Under the US-Phil Tax Treaty, X Corp., being a US registered corp. doing business in the Phils is entitled to a 20% preferential corporate tax rate. The BIR RMO 1-2000 mandated that any availment of tax treaty provision must be preceded by an application for tax treaty relief with the BIR’s International Affairs Division at least 15 days before the transaction. X Corp. failed to file this application for tax relief. Question: Is X corporation entitled to the 20% preferential tax rate under the uS-phil tax treaty despite its failure to file the application for relief? Answer: Yes. The SC clarified that the obligation of the government under the tax treaties takes precedence over the provision of RMO No. 1-2000. This is pursuant to the time-honored principle of pacta sunt servanda, which demands all contracting states that enter into an agreement to perform in good faith their treaty obligations. Also, the SC emphasized that our Constitution provides adherence to the general principles of international law as part of the law of the land and that treaties have the force and effect of law in this jurisdiction. Therefore, a state that has contracted valid international obligation is bound to make in its legislation those modifications that may be necessary to ensure the fulfillment of the obligation undertaken. Based on these mentioned principles, the SC emphasized that laws and issuances must ensure that the reliefs granted under the tax treaties are accorded to the parties entitled thereto. Thus, the BIR must not impose additional requirements that would negate the availment of reliefs provided for under the international agreement. Therefore, the period of application for the availment of tax treaty relief as required by RMO 01-2000 should not operate to divest entitlement to the relief especially in claims for refund as it would constitute a violation of the duty required by good faith in complying with the tax treaty. The SC also elaborated that non-compliance with tax treaties has negative implications on international relations and unduly discourages foreign investors, while the consequences sought to be prevented by RMO No. 01-2000 involve an administrative procedure which may be remedied through other system management processes like imposition of fine or penalty. The SC emphasize d that the taxpayer who is entitled to the benefit of tax treaty cannot be totally deprived of such benefit for failure to strictly comply with an administrative issuance requiring prior application for tax treaty relief. (Deutsche Bank vs CIR, GR no. 18850, august 19, 2013)
Posted on: Thu, 12 Sep 2013 10:49:31 +0000
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