
at the rate of fifteen (15%) per cent on the total amount thereof, which
shall be collected and paid as provided in Sections 53 and 54 of this
Code. (Emphasis supplied; Sec. 21, Tax Code)

Interest from Philippine Currency bank deposits and yield from

deposit substitutes whether received by citizens of the Philippines or
by resident alien individuals, shall be subject to a final tax as follows:
(a) 15% of the interest or savings deposits, and (b) 20% of the
interest on time deposits and yield from deposits substitutes, which
shall be collected and paid as provided in Sections 53 and 54 of this
Code: . . . (Emphasis supplied; Sec. 21, Tax Code applicable.)

And on rental payments payable by the lessee to the lessor (at 5%), also cited by
respondent, Section 1, paragraph (C), of Revenue Regulations No. 13-78, November
1, 1978, provides that:

Section 1. Income payments subject to withholding tax and rates

prescribed therein. — Except as therein otherwise provided, there
shall be withheld a creditable income tax at the rates herein specified
for each class of payee from the following items of income payments
to persons residing in the Philippines.

xxx xxx xxx

(C) Rentals — When the gross rental or the payment required to be

made as a condition to the continued use or possession of property,
whether real or personal, to which the payor or obligor has not taken
or is not taking title or in which he has no equity, exceeds five
hundred pesos (P500.00) per contract or payment whichever is
greater — five per centum (5%).

Note that the basis of the 5% withholding tax, as expressly and unambiguously
provided therein, is on the gross rental. Revenue Regulations No. 13-78 was
promulgated pursuant to Section 53(f) of the then in force National Internal Revenue
Code which authorized the Minister of Finance, upon recommendation of the
Commissioner of Internal Revenue, to require the withholding of income tax on the
same items of income payable to persons (natural or judicial) residing in the
Philippines by the persons making such payments at the rate of not less than 2 1/2%
but not more than 35% which are to be credited against the income tax liability of the
taxpayer for the taxable year.
 On the other hand, there is absolutely nothing in Section 24(b) (2) (ii), supra, which
indicates that the 15% tax on branch profit remittance is on the total amount of profit
to be remitted abroad which shall be collected and paid in accordance with the tax
withholding device provided in Sections 53 and 54 of the Tax Code. The statute
employs "Any profit remitted abroad by a branch to its head office shall be subject to
a tax of fifteen per cent (15%)" — without more. Nowhere is there said of "base on
the total amount actually applied for by the branch with the Central Bank of the
Philippines as profit to be remitted abroad, which shall be collected and paid as
provided in Sections 53 and 54 of this Code." Where the law does not qualify that the
tax is imposed and collected at source based on profit to be remitted abroad, that
qualification should not be read into the law. It is a basic rule of statutory construction
that there is no safer nor better canon of interpretation than that when the language
of the law is clear and unambiguous, it should be applied as written. And to our mind,
the term "any profit remitted abroad" can only mean such profit as is "forwarded,
sent, or transmitted abroad" as the word "remitted" is commonly and popularly
accepted and understood. To say therefore that the tax on branch profit remittance is
imposed and collected at source and necessarily the tax base should be the amount
actually applied for the branch with the Central Bank as profit to be remitted abroad
is to ignore the unmistakable meaning of plain words.4

In the 15% remittance tax, the law specifies its own tax base to be on the "profit remitted abroad."
There is absolutely nothing equivocal or uncertain about the language of the provision. The tax is
imposed on the amount sent abroad, and the law (then in force) calls for nothing further. The
taxpayer is a single entity, and it should be understandable if, such as in this case, it is the local
branch of the corporation, using its own local funds, which remits the tax to the Philippine
Government.

The remittance tax was conceived in an attempt to equalize the income tax burden on foreign
corporations maintaining, on the one hand, local branch offices and organizing, on the other hand,
subsidiary domestic corporations where at least a majority of all the latter's shares of stock are
owned by such foreign corporations. Prior to the amendatory provisions of the Revenue Code, local
branches were made to pay only the usual corporate income tax of 25%-35% on net income (now a
uniform 35%) applicable to resident foreign corporations (foreign corporations doing business in the
Philippines). While Philippine subsidiaries of foreign corporations were subject to the same rate of
25%-35% (now also a uniform 35%) on their net income, dividend payments, however, were
additionally subjected to a 15% (withholding) tax (reduced conditionally from 35%). In order to avert
what would otherwise appear to be an unequal tax treatment on such subsidiaries vis-a-vis local
branch offices, a 20%, later reduced to 15%, profit remittance tax was imposed on local branches on
their remittances of profits abroad. But this is where the tax pari-passu ends between domestic
branches and subsidiaries of foreign corporations.

The Solicitor General suggests that the analogy should extend to the ordinary application of the
withholding tax system and so with the rule on constructive remittance concept as well. It is difficult
to accept the proposition. In the operation of the withholding tax system, the payee is the taxpayer,
the person on whom the tax is imposed, while the payor, a separate entity, acts no more than an
agent of the government for the collection of the tax in order to ensure its payment. Obviously, the
amount thereby used to settle the tax liability is deemed sourced from the proceeds constitutive of
the tax base. Since the payee, not the payor, is the real taxpayer, the rule on constructive remittance
(or receipt) can be easily rationalized, if not indeed, made clearly manifest. It is hardly the case,
however, in the imposition of the 15% remittance tax where there is but one taxpayer using its own
domestic funds in the payment of the tax. To say that there is constructive remittance even of such
funds would be stretching far too much that imaginary rule. Sound logic does not defy but must
concede to facts.
We hold, accordingly, that the written claim for refund of the excess tax payment filed, within the two-
year prescriptive period, with the Court of Tax Appeals has been lawfully made.

WHEREFORE, the decision of the Court of Appeals appealed from is REVERSED and SET ASIDE,
and that of the Court of Tax Appeals is REINSTATED.

SO ORDERED.