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8/13/2019 Commissioner of Internal Revenue vs. Sony Philippines,
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Commissioner of Internal Revenue vs. Sony Philippines, Inc.
(November 17, 21!
F A C T S 11/24/98: the CIR issued Letter of Authority
authorizin !ertain re"enue offi!ers to e#a$ineSony%s &oo's of
a!!ounts and other a!!ountin re!ords reardin re"enue ta#es for (the
)eriod 199* andun"erified )rior years+(
12/,/99: a )re-i$inary assess$ent for 199* defi!ien!y ta#es and
)ena-ties .as issued &y the CIR .hi!hSony )rotested+ CIR issued
fina- assess$ent noti!es the for$a- -etter of de$and and the
detai-s of dis!re)an!ies+0FICIC3 AL5 A000 TA6 7AT 1114114+410FICIC3
6A00 ;IT
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8/13/2019 Commissioner of Internal Revenue vs. Sony Philippines,
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" #$%ICI$NC& ') IN )*$ +-N) % P*P11,11,1.1. 0FICIC3 6A00
;IT
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8/13/2019 Commissioner of Internal Revenue vs. Sony Philippines,
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)*$ #$%ICI$NC& ') SS$SS+$N) S*-/# *'$ 0$$N #IS//$#. 0$ )*) S
I)+&, )*$ CIRS R3-+$N), )*) SN&S#'$R)ISIN3 $4P$NS$ C-/# N)
0$ CNSI#$R$# S N INP-) ') CR$#I)0$C-S$)*$ S+$ S $'$N)-//&
R$I+0-RS$# 0& SN& IN)$RN)IN/SIN3PR$ (SIS!, IS/S
$RRN$-S.
" )he CIR conten5s that since Sonys a5vertisin6 epense 8as
reimburse5 by SIS, the formernever incurre5 any a5vertisin6 epense.
s a result, Sony is not entitle5 to a ta cre5it. t most,the CIR
continues, the sai5 a5vertisin6 epense shoul5 before the account of
SIS, an5 not Sony.
" )he Court is not persua5e5. s aptly foun5 by the C)9%irst
#ivision an5 later affirme5 by theC)9$0, Sonys 5eficiency ')
assessment stemme5 from the CIRs 5isallo8ance of the input ')
cre5itsthat shoul5 have been reali:e5 from the a5vertisin6 epense
of the latter.1; It is evi5ent un5erSection 111< of the 1
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8/13/2019 Commissioner of Internal Revenue vs. Sony Philippines,
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usin SIS do-eBout .ere for Sony and not SIS+ SIS Gust a"e
assistan!e to Sony in the a$ount eHui"a-entto the -atter%s
ad"ertisin e#)ense &ut ne"er re!ei"ed any oods )ro)erties or
ser"i!e fro$ Sony+ Reardin the defi!ien!y ;T assess$ent $ore
)arti!u-ar-y Sony%s !o$$ission e#)ense the CIRinsists that said
defi!ien!y ;T assess$ent is su&Ge!t to the ten )er!ent 71 rate
instead of the fi"e )er!ent 7@ !itinRe"enue Reu-ation o+ 2B98 dated
A)ri- 1* 1998+24 The said re"enue reu-ation )ro"ides that the 1
rate is a))-ied .henthe re!i)ient of the !o$$ission in!o$e is a
natura- )erson+
A!!ordin to the CIR Sony%s s!hedu-e of Se--in >enera- and
Ad$inistrati"e e#)enses sho.s the!o$$ission e#)ense as
(!o$$ission/dea-er sa-es$an in!enti"e( e$)hasizin the .ord
sa-es$an+
=n the other hand the a))-i!ation of the fi"e )er!ent 7@ rate
&y the CTABFirst 0i"ision is &ased onSe!tion 17 ofRe"enue
Reu-ations o+ ,B8@ .hi!h )ro"ides:7 A$ounts )aid to !ertain ro'ers
and Aents+ =n ross )ay$ents to !usto$s insuran!e rea- estate and
!o$$er!ia- &ro'ers and aents of )rofessiona- entertainers fi"e
)er !entu$ 7@+2@
In denyin the "ery sa$e aru$ent of the CIR in its $otion for
re!onsideration the CTABFirst 0i"ision
he-d:# # # !o$$ission e#)ense is indeed su&Ge!t to 1
.ithho-din ta# &ut )ay$ents $ade to &ro'er is su&Ge!t
to @ .ithho-dinta# )ursuant to Se!tion 17 of Re"enue Reu-ations o+
,B8@+ ;hi-e the !o$$ission e#)ense in the s!hedu-e of Se--in
>enera- and Ad$inistrati"e e#)enses su&$itted &y
)etitioner 7SI to the IR is !a)tioned as (!o$$ission/dea-er
sa-es$anin!enti"e( the sa$e does not Gustify the auto$ati!
i$)osition of f-at 1 rate+ As ite$ized &y )etitioner
su!he#)ense is !o$)osed of (Co$$ission #)ense( in the a$ount of 12+
and ro'er 0ea-er% of 2894*9*++2, The Court arees .ith the CTAB .hen
it affir$ed the CTABFirst 0i"ision de!ision+ Indeed the
a))-i!a&-e ru-e is Re"enueReu-ations o+ ,B8@ as a$ended &y
Re"enue Reu-ations o+ 12B94 .hi!h .as the a))-i!a&-e ru-e durin
the su&Ge!t)eriod of e#a$ination and assess$ent as s)e!ified in
the L=A+ Re"enue Reu-ations o+ 2B98 !ited &y the CIR .as
on-yado)ted in A)ri- 1998 and therefore !annot &e a))-ied in
the )resent !ase+ esides the .ithho-din ta# on &ro'ers andaents
.as on-y in!reased to 1 $u!h -ater or &y the end of Du-y 21
under Re"enue Reu-ations o+ ,B21+2* 5nti-then the rate .as on-y
@+
The Court a-so affir$s the findins of &oth the CTABFirst
0i"ision and the CTAB on the defi!ien!y ;T assess$ent onthe renta-
de)osit+ A!!ordin to their findins Sony in!urred the su&Ge!t
renta- de)osit in the a$ount of 1@2821+99 on-y
fro$ Danuary to ?ar!h 1998+ As stated ear-ier in the a&sen!e
of the a))ro)riate L=A s)e!ifyin the !o"erae the CIR%sdefi!ien!y ;T
assess$ent fro$ Danuary to ?ar!h 1998 is not "a-id and $ust &e
disa--o.ed+
Fina--y the Court no. )ro!eeds to the third round re-ied u)on
&y the CIR+
The CIR initia--y assessed Sony to &e -ia&-e for
)ena-ties for &e-ated re$ittan!e of its F;T on roya-ties7i as
of 0e!e$&er199*E and 7ii for the )eriod fro$ Danuary to ?ar!h
1998+ Aain the Court arees .ith the CTABFirst 0i"ision .hen it
u)he-dthe CIR .ith res)e!t to the roya-ties for 0e!e$&er 199*
&ut !an!e--ed that fro$ Danuary to ?ar!h 1998+
The CIR insists that under Se!tion 28 of Re"enue Reu-ations o+
@B82 and Se!tions 2+@*+4 and2+@87A727a29 ofRe"enue Reu-ations o+
2B98 Sony shou-d a-so &e $ade -ia&-e for the F;T on
roya-ties fro$ Danuary to ?ar!h of 1998+ Atthe sa$e ti$e it
do.n)-ays the re-e"an!e of the ?anufa!turin Li!ense Aree$ent 7?LA
&et.een Sony and SonyBDa)an)arti!u-ar-y in the )ay$ent of
roya-ties+
The a&o"e re"enue reu-ations )ro"ide the $anner of
.ithho-din re$ittan!e as .e-- as the )ay$ent of fina- ta# on
roya-ty+ased on the sa$e Sony is reHuired to dedu!t and .ithho-d
fina- ta#es on roya-ty )ay$ents .hen the roya-ty is )aid or
is)aya&-e+ After .hi!h the !orres)ondin return and re$ittan!e
$ust &e $ade .ithin 1 days after the end of ea!h $onth+
TheHuestion no. is .hen does the roya-ty &e!o$e
)aya&-eM
5nder Arti!-e 67@ of the ?LA &et.een Sony and SonyBDa)an the
fo--o.in ter$s of roya-ty )ay$ents .ere areed u)on:7@;ithin t.o 72
$onths fo--o.in ea!h se$iBannua- )eriod endin Dune and 0e!e$&er
1 the LICS sha-- furnish tothe LICS=R a state$ent !ertified &y
an offi!er of the LICS sho.in Huantities of the ?=0LS so-d -eased
orother.ise dis)osed of &y the LICS durin su!h res)e!ti"e
se$iBannua- )eriod and a$ount of roya-ty due )ursuant this
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8/13/2019 Commissioner of Internal Revenue vs. Sony Philippines,
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ARTICL 6 therefore and the LICS sha-- )ay the roya-ty hereunder
to the LICS=R !on!urrent-y .ith the furnishinof the a&o"e
state$ent+
;itha- Sony .as to )ay SonyBDa)an roya-ty .ithin t.o 72 $onths
after e"ery se$iBannua- )eriod .hi!h ends in Dune and 0e!e$&er
1+ i"en this the F;Ts shou-d ha"e &een )aid or re$itted &y
Sony to the CIR on Danuary 11998 and Du-y 1 1998+ Thus it .as
!orre!t for the CTABFirst 0i"ision and the CTAB in ru-in that the
F;T for the roya-tyfro$ Danuary to ?ar!h 1998 .as seasona&-y
fi-ed+ A-thouh the roya-ty fro$ Danuary to ?ar!h 1998 .as .e--
.ithin the se$iBannua- )eriod endin Dune .hi!h $eant that the
roya-ty $ay &e )aya&-e unti- Auust 1998 )ursuant to the
?LAthe F;T for said roya-ty had to &e )aid on or &efore
Du-y 1 1998 or 1 days fro$ its a!!rua- at the end of Dune1998+ Thus
.hen Sony re$itted the sa$e on Du-y 8 1998 it .as not yet -ate+
