Title
Commissioner of Internal Revenue vs. Wander Phils., Inc.
Case
G.R. No. 68375
Decision Date
Apr 15, 1988
Wander Philippines, Inc., a subsidiary of Swiss-based Glaro, sought a refund for overpaid withholding tax on dividends remitted to Glaro, claiming entitlement to a preferential 15% rate under the Tax Code. The Supreme Court upheld the refund, ruling Wander as the proper party and affirming Switzerland's compliance with tax credit conditions.
preferential rate
withholding tax
dividends

Case Summary (G.R. No. 68375)

Factual Background

Wander Philippines, Inc. is a domestic corporation and a wholly owned subsidiary of Glaro S.A. Ltd., a Swiss corporation not engaged in trade or business in the Philippines. For the second quarter ending June 30, 1975, Wander filed its withholding tax return on July 18, 1975 and remitted dividends amounting to P222,000.00 to Glaro, withholding and paying to the Bureau of Internal Revenue 35% thereof in the amount of P77,700.00. For the second quarter ending June 30, 1976, Wander filed its withholding tax return on July 14, 1976 and remitted dividends amounting to P355,200.00 to Glaro, withholding and paying 35% in the amount of P124,320.00.

Administrative Claim and CTA Proceedings

On July 5, 1977, Wander filed a claim for refund and/or tax credit in the amount of P115,400.00, asserting that the proper withholding rate on dividends remitted to its non-resident parent was 15% under Section 24 (b) (1) as amended, and not the 35% that had been withheld. The Commissioner of Internal Revenue did not act on the claim, and Wander filed a petition with the Court of Tax Appeals. The Commissioner answered on October 6, 1977. On January 19, 1984, the Court of Tax Appeals ordered a refund and/or tax credit to petitioner in the amount of P115,440.00 representing overpaid withholding tax. The Commissioner moved for reconsideration on March 7, 1984, which the CTA denied on August 13, 1984.

Issues Presented

The sole issue presented to the Supreme Court was whether Wander was entitled to the preferential 15% withholding tax rate on dividends declared and remitted to its parent, Glaro. From that issue, the Commissioner framed two questions: whether Wander was the proper party to claim the refund, and whether Switzerland, the domicile of Glaro, granted to Glaro a foreign-tax credit equivalent to the 20 percentage-point difference between the regular 35% corporate tax and the 15% dividend tax, as required by Section 24 (b) (1).

Petitioner's Contentions

The Commissioner of Internal Revenue argued first that Glaro, as the foreign corporation and the ultimate taxpayer, rather than Wander as withholding agent or remitter, was the proper party to claim any refund. The Commissioner further contended that Switzerland did not provide a foreign-tax credit corresponding to the deemed-paid 20% portion; that the taxpayer had not supplied Swiss statutory authority showing that a credit would be allowed for the portion of Philippine tax that was spared or deemed paid; and that the tax-sparing arrangement in Section 24 (b) (1) therefore did not apply.

Court's Consideration of Locus Standi to Claim the Refund

The Court observed that the argument that Wander was an improper party to claim the refund was not raised before the administrative agency or the Court of Tax Appeals and was advanced for the first time on appeal to the Supreme Court. The Court reiterated the settled rule that issues not raised in the lower tribunal cannot be raised for the first time on appeal. Independently, the Court addressed the substance of the contention and held that the withholding obligation imposed by Section 53 (b) is compulsory and does not convert the remitting corporation into a mere agent who has abdicated its corporate responsibility to its parent. The Court cited the principle that the withholding obligation is a device to secure collection from nonresident taxpayers beyond the taxing jurisdiction (drawing on precedent including Commissioner of Internal Revenue v. Malayan Insurance Co., Inc.). The Court noted that a domestic remitter may be assessed for deficiency withholding tax with penalties under Section 54, and concluded that as the Philippine counterpart and party that actually withheld and paid the tax, Wander was the proper entity to claim the refund or credit of overpaid withholding tax.

Court's Interpretation of Section 24 (b) (1) and the Swiss Tax Situation

The Court examined the language of Section 24 (b) (1), which prescribes a 15% tax on dividends received by nonresident corporations from domestic corporations, "subject to the condition that the country in which the non-resident foreign corporation is domiciled shall allow a credit ... equivalent to 20%." The Court recognized that Switzerland imposes no income tax on dividends received by Swiss corporations from foreign sources. The Court accepted the position that the absence of Swiss taxation on such dividends satisfied the statutory condition because, practically, the foreign country thereby spared the tax and the condition for the preferential rate was met. The Court further noted that the Commissioner's own administrative ruling of May 19, 1977 had concluded that, because the Swiss Government did not impose any tax on the dividends to be received by the parent corporation, the condition was satisfied and the 15% withholding rate was affirmed. Given that conclusion and the factual circumstance that Switzerland did not tax the dividends, the Court held that denying the preferential rate would contravene the spirit and intent of the legislative amendment and would deter foreign investment.

Deference to Tax Expertise and Conclusion on Merits

The Supreme Court emphasized that it would not set aside the conclusion reached by an agency such as the Court of Tax Appeals, which is specialized in tax matters and has de

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