Commissioner of Internal Revenue v. Interpublic Group of Companies, Inc.
REITERATIONFacts
1. The Antecedents: Respondent Interpublic Group of Companies, Inc. (IGC), a non-resident foreign corporation, received cash dividends totaling P61,694,605.51 from its 30% stake in McCann Worldgroup Philippines, Inc. (McCann), a domestic corporation. McCann initially withheld and remitted a Final Withholding Tax (FWT) of 35% on these dividends, amounting to P21,593,111.93, to the Commissioner of Internal Revenue (CIR). IGC later established a Regional Headquarters (RHQ) in the Philippines, which was converted into a Regional Operating Headquarters (ROHQ). IGC claimed that as a non-resident foreign corporation, it was entitled to a preferential FWT rate of 15% on dividends under Section 28(B)(5)(b) of the Tax Code, leading to an alleged overpayment of P12,338,921.00. 2. Procedural History: IGC filed an administrative claim for refund or tax credit certificate with the CIR on March 5, 2008, which remained unacted upon. Consequently, IGC filed a petition for review with the Court of Tax Appeals (CTA) on June 16, 2008. The CTA Third Division granted IGC's petition on February 21, 2011, ordering the CIR to refund or issue a tax credit certificate. The CIR's motion for reconsideration was denied. The CIR then filed a Petition for Review with the CTA En Banc, which affirmed the Third Division's decision on October 23, 2012. The CIR's subsequent motion for reconsideration was denied on April 15, 2013. 3. The Petition: The CIR filed a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the CTA En Banc's decision and resolution. The sole ground for the petition is that the CTA erred in ruling that IGC is entitled to a tax refund or tax credit certificate for the alleged overpaid FWT. The CIR argued that IGC failed to file a Tax Treaty Relief Application (TTRA) as required by Revenue Memorandum Order (RMO) No. 1-2000, that IGC, as an unlicensed corporation, lacked the capacity to sue, and that claims for refund are strictly construed against the taxpayer and subject to administrative investigation.
Issue(s)
Whether respondent Interpublic Group of Companies, Inc. (IGC), a foreign corporation unlicensed to do business in the Philippines, has the capacity to sue for a tax refund. Whether the failure of IGC to file a Tax Treaty Relief Application (TTRA) with the Bureau of Internal Revenue (BIR) prior to the payment of the dividend tax bars its claim for refund. Whether IGC is entitled to a refund of the alleged overpaid Final Withholding Tax (FWT) on its cash dividends.
Ruling
The Petition is DENIED. The October 23, 2012 Decision and the April 15, 2013 Resolution of the Court of Tax Appeals En Banc in CTA EB No. 791 are AFFIRMED.
Ratio Decidendi
On the capacity to sue: The Court reiterated that Section 133 of the Corporation Code bars unlicensed foreign corporations from suing only if they are "transacting or doing business" in the Philippines. The mere investment by a foreign corporation in a domestic corporation and the derivation of dividend income therefrom do not constitute "doing business" under Republic Act No. 7042. Therefore, IGC, not being engaged in business in the Philippines, had the capacity to sue for a tax refund without a license. The Court clarified that the existence of an ROHQ in the Philippines does not automatically mean that all corporate transactions of the foreign parent, such as investments, are coursed through it, especially when the ROHQ's purpose is distinct and the investment was made independently. On the failure to file a TTRA: The Court held that the obligation to comply with a tax treaty takes precedence over the objective of RMO No. 1-2000. The mandatory requirement of filing a TTRA 15 days before the transaction, as stipulated in RMO No. 1-2000, should not divest an entitled taxpayer of the relief granted by a tax treaty, as this would impair the treaty's value and violate the principle of pacta sunt servanda. Furthermore, the Court clarified that the prior application requirement under RMO No. 1-2000 is moot in refund cases where the tax was erroneously paid based on regular rates, as the taxpayer could not have availed of the preferential treaty rate at the time of payment. The application for tax treaty relief should merely confirm entitlement, not be a prerequisite for claiming an overpayment resulting from the initial erroneous assessment. On entitlement to refund: The Court affirmed the CTA's findings that IGC was entitled to the refund. It was established that IGC, as a non-resident US corporation, qualified for the 15% preferential tax rate under Section 28(B)(5)(b) of the Tax Code, given that the US allows a tax credit for taxes deemed paid in the Philippines, as per the RP-US Tax Treaty and Section 902 of the US Internal Revenue Code. The fact of payment was proven by McCann's remittance return and payment transaction. Both the administrative claim (filed March 5, 2008) and the judicial claim (filed June 16, 2008) were filed within the two-year reglementary period from the date of payment (June 15, 2006), satisfying the procedural requirements for a tax refund.
Main Doctrine
A foreign corporation not engaged in trade or business in the Philippines is not barred from filing a suit for tax refund, even if unlicensed, as the prohibition under Section 133 of the Corporation Code applies only to those 'transacting or doing business' without a license. Furthermore, the provisions of tax treaties, such as the RP-US Tax Treaty, take precedence over conflicting administrative issuances like BIR RMO No. 1-2000. The requirement for a prior application for tax treaty relief under RMO No. 1-2000 is rendered moot in cases of tax refund where the tax was initially paid based on regular rates due to an erroneous assessment, as the primary purpose of tax treaties is to prevent double taxation and ensure that entitled taxpayers receive the benefits thereof.