N.V. REEDERIJ "AMSTERDAM" and ROYAL INTEROCEAN LINES v.CIR Date: June 23, 1988 Ponente: GANCAYCO, J.

: Facts: From March 27 to April 30, 1963, M.V. Amstelmeer and from September 24 to October 28, 1964, MV "Amstelkroon, " both of which are vessels of petitioner N.B. Reederij "AMSTERDAM," called on Philippine ports to load cargoes for foreign destination. The freight fees for these transactions were paid abroad in the amount of US $98,175.00 in 1963 and US $137,193.00 in 1964. Petitioner Royal Interocean Lines acted as husbanding agent for a fee or commission on said vessels. No income tax appears to have been paid by petitioner N.V. Reederij "AMSTERDAM" on the freight receipts. Respondent CIR filed the corresponding income tax returns for and in behalf of the former under Section 15 of the NIRC. Applying the then prevailing market conversion rate of P3.90 to the US $1.00, the gross receipts of petitioner N.V. Reederij "Amsterdam" for 1963 and 1964 amounted to P382,882.50 and P535,052.00, respectively. On June 30, 1967, respondent Commissioner assessed said petitioner in the amounts of P193,973.20 and P262,904.94 as deficiency income tax for 1963 and 1964, respectively, as "a non-resident foreign corporation not engaged in trade or business in the Philippines under Section 24 (b) (1) of the Tax Code. On the assumption that the said petitioner is a foreign corporation engaged in trade or business in the Philippines, petitioner Royal Interocean Lines filed an income tax return of the aforementioned vessels computed at the exchange rate of P2.00 to US$1.00 and paid the tax thereon (in the amount of P1,835.52 and P9,448.94, respectively) pursuant to Section 24 (b) (2) in relation to Section 37 (B) (e) of the National Internal Revenue Code and Section 163 of Revenue Regulations No. 2. On the same two dates, petitioner Royal Interocean Lines as the husbanding agent of petitioner N.V. Reederij "AMSTERDAM" filed a written protest against the abovementioned assessment made by the respondent Commissioner which protest was denied. March 31, 1969, petitioners filed a petition for review with the respondent CTA praying for the cancellation of the subject assessment. CTA rendered a decision modifying said assessments by eliminating the 50% fraud compromise penalties imposed upon petitioners. Petitioners filed an MR DENIED. Hence, the present petition. Issues/Held: (1) Whether N.V. REEDERIJ "Amsterdam" not having any office or place of business in the Philippines( whose vessels called on the Philippine ports for the purpose of loading cargoes only twice-one in 1963 and another in 1964) should be taxed as a foreign corporation not engaged in trade or business in the Philippines under Section 24(B) (1) of the Tax Code or should be taxed as a foreign corporation engaged in trade or business in the Philippines under Section 24(b) (2) in relation to section 37 (e) of the same code. Petitioner is a foreign corporation not engaged in trade or business in the Philippines. (2) Whether the foreign exchange receipts of N.V. REEDERIJ "Amsterdam" should be converted into Philippine pesos at the official rate of P2.00 to US $1.00, or at P3.90 to US $1.00. The conversion is at P3.90 to US $1.00 Ratio: On the classification of petitioner corporation Petitioner N.V. Reederij "AMSTERDAM" is a foreign corporation not authorized or licensed to do business in the Philippines. It does not have a branch office in the Philippines and it made only two calls in Philippine ports, one in 1963 and the other in

1964. In order that a foreign corporation may be considered engaged in trade or business, its business transactions must be continuous. A casual business activity in the Philippines by a foreign corporation, as in the present case, does not amount to engaging in trade or business in the Philippines for income tax purposes. SC agrees with the respondent court in the following holding : Here, petitioner N.V. Reederij "Amsterdam" is a non-resident foreign corporation, organized and existing under the laws of The Netherlands with principal office in Amsterdam and not licensed to do business in the Philippines. (pp. 8-81, CTA records.) As a non-resident foreign corporation, it is thus a foreign corporation, not engaged in trade or business within the Philippines and not having any office or place of business therein. (Sec. 84(h), Tax Code.) As stated above, it is therefore taxable on income from all sources within the Philippines, as interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical or casual gains, profits and income and capital gains, and the tax is equal to thirty per centum of such amount, under Section 24(b) (1) of the Tax Code. The accent is on the words of--`such amount." Accordingly, petitioner N. V. Reederij "Amsterdam" being a non-resident foreign corporation, its taxable income for purposes of our income tax law consists of its gross income from all sources within the Philippines. The law seems clear and specific. It thus calls for its application as worded as it leaves no leeway for interpretation. The applicable provision imposes a tax on foreign corporations falling under the classification of non-resident corporations without any exceptions or conditions, unlike in the case of foreign corporations engaged in trade or business within the Philippines which contained (at the time material to this case) an exception with respect to foreign life insurance companies. Adherence to the provision of the law, which specifies and determines the taxable income of, and the rate of income tax applicable to, non-resident foreign corporations, without mentioning any exceptions, would therefore lead to the conclusion that petitioner N.V. Reederij "Amsterdam" is subject to income tax on gross income from all sources within the Philippines. A foreign corporation engaged in trade or business within the Philippines, or which has an office or place of business therein, is taxed on its total net income received from all sources within the Philippines at the rate of 25% upon the amount but which taxable net income does not exceed P100,000.00, and 35% upon the amount but which taxable net income exceeds P100,000.00. 2 On the other hand, a foreign corporation not engaged in trade or business within the Philippmes and which does not have any office or place of business therein is taxed on income received from all sources within the Philippines at the rate of 35% of the gross income. 3 It also agrees with respondent courts ruling that there is no basis therefore for an assertion "that Section 37 (e) does not distinguish between a foreign corporation engaged in business in the Philippines and a foreign corporation not engaged in business in the Philippines.

On the rate of conversion Under Rep. Act No. 2609, the monetary board was authorized to fix the legal conversion rate for foreign exchange. The free market conversion rate during those years was P3.90 to US $1.00. Further, in the course of the investigation conducted by the Commissioner on the accounting records of petitioner Royal Interocean Lines, it was verified that when said petitioner paid its agency fees for services rendered as husbanding agent of the said vessels, it used the conversion rate of P3.90 to US $1.00. It is now estopped from claiming otherwise in this case.

BANK OF AMERICA NT & SA v. CA Date: July 21, 1994 Ponente: Vitug, J. Facts: 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: 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%) . . . ." 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. The CIR, on the other hand, holds the position that, in computing the 15% remittance tax, the tax should be inclusive of the sum deemed remitted. On July 20, 1982 petitioner bank 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 the CTA for the recovery of the amount of P1,041,424.03. The Court of Tax Appeals upheld petitioner bank in its claim for refund. The CIR filed a timely appeal to the Supreme Court which referred it to the CA following this Court's pronouncement in DBP v. CA. On 19 September 1990, the Court of Appeals set aside the decision of the Court of Tax Appeals. Hence the present petition. Issue/Held: Whether the basis of the 15% remittance tax should be the profit actually remitted abroad or inclusive of the sum deemed remitted. The basis should be the profit actually remitted abroad. (CA decision reversed; CTA decision reinstated) Ratio: The SC affirms the CTAs holding that 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. 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 SC holds 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. MARUBENI v. CIR

Date: September 14, 1989 Ponente: Fernan.C. J. Facts: Marubeni Corporation is a foreign corporation duly organized and existing under the laws of Japan and duly licensed to engage in business under Philippine laws with a branch office at Intramuros, Manila. Marubeni Corporation of Japan has equity investments in Atlantic Gulf & Pacific Co. of Manila (AG&P). AG&P directly remitted the cash dividends to petitioner's head office in Tokyo, Japan, net not only of the 10% final dividend tax in the amounts of P764,748 for the first and third quarters of 1981, but also of the withheld 15% profit remittance tax based on the remittable amount after deducting the final withholding tax of 10%. Thus, for the first and third quarters of 1981, AG&P as withholding agent paid 15% branch profit remittance on cash dividends declared and remitted to petitioner at its head office in Tokyo in the total amount of P229,424.40 on April 20 and August 4, 1981. Petitioner Marubeni sent a letter seeking from the BIR a ruling on whether or not the dividends petitioner received from AG&P are effectively connected with its conduct or business in the Philippines as to be considered branch profits subject to the 15% profit remittance tax imposed under Section 24 (b) (2) of the National Internal Revenue Code as amended by Presidential Decrees Nos. 1705 and 1773. Acting Commissioner Ruben Ancheta ruled: Pursuant to Section 24 (b) (2) of the Tax Code, as amended, only profits remitted abroad by a branch office to its head office which are

effectively connected with its trade or business in the Philippines are subject to the 15% profit remittance tax. In the instant case, the dividends received by Marubeni from AG&P are not income arising from the business activity in which Marubeni is engaged. Accordingly, said dividends if remitted abroad are not considered branch profits for purposes of the 15% profit remittance tax imposed by Section 24 (b) (2) of the Tax Code, as amended . . Marubeni filed a claim for refund or issuance of a tax credit of P229,424.40 with the CIR representing profit tax remittance erroneously paid on the dividends remitted by Atlantic Gulf and Pacific Co. of Manila (AG&P) on April 20 and August 4, 1981 to ... head office in Tokyo. Commissioner of Internal Revenue denied petitioner's claim for refund/credit of P229,424.40 on the following grounds: While it is true that said dividends remitted were not subject to the 15% profit remittance tax as the same were not income earned by a Philippine Branch of Marubeni Corporation of Japan; and neither is it subject to the 10% intercorporate dividend tax, the recipient of the dividends, being a non-resident stockholder, nevertheless, said dividend income is subject to the 25 % tax pursuant to Article 10 (2) (b) of the Tax Treaty dated February 13, 1980 between the Philippines and Japan. CTA affirmed the denial of Marubenis tax refund. Issue: (1) Whether or not Marubeni is a resident or a non-resident foreign corporation under Philippine laws (2) Whether or not Marubeni incurred a tax liability on its dividend income from Philippine sources Held/ Ratio: (1)Marubeni is a non-resident foreign corporation, with respect to the transaction. Marubeni Corporations head office in Japan is a separate and distinct income taxpayer from the branch in the Philippines. The investment on Atlantic Gulf and Pacific Co. was made for purposes peculiarly germane to the conduct of the corporate affairs of Marubeni Corporation in Japan, but certainly not of the branch in the Philippines. The Court explained that the general rule that a foreign corporation is the same juridical entity as its branch office in the Philippines cannot apply here. This rule is based on the premise that the business of the foreign corporation is conducted through its branch office, following the principal agent relationship theory. It is understood that the branch becomes its agent here. So that when the foreign corporation transacts business in the Philippines independently of its branch, the principal-agent relationship is set aside. The transaction becomes one of the foreign corporation, not of the branch. Consequently, the taxpayer is the foreign corporation, not the branch or the resident foreign corporation. (2) YES. Petitioner, being a non-resident foreign corporation with respect to the transaction in question, the applicable provision of the Tax Code is Section 24 (b) (1) (iii) in conjunction with the Philippine-Japan Treaty of 1980. Said section provides: Section 24 of the Tax Code provides: (b) Tax on foreign corporations. (1) Non-resident corporations ... (iii) 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 Section 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 the tax due from the nonresident foreign corporation, taxes deemed to have been paid in the Philippines equivalent to 20 % which represents the difference between the regular tax (35 %) on corporations and the tax (15 %) on dividends as provided in this Section; ....

Article 10(2) (b) of the Tax Treaty of 1980 between the Philippines and Japan provides: Article 10 (1) Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other Contracting State. (2) However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed; (a) . . . (b) 25 per cent of the gross amount of the dividends in all other cases. As a general rule, Marubeni is taxed 35% of its gross income from all sources within the Philippines. However, a discounted rate of 15% is given to Marubeni Corporation on dividends received from Atlantic Gulf and Pacific Co. on the condition that Japan, its domicile state, extends in favor of Marubeni Corporation a tax credit of not less than 20% of the dividends received. This 15% tax rate imposed on the dividends received under Section 24(b)(1)(iii) is easily within the maximum ceiling of 25% of the gross amount of the dividends as decreed in Article 10(2)(b) of the Tax Treaty.