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CIR
G.R. No. L-22492 September 5, 1967
Doctrine:
The income tax law does not authorize the depreciation of an asset beyond its
acquisition cost. Hence, a deduction over and above such cost cannot be claimed
and allowed. The reason is that deductions from gross income are privileges, not
matters of right. They are not created by implication but upon clear expression in
the law.
Facts:
Basilan Estates, Inc. claimed deductions for the depreciation of its assets on the
basis of their acquisition cost. As of January 1, 1950 it changed the depreciable
value of said assets by increasing it to conform with the increase in cost for their
replacement. Accordingly, from 1950 to 1953 it deducted from gross income the
value of depreciation computed on the reappraised value.
CIR disallowed the deductions claimed by petitioner, consequently assessing the
latter of deficiency income taxes.
Issue:
Whether or not the depreciation shall be determined on the acquisition cost rather
than the reappraised value of the assets
Held:
Yes. The following tax law provision allows a deduction from gross income for
depreciation but limits the recovery to the capital invested in the asset being
depreciated:
(1)In general. A reasonable allowance for deterioration of property arising out of
its use or employment in the business or trade, or out of its not being used:
Provided, That when the allowance authorized under this subsection shall equal the
capital invested by the taxpayer . . . no further allowance shall be made. . . .
The income tax law does not authorize the depreciation of an asset beyond its
acquisition cost. Hence, a deduction over and above such cost cannot be claimed
and allowed. The reason is that deductions from gross income are privileges, not
matters of right. They are not created by implication but upon clear expression in
the law [Gutierrez v. Collector of Internal Revenue, L-19537, May 20, 1965].
Depreciation is the gradual diminution in the useful value of tangible property
resulting from wear and tear and normal obsolescense. It commences with the
acquisition of the property and its owner is not bound to see his property gradually
waste, without making provision out of earnings for its replacement.
The recovery, free of income tax, of an amount more than the invested capital in an
asset will transgress the underlying purpose of a depreciation allowance. For then
what the taxpayer would recover will be, not only the acquisition cost, but also
some profit. Recovery in due time thru depreciation of investment made is the
philosophy behind depreciation allowance; the idea of profit on the investment
made has never been the underlying reason for the allowance of a deduction for
depreciation.
Madrigal paid under protest, and the couple decided to recover the sum of
P3,786.08 alleged to have been wrongfully and illegally assessed and collected by
the CIR.
ISSUE: Whether or not the income reported by Madrigal on 1915 should be divided
into 2 in computing for the additional income tax.
HELD:
No! The point of view of the CIR is that the Income Tax Law, as the name implies,
taxes upon income and not upon capital and property.
The essential difference between capital and income is that capital is a fund;
income is a flow. A fund of property existing at an instant of time is called capital. A
flow of services rendered by that capital by the payment of money from it or any
other benefit rendered by a fund of capital in relation to such fund through a period
of time is called income. Capital is wealth, while income is the service of wealth.
As Paterno has no estate and income, actually and legally vested in her and entirely
distinct from her husbands property, the income cannot properly be considered the
separate income of the wife for the purposes of the additional tax.
To recapitulate, Vicente wants to half his declared income in computing for his tax
since he is arguing that he has a conjugal partnership with his wife. However, the
court ruled that the one that should be taxed is the income which is the flow of the
capital, thus it should not be divided into 2.
MARUBENI CORPORATION V. COMMISSIONER OF INTERNAL REVENUE- Income Tax
The dividends received by Marubeni Corporation from Atlantic Gulf and Pacific Co.
are not income arising from the business activity in which Marubeni Corporation is
engaged. Accordingly, said dividends if remitted abroad are not considered branch
profits subject to Branch Profit Remittance Tax.
Facts:
Marubeni Corporation is a Japanese corporation licensed to engage in business in
the Philippines. When the profits on Marubenis investments in Atlantic Gulf and
Pacific Co. of Manila were declared, a 10% final dividend tax was withheld from it,
and another 15% profit remittance tax based on the remittable amount after the
final 10% withholding tax were paid to the Bureau of Internal Revenue. Marubeni
Corp. now claims for a refund or tax credit for the amount which it has allegedly
overpaid the BIR.
Issues and Ruling:
1. Whether or not the dividends Marubeni Corporation received from Atlantic Gulf
and Pacific Co. are effectively connected with its conduct or business in the
Philippines as to be considered branch profits subject to 15% profit remittance tax
imposed under Section 24(b)(2) of the National Internal Revenue Code.
NO. Pursuant to Section 24(b)(2) of the Tax Code, as amended, only profits remitted
abroad by a branch office to its head office which are effectively connected with its
trade or business in the Philippines are subject to the 15% profit remittance tax. The
dividends received by Marubeni Corporation from Atlantic Gulf and Pacific Co. are
not income arising from the business activity in which Marubeni Corporation is
engaged. Accordingly, said dividends if remitted abroad are not considered branch
profits for purposes of the 15% profit remittance tax imposed by Section 24(b)(2) of
the Tax Code, as amended.
2. Whether Marubeni Corporation is a resident or non-resident foreign corporation.
Marubeni Corporation is a non-resident foreign corporation, with respect to the
transaction. Marubeni Corporations head office in Japan is a separate and distinct
income taxpayer from the branch in the Philippines. The investment on Atlantic Gulf
and Pacific Co. was made for purposes peculiarly germane to the conduct of the
corporate affairs of Marubeni Corporation in Japan, but certainly not of the branch in
the Philippines.
3. At what rate should Marubeni be taxed?
15%. The applicable provision of the Tax Code is Section 24(b)(1)(iii) in conjunction
with the Philippine-Japan Tax Treaty of 1980. As a general rule, it is taxed 35% of its
gross income from all sources within the Philippines. However, a discounted rate of
15% is given to Marubeni Corporation on dividends received from Atlantic Gulf and
Pacific Co. on the condition that Japan, its domicile state, extends in favor of
Marubeni Corporation a tax credit of not less than 20% of the dividends received.
This 15% tax rate imposed on the dividends received under Section 24(b)(1)(iii) is
easily within the maximum ceiling of 25% of the gross amount of the dividends as
decreed in Article 10(2)(b) of the Tax Treaty.
Note: Each tax has a different tax basis.
Under the Philippine-Japan Tax Convention, the 25% rate fixed is the maximum rate,
as reflected in the phrase shall not exceed. This means that any tax imposable by
the contracting state concerned should not exceed the 25% limitation and said rate
would apply only if the tax imposed by our laws exceeds the same.
CIR VS PROCTER AND GAMBLE PHILIPPINE MANUFACTURING CORPORATION (204
SCRA 377)
Income Taxation
NON-RESIDENT FOREIGN CORPORATION- DIVIDENDS
Sec 24 (b) (1) of the NIRC states that an ordinary 35% tax rate will be applied to
dividend remittances to non-resident corporate stockholders of a Philippine
corporation. This rate goes down to 15% ONLY IF the country of domicile of the
foreign stockholder corporation shall allow such foreign corporation a tax credit
for taxes deemed paid in the Philippines, applicable against the tax payable to the
domiciliary country by the foreign stockholder corporation. However, such tax credit
for taxes deemed paid in the Philippines MUST, as a minimum, reach an amount
equivalent to 20 percentage points
FACTS:
Procter and Gamble Philippines declared dividends payable to its parent company
and sole stockholder, P&G USA. Such dividends amounted to Php 24.1M. P&G Phil
paid a 35% dividend withholding tax to the BIR which amounted to Php 8.3M It
subsequently filed a claim with the Commissioner of Internal Revenue for a refund
or tax credit, claiming that pursuant to Section 24(b)(1) of the National Internal
Revenue Code, as amended by Presidential Decree No. 369, the applicable rate of
withholding tax on the dividends remitted was only 15%.
MAIN ISSUE:
Whether or not P&G Philippines is entitled to the refund or tax credit.
HELD:
YES. P&G Philippines is entitled.
Sec 24 (b) (1) of the NIRC states that an ordinary 35% tax rate will be applied to
dividend remittances to non-resident corporate stockholders of a Philippine
corporation. This rate goes down to 15% ONLY IF he country of domicile of the
foreign stockholder corporation shall allow such foreign corporation a tax credit
for taxes deemed paid in the Philippines, applicable against the tax payable to the
domiciliary country by the foreign stockholder corporation. However, such tax credit
for taxes deemed paid in the Philippines MUST, as a minimum, reach an amount
equivalent to 20 percentage points which represents the difference between the
regular 35% dividend tax rate and the reduced 15% tax rate. Thus, the test is if USA
shall allow P&G USA a tax credit for taxes deemed paid in the Philippines
applicable against the US taxes of P&G USA, and such tax credit must reach at least
20 percentage points. Requirements were met.
NOTES: Breakdown:
a) Deemed paid requirement: US Internal Revenue Code, Sec 902: a domestic
corporation (owning 10% of remitting foreign corporation) shall be deemed to have
paid a proportionate extent of taxes paid by such foreign corporation upon its
remittance of dividends to domestic corporation.
b) 20 percentage points requirement: (computation is as follows)
P 100.00 -- corporate income earned by P&G Phils
x 35% -- Philippine income tax rate
P 35.00 -- paid by P&G Phil as corporate income tax
P 100.00
- 35.00
65. 00 -- available for remittance
P 65. 00
x 35% -- Regular Philippine dividend tax rate
P 22.75 -- regular dividend tax
P 65.0o
x 15% -- Reduced dividend tax rate
P 9.75 -- reduced dividend tax