Case Summary (G.R. No. 216130)
Petitioner
Commissioner of Internal Revenue (CIR), Bureau of Internal Revenue
Respondent
Goodyear Philippines, Inc.; Goodyear Tire and Rubber Company (GTRC) as foreign shareholder
Key Dates
• August 19, 2003 – Increase of respondent’s authorized capital stock and subscription by GTRC of preferred shares
• May 30 & October 15, 2008 – Board approval and redemption of 3,729,216 preferred shares at ₱470,653,914.00 (including ₱97,732,314.00 premium)
• November 3, 2008 – Respondent withheld and remitted ₱14,659,847.10 (15% FWT on premium)
• October 21 & November 3, 2010 – Administrative refund claim filed; judicial petition before the Court of Tax Appeals (CTA)
• March 25 & June 26, 2013 – CTA Second Division decision and resolution granting refund
• August 14, 2014 & January 5, 2015 – CTA En Banc decision and resolution affirming Second Division
• August 3, 2016 – Supreme Court decision denying CIR’s petition
Applicable Law
• 1987 Constitution (treaties have the force of law)
• National Internal Revenue Code (NIRC):
– Section 229 (recovery of erroneously collected tax; two-year prescriptive period)
– Section 28(B)(5)(b) (15% FWT on intercorporate dividends)
– Section 28(B)(5)(c) (5–10% tax on capital gains from non-exchange shares)
– Section 57(A) (collection mechanism)
– Section 73(A)–(B) (definition and treatment of dividends and stock dividends)
• Corporation Code, Section 43 (power to declare dividends out of unrestricted retained earnings)
• RP–US Tax Treaty:
– Article 11(5) (definition of “dividends” by source state law)
– Article 14 (capital gains taxable only in the alienator’s residence, subject to reservation on property-rich companies)
– Reservation Clause (Philippine tax on gains if domestic corporation’s assets principally consist of real property)
Facts of the Case
Respondent increased capital in 2003, issuing preferred shares subscribed exclusively by GTRC. In 2008 the Board authorized redemption at par value plus accrued dividends. Respondent applied to the BIR for treaty relief but, conservatively, withheld and remitted 15% FWT on the premium component. Two years later it filed an administrative refund claim and, days before the prescriptive period lapsed, a petition with the CTA.
Procedural History
• CTA Second Division (March 25, 2013) granted refund, ruling that:
– Judicial claim filed within two years satisfied exhaustion requirement;
– Redemption gain qualified as capital gain exempt under Article 14 of the RP–US Treaty and not as dividends under Sec. 73(A);
– No statutory basis to treat the premium as intercorporate dividends under Sec. 28(B)(5)(b) or as stock dividends under Sec. 73(B).
• CTA En Banc (August 14, 2014; Resolution January 5, 2015) affirmed.
• CIR’s petition for review on certiorari to the Supreme Court.
Issues
- Whether respondent failed to exhaust administrative remedies before the BIR.
- Whether the redemption premium (₱97,732,314.00) is subject to 15% FWT on dividends.
Analysis on Exhaustion of Administrative Remedies
Section 229 requires a refund claim with the CIR before judicial action, with a two-year prescriptive window from tax payment. Jurisprudence clarifies that the administrative claim serves as notice; taxpayers need not await the BIR’s decision if the prescriptive period is about to expire. Respondent filed its refund claim on October 21, 2010, and its petition on November 3, 2010—both within two years of the November 3, 2008 payment—thus satisfying exhaustion and preserving its right to judicial relief.
Analysis on Taxability of Redemption Gain
The redemption premium represents a net capital gain, not a dividend distribution. Under Section 28(B)(5)(c) the 5–10% capital gains tax applies to nonresident dispositions, but Article 14 of the RP–US Treaty places such gains in the alien
...continue readingCase Syllabus (G.R. No. 216130)
Facts
- Goodyear Philippines, Inc. (GPI) is a domestic corporation, registered as a large taxpayer (TIN 000-409-561-000).
- On August 19, 2003, GPI increased its authorized capital stock from P400,000,000 (4,000,000 common shares @ P100) to P1,731,863,000 (4,000,000 common + 13,318,630 preferred shares @ P100).
- All newly issued preferred shares were subscribed exclusively by Goodyear Tire and Rubber Company (GTRC), a U.S. foreign corporation unregistered in the Philippines.
- On May 30, 2008, GPI’s Board authorized redemption of 3,729,216 preferred shares on October 15, 2008 at P470,653,914 (P372,921,600 par value + P97,732,314 accrued dividends).
- On October 15, 2008, GPI applied for relief from double taxation under the RP-US Tax Treaty, claiming the redemption exempt from Philippine income tax.
- On November 3, 2008, GPI nonetheless withheld and remitted P14,659,847.10 (15% final withholding tax) on the premium component.
Procedural History
- October 21, 2010: GPI filed an administrative refund/TCC claim for P14,659,847.10 with the BIR.
- November 3, 2010: GPI filed a judicial petition before the CTA (C.T.A. Case No. 8188).
- March 25, 2013: CTA Second Division granted the petition and ordered refund/TCC of P14,659,847.10.
- June 26, 2013: CTA Second Division denied Commissioner’s motion for reconsideration.
- August