ING Bank (Manila Branch) v. Commissioner of Internal Revenue

THIRTEENTH DIVISION [CA-G.R. SP NO. 72774. March 28, 2014.] ING BANK (MANILA BRANCH) , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . DECISION YBAEZ , J p : Before Us is a Petition for Review filed by petitioner ING Bank (Manila Branch) under Rule 43 of the Revised Rules of Court seeking to reserve and set aside the Decision rendered on 11 March 2002 by the Court of Tax Appeals in CTA Case No. 6017, and the Resolution dated 21 August 2002 denying the Motion for Reconsideration thereof. The Facts Petitioner ING Bank (Manila Branch) is a foreign corporation duly licensed by the Securities and Exchange Commission (SEC) and authorized by the Bangko Sentral ng Pilipinas (BSP) to engage in commercial banking operations and operate a Foreign Currency Deposit Unit (FCDU). The FCDU of petitioner earned net income in the amounts of Three Hundred Sixteen Million Three Hundred Eight Thousand and Two Hundred Sixty-Three Pesos (P316,308,263.00) and Three Hundred Ninety-Three Million Four Hundred Thirteen Thousand and Six Hundred Eighty-Eight Pesos (P393,413,688.00) for taxable years 1996 and 1997, respectively. In September 1998, petitioner remitted to its head office abroad branch profits from its FCDU operation in the amount of Two Hundred Sixty-Nine Million One Hundred Sixty-Seven Thousand and Two Hundred Seven Pesos (P269,167,207.00) out of the said net income for 1996 and 1997. For the said remittance, petitioner paid the BIR 10% branch profit remittance tax in the amount of Twenty-Six Million Nine Hundred Sixteen Thousand Seven Hundred Twenty Pesos and Seventy Centavos (P26,916,720.70) for the month of September 1998. SaITHC On 12 July 1999, petitioner filed with the Bureau of Internal Revenue (BIR) a claim for refund 1 of the alleged erroneously paid branch profit remittance tax in the amount of P26,916,720.70, since, according to petitioner, Section 3 of Revenue Regulations No. 10-76 substantially provides that the preferential tax rates accorded to FCDUs shall be in lieu of all other taxes such as, but not limited to, privilege tax, gross receipt tax, documentary and science stamp tax and profit remittance tax. Accordingly, the subsequent remittance of profits by branches of foreign commercial banks operating an FCDU to their head office, taken out of the onshore and offshore income of the FCDU, is not subject to branch profit remittance tax. On 24 January 2000, petitioner received a letter 2 from the respondent Commissioner of Internal Revenue denying the request for refund/tax credit of erroneously paid branch profit remittance tax in the amount of P26,916,720.70. Aggrieved, petitioner filed on 17 February 2000 a Petition for Review 3 with the Court of Tax Appeals (CTA) pursuant to Section 7 of Republic Act No. 1125 and Section 229 of the 1997 National Internal Revenue Code (NIRC). In said Petition, petitioner alleged that the 10% final tax imposed on income derived by FCDUs under Section 28 (A) (7) (b) of the Tax Code is in lieu of all other taxes such as but not limited to privilege tax, gross receipts tax, documentary and science stamp tax and branch profit remittance tax, as provided under Section 3 of Revenue Regulations No. 10-76. Thus, according to petitioner, the subsequent remittance of profits by branches of foreign commercial banks operating an FCDU to their head offices, taken out of the onshore and offshore income of the FCDU, is not subject to branch profit remittance tax. In his Answer, 4 respondent countered that, petitioner's FCDU and regular banking unit are one and the same entity; and hence, the income of one unit is the income of the entire bank. In fact, since income and expenses are consolidated during the whole year, petitioner is subject to pay branch profit remittance tax. Respondent further stated that the amount sought to be refunded was already credited to the deficiency branch profit remittance tax assessment for 1997 issued against petitioner. Moreover, respondent insists that petitioner has the burden of proving that it is indeed entitled to the credit sought as it is a well-settled rule that claims for tax refund/tax credit are construed in " strictissimi juris " against the taxpayer. This is due to the fact that claims for refund/credit partake the nature of an exemption from tax. Thus, it is incumbent upon the petitioner to prove that it is indeed entitled to the tax refund sought, as he who claims exemption must be able to justify his claim by the clearest grant of organic or statutory law. According to respondent, failure on the part of petitioner to prove the same is fatal to its claim for tax refund. On 11 March 2002, the CTA rendered the assailed Decision 5 denying the petition. It held that petitioner's FCDU is subject to the branch profit remittance tax provided under Section 28 (A) (5) of the 1997 NIRC and, therefore, petitioner is not entitled to the refund sought for. EcSaHA Aggrieved, petitioner filed a Motion for Reconsideration 6 of the said Decision. Subsequently, it likewise filed a Supplemental to Motion for Reconsideration of Decision, 7 both of which were denied by the CTA in the assailed Resolution 8 dated 21 August 2002. Undaunted, petitioner filed the instant petition 9 raising the following assigned errors 10 purportedly committed by the CTA, viz. : I. THE HONORABLE COURT OF TAX APPEALS ERRED IN ISSUING THE QUESTIONED DECISION DATED 11 MARCH 2002 AND RESOLUTION DATED 21 AUGUST 2002 THEREBY DENYING PETITIONER ING BANK'S REQUEST FOR A REFUND OR ISSUANCE OF A TAX CREDIT CERTIFICATE IN THE AMOUNT OF TWENTY SIX MILLION NINE HUNDRED SIXTEEN THOUSAND SEVEN HUNDRED TWENTY AND 70/100 PESOS (P26,916,720.10) REPRESENTING ERRONEOUSLY PAID BRANCH PROFIT REMITTANCE TAX FOR TAXABLE YEAR 1998 CONSIDERING THAT: A. CONTRARY TO THE FINDINGS OF THE COURT OF TAX APPEALS, THE FINAL TAX ON INCOME DERIVED UNDER THE FOREIGN CURRENCY DEPOSIT SYSTEM IS IN LIEU OF ALL OTHER TAXES, INCLUDING THE BRANCH PROFIT REMITTANCE TAX. B. CONTRARY TO THE FINDINGS OF THE COURT OF TAX APPEALS, THE SENATE DELIBERATIONS DO NOT SHOW A DELIBERATE INTENT TO REVOKE ALL TAX PRIVILEGES OF FOREIGN CURRENCY DEPOSIT UNITS, INCLUDING THE EXEMPTION FROM PAYMENT OF THE BRANCH PROFIT REMITTANCE TAX. C. THE COURT OF TAX APPEALS ERRED WHEN IT ALTOGETHER FAILED TO ADDRESS THE ISSUE RAISED BY PETITIONER ING BANK THAT EVEN ASSUMING ARGUENDO THAT PETITIONER ING BANK IS ALREADY SUBJECT TO THE PAYMENT OF BRANCH PROFIT REMITTANCE TAX UNDER THE 1997 TAX CODE, INCOME FROM TRANSACTIONS WITH NON-RESIDENTS OR ITS OFFSHORE INCOME CONTINUES TO BE EXEMPT FROM ALL TAXES, INCLUDING THE PAYMENT OF THE BRANCH PROFIT REMITTANCE TAX. D. THE COURT OF TAX APPEALS' INTERPRETATION OF THE 1997 TAX CODE THAT SUBJECTS THE INCOME OF THE FOREIGN CURRENCY DEPOSIT UNIT TO A FINAL TAX OF TEN PERCENT (10%) AND PAYMENT OF TEN PERCENT (10%) FOR BRANCH PROFIT REMITTANCE TAX IS CONTRARY TO LAW. CDcHSa II. THE HONORABLE COURT OF TAX APPEALS ERRED IN RULING THAT PETITIONER ING BANK FAILED TO SHOW AN EXPRESS PROVISION OF LAW EXEMPTING IT FROM THE BRANCH PROFIT REMITTANCE TAX III. THE HONORABLE COURT OF TAX APPEALS ERRED IN RULING THAT PETITIONER ING BANK MUST FIRST PROVE ACTUAL PAYMENT OF THE 10% FINAL TAX ON INCOME DERIVED UNDER THE FOREIGN CURRENCY DEPOSIT SYSTEM BEFORE IT CAN BE ENTITLED TO A REFUND ON ERRONEOUSLY PAID BRANCH PROFIT REMITTANCE TAX In this Court's Resolution 11 dated 12 August 2004 issued by the former thirteenth division, We referred the instant petition to the CTA en banc for adjudication, since under the pertinent provisions of R.A. 9282, otherwise known as "An Act Expanding the Jurisdiction of the Court of Tax Appeals (CTA), Elevating its Rank to the Level of a Collegiate Court with Special Jurisdiction and Enlarging its Membership, Amending for the Purpose Certain Sections of Republic Act No. 1125, As Amended, Otherwise Known as the Law Creating the Court of Tax Appeals, and for Other Purposes" , the Court of Appeals (CA) no longer exercises jurisdiction over appeals from decisions rendered by a division of the CTA; hence, this appeal must be decided by the CTA en banc , in the exercise of its appellate jurisdiction. The CTA, in a letter dated 2 September 2004, signed by Associate Justices Juanito Castaeda, Jr. and Lovell R. Bautista, referred the petition back to the CA with the observation that jurisdiction thereon had already been conferred to this Court. However, on 18 January 2005, the former twelfth division of this Court issued a Resolution reiterating its view that the legislative intent in the passage of RA 9282 is to delegate the exclusive determination of tax cases to the CTA on account of its expertise on the subject of taxation, so that even appeals from decisions of CTA divisions already pending with the CA should be resolved by the CTA en banc. Hence, this Court resolved to return the instant petition, with its entire records, to the CTA en banc for resolution. The CTA en banc , on 01 March 2005, issued a Resolution returning the instant petition to the CA for proper disposition. The CTA reiterated its stand that the CA must resolve the instant petition since it had previously acquired jurisdiction over the case. Thus, after the parties submitted their respective memoranda, this Court issued a Resolution 12 on 26 November 2013 declaring the instant case submitted for decision. The Issue The core issue presented for Our resolution is whether or not petitioner is exempt from the payment of branch profit remittance tax, and hence, entitled to the tax refund sought. IaDSEA Our Ruling The petition has no merit. Petitioner submits that the branch profits it remitted to the head office which were taken from profits earned by the FCDU is not subject to branch profit remittance tax. It anchors its claim on the provision of the 1977 Tax Code, particularly Section 25 (a) (6) (B), which provides that income derived by a depository bank under the expanded foreign currency deposit system shall be exempt from all taxes . It insists that the amendment introduced by the NIRC of 1997 which deleted the phrase "exempt from all taxes" merely expanded the scope of the 10% tax to cover also income from transactions previously considered offshore. Respondent, on the other hand, argues that petitioner can no longer claim exemption from the payment of branch profit remittance tax in October 1998 considering that the instant claim is covered by the NIRC of 1997 which deleted the phrase "exempt from all taxes." We agree with the respondent. Prior to the amendment introduced by the NIRC of 1997, Section 25 (a) (6) (B) of the 1997 Tax Code provides that: "(B) Income derived under the Expanded Foreign Currency Deposit System. Income derived by a depository bank under the expanded foreign currency deposit system from foreign currency transactions with non-residents, offshore banking units in the Philippines, local commercial banks including branches of foreign banks that may be authorized by the Central Bank of the Philippines to transact business with foreign currency depository system units and other depository banks under the expanded foreign currency deposit system shall be exempt from all taxes , except taxable income from such transactions as may be specified by the Secretary of Finance, upon recommendation of the Monetary Board to be subject to the usual income tax payable by banks: Provided, That interest income from foreign currency loans granted by such depository banks under said expanded system to residents (other than offshore banking units in the Philippines or other depository banks under the expanded system) shall be subject to a 10% tax." The exemptions mentioned in the above provision include branch profit remittance tax, documentary and science stamp tax, grow receipts tax, and privilege tax. 13 However, the aforementioned provision was amended by the NIRC of 1997 which took effect on 1 January 1998. Section 28 (A) (7) (b) of the NIRC of 1997 reads as follows: IaEACT "(b) Income Derived under the Expanded Foreign Currency Deposit System Income derived by a depository bank under the expanded foreign currency deposit system from foreign currency transactions with local commercial banks including branches of foreign banks that may be authorized by the Bangko Sentral ng Pilipinas (BSP) to transact business with foreign currency deposit system units, including interest income from foreign currency loans granted by such depository banks under said expanded foreign currency deposit system to residents, shall be subject to a final income tax at the rate of ten percent (10%) of such income. Any income of nonresidents, whether individuals or corporations, from transactions with depository banks under the expanded system shall be exempt from income tax." It is clear from the aforequoted provision of the NIRC of 1997 which amended Section 25 (a) (6) (B) of the 1977 Tax Code, that the phrase "exempt from all taxes" was deleted. In other words, with the deletion of said phrase, the payment now of the ten percent (10%) final tax on FCDU income does not exempt a bank from the payment of branch profit remittance tax or other taxes. Subsequently, Republic Act (RA) No. 9294, entitled "An Act Restoring the Tax Exemption of Offshore Banking Units (OBUs) and Foreign Currency Deposit Units (FCDUs), Amending for the Purpose Section 27 (D) and Section 28, Paragraphs (A) (4) and (A) (7) (b) of the National Internal Revenue Code As Amended" , further amended Section 28 (A) (7) (b) of the NIRC of 1997, to wit: "SEC. 28. Rate of Income Tax on Foreign Corporations. (A) Tax on Resident Corporations xxx xxx xxx (7) Tax on Certain Incomes Received by a Resident Foreign Corporation. xxx xxx xxx "b) Income Derived under the Expanded Foreign Currency Deposit System. Income derived by a depository bank under the expanded foreign currency deposit system from foreign currency transactions with nonresidents, offshore banking units in the Philippines, local commercial banks including branches of foreign banks that may be authorized by the Bangko Sentral ng Pilipinas (BSP) to transact business with foreign currency deposit system units and other depository banks under the expanded foreign currency deposit system shall be exempt from all taxes , except net income from such transactions as may be specified by the secretary of Finance, upon recommendation by the Monetary Board to be subject to the regular tax payable by banks: Provided, however, that interest income from foreign currency loans granted by such depositors banks under said expanded system to residents other than offshore banking units in the Philippines or other depository banks under the expanded system shall be subject to a final tax at the rate of ten (10%)." (Emphasis supplied) CAScIH Evidently, the phrase "shall be exempt from all taxes" was restored in RA 9294. However, it bears stressing that this exemption is applicable only to cases before the NIRC of 1997 took effect on 1 January 1998, and after the enactment of RA No. 9294 on 28 April 2004. In other words, during the effectivity of the NIRC of 1997, but prior to the enactment of RA No. 9294, no tax exemption existed. In the present case, petitioner's 1996 and 1997 FCDU profits were remitted to its head office abroad in September 1998. Correspondingly, the branch profit remittance tax of P26,916,720.00 was paid by petitioner to the BIR on 26 October 1998. Hence, the profit remittance made by petitioner falls clearly under the provisions of Section 28 (A) (5) of the NIRC of 1997. Thus, with the deletion of the phrase "shall be exempt from all taxes" in Section 28 (A) (5) of the NIRC of 1997, the obvious intent of the law is to remove the tax exemption privileges previously enjoyed by the FCDUs. This conclusion is in accord with the rule of statutory construction that: "The amendment by deletion of certain words or phrases in a statute indicates that the legislature intended to change the meaning of the statute, for the presumption is that the legislature would not have made the deletion had the intention been not to effect a change in its meaning. The amended statute should accordingly be given a construction different from that previous to its amendment." 14 As has been our consistent ruling, where the law speaks in clear and categorical language, there is no occasion for interpretation; there is only room for application. 15 Where the law is clear and unambiguous, as in the instant case, it must be taken to mean exactly what it says and the court has no choice but to see to it that its mandate is obeyed. 16 Hence, by virtue of the deletion of the words "exempt from all taxes" under the NIRC of 1997, the payment of the ten (10%) final tax on FCDU income no longer exempt petitioner from the payment of branch profit remittance tax or other taxes for that matter. Clearly, such deletion only entails a simple construction. It is the obvious aim of the legislature to introduce a different meaning to the law, that is, the taking away of the tax exemption previously enjoyed by FCDUs. Moreover, the rule is well settled that tax refunds are in the nature of tax exemptions. As such, these are regarded as in derogation of sovereign authority and are to be strictly construed against the person or entity claiming the exemption. The burden of proof is upon him who claims the exemption and he must be able to justify his claim by the clearest grant under Constitutional or statutory law, and he cannot be permitted to rely upon vague implications. 17 In this case, petitioner's failure to do so justified the denial of its refund clam. cCTIaS Considering all the foregoing, We find no reversible error committed by the CTA which would warrant the setting aside of its 11 March 2002 Decision and 21 August 2002 Resolution. It must be noted that the CTA is a highly specialized court dedicated exclusively to the study and consideration of revenue-related problems, in which it has necessarily developed an expertise. Hence, its factual findings, when supported by substantial evidence, will not be disturbed on appeal. 18 We find no sufficient reason to depart from this general rule. WHEREFORE , in view of the foregoing premises, the instant petition is hereby ordered DISMISSED , and the assailed Decision dated 11 March 2002 and Resolution dated 21 August 2002 rendered by the of Court of Tax Appeals in CTA Case No. 6017 are AFFIRMED . Without costs. SO ORDERED. Dimaampao and Sadang, JJ., concur. Footnotes 1. Rollo , pp. 128-131. 2. Ibid. , p. 132. 3. Ibid. , pp. 111-113. 4. Ibid. , pp. 133-136. 5. Ibid. , pp. 90-100. 6. Ibid. , pp. 228-240. 7. Ibid. , pp. 241-244. 8. Ibid. , pp. 101-110. 9. Ibid. , pp. 44-89. 10. Ibid. , pp. 49-51. 11. Ibid. , p. 38. 12. Ibid. , p. 888. 13. Revenue Regulations No. 10-76. 14. Gloria vs. Court of Appeals , G.R. No. 131012, April 21, 1999, 306 SCRA 287. 15. Cebu Portland Cement Co. vs. Municipality of Naga , G.R. Nos. 24116-17, August 22, 1968, 24 SCRA 708. 16. Chartered Bank Employees Association vs. Ople , G.R. No. L-44717, August 28, 1985, 138 SCRA 273. 17. BPI Leasing Corporation vs. Court of Appeals, et al. , G.R. No. 127624, November 18, 2003, 416 SCRA 4. 18. Western Mindanao Power Corporation vs. Commissioner of Internal Revenue , G.R. No. 181136, June 13, 2012, 672 SCRA 350.