The Court of Tax Appeals (CTA) has granted a P185-million tax refund to a nonresident corporation based in Singapore representing erroneously paid capital gains tax that it paid despite a tax exemption granted under the Philippines-Singapore Tax Treaty.
In the case of Commissioner of Internal Revenue v. LAWL Pte. Ltd., the CTA en banc affirmed the ruling of the Second Division granting the Singaporean firm’s claim for refund.
The erroneously imposed capital gains tax arose from the sale by LAWL Pte. of P2 billion worth of common shares in Maynilad Water Services Inc. to the Metro Pacific Investment Corp. in 2009.
After the sale, LAWL Pte. was constrained to pay the capital gains tax to secure the certificate authorizing registration from the Bureau of Internal Revenue (BIR), but it filed a claim for tax refund, citing as legal basis Article 13 of the Philippines-Singapore Tax Treaty.
The administrative claim for refund was filed with the BIR’s International Tax Affairs Division (ITAD) and subsequently denied by the BIR and by the secretary of Finance on administrative appeal.
The BIR argued that the ITAD was not the correct office to which the administrative claim for refund must be filed, thus, it was as if there was no claim for refund that was filed within the two-year prescriptive period within which to claim a refund.
But the CTA pointed out that under the BIR’s Revenue Administrative Order 11-00, the ITAD is expressly granted the authority to process claims for tax credit/refund on erroneously collected internal revenue taxes arising from the application of tax treaty provisions, including requests for exemptions.
The CTA also said that the claim for refund has a legal basis under Article 13 of the Philippines-Singapore Tax Treaty which seeks to avoid double taxation.
Under Philippine laws, a nonresident foreign corporation which sells shares of stock not traded in the stock exchange is imposed a final tax on its net capital gains realized during the taxable year from the sale of such shares, at a rate of 5 percent on net capital gains not exceeding P100,000 and at a rate of 10 percent on the amount in excess of P100,000.
But the Philippines-Singapore Tax Treaty provides that gains from the alienation of any property, which does not consist principally of immovable property, shall be taxable only in the contracting state wherein the seller is a resident. In this case, the capital gains realized from the sale of the shares of stocks was taxable in Singapore where LAWL Pte. is a resident.