G.R. No. 256973 . November 15, 2021
IFC CAPITALIZATION (EQUITY) FUND, L.P., PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

FACTS

Petitioner IFC Capitalization (Equity) Fund, L.P. is a non-resident foreign limited partnership engaged in investments. From September 20, 2013, to September 3, 2014, it sold shares listed on the Philippine Stock Exchange through trading companies Deutsche Securities Asia Limited and UBS Securities Asia Limited. The stockbrokers, Deutsche Regis Partners, Inc. and UBS Securities Philippines, Inc., withheld stock transaction tax at the rate of 1/2 of 1% from the sales proceeds, amounting to P62,444,698.37. Claiming exemption from this tax, petitioner filed a claim for refund with the Bureau of Internal Revenue. As the BIR did not act on the claim and the two-year prescriptive period was about to lapse, petitioner filed a Petition for Review with the Court of Tax Appeals (CTA). The CTA Division granted the refund, ruling that petitioner, as a financing institution owned, controlled, or enjoying refinancing from foreign governments, was exempt from income tax under Section 32(B)(7)(a) of the National Internal Revenue Code (NIRC), and that the stock transaction tax was an illegal collection. The CTA En Banc reversed this decision, holding that the stock transaction tax is a percentage tax under Title V of the NIRC, not an income tax under Title II, and therefore the income tax exemption does not apply.

ISSUE

Whether the stock transaction tax is an income tax covered by the exemption under Section 32(B)(7)(a) of the NIRC.

RULING

No. The Supreme Court denied the petition and affirmed the CTA En Banc Decision and Resolution. The Court held that the stock transaction tax is not an income tax but a percentage tax. Section 32(B)(7)(a) of the NIRC, which excludes from gross income and exempts from taxation the income derived by certain foreign governments and institutions, is found under Title II of the NIRC concerning Income Tax. In contrast, the stock transaction tax is imposed under Section 127 of the NIRC, which is found under Title V on Other Percentage Taxes. A percentage tax is levied on the gross selling price or gross receipts, while an income tax is imposed on net or gross income. The exemption under Section 32(B)(7)(a) is explicitly limited to taxation under Title II (Income Tax) and cannot be extended to taxes imposed under Title V (Other Percentage Taxes). Tax refunds, like exemptions, are strictly construed against the taxpayer, and petitioner failed to prove strict compliance with the conditions for the grant of a refund.