Effect of failure to strictly comply with RMO No. 1-2000 does not deprive persons or corporations of the benefit of a tax treaty

09 September 2013

The Supreme Court (SC) in GR No. 188550 dated 19 August 2013 clarified that denial of tax treaty relief for failure to strictly comply with the prescribed period in filing a tax treaty application under Revenue Memorandum Order No. 1-2000 (Procedures for Processing Tax Treaty Relief Application) is not in harmony with the objectives of the contracting state to ensure that the benefits granted under tax treaties are enjoyed by duly entitled persons or corporations.

The SC held that the period of application for the availment of tax treaty relief as required by RMO No. 1-2000 should not operate to divest entitlement to the relief as it would constitute a violation of the duty required by good faith in complying with a tax treaty. The denial of the availment of tax relief for the failure 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 from the BIR should merely operate to confirm the entitlement of the taxpayer to the relief.

Every treaty in force is binding upon the parties, and obligations under the treaty must be performed by them in good faith. Treaties have the force and effect of law.