BIR Ruling

January 28, 1997 Meralco Employees' Savings and Loan Association, Inc. Lopez Building, Ortigas Avenue Pasig City Attention: Atty . Gerardo R . Gonzales Legal Counsel Gentlemen : This refers to your request for reconsideration dated November 29, 1991 of our assessment involving the aggregate amount of P4,155,067.71 representing deficiency withholding taxes for 1988 and 1989 covered by Assessment Notice Nos. FAS-1-88-89/91-003178 to 003183, graphically presented as follows: llcd 1988 1989 Deficiency 5% Final Withholding Tax P4,128,162.04 Deficiency Expanded Withholding Tax 7,588.43 14,992.10 Compromise Penalty 2,000.00 Def. Withholding Tax on Compensation 1,488.72 Penalties for late remittance of Expanded Withholding Tax 836.42 Subtotal 4,137,750.47 17,317.24 Total Tax Deficiencies P4,155,067.71 =========== Records show that MERALCO EMPLOYEES' SAVINGS AND LOAN, ASSOCIATION, Inc. (MESALA for brevity) is a non-stock, non-profit savings and loan association duly licensed by the Central Bank of the Philippines and registered with the Securities and Exchange Commission. It is engaged in accepting capital-deposit contributions from its members. In return, members enjoy loan privileges. Membership thereto is limited to officials and employees of Manila Electric Company (MERALCO) and its affiliates. On November 7, 1991, BIR issued its assessment finding MESALA liable for deficiency withholding taxes together with penalties. A large portion of the assessment arose due to the imposition of the 5% final withholding tax on the dividends distributed by MESALA to its members in 1988 pursuant to Section 21(c)(2) of the Tax Code, as amended and BIR Ruling No. 115-87 dated April 24, 1987. In your letter dated November 29, 1991, you disagreed with the 5% final withholding tax levy on the ground that the dividends are in the nature of interest, the operation of MESALA being more akin to a banking institution. To support your allegation, you cited several jurisprudence and provisions of law, including a similar protest involving deficiency withholding tax for taxable year 1982 to 1986. Further, you objected to the imposition of EWT on the ground that our assessment is not accompanied by a statement of the particular payments which MESALA should have withheld, hence, arbitrary. LibLex In reply, please be informed that after a careful review of the facts of the case and the law and jurisprudence applicable thereto, we find your request to be without merit. Section 21(c)(2) of the Tax Code, as amended provides that: "(c) Certain passive incomes. A tax rate prescribed below is hereby imposed upon the amount of the following items of the gross income received by a citizen or resident alien from sources within the Philippines: xxx xxx xxx 2) Dividends received from a domestic corporation and the share of an individual partner in a partnership subject to tax under Section 24(a) at the rate of 15% in 1986; 10% effective January 1, 1987; 5% effective January 1, 1988; and 0% effective January 1, 1989." The issue on whether savings and loan association are liable for the tax abovementioned on the dividends distributed to its members has been laid to rest by BIR Ruling No. 115-87 dated April 24, 1987, quoted in part as follows: "A non-stock savings and loan association is classified as a mutual fund which is exempt from income tax pursuant to Section 27(b) of the NIRC. . . . But its member-depositors are subject to 15% final tax in 1986, 10% effective January 1, 1987; 5% effective January 1, 1988; and nil (exempt) starting January 1, 1989. [Sec. 21(C)(2), NIRC, as amended by ED 37] Luzon Colleges, Speaker Perez Blvd., Dagupan City." prcd A revenue regulation, the issuance of which is authorized by statute, has the force and effect of law. (Article 7, Civil Code; Arches vs. Bellosillo, 20 SCRA 32) The authority of the Bureau to promulgate rulings stems from Section 4 & 245 of the Tax Code. Moreover, Section 2-A of the General Banking Act (RA 337) belies MESALA's contention that the operation of savings and loan associations is analogous to banking institutions. It is substantially provided therein that "savings and loan association, among other entities, shall not be considered as a banking institution, albeit, the Monetary Board shall regulate the same." Accordingly, the assessment of 5% Final Withholding Tax on MESALA's dividends-distribution is proper. However, Section 246 of the Tax Code, as amended, provides for non-retroactivity of BIR Rulings. Thus, BIR Ruling No. 115-87 dated April 24, 1987 shall apply only to your liabilities incurred starting from taxable year 1988. Lastly, there is no reason to disregard the assessment of deficiency expanded withholding taxes on the ground, allegedly, that it was arbitrary. The taxes were levied based on the examination of MESALA's Income Tax Return, Financial Statement, Monthly Remittance Return of Income Taxes Withheld and Confirmation Receipts for the taxable years concerned. On the other hand, you failed to point out with particularity why our assessment was arbitrary or to present proof in support of your claim. Assessments are prima facie presumed correct and made in good faith. The taxpayer has the duty in proving otherwise. (Bonifacio Sy Po vs. CTA & Commissioner, GR No. 881446, August 18, 1988) A mere letter of a taxpayer for a reconsideration of an assessment devoid of any substantiation with facts or law is nothing but a mere scrap of paper, hence, cannot be considered. [Dayrit vs. Cruz, L-39910, September 26, 1988] LLphil In view of the foregoing, your request for consideration is hereby DENIED. You are hereby requested to pay the aggregate amount of P4,155,107.71 representing deficiency withholding taxes for 1988 and 1989, plus interest that may have accrued thereon, to the Revenue District Office nearest your place of business within ten (10) days from receipt thereof, in order that this case may be closed and terminated. This constitutes the final decision of this Office on the matter. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue