BIR Ruling

November 17, 1969 MEMORANDUM FOR The Revenue Operations Head Assessment This refers to the proposed assessments against eleven (11)individuals and six (6) foreign corporations who are among the stockholders of the Benguet Consolidated Mining Co. (hereinafter referred to as Benguet) for 1956 income taxes on account of liquidating dividends received by them by reason of the dissolution of Benguet in 1956. It appears also that these stockholders are non-residents. (See report dated April 25, 1966 of Examiners Felix R. Rebagay and Apolinario G. Santos). The records show that Benguet was originally a sociedad anonima whose corporate life expired in 1953. It petitioned the Securities and Exchange Commission to extend its life which was denied. The Supreme Court affirmed the decision of the Securities and Exchange Commission on March 28, 1956. On June 18, 1956 Benguet was reorganized. Considering that the liquidating dividends in question received by the non-resident stockholders are not fixed and determinable income the same are not subject to the withholding tax provisions of Sections 53 and 54 of the Tax Code. However, Benguet is liable for the payment of the income tax on account of the liquidating dividends pursuant to Section 55 of the Tax Code, as enunciated in BIR Ruling dated October 7, 1952, viz: "A Company is not required to withhold the 16% (now 12%) withholding tax on the 50% profit realized by the non-resident individual stockholders of said company upon liquidation of their shares of stock in said company. However, said company is required under Section 55 of the National Internal Revenue Code to file income tax returns for all the non-resident stockholders and to pay the tax due thereon. "Liquidation payments are not included among the items of incomes subject to withholding under Section 53(b) of the Tax Code." (BIR Quarterly Bulletin, Vol. II, No. 1, 1953). It is the intent and purpose of the law to charge and collect income tax imposed on all gains, profits, and income of a taxable class, and the tax is required to be paid by the owner of such gains, profits, and income, or by the proper representative having the receipt, custody, control, or disposal of the same . (Sec. 206, Reg. No. 2, Dept. of Finance, emphasis supplied). Thus in the case of People vs. Arnault, 48 Off. Gaz. 4805, it was held: "Where the alleged owner (of the income) was not in the Philippines, nor did he give receipt, custody, control or disposal of the profit, nor is it known whether he ever received any part of the same, but the accused (Arnault) had the profit in his hands, under the law, the accused was charged with the duty of making a return of said income and pay the corresponding income tax for the owner of the income or profit. In selecting the accused as the person criminally responsible, and to be prosecuted, the Collector of Internal Revenue was merely enforcing and carrying out and executing the law on income tax enacted by the Legislature." Since Benguet is the party which can be required to file the corresponding return declaring the liquidating dividends in question and to pay the income tax due thereon and inasmuch as no such return was filed, the tax can be assessed against Benguet within ten (10) years from the discovery of the omission to file returns, pursuant to Section 332 (a) of the Tax Code. The omission to file returns was discovered on April 25, 1966, which is the date of the report of the investigation examiners. Hence, the assessment can be made against Benguet within (10) years from April 25, 1966. In view thereof, that Department should assess the income taxes in question against Benguet pursuant to Section 55 of the tax Code as the right to assess the same has not prescribed. llcd Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue