ITAD BIR Ruling No. 254-11

November 10, 2011 ITAD BIR RULING NO. 254-11 Romulo Mabanta Buenaventura Sayoc & De Los Angeles Attorneys at Law 30th Floor, Citibank Tower 8741 Paseo de Roxas, Makati City 1260 Attention: Wilma M. Valdemoro-Cua Jason L. Fernandez Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on December 14, 2007 requesting confirmation that gains derived by KISHO ELECTRONICS SINGAPORE PTE., LTD. ("Kisho Singapore") from the sales of shares in KISHO SAKATA ELECTRONICS (PHILIPPINES), Inc. ("Kisho Phils") to KISHO ELECTRIC COMPANY, LTD. ("Kisho Japan") under a Deed of Sale of Shares of Stock dated June 26, 2007 are exempt from income tax, pursuant to the Convention between the Republic of the Philippines and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income . 1 Under the Deed of Sale of Shares of Stock, Kisho Japan will pay Kisho Singapore the consideration for the sale by means of a bank remittance on June 26, 2007. Relative thereto, please be informed that under Section III (2) of Revenue Memorandum Order No. 1-00 (Procedures for Processing Tax Treaty Relief Application) ("RMO 1-2000") , any availment of tax treaty relief (exemption from income tax or reduction of tax) shall be preceded by an application filed at the International Tax Affairs Division ("ITAD") of this Bureau at least 15 days before the intended transaction or payment of income, thus: "III. Policies: In order to achieve the above-mentioned objectives, the following policies shall be observed: xxx xxx xxx 2. Any availment of the tax treaty relief shall be preceded by an application by filing BIR Form No. 0901 (Application for Relief from Double Taxation) with ITAD at least 15 days before the transaction i.e., payment of dividends, royalties, etc., accompanied by supporting documents justifying the relief . . ." (Emphasis ours) This condition was emphasized by the Court of Tax Appeals in Mirant (Philippines) Operations Corporation vs. Commissioner of Internal Revenue (C.T.A. Case No. 6382 dated June 7, 2005) where it ruled: TcHEaI " However, it must be remembered that a foreign corporation wishing to avail of the benefits of the tax treaty should invoke the provisions of the tax treaty and prove that indeed the provisions of the tax treaty applies to it, before the benefits may be extended to such corporation . In other words, a resident or non-resident foreign corporation shall be taxed according to the provisions of the National Internal Revenue Code, unless it is shown that the treaty provisions apply to the said corporation, and that, in cases the same are applicable, the option to avail of the tax benefits under the tax treaty has been successfully invoked. Under Revenue Memorandum Order 01-2000 of the Bureau of Internal Revenue, it is provided that the availment of a tax treaty provision must be preceded by an application for a tax treaty relief with its International Tax Affairs Division (ITAD). This is to prevent any erroneous interpretation and/or application of the treaty provisions with which the Philippines is a signatory to. The implementation of the said Revenue Memorandum Order is in harmony with the objectives of the contracting state to ensure that the granting of the benefits under the tax treaties are enjoyed by the persons or corporations duly entitled to the same. The Court notes that nowhere in the records of the case was it shown that petitioner indeed took the liberty of properly observing the provisions of the said order. Petitioner quotes various BIR, as well as ITAD, Rulings issued to several foreign corporations seeking, for a tax relief from the office of the respondent. However, not any one of these rulings pertains to the petitioner. It must be stressed that BIR rulings are issued based on the facts and circumstances surrounding particular issue/issues in question and are resolved on a case-to-case basis. It would be thus erroneous to invoke the ruling of the respondent in specific cases, which have no bearing to the case of petitioner." (Emphasis ours) This decision was also upheld by the Supreme Court in a Resolution (G.R. No. 168531) dated February 18, 2008. Furthermore, the necessary requirement laid down in RMO 1-2000 is reiterated in subsequent rulings of the Court of Tax Appeals: Deutsche Bank AG Manila Branch vs. Commissioner of Internal Revenue (C.T.A. Case No. 7344 dated August 28, 2009), CBK Power Company Ltd. vs. Commissioner of Internal Revenue (C.T.A. Case Nos. 6699, 6884 and 7166 dated March 29, 2010) and Manila North Tollways Corporation vs. Commissioner of Internal Revenue (C.T.A. Case No. 7864 dated April 12, 2011) . In view of the foregoing, since the consideration for sale of the shares in Kisho Phils. was made by Kisho Singapore to Kisho Japan on June 26, 2007, and the subject TTRA was filed only on December 14, 2007, 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. Consequently, said gains shall be subject to tax at the rate provided under Section 28 (B) (5) (c) of the 1997 National Internal Revenue Code, as amended. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Signed on August 1, 1977, and effective January 1, 1977.