WEEKLY TAX UPDATES [SEPTEMBER 24-28, 2018]

COURT OF TAX APPEALS (CTA) DIGEST

 

[TTRA SHOULD NOT OPERATE TO DIVEST ENTITLEMENT]

 

[FAILURE TO COMPLY WITH ADMINISTRATIVE ISSUANCE DOES NOT DEPRIVE THOSE WHO ARE ENTITLED TO THE BENEFIT OF A TTRA]

 

[AVAILMENT OF THE PREFERENTIAL RATES UNDER TAX TREATIES ENTERED INTO BY THE PHILIPPINES IS NOT CONDITIONED UPON THE FILING OF A PRIOR TTRA]

 

The Petitioner Commissioner of Internal Revenue (CIR) filed a Petition for Review seeking reversal of the earlier decision of the Court in Division cancelling the assessment on deficiency Final Withholding Tax (FWT) on royalties against the Respondent Toyota Motor Philippines Corporation. The issue arose from the Technical Assistance Agreement entered into by the Respondent with Toyota Motor Corporation, a foreign corporation and a resident of Japan. In the trial, it was noted that the Respondent applied for a Tax Treaty Relief Application (TTRA) requesting confirmation that the royalties it paid is subject to ten percent (10%) income tax rate pursuant to "Philippines-Japan Tax Treaty". After two (2) years, the Respondent received a copy of BIR Ruling denying its application for tax treaty relief due to failure in filing the TTRA with the ITAD within the period provided under Revenue Memorandum Order (RMO) No. 72-2010 and RMO No. 1-2000 which requires that the TTRA must be filed before the transaction. Thereafter, an assessment was issued to Respondent which was also countered arguing that the availment of the preferential tax treaty rates under tax treaties entered into by the Philippines is not a prerequisite upon the filing of a prior TTRA. In the resolution, the Court En Banc agrees with the findings of the Court in Division citing the case of Deutsche Bank AG Manila Branch vs. Commissioner of Internal Revenue in which the Supreme Court has already pronounced that the BIR cannot totally deprive those who are entitled to the benefit of a treaty relief for failure to strictly comply with an administrative issuance requiring prior application for tax treaty relief. Thus, the fact that Respondent failed to file an application for tax treaty relief does not preclude it from enjoying the benefits of the preferential tax rate. The Petition for Review is DENIED and the earlier decision is AFFIRMED. [COMMISSIONER OF INTERNAL REVENUE VS. TOYOTA MOTOR PHILIPPINES, CTA CASE NO. 8772, SEPTEMBER 19, 2018]