Case Summary (G.R. No. 203346)
Factual and Procedural Background
Cargill paid royalties to CAN Technologies for use of patented feed technology and withheld 15% tax. Seeking the 10% preferential rate, Cargill obtained BIR Ruling No. DA-ITAD 60-07, which invoked Article 12(2)(a) of the RP-Czech Treaty and the MFN clause in Article 13(2)(b)(iii) of the RP-US Treaty. Cargill then filed for refund of the excess withholding tax and appealed adverse CTA rulings.
Proceedings Before the CTA First Division
The First Division dismissed Cargill’s petition, finding that:
• Cargill failed to prove similarity in the circumstances of tax relief under the RP-US and RP-Czech Treaties, particularly the credit mechanisms.
• Absence of evidence on relevant U.S. domestic law prevented determination of comparable credit limitations.
• BIR Ruling No. DA-ITAD 60-07 was not binding because it did not explain how U.S. and Czech credit mechanisms coincide.
Proceedings Before the CTA En Banc
The En Banc court affirmed:
• The MFN clause could not apply without proof that U.S. and Czech mechanisms for avoiding double taxation are the same.
• CTA possessed jurisdiction to review the validity of BIR rulings when invoked in a refund claim.
• BIR Ruling No. DA-ITAD 60-07 was invalid because its legal rationale conflicted with treaty requirements under S.C. Johnson.
Arguments on CTA Jurisdiction Over BIR Ruling
• Cargill argued that CTA lacked authority to nullify BIR Rulings per British American Tobacco v. Camacho.
• The Commissioner maintained that CTA’s exclusive appellate jurisdiction under RA 1125 (as amended) includes reviewing administrative rulings in tax refund cases.
Supreme Court’s Jurisdictional Analysis
The Supreme Court held that:
• Under RA 1125 and RA 9282, CTA has exclusive appellate jurisdiction over assessments, refunds, and administrative rulings by the Commissioner.
• Jurisdiction to review BIR Rulings is inherent and necessary to effectively decide tax disputes, confirmed by subsequent jurisprudence (e.g., Banco de Oro v. Republic).
Analysis of Most-Favored-Nation Clause Application
The Court affirmed the following:
• First condition (same kind of royalties) was satisfied.
• Second condition (similar tax relief mechanisms) was not met because:
– RP-Czech Treaty explicitly prescribes the form and limitation of the tax credit.
– RP-US Treaty defers to U.S. domestic law for credit limitations, necessitating proof of such domestic-law provisions.
• Cargill’s failure to furnish U.S. law evidence preclude
Case Syllabus (G.R. No. 203346)
Facts
- Cargill Philippines, Inc. (“Cargill”) is a domestic corporation engaged in trading copra products, soybeans, wheat, and manufacturing animal feeds and coconut oil.
- On June 1, 2002, Cargill entered into an Intellectual Property License Agreement with CAN Technologies, Inc. (a U.S. company), granting Cargill a non-exclusive, royalty-bearing, non-transferable license to use CAN’s patents, technology, and copyrights for the production, marketing, distribution, sale, use, and supply of animal feeds in the Philippines.
- Under the Agreement, Cargill paid royalties equal to 1.25% of net sales and 5.25% of consulting revenues. From June 1, 2005 to April 30, 2007, total royalties amounted to ₱175,425,414.12, of which ₱26,313,812.10 was withheld at 15%.
- On December 21, 2005, Cargill requested BIR confirmation that royalties to CAN Technologies qualified for a 10% withholding rate under the “most favored nation” clause of the RP–U.S. Tax Treaty, in relation to the RP–Bahrain Treaty.
- On May 11, 2007, the BIR issued Ruling No. DA-ITAD 60-07, confirming applicability of 10% under Article 12 of the RP–Czech Tax Treaty and the RP–U.S. most favored nation clause, effective January 1, 2004.
- On July 10, 2007, Cargill filed a refund claim of ₱8,771,270.71 on behalf of CAN Technologies and petitioned the Court of Tax Appeals (“CTA”) for issuance of a tax credit certificate.
Procedural History
- September 6, 2010: CTA First Division dismissed Cargill’s petition for insufficiency of evidence, finding failure to prove similarity in circumstances of tax relief under the two treaties and holding BIR Ruling DA-ITAD 60-07 erroneous.
- February 15, 2011: CTA First Division denied Cargill’s Omnibus Motion for Reconsideration and to Reopen for Additional Evidence, citing failure to present U.S. domestic law provisions required by S.C. Johnson decision on the most favored nation clause.
- May 24, 2012: CTA En Banc dismissed the petition, reiterating failure to satisfy the second condition of the most favored nation clause and refusing to accord weight to BIR Ruling DA-ITAD 60-07.
- August 30, 2012: CTA En Banc denied reconsideration, affirming its jurisdiction to review administrative rulings in refund cases.
- Cargill elevated the case by Petition for Review on Certiorari to the Supreme Court.
Issues
- Whether the CTA has jurisdiction to determine the validity of BIR Rul