ING Bank N.V. Manila Branch v. Commissioner of Internal Revenue
REITERATIONFacts
The Antecedents: ING Bank N.V. Manila Branch (ING Bank) received a Final Assessment Notice for deficiency income tax, withholding tax on compensation, onshore tax, branch profit remittance tax, and documentary stamp tax for taxable years 1996 and 1997. ING Bank paid some assessments but protested others. Procedural History: The Court of Tax Appeals (CTA) Second Division cancelled assessments for deficiency income tax and branch profit remittance tax but upheld assessments for deficiency withholding tax on compensation, onshore tax, and documentary stamp tax. The CTA En Banc denied ING Bank's appeal. While the case was pending before the Supreme Court, ING Bank availed itself of the tax amnesty program under Republic Act No. 9480 for its deficiency documentary stamp tax and onshore tax liabilities. The Petition: The issues before the Supreme Court were whether ING Bank could validly avail itself of the tax amnesty under Republic Act No. 9480, and whether it was liable for deficiency withholding tax on accrued bonuses for 1996 and 1997.
Issue(s)
Whether petitioner ING Bank may validly avail itself of the tax amnesty granted by Republic Act No. 9480. Whether petitioner ING Bank is liable for deficiency withholding tax on accrued bonuses for the taxable years 1996 and 1997.
Ruling
The Petition is PARTLY GRANTED. The assessments for deficiency documentary stamp taxes and deficiency tax on onshore interest income are SET ASIDE due to ING Bank's availment of the tax amnesty under Republic Act No. 9480. However, the ruling holding ING Bank liable for deficiency withholding tax on compensation for 1996 and 1997 is AFFIRMED.
Ratio Decidendi
On the availment of tax amnesty: The Court reiterated its ruling in CS Garment, Inc. v. Commissioner of Internal Revenue that qualified taxpayers with pending tax cases may avail themselves of the tax amnesty program under Republic Act No. 9480. The Court held that BIR Revenue Memorandum Circular No. 19-2008, which excluded cases ruled by any court (even without finality) in favor of the BIR prior to amnesty availment, was invalid as it went beyond the scope of the law. The law only excepts tax cases subject to final and executory judgments. Since ING Bank complied with the requirements of Republic Act No. 9480, it was entitled to the immunities and privileges granted by the law, including immunity from payment of taxes and penalties for the covered years. The Court clarified that Republic Act No. 9480 confers no discretion on the Commissioner of Internal Revenue beyond determining qualification, compliance, and payment of the amnesty tax. On the liability for deficiency withholding tax on accrued bonuses: The Court affirmed the CTA's finding that ING Bank was liable for deficiency withholding tax on accrued bonuses for 1996 and 1997. The Court noted that ING Bank had claimed these accrued bonuses as deductible expenses in its books for those years. Under Section 29(j) of the 1977 National Internal Revenue Code (now Section 34(K) of the 1997 National Internal Revenue Code), an expense is deductible only if the tax required to be withheld has been paid. The Court held that the obligation to withhold arises upon accrual or recording as an expense, not merely upon actual payment, especially for taxpayers using the accrual method of accounting. The Court found that ING Bank's claim that these bonuses were reimbursements for representation, travel, and entertainment expenses did not fully substantiate its position, and the unsubstantiated portions were subject to withholding tax.
Main Doctrine
Qualified taxpayers with pending tax cases may still avail themselves of the tax amnesty program under Republic Act No. 9480. The provision in BIR Revenue Memorandum Circular No. 19-2008 excepting issues and cases ruled by any court (even without finality) in favor of the BIR prior to amnesty availment is illegal, invalid, and null and void. The duty to withhold tax on compensation arises upon its accrual.