Motion for Reconsideration of the Department of Finance Decision Dated 10 April 2012

May 7, 2012 DOF OPINION Fernandez Santos & Lopez Certified Public Accountants 16th Floor, Pacific Star Building Cor. Sen. Gil Puyat and Makati Avenues 1200 Makati City, Metro Manila Attention: Atty. Eliseo A. Fernandez SUBJECT : Motion for Reconsideration of the Department of Finance Decision Dated 10 April 2012 on the Request for Review of BIR Ruling No. ITAD 274-11 Dated 18 November 2011 Gentlemen : This is in reference to your Motion for Reconsideration dated 30 April 2012 ("Motion for Reconsideration") seeking to reverse and set aside this Department's Decision dated 10 April 2012 ("Decision") and the Bureau of Internal Revenue ("BIR") International Tax Affairs Division ("ITAD") Ruling No. 274-11 dated 18 November 2011, which denied the Tax Treaty Relief Application ("TTRA") filed by Mr. Reinhard Brandner ("Taxpayer") on 11 December 2007 for the exemption from the tax on capital gains on the sale of his shares in Allgemeine Bau-Chemie Phil., Inc. (ABCP) to ABCP, due to its failure to comply with the fifteen (15)-day period for filing the TTRA under Section III (2) of Revenue Memorandum Order No. 1-2000 ("RMO 1-2000"). Based on a careful review and evaluation of the arguments presented in the Motion for Reconsideration, we see no reason to depart from the findings and conclusions in the Decision which affirmed BIR ITAD Ruling No. 274-11 in its entirety. In the Motion for Reconsideration, the Taxpayer reiterates his position that the TTRA should have been approved on the basis of RMO 30-2002, and not RMO 1-2000. The Motion for Reconsideration even showed a per-provision comparison of the two BIR issuances, all in attempt to show that the requirement of filing the TTRA fifteen (15) days prior to the transaction as set out in RMO 1-2000 was revoked by RMO 30-2002. Further, the Taxpayer alleges that the BIR erred in relying on an obsolete RMO rather than the provisions of the RP-USA Tax Treaty in ruling against the subject TTRA. The arguments presented in the Motion for Reconsideration are mere reiterations of the arguments presented in the request for review of BIR Ruling No. ITAD 274-11 and already addressed in the Decision dated 10 April 2012. We note that RMO 30-2012 merely prescribes the form to be used in cases of TTRA filed pursuant to gains from sale or transfer of shares of stock in a Philippine Corporation. This is apparent in the subject of RMO 30-2002, which states: "Authorizing the use of BIR Form No. 1928 Application for Relief from Double Taxation (Gains from Sale or Transfer of Shares of Stock in Philippine Corporation) for processing of tax treaty relief applications involving gains from sale or transfer of shares of stocks in a Philippine corporation including gains from sale or transfer of unit of participation in a Philippine partnership." TASCEc To prove his point, the Taxpayer presented the following provisions to show that RMO 30-2002 has modified and effectively deleted the requirement found in RMO 1-2000 on filing the TTRA fifteen days prior the transaction: RMO No. 30-2002 RMO No. 1-2000 III. Policies III. Payment of Fees 1. . . . Pursuant to Executive Order No. 159, 2. Any availment of the tax Directing All Departments, Bureaus, Offices, treaty relief shall be preceded by an Units and Agencies of the National application by filing BIR Form No. Government, Including Government-Owned 0901 (Application for Relief from or Controlled Corporations, to Revise their Double Taxation) with ITAD at least Fees and Charges at Just and Reasonable 15 days before the transaction i.e., Rates Sufficient to Recover at Least the Full payment of dividends, royalties, etc., Cost of Services Rendered" as amended by accompanied by supporting Executive Order No. 197, "Directing All documents justifying the relief. Departments, Bureaus, Commissions, Consequently, BIR Form Nos. TC Agencies, Offices and Instrumentalities of 001 and TC 002 prescribed under the National Government, Including RMO 10-92 are hereby, declared Government-Owned or Controlled obsolete. Corporations, to Increase their Rates of Fees and Charges By Not Less Than 20 xxx xxx xxx Percent," the taxpayer shall pay the applicable processing and certification fee in the amount of P5,000.00 in the district having jurisdiction over the place of business of the Philippine corporation using BIR Form No. 0605, before filing the application for tax treaty relief with the International Tax Affairs Division. Proof of payment of the processing and certification fee must be submitted upon filing of application for tax treaty relief. The Taxpayer argues that the 15-day period has been deleted in RMO 30-2002, and has been replaced by the payment of the processing and certification fee. Taxpayer contends that the requirement is now changed to the payment of the processing and certification fee before the filing of any TTRA, and no longer the filing of the TTRA at least 15 days prior to the transaction. A close reading of the provisions of RMO Nos. 1-2000 and 3-2002 show that the above-quoted provisions are not inconsistent with one another. RMO 1-2000 requires that the availment of a tax treaty relief shall be preceded by an application filed at least 15 days before the transaction, while RMO 30-2002 requires that the application shall be preceded by the payment of the applicable processing and certification fee. Accordingly, the provisions are not inconsistent but in fact may be harmonized together. In any case, the requirement of filing the TTRA at least 15 days prior to the transaction is reiterated in Section IV on Procedures of RMO 1-2000, a portion which RMO 30-2002 did not touch upon. Considering that RMO 30-2002 merely modified and did not repeal RMO 1-2000, the said requirement of prior filing may not be considered repealed and continues to be applicable. The Taxpayer has made clear of his opinion that RMO 1-2000 cannot take precedence over the provisions of tax treaties and its provisions should not be considered mandatory, especially if its application would contravene existing tax treaties of the Philippines. In this regard, it bears emphasizing that while certain rights may have been granted by law and treaties, the State remains to have an interest to protect the proper exercise of such rights and the same is properly within the purview of the implementation of laws by administrative agencies. No less than the Supreme Court has consistently recognized that revenue regulations and other administrative issuances are entitled to great weight and shall have the binding force and effect of law. 1 It is an elementary rule in administrative law that administrative regulations and policies by administrative bodies to interpret the law which they are entrusted to enforce have the force of law and are entitled to great respect, and have in their favor a presumption of legality. 2 Based on the foregoing, we hereby deny the Motion for Reconsideration filed by Mr. Brandner and affirm the Decision dated 10 April 2012 as well as the ruling of the BIR Commissioner in its entirety. HaTISE Very truly yours, (SGD.) CESAR V. PURISIMA Secretary Footnotes 1. Atlas Consolidated Mining Corporation vs. Commissioner of Internal Revenue , G.R. No. 159490, 18 February 2008. 2. Warren Manufacturing vs. Bureau of Labor Relations , G.R. No. 76185, 30 March 1988, citing Espanol vs. Philippine Veterans Administration , 1985; Sierra Madre Trust vs. Secretary of Agriculture and Natural Resources , G.R. Nos. L-32370 & 32767, 20 April 1983; Antique Sawmill, Inc. vs. Zayco , G.R. No. L-20051, 30 May 1966; Valerio vs. Secretary of Agriculture , G.R. No. L-18587, 23 April 1963.