Facts:
Private respondents Wander Philippines, Inc. (wander) is a domestic corporation organized under Philippine laws. It is wholly- owned subsidiary of the Glaro S.A. Ltd. (Glaro), a Swiss corporation not engaged in trade for business in the Philippines.
Wander filed it'switholding tax return for 1975 and 1976 and remitted to its parent company Glaro dividends from which 35% withholding 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
Ruling:
Yes. 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 ot 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."
From the above-quoted provision, the dividends received from a domestic corporation liable to tax, the tax shall be 15% of the dividends received, 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 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 corpoorations and the tax (15%) on dividends.
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.
Private respondents Wander Philippines, Inc. (wander) is a domestic corporation organized under Philippine laws. It is wholly- owned subsidiary of the Glaro S.A. Ltd. (Glaro), a Swiss corporation not engaged in trade for business in the Philippines.
Wander filed it'switholding tax return for 1975 and 1976 and remitted to its parent company Glaro dividends from which 35% withholding 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
Ruling:
Yes. 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 ot 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."
From the above-quoted provision, the dividends received from a domestic corporation liable to tax, the tax shall be 15% of the dividends received, 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 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 corpoorations and the tax (15%) on dividends.
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.
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