Request for Review of BIR Ruling No. ITAD 010-12

May 9, 2012 DOF OPINION Manabat Delgado Amper & Co. 5th floor Salamin Building 197 Salcedo Street, Legaspi Village 1229 Makati City, Metro Manila Attention: Mr. Richard R. Lapres SUBJECT : Request for Review of BIR Ruling No. ITAD 010-12 This has reference to your request for review dated 10 February 2012, 1 on behalf of your client, Motors Liquidation Company, formerly General Motors Corporation ("GM Corp."), of Bureau of Internal Revenue ("BIR") Ruling No. ITAD 010-12 dated 10 January 2012, which denied the Tax Treaty Relief Application ("TTRA") filed by GM Corp. on 27 August 2009 2 in connection with the sale of stocks held by GM Corp. in General Motors Automobiles Philippines, Inc. ("GMAP") to General Motors Company ("GM Co."), for having been filed beyond the fifteen (15)-day period prescribed by Revenue Memorandum Order ("RMO") 01-2000. Thus, as ruled by the BIR, the gains from the said sale shall be subject to the tax at the rate provided under Section 25 (B) (5) (c) 3 of the National Internal Revenue Code ("NIRC"). As culled from the records, the facts are as follows: It is represented that GM Corp. is a non-resident corporation having its official seat in the State of Delaware. It does not engage in trade or business in the Philippines. On the other hand, GMAP is a corporation duly organized and existing under the laws of the Philippines. GM Co. is a corporation duly organized and existing under the laws of the State of Delaware. It likewise does not engage in trade or business in the Philippines. As certified by the Corporate Secretary of GMAP, GM Corp. owned as of 10 July 2009 a total of 549,995 common shares of stock and 4,797,537 preferred shares of stock, both with par value of one hundred pesos (Php100.00) per share (collectively, the "Shares"), in GMAP, or almost 100% of the subscribed and paid-up capital stock of GMAP. AcDHCS On 10 July 2009, a Share Transfer Agreement was entered into by GM Corp. and GM Co. whereby GM Corp. sold to GM Co. all rights, title, and interest in GMAP ( i.e. , the Shares), free from liens and encumbrances. On 27 August 2009, GM Corp. filed the TTRA with the International Tax Affairs Division ("ITAD") of the BIR, requesting for confirmation that the sale of shares of stock by GM Corp. in GMAP to GM Co. is exempt from capital gains tax imposed under Section 25 (B) (5) (c) of the NIRC, as amended, pursuant to Article 14 of the Convention Between the Government of the Republic of the Philippines and the Government of the United States of America with Respect to Taxes on Income (the "RP-USA Tax Treaty"). Complete supporting documents were filed with the BIR on 24 September 2009. As stated-above, the BIR rendered the questioned BIR Ruling No. ITAD 010-12 dated 10 January 2012, denying GM Corp.'s application, stating that: In view of the foregoing, since the consideration for sales [sic] of the shares of stock in GMAP was received by MLC [GM Corp.] on June 26, 2009 and July 10, 2009 (the date of the Master Sale and Purchase Agreement and Share Transfer Agreement, respectively) or earlier, and the subject TTRA was filed only on September 24, 2009, in violation of Section III (2) of RMO 1-2000, this Office hereby DENIES the TTRA for having been filed beyond the 15-day period prescribed by the RMO. Accordingly, any gains shall be subject to income tax at the rate provided under Section 28(B)(5)(c) of the 1997 National Internal Revenue Code, as amended . . . GM Corp. requested the review of BIR Ruling No. ITAD 010-12 before this Office. In the instant request for review, GM Corp. argues that the requirement of filing the TTRA fifteen (15) days before the taxable transaction will result in asking the BIR to rule on a hypothetical transaction, which is a situation that properly falls within the "No Ruling Areas" 4 as provided under Revenue Bulletin No. 1-2003. Further, GM Corp. argues that the said requirement is contrary to law, particularly the RP-USA Tax Treaty, and the assailed ruling is contrary to the previously-issued rulings of the BIR. After a careful review of the case records, we see no reason to disturb the findings and conclusions of the BIR. RMO 1-2000, entitled Procedures for Processing Tax Treaty Relief Application, issued on 25 November 1999, prescribes the requirement that any availment of a tax treaty relief shall be preceded by an application filed with the ITAD at least fifteen days before the transaction, thus: xxx xxx xxx IV. Procedures: The following procedures are to be observed in the processing of the tax treaty relief application: 1. Taxpayer 1.1 Accomplish the new BIR Form 0901 Application for Relief from Double Taxation. 1.2 File BIR Form 0901 with ITAD at least 15 days before the transaction i.e., payment of dividends, royalties, etc., with all the supporting documents justifying the relief sought. . . ." 5 Thus, in order to avail of any tax treaty relief under any Philippine tax treaty, the applicant must file a duly accomplished TTRA, using the prescribed BIR Form, at least fifteen (15) days prior to the occurrence of the transaction, which may be the payment of dividends, royalties, etc., and such TTRA must also be accompanied with the complete supporting documents. cDICaS The prior filing of the TTRA is not a new requirement imposed by RMO 1-2000; its predecessor, RMO 10-1992, 6 prescribes the same requirement of filing the tax treaty relief application at least fifteen days prior to the transaction. In view of the above, it is clear that it has been the long-standing rule that in order to avail of any relief provided in a Philippine tax treaty, the application thereto must be filed before the occurrence of the transaction. In this regard, administrative agencies have been granted by Congress with the authority to issue rules to regulate the implementation of a law entrusted to them. 7 Thus, rules and regulations promulgated in pursuance of the authority conferred upon the administrative agency, by law, partake of the nature of a statute and similarly enjoy the presumption of constitutionality. 8 This presumption of validity and constitutionality prevails until the administrative issuance is otherwise declared invalid. Thus, the legal consequences resulting from the implementation of such administrative issuances must likewise be upheld. We note that RMO 1-2000 was never stricken down by a court of competent jurisdiction. Accordingly, the presumption of validity and constitutionality prevails. RMO 1-2000 remains valid and enforceable, except that portions inconsistent with RMO 72-2010 have been repealed by the latter BIR issuance. As regards the allegation that the issuance of the assailed ruling contradicts other confirmatory rulings issued by the BIR, we need only state that the BIR merely implemented the applicable rules and regulations on the matter. Considering that there has been no issuance prior to RMO 72-2010 which revokes or amends RMO 1-2000, we find no justification for GM Corp. for not complying with the provisions of RMO 1-2000. There is no question that the present TTRA clearly was filed beyond the time required under RMO 1-2000. Even the appellant in this instance does not refute this finding. Accordingly, the BIR, by the mere application of the provisions of RMO 1-2000, was correct in denying the TTRA filed by GM Corp. ESacHC Based on the foregoing, we hereby AFFIRM the ruling of the Commissioner in its entirety. The sale of shares in GMAP by GM Corp. to GM Co. on 10 July 2009 will be subject to the rate provided under Section 28 (B) (5) (c) of NIRC, as amended. Very truly yours, (SGD.) CESAR V. PURISIMA Secretary Footnotes 1. Complete documents received only on 25 April 2012. 2. Complete documents received by the BIR on 24 September 2009. 3. SEC. 28. Rates of Income Tax on Foreign Corporations. (B) Tax on Nonresident Foreign Corporation. (5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. (c) Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange. A final tax at the rates prescribed below is hereby imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold, or disposed of through the stock exchange: Not over P100,000 5% On any amount in excess of P100,000 10% 4. Situations where the BIR will decline issuing a ruling on the matter. 5. Emphasis supplied. 6. Issued 1 February 1992. 7. Dagan vs. Philippine Racing Commission , G.R. No. 175220, 12 February 2009. 8. Ruben E. Agpalo, Administrative Law, Law on Public Officers and Election Law (2005), citing People vs. Maceren , 79 SCRA 450 (1977).