7. GAMBLING; CONTROL.

— The courts cannot but realize that gambling, in its

larger sense as well as in its restricted sense, is an act beyond the pale of good morals,
which, for the welfare of the Filipino people, should be exterminated. It is highly proper
EN BANC that this pastime should be subject to the control of restraints imposed by the ordinances
of local governments peculiarly afflicted by the evil.

[G.R. No. 13678. November 12, 1918.] 8. ID.; ID. — For the suppression of the evil of gambling, coordinate and
THE UNITED STATES, plaintiff-appellee, vs. PRUDENCIO SALAVERIA, defendant- harmonious action must concur between the three, departments of government.
appellant. 9. ID.; ID.; PENALTIES. — In all cases arising under the Gambling Law or
ordinances, except for unusual circumstances, a prison sentence should be imposed if
permitted by the law or ordinance. Further, where the defendant has been found guilty
and is a man of station, he should be given the maximum penalty. Example: A justice of
SYLLABUS the peace, convicted of a violation of a municipal ordinance, sentenced to the maximum
penalty provided by the ordinance, the payment of a fine of P200.
1. CONSTITUTIONAL LAW; "LIBERTY. — The constitutional provision that no 10. ID.; ID.; PUBLIC CORPORATIONS; ORDINANCES; "PANGUINGUE."
person shall be deprived of liberty without due process of law found not to be violated by — Panguingue is not a game of chance or of hazard and is not prohibited by Act No. 1757.
an ordinance of Orion, Bataan. "Liberty" is defined in the opinion. 11. ID.; ID.; ID.; ID.; ID. — Panguingue is, however, in one sense, a species of
2. ID.; PUBLIC CORPORATIONS; POLICE POWER. — Not only does the State gambling which municipalities can restrain, suppress, or control, by the exercise of the
effectuate its purposes through the exercise of the police power, but the municipality police power.
does also. Like the State, the police power of a municipal corporation extends to all 12. ID.; ID.; ID.; ID.; ID. — Ordinance No. 3 of Orion, Bataan, prohibiting the
matters affecting the peace, order, health, morals, convenience, comfort, and safety of playing of panguingue on days not Sundays or legal holidays, and penalizing the violation
its citizens — the security of social order — the best and highest interests of the thereof by a casero [housekeeper] by a fine of not less than P10 nor more than P200, and
municipality. The best considered decisions have tended to broaden the scope of action by jugadores [gamblers] by a fine of not less than P5 nor more than P200, held valid.
of the municipality in dealing with police offenses. The public welfare is rightly made the
basis of construction.
3. ID.; ID.; ID.; GENERAL WELFARE CLAUSE. — Section 2238 of the
Administrative Code of 1917, known as the general welfare clause, delegates in statutory DECISION
form the police power to a municipality. The general welfare clause has two branches.
One branch attaches itself to the main trunk of municipal authority, and relates to such
ordinances and regulations as may be necessary to carry into effect and discharge the
powers and duties conferred upon the municipal council by law. The second branch of MALCOLM, J p:
the clause is much more independent of the specific functions of the council which are
enumerated by law. The municipal council of Orion, Bataan, enacted, on February 28, 1917, an
ordinance which, among other things, prohibited the playing of panguingue on days not
4. ID.; ID.; ID.; ID.; RULE OF CONSTRUCTION. — It is a general rule that Sundays or legal holidays, and penalized the violation thereof by a casero [housekeeper]
ordinances passed by virtue of the implied power found in the general welfare clause by a fine of not less than P10 nor more than P200, and byjugadores [gamblers] by a fine
must be reasonable, consonant with the general powers and purposes of the corporation, of not less than P5 nor more than P200. The justice of the peace of Orion, when this
and not inconsistent with the laws or policy of the State. ordinance went into effect, was PrudencioSalaveria, now the defendant and appellant.
5. ID.; ID.; ORDINANCES; STATUTORY CONSTRUCTION. — The presumption is all Notwithstanding his official station, on the evening of March 8, 1917, not a Sunday or a
in favor of the validity of an ordinance. legal holiday, seven persons including the justice of the peace and his wife were surprised
by the police while indulging in a game of panguingue in the house of the justice of the
6. ID.; ID.; PRESIDENT McKINLEY'S INSTRUCTIONS TO THE COMMISSION. — peace. The chief of police took possession of the cards, the counters (sigayes), a tray, and
Those portions of President McKinley's Instructions to the Commission, relating to local P2.07 in money, used in the game.
self-government, yet constitute a portion of Philippine Constitutional Law and should be
enforced. These are facts fully proven by the evidence and by the admissions of the
accused. Convicted in the justice of the peace court of Orion, and again in the Court of
1
First Instance of Bataan, Salaveria appeals to this court, making five assignments of error. which game depends wholly or chiefly upon chance or hazard, or the use of any
The three assignments, of a technical nature, are without merit, and a fourth, relating to mechanical inventions or contrivance to determine by chance the loser or winner of
the evidence, is not sustained by the proof. The remaining assignment of error, money or of any representative of value or of any valuable consideration or thing." In the
questioning the validity of the ordinance under which the accused was convicted, requires United States vs. Hilario ([1913], 24 Phil., 392), the Supreme Court went into the subject
serious consideration and final resolution. This ordinance in part reads: of the meaning of "gambling" in this jurisdiction, and found that it includes those games
the result of which depend wholly or chiefly upon chance or hazard, and excludes those
"RESOLUTION NO. 28.
games the result of which depend wholly or chiefly upon skill, with the result that Sections
xxx xxx xxx 621 to 625 of the Revised Ordinances of the city of Manila (734-738 of the Revised
"Whereas, this Council is vested with certain powers by Ordinances of 1917) were found to prohibit only games of chance or hazard.
Sections 2184 and 2185 of the Administrative Code; The ordinance of Orion, Bataan, merely prohibits the playing of panguingue on
"Whereas, it is the moral duty of this body to safeguard the certain days, without describing it. Further, although this court has considered the
tranquillity and stability of the Government and to foster the welfare method by which many other games are played, it has never as yet authoritatively
and prosperity of each and all of the inhabitants of this municipality; decided whether panguingue was a game of skill or hazard. Nor was any evidence on this
therefore, point introduced in the present case. However, a reading of the decision of the trial court
and of official opinions of two Attorneys-General, of which we can take judicial
"Be it resolved to enact, as it hereby is enacted, the following cognizance, warrants the deduction that panguingue is not a game of chance or hazard
ordinance: and is not prohibited by Act No. 1757. (See Opinions of the Attorney-General of July 11,
"ORDINANCE NO. 3. 1904; July 25, 1904; October 10, 1905; and September 7, 1911; also Berriz, Diccionario de
la Administracion, p. 35.) If, therefore, we were to restrict our investigation to those
xxx xxx xxx portions of the Administrative Code which authorize a municipal council to prohibit and
"Third. — The games known as 'Panguingue,' 'Manilla,' 'Jung- penalize gambling, there would exist grave doubt, to say the least, of the validity of
kiang,' 'Paris-paris,' 'Poker, 'Tute,' 'Burro,' and 'Treinta-y-uno' shall be ordinance No. 3 of the municipality of Orion, Bataan.
allowed only on Sundays and official holidays. There remains for consideration a different approach to the question.
xxx xxx xxx While Philippine law gives to gambling a restricted meaning, it is to be noted
"The following penalties shall be imposed upon those who that, in its broader signification, gambling relates to play by certain rules at cards, dice, or
play the above games on days other than Sundays and holidays: other contrivance, so that one shall be the loser and the other the winner. (20 Cyc., 878;
Bouvier's Law Dictionary; People vs. Todd [1889], 51 Hun [N. Y.], 446, 451; 4 N.Y. Supp.,
"For the owner of the house: A fine of from Ten to Two 25.) As one example, the Charter of the town of Ruston, State of Louisiana, authorized it
hundred pesos, or subsidiary imprisonment in case of insolvency at the "to restrain, prohibit, and suppress . . . games and gambling houses and rooms . . ., and to
rate of one peso a day. provide for the punishment of the persons engaged in the same." Under this power the
"For the gamblers: A fine of from Five to Two hundred pesos town passed an ordinance prohibiting "all games of chance, lottery, banking games,
each or subsidiary imprisonment in case of insolvency at the rate of one raffling, and all other species of gambling," indicating that there were other species of
peso a day." gambling in addition to games of chance. (See Town of Ruston vs. Perkins [1905], 114 La.,
851.) The common law notion of gambling, which only made it an indictable offense when
The Philippine Legislature has granted to municipalities legislative powers of a
the play was attended by such circumstances as would in themselves amount to a riot or
dual character, one class mandatory and the other discretionary. Of the first class is the
a nuisance or to an actual breach of the peace, has given way to statutes and ordinances
provision of the Administrative Code which makes it the duty of the municipal council,
designed to restrain, suppress, or control gambling.
conformably with law, "to prohibit and penalize . . . gambling." (Sec. 2188 [j], Adm. Code
of 1916; Sec. 2242 [j], Adm. Code of 1917.) This is a more restricted power than that found Authority for the State or a municipality to take action to control gambling in
in the original Municipal Code which authorized a municipal council to "provide against this larger sense can be found in an analysis of what is called the police power.
the evils of gambling, gambling houses, and disorderly houses of whatsoever sort." (Act Any attempt to define the police power with circumstantial precision would
No. 82, sec. 39 [u].) The present municipal law, since making use of the word "gambling," savor of pedantry. The United States Supreme Court tritely describes it as "the most
must be construed with reference to the Insular Law, Act No. 1757, relating to the same essential of all powers, at times the most insistent, and always one of least limitable of
subject. Act No. 1757 in Section 1 defines "gambling" as "the playing of any game for the powers of government." (District of Columbia vs. Brooks [1909], 214 U.S., 138.) The
money or any representative of value or valuable consideration or thing, the result of police power is based on the maxim "salus populi est suprema lex" — the welfare of the
2
people is the first law. The United States Supreme Court has said that it extends "to the municipal council by law. With this class we are not here directly concerned. The second
protection of the lives, health and property of the citizens, and to the preservation of branch of the clause is much more independent of the specific functions of the council
good order and the public morals." (Beer Co. vs. Massachusetts [1878], 97 U.S., 25; which are enumerated by law. It authorizes such ordinances as shall seem necessary and
Barbier vs. Connolly [1885], 113 U.S., 27.) The Supreme Court of these Islands has said that proper to provide for the health and safety, promote the prosperity, improve the morals,
"the police power of the state includes not only the public health and safety, but also the peace, good order, comfort, and convenience of the municipality and the inhabitants
public welfare, protection against impositions, and generally the public's best interest." thereof, and for the protection of property therein."
(U.S. vs. Pompeya [1915], 31 Phil., 245.) Recent judicial decisions incline to give a more
It is a general rule that ordinances passed by virtue of the implied power found
extensive scope to the police power than the older cases. The public welfare is rightfully
in the general welfare clause must be reasonable, consonant with the general powers and
made the basis of construction.
purposes of the corporation, and not inconsistent with the laws or policy of the State. The
Not only does the State effectuate its purposes through the exercise of the ordinance of the municipality of Orion does not seem in itself to be pernicious, or
police power but the municipality does also. Like the State, the police power of a unreasonable or discriminatory. Its purposes evidently are to improve the morals and
municipal corporation extends to all matters affecting the peace, order, health, morals, stimulate the industry of the people. A person is to be compelled to refrain from private
convenience, comfort, and safety of its citizens — the security of social order — the best acts injurious both to himself and his neighbors. These objects, to be attained by limiting
and highest interests of the municipality. (Case vs. Board of Health of Manila and Heiser the pastime to definite days, do not infringe any law of the general government.
[1913], 24 Phil., 250.) The best considered decisions have tended to broaden the scope of
The constitutional provision that no person shall be deprived of liberty without
action of the municipality in dealing with police offenses.
due process of law is not violated by this ordinance. Liberty of action by the individual is
Within the general police powers of a municipal corporation is the suppression not unduly circumscribed; that is, it is not unduly circumscribed if we have in mind the
of gambling. Ordinances aimed in a reasonable way at the accomplishment of this correct notion of this "the greatest of all rights." That gravest of sociological questions —
purpose are undoubtedly valid. (See U.S. vs. Pacis [1915], 31 Phil., 524; 39 L. R. A., 523, How far, consistantly with freedom, may the liberties of the individual member of society
Note; Cooley's Constitutional Limitations, 6th edition, pp. 138, 226, 742; Greenville vs. be subordinated to the will of the Government? — has been debated for centuries, in
Kemmis [1900], 58 S.C., 427 [holding that under the general welfare clause a city may pass vain, if we can not now discount the time worn objection to any and all interference with
an ordinance prohibiting gambling in any private house].) private rights in order to effectuate the public purpose. (See Jacobson vs. Massachusetts
[1905], 197 U.S., 11; State vs. Kreutzberg [1902], 58 L.R.A., 748.) Almost countless are the
The Philippine Legislature, as before intimated, delegated to municipalities
governmental restrictions on the citizen.
certain legislative powers of a discretionary nature. Many of these powers are named
specifically. But in addition, and preceding both the specific powers of a mandatory and The presumption is all in favor of validity. The inhabitants of a municipality are
discretionary character, is the general power of a municipal council to enact ordinances in themselves miniature states. The action of the elected representatives of the people
and make regulations. It is this grant that the preamble of the ordinance of Orion assigns cannot be lightly set aside. The councilors must, in the very nature of things, be familiar
as authority for its enactment. Said Section 2184 of the Administrative Code of 1916 (Sec. with the necessities of their particular municipality and with all the facts and
2238, Adm. Code of 1917) reads: circumstances which surround the subject, and necessitate action. The local legislative
body, by enacting the ordinance, has in effect given notice that the regulations are
"The municipal council shall enact such ordinances and make such regulations,
essential to the well being of the people. Who is in a better position to say whether the
not repugnant to law, as may be necessary to carry into effect and discharge the powers
playing of panguingue is deleterious to social order and the public interest in a certain
and duties conferred upon it by law and such as shall seem necessary and proper to
municipality — the municipal council, or the courts? The answer is self-evident. The
provide for the health and safety, promote the prosperity, improve the morals, peace,
Judiciary should not lightly set aside legislative action when there is not a clear invasion
good order, comfort, and convenience of the municipality and the inhabitants thereof ,
of personal or property rights under the guise of police regulation. (See U.S. vs. Joson
and for the protection of property therein."
[1913], 26 Phil., 1.)
This section, known as the general welfare clause, delegates in statutory form
President McKinley's Instructions to the Commission still remain undisturbed
the police power to a municipality. As above stated, this clause has been given wide
by subsequent Acts of Congress dealing with Philippine affairs and yet constitute a portion
application by municipal authorities and has in its relation to the particular circumstances
of our constitutional law, as to the inviolable rule that "municipal governments . . . shall
of the case been liberally construed by the courts. Such, it is well to recall, is the
be afforded the opportunity to manage their own affairs to the fullest extent of which
progressive view of Philippine jurisprudence.
they are capable." Again the same organic law says, "In the distribution of powers among
The general welfare clause has two branches. One branch attaches itself to the the governments organized by the Commission, the presumption is always to be in favor
main trunk of municipal authority, and relates to such ordinances and regulations as may of the smaller subdivision, so that all the powers which can properly be exercised by the
be necessary to carry into effect and discharge the powers and duties conferred upon the

3
municipal government shall be vested in that government . . .." Let us never forget these the Gambling Law or ordinances, except for unusual circumstances, a prison sentence
principles so highly protective of local self-government. should be imposed, if permitted by the law or ordinance. We further suggest that, where
the defendant has been found guilty and is a man of station, he be given the maximum
The judiciary can very well take notice of the fact that municipalities are
penalty.
accustomed to enacting ordinances aimed at the regulation of gambling. The executive
authorities and the Attorney-General have usually upheld the validity of such ordinances, Applying the foregoing in this instance, it results that the defendant and
especially those intended to restrict the playing of panguingue. (Opinions of the Attorney appellant must be found guilty of a violation of ordinance No. 3 of the municipality of
General, supra; Opinion of the Executive Secretary, July 6, 1909; Indorsement of the Orion, Bataan; and, in accordance therewith, shall be sentenced to the maximum penalty
Governor-General, July 21 1904.) This general municipal practice, indicative of a social of the payment of a fine of P200, or to subsidiary imprisonment in case of insolvency, with
cancer to be eradicated, should not be discouraged by strict judicial construction. the costs of all three instances against him. So ordered.
More important still, the courts cannot but realize that gambling, in its larger Arellano, C.J., Torres, Araullo and Avanceña, JJ., concur.
sense as well as in its restricted sense, is an act beyond the pale of good morals, which,
||| (U.S. v. Salaveria, G.R. No. 13678, [November 12, 1918], 39 PHIL 102-120)
for the welfare of the Filipino people, should be exterminated. The suppression of the evil
does not interfere with any of the inherent rights of citizenship. The pernicious practice
is rightfully regarded as the offspring of idleness and the prolific parent of vice and
immorality, demoralizing in its association and tendencies, detrimental to the best
interests of society, and encouraging wastefulness, thriftlessness, and a belief that a
livelihood may be earned by other means than honest industry. To be condemned in
itself, it has the further effect of causing poverty, dishonesty, fraud, and deceit. Many a
man has neglected his business and mortgaged his integrity to follow the fickle Goddess
of the cards. Many a woman has wasted her hours and squandered her substance at the
gambling board while home and children were forgotten. It is highly proper that this
pastime should be subject to the control of restraints imposed by the ordinances of local
governments peculiarly afflicted by the evil. (See In re Voss [1903], 11 N.D., 540; Ex
parte Tuttle [1891], 91 Cal., 589; Greenwood vs. State [1873], 6 Baxt., 567; 32 Am. Rep.,
539; 12 R.C.L., 709-715.)
For the suppression of such an evil, coordinate and harmonious action must
concur between the three departments of Government. A law or ordinance enacted by
the legislative body must exist. Such an ordinance is before us. Vigorous executive
enforcement must take place to make the law or ordinance a reality. Such activity by the
police has brought this case to the courts. And finally the Judiciary, having full respect for
the legislative action of the municipal council and for the prosecution by the executive
officials, must, by judicial construction, equally as progressive and constructive, give
effect to the action of the other two powers. Wherefore, although panguingue is not
named in the general law on gambling, and although not entirely a game of chance, since
it is a proper subject for regulation by municipal authorities acting under their delegated
police power, whose laudable intention is to improve the public morals and promote the
prosperity of their people, their action should be upheld by the courts. Ordinance No. 3
of Orion, Bataan, is found to be valid.

The culprit in this case is himself a member of the Judiciary. Instead of enforcing
the law, he has scorned it. His example to the people of Orion has been pernicious in its
influence. If gambling is to be suppressed, not only the weak and ignorant must be
punished, but those with full knowledge of the law and the consequences of violation.
We would accordingly suggest to Courts of First Instance that in all cases arising under
4
FIRST DIVISION However, the claim of petitioner for a refund was denied on the ground that
the application for a tax treaty relief was not filed with ITAD prior to the payment by the
former of its BPRT and actual remittance of its branch profits to DB Germany, or prior to
[G.R. No. 188550. August 19, 2013.] its availment of the preferential rate of ten percent (10%) under the RP-Germany Tax
Treaty provision. The court a quo held that petitioner violated the fifteen (15) day period
DEUTSCHE BANK AG MANILA BRANCH, petitioner, vs. COMMISSIONER mandated under Section III paragraph (2) of Revenue Memorandum Order (RMO) No. 1-
OF INTERNAL REVENUE, respondent. 2000.
Further, the CTA Second Division relied on Mirant (Philippines) Operations
Corporation (formerly Southern Energy Asia-Pacific Operations [Phils.], Inc.) v.
Commissioner of Internal Revenue 9 (Mirant) where the CTA En Banc ruled that before
DECISION the benefits of the tax treaty may be extended to a foreign corporation wishing to avail
itself thereof, the latter should first invoke the provisions of the tax treaty and prove that
they indeed apply to the corporation.
SERENO, C.J p: THE CTA EN BANC RULING 10
The CTA En Banc affirmed the CTA Second Division's Decision dated 29 August
This is a Petition for Review 1 filed by Deutsche Bank AG Manila Branch
2008 and Resolution dated 14 January 2009. Citing Mirant, the CTA En Bancheld that a
(petitioner) under Rule 45 of the 1997 Rules of Civil Procedure assailing the Court of Tax
ruling from the ITAD of the BIR must be secured prior to the availment of a preferential
Appeals En Banc(CTA En Banc) Decision 2 dated 29 May 2009 and Resolution 3 dated 1
tax rate under a tax treaty. Applying the principle of stare decisis et non quieta movere,
July 2009 in C.T.A. EB No. 456.
the CTA En Banc took into consideration that this Court had denied the Petition in G.R.
THE FACTS No. 168531 filed by Mirant for failure to sufficiently show any reversible error in the
assailed judgment. 11 The CTA En Banc ruled that once a case has been decided in one
In accordance with Section 28 (A) (5) 4 of the National Internal Revenue Code way, any other case involving exactly the same point at issue should be decided in the
(NIRC) of 1997, petitioner withheld and remitted to respondent on 21 October 2003 the same manner. acAESC
amount of PHP67,688,553.51, which represented the fifteen percent (15%) branch profit
remittance tax (BPRT) on its regular banking unit (RBU) net income remitted The court likewise ruled that the 15-day rule for tax treaty relief application
to Deutsche Bank Germany (DB Germany) for 2002 and prior taxable years. 5 under RMO No. 1-2000 cannot be relaxed for petitioner, unlike in CBK Power Company
Limited v. Commissioner of Internal Revenue. 12 In that case, the rule was relaxed and the
Believing that it made an overpayment of the BPRT, petitioner filed with the BIR claim for refund of excess final withholding taxes was partially granted. While it issued a
Large Taxpayers Assessment and Investigation Division on 4 October 2005 an ruling to CBK Power Company Limited after the payment of withholding taxes, the ITAD
administrative claim for refund or issuance of its tax credit certificate in the total amount did not issue any ruling to petitioner even if it filed a request for confirmation on 4
of PHP22,562,851.17. On the same date, petitioner requested from the International Tax October 2005 that the remittance of branch profits to DB Germany is subject to a
Affairs Division (ITAD) a confirmation of its entitlement to the preferential tax rate of 10% preferential tax rate of 10% pursuant to Article 10 of the RP-Germany Tax Treaty. HSTAcI
under the RP-Germany Tax Treaty. 6 EAcIST
ISSUE
Alleging the inaction of the BIR on its administrative claim, petitioner filed a
Petition for Review 7 with the CTA on 18 October 2005. Petitioner reiterated its claim for This Court is now confronted with the issue of whether the failure to strictly
the refund or issuance of its tax credit certificate for the amount of PHP22,562,851.17 comply with RMO No. 1-2000 will deprive persons or corporations of the benefit of a tax
representing the alleged excess BPRT paid on branch profits remittance to DB Germany. treaty.

THE CTA SECOND DIVISION RULING 8 THE COURT'S RULING

After trial on the merits, the CTA Second Division found that petitioner indeed The Petition is meritorious.
paid the total amount of PHP67,688,553.51 representing the 15% BPRT on its RBU profits
Under Section 28 (A) (5) of the NIRC, any profit remitted to its head office shall
amounting to PHP451,257,023.29 for 2002 and prior taxable years. Records also disclose
be subject to a tax of 15% based on the total profits applied for or earmarked for
that for the year 2003, petitioner remitted to DB Germany the amount of EURO
remittance without any deduction of the tax component. However, petitioner invokes
5,174,847.38 (or PHP330,175,961.88 at the exchange rate of PHP63.804:1 EURO), which
paragraph 6, Article 10 of the RP-Germany Tax Treaty, which provides that where a
is net of the 15% BPRT. cEHITA
5
resident of the Federal Republic of Germany has a branch in the Republic of the to comply with formal and substantive requirements, the challenged
Philippines, this branch may be subjected to the branch profits remittance tax withheld decision, together with its findings of fact and legal conclusions, are
at source in accordance with Philippine law but shall not exceed 10% of the gross amount deemed sustained. But what is its effect on other cases? HECTaA
of the profits remitted by that branch to the head office.
With respect to the same subject matter and the same issues
By virtue of the RP-Germany Tax Treaty, we are bound to extend to a branch in concerning the same parties, it constitutes res judicata. However, if
the Philippines, remitting to its head office in Germany, the benefit of a preferential rate other parties or another subject matter (even with the same parties
equivalent to 10% BPRT. and issues) is involved, the minute resolution is not binding precedent.
Thus, in CIR v. Baier-Nickel, the Court noted that a previous case, CIR v.
On the other hand, the BIR issued RMO No. 1-2000, which requires that any
availment of the tax treaty relief must be preceded by an application with ITAD at least Baier-Nickel involving the same parties and the same issues, was
previously disposed of by the Court thru a minute resolution dated
15 days before the transaction. The Order was issued to streamline the processing of the
February 17, 2003 sustaining the ruling of the CA. Nonetheless, the
application of tax treaty relief in order to improve efficiency and service to the taxpayers.
Further, it also aims to prevent the consequences of an erroneous interpretation and/or Court ruled that the previous case "ha(d) no bearing" on the latter case
because the two cases involved different subject matters as they were
application of the treaty provisions (i.e., filing a claim for a tax refund/credit for the
overpayment of taxes or for deficiency tax liabilities for underpayment). 13 STECAc concerned with the taxable income of different taxable years.

The crux of the controversy lies in the implementation of RMO No. 1-2000. Besides, there are substantial, not simply formal, distinctions
between a minute resolution and a decision. The constitutional
Petitioner argues that, considering that it has met all the conditions under requirement under the first paragraph of Section 14, Article VIII of the
Article 10 of the RP-Germany Tax Treaty, the CTA erred in denying its claim solely on the Constitution that the facts and the law on which the judgment is based
basis of RMO No. 1-2000. The filing of a tax treaty relief application is not a condition must be expressed clearly and distinctly applies only to decisions, not to
precedent to the availment of a preferential tax rate. Further, petitioner posits that, minute resolutions. A minute resolution is signed only by the clerk of
contrary to the ruling of the CTA, Mirant is not a binding judicial precedent to deny a claim court by authority of the justices, unlike a decision. It does not require
for refund solely on the basis of noncompliance with RMO No. 1-2000. the certification of the Chief Justice. Moreover, unlike decisions, minute
Respondent counters that the requirement of prior application under RMO No. resolutions are not published in the Philippine Reports. Finally,
1-2000 is mandatory in character. RMO No. 1-2000 was issued pursuant to the the proviso of Section 4(3) of Article VIII speaks of a decision. Indeed, as
unquestioned authority of the Secretary of Finance to promulgate rules and regulations a rule, this Court lays down doctrines or principles of law which
for the effective implementation of the NIRC. Thus, courts cannot ignore administrative constitute binding precedent in a decision duly signed by the members
issuances which partakes the nature of a statute and have in their favor a presumption of of the Court and certified by the Chief Justice. (Emphasis
legality. supplied) IDEScC

The CTA ruled that prior application for a tax treaty relief is mandatory, and Even if we had affirmed the CTA in Mirant, the doctrine laid down in that
noncompliance with this prerequisite is fatal to the taxpayer's availment of the Decision cannot bind this Court in cases of a similar nature. There are differences in
preferential tax rate. parties, taxes, taxable periods, and treaties involved; more importantly, the disposition
of that case was made only through a minute resolution.
We disagree. CSIHDA
Tax Treaty vs. RMO No. 1-2000
A minute resolution is not a binding
precedent Our Constitution provides for adherence to the general principles of
international law as part of the law of the land. 15 The time-honored international
At the outset, this Court's minute resolution on Mirant is not a binding principle of pacta sunt servanda demands the performance in good faith of treaty
precedent. The Court has clarified this matter in Philippine Health Care Providers, Inc.v. obligations on the part of the states that enter into the agreement. Every treaty in force
Commissioner of Internal Revenue 14 as follows: is binding upon the parties, and obligations under the treaty must be performed by them
It is true that, although contained in a minute resolution, our in good faith. 16 More importantly, treaties have the force and effect of law in this
dismissal of the petition was a disposition of the merits of the case. jurisdiction. 17
When we dismissed the petition, we effectively affirmed the CA ruling Tax treaties are entered into "to reconcile the national fiscal legislations of the
being questioned. As a result, our ruling in that case has already become contracting parties and, in turn, help the taxpayer avoid simultaneous taxations in two
final. When a minute resolution denies or dismisses a petition for failure different jurisdictions." 18 CIR v. S.C. Johnson and Son, Inc. further clarifies that "tax
6
conventions are drafted with a view towards the elimination of international juridical Again, RMO No. 1-2000 was implemented to obviate any erroneous
double taxation, which is defined as the imposition of comparable taxes in two or more interpretation and/or application of the treaty provisions. The objective of the BIR is to
states on the same taxpayer in respect of the same subject matter and for identical forestall assessments against corporations who erroneously availed themselves of the
periods. The apparent rationale for doing away with double taxation is to encourage the benefits of the tax treaty but are not legally entitled thereto, as well as to save such
free flow of goods and services and the movement of capital, technology and persons investors from the tedious process of claims for a refund due to an inaccurate application
between countries, conditions deemed vital in creating robust and dynamic economies. of the tax treaty provisions. However, as earlier discussed, noncompliance with the 15-
Foreign investments will only thrive in a fairly predictable and reasonable international day period for prior application should not operate to automatically divest entitlement to
investment climate and the protection against double taxation is crucial in creating such the tax treaty relief especially in claims for refund. ATcaHS
a climate." 19Simply put, tax treaties are entered into to minimize, if not eliminate the
The underlying principle of prior application with the BIR becomes moot in
harshness of international juridical double taxation, which is why they are also known as
refund cases, such as the present case, where the very basis of the claim is erroneous or
double tax treaty or double tax agreements. cASIED
there is excessive payment arising from non-availment of a tax treaty relief at the first
"A state that has contracted valid international obligations is bound to make in instance. In this case, petitioner should not be faulted for not complying with RMO No. 1-
its legislations those modifications that may be necessary to ensure the fulfillment of the 2000 prior to the transaction. It could not have applied for a tax treaty relief within the
obligations undertaken." 20 Thus, laws and issuances must ensure that the reliefs granted period prescribed, or 15 days prior to the payment of its BPRT, precisely because it
under tax treaties are accorded to the parties entitled thereto. The BIR must not impose erroneously paid the BPRT not on the basis of the preferential tax rate under the RP-
additional requirements that would negate the availment of the reliefs provided for under Germany Tax Treaty, but on the regular rate as prescribed by the NIRC. Hence, the prior
international agreements. More so, when the RP-Germany Tax Treaty does not provide application requirement becomes illogical. Therefore, the fact that petitioner invoked the
for any pre-requisite for the availment of the benefits under said agreement. provisions of the RP-Germany Tax Treaty when it requested for a confirmation from the
ITAD before filing an administrative claim for a refund should be deemed substantial
Likewise, it must be stressed that there is nothing in RMO No. 1-2000 which
compliance with RMO No. 1-2000. AaEcHC
would indicate a deprivation of entitlement to a tax treaty relief for failure to comply with
the 15-day period. We recognize the clear intention of the BIR in implementing RMO No. Corollary thereto, Section 229 21 of the NIRC provides the taxpayer a remedy
1-2000, but the CTA's outright denial of a tax treaty relief for failure to strictly comply for tax recovery when there has been an erroneous payment of tax. The outright denial
with the prescribed period is not in harmony with the objectives of the contracting state of petitioner's claim for a refund, on the sole ground of failure to apply for a tax treaty
to ensure that the benefits granted under tax treaties are enjoyed by duly entitled relief prior to the payment of the BPRT, would defeat the purpose of Section 229.
persons or corporations.
Petitioner is entitled to a refund
Bearing in mind the rationale of tax treaties, the period of application for the
It is significant to emphasize that petitioner applied — though belatedly — for
availment of tax treaty relief as required by RMO No. 1-2000 should not operate to divest
a tax treaty relief, in substantial compliance with RMO No. 1-2000. A ruling by the BIR
entitlement to the relief as it would constitute a violation of the duty required by good
would have confirmed whether petitioner was entitled to the lower rate of 10% BPRT
faith in complying with a tax treaty. The denial of the availment of tax relief for the failure
pursuant to the RP-Germany Tax Treaty.
of a taxpayer to apply within the prescribed period under the administrative issuance
would impair the value of the tax treaty. At most, the application for a tax treaty relief Nevertheless, even without the BIR ruling, the CTA Second Division found as
from the BIR should merely operate to confirm the entitlement of the taxpayer to the follows:
relief. HAISEa
Based on the evidence presented, both documentary and
The obligation to comply with a tax treaty must take precedence over the testimonial, petitioner was able to establish the following facts:
objective of RMO No. 1-2000. Logically, noncompliance with tax treaties has negative
implications on international relations, and unduly discourages foreign investors. While a. That petitioner is a branch office in the Philippines
the consequences sought to be prevented by RMO No. 1-2000involve an administrative of Deutsche Bank AG, a corporation organized and existing under the
procedure, these may be remedied through other system management processes, e.g., laws of the Federal Republic of Germany;
the imposition of a fine or penalty. But we cannot totally deprive those who are entitled
b. That on October 21, 2003, it filed its Monthly Remittance
to the benefit of a treaty for failure to strictly comply with an administrative issuance
Return of Final Income Taxes Withheld under BIR Form No. 1601-F and
requiring prior application for tax treaty relief.
remitted the amount of P67,688,553.51 as branch profits remittance tax
Prior Application vs. Claim for with the BIR; and
Refund

7
 c. That on October 29, 2003, the Bangko Sentral ng
Pilipinas having issued a clearance, petitioner remitted to Frankfurt
Head Office the amount of PHP5,174,847.38 (or P330,175,961.88 at
63.804 Peso/Euro) representing its 2002 profits remittance. 22 HcSCED

The amount of PHP67,688,553.51 paid by petitioner represented the 15% BPRT

on its RBU net income, due for remittance to DB Germany amounting to
PHP451,257,023.29 for 2002 and prior taxable years. 23
Likewise, both the administrative and the judicial actions were filed within the
two-year prescriptive period pursuant to Section 229 of the NIRC. 24
Clearly, there is no reason to deprive petitioner of the benefit of a preferential
tax rate of 10% BPRT in accordance with the RP-Germany Tax Treaty.
Petitioner is liable to pay only the amount of PHP45,125,702.34 on its RBU net
income amounting to PHP451,257,023.29 for 2002 and prior taxable years, applying the
10% BPRT. Thus, it is proper to grant petitioner a refund of the difference between the
PHP67,688,553.51 (15% BPRT) and PHP45,125,702.34 (10% BPRT) or a total of
PHP22,562,851.17.
WHEREFORE, premises considered, the instant Petition is GRANTED.
Accordingly, the Court of Tax Appeals En Banc Decision dated 29 May 2009 and
Resolution dated 1 July 2009 are REVERSED and SET ASIDE. A new one is hereby entered
ordering respondent Commissioner of Internal Revenue to refund or issue a tax credit
certificate in favor of petitioner Deutsche Bank AG Manila Branch the amount of TWENTY
TWO MILLION FIVE HUNDRED SIXTY TWO THOUSAND EIGHT HUNDRED FIFTY ONE PESOS
AND SEVENTEEN CENTAVOS (PHP22,562,851.17), Philippine currency, representing the
erroneously paid BPRT for 2002 and prior taxable years.
SO ORDERED. DIAcTE
Leonardo-de Castro, Bersamin, Mendoza * and Reyes, JJ., concur.
||| (Deutsche Bank AG v. Commissioner of Internal Revenue, G.R. No. 188550, [August 19,
2013], 716 PHIL 676-693)