GR L 68375; (April, 1988) (Digest)
G.R. No. L-68375 April 15, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. WANDER PHILIPPINES, INC. AND THE COURT OF TAX APPEALS, respondents.
FACTS
Wander Philippines, Inc., a domestic corporation and wholly-owned subsidiary of Swiss corporation Glaro S.A. Ltd., remitted dividends to its parent company in 1975 and 1976. It withheld and paid the regular 35% tax on these dividends to the Bureau of Internal Revenue. Wander later filed a claim for refund, arguing it should have applied the preferential 15% withholding tax rate under Section 24(b)(1) of the Tax Code, as amended by Presidential Decree No. 369. This preferential rate applies if the parent company’s home country grants a tax credit for the 20% difference “deemed paid” in the Philippines.
The Commissioner of Internal Revenue denied the claim. The Court of Tax Appeals (CTA) ruled in favor of Wander, ordering a refund. The Commissioner appealed to the Supreme Court, contesting Wander’s legal standing to claim the refund and arguing that Switzerland did not actually grant the specific tax credit required by law since it imposes no income tax on such foreign-sourced dividends.
ISSUE
Whether Wander Philippines, Inc. is entitled to a refund for overpaid withholding tax by applying the 15% preferential rate to dividends remitted to its Swiss parent company.
RULING
The Supreme Court dismissed the petition and affirmed the CTA decision, granting the refund. On the procedural issue of standing, the Court held the Commissioner was estopped from raising it for the first time on appeal, as it was not raised at the administrative or CTA level. Substantively, the Court ruled that Wander, as the withholding agent compelled by law to remit the tax, was the proper party to seek a refund for an overpayment it made.
On the core substantive issue, the Court upheld that the condition for the preferential rate was satisfied. The law required the foreign country to grant a tax credit for the 20% “deemed paid.” Switzerland’s imposition of zero tax on such dividends was deemed a full compliance with this condition, as it effectively granted full credit by not imposing any additional tax liability. To rule otherwise would defeat the law’s intent to encourage foreign investment. The Court also noted its policy of respecting the expertise of the CTA on tax matters, finding no abuse of discretion in its ruling. The decision confirmed that the preferential 15% rate was correctly applicable, entitling Wander to a refund for the 20% overpayment.