BIR Ruling No. 096-62

August 27, 1962 BIR RULING NO. 096-62 1st Indorsement Returned to the Regional Director, Regional District No. 3, Manila, the attached papers bearing on the internal revenue tax case of the DOMESTIC COMPANY OF THE PHILIPPINES. It appears that on June 16, 1960, subject taxpayer, the Domestic Insurance Company of the Philippines thru its general manager, Smith Bell & Co. (Philippines) Inc., submitted to this Office a return of information showing payments of dividends to the stockholders of said insurance company for the years 1955, 1956, 1957, 1958, and 1959. The said information was not attached nor submitted together with the income tax returns filed by the insurance company for each of these years mentioned. In view thereof, a legal problem arose on the correct interpretation and application of Section 75 of the Tax Code as implemented by section 241 of Revenue Regulations No. 2, particularly with respect to the time for filing of the information covering dividends paid to stockholders by the corporation concerned. This case is, therefore, referred to the Law Division for a ruling on the issue of whether this late filing of the information in question by the Domestic Insurance Company of the Philippines constitutes failure to file within the time required by law such that it would be subject to the penalty imposed in Section 75 of the Tax Code. casia For ready reference, we quote hereunder pertinent provisions of law applicable in this case: "Sec. 75. Return of information by corporations ; penalty for failure to keep records of stockholders or dividends paid . Every corporation subject to the tax herein imposed, or otherwise engaged in business or trade within the Philippines, when required by the Commissioner of Internal Revenue , shall render a correct return, duly verified under oath, of its payments of profits or dividends, whether made in cash or its equivalent or in stock, including the names and address of members of stockholders, the paid-up capital or the number of shares owned by each, and the tax years and were derived in such form as any be prescribed by the Commissioner of Internal Revenue with the approval of the Secretary of Finance. "Any such corporation which fails to deep records of the names and addresses of its members of stockholders, or the correct amount of profits or dividends paid or credited to each of them , or which fails to furnish the information referred to in this section together her with certified copies of its balance sheets , profit and loss statements , and such other financial statements which may be required by the Commissioner of Internal Revenue , shall pay to the Government an amount equal to ten per centum of the dividends or profits distributed , or, in the absence of information as to the amount of profits or dividends distributed, the additional amount here required to be paid shall be computed on the net profits or income reported in the income tax returns or shown in the books or such corporation, firm, or association. However, resident foreign corporations, fifty-one per centum or more of whose income is derived from sources outside the Philippines, shall not be liable to the payment of the amount prescribed in this section." (Emphasis supplied). "Section 241. Return of information as to payments of dividends . Every domestic resident foreign corporation is hereby required to render a return, in duplicates, on the form prescribed for corporations (B.I.R. Form No. 12.02) of its payments of profits or dividends to stockholders, for the taxable year or period covered by the return, stating the name and addresses of each stockholders, the number and loss of shares owned by him, and when the surplus out of which it was paid was accumulated. Such returns should be verified by the oaths or affirmation of the person rendering them." The aforequoted provisions of law penalize every domestic or resident foreign corporation that fails to furnish information as to the correct amount of profits or dividends paid or credited to its stockholders, obviously in an effect to do away with unreasonable accumulation of profits or earnings on the part of the above-mentioned corporation. (See Sec. 25, N.I.R.C.) The contention that "the Tax Code and the regulations do not specifically provide for the time when the required information be submitted to the Bureau of Internal Revenue", is untenable, for, section 75 of the Tax Code provides that the filing of such information shall be " when required by the Commissioner of Internal Revenue ." The statute, in effect, leaves to the Commissioner that discretion to fix the time for filing of the information by corporations subject to tax in this country, with the specific requirement, however, that the same must be filed together with "The certified copies of their balance sheet, profit and loss statements, and such other financial statements which may be required, by the Collector of Internal Revenue" (2nd par., Sec. 75, NIR. and Sec. 241, Rev. Regs. No. 2). In enforcing the law, this Bureau has henceforth made it a policy to required all corporations subject to tax in this country to attach and file together with their income tax returns, all the aforementioned statements, including of course the information covering payments of dividends to their stockholder. (See also Sec. 46, NIRC) Thus, it can be noted that BIR Form No. 17.02 under the heading "Accompanying Papers" insures compliance of that requirement; viz: "ACCOMPANYING PAPERS" "This return (BIR Form No. 17.02) will not be accepted as complete unless accompanied by the following: "(1) Return of information covering income payments of P1,800 or more during the year, but not including those with Form-2-A of the Withholding Tax on Wages. "(2) Return of information covering dividends paid during the year . "If any of the foregoing does not accompany this return, cross out same with ink and state below your reason for failure to supply same. xxx xxx xxx "All other statements, papers, etc. accompanying this return should be listed below." (Emphasis supplied) In this case it is clear that subject taxpayer violated the law whom it failed to attach the required information to its income tax returns at the time they were filed for each year, starting from 1955 to 1959. It is however, contended by that Office that what is punishable under the law is failure to file and not late filing of the information in question. We agree with the contention that what is penalized by the law is the failure to furnish the information when required by the Commissioner of Internal Revenue. In this case, the Domestic Insurance Company of the Philippines voluntarily submitted the required information, although the same were not filed together with its income tax returns for 1955 to 1959. Inasmuch as the Tax Code and the regulations do not specifically provide for the penalty in case of late filing of the required information, it is therefore, the opinion of this Office that the penalty prescribed be section 352 of the National Internal Revenue Code should be applied in this case. Section 352 provides: "Sec. 352. Violation of other provisions of this Code or regulations in general . A person who violates any provision of this Code, or any regulation of the Department of Finance made in conformity with the same, for which delinquency no specific penalty is provided by law, shall be punished by a fine of not more than three hundred pesos or by imprisonment for not more than six months, or both." cdtech JOSE B. LINGAD Commissioner of Internal Revenue