Ferry Toledo Gonzaga Tria

February 15, 2007 BIR RULING [DA-096-07] DA-546-04; Secs. 204 & 28 (a) (5), NIRC; Sec. 3 (a), RR 5-2000 Ferry Toledo Gonzaga Tria 4th Flr. Zenith Corporate Center Salcedo Village Makati City Attention: Tomas C. Toledo Tax Consultant Gentlemen : This refers to your letter dated January 24, 2007 where you requested this Office to issue a ruling on whether or not your client may be allowed to utilize its Tax Credit Certificate (TCC) to pay for its branch profits tax (BPRT) liability. It is represented that your client, Manufacturer's Life Insurance Co., (MLIC) is a local branch of Manufacturer's Life Insurance in Canada; that MLIC was issued TCC No. 20060000207 on November 30, 2006; that MLIC is proposing to remit its branch profits to its head office in Canada; and that MLIC would like to utilize the abovementioned TCC to pay the BPRT due on its remittance of profits to its head office. In reply, please be informed that Section 28 (a) (5) of the Tax Code of 1997, as amended by RA 9337, provides that: "Sec. 28. Rates of Income Tax on Foreign Corporations (A) Tax on Resident Foreign Corporations. xxx xxx xxx "(5) Tax on Branch Profits Remitances. Any profit remitted by a branch to its head office shall be subject to a tax of fifteen percent (15%) which shall be based on the total profits applied or earmarked for remittance without any deduction for the tax component, thereof (except those activities which are registered with the Philippine Economic Zone Authority) The tax shall be collected and paid in the same manner as provided in Sections 57 and 58 of this Code: Provided, That interests, dividends, rents, royalties, including annuities, emoluments or other fixed or determinate annual, periodic or casual gains, profits, income and capital gains received by a foreign corporation during each taxable year from all sources within the Philippines shall not be treated as branch profits unless the same are effectively connected with the conduct of its trade or business in the Philippines." STIHaE In this regard, it is clear that the profits remitted by a branch of a resident foreign corporation to its head office is subject to the payment of 15% BPRT. Thus, any remittance by MLIC's Philippine branch to its head office is subject to the abovementioned tax which should be collected and paid in the same manner as provided in Sections 57 and 58 of the same Tax Code. However, as MLIC is proposing to pay its liability for BPRT through a TCC issued under its name, there necessarily arises an issue of whether or not it may do so, considering that under Sections 204 of the Tax Code and 3 (a) of Revenue Regulations (RR) No. 5-2000, TCCs may not be used for payment for withholding taxes, such as those found under the abovementioned Sections 57 and 58 of the Tax Code. It can be viewed that there are two persons involved in the withholding tax system: the withholding agent (payor) and the taxpayer (payee). The latter is deemed to be the party directly liable to the tax withheld by the former which is eventually remitted to the BIR. Consequently, the TCC of the payor/withholding agent cannot be used in payment for the same because it is not its direct liability. In an earlier ruling (DA-546-2004, dated November 5, 2004), however, this Office held that the distinction between the taxpayer and the party named as the withholding agent does not exist because the branch and its head office possess a single legal personality. (See Philipp Brothers Oceanic, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 3140, March 8, 1984 ) In addition, it is only the manner of collecting and paying the BPRT that are provided for under the provisions of Sections 57 and 58 of the Code, without, however, making the branch as the withholding agent, as contemplated under Section 204. IcHSCT From the foregoing, it appears that the BPRT in this case is not in the nature of a withholding tax to be collected by MLIC from its head office, but a direct liability of the latter, considering that a branch of a resident foreign corporation and its head office are treated as one taxable entity. Accordingly, since the BPRT in this case is not regarded as a withholding tax, this Office is of the opinion that MLIC's TCC may be utilized to pay for the BPRT on the profits it will remit to its Canadian head office. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service