G.R. No. 209755 - I-Remit, Inc. vs. Commissioner of Internal Revenue

Case Summary (G.R. No. 209755)

Factual Background

Petitioner I-Remit, Inc. is a domestic corporation engaged in fund transfer and remittance services and was listed with the Philippine Stock Exchange. On October 17, 2007 petitioner offered 140,604,000 shares to the public at P4.68 per share. Of these shares, 107,417,000 were offered by the issuing corporation in a primary offering and 33,187,000 were offered by selling shareholders JTKC, JPSA, and Surewell in a secondary offering. Petitioner computed the IPO tax by using the total shares offered in both primary and secondary offerings as the dividend and used 562,417,000 as the divisor, the latter figure including 50,000 treasury shares added to 562,367,000 outstanding shares after listing. Petitioner paid P26,321,069.00 as tax under Section 127(B) based on a resulting ratio of 24.999% and an applicable tax rate of 4%.

Claim for Refund and Basis of Controversy

Petitioner filed a claim for refund asserting overpayment of P13,160,534.06. The asserted overpayment arose from petitioner’s contention that the 50,000 treasury shares were improperly included in the divisor, and that, if excluded, the percentage ratio would have yielded a lower tax rate of 2%. Petitioner further contended that Section 127(B) required a joint computation of the tax for primary and secondary offerings using the total shares sold in the IPO as the dividend against the total outstanding shares after listing as the divisor.

Procedural History in the CTA

The CTA Second Division, in its May 23, 2011 Decision, agreed with petitioner that treasury shares should be excluded from the divisor but denied the petition for insufficient evidence of petitioner’s status as a closely held corporation. The Second Division explicitly stated that Section 127 did not distinguish between primary and secondary offerings for purposes of determining the tax rate and that a joint computation using the total number of shares sold during the IPO should determine the tax rate. Petitioner moved for reconsideration. In an August 18, 2011 Resolution the Second Division withdrew the requirement that petitioner prove closely-held status but nonetheless denied the refund claim on the ground that Section 6(C) of RR 06-2008 illustrated that taxes for primary and secondary offerings must be computed separately, and the Second Division applied that regulation.

CTA En Banc Proceedings and Disposition

Petitioner elevated the case to the CTA En Banc. The CTA En Banc, by majority vote, dismissed the Petition for Review and denied petitioner’s Motion for Reconsideration. The En Banc held that the tax on sales in the primary offering must be computed separately from the tax on sales in the secondary offering and dismissed the petition for lack of merit.

Issue Presented to the Supreme Court

The sole issue presented was whether the tax under Section 127(B) on sale, barter, exchange or other disposition of shares through initial public offering must be computed jointly for primary and secondary offerings or computed separately for each type of offering.

Supreme Court Ruling

The Supreme Court affirmed the CTA En Banc. It ruled that the tax under Section 127(B) is to be computed separately for shares offered in primary offering and for shares offered in secondary offering. The Petition for Review was denied and the April 16, 2013 Decision and October 30, 2013 Resolution of the CTA En Banc were affirmed.

Legal Basis and Reasoning

The Court read Section 127(B) literally and emphasized that the statute imposed a tax on “every sale, barter, exchange or other disposition through initial public offering of shares of stock in closely held corporations.” The Court construed the statutory phrase to mean that each sale is referenced to the particular seller: the issuing corporation for primary offerings and each selling shareholder for secondary offerings. The Court observed that the statute itself identifies the liable party by providing that “the tax herein imposed shall be paid by the issuing corporation in primary offering or by the seller in secondary offering,” and concluded that multiple sales may occur in an IPO and that each sale is taxed separately.

The Court found further support for separate computation in Section 127(C), which prescribes distinct time and manner of payment for primary and secondary offerings: the corporate issuer must file and pay within thirty days from listing for primary offerings, whereas stock brokers must collect and remit taxes within five banking days for sales effected through brokers in secondary offerings. These distinct procedural rules reinforced the conclusion that the taxable events are separate and that their corresponding tax computations must likewise be separate.

Application of Regulations, Forms, and Precedent

The Court held that RR No. 06-2008, particularly Section 6(C) and its illustrative computation, is consistent with Section 127(B) in treating primary and secondary offerings as separately taxed. The Court noted that RR No. 03-1995, the earlier implementing regulation in force at the time of petitioner’s IPO, likewise treated primary and secondary offerings as separate transactions under its provisions. The Court further pointed to BIR Form No. 2552, which contained separate fields for primary and secondary offering computations, and observed that petitioner nevertheless used the primary offering field to compute tax for

Case Syllabus (G.R. No. 209755)

Parties and Procedural Posture

Petitioner I-Remit, Inc. acted for itself and on behalf of JPSA Global Services, Co., JTKC Equities, Inc., and Surewell Equities, Inc. in seeking a tax refund for alleged overpayment under Section 127(B) of the NIRC.
Respondent Commissioner of Internal Revenue is the administrative authority charged with deciding and granting claims for national internal revenue tax refunds.
Petitioner filed an administrative claim for refund that was not acted upon and then instituted a Petition for Review before the Court of Tax Appeals Second Division on November 13, 2009.
The CTA Second Division issued a decision on May 23, 2011 that excluded 50,000 treasury shares from the divisor but denied the petition for lack of proof of closely held status, and later, in an August 18, 2011 resolution, reconsidered the closely held requirement and denied relief relying on RR 06-2008.
Petitioner elevated the matter to the CTA En Banc, which dismissed the Petition for Review and denied reconsideration, prompting the present Petition for Review to the Supreme Court.
The Supreme Court affirmed the CTA En Banc's April 16, 2013 Decision and October 30, 2013 Resolution and denied the petition for review.

Key Factual Allegations

I-Remit, Inc. conducted an initial public offering on October 17, 2007 offering 140,604,000 shares at an offer price of P4.68 per share.
Of the offered shares, 107,417,000 shares were sold in the primary offering by the issuing corporation and 33,187,000 shares were sold in the secondary offering by the selling shareholders JTKC, JPSA, and Surewell.
Petitioner paid IPO tax of P26,321,069.00 computed by using total shares sold of 140,604,000 as the dividend and total outstanding shares after listing of 562,417,000 (including 50,000 treasury shares) as the divisor, yielding a ratio of 24.999% and a 4% tax rate.
Petitioner claimed an overpayment of P13,160,534.06 based on the contention that the 50,000 treasury shares were improperly included in the divisor and that excluding them would reduce the applicable tax rate to 2%.
Petitioner filed an administrative refund claim on April 18, 2008 and later filed before the CTA when the respondent failed to act.

Statutory Framework

Section 127(B) of the National Internal Revenue Code imposes a tax on "every sale, barter, exchange or other disposition through initial public offering" of shares of closely held corporations at graduated rates tied to the proportion of shares sold to total outstanding shares after listing.
Section 127(B) prescribes rates of 4% for up to 25%, 2% for over 25% up to 33 1/3%, and 1% for over 33 1/3% and assigns payment by the issuing corporation in primary offerings or by the seller in secondary offerings.
Section 127(C) differentiates the time and manner of payment by requiring corporate issuers in primary offerings to file and pay within thirty days from listing and stock brokers to collect and remit taxes for secondary offerings within five banking days.
RR 06-2008 (Sec. 6[c]) provides implementing illustration and explicitly computes tax separately for primary and secondary offerings.
RR 03-1995, the implementing rule under the prior statutory regime, also treated primary and secondary offerings as distinct transactions.
BIR Form No. 2552 separately provides fields for computation of tax on primary and secondary offering proceeds and thus reflects administratively mandated separate reporting.

Contentions

Petitioner argued that Section 127(B) requires a joint computation of the IPO tax using the total shares sold in both primary and secondary offerings as the dividend and that treasury shares should be excluded from the divisor.
Respondent maintained that Section 127(B) contemplates separate computations for