Mitsubishi Corporation-Manila Branch v. CIR
G.R. No. 175772, June
5, 2017
Principle: Assumption
of taxes differs from Exemption of taxes. The constitutional prohibition on the
grant of tax exemptions without the concurrence of the senate applies only to tax
treaty, but not applicable in cases of tax assumption which is a form of
executive agreement.
Facts: On June 11, 1987, the governments of Japan and the Philippines executed an exchange of notes where Japan agreed to extend a loan of Forty Billion Four Hundred Million Japanese Yen to the Philippines through the Overseas Economic Cooperation Fund. This was for the implementation of the Calaca II Coal-fired thermal power plant project. Under the agreement between Japan and the PH, it was stated that the PH government would assume all taxes imposed by the Philippines on Japanese contractors engaged in the project.
In 1991, the National Power
Corporation entered into a contract with Mitsubishi for engineering, supply, construction,
installation, and testing in relation to the
Project. The NPC
undertook to shoulder all forms of taxes which are directly imposable under the
contract. In 1998, Mitsubishi filed its Income Tax Return, including the
income tax from the CALACA II Project and withhold the related Branch Profit
Tax Remittance.
In 2000, Mitsubishi claims
that the tax paid in relation to CALACA project was erroneously paid, and
thereby claiming for refund, banking on the argument that it was tax exempt in
relation to the Japan-Philippine Agreement.
Issue: Whether
or not the petitioner is entitled to the refund.
Ruling: YES. The Supreme Court ruled that Mitsubishi is indeed entitled to a refund.
On the issue of the lack
of concurrence by the senate as required by the constitution, the Supreme Court
pointed out that the exchange
of notes between the Philippine Government and Japan was an executive agreement
which is binding on the state even without the concurrence of the senate.
Furthermore, what is provided for in the exchange of notes is a tax assumption
and not a tax exemption.
The Court ruled that the
petitioner is indeed
entitled to a refund of the taxes paid due to the fact that it was
explicitly worded in the agreement between Japan and the Philippines that all
fiscal levies or taxes imposed in the Philippines on Japanese firms and
nationals operating as suppliers, contractors, or consultants and/or in connection
with any income that may accrue from the supply of products of Japan and
services of Japanese National to be provided under the OECF loan.
The taxes paid by the
petitioner clearly fall within the ambit of the tax assumption provision under
the Exchange of Notes as well as the Contract between the petitioner and the
NPC. Hence, the Philippine
Government through the NPC should shoulder the payment of the same.
It is the CIR who has to
refund the taxes however, they can properly collect the subject taxes from the
NPC since the NPC properly assumed the tax liability of Mitsubishi.
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