Resident Foreign Corporation, defined. — Under the Tax Code, a resident foreign corporation is one that is "engaged in trade or business" within the Philippines.
A single corporation cannot be both resident and non-resident corporation. — A single corporate entity cannot be both a resident and a non-resident corporation depending on the nature of the particular transaction involved. Accordingly, whether the dividends are paid directly to the head office or coursed through its local branch is of no moment for after all, the head office and the office branch constitute but one corporate entity, the Marubeni Corporation, which, under both Philippine tax and corporate laws, is a resident foreign corporation because it is transacting business in the Philippines.
Each tax has a different tax basis; Case at bar. — But while public respondents correctly concluded that the dividends in dispute were neither subject to the 15% profit remittance tax nor to the 10% intercorporate dividend tax, the recipient being a non-resident stockholder, they grossly erred in holding that no refund was forthcoming to the petitioner because the taxes thus withheld totaled the 25% rate imposed by the Philippine-Japan Tax Convention pursuant to Article 10 (2) (b). To simply add the two taxes to arrive at the 25% tax rate is to disregard a basic rule in taxation that each tax has a different tax basis. While the tax on dividends is directly levied on the dividends received, "the tax base upon which the 15% branch profit remittance tax is imposed is the profit actually remitted abroad."
Philippine-Japan Treaty; 25% maximum rate, imposable only when local taxes exceed the same. — Public respondents likewise erred in automatically imposing the 25% rate under Article 10 (2) (b) of the Tax Treaty as if this were a flat rate. A closer look at the Treaty reveals that the tax rates fixed by Article 10 are the maximum rates as reflected in the phrase "shall not exceed." This means that any tax imposable by the contracting state concerned should not exceed the 25% limitation and that said rate would apply only if the tax imposed by our laws exceeds the same. In other words, by reason of our bilateral negotiations with Japan, we have agreed to have our right to tax limited to a certain extent to attain the goals set forth in the Treaty.
Non-residents corporation is taxed 35% of its gross income from all sources within the Philippines. — Petitioner, being a non-resident foreign corporation with respect to the transaction in question, the applicable provision of the Tax Code is Section 24 (b) (1) (iii) in conjunction with the Philippine-Japan Treaty of 1980. Proceeding to apply the above section to the case at bar, Petitioner, being a non-resident foreign corporation, as a general rule, is taxed 35% of its gross income from all sources within the Philippines.
Discounted rate of 15% granted where tax credit of not less that 20% of the dividends received is extended to out domestic corporation. — A discounted rate of 15% is given to petitioner on dividends received from a domestic corporation (AG&P) on the condition that its domicile state (Japan) extends in favor of petitioner, a tax credit of not less than 20% of the dividends received. This 20% represents the difference between the regular tax of 35% on non-resident foreign corporations which petitioner would have ordinarily paid, and the 15% special rate on dividends received from a domestic corporation.
Tax refund proper where a foreign non-resident corporation paid income tax on branch profit remittance within the maximum ceiling rate decreed in the tax treaty. — Petitioner is entitled to a refund on the transaction in question. It is readily apparent that the 15% tax rate imposed on the dividends received by a foreign non-resident stockholder from a domestic corporation under Section 24 (b) (1) (iii) is easily within the maximum ceiling of 25% of the gross amount of the dividends as decreed in Article 10 (2) (b) of the Tax Treaty.
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