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RCBC v. Commissioner CTA Case No.

6201 Issue:
Whether or not the petitioner is liable for deficiency
Topic: Gross Income onshore tax for taxable years 1994 and 1995 on its
 To whom income is taxable interest income derived from foreign currency loans
granted to residents
Final tax on interest income from loans extended Ruling and Ratio:
to resident borrowers is a direct liability of FCDU – Yes. Pursuant to Section 24 (e)(3) of the NIRC of 1993
The 10% final tax on interest income of a foreign provides that the interest income from foreign currency
currency deposit unit from loans extended to resident loans granted by such depository banks under the said
clients is a direct liability of the FCDU. Although the expanded system to residents (other than offshore
payor-borrower is the one constituted by law to banking units in the PH or other depository banks
withhold and remit the 10% tax, the laws and under the expanded system) shall be subject to a 10%
jurisprudence do not absolve the FCDU from payment tax.
of the tax, if the payor-borrower fails to perform its duty
as withholding agent. Corollarily, the withholding agent While it is true that the payor-borrower is the one
may also be assessed deficiency withholding tax as a constituted by law to withhold and remit the 10% final
penalty for failure to fulfill the obligation to withhold as tax on onshore income, the obligation of paying the
required by law. This is different from the FCDU’s 10% final tax on onshore income rests on petitioner
liability to the tax. being the one directly liable for it pursuant to Section
24(e)(3) of the NIRD of 1993.
RIZAL COMMERCIAL BANKING In one case, the Supreme Court elucidated the
CORPORATION, petitioner, operation of the withholding tax system:
COMMISSIONER OF INTERNAL In the operation of the withholding tax system, the
REVENUE, respondent. withholding agent is the payor, a separate entity acting
no more than an agent of the government for the
CTA Case No. 6201 collection of the tax in order to ensure its payments;
December 15, 2004 the payer is the taxpayer – he is the person subject
Acosta, J. to tax imposed by law; and the payee is the taxing
authority. In other words, the withholding agent is
Nature of the Case: merely a tax collector, not a taxpayer. Under the
Petition for Review withholding system, however, the agent-payor
becomes a payee by fiction of law. His (agent) liability
Facts: is direct and independent from the taxpayer, because
Petitioner is a corporation duly organized and existing the income tax is still imposed on and due from the
under and by virtue of PH law, with principal office latter. The agent is not liable for the tax as no wealth
located at 333 Gen Gil Puyat Avenue, Makati City, It is flowed into him – he earned no income.
duly registered with SEC and authorized by BSP to
engage in general banking operations. The law and jurisprudence do not dispense the liability
of the taxpayer with respect to the payment of the 10%
For the calendar years 1994 and 1995, petitioner final tax on onshore income if the withholding agent
seasonably files its 1994 and 1995 Corporation Annual fails to deduct and remit the same to the BIR. After all,
Income Tax Returns for Foreign Currency Deposit it is the taxpayer who earned the income.

Petitioner was assessed by the Commissioner of

Internal Revenue for deficiency onshore income tax for
the calendar years 1994 and 1995. Said assessment
was paid by the petitioner under protest.

Petitioner assails the validity of the assessment

claiming that it is not liable to 10% onshore tax. The
10% final tax on onshore income is the liability of the
payor-borrower who is the constituted withholding
agent of the respondent. Petitioner avers that it is the
payor-borrower who have the obligation to deduct,
withhold, and remit the said taxes to the BIR.
Petitioner, being the lending OBU/FCDU, cannot be
held liable for deficiency onshore tax even if the
withholding agents failed to remit the tax to the