Facts:

The case at hand involves Bank of America NT & SA as the petitioner and the Honorable Court of Appeals and the Commissioner of Internal Revenue as the respondents, with the decision rendered on July 21, 1994. The case pertains to the taxation of foreign corporations operating in the Philippines, specifically focusing on the interpretation of Section 24(b)(2)(ii) of the National Internal Revenue Code regarding the 15% branch profit remittance tax.

The Bank of America is a foreign corporation registered to conduct business in the Philippines through its branch located at the BA Lepanto Building, Paseo de Roxas, Makati, Metro Manila. On July 20, 1982, the bank paid a total of ₱7,984,250.97 in branch profit remittance tax, which included ₱7,538,460.72 for profits from its regular banking operations and ₱445,790.25 from its foreign currency deposit operations. The tax was calculated on net profits after income tax without accounting for the branch profit remittance tax itself.

...

Facts:

Parties and Transaction Background

• Petitioner: Bank of America NT & SA, a foreign corporation duly licensed to operate in the Philippines with a local branch office.
• Respondents: The Court of Appeals and the Commissioner of Internal Revenue.

Relevant Statutory Provision and Tax Payment

• The case involves Section 24(b)(2)(ii) of the National Internal Revenue Code as it was worded in 1982, which provides that “Any profit remitted abroad by a branch to its head office shall be subject to a tax of fifteen per cent (15%).”
• The focal point is whether the 15% branch profit remittance tax should be computed on the profit actually remitted abroad or on the larger base of net profits before deducting the 15% tax.

Computation and Payment Details

• The branch paid remittance taxes computed as follows:
• For Regular Banking Unit Operations:
• Based on net profits before tax of P50,256,404.82, the Bureau of Internal Revenue (BIR) computed 15% of this amount, resulting in a tax remittance of P7,538,460.72.
• The petitioner’s computation yielded a different figure: 15% of the base (P50,256,404.82) resulted in P6,555,183.24, with a further adjustment amounting to a discrepancy.
• For Foreign Currency Deposit Unit Operations:
• The BIR computed 15% of P2,971,935.00, amounting to a tax of P445,790.25.
• The petitioner computed a tax of P387,643.70, resulting in an additional difference of P58,146.55.
• Total Branch Profit Remittance Tax paid was P7,984,250.97, while the petitioner calculated an excess payment of approximately P1,041,424.02.

Refund Claim and Procedural History

• Petitioner filed a claim for refund with the Bureau of Internal Revenue on the ground that the tax should have been computed based on the amount actually remitted abroad (P45,244,088.85) rather than the larger profit figure (P53,228,339.82).
• Without awaiting the Commissioner’s decision on the refund claim, petitioner filed a petition for review with the Supreme Court on June 14, 1984.
• The Court of Tax Appeals (CTA) upheld the petitioner’s claim for refund.
• The Commissioner timely appealed the CTA decision, and the Court of Appeals reversed the decision of the CTA on September 19, 1990.

Related Cases and Interpretative Considerations

• The ruling also refers to the earlier case of Burroughs Limited vs. Commission of Internal Revenue, emphasizing reliance on previous rulings only to the extent applicable based on the timing of tax payments and the non-retroactivity provision in Section 327 of the National Internal Revenue Code.
• The Solicitor General’s submission emphasized the general rule in ad valorem taxes whereby the tax paid or withheld is not deducted from the tax base, citing analogous withholding tax systems.
• However, the Court noted that such analogies did not aptly apply to the branch profit remittance tax, which involves a single taxpayer using its own domestic funds.

Issue:

Determination of the Appropriate Tax Base

• Whether the 15% branch profit remittance tax should be computed on the total net profits before deducting the tax or on the actual profits remitted abroad to the head office.
• Whether the 15% tax remitted constitutes part of the tax base or should be excluded in computing the tax liability, drawing analogies to other ad valorem withholding tax systems.

Interpretative and Retroactivity Considerations

• Whether subsequent interpretations or modifications — such as those proposed in Memorandum Circular No. 8-82 (and addressed in the Burroughs Limited case) — could be applied retroactively in light of Section 327 of the National Internal Revenue Code.
• Whether the concept of constructive remittance (as applied in withholding tax systems) can be extended to the branch profit remittance tax, where the taxpayer remits its own domestic funds.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)