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Cir v. Solidbank

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Topic: CONSTRUCTION OF TAX LAWS

COMMISSIONER OF INTERNAL REVENUE vs. SOLIDBANK CORPORATION


G.R. No. 148191               November 25, 2003
Ponente: PANGANIBAN, J.:
FACTS:
Under the Tax Code, the earnings of banks from "passive" income are subject to a
twenty percent final withholding tax (20% FWT).
For the calendar year 1995, Solidbank Corp. seasonably filed its Quarterly Percentage
Tax Returns reflecting gross receipts (pertaining to 5% [Gross Receipts Tax] rate) in the
total amount of ₱1,474,691,693.44 with corresponding gross receipts tax payments in
the sum of ₱73,734,584.60,
On January 30, 1996, [the Court of Tax Appeals] rendered a decision in Asian Bank
Corporation vs. Commissioner of Internal Revenue wherein it was held that the 20%
final withholding tax on [a] bank’s interest income should not form part of its taxable
gross receipts for purposes of computing the gross receipts tax.
Without waiting for an action from the CIR, Solidbank Corp. on the same day filed [a]
petition for review [with the Court of Tax Appeals] in order to toll the running of the
two-year prescriptive period to judicially claim for the refund of [any] overpaid internal
revenue tax[,] pursuant to Section 230 [now 229] of the Tax Code [also ‘National
Internal Revenue Code’]
ISSUE:
Whether the 20% FWT Forms Part of the Taxable Gross Receipts.
RULING:
Yes, the amount of interest income withheld in payment of the 20% FWT forms part of
gross receipts in computing for the GRT on banks.

Under the Tax Code, the earnings of banks from passive income are subject to a
twenty percent final withholding tax (20% FWT). This tax is withheld at source and is
thus not actually and physically received by the banks, because it is paid directly to
the government by the entities from which the banks derived the income. Apart from
the 20% FWT, banks are also subject to a five percent gross receipts tax (5% GRT)
which is imposed by the Tax Code on their gross receipts, including the passive
income.
The fact is that if there were no withholding tax system in place in this country, this
20 percent portion of the passive income of banks would actually be paid to the banks
and then remitted by them to the government in payment of their income tax. The
institution of the withholding tax system does not alter the fact that the 20 percent
portion of their passive income constitutes part of their actual earnings, except that it
is paid directly to the government on their behalf in satisfaction of the 20 percent final
income tax due on their passive incomes.

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