CIR v.

Wander Philippines, Inc

Facts:

Wander Philippines, Inc. (wander) is a domestic corporation. It is wholly-owned

subsidiary of the Glaro S.A. Ltd. (Glaro), a Swiss corporation not engaged in trade for
business in the Philippines.

In two instances, Wander filed its withholding tax return and remitted to Glaro (the
parent company) dividends (P222,000 in the first instance and P355,200 in the second),
on which 35% tax was withheld and paid to the BIR.

In 1977, Wander filed with the Appellate Division of the Internal Revenue a claim for
reimbursement, contending that it is liable only to 15% withholding tax in accordance
with sec. 24 (b) (1) of the Tax code, as amended by PD nos. 369 and 778, and not on
the basis of 35% which was withheld ad paid to and collected by the government.

Petitioner failed to act on the said claim for refund. Hence Wander filed a petition with
Court of Tax Appeals who in turn ordered to grant a refund and/or tax credit.

CIR's petition for reconsideration was denied hence the instant petition to the Supreme
Court.

Issue:

Whether or not Wander is entitled to the preferential rate of 15% withholding tax on
dividends declared and to remitted to its parent corporation.

Held:

Yes.

According to Sec. 24.B.1 of the Tax Code, the dividends received from a domestic
corporation is liable to a 15% withholding tax, provided that the country in which the
foreign corporation is domiciled shall allow a tax credit (equivalent to 20% which is the
difference between the 35% tax due on regular corporations and the 15% tax due on
dividends) against the taxes due to have been paid in the Philippines equivalent to
20% which represents the difference betqween the regular tax (35%) on corporations
and the tax (15%) on dividends.
Section 24 (b) (1) of the Tax code, as amended by PD 369 and 778, the law involved in
this case, reads:

Sec. 1. The first paragraph of subsection (b) of section 24 of the NIRC, as

amended is hereby further amended to read as follows:
(b) Tax on foreign corporations - (1) Non-resident corporation -- A foreign
corporation not engaged in trade or business in the Philippines, including a
foreign life insurance company not engaged in life insurance business in the
Philippines, shall pay a tax equal to 35% of the gross income received during its
taxable year from all sources within the Philippines, as interest (except interest
on a foreign loans which shall be subject to 15% tax), dividends, premiums,
annuities, compensation, remuneration for technical services or otherwise
emolument, or other fixed determinable annual, periodical of casual gains, profits
and income, and capital gains: xxx Provided, still further that on dividends
received from a domestic corporation liable to tax under this chapter, the tax shall
be 15% of the dividends received, which shall be collected and paid as provided
in sec 53 (d) of this code, subject to the condition that the country in which the
non-resident foreign corporation is domiciled shall allow a credit against tax due
from the non-resident foreign corporation taxes deemed to have been paid in the
Philippines equivalent to 20% which represents the difference between the
regular tax (35%) on corporation and the tax (15%) dividends as provided in this
section: xxx."

While it may be true that claims for refund construed strictly against the claimant,
nevertheless, the fact that Switzerland did not impose any tax on the dividends received
by Glaro from the Philippines should be considered as a full satisfaction if the given
condition. For, as aptly stated by respondent Court, to deny private respondent the
privilege to withhold only 15% tax provided for under PD No. 369 amending section 24
(b) (1) of the Tax Code, would run counter to the very spirit and intent of said law and
definitely will adversely affect foreign corporations interest here and discourage them for
investing capital in our country.
CIR v. Ayala Securities Corp

Facts:

Ayala Securities Corp. (Ayala) failed to file returns of their accumulated surplus so Ayala
was charged with 25% surtax by the Commissioner of internal Revenue. Raised before
the Court of Tax Appeals, the tax court reversed the assessment of the 25% surtax and
interest in the amount of P758,687.04, and thereby cancelled and declared of no force
and effect the assessment of the Commissioner for 1955.

On 8 April 1976, the Supreme Court affirmed the decision of the Court of Tax Appeals
and ruled that the assessment fell under the 5-year prescriptive period provided in
section 331 of the National Internal Revenue Code (NIRC) and that the assessment
had, therefore, been made after the expiration of the said 5-year prescriptive period and
was of no binding force and effect. The Commissioner moved for reconsideration.

Issue:

WON the right to assess and collect the 25% surtax has prescribed after five years.

Held:

No.

The provisions of sections 331 and 332 of the National Internal Revenue Code for
prescriptive periods of 5 and 10 years after the filing of the return do not apply to the tax
on the taxpayers unreasonably accumulated surplus under section 25 of the Tax Code
since no return is required to be filed by law or by regulation on such unduly
accumulated surplus on earnings. The 25% surtax is not subject to any statutory
prescriptive period.

No return could have been filed, and the law could not possibly require, for obvious
reasons, the filing of a return covering unreasonable accumulation of corporate surplus
profits. A tax imposed upon unreasonable accumulation of surplus is in the nature of a
penalty. It would not be proper for the law to compel a corporation to report improper
accumulation of surplus.

It is well settled, limitations upon the right of the government to assess and collect taxes
will not be presumed in the absence of clear legislation to the contrary It follows that in
the absence of express statutory provision, the right of the government to assess
unpaid taxes is imprescriptible. Since there is no express statutory provision limiting the
right of the Commissioner of Internal Revenue to assess the tax on unreasonable
accumulation of surplus provided in Section 25 of the Revenue Code, said tax may be
assessed at any time.

The underlying purpose of the additional tax in question on a corporations improperly

accumulated profits or surplus is as set forth in the text of section 25 of the Tax Code
itself to avoid the situation where a corporation unduly retains its surplus earnings
instead of declaring and paying dividends to its shareholders or members who would
then have to pay the income tax due on such dividends received by them.