CIR vs PAL

FACTS:
PHILIPPINE AIRLINES, INC. had zero taxable income for 2000 but would have been liable for Minimum
Corporate Income Tax based on its gross income. However, PHILIPPINE AIRLINES, INC. did not pay the
Minimum Corporate Income Tax using as basis its franchise which exempts it from all other taxes upon
payment of whichever is lower of either (a) the basic corporate income tax based on the net taxable
income or (b) a franchise tax of 2%.

ISSUE:
Is PAL liable for Minimum Corporate Income Tax?

HELD:
NO. PHILIPPINE AIRLINES, INC.s franchise clearly refers to "basic corporate income tax" which refers
to the general rate of 35% (now 30%). In addition, there is an apparent distinction under the Tax Code
between taxable income, which is the basis for basic corporate income tax under Sec. 27 (A) and gross
income, which is the basis for the Minimum Corporate Income Tax under Section 27 (E). The two terms
have their respective technical meanings and cannot be used interchangeably. Not being covered by the
Charter which makes PAL liable only for basic corporate income tax, then Minimum Corporate Income
Tax is included in "all other taxes" from which PHILIPPINE AIRLINES, INC. is exempted.

The CIR also can not point to the Substitution Theory which states that Respondent may not invoke the
in lieu of all other taxes provision if it did not pay anything at all as basic corporate income tax or
franchise tax. The Court ruled that it is not the fact tax payment that exempts Respondent but the
exercise of its option. The Court even pointed out the fallacy of the argument in that a measly sum of one
peso would suffice to exempt PAL from other taxes while a zero liability would not and said that there is
really no substantial distinction between a zero tax and a one-peso tax liability. Lastly, the Revenue
Memorandum Circular stating the applicability of the MCIT to PAL does more than just clarify a previous
regulation and goes beyond mere internal administration and thus cannot be given effect without previous
notice or publication to those who will be affected thereby.

MANILA BANKING CORP VS. CIR- Minimum

Corporate Income Tax (MCIT)
The intent of Congress relative to the minimum corporate income tax(MCIT) is to grant a 4-year
suspension of tax payment to newly formed corporations. Corporations still starting their business
operations have to stabilize their venture in order to obtain a stronghold in the industry.

Facts:
1961- Manila Banking Corp was incorporated. It engaged in the banking industry til 1987.
May 1987- Monetary Board of Bangko Sentral ng Pilipinas (BSP) issued Resolution # 505 {pursuant to
the Central Bank Act (RA 265)} prohibiting Manila Bank from engaging in business by reason of
insolvency. So, Manila Bank ceased operations and its assets and liabilities were placed under charge of
a gov.- appointed receiver.
1998- Comprehensive Tax Reform Act (RA8424) imposed a minimum corporate income tax on domestic
and resident foreign corporations.
o Implementing law: Revenue Regulation # 9-98 stating that the law allows a 4year period from the
time the corporations were registered with the BIR during which the minimum corporate income tax
should not be imposed.
June 23, 1999- BSP authorized Manila Bank to operate as a thrift bank.
o NOTE: June 15, 1999 Revenue Regulation #4-95 (pursuant to Thrift Bank Act of 1995) provides that
the date of commencement of operations shall be understood to mean the date when the thrift bank was
registered with SEC or when Certificate of Authority to Operate was issued by the Monetary Board,
whichever comes LATER.
Dec 1999- Manila Bank wrote to BIR requesting a ruling on whether it is entitled to the 4 year grace
period under RR 9-98.
April 2000- Manila bank filed with BIR annual income tax return for taxable year 1999 and paid 33M.
Feb 2001- BIR issued BIR Ruling 7-2001 stating that Manila Bank is entitled to the 4year grace period.
Since it reopened in 1999, the min. corporate income tax may be imposed not earlier than 2002. It
stressed that although it had been registered with the BIR before 1994, but it ceased operations 19871999 due to involuntary closure.
o Manila Bank, then, filed with BIR for the refund. Due to the inaction of BIR on the claim, it filed with
CTA for a petition for review, which was denied and found that Manila Banks payment of 33M is correct,
since its operations were merely interrupted during 1987-1999. CA affirmed CTA.

Issue: Whether or not Manila Bank is entitled to a refund of its minimum

corporate income tax paid to BIR for 1999.

Held: Yes.
CIRs contensions are without merit. He contended that based on RR# 9-98, Manila Bank should pay
the min. corporate income tax beg. 1998 as it did not close its operations in 1987 but merely suspended
it. Even if placed under suspended receivership, its corporate existence was never affected. Thus falling
under the category of a existing corporation recommencing its banking business operations
** Sec. 27 E of the Tax Code provides the Minimum Corporate Income Tax (mcit) on Domestic
Corporations.
o (1) Imposition of Tax- MCIT of 2% of gross income as of the end of the taxable year, as defined here in,
is hereby imposed on a corporation taxable under this title, beginning on the 4th taxable year immediately

following the year in which such corp commenced its business operations, when the mcit is greater than
the tax computed under Subsec. A of this section for the taxable year.
o (2) Any excess in the mcit over the normal income tax shall be carried forward and credited against
the normal income tax for the 3 succeeding taxable years.
Let it be stressed that RR 9-98 imposed the mcit on corps, the date when business operations
commence is the year in which the domestic corporation registered with the BIR. But under RR 4-95, the
date of commencement of operations of thrift banks, is the date of issuance of certificate by Monetary
Board or registration with SEC, whichever comes later. Clearly then, RR 4-95 applies to Manila banks,
being a thrift bank. 4-year period= counted from June 1999.

Commissioner vs. Air India

GR L-72443, 29 January 1988
Facts: Air India is a foreign corporation and an off-line international carrier not engaged in the business
of air transporation in the Philippines. Air India sells airplane tickets in the Philippines trhough its
general sales agent, Philippine Airlines. Said tickets are serviced by Air India outside the Philippines. The
Commissioner of Internal Revenue assessed against Air India the amount of P142,471.68 representing
2.55 income tax on its gross Philippine billngs pursuant to Section 24 (b) (2) of the Tax Code, as
amended, inclusive of th e50% surcharge and interest for willful neglect to file a return as provided
under Section 72 of the same Code. Air India appealed to the Court of Tax Appeals.
Issue: Whether the revenue derived by an international air carrier from sles of tickets in the Philippines
for air transportation, while having no landing rights in the country, constitutes income of said carrier
from Philippine sources, and thus taxable under Section 24 (b) (2) of the Tax Code.
Held: Based on the doctrine enunciated in British Overseas Airways Corp., the revenue derived by Air
India from the sales of airplane tickets, through its agent in the Philippines, must be considered taxable
income. As correctly assessed by the Commissioner, such income is subject to a 2.5% tax pursuant to PD
1355, amending section 24 (b) (2) of the Tax Code.

COMMISSIONER OF INTERNAL REVENUE V.

PROCTER AND GAMBLE PHILIPPINE
MANUFACTURING CORPORATION (204 SCRA
377)- Tax on Dividends

NON-RESIDENT FOREIGN CORPORATION- DIVIDENDS

Sec 24 (b) (1) of the NIRC states that an ordinary 35% tax rate will be applied to dividend remittances to
non-resident corporate stockholders of a Philippine corporation. This rate goes down to 15% ONLY IF the
country of domicile of the foreign stockholder corporation shall allow such foreign corporation a tax
credit for taxes deemed paid in the Philippines, applicable against the tax payable to the domiciliary
country by the foreign stockholder corporation. However, such tax credit for taxes deemed paid in the
Philippines MUST, as a minimum, reach an amount equivalent to 20 percentage points

FACTS:
Procter and Gamble Philippines declared dividends payable to its parent company and sole stockholder,
P&G USA. Such dividends amounted to Php 24.1M. P&G Phil paid a 35% dividend withholding tax to the
BIR which amounted to Php 8.3M It subsequently filed a claim with the Commissioner of Internal
Revenue for a refund or tax credit, claiming that pursuant to Section 24(b)(1) of the National Internal
Revenue Code, as amended by Presidential Decree No. 369, the applicable rate of withholding tax on the
dividends remitted was only 15%.

MAIN ISSUE:
Whether or not P&G Philippines is entitled to the refund or tax credit.

HELD:
YES. P&G Philippines is entitled.
Sec 24 (b) (1) of the NIRC states that an ordinary 35% tax rate will be applied to dividend remittances to
non-resident corporate stockholders of a Philippine corporation. This rate goes down to 15% ONLY IF he
country of domicile of the foreign stockholder corporation shall allow such foreign corporation a tax
credit for taxes deemed paid in the Philippines, applicable against the tax payable to the domiciliary
country by the foreign stockholder corporation. However, such tax credit for taxes deemed paid in the
Philippines MUST, as a minimum, reach an amount equivalent to 20 percentage points which represents
the difference between the regular 35% dividend tax rate and the reduced 15% tax rate. Thus, the test is
if USA shall allow P&G USA a tax credit for taxes deemed paid in the Philippines applicable against
the US taxes of P&G USA, and such tax credit must reach at least 20 percentage points. Requirements
were met.

NOTES: Breakdown:
a) Deemed paid requirement: US Internal Revenue Code, Sec 902: a domestic corporation (owning 10%
of remitting foreign corporation) shall be deemed to have paid a proportionate extent of taxes paid by
such foreign corporation upon its remittance of dividends to domestic corporation.

b) 20 percentage points requirement: (computation is as follows)

P 100.00 -- corporate income earned by P&G Phils
x 35% -- Philippine income tax rate
P 35.00 -- paid by P&G Phil as corporate income tax
P 100.00
- 35.00
65. 00 -- available for remittance
P 65. 00
x 35% -- Regular Philippine dividend tax rate
P 22.75 -- regular dividend tax
P 65.0o
x 15% -- Reduced dividend tax rate
P 9.75 -- reduced dividend tax
P 65.00 -- dividends remittable
- 9.75 -- dividend tax withheld at reduced rate
P 55.25 -- dividends actually remitted to P&G USA
Dividends actually
remitted by P&G Phil = P 55.25
---------------------------------- ------------- x P35 = P29.75
Amount of accumulated P 65.00
profits earned
P35 is the income tax paid.
P29.75 is the tax credit allowed by Sec 902 of US Tax Code for Phil corporate income tax deemed paid
by the parent company. Since P29.75 is much higher than P13, Sec 902 US Tax Code complies with the
requirements of sec 24 NIRC. (I did not understand why these were divided and multiplied. Point is,
requirements were met)

Reason behind the law:

Since the US Congress desires to avoid or reduce double taxation of the same income stream, it allows a
tax credit of both (i) the Philippine dividend tax actually withheld, and (ii) the tax credit for the Philippine
corporate income tax actually paid by P&G Philippines but deemed paid by P&G USA.
Moreover, under the Philippines-United States Convention With Respect to Taxes on Income, the
Philippines, by treaty commitment, reduced the regular rate of dividend tax to a maximum of 20% of he
gross amount of dividends paid to US parent corporations, and established a treaty obligation on the part

of the United States that it shall allow to a US parent corporation receiving dividends from its Philippine
subsidiary a [tax] credit for the appropriate amount of taxes paid or accrued to the Philippines by the
Philippine [subsidiary].
Note:
The NIRC does not require that the US tax law deem the parent corporation to have paid the 20
percentage points of dividend tax waived by the Philippines. It only requires that the US shall allow
P&G-USA a deemed paid tax credit in an amount equivalent to the 20 percentage points waived by the
Philippines. Section 24(b)(1) does not create a tax exemption nor does it provide a tax credit; it is a
provision which specifies when a particular (reduced) tax rate is legally applicable.
Section 24(b)(1) of the NIRC seeks to promote the in-flow of foreign equity investment in the Philippines
by reducing the tax cost of earning profits here and thereby increasing the net dividends remittable to the
investor. The foreign investor, however, would not benefit from the reduction of the Philippine dividend tax
rate unless its home country gives it some relief from double taxation by allowing the investor additional
tax credits which would be applicable against the tax payable to such home country. Accordingly Section
24(b)(1) of the NIRC requires the home or domiciliary country to give the investor corporation a deemed
paid tax credit at least equal in amount to the 20 percentage points of dividend tax foregone by the
Philippines, in the assumption that a positive incentive effect would thereby be felt by the investor.

Commissioner vs. Procter & Gamble Philippines

GR L-66838, 15 April 1988
Facts: Procter and Gamble Philippines is a wholly owned subsidiary of Procter and Gamble USA
(PMCUSA), a non-resident foreign corporation in the Philippines, not engaged in trade and business
therein. PMCUSA is the sole shareholder of PMC Philippines and is entitled to receive income from PMC
Philippines in the form of dividends, if not rents or royalties. For the taxable years 1974 and 1975, PMC
Philippines filed its income tax return and also declared dividends in favor of PMC-USA. In 1977, PMC
Philippines, invoking the tax-sparing provision of Section 24 (b) as the withholding agent of the
Philippine Government with respect to dividend taxes paid by PMC-USA, filed a claim for the refund of
20 percentage point portion of the 35 percentage whole tax paid with the Commissioner of Internal
Revenue.
Issue: Whether PMC Philippines is entitled to the 15% preferential tax rate on dividends declared and
remitted to its parent corporation.
Held: The issue raised is one made for the first time before the Supreme Court. Under the same
underlying principle of prior exhaustion of administrative remedies, on the judicial level, issues not
raised in the lower court cannot be generally raised for the first time on appeal. Nonetheless, it is
axiomatic that the state can never be allowed to jeopardize the governments financial position. The
submission of the Commissioner that PMC Philippines is but a withholding agent of the government and
therefore cannot claim reimbursement of alleged overpaid taxes, is completely meritorious. The real
party in interest is PMC-USA, which should prove that it is entitled under the US Tax Code to a US

Foreign Tax Credit equivalent to at least 20 percentage points spared or waived as otherwise considered
or deemed paid by the Government. Herein, the claimant failed to show or justify the tax return of the
disputed 15% as it failed to show the actual amount credited by the US Government against the income
tax due from PMC-USA on the dividends received from PMC Philippines; to present the income tax
return of PMC-USA for 1975 when the dividends were received; and to submit duly authenticated
document showing that the US government credited teh 20% tax deemed paid in the Philippines.

CIR vs WANDER PHILIPPINES, INC. - CASE DIGEST

G.R. NO. L-68275, April 15, 1988
Commissioner of Internal Revenue, petitioner
vs
WANDER Philippines, Inc., and the Court of Tax Appeals, respondents

FACTS:
Private respondents Wander Philippines, Inc. (wander) is a domestic corporation organized under
Philippine laws. It is wholly-owned subsidiary of the Glaro S.A. Ltd. (Glaro), a Swiss corporation not
engaged in trade for business in the Philippines. Wander filed it's witholding tax return for 1975 and
1976 and remitted to its parent company Glaro dividends from which 35% withholding tax was
withheld and paid to the BIR.
In 1977, Wander filed with the Appellate Division of the Internal Revenue a claim for
reimbursement, contending that it is liable only to 15% withholding tax in accordance with sec. 24 (b)
(1) of the Tax code, as amended by PD nos. 369 and 778, and not on the basis of 35% which was
withheld ad paid to and collected by the government. petitioner failed to act on the said claim for
refund, hence Wander filed a petition with Court of Tax Appeals who in turn ordered to grant a
refund and/or tax credit. CIR's petition for reconsideration was denied hence the instant petition to
the Supreme Court.
ISSUE: Whether or not Wander is entitled to the preferential rate of 15% withholding tax on
dividends declared and to remitted to its parent corporation.

HELD: Section 24 (b) (1) of the Tax code, as amended by PD 369 and 778, the law involved in this
case, reads:
sec. 1. The first paragraph of subsection (b) of section 24 of the NIRC, as amended is hreby further
amended to read as follows:
(b) Tax on foreign corporations - (1) Non resident corporation -- A foreign corporation not engaged in
trade or business in the Philippines, including a foreign life insurance company not engaged in life
insurance business in the Philippines, shall pay a tax equal to 35% of the gross income received

during its taxable year from all sources within the Philippines, as interest (except interest on a
foreign loans which shall be subject to 15% tax), dividends, premiums, annuities, compensation,
remuneration for technical services or otherwise emolument, or other fixed determinable annual,
periodical ot casual gains, profits and income, and capital gains: xxx Provided, still further that on
dividends received from a domestic corporation liable to tax under this chapter, the tax shall be 15%
of the dividends received, which shall be collected and paid as provided in sec 53 (d) of this code,
subject to the condition that the country in which the non-resident foreign corporation is domiciled
shall allow a credit against tax due from the non-resident foreign corporation taxes deemed to have
been paid in the Philippines equivalent to 20% which represents the difference between the regular
tax (35%) on corporation and the tax (15%) dividends as provided in this section: xxx."
From the above-quoted provision, the dividends received from a domestic corporation liable to tax,
the tax shall be 15% of the dividends received, subject to the condition that the country in which the
non-resident foreign corporation is domiciled shall allow a credit against the tax due from the nonresident foreign corporation taxes deemed to have been paid in the Philippines equivakent to
20% which represents the difference betqween the regular tax (35%) on corpoorations and the tax
(15%) on dividends.
While it may be true that claims for refund construed strictly against the claimant, nevertheless, the
fact that Switzerland did not impose any tax on the dividends received by Glaro from the Philippines
should be considered as a full satisfaction if the given condition. For, as aptly stated by respondent
Court, to deny private respondent the privilege to withhold only 15% tax provided for under PD No.
369 amending section 24 (b) (1) of the Tax Code, would run counter to the very spirit and intent of
said law and definitely will adversely affect foreign corporations interest here and discourage them
for investing capital in our country.

CIR VS BURROUGHS
Petition for certiorari to review and set aside the Decision dated June 27, 1983 of respondent Court of
Tax Appeals in its C.T.A. Case No. 3204, entitled "Burroughs Limited vs. Commissioner of Internal
Revenue" which ordered petitioner Commissioner of Internal Revenue to grant in favor of private
respondent Burroughs Limited, tax credit in the sum of P172,058.90, representing erroneously overpaid
branch profit remittance tax.
Burroughs Limited is a foreign corporation authorized to engage in trade or business in the Philippines
through a branch office located at De la Rosa corner Esteban Streets, Legaspi Village, Makati, Metro
Manila.
Sometime in March 1979, said branch office applied with the Central Bank for authority to remit to its
parent company abroad, branch profit amounting to P7,647,058.00. Thus, on March 14, 1979, it paid the
15% branch profit remittance tax, pursuant to Sec. 24 (b) (2) (ii) and remitted to its head office the amount
of P6,499,999.30 computed as follows

Amount applied for remittance

Deduct: 15% branch profit remittance tax

P 7,647,058.00
1,147,058.70
-------------------

Net amount actually remitted

P6,499,999.30

Claiming that the 15% profit remittance tax should have been computed on the basis of the amount
actually remitted (P6,499,999.30) and not on the amount before profit remittance tax (P7,647,058.00),
private respondent filed on December 24, 1980, a written claim for the refund or tax credit of the amount
of P172,058.90 representing alleged overpaid branch profit remittance tax, computed as follows:

Profits actually remitted

Remittance tax rate

P6,499,999.30
15%
---------------------

Branch profit remittance tax due thereon

Branch profit remittance tax paid
Less: Branch profit remittance tax as above computed

P 974,999.89
P 1,147,058.70
974,999.89
----------------------

Total amount refundable

P172,058.81

On February 24, 1981, private respondent filed with respondent court, a petition for review, docketed as
C.T.A. Case No. 3204 for the recovery of the above-mentioned amount of P172,058.81.

On June 27, 1983, respondent court rendered its Decision, the dispositive portion of which reads

"ACCORDINGLY, respondent Commission of Internal Revenue is hereby ordered to grant a tax credit in
favor of petitioner Burroughs Limited the amount of P172,058.90. Without pronouncement as to costs.

SO ORDERED."

Unable to obtain a reconsideration from the aforesaid decision, petitioner filed the instant petition before
this Court with the prayers as herein earlier stated upon the sole issue of whether the tax base upon
which the 15% branch profit remittance tax shall be imposed under the provisions of section 24(b) of the
Tax Code, as amended, is the amount applied for remittance on the profit actually remitted after
deducting the 15% profit remittance tax. Stated differently ---- is private respondent Burroughs Limited
legally entitled to a refund of the aforementioned amount of P172,058.90.

We rule in the affirmative. The pertinent provision of the National Revenue Code is Sec. 24 (b) (2) (ii)
which states:

"Sec. 24. Rates of tax on corporations. . . .

(b) Tax on foreign corporations. . . .

(2) (ii) Tax on branch profits remittances. Any profit remitted abroad by a branch to its head office shall
be subject to a tax of fifteen per cent (15%) . . . ."

In a Bureau of Internal Revenue ruling dated January 21, 1980 by then Acting Commissioner of Internal
Revenue Hon. Efren I. Plana the aforequoted provision had been interpreted to mean that "the tax base
upon which the 15% branch profit remittance tax . . . shall be imposed . . . (is) the profit actually remitted
abroad and not on the total branch profits out of which the remittance is to be made." The said ruling is
hereinbelow quoted as follows:

"In reply to your letter of November 3, 1978, relative to your query as to the tax base upon which the 15%
branch profits remittance tax provided for under Section 24 (b) (2) of the 1977 Tax Code shall be
imposed, please be advised that the 15% branch profit tax shall be imposed on the branch profits actually
remitted abroad and not on the total branch profits out of which the remittance is to be made.

Please be guided accordingly."

Applying, therefore, the aforequoted ruling, the claim of private respondent that it made an overpayment
in the amount of P172,058.90 which is the difference between the remittance tax actually paid of
P1,147,058.70 and the remittance tax that should have been paid of P974,999.89, computed as follows

Profits actually remitted

Remittance tax rate

P6,499,999.30
15%
----------------------

Remittance tax due

P 974,999.89

is well-taken. As correctly held by respondent Court in its assailed decision

"Respondent concedes at least that in his ruling dated January 21, 1980 he held that under Section 24 (b)
(2) of the Tax Code the 15% branch profit remittance tax shall be imposed on the profit actually remitted
abroad and not on the total branch profit out of which the remittance is to be made. Based on such ruling
petitioner should have paid only the amount of P974,999.89 in remittance tax computed by taking the
15% of the profits of P6,499,999.89 in remittance tax actually remitted to its head office in the United

States, instead of P1,147,058.70, on its net profits of P7,647,058.00. Undoubtedly, petitioner has
overpaid its branch profit remittance tax in the amount of P172,058.90."

Petitioner contends that respondent is no longer entitled to a refund because Memorandum Circular No.
8-82 dated March 17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1980. The said
memorandum circular states

"Considering that the 15% branch profit remittance tax is imposed and collected at source, necessarily
the tax base should be the amount actually applied for by the branch with the Central Bank of the
Philippines as profit to be remitted abroad."

Petitioner's aforesaid contention is without merit. What is applicable in the case at bar is still the Revenue
Ruling of January 21, 1980 because private respondent Burroughs Limited paid the branch profit
remittance tax in question on March 14, 1979. Memorandum Circular No. 8-82 dated March 17, 1982
cannot be given retroactive effect in the light of Section 327 of the National Internal Revenue Code which
provides

"Sec. 327. Non-retroactivity of rulings. Any revocation, modification, or reversal of any of the rules and
regulations promulgated in accordance with the preceding section or any of the rulings or circulars
promulgated by the Commissioner shall not be given retroactive application if the revocation,
modification, or reversal will be prejudicial to the taxpayer except in the following cases (a) where the
taxpayer deliberately misstates or omits material facts from his return or in any document required of him
by the Bureau of Internal Revenue; (b) where the facts subsequently gathered by the Bureau of Internal
Revenue are materially different from the facts on which the ruling is based, or (c) where the taxpayer
acted in bad faith." (ABS-CBN Broadcasting Corp. v. CTA, 108 SCRA 151-152)

The prejudice that would result to private respondent Burroughs Limited by a retroactive application of
Memorandum Circular No. 8-82 is beyond question for it would be deprived of the substantial amount of
P172,058.90. And, insofar as the enumerated exceptions are concerned, admittedly, Burroughs Limited
does not fall under any of them.

WHEREFORE, the assailed decision of respondent Court of Tax Appeals is hereby AFFIRMED. No
pronouncement as to costs.

SO ORDERED.

MARUBENI CORPORATION V. COMMISSIONER

OF INTERNAL REVENUE- Income Tax
The dividends received by Marubeni Corporation from Atlantic Gulf and Pacific Co. are not income arising
from the business activity in which Marubeni Corporation is engaged. Accordingly, said dividends if
remitted abroad are not considered branch profits subject to Branch Profit Remittance Tax.

Facts:
Marubeni Corporation is a Japanese corporation licensed to engage in business in the Philippines. When
the profits on Marubenis investments in Atlantic Gulf and Pacific Co. of Manila were declared, a 10% final
dividend tax was withheld from it, and another 15% profit remittance tax based on the remittable amount
after the final 10% withholding tax were paid to the Bureau of Internal Revenue. Marubeni Corp. now
claims for a refund or tax credit for the amount which it has allegedly overpaid the BIR.

Issues and Ruling:

1. Whether or not the dividends Marubeni Corporation received from Atlantic Gulf and Pacific
Co. are effectively connected with its conduct or business in the Philippines as to be
considered branch profits subject to 15% profit remittance tax imposed under Section
24(b)(2) of the National Internal Revenue Code.

NO. Pursuant to Section 24(b)(2) of the Tax Code, as amended, only profits remitted abroad by a branch
office to its head office which are effectively connected with its trade or business in the Philippines are
subject to the 15% profit remittance tax. The dividends received by Marubeni Corporation from Atlantic
Gulf and Pacific Co. are not income arising from the business activity in which Marubeni Corporation is
engaged. Accordingly, said dividends if remitted abroad are not considered branch profits for purposes of
the 15% profit remittance tax imposed by Section 24(b)(2) of the Tax Code, as amended.

2. Whether Marubeni Corporation is a resident or non-resident foreign corporation.

Marubeni Corporation is a non-resident foreign corporation, with respect to the transaction. Marubeni
Corporations head office in Japan is a separate and distinct income taxpayer from the branch in the
Philippines. The investment on Atlantic Gulf and Pacific Co. was made for purposes peculiarly germane
to the conduct of the corporate affairs of Marubeni Corporation in Japan, but certainly not of the branch in
the Philippines.

3. At what rate should Marubeni be taxed?

15%. The applicable provision of the Tax Code is Section 24(b)(1)(iii) in conjunction with the PhilippineJapan Tax Treaty of 1980. As a general rule, it is taxed 35% of its gross income from all sources within
the Philippines. However, a discounted rate of 15% is given to Marubeni Corporation on dividends
received from Atlantic Gulf and Pacific Co. on the condition that Japan, its domicile state, extends in favor
of Marubeni Corporation a tax credit of not less than 20% of the dividends received. This 15% tax rate
imposed on the dividends received under Section 24(b)(1)(iii) is easily within the maximum ceiling of 25%
of the gross amount of the dividends as decreed in Article 10(2)(b) of the Tax Treaty.
Note: Each tax has a different tax basis.
Under the Philippine-Japan Tax Convention, the 25% rate fixed is the maximum rate, as reflected in the
phrase shall not exceed. This means that any tax imposable by the contracting state concerned hould
not exceed the 25% limitation and said rate would apply only if the tax imposed by our laws exceeds the
same.