G.R. No. L-66838 December 2, 1991
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. PROCTER & GAMBLE PHILIPPINE MANUFACTURING CORPORATION and THE COURT OF TAX APPEALS, respondents.

FACTS

For the taxable years 1974 and 1975, private respondent Procter & Gamble Philippine Manufacturing Corporation (P&G-Phil.) declared dividends payable to its sole stockholder, Procter & Gamble Co., Inc. (USA) (P&G-USA). P&G-Phil. withheld and remitted to the BIR the amount of P8,457,731.21, representing a 35% tax on the dividends. On January 5, 1977, P&G-Phil. filed a claim for refund or tax credit for P4,832,989.26, arguing that under Section 24(b)(1) of the National Internal Revenue Code (NIRC), as amended by Presidential Decree No. 369, the correct withholding tax rate on dividends remitted to its non-resident parent company was only 15%. The Commissioner of Internal Revenue did not act on the claim, prompting P&G-Phil. to file a petition for review with the Court of Tax Appeals (CTA).
The CTA ruled in favor of P&G-Phil. and ordered the refund. On appeal, the Supreme Court’s Second Division reversed the CTA, holding that P&G-USA, not P&G-Phil., was the proper party to claim the refund; that P&G-Phil. failed to prove that P&G-USA could claim a “deemed paid” foreign tax credit under Section 902 of the U.S. Internal Revenue Code for the 20% tax differential; and that P&G-Phil. failed to meet certain conditions for the preferential 15% rate. P&G-Phil. filed a Motion for Reconsideration.

ISSUE

The primary issue is whether P&G-Phil. has the legal capacity to claim a refund for alleged over-withholding of tax on dividends remitted to its non-resident parent corporation.

RULING

The Supreme Court En Banc, in its Resolution, granted the Motion for Reconsideration. On the procedural issue, the Court held that the Commissioner of Internal Revenue cannot raise the question of P&G-Phil.’s legal capacity to sue for the first time on appeal. The government must follow the same procedural rules binding private parties. Raising this issue belatedly is unfair, as P&G-Phil. could have secured the necessary authorization from its parent company had the objection been made earlier at the administrative or CTA level.
Substantively, the Court ruled that P&G-Phil., as the withholding agent, is considered a “taxpayer” under Section 309(3) of the NIRC with respect to the taxes it withheld and remitted. As the entity that actually paid the tax to the government, it possesses a sufficient interest to file the claim for refund. The statutory duty to withhold and remit carries with it the right to seek recovery if the amount withheld and paid is later determined to be excessive. Therefore, P&G-Phil. is the proper party to institute the claim for refund of the alleged overpaid withholding tax.