Revenue v. S.C. Johnson

GONZAGA-REYES, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to set aside the decision of the Court of Appeals dated November 7, 1996 in CA-GR SP No. 40802 affirming the decision of the Court of Tax Appeals in CTA Case No. 5136. The antecedent facts as found by the Court of Tax Appeals are not disputed, to wit: [Respondent], a domestic corporation organized and operating under the Philippine laws, entered into a license agreement with SC Johnson and Son, United States of America (USA), a non-resident foreign corporation based in the U.S.A. pursuant to which the [respondent] was granted the right to use the trademark, patents and technology owned by the latter including the right to manufacture, package and distribute the products covered by the Agreement and secure assistance in management, marketing and production from SC Johnson and Son, U. S. A. The said License Agreement was duly registered with the Technology Transfer Board of the Bureau of Patents, Trade Marks and Technology Transfer under Certificate of Registration No. 8064 (Exh.

"A"). For the use of the trademark or technology, [respondent] was obliged to pay SC Johnson and Son, USA royalties based on a percentage of net sales and subjected the same to 25% withholding tax on royalty payments which [respondent] paid for the period covering July 1992 to May 1993 in the total amount of P1,603,443.00 (Exhs. "B"

to "L" and submarkings). On October 29, 1993, [respondent] filed with the International Tax Affairs Division (ITAD) of the BIR a claim for refund of overpaid withholding tax on royalties arguing that, "the antecedent facts attending [respondent's] case fall squarely within the same circumstances under which said MacGeorge and Gillete rulings were issued.

Since the agreement was approved by the Technology Transfer Board, the preferential tax rate of 10% should apply to the [respondent]. We therefore submit that royalties paid by the [respondent] to SC Johnson and Son, USA is only subject to 10% withholding tax pursuant to the most-favored nation clause of the RP-US Tax Treaty [Article 13 Paragraph 2 (b) (iii)] in relation to the RP-West Germany Tax Treaty [Article 12 (2) (b)]" (Petition for Review [filed with the Court of Appeals], par.

12). [Respondent's] claim for there fund of P963,266.00 was computed as follows: Month/Year Gross Royalty Fee 25% Withholding Tax Paid 10% Withholding Tax Balance July 1992 559,878 139,970 55,988 83,982 August 567,935 141,984 56,794 85,190 September 595,956 148,989 59,596 89,393 October 634,405 158,601 63,441 95,161 November 620,885 155,221 62,089 93,133 December 383,276 95,819 36,328 57,491 Jan 1993 602,451 170,630 68,245 102,368 February 565,845 141,461 56,585 84,877 March 547,253 136,813 54,725 82,088 April 660,810 165,203 66,081 99,122 May 603,076 150,769 60,308 90,461