Deutsche Bank v CIR (Digest)

Digest Author: Cecille Mangaser Deutsche Bank AG Manila Branch v. Commissioner of Internal Revenue GR Number 188550 Petition: Petition for Review Petitioner: Deutsche Bank AG Manila Branch Respondent: Commissioner of Internal Revenue Ponente: Sereno, C. J. Date: August 28, 2013 Facts: Pursuant to the National Internal Revenue Code of 1997, on October 21, 2003, the petitioner remitted to the respondent the amount of Php 67,688,553.51, representing fifteen (15) percent of the branch profit remittance tax (BPRT) on its regular banking unit (RBU) net income remitted to the Deutsche Bank of Germany (DB Germany) for 2002 and prior taxable years. Believing that they made an overpayment of the BPRT, on October 4, 2005, the petitioner filed with the BIR Large Taxpayers Assessment and Investigation Division an administrative claim for refund or a tax credit certificate representing the alleged excess BPRT paid (amount of Php 22,562,851.17). The petitioners also requested from the International Tax Affairs Division (ITAD) for a confirmation of its entitlement to a preferential tax rate of 10% under the RPGermany Tax Treaty. Because of the alleged inaction of the BIR on the administrative claim, on October 18, 2005, the petitioner filed a petition for review with the Court of Tax Appeals (CTA), reiterating its claim for refund or tax credit certificate representing the alleged excess BPRT paid. The claim was denied on the ground that application for tax treaty relief was not filed with ITAD prior to the payment of BPRT, thereby violating the fifteen-day period mandated under Section III, paragraph 2 of the Revenue Memorandum Order No. 1-2000. Also, the CTA Second Division relied on an en banc decision of the CTA that before the benefits of a tax treaty may be extended to a foreign corporation, the latter should first invoke the provisions of the tax treaty and prove that they indeed apply to the corporation (Mirant Operations Corporation v Commissioner of Internal Revenue). Hence this petition. Issue: Whether or not the failure to strictly comply with the provisions of RMO No. 1-2000 will deprive persons or corporations the benefit of a tax treaty. Ruling: No. The constitution provides for the adherence to the general principles of international law as part of the law of the land (Article II, Section 2). Every treaty is binding upon the parties, and obligations must be performed (Article 26, Vienna Convention on the Law on Treaties). There is nothing in RMO 1-2000 indicating a deprivation of entitlement to a tax treaty for failure to comply with the fifteen-day period. The denial of availment of tax relief for the failure to apply within the prescribed period (under the administrative issuance) would impair the value of the

Digest Author: Cecille Mangaser tax treaty. Also, the obligation to comply with the tax treaty must take precedence over the objective of RMO 1-2000 because the non-compliance with tax treaties would have negative implications on international affairs and would discourage foreign investments. Dispositive: The petition was granted, the CTA en banc decision was set aside and reversed. The respondent was ordered to refund or issue a tax credit certificate (the amount of Php 22,562,851.17) in favor of the petitioner.