CIR vs Mitsubishi

CIR vs Mitsubishi, GR No L-54908, January 22, 1990

Atlas Consolidated Mining and Dev Corp (Atlas) entered into a loan and sales contract with Mitsubishi, a Japanese corp licenses to engage in business in the Phils., for purposes of the projected expansion of the productive capacity of Atlas.

Mitsubishi agreed to extend a loan to Atlas for the installation of a new concentrator for copper production and Atlas to sell to Mitsubishi all the copper concentrates produced for 15 years.

Mitsubishi applied for a loan with Export-Import Bank of Japan (Eximbank) for purpose of its obligation under said contract. Pursuant to the contract between Atlas and Mitsubishi, interest payments were made by Atlas to Mitsubishi for the years 1974-75.  The corresponding 15% tax thereon in the amount of P1,971,595.01 was withheld pursuant to sec. 24(b)(1) and sec. 53 (b)(2) of NIRC, as amended by PD 131, and duly remitted to the government.

Private respondent filed a claim for the tax credit requesting the sum of P1,971,595.01 be applied against their existing and future tax liabilities. It was later noted by respondent CTA that Mitsubishi executed a waiver and disclaimer of its interest in the claim for tax credit in favor of Atlas.

Mitsubishi filed a petition for review with respondent court on the ground that Mitsubishi was a mere agent of Eximbank, which is a financing institution owned, controlled and financed by the Japanese Government.  Such government status of Eximbank, if it may be so called, is the basis for private respondents claim for exemption from paying the tax on the interest payment on the loan. It was further claimed that the interest payments on the loan from the consortium of Japanese banks were likewise exempt because loan supposedly came from or were fniancé by Eximbank.  Relying on the provision of sec. 29(b)(7)(A) NIRC.

CTA promulgated its decision ordering petitioner to grant a tax credit in favor of Atlas and the court declared that all papers and documents pertaining to the loan obtained by Mitsubishi from Eximbank shows that this was the same amount given to Atlas. It also observed that the money for the loan from the consortium of private Japanese banks originated from Eximbank.  From these, respondent court concluded that the ultimate creditor of Atlas was Eximbank.  Mitsubishi was acting as a mere “arranger or conduit through which the loan flowed from the creditor Eximbank to the debtor Atlas.

ISSUE: 1) WON the interest income from the loan extended to Atlas by Mitsubishi is excludible from gross income taxation pursuant to sec. 29(b)(7)(A), NIRC and therefore, exempt from withholding tax.

       

            2) WON Mitsubishi is a mere conduit of Eximbank which will then be considered as the creditor whose investment in the Phils. On loans are exempt from taxes.

HELD:

1)    NO

The signatories on the loans and sales contract were Mitsubishi and Atlas, nowhere in the contract can it be inferred that Mitsubishi acted for and behalf of Eximbank of Japan nor of any entity, private or public, for that matter.  When Mitsubishi obtained the loan of USD 20M from Eximbank of Japan said amount ceased to be the property of the bank and become property of Mitsubishi. 

Mitsubishi and not Eximbank is the sole creditor of Atlas, the former being the owner of the USD 20M upon completion of its loan contract with Eximbank of Japan.  The interest income of the loan paid by Atlas to Mitsubishi is therefore entirely different from the interest income paid by Mitsubishi to Eximbank of Japan.  What was the subject of the 15% withholding tax is not the interest income paid by Mitsubishi to Eximbank, but the interest income earned by Mitsubishi from the loan to Atlas.

2)    NO

When Mitsubishi secured the loan, it was in its own independent capacity as a private entity and not as a conduit of the consortium of Japanese banks or the Eximbank of Japan.  While loans were secured by Mitsubishi primarily “as a loan to and in consideration for importing copper concentrates from Atlas, the fact remains that it was a loan by Eximbank of Japan to Mitsubishi and not to Atlas.