8/3/2019 1_Conwi vs. CTA Digest

1/2

CONWI vs. CTA213 SCRA 83NOCON, August 31, 1992

NATUREPetition for Review on Certiorari

FACTS-Petitioners were Filipino citizens who wereemployees of P & G Phils. During 1970 to 1971, they

were assigned to other subsidiaries of P & G outsideRP, thus, were paid in US dollars as compensation forservices in their foreign assignments. So when theyfiled their income tax returns (ITR) for 1970, theycomputed the tax due by applying the dollar-to-pesoconversation on the basis of the floating rateordained under BIR Ruling No. 70-27 (rates underRevenue Memorandum Circulars Nos. 7-71 and41-71) dated May 14, 19701. The same conversionrate was used for their 1971 ITR.-However, on February 8, 1973, the petitioners filedwith CIR an amended ITR for 1970 & 1971 whichused par value of the peso as prescribed in RA 265,Sec.48 in relation to CA 699, Sec.6 for convertingtheir dollar income into pesos for purposes of

computing and paying the corresponding income taxdue from them. The amended ITR resulted intoalleged overpayments/refund and/or tax credit.

Therefore, the petitioners claimed for refund fromCIR.-CTA: the proper conversion rate for the purpose ofreporting and paying the Philippine income tax onthe dollar earnings of petitioners are the ratesprescribed under RMC Nos. 7-71 and 41-71.Claim for refund denied.

ISSUEWON the petitioners are entitled to refund (Whatexchange rate should be used to determine the pesoequivalent of the foreign earnings of petitioners forincome tax purposes)

HELDNO.Reasoning.Definition of Income: an amount of money comingto a person or corporation within a specified time,whether as payment for services, interest or profitfrom investment. Unless otherwise specified, itmeans cash or its equivalent. Income can also bethought of as a flow of the fruits of one's labor.Definition of foreign exchange transactions(petitioners claim that their dollar earnings were notforeign exchange transactions): a transaction in

1From January 1 to February 20, 1970 at the conversion rate of P3.90 to U.S. $1.00;

From February 21 to December 31, 1970 at the conversion rate of P6.25 to U S. $1.00

foreign exchange, foreign exchange being "theconversion of an amount of money or currency ofone country into an equivalent amount of money orcurrency of another." There was no conversion(petitioners earned dollars, also spent dollars duringtheir stay abroad) so no foreign exchangetransactionOn what should be the basis for conversion:RMCs 7-71 and 41-71CB Circular No. 289: shows that the subjectmatters involved therein are export products,invisibles, receipts of foreign exchange, foreignexchange payments, new foreign borrowing andinvestments nothing by way of income tax

payments. Thus, petitioners are in error byconcluding that since C.B. Circular No. 289 does notapply to them, the par value of the peso should bethe guiding rate used for income tax purposes.RMCs 7-71 and 41-71: issued to prescribe auniform rate of exchange from US dollars toPhilippine pesos for INTERNAL REVENUE TAXPURPOSES for the years 1970 and 1971,respectively. Said revenue circulars were a validexercise of the authority given to the Secretary ofFinance by the Legislature which enacted theInternal Revenue Code. And these are presumed tobe a valid interpretation of said code until revoked bythe Secretary of Finance himself. Petitioners, whowere arguing that there were no remittances andacceptances of their salaries and wages in US dollarsinto RP, they are exempt from the coverage of theRMCs, are NOT EXEMPT from the RMCs as they arecitizens of the Philippines, and their income, withinor without, and in these cases wholly without, aresubject to income tax. Sec. 21, NIRC2, as amended,does not brook any exemption.

Disposition. WHEREFORE" the petitions are deniedfor lack of merit. The dismissal by the respondentCourt of Tax Appeals of petitioners' claims for tax

refunds for the income tax period for 1970 and 1971is AFFIRMED. Costs against petitioners.SO ORDERED.

*Para di magulo footnotes*RMC 7-71SUBJECT: Prescribing a uniform rate for U.S. Dollars toPhilippine Pesos for Internal Revenue Tax Purposes.

TO: All Internal Revenue Officers and others concerned:

2 Sec. 21. Rates of tax on citizens or residents. A tax is hereby imposed upon the

taxable net income received during each taxable year from all sources by every individual,

whether a citizen of the Philippines residing therein or abroad or an alien residing in the

Philippines, determined in accordance with the fol lowing schedule:

xxx xxx xxx

And in the implementation for the proper enforcement of the National Internal Revenue

Code, Section 338 thereof empowers the Secretary of Finance to "promulgate all needful

rules and regulations" to effectively enforce its provisions.

For the Purpose of establishing a uniform rate of exchange toU.S. dollars to Philippine pesos for internal revenue taxpurposes for the year 1970, the following schedule ofexchange rates are hereby prescribed for reference andguidelines of all concerned;

Schedule of Exchange Rates1. In all cases of transactions involving remittances

and acceptances of U.S. dollars occurring during the periodfrom January 1 to February 20, 1970, the official rate ofexchange of P3.90 to $1.00 shall be used.

2. The case of transactions involving remittances oracceptance of U.S. dollars occurring after February 20, 1970the following rules shall govern:

(a) In the case of regular or habitual transactionsinvolving remittances and acceptances of U.S. dollars, suchas salaries, royalty payments and the like, the uniform rateof P6.25 to U.S. $1.00 shall be used; provided however, thatan the case of transactions involving the computation ofadvance sales or compensating taxes, the rates used by theBureau of Customs at the time of the payment of such taxesshall prevail.

(b) In the case of an isolated or casual transactioninvolving remittances or acceptances of U.S. dollars, such asdividends, occasional sales of property and the like theexchange rate quoted by the Foreign Exchange Departmentof the Central bank of the Philippines prevailing at the timeof such remittances or acceptance shall be used.

Enforcement and PublicityAll internal revenue officers and others charged with

the enforcement of internal revenue laws are enjoined toenforce the provisions of this circular accordingly and to giveas wide a publicity as possible.

(Sgd.) MISAEL P. VERACommissioner of Internal Revenue

APPROVED:(Sgd.) CESAR VIRATASecretary of Finance"

RMC 41-71SUBJECT: Prescribing a uniform exchange rate for U.S.dollars to Philippine pesos for internal revenue tax purposes.

TO: All Internal Revenue Officers and othersconcerned:

For the purpose of establishing a uniform rate ofexchange to U.S. dollars or other foreign currencies toPhilippine pesos for internal revenue tax purposes for theyear 1971, the following schedule of exchange rates arehereby prescribed for reference and guidelines of allconcerned:

Schedule of Exchange Rates

In all cases of transactions involving remittances andacceptances of U.S. dollars and other foreign currenciesoccurring during the year 1971, the following rules shallgovern:

(a) In the case of regular or habitual transactions

involving remittances or acceptances of US dollars or otherforeign currencies such as salaries, wages, fees or otherrenominations for personal services, royalties, rents,

8/3/2019 1_Conwi vs. CTA Digest

2/2

interests or other fixed or determinable annual or periodicalincome, the uniform rate of P6.25 to U.S. $1.00 shall beused.

(b) In the case of transactions involving thecomputation of advance sales or compensating taxes, therate of exchange used by the Bureau of Customs at the timeof the payment of such taxes shall prevail.

(c) In the case of an isolated or casual transactioninvolving remittances of acceptances of U.S. dollars or otherforeign currencies such as dividends, interests, capital gainsor other gains from occasional sales of property and the like,the exchange rate quoted by the Foreign Exchange

Department of the Central Bank of the Philippines prevailingat the time of such remittances or acceptances shall beused.

(d) Where the currency involved is other than U.S.dollars, the foreign currency shall first be converted to U.S.dollars at the prevailing rate of exchange between the twocurrencies. The resulting amount shall then be converted toPhilippine pesos in accordance with the above-promulgatedrules.

All internal revenue officers and others charged withthe enforcement of internal revenue laws are enjoined toenforce the provisions of this circular accordingly and to giveit as wide a publicity as possible.

(SGD.) MISAEL P. VERACommissioner of Internal Revenue.

APPROVED:

(SGD.) CESAR VIRATASecretary of Finance"