Tuesday, February 02, 2016

Deutsche Bank AG Manila Branch vs. CIR


FACTS: Petitioner withheld a 15% tax on its remittances to its head office in Germany using as basis the Tax Code provision on Branch Profit Remittance Tax (BPRT). Believing that it overpaid the BPRT since the RP-Germany Treaty provides for a lower rate of 10% on branch remittances, the petitioner filed a refund with the Bureau of Internal Revenue (BIR) and subsequently with the Court of Tax Appeals (CTA). Both the BIR and the CTA denied stating that the branch office should have filed a tax treaty relief application prior to availing of the preferential treaty rate in view of the existing doctrine n the Mirant case.

ISSUE: Whether or not Deutsche Bank is entitled to the claim for refund even if it did not file a tax treaty relief application with the BIR

RULING: Yes. The Court initially stated that the minute resolution upholding the doctrine in Mirant is not a binding precedent specially since there are differences in the parties, taxable period, etc. On the substantive issue, the Court said that the principle of pacta sunt servanda requires the performance in good faith of treaty obligations. Thus, to require that taxpayers must first comply with an administrative requirement (under RMO 1-2000) is not in consonance with the performance in good faith. The obligation to comply with a tax treaty must take precedence over the objectives of the said RMO. In addition, it was pointed out that the prior application becomes illogical if the premise of the claim was an erroneous payment since the taxpayer could not have known it would be entitled to the refund since precisely it was using a different basis when it paid the taxes due.

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