FILIPINAS SYNTHETIC FIBER CORP. V CA

Facts: Filipinas Synthetic Fiber Corp., a domestic corporation received on December 27, 1979 a letter of demand from the Commissioner of Internal Revenue assessing it for deficiency withholding tax at source in the total amount of P829,748.77 inclusive of interest and compromise penalties, for the period from the fourth quarter of 1974 to the fourth quarter of 1975. The assessment was seasonably protested by petitioner through its auditor, SGV and Company. Respondent denied the protest on May 14, 1985 on the following ground: “For Philippine internal revenue tax purposes, the liability to withhold and pay income tax withheld at source from certain payments due to a foreign corporation is at the time of accrual and not at the time of actual payment or remittance thereof.”

On June 28, 1985, petitioner brought a petition for review before the Court of Tax Appeals, the said court came out with its decision on June 15, 1993, which is against the petitioner.

With the denial of its motion for reconsideration, petitioner appealed the CTA disposition to the Count of Appeals, which affirmed in toto the appealed decision. So, petitioner found its way to this count via petition for review on certiorari.


Issue: Whether the liability to withhold tax at source on income payments to non-resident foreign corporation arises upon remittance of the amounts due to the foreign creditors, or upon accrual thereof


Held: The Supreme Court held that since Sec. 53, NIRC (now, Sec. 57 of 1997 NIRC) in relation to Sec. 54 (now Sec. 58) is silent as to when the duty to withhold arises, it is necessary to look into the nature of the accrual method of accounting, which was used by therein petitioner corporation. Inasmuch as under the accrual basis, income is reportable when all the events have occurred to fix taxpayer’s right to receive the income and the amounts can be determined with reasonable accuracy, hence, it is the right to receive income, and not the actual receipt thereof, that determines when the amount is includible in gross income. Thus, the duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual. The withholding agent/corporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government. If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax, an assessment for said deficiency withholding tax would, therefore, be legal and proper.