Denials by BIR-ITAD of Tax Treaty Relief Applications Based on Section 14 of Revenue Memorandum Order No. 72-2010

March 28, 2014 DOF MEMORANDUM FOR : Secretary Cesar V. Purisima Department of Finance SUBJECT : Denials by BIR-ITAD of Tax Treaty Relief Applications Based on Section 14 of Revenue Memorandum Order No. 72-2010 The Bureau of Internal Revenue (BIR) issued Revenue Memorandum Order No. 72-2010, which provides guidelines on the processing of Tax Treaty Relief Applications (TTRAs) pursuant to existing tax treaties of which the Republic of the Philippines (RP) is a signatory of. A salient provision of said RMO is Section 14, which provides: " SEC. 14. When and Where to File the TTRA . All tax treaty relief applications (updated BIR Forms Nos. 0901-D, 0901-I, 0901-R, 0901-P, 0901-T, 0901-O and 0901-C) relative to the implementation and interpretation of the provisions of Philippine tax treaties shall only be submitted to and received by the International Tax Affairs Division (ITAD). If the forms or any necessary documents are submitted to any other BIR Office, the application shall be considered as improperly filed. Filing should always be made BEFORE the transaction. Transaction for purposes of filing the TTRA shall mean before the occurrence of the first taxable event. Failure to properly file the TTRA with ITAD within the period prescribed herein shall have the effect of disqualifying the TTRA under this RMO ." (Emphasis Supplied.) Citing the aforecited provision, the BIR, through its International Tax Affairs Division (ITAD), has issued various BIR Rulings denying TTRAs on the basis of the failure of taxpayers to file their TTRAs prior to occurrence of the taxable transaction. Several taxpayers have elevated their respective cases to this Department through the filing of their Requests for Review of the subject BIR-ITAD Rulings. EaHcDS In connection therewith, we take note of the ruling of the Supreme Court in the case of Deutsche Bank AG Manila Branch v. Commissioner of Internal Revenue , G.R. No. 188550 dated 19 August 2013. In the said case, the Supreme Court dealt with the validity of the imposition under RMO No. 1-2000 which requires that any availment of a tax treaty relief must be preceded by an application with BIR-ITAD at least fifteen (15) days before the transaction, similar to the requirement provided in RMO No. 72-2010. The petitioner therein argued that the denial of its claim for failure to file a TTRA within the prescribed period under RMO No. 1-2000 was erroneous, since it has met all the conditions under the RP-Germany Tax Treaty and the RMO must not be strictly construed as to deprive persons of the benefit of a tax treaty. Affirming the petitioner's submission, the Supreme Court held that in conformity with the generally accepted principle in international law of pacta sunt servanda , ". . . laws and issuances must ensure that the reliefs granted under tax treaties are accorded to the parties entitled thereto. The BIR must not impose additional requirements that would negate the availment of the reliefs provided for under international agreements ." (Emphasis Supplied.) The Supreme Court further stated that, "Bearing in mind the rationale of tax treaties, the period of application for the availment of tax treaty relief as required by RMO No. 1-2000 should not operate to divest entitlement to the relief as it would constitute a violation of the duty required by good faith in complying with a tax treaty. . . . At most, the application for a tax treaty relief from the BIR should merely operate to confirm the entitlement of the taxpayer to the relief." A Motion for Reconsideration was filed by the Office of Solicitor General (OSG) to the Decision dated 19 August 2013, which was denied by the Supreme Court with finality through the issuance of the Resolution dated 23 October 2013. The Supreme Court ordered that an entry of judgment be made and restated that "no further pleadings and motions to the case would be entertained." In view thereof, it is recommended that the Requests for Review of BIR-ITAD Rulings currently pending before this Department be remanded to the BIR, for their determination of entitlement of the respective tax treaty reliefs sought to be confirmed by the various taxpayers, irrespective of their non-compliance with Section 14 of RMO No. 72-2010. (SGD.) EPHYRO LUIS B. AMATONG Assistant Secretary Revenue Operations and Legal Affairs Group