FIRST DIVISION
[G.R. No. 232170. November 5, 2018.]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.SARA LEE KIWI HOLDINGS, LLC, respondent.
NOTICE
Sirs/Mesdames :
Please take notice that the Court, First Division, issued a Resolution dated November 5, 2018which reads as follows:
"G.R. No. 232170 — Commissioner of Internal Revenue vs. Sara Lee Kiwi Holdings, LLC
Before Us is a Petition for Review on Certiorari 1 filed by petitioner Commissioner of Internal Revenue (CIR), assailing the Decision 2 dated February 13, 2017 and the Resolution 3 dated June 5, 2017 of the Court of Tax Appeals En Banc (CTA) in CTA EB No. 1396, which affirmed the Decision 4 dated September 4, 2015 of the CTA Second Division in CTA Case No. 8741, ordering the refund of donor's tax erroneously paid by Sara Lee Kiwi Holdings, LLC (Sara Lee).
Sara Lee is a non-resident foreign corporation, organized and existing under, and by virtue of the laws of the State of Delaware, United States of America (USA). 5
On April 4, 2011, Sara Lee sold its entire holdings and interest, consisting of 1,460,736 common shares and subscription rights in Sara Lee Household Care (Philippines), Inc. (SLHCPI) to S.C. Johnson & Son, Inc. (SC Johnson) in the amount of Three Million Eight Hundred Seven Thousand Euros (€3,807,000.00) or Two Hundred Thirty-Five Million Two Hundred Ninety-One Thousand Two Hundred Fifty-Four Pesos and 30/100 (P235,291,254.30). 6
On May 4, 2011, Sara Lee filed a Capital Gains Tax Return on said date, showing a net capital loss of One Hundred Ninety-Two Million Seven Hundred Sixty-Five Thousand Three Hundred Thirty-Four Pesos and 75/100 (P192,765,334.75), computed as follows: 7
|
Taxable Base — For Cash Sale |
P235,291,254.30 |
|
Less: Cost and Other Allowable Expenses |
P428,056,589.05 |
|
Net Capital Gain/(Loss) |
(P192,765,334.75) |
On December 5, 2011, Sara Lee filed a Donor's Tax Return and paid the Donor's tax due in the amount of Fifty-Seven Million Eight Hundred Twenty-Nine Thousand Six Hundred Pesos and 50/100 (P57,829,600.50). 8 CAIHTE
On June 11, 2012, Sara Lee and SC Johnson executed an Amendment Agreement (to the Deed of Absolute Sale of Shares of Stock and Assignment of Subscription Rights dated April 4, 2011) whereby they both agreed to an upward adjustment in the purchase price in the amount of Nine Hundred Thirty-Five Thousand Three Hundred Ninety-Nine Euros (€935,399.00) or Fifty Million Five Hundred Fifty-Eight Thousand Eight Hundred Seventy-Seven and 19/100 (P50,558.877.19) as additional purchase price. This increased the purchase price to Two Hundred Eighty-Five Thousand Eight Hundred Fifty Thousand One Hundred Thirty-One Pesos and 49/100 (P285,850,131.49). 9
As a result of said increase and a consequent decrease in the capital loss, Sara Lee filed an amended Donor's Tax Return on June 19, 2012, showing an overpayment of Fifteen Million One Hundred Sixty-Seven Thousand Six Hundred Sixty-Three Pesos and 23/100 (P15,167,663.23). 10
Thereafter, Sara Lee filed a claim for refund of the overpaid donor's tax in the amount of P15,167,663.21 citing Section 204 (C) 11 of the National Internal Revenue Code (NIRC) of 1997 as amended. 12
An amended application for refund was filed on July 20, 2012, requesting the refund of the entire donor's tax paid on December 5, 2011 in the amount of P57,829,600.50 allegedly representing the capital loss arising from the sale of shares of stock of SLHCPI to SC Johnson. 13 In claiming for the refund in the amount of P57,829,600.50, Sara Lee argued that the tax had been erroneously paid because the sale of SLHCPI's shares is not subject to donor's tax. 14
Sara Lee argued, among others, that the sale did not result in a capital loss because the book value of the shares sold is lower than the selling price thereof per SLHCPI's Audited Financial Statements as of June 30, 2011. Further, it claimed that the sale is a bona fide transaction and at arm's length between independent and distinct entities, who are not related parties, and that the resulting capital loss was merely a consequence of the negotiation between them. Sara Lee added that it has no reason to understate the selling price because had the sale resulted in a capital gain, such is not subject to capital gains tax under Article 14 of the Tax Treaty between the Republic of the Philippines and the USA. Even so, assuming that the capital loss is subject to donor's tax, refund must be had because of the excess donor's tax paid. 15
On December 4, 2013, before the lapse of the two-year prescriptive period to file judicial claim, Sara Lee filed a Petition for Review with the CTA. 16
In its Answer, the CIR, among others, maintained that Sara Lee failed to overcome the presumption that taxes paid and collected by the Bureau of Internal Revenue have been paid in accordance with law, rules and regulations. 17
In a Decision 18 dated September 4, 2015, the CTA Division granted the application for refund as Sara Lee was able to substantiate and establish its entitlement to a refund of erroneously paid donor's tax from its sale of shares of stock to SC Johnson. Moreover, the CTA Division explained that Sara Lee was correct in claiming that Section 100 19 of the NIRC is not applicable in this case because the fair market value of the shares of stock did not exceed the value of the consideration, to wit:
WHEREFORE, premises considered, the instant Petition for Review is hereby GRANTED. Accordingly, respondent is ORDERED TO REFUND in favor of petitioner in the amount of Fifty-Seven Million Eight Hundred Twenty-Nine Thousand Six Hundred Pesos and 50/100 (P57,829,600.50) representing erroneously paid donor's tax.
SO ORDERED. 20
The motion for reconsideration filed by CIR was denied in a Resolution dated November 25, 2015. 21
In a Petition for Review filed before the CTA En Banc, the CIR contended that the Audited Financial Statements of SLHCPI as of June 30, 2011 is nearest to the date of its shares of stock. This is to counter Sara Lee's argument that the fair market value of the SLHCPI shares sold should be the book value based on the Audit Financial Statements nearest to the date of sale, which was on April 4, 2011. 22
On appeal, the CTA En Banc affirmed the ruling of the CTA Division in its Decision 23 dated February 13, 2017, viz.: DETACa
WHEREFORE, in light of the foregoing considerations, the instant Petition for Review is DENIED for lack of merit. The assailed Decision dated September 4, 2015 and the assailed Resolution dated November 25, 2015, both rendered by the Court in Division in CTA Case No. 8741 are AFFIRMED.
SO ORDERED. 24
The motion for reconsideration 25 filed by the CIR was likewise denied in a Resolution 26 dated June 5, 2017.
Hence, this petition.
Ruling of the Court
The petition must be denied.
"The settled rule is that only questions of law may be raised in a petition under Rule 45 of the Rules of Court. It is not this Court's function to analyze or weigh all over again the evidence already considered in the proceedings below." 27
In the case of Fortune Tobacco Corp. v. Commissioner of Internal Revenue, 28 we reiterated the rule that the findings of the CTA are entitled great weight and respect, to wit:
In fact, the rule finds greater significance with respect to the findings of specialized courts such as the CTA, the conclusions of which are not lightly set aside because of the very nature of its functions which is dedicated exclusively to the resolution of tax problems and has accordingly developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority. 29 (Citation omitted)
Nevertheless, we proceed with the merits of the case.
The net capital gains realized by a seller from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation (except shares sold or disposed through the stock exchanged) are subject to a final tax rate of 5% for the first P100,000.00 and at the rate of 10% on the amount of said net capital gains in excess of the said P100,000.00.
Should the fair market value of the shares of stock sold, bartered or exchanged is greater than the amount of money and/or fair market value of the property received, the excess of said fair market value over the amount of money and/or fair market value of the amount received as a consideration shall be deemed as a gift under Section 100 of the NIRC.
Said fair market value of the shares of stock is its book value shown in the financial statements duly certified by an independent public accountant nearest to the date of sale.
These are based on Section 28 of the NIRC in relation to Section 7 of Revenue Regulations (RR) No. 06-2008, to wit:
SEC. 28. Rates of Income Tax on Foreign Corporations. —
(A) Tax on Resident Foreign Corporations.
xxx xxx xxx
(7) Tax on Certain Incomes Received by a Resident Foreign Corporation. x x x
xxx xxx xxx
(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%
xxx xxx xxx
(B) Tax on Nonresident Foreign Corporation. x x x
xxx xxx xxx
(5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. x x x
(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: aDSIHc
Not over P100,000 — 5%
On any amount in excess of P100,000 — 10%
RR No. 06-2008, on the other hand, provides:
SEC. 7. SALE, BARTER OR EXCHANGE OF SHARES OF STOCK NOT TRADED THROUGH A LOCAL STOCK EXCHANGE PURSUANT TO SECS. 24(C), 25(A)(3), 25(B), 27(D)(2), 28(A)(7)(c), 28(B)(5)(c) OF THE TAX CODE, AS AMENDED. —
(a) Tax Rate. — The provisions of Sec. 39(B) of the Tax Code, as amended, notwithstanding, a final tax at the rates prescribed below is hereby imposed on the sale, barter or exchange of shares of stock not traded through the Local Stock Exchange pursuant to Secs. 24(C), 25(A)(3), 25(B), 27(D)(2), 28(A)(7)(c), 28(b)(5)(c) of the said Tax Code, as amended.
|
Amount of Capital Gain |
Tax Rate |
|
Not over Php100,000 |
5% |
|
On any amount in excess of Php100,000 |
10% |
(b) Tax Base. — The tax imposed in Subsection (a) above shall be upon the net capital gains realized during the taxable year from the sale, barter, exchange or disposition of shares of stock, except shares sold or disposed of through the Local Stock Exchange which is covered by the provisions of Secs. 5 and 6 above.
(c) Determination of Amount and Recognition of Gain or Loss.
(c.1) Determination of Selling Price. — In determining the selling price, the following rules shall apply:
(c.1.1) In the case of cash sale, the selling price shall be the total consideration per deed of sale.
xxx xxx xxx
(c.1.4) In case the fair market value of the shares of stocksold, bartered, or exchanged is greater than the amount of money and/or fair market value of the property received, the excess of the fair market value of the shares of stocks sold, bartered or exchanged over the amount of money and the fair market value of the property, if any, received as consideration shall be deemed a gift subject to the donor's tax under Sec. 100 of the Tax Code, as amended.
(c.2) Definition of "fair market value" of the Shares of Stock. — For purposes of this Section, "fair market value" of the share of stock sold shall be:
xxx xxx xxx
(c.2.2) In the case of shares of stock not listed and traded in the local stock exchanges, the book value of the shares of stock as shown in the financial statements duly certified by an independent certified public accountant nearest to the date of sale shall be the fair market value.
(c.3) Determination of Gain or Loss from Sale or Disposition of Shares of Stock. — The gain from the sale or other disposition of shares of stock shall be the excess of the amount realized therefrom over the basis or adjusted basis for determining gain, and the loss shall be the excess of the basis or adjusted basis for determining loss over the amount realized. The amount realized from the sale or other disposition of property shall be the sum of money received plus the fair market value of the property (other than money) received, if any. ETHIDa
(c.3.1) Basis for Determining Gain or Loss from Sale or Disposition of Shares of Stock. — Gain or loss from the sale, barter or exchange of property, for a valuable consideration, shall be determined by deducting from the amount of consideration contracted to be paid, the vendor/transferor's basis for the property sold or disposed plus expenses of sale/disposition, if any. (Emphasis ours)
In this case, as aptly ruled in the CTA En Banc Decision, the date of the sale of the subject shares of stock is April 4, 2011. As between the Audited Financial Statements of SLHCPI for the fiscal year which ended in June 30, 2010 and Audited Financial Statements of SLHCPI for the fiscal year which ended in June 30, 2011, the latter are nearest to the date of sale. This is clear from the pertinent provisions of the law.
Considering said statements, the CTA Division, as affirmed by the CTA En Banc, is correct when it used the Audited Financial Statements of SLHCPI for the fiscal year which ended in June 30, 2011. Based from such statements, it is apparent that the sale of Sara Lee of its shares of stock is not subject to donor's tax.
To illustrate, the fair market value of the shares of stock sold is P21,832,204.00 which is based on the aforementioned statements. It is in relation to the shares issued and outstanding shares of 1,186,858 (the total authorized shares of 1,460,736 reduced by the subscription receivable of 273,888 shares). Hence, applying Article 100 of the NIRC, it is apparent that said sale is not subject to donor's tax because the value of the consideration even exceeded such fair market value by P208,420,849.38. The latter is computed as follows: 30
|
Total stockholder's equity per FS for FY ended June 30, 2011 |
P21,832,204.00 |
|
Divided by total shares issued and outstanding as of June 30, 2011 |
1,186,848 |
|
Equals Book Value per share |
P18.39511378036615 |
|
Multiplied by the total number of shares sold per Deed of Absolute Sale |
1,460,736 |
|
Equals Book Value = Fair Market Value |
P26,870,404.92 |
|
Less selling price per Deed of Absolute Sale — 4/4/2011 (€3,807,000 x 61.8049) |
235,291,254.30 |
|
Capital gain/(loss) |
P208,420,849.38 |
In all, we find no reason to deviate from the findings of the CTA Division and CTA En Banc.
WHEREFORE, the petition is DENIED for lack of merit. Accordingly, the Decision dated February 13, 2017 and the Resolution dated June 5, 2017 of the Court of Tax Appeals En Banc in CTA EB No. 1396 are AFFIRMED in toto.
SO ORDERED." Bersamin, J., designated Acting Chairperson per Special Order No. 2606 dated October 10, 2018; Gesmundo, J., designated additional Member per Special Order No. 2607 dated October 10, 2018; Del Castillo, J. and Gesmundo, J., on official leave.
Very truly yours,
(SGD.) LIBRADA C. BUENADivision Clerk of Court
Footnotes
1.Rollo, pp. 43-58.
2.Id. at 10-28.
3.Id. at 35-37.
4. Penned by Associate Justice Amelia R. Cotangco-Manalastas, concurred in by Associate Justices Juanito C. Castañeda, Jr. and Caesar A. Casanova; id. at 84-97.
5.Id. at 11.
6.Id. at 11-12.
7.Id. at 12.
8.Id.
9.Id.
10.Id.
11. Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. — The Commissioner may —
xxx xxx xxx
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction.
No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund.
A Tax Credit Certificate validly issued under the provisions of this Code may be applied against any internal revenue tax, excluding withholding taxes, for which the taxpayer is directly liable.
Any request for conversion into refund of unutilized tax credits may be allowed, subject to the provisions of Section 230 of this Code: Provided, That the original copy of the Tax Credit Certificate showing a creditable balance is surrendered to the appropriate revenue officer for verification and cancellation: Provided, further, That in no case shall a tax refund be given resulting from availment of incentives granted pursuant to special laws for which no actual payment was made.
The Commissioner shall submit to the Chairmen of the Committee on Ways and Means of both the Senate and House of Representatives, every six (6) months, a report on the exercise of his powers under this Section, stating therein the following facts and information, among others: names and addresses of taxpayers whose cases have been the subject of abatement or compromise; amount involved; amount compromised or abated; and reasons for the exercise of power: Provided, That the said report shall be presented to the Oversight Committee in Congress that shall be constituted to determine that said powers are reasonably exercised and that the government is not unduly deprived of revenues.
12. Rollo, p. 12.
13. Id. at 12-13.
14. Id. at 92.
15. Id. at 13.
16. Id.
17. Id. at 14.
18. Id. at 84-97.
19. SEC. 100.Transfer for Less Than Adequate and Full Consideration. — Where property, other than real property referred to in Section 24 (D), is transferred for less than an adequate and full consideration in money or money's worth, then the amount by which the fair market value of the property exceeded the value of the consideration shall, for the purpose of the tax imposed by this Chapter, be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year.
20. Id. at 96.
21. Id. at 16.
22. Id. at 18.
23. Id. at 10-28.
24. Id. at 26-27.
25. Id. at 29-32.
26. Id. at 35-37.
27. Fortune Tobacco Corp. v. Commissioner of Internal Revenue, 762 Phil. 450, 459 (2015).
28. 762 Phil. 450 (2015).
29. Id. at 459.
30. Rollo, p. 94.