Tax Case Digest: RCBC v. CIR (2011)

RCBC v. CIR
G.R. No. 170257 September 7, 2011
MENDOZA, J.

Lessons Applicable: Waiver, Witholding Agent, CTA findings,

Laws Applicable:

FACTS:

• January 23, 1997, RCBC executed 2 waivers of Defense of Prescription.  Under the statute of limitation of the NIRC covering the Internal Revenue Taxes due for 1994 and 1995 extending the assessment up to Dec. 31, 2000.  
• January 27, 2000: RCBC received a formal letter of demand together with assessment notices for deficiency taxes.  RCBC filed a Protest and then, a Petition for Review before the CTA pursuant to Sec. 228 of the 1997 Tax Code.
• Dec. 6, 2000: It again received a letter of demand which drastically reduced the deficiency tax except from the onshore tax and document stamp tax (DST). 
• RCBC argued the validity of the waivers for not being signed and for the onshore tax, it should not be primarily liable since it is only a withholding agent.
• CTA terminated the assessment for other deficiencies except for the FCDU shore tax and DST charging 20% deficiency tax.  Being denied in CTA en banc, it raised the matter to the Supreme Court.  While the case is pending, the DST deficiency was paid after the BIR approved its application for abatement.

ISSUES: W/N RCBC as payee bank can be held liable for deficiency on shore tax which is mandatory by law to be collected at source in the form of a final withholding tax.

HELD: Petition is denied.  As held in Chamber of Real Estate and Builder's Association Inc. v. Executive Sec., the purpose of the withholding tax system are:

1. to provide the taxpayer with a convenient way of paying his tax liability
2. to ensure the collection of tax
3. to improve the governments cashflow.

• Under the withholding tax system, the payor is the taxpayer upon whom the tax is imposed, while the withholding agent simply acts as an agent or a collector of the government to ensure the collection of taxes
• The liability of the withholding agent is independent from that of the taxpayer. 
• The former cannot be made liable for the tax due because it is the latter who earned the income subject to withholding tax. 
• The withholding agent is liable only insofar as he failed to perform his duty to withhold the tax and remit the same to the government. The liability for the tax, however, remains with the taxpayer because the gain was realized and received by him.
• RCBC cannot evade its liability for FCDU Onshore Tax by shifting the blame on the payor-borrower as the withholding agent. 
•  The CTA, as a specialized court dedicated exclusively to the study and resolution of tax problems, has developed an expertise on the subject of taxation and shall be accorded the highest respect and shall be presumed valid, in the absence of any clear and convincing proof to the contrary