CTA sets aside investment holdings firm’s withheld taxes

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THE Court of Tax Appeals (CTA) has granted Diddley Bow Investments Holdings B.V.’s appeal to refund its wrongly paid final withholding tax worth P8.4 million for the period covering Jan. 26 to Aug. 17, 2016.

In a 14-page decision dated March 2, the CTA Special Third Division agreed with the firm as it said the commissioner of internal revenue (CIR) illegally collected the final withholding taxes for the period.

The firm is based in the Netherlands and it is not registered as a corporation with the Philippines’ Securities Exchange Commission. It is not engaged in trade or business in the Philippines.

Citing a tax treaty between the Philippines and the Netherlands, the CTA said the interests from Treasury bonds (T-bonds) the firm invested in were exempt from taxes.

“The Philippines-Netherlands is thus clear that interest arising in one of the states and paid in respect of a bond, debenture or other similar obligation of the government thereof shall be exempt from tax in that state,” Associate Justice Maria Belen M. Ringpis-Liban said in the ruling.

Diddley Bow invested in T-bonds with more than one-year maturities through its custodian JPMorgan Chase Bank N.A. and sub-custodian Hongkong & Shanghai Banking Corp. Ltd.

During the said period, the investments derived an interest income of P41.95 million and were subjected to a final withholding tax worth P8.4 million.

The court said Diddley Bow was able to file its claim within the two-year period prescribed under the country’s tax code.

The CIR claimed that the holdings firm did not submit the required documents to prove its payment of taxes.

The CTA disagreed with the official as it reiterated the tax exemption provided under the tax treaty between the Philippines and the Netherlands.

“In fine, T-Bonds are exempt from income tax under the National Internal Revenue Code of 1997 in relation to the Philippines-Netherlands Tax Treaty,” the tribunal said.

“Thus, the subject T-Bonds are obligations of the Republic of the Philippines, and the interests accruing or arising therefrom are exempt from income taxation in the Philippines,” it added. — John Victor D. Ordoñez