FACTS
Deutsche Bank remitted to the CIR an amount representing 15% of its branch profit remittance tax for 2002 and prior taxable years. Believing it made an overpayment, it filed an administrative claim for refund and requested a confirmation of its entitlement to a preferential tax rate of 10% under the RP-Germany Tax Treaty.
The CTA denied this claim based on RMO No. 1-2000 saying that Deutsche Bank violated the 15-day rule for tax treaty relief application. It also cited Mirant which stated that before the benefits of the tax treaty may be extended to a foreign corporation wishing to avail itself thereof, the latter should first invoke the provisions of the tax treaty and prove that they indeed apply to the corporation.
RULING
The Supreme Court ruled in favor of Deustche Bank.
Laws and issuances must ensure that the reliefs granted under tax treaties are accorded to the parties entitled thereto. The BIR must not impose additional requirements that would negate the availment of the reliefs provided for under international agreements. More so, when the RP-Germany Tax Treaty does not provide for any pre-requisite for the availment of the benefits under said agreement.
The time-honored international principle of pacta sunt servanda demands the performance in good faith of treaty obligations on the part of the states that enter into the agreement. Every treaty in force is binding upon the parties, and obligations under the treaty must be performed by them in good faith. More importantly, treaties have the force and effect of law in this jurisdiction.
Laws and issuances must ensure that the reliefs granted under tax treaties are accorded to the parties entitled thereto.
