Title
Bank of America NT and SA vs. Court of Appeals
Case
G.R. No. 103092
Decision Date
Jul 21, 1994
Bank of America contested 15% branch profit remittance tax computation, arguing tax base should exclude the tax itself. Supreme Court ruled in favor, ordering refund based on actual profits remitted.

Case Summary (G.R. No. 103092)

Factual Background and Disputed Tax Computation

On July 20, 1982, Bank of America paid the 15% branch profit remittance tax amounting to PHP 7,984,250.97, covering profits from both its regular banking operations and its foreign currency deposit unit. Notably, the tax was computed on net profits after income tax but without deducting the amount attributable to the 15% remittance tax itself. The petitioner subsequently filed a claim for refund, arguing that the tax should have been computed only on the amount actually remitted abroad (PHP 45,244,088.85) and not on the gross remittance before deducting the remittance tax (PHP 53,228,339.82). Without waiting for the CIR’s decision, the petitioner sought judicial review and filed a petition for recovery of overpayment amounting to PHP 1,041,424.03.

Procedural Posture and Court of Appeals’ Ruling

The Court of Tax Appeals ruled in favor of the petitioner, upholding the refund claim. However, upon appeal, the Court of Appeals reversed the decision on September 19, 1990. The appellate court reasoned that if the legislature intended to mitigate consecutive taxation, it would have been simpler to reduce tax rates rather than creating a complicated method to compute the tax base as contended by the petitioner. The Court of Appeals held that the 15% tax should be computed on the total amount deemed remitted and not adjusted by deducting the remittance tax itself.

Analysis of Prior Jurisprudence and Non-retroactivity Principle

The Supreme Court revisited its earlier ruling in Burroughs Limited vs. Commissioner of Internal Revenue, which the petitioner relied on. However, the Court distinguished that case on the ground of non-retroactivity of tax rulings under Section 327 of the NIRC (now Section 246). Burroughs had paid the tax before a subsequent Revenue Memorandum Circular that changed the tax ruling, and retroactive application was prohibited as it would prejudice the taxpayer. The cited ruling clarified that revocations or modifications of tax rulings are not given retroactive effect except under specific exceptions, which were not present in Burroughs and do not apply here.

Statutory Interpretation of the “Profit Remitted Abroad” Tax Base

The Court examined the language of Section 24(b)(2)(ii) closely. The statute imposes a 15% tax on “any profit remitted abroad by a branch to its head office.” Crucially, the law does not indicate that the tax should be computed on a grossed-up amount inclusive of the remittance tax or that it should be withheld at source. The Court emphasized the clear and unambiguous wording, concluding that the tax base is limited to the actual amount forwarded or transmitted abroad. The Court rejected the argument that the tax should be computed “grossed-up” to include the tax itself, noting that no provision in the law supports such an interpretation.

Distinction from Withholding Tax Mechanisms and Constructive Remittance Doctrine

The Court distinguished the branch profit remittance tax from traditional withholding taxes, where the payor acts as a withholding agent and the tax base is expressly defined to include the gross payments. Unlike withholding tax scenarios, the remittance tax involves a single taxpayer—the branch—that uses its own funds to pay the tax. The Court found that applying the concept of “constructive remittance” to include the tax in the base is untenable, as it would distort the plain meaning of the statute and conflict with the actual facts.

Policy Rationale Underlying the Remittance Tax

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