Case 57: CIR vs SC Johnson and Son Facts: S.C. Johnson and Son, Inc.

entered into a license agreement with SC Johns on and Son, USA. For the use of trademark or technology, SC Johnson and Son, Inc . was obliged to pay SC Johnson and Son, USA royalties based on percentage and o f net sales and subjected the same to 25% withholding tax on royalty paymnents. SC Johnson and Son, Inc. filed with the Inrernational Tax Affairs Division (ITAD ) of the BIR a claim for refund of overpaid withholding tax on royalties arguing that the preferential tax rate of 10% should apply to them. Issue: WON SC Johnson and Son, USA is entitled to the "most favored nation" tax rate of 10% on royalties as provided in the RP-US Tax Treaty in relation to the RP-West Germany Tax Treaty. Held: NO. Under Artcle 13 of the RP-US Tax Treaty, the Philippines may impose on e of the three rates: (1) 25% of the gross amount of the royalties, (2) 15% when the royalties are paid by a corporation registered with the Philippine Board of Investments and engaged in preferrred areas of activities, (3) the lowest rate of Philippine tax that may be imposed on royalties of the same kind paid under s imilar circumstances to a resident of a third state. The RP-US and the RP-WEST Germany Tax Treaties do not contain similar provisions on tax crediting. Since the RP-US Tax Treaty does not give a matching tax credi t of 20% for the taxes paid to the Philippines on royalties as allowed under the RP-West Germany Tax Treaty, private respondent cannot be deemed entitled to the 10% rate granted under the latter treaty for the reason that there is no paymen t of taxes on royalties under similar circumstances. Case 58: Golden Arches Development Corp. vs CIR Facts: Petitioner, Golden Arches Development Corp., is a duly organized and exis ting corporation under and by virtue of Philippine laws. On November 28, 2002, S EC issued a Certficate of filing of the Articles and Plan of Merger approving th e merger of McGeorge and herein petitioner. Prior to the approval issued by SEC, the Plan of Merger provided that rights, privileges, power immunities, as well as, the License Agreement between McGeorge and McDonald's, businesses, assets an d properties whether real and personal with petitioner as the surviving corporat ion. On January 1, 2002, the RP-China tax treaty too effect. Under the Article 23 of the said tax treaty, the rate of final withholding tax on royalties paid beginni ng January 2002 should be taxed at the concession rate 10%. On the opinion that it is entitled to the lower rate of 10% complaint with the "most favored-nation" clause of the RP-US tax treaty, petitioner then filed on December 23, 2003 an a dministrative claim for refund or issuance of tax credit certificate for the rec overy of its alleged over-remitted and overpaid withholding tax. Issue: WON petitioner should apply the rate of 15% or 10% in computing the final withholding taxes on royalties for the periods of January to December 2002 and January to June 2003. Held: Petitioner is entitled to 10% withholding tax on royalties. The phrase "pa id under the Similar circumstances" under the "most favored nation clause" of th e RP-US Tax Treaty refers to the manner of payment of taxes or "circumstances wh ich to the manner of payment of taxes or "circumstances which are tax-related", and not to the subject matter of the tax. In construing the same, the purpose of entering into a tax treaty which is to grant incentives to the foreign investor s by lowering the tax and at the same time applying against domestic tax abroad

a figure higher than what was collected here in the Philippines, is met. A curso ry reading of RP-Russia and RP-China Tax Treaties reveals similar provisions on the relief from or avoidance of double taxation as those stipulated in the RP-US Tax Treaty. The three treaties deal with the method of payment by allowing cred it of the foreign tax as against the taxes actually collected in the Philippines , which is considered paid under the similar circumstances. Thus, petitioner is entitled to refund or in the alternative, issue a tax credit certificate in the amount of P28, 831, 278.04 representing petitioner's over-withheld and over-paid final taxes on royalties.