G.R. No. 118498 & 124377 October 12, 1999
FILIPINAS SYNTHETIC FIBER CORPORATION, petitioner, vs. COURT OF APPEALS, COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.

FACTS

The petitioner, Filipinas Synthetic Fiber Corporation (Filsyn), a domestic corporation, received a letter of demand from the Commissioner of Internal Revenue (CIR) assessing it for deficiency withholding tax at source on interest, royalties, and guarantee fees paid to non-resident foreign corporations for the period from the fourth quarter of 1974 to the fourth quarter of 1975 ( G.R. No. 118498 ) and for the fourth quarter of 1975 to the fourth quarter of 1976 (G.R. No. 124377). The assessment was based on the CIR’s position that the liability to withhold and pay the tax attaches at the time of accrual of the income, not at the time of actual payment or remittance. Filsyn protested, arguing its duty to withhold arose only upon remittance. The CIR denied the protest. Filsyn filed a Petition for Review before the Court of Tax Appeals (CTA), which ruled in favor of the CIR, ordering Filsyn to pay the deficiency tax plus surcharge and interest. The Court of Appeals affirmed the CTA decision in toto. Filsyn elevated the case to the Supreme Court via petitions for review on certiorari, which were consolidated.

ISSUE

Whether the liability to withhold tax at source on income payments (interest, royalties, dividends) to non-resident foreign corporations arises upon accrual of these amounts or upon their actual remittance/payment.

RULING

The Supreme Court ruled that the liability to withhold tax at source arises upon accrual of the income. The Court affirmed the decisions of the Court of Appeals. It held that under the accrual method of accounting, which Filsyn adopted, income is reportable when the right to receive it is fixed and the amount can be determined with reasonable accuracy. The Court found that Filsyn had already deducted the interest and royalties as business expenses in its books, representing to the BIR that these amounts were incurred and paid. By doing so, Filsyn took advantage of the tax benefit of deduction and is thus estopped from claiming that the duty to withhold had not yet attached. The withholding agent’s personal liability under Section 53(c) of the National Internal Revenue Code compels withholding under all circumstances. Therefore, the duty to withhold and remit the tax attached at the time the income accrued to the foreign corporations, not when the amounts were physically remitted.