Tax-treaty Relief: Deutsche Bank wins tax case ‘with finality’ vs BIR

The Supreme Court (SC) has upheld with finality the tax-treaty relief of Deutsche Bank AG Manila branch. It was, thus, cleared to collect refund from the Bureau of Internal Revenue (BIR).

In the Entry of Judgment dated January 24, 2014, the SC First Division denied “with finality” a motion for reconsideration filed by the BIR on the High Court’s decision, dated August 19, 2013, granting tax-treaty relief to Deutsche Bank.

The SC ordered the “respondent Commissioner of Internal Revenue to refund or issue a tax credit certificate in favor of petitioner Deutsche the amount of P22.562 million, representing the erroneously paid BPRT [branch profits remittance tax ] for 2002 and prior taxable years.”

SC’s decision should prompt the Philippines to start honoring international agreements and stop the BIR’s practice of consistently denying tax-treaty relief applications on the grounds of noncompliance of the 15-day-period requirement.

The case stemmed from global financial-services provider Deutsche Bank’s initial noncompliance with the BIR procedure under Revenue Memorandum Order (RMO) 01-2000, requiring that an application to claim tax treaty benefits should be filed at least 15 days prior to a transaction.

The SC nullified the rule in RMO 072-2010, which contends that failure to file a tax treaty relief application within the prescribed period will result in its disqualification.

The High Tribunal explained that the BIR must not impose additional requirements that would negate access to relief as provided under international agreements.

The SC held that the period of application of tax treaty compliance as outlined in RMO 01-2000 should not operate to divest entitlement to the relief.

It added that to deny access would constitute a violation of the time-honored international doctrine of pactasuntservanda (Latin for “agreements must be kept”) whereby agreeing states or nations comply in good faith with their treaty obligations.

The obligation to comply with a tax treaty must take precedence over administrative rules and procedural requirements.

source:   Business Mirror